Somnigroup International Q2 Earnings Call Highlights

Key Points

• Somnigroup reported record Q2 adjusted EPS of $0.58, up 9% year over year, on $1.8 billion in sales and $297 million in adjusted EBITDA despite a bedding-market decline and uneven consumer demand.
• North American adjusted operating margin expanded to 26.7% as acquisition synergies and operational efficiencies offset commodity inflation, while Mattress Firm sales were steady but margins weakened due to product mix, financing costs and store investments.
• The company reaffirmed 2026 adjusted EPS guidance of $2.85–$3.15 and expects its Leggett & Platt transaction to close by the end of Q3, pending shareholder approval; management expects the deal to improve vertical integration, cash flow and adjusted EPS.

Somnigroup International NYSE: SGI reported record second-quarter adjusted earnings per share as the bedding company navigated a softer industry backdrop, commodity-cost pressure and uneven consumer demand across price points.

For the second quarter of 2026, Somnigroup recorded net sales of $1.8 billion, adjusted EBITDA of $297 million and adjusted EPS of $0.58, up 9% from the prior year. Chairman, President and CEO Scott Thompson said the results reflected the company’s brands, global diversification and execution in a bedding market that management believes declined by the mid- to high-single digits compared with the prior year.

Mattress Firm sales hold steady as mix affects margins

Mattress Firm generated approximately $922 million in second-quarter net sales, while same-store sales grew slightly. Thompson said the retailer outperformed the broader U.S. market through its scale, marketing, product assortment and sleep-expert sales model.

Mattress Firm adjusted gross margin declined 240 basis points to 33.3%, while adjusted operating margin fell 130 basis points to 6.5%. Chief Financial Officer Bhaskar Rao cited product mix, consumer financing costs, investments in stores and deleveraging as contributors.

Rao said a greater share of Tempur Sealy products at Mattress Firm lowered the retailer’s reported product gross-margin percentage because Somnigroup’s supply agreement provides some Mattress Firm economics through cooperative advertising credits. He said the mix change did not have a material impact on operating margin when viewed on a conforming basis.

The company is continuing a Mattress Firm store-refresh initiative that is expected to be completed in 2027, while its brand-wall program is expected to conclude this year. Thompson also said Somnigroup plans to expand Kingsdown products to nearly 800 Mattress Firm stores over the next six months following a three-month pilot in 200 locations.

North American margins expand despite industry softness

Tempur-Pedic Sealy North America sales were flat on a like-for-like basis, including flat like-for-like wholesale sales. Sales with third-party retailers declined 5% after normalizing for floor models, though management said that represented outperformance against the broader bedding industry. Like-for-like direct-channel sales declined 1%.

North American adjusted gross margin increased 680 basis points to 61.8%, and adjusted operating margin rose 400 basis points to 26.7%. Rao attributed the gains to acquisition-related synergies, operational efficiencies and mix, partly offset by commodity-cost inflation before pricing actions.

Somnigroup realized $30 million in net sales and cost synergies during the quarter. Rao said the company achieved roughly $15 million of cost synergies and exceeded its expectations for sales synergies through a higher balance of Tempur Sealy brands and private-label products at Mattress Firm.

Management said modest price increases implemented after the July 4 promotional period were intended to offset higher input and freight costs. The timing created an approximately $10 million one-time headwind to second-quarter profit, according to Rao, but the company expects pricing to offset that impact in the second half.

International sales rise, while Dreams works through U.K. challenges

Somnigroup International sales increased 2% on a reported basis and 1% in constant currency. The company’s legacy Tempur-Pedic international operations outperformed the broader industry, supported by brand strength, marketing investment and local execution, management said.

Its Dreams business in the United Kingdom continued to operate in what Thompson described as a difficult and highly promotional market. The business also experienced transitory challenges related to an enterprise resource planning system implementation. Rao said the system is functioning and that Dreams is taking orders and shipping products, though the rollout created some disruption.

International gross margin declined 80 basis points to 47.4%, while operating margin fell 120 basis points to 12.4%, primarily due to commodity inflation.

Thompson said the company continues to build its international retail presence through company-operated Tempur-Pedic stores and acquisitions, including Dreams, SOVA in Sweden and the recently announced acquisition of Danish retailer SENG.

Guidance reflects weaker industry expectations

Somnigroup reaffirmed full-year adjusted EPS guidance of $2.85 to $3.15 and projected approximately $7.6 billion in sales at the midpoint after intercompany eliminations. The outlook assumes the global bedding industry declines by the mid-single digits for 2026, Tempur-Pedic Sealy North America like-for-like sales grow by the low single digits, international sales rise by the low single digits and Mattress Firm like-for-like sales decline slightly.

During the question-and-answer session, Thompson said industry trends in the second quarter were weaker than management had expected. He also cited tougher-than-anticipated U.K. conditions, disruptions from the Dreams ERP implementation and added uncertainty tied to Middle East activity.

The guidance assumes Tempur Sealy brands and private-label products will represent the mid-60% range of Mattress Firm sales, producing an incremental $65 million adjusted EBITDA benefit in 2026 versus 2025. The company expects adjusted EBITDA of approximately $1.39 billion at the guidance midpoint and reported gross margin slightly above 45%.

Management expects 2026 capital expenditures of about $225 million, including $75 million related to Mattress Firm store-refresh and brand-wall programs. It also expects at least 50% of free cash flow to be directed toward dividends and share repurchases.

Leggett & Platt transaction targeted for third-quarter close

Somnigroup ended the quarter with consolidated debt less cash of $4.3 billion and a leverage ratio of 2.99 times under its senior credit facility, within its stated target range of two to three times. The company generated record operating cash flow of $236 million and free cash flow of $182 million, while reducing net debt by more than $500 million over the trailing 12 months.

Thompson said the proposed combination with Leggett & Platt has received nearly all required regulatory approvals. Leggett & Platt shareholders are scheduled to vote on Aug. 20, and Somnigroup expects the transaction to close before the end of the third quarter.

The company said Leggett & Platt will be incorporated into guidance after closing. Thompson said the transaction is expected to strengthen Somnigroup’s vertical integration, expand its addressable markets, reduce financial leverage, increase operating cash flow and provide immediate adjusted EPS accretion before synergies.

About Somnigroup International (NYSE:SGI)

Somnigroup International Inc, together with its subsidiaries, designs, manufactures, distributes, and retails bedding products in the United States and internationally. It provides mattresses, foundations and adjustable foundations, and adjustable bases, as well as other products comprising pillows, mattress covers, sheets, cushions, and various other accessories and comfort products under the Tempur-Pedic, Sealy, Stearns & Foster, Sealy, and Cocoon by Sealy brand names. The company sells its products through approximately company-owned stores, online, and call centers; and third party retailers, including third party distribution, hospitality, and healthcare.

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