Somnigroup International's Q3 2025: Contradictions Emerge on Industry Growth, Sealy Posturepedic Impact, and Mattress Firm Strategy

Date of Call: November 6, 2025

Financials Results

• Revenue: $2.1B consolidated net sales, up ~63% YOY
• EPS: $0.95 adjusted EPS, up 16% YOY
• Gross Margin: North America adjusted gross margin 58.6% (up 1,700 bps; like-for-like down 40 bps); international gross margins down 40 bps YOY; company expects full-year gross margin slightly above 44%
• Operating Margin: North America adjusted operating margin 29.5% (improved 940 bps; like-for-like up 60 bps); Mattress Firm adjusted operating margin 9.4%; international operating margin ~18.1% (consistent YOY)

Guidance:

• 2025 adjusted EPS raised to $2.60–$2.75 (sales midpoint ~ $7.5B after intercompany eliminations)
• Industry expected down low-to-mid single digits; Tempur Sealy like-for-like flattish; Tempur Sealy NA like-for-like down low-single; International up low-double digits; Mattress Firm like-for-like flattish
• Gross margins expected slightly above 44%; adjusted EBITDA ~ $1.3B midpoint; $60M incremental EBITDA sales synergies in 2025
• 2025 CapEx ~ $175M ($150M recurring + $25M store upgrades); long-term run-rate CapEx ~$200M
• D&A ~$295M; interest ~$260M; tax rate 25%; diluted share count ~210M; leverage target 2–3x

Business Commentary:

* Record Financial Performance: - Somnigroup International reported record net sales of $2.1 billion, adjusted EBITDA of $419 million, and adjusted EPS of $0.95 per share for Q3 2025. - - This performance was driven by the early benefits from the Mattress Firm combination, successful execution of key operating initiatives, and strong brand advertising investments.

• Mattress Firm Performance and Market Share:
• Mattress Firm's like-for-like sales grew by 5%, with same-store sales growth of 5%, outperforming the market.

• This growth was due to superior in-store execution, consumer engagement initiatives, and increased brand-wall installations driving higher average order values.

• International Business Expansion:

• Tempur International's sales grew by 11%, with Tempur brand products driving significant market outperformance, particularly in the U.K.

• The growth was fueled by local execution, advertising investments, and customized manufacturing processes to efficiently tailor products for specific markets.

• Synergy and Cost Optimization:

• Somnigroup achieved sales synergies of $60 million in adjusted EBITDA for 2025, with projections for an incremental $40 million benefit in 2026.
• Cost synergies are on track to reach a minimum of $100 million annually, beginning with $15 million in 2025, driven by vertical integration and improved insights into consumer demand patterns.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • Management reported "record net sales, adjusted EBITDA and adjusted EPS," record operating cash flow of $408M and free cash flow of $360M, raised 2025 adjusted EPS guidance to $2.60–$2.75, and said they are "ahead of expectations" on sales and cost synergies—all indicating constructive momentum and confidence.

Q&A:

• Question from Susan Maklari (Goldman Sachs): What is driving the divergence in bedding demand versus housing/consumer categories, and how sustainable is it given product, ad spend and recent initiatives?
  Response: Management: Demand is driven by product innovation (notably the new Sealy Posturepedic) and heavy advertising (retooled Mattress Firm ads and direct Sealy support); bedding can improve without a housing recovery and the company is seeing sequential momentum plus synergy benefits.

• Question from Robert Griffin (Raymond James): Where are the biggest growth opportunities across brands and is the enterprise optimization a large unlock or incremental over 3–5 years?
  Response: Management: Multiple levers—near-term lift from Sealy Posturepedic, continued Tempur share gains, Mattress Firm merchandising/advertising changes and a multiyear stream of cost synergies—combine for sustained, multi-year upside rather than a single one-time unlock.

• Question from Rafe Jadrosich (Bank of America): What assumptions changed vs prior guidance and what is embedded for Q4 like-for-like and underlying industry growth?
  Response: Management (Bhaskar): Guidance refreshed mainly due to a better industry outlook (now down low-to-mid single digits vs prior mid-single) and higher Tempur Sealy share at Mattress Firm (mid-50s vs prior low-50s); Q4 implies ~>$1.9B sales, Tempur Sealy LFL mid–high single digits, North America mid-single, Mattress Firm low-single.

• Question from Peter Keith (Piper Sandler): How should we think about Q4 comps and the near-term outlook given tougher year-ago compares?
  Response: Management: After review of Mattress Firm data, there was no special one-time 'transition' bump last year; expect typical seasonality (Q3 peak → Q4 step down) and slightly tougher comps, but underlying momentum persists.

• Question from Daniel Silverstein (UBS): What penetration level of family brands at Mattress Firm is reasonable for 2026/2027 and how will Kingsdown fit in the assortment?
  Response: Management: Reasonable long-run balance of family brands at Mattress Firm is ~low 60s (around 62%); Kingsdown investment (25% passive stake) will be positioned as a high-end spring-focused brand, concentrated in Canada/Northeast and select store placements.

• Question from Bradley Thomas (Capital Markets): Any early thoughts on 2026 and the path to your 2028 earnings target—how much comes from top-line vs other levers?
  Response: Management: Modest sales growth yields strong flow-through to EPS; falling interest rates provide meaningful upside (100 bps lower short-term rates estimated to add ~$0.18–$0.20 per share, ~7% EPS lift at midpoint), enhancing the glide path to targets.

• Question from Keith Hughes (Truist): Will you pursue acquisitions versus passive investments or buybacks once leverage improves?
  Response: Management: Capital allocation remains disciplined; the company is actively evaluating acquisitions and will pursue M&A if the right opportunities/pricing arise, but will also use cash for buybacks/dividends once leverage targets are met.

Contradiction Point 1

Industry Growth and Consumer Confidence

It reflects differing expectations about the industry's growth trajectory and consumer confidence levels, which are crucial for business planning and investor insights.

How has demand for bedding diverged from broader consumer categories, and how much is due to your recent efforts? How sustainable is this growth in the current macro environment? - Susan Maklari (Goldman Sachs)

20251106-2025 Q3: Consumer confidence has stabilized and slightly improved, which is a positive sign. The Sealy Posturepedic launch is also contributing to this trend. - Scott Thompson(CEO)

What factors have improved consumer confidence in the past few months? Is there upside to your expectations of a mid-single-digit industry decline this year? - Susan Marie Maklari (Goldman Sachs)

2025Q2: Consumer confidence has stabilized and slightly improved, which is a positive sign. - Scott Thompson(CEO)

Contradiction Point 2

Growth Expectations and Industry Demand

It involves differing perspectives on the expected industry growth and demand for bedding products, which is crucial for investor expectations and strategic planning.

What are the changes in assumptions from prior guidance and the growth expectations for Q4? - Rafe Jadrosich (Bank of America)

20251106-2025 Q3: We expect mid to high single digits growth for Tempur Sealy and low single digits for Mattress Firm [...] Assuming a low to mid-single digit decline in industry growth and SGI will be growing share. - Bhaskar Rao(CFO)

Can you provide details on quarterly trends and early Q2 observations? What does the modest second-half improvement imply, and what are its key drivers? - Susan Maklari (Goldman Sachs)

2025Q1: For 2025, we now expect a decline in North American mattress retail sales in the mid-teens, the tempering of our expectations primarily on a decline in consumer confidence and a slowdown in macroeconomic indicators. - Bhaskar Rao(CFO)

Contradiction Point 3

Impact of Sealy Posturepedic Launch

It highlights differing views on the impact of the Sealy Posturepedic launch on the company's performance and industry growth.

Can you discuss the divergence in bedding demand versus broader consumer categories and how much is attributable to your recent initiatives? How sustainable is this growth considering the macroeconomic environment? - Susan Maklari (Goldman Sachs)

20251106-2025 Q3: The bedding industry can be successful without the housing market turning around. Key drivers include innovation like the new Sealy Posturepedic product, advertising strategies, and a stable consumer confidence level. - Scott Thompson(CEO)

What factors in the past few months have improved consumer confidence? Do you expect the industry's mid-single-digit decline this year to be less severe? - Susan Marie Maklari (Goldman Sachs)

2025Q2: Dan Silverstein: Translation into EPS suggests mid- to high single-digit growth for the back half of the year. Expect more of this growth in the fourth quarter. - Bhaskar Rao(CFO)

Contradiction Point 4

Mattress Firm Performance and Strategy

It highlights differing expectations for the performance of Mattress Firm, which is a key retail partner, and potential changes in the merchandising strategy.

What brands offer the most growth potential for SGI? Will there be a major growth catalyst or incremental improvements over the next few years? - Robert Griffin (Raymond James)

20251106-2025 Q3: We expect significant growth in Tempur Sealy products at Mattress Firm, potentially reaching high 40% of sales by the end of this year. - Scott Thompson(CEO)

How do you view the merchandising strategy at Mattress Firm and the brand competition, compared to their share in other accounts? - Bobby Griffin (Raymond James)

2025Q1: For specialty mattress retailers, balance of share usually hovers around the average. We expect significant growth in Tempur Sealy products at Mattress Firm, potentially reaching high 40% of sales by the end of this year. - Scott Thompson(CEO)

Contradiction Point 5

Election Year Impact on Bedding Sales

It involves differing opinions on the impact of election years on bedding sales, which could influence strategic planning and investor expectations.

How should we assess Q4 given last year's election-year impact? - Peter Keith (Piper Sandler)

20251106-2025 Q3: There was no noticeable bump in bedding sales due to the election-year transition, contrary to previous expectations. - Scott Thompson(CEO)

Can you provide insights on quarterly trends and Q2 expectations? And what are the key drivers of the modest second-half improvement this year? - Susan Maklari (Goldman Sachs)

2025Q1: We do expect the elections to be a bit of a tailwind in the fourth quarter. - Bhaskar Rao(CFO)