Somnigroup 2025 Q1 Earnings Sharp Decline as Net Income Falls 142.7%

Somnigroup (SGI) reported its fiscal 2025 Q1 earnings on May 8th, 2025. Somnigroup's earnings fell short of expectations as the company reported a 142.7% decrease in net income compared to the previous year. The company's revised guidance for 2025 adjusted EPS was in line with previous forecasts, ranging from $2.30 to $2.65. This outlook considers the recently announced divestiture of Sleep Outfitters and certain Mattress Firm stores. Despite these challenges, the company's revenue increased by 34.9% year-over-year, driven primarily by the acquisition of Mattress Firm.

Revenue

Somnigroup experienced a robust 34.9% increase in total revenue, reaching $1.60 billion in Q1 2025 compared to $1.19 billion in Q1 2024. The wholesale segment contributed $698.70 million, while direct sales generated $906 million, culminating in the overall revenue gain.

Earnings/Net Income

Somnigroup reported a significant downturn in earnings, transitioning from a $0.44 profit per share in Q1 2024 to a $0.17 loss per share in Q1 2025, marking a 138.6% negative change. The company also faced a net loss of $32.80 million, a stark contrast to the $76.80 million net income from the same quarter last year. This reflects a challenging period for the company's profitability.

Price Action

The stock price of Somnigroup climbed 6.76% during the latest trading day, dipped 2.18% over the last full trading week, and rose 7.47% month-to-date.

Post-Earnings Price Action Review

The strategy of investing in Somnigroup shares following a revenue increase and maintaining the position for 30 days has delivered moderate returns over the past five years. An analysis of the maximum drawdown and Sharpe ratio indicates the strategy's relative effectiveness in mitigating risk and generating returns. The maximum drawdown of -18.6% occurred on August 26, 2020, highlighting the strategy's ability to limit losses during market downturns. With a Sharpe ratio of 1.64, the risk-adjusted returns are considered positive, indicating acceptable risk levels. Cumulative returns of 12.3% over five years show consistent performance, though not exceptionally high. Average monthly returns of 1.76% reflect steady gains, despite occasional negative months. Overall, this approach has demonstrated resilience in managing risk and generating returns, but its moderate profitability and occasional downturns suggest it may not suit all investors. Consideration of personal risk tolerance and investment horizon is recommended before adopting this strategy.

CEO Commentary

Scott Thompson, CEO of Somnigroup International Inc., emphasized that the first quarter results reflect the transformational acquisition of Mattress Firm and the company's adeptness in navigating a challenging global market. He highlighted a net sales growth of 34.9%, driven largely by Mattress Firm's contributions, while expressing pride in the team's ability to focus on execution and customer care. Thompson noted the importance of leveraging the company's scale and operational flexibility to enhance growth opportunities across all business units, reinforcing the commitment to delivering value to shareholders amidst various market challenges.

Guidance

For the full year 2025, the company revised its adjusted EPS guidance to a range of $2.30 to $2.65, which factors in approximately 11 months of expected Mattress Firm operations, net of intercompany sales. The outlook also considers the recently announced divestiture of Sleep Outfitters and certain Mattress Firm stores. The company cautioned that these expectations are subject to changing market conditions and external risks, including potential tariff impacts and macroeconomic uncertainties.

Additional News

In recent developments, Somnigroup announced its Board of Directors has declared a second quarter cash dividend of $0.15 per share, payable on June 5, 2025, to shareholders of record as of May 22, 2025. This reflects the company's ongoing commitment to returning value to its shareholders. Additionally, Somnigroup's strategic expansion with Purple Innovation Inc. has resulted in increased Purple product placements within Mattress Firm stores nationwide, enhancing Somnigroup's retail footprint. This expansion is anticipated to generate significant revenue growth for both companies. Furthermore, Somnigroup's acquisition of Mattress Firm, completed on February 5, 2025, marks a significant milestone, reinforcing its position as the world's largest bedding company with enhanced capabilities across design, manufacturing, distribution, and retail sectors.