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Sealy sales fall 9.3%

By Larry Thomas -- Furniture Today, October 12, 2008

ARCHDALE, N.C. — Buffeted once again by weak retail demand, bedding major Sealy said its fiscal third-quarter sales were 9.3% below last year's third quarter.

Profits, meanwhile, tumbled 49%, despite reductions in several fixed and variable expenses.

Total sales for the quarter ended Aug. 31 were $405 million, compared with $446.4 million in the same period last year. Domestic sales, which don't include third-party sales from Sealy's component plants, were off 12.3%.

International sales fell 2.2%, including currency fluctuation.

Larry Rogers, president and CEO, said domestic unit volume was down 15.5%. But he said the company's new Posturepedic and Smart Latex lines performed well.

“We completed the rollout of our new Posturepedic line during the quarter, which continued to gain traction and was a key driver of our results,” Rogers said. “The improvement in our sales of this product line above the $1,000 price point is helping us gain share in this key portion of the market.”

Net income for the quarter was $10.9 million or 12 cents per share, including restructuring charges of $2.5 million. In last year's third quarter, net income was $21.5 million or 22 cents per share.

In addition to weak retail demand, Rogers said results were hurt by raw materials costs, which have jumped 12% so far this year. Some of those higher costs were offset by a July price increase for Sealy dealers, but he said there's no short-term relief in sight for raw materials.

“While we do expect market weakness and cost pressures to intensify in the near-term, we will retain a tight focus on managing those areas of our business that we can control,” added Jeff Ackerman, chief financial officer.

Among the charges incurred in the most recent quarter was a $1.4 million inventory writedown involving airbeds — a category the company has decided to exit.

“After testing this product with our retailers, we concluded that we can invest in other opportunities with a better return profile,” Ackerman said during a conference call with securities analysts.

For the nine months ended Aug. 31, sales fell 7% to $1.2 billion and net income was down 37.2% to $39.1 million or 42 cents per share.

Sealy didn't forecast earnings for its fourth quarter, which ends Nov. 30, but Ackerman told analysts the soft retail climate is showing no signs of improving.

“It's a general weakness across all price points,” he said. “With all the events taking place on Wall Street … we've just seen a slowdown in traffic, and the high end has been particularly hard hit.”

Sealy
Earnings per share are fully diluted, and all figures in parentheses are losses or declines.
Quarter ended 8/31	2008	2007	Change
(a) Includes royalty income net of expense of $4.4 million in the 2008 quarter, $3.8 million in the 2007 quarter, $13.6 million in the 2008 nine months and $13.5 million in the 2007 nine months. Also includes pretax restructuring expenses of $2.4 million in the 2008 quarter and $2.9 million in the 2008 nine months, and debt extinguishment and refinancing expenses of $249,000 in the 2007 quarter and nine months.
Sales	$404,963,000	$446,380,000	(9.3%)
Operating income	31,228,000	39,791,000	(21.5%)
Net income (a)	10,942,000	21,471,000	(49.0%)
Earnings per share	0.12	0.22	(45.5%)
9 months ended 8/31	2008	2007	Change
Sales	$1,172,267,000	$1,260,775,000	(7.0%)
Operating income	100,152,000	127,138,000	(21.2%)
Net income (a)	39,113,000	62,238,000	(37.2%)
Earnings per share	0.42	0.64	(34.4%)

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Sealy sales decline 9.3% in third quarter

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