Somnigroup International Inc. Q3 FY2024 Earnings Call

Good day, everyone, and welcome to the Tempur Sealy Third Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Operator instructions: Please note today's call will be recorded and we will be standing by if you should need any assistance. It is now my pleasure to turn today's conference over to Aubrey Moore with Investor Relations. Please go ahead.

Thank you, operator. Good morning, everyone, and thank you for participating in today's call. Joining me today are Scott Thompson, Chairman, President and CEO; and Bhaskar Rao, Executive Vice President and Chief Financial Officer. This call includes forward-looking statements that are subject to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve uncertainties and actual results may differ materially due to a variety of factors that could adversely affect the company's business. These factors are discussed in the company's SEC filings, including its annual report on Form 10-K and quarterly reports on Form 10-Q. Any forward-looking statement speaks only as of the date it is made. The company undertakes no obligation to update any forward-looking statements. This morning's commentary will also include non-GAAP financial information. Reconciliations of this non-GAAP financial information can be found in the accompanying press release, which is posted on the company's investor website at investor.tempursealy.com and filed with the SEC. Our comments will supplement the detailed information provided in the press release. And now with that introduction, I will turn the call over to Scott.

Thank you, Aubrey. Good morning and thank you for joining us on our third quarter 2024 earnings call. I'll begin with some highlights from the quarter and then turn the call over to Bhaskar to review the financial performance in more detail. After that, I'll provide some comments on our proposed acquisition of Mattress Firm and then open up the call for Q&A. In the third quarter, net sales grew 2% to $1.3 billion and adjusted EBITDA grew a solid 6% to $275 million compared to the same period last year. Our GAAP EPS grew 14% to $0.73 per share and our adjusted EPS grew 7% to $0.82 per share compared to the same period last year. The overall bedding industry remains significantly below historical volumes. However, we are pleased with Tempur Sealy's results in the third quarter with an outstanding international performance and solid domestic results. Our adjusted EBITDA to net debt leverage ratio declined to 2.4 times, which is below the midpoint of our targeted range of two to three times. As we reported previously, we are preparing our financial position for the planned closing of the Mattress Firm transaction. Cash generation in the quarter was very strong despite the soft market and we delivered $240 million in free cash flow, our strongest quarter of free cash flow since the third quarter of 2021. Turning to the third quarter highlights. Our first highlight is our adjusted EBITDA margin of 21.1% in the third quarter, which is the strongest margin in 10 quarters, driven by our consolidated growth coupled with our operating efficiency initiatives and diverse business platform. We continue to invest in brand through advertising and best-in-class service levels, while also remaining agile and responsive to industry conditions. We expect to see significant upside once the market normalizes, which we estimate to be in 2025 and to be led by the new Sealy Posturepedic product launch, which I'll discuss in a minute. Turning to our second highlight. Our U.S. business continues to perform well compared to the broader market, driven by the continued success of our newly-launched products and recent distribution wins. We recently completed the full refresh of our Tempur-Pedic brand, starting with the new generation of Breeze products and Smart Bases launched in 2023, followed by the 2024 rollout of our updated Adapt collection and ActiveBreeze Halo product. These newest generation products feature a broad range of innovative solutions such as industry-leading cooling technology, advanced pressure relief and AI-driven sleep insights to help consumers overcome common barriers to quality sleep. Our ongoing commitment to and investment in consumer-centric innovation is clearly delivering returns as we see a growing trend in consumers attaching a smart base to their mattress purchases, which is driving an increase in average transaction value for both our retail partners and our direct-to-consumer business. Additionally, our Sleeptracker-AI app continues to enhance our product value by offering users real-time personalized coaching to help them achieve better sleep. We're particularly pleased to report that app downloads reached a record level in both August and September, demonstrating strong consumer engagement and interest in our innovative solutions. These results prove that our products are resonating with premium, health and wellness focused customers. Stearns & Foster was our strongest performing brand in the quarter and delivered solid growth through both wholesale and direct-to-consumer channels, driven by last year's new product launch, our rapidly expanding e-commerce platform and our ongoing investments in advertising. Our value products also performed relatively well in a challenging demand environment, aided by recent distribution wins in two large U.S. bedding retailers. Turning to our third highlight. We're excited to share that we'll be launching our all-new collection of U.S. Sealy Posturepedic products in the first half of 2025. This is a significant reimagining of the Posturepedic product branding and marketing as we work to ignite growth in the U.S. bedding market, where Sealy is the largest brand. This new product line is targeted at the mid to entry-level market where industry volumes have been weak the last few years. This updated Sealy Posturepedic collection of mattresses is a result of a multi-year R&D cycle and will feature new proprietary coil technology. These patent-pending precision fit coils were designed in-house by our engineers to provide superior support, which has been the common thread of the Posturepedic collection since its inception in 1950. We've also simplified merchandising, provide a clearer value proposition and a more compelling step-up story. The update will feature a new look thoughtfully designed to offer a fresh style while staying connected to Sealy brand legacy. The launch will be supported with a national advertising campaign beginning Memorial Day 2025. The advertising is designed to reinforce the Sealy Posturepedic difference. This top-of-funnel multi-medium campaign will be a national advertising effort to drive excitement for the company's largest brand. Our messaging will be amplified by an all-new Sealy Posturepedic in-store experience and we plan to elevate Sealy's brick-and-mortar presence with updated in-store material and training. We're continuing to make high-return investments in brand and product to drive our and our third-party retailers' success. Shifting to International for our fourth highlight. Both our legacy International business and our Dreams operations performed very well in the third quarter, driving healthy double-digit growth in International sales and 200 basis points of expansion in International operating margins, representing significant momentum relative to the overall subdued International market. Our newly-launched International Tempur collection of mattresses, bed bases and pillows continue to drive growth and market outperformance across key markets like the U.K., Germany, China and Australia. Notably, since the collection launched last year, we expanded our wholesale distribution by more than 10% and see continued opportunities to broaden distribution over the long term. We're supporting our new International products with strategic investments in advertising. Our continued investments throughout the funnel ensure that we drive both brand awareness and conversion, feeding the market for sustainable long-term growth. Our final highlight for the quarter, our U.S. Tempur-Pedic brand was recently awarded number one in customer satisfaction in both the in-store retail mattress and the online mattress segment of J.D. Power's 2024 Mattress Satisfaction Report. We're honored to achieve this distinction for the last five out of six years for the retail category and for the fourth consecutive year in the online category. With these recognitions, Tempur-Pedic has been named the most awarded brand in the history of the J.D. Power U.S. Mattress Satisfaction Study. This recognition is a testament to our consumer-centric innovation and our unwavering commitment to product quality and service. And with that, I'll turn the call over to Bhaskar.

Thank you, Scott. In the third quarter of 2024, consolidated sales were $1.3 billion and adjusted earnings per share was $0.82. There are approximately $22 million of pro forma adjustments in the quarter, all of which are consistent with the terms of our senior credit facility. These adjustments are primarily related to costs incurred in connection with our planned acquisition of Mattress Firm and manufacturing footprint optimization initiatives. The manufacturing optimization involves the closing of two small facilities as we transfer their volume into our full-service manufacturing plants. This shift will allow us to lower our future cost per manufactured unit while continuing to make product to our industry-leading quality standards. Turning to North American results. Net sales through both our wholesale and direct channels declined approximately 1% in the third quarter. North American adjusted gross margin declined 10 basis points to 43.1%, driven by the mix impact of the new distribution win for our OEM business, partially offset by commodity costs and operational efficiencies. North American adjusted operating margin declined 20 basis points to 20.1%, driven by the decline in gross margin and operating expense deleverage. Now turning to International results. International net sales grew a robust 12% on a reported basis and 11% on a constant currency basis. As compared to the same period last year, our International gross margin improved 70 basis points to 57.3%, driven by operational efficiencies. Our International adjusted operating margin improved 200 basis points to 18.2%, driven by operating expense leverage and the improvement in gross margin, partially offset by the Asia joint venture performance. We're pleased to share that our Asian joint venture recently opened our first manufacturing plant in India. Although not expected to be material to our operations in the near term, it is further evidence of the long-term vision and willingness to invest in the future. Now moving to the balance sheet and cash flow items. At the end of the third quarter, consolidated debt less cash was $2.2 billion. And as Scott mentioned, our leverage ratio under our credit facility was 2.4 times within our historical target range of two to three times. As previously announced, we have executed a $1.6 billion Term Loan B. We are now positioned to fully fund the Mattress Firm acquisition at close. Now turning to 2024 guidance. We have narrowed our adjusted EPS outlook to be between $2.45 and $2.55. At the midpoint of the range, this represents a 4% growth year-over-year, a notable expansion of profitability in a prolonged challenged market. Our guidance at the midpoint is based on the full year sales that are slightly below the prior year, which implies the fourth quarter will be approximately consistent with the prior year. This also considers our current expectation that the 2024 U.S. bedding industry unit volumes will be down high-single-digits, which implies the industry will be down approximately mid-single-digits on dollars in the fourth quarter, consistent with what we saw in the third quarter. This represents more than a 30% decline from peak mattress unit demand in 2021. We're outperforming the global industry due to recent distribution wins and the continued success of new product launches with advertising spend approaching $465 million as we support our leading brands and new products resulting in adjusted EBITDA of approximately $915 million at the midpoint of the range. Our guidance also considers the following allocations of capital in 2024. CapEx of approximately $125 million, down significantly from prior years as our major capital projects are complete. This level of spend is primarily driven by maintenance CapEx of $110 million and a quarterly dividend of $0.13, an increase of 18% over prior year. Lastly, I would like to flag a few modeling items. For the full year 2024, we expect D&A of approximately $200 million to $205 million, interest expense of approximately $125 million to $130 million on a tax rate of 24% with a diluted share count of 179 million shares. With that, I'll turn the call back to Scott.

Nice job, Bhaskar. I'd like to take a moment to share some updates related to our Mattress Firm acquisition. First, the Federal Court hearing is scheduled to begin next Tuesday, November 12th, 2024, and expected to last about two weeks. We continue to believe a successful litigation process can be completed in the coming months, allowing for a potential transaction close in late 2024 or early 2025 in line with our previous expectations. As previously announced, as part of our engagement with the FTC on the proposed acquisition of Mattress Firm, we conducted a divestiture process, which led to an agreement with Mattress Warehouse, a company with extensive mattress retail experience, a strong capital base and a capable leadership team. The executed purchase agreement provides for the contingent sale of 73 Mattress Firm retail locations and our Sleep Outfitters subsidiary, which includes 103 specialty mattress retail locations and seven distribution centers. We expect the divestiture to close approximately one quarter after the closing of the Mattress Firm transaction. Turning to our recently filed complaint seeking an injunction against the FTC commission's administrative proceeding, the action asks the court to prevent the FTC from challenging the Mattress Firm merger through its own separate administrative proceeding in addition to the Federal Court proceeding that starts next week, effectively giving the FTC two shots at us by using two different courts. This is an issue of jurisdiction and constitutional law. As the litigation process is ongoing, our comments are limited and we cannot take questions on pending litigation. Finally, moving to brief comments on Mattress Firm's financial performance, Mattress Firm recently made their quarterly results available on their website and they were consistent with our expectations. We believe they are weathering a difficult U.S. market well. And we encourage you to review Mattress Firm's website for more information on their financial performance in the most recent quarter. Before opening up the call for questions, I'd like to take a minute and reflect on the evolution of Tempur Sealy. Over the last 175 years, we have dedicated our efforts and expertise to continuous innovation for the benefit of customers. We have grown to become a leading global bedding company with highly recognized brands, advanced manufacturing capabilities and a diverse omni-channel platform. Our ongoing investments to strengthen and diversify our business have resulted in nearly 60% expansion in sales since 2019 and 80% expansion in adjusted EBITDA over the same period. While we've made significant strides to grow and fortify the business, we believe that significant opportunities lie ahead. Our continued focus on key growth and cost efficiency initiatives ensure success in a fragmented and evolving marketplace, and that we're also optimally positioned to capitalize on a resurgence in demand when the global industry returns to growth. And with that, I'll open the call up for questions. Operator?

Absolutely. Operator instructions: And we'll take our first question from Susan Maklari with Goldman Sachs. Please go ahead. Your line is open.

Thank you. Good morning, everyone.

Good morning, Susan.

My question is, good morning, Scott. I want to talk a little bit about demand. And as we've gotten past the election, we think about the potential for the Fed cutting rates. Can you talk a bit about how you think the consumer may react, thoughts on how we could see demand trending as we get late this year and early next year? And then your ability to respond to that with the utilization rates that you've got across the business and some of the new product introductions that you talked to?

Sure. Thanks for your question, Susan. As you know, the bedding industry has really been in recession, maybe even depression. It's been a tough three years. From peak to where we are now, it's probably down 30%, which is by historical standards a period we've never seen before. So we do think we're set for recovery or normalization. We think it will be led by Sealy Posturepedic, which is the largest launch in Sealy's history and probably the largest bedding launch in history. And if you know Sealy, it's the number one brand in the U.S. If you look at the consumer, to be frankly honest, we've gotten through the election. We've got a peaceful transition of government, maybe a little more stability. Certainly retailers may be more confident to advertise. We're going to have lower rates, maybe not quite as low as we expected six months ago, but clearly the trend is in the right direction. And as you know better than most of us, we're going to have some better housing formation. So all-in-all, it looks like we should get to some normalization sometime, we'll call it in 2025. And we think we're perfectly positioned to take advantage of it. As you know, we've taken market share for probably more quarters than I can remember. I don't see any reason why we won't continue to take market share. In fact, based on the numbers I see right now, I think we made a step forward as far as our market share capture in the third quarter as compared to probably the first two quarters of the year. And we've got the capacity to address the market as it expands. One other quick call out: one of the real highlights in the quarter is the international team, both what we call Legacy and in Dreams. Both of them had a fabulous performance, double-digit growth in what is also a very difficult market globally. They took a good bit of share in their relative markets and that feels sustainable. It's taken a while to get International rolling, but we think we've got it in a really good place going forward.

Okay. That's very helpful color. Thank you. Good luck with everything.

We'll take our next question from Bobby Griffin with Raymond James. Please go ahead. Your line is open.

Good morning, everybody. Thanks for taking the questions. And Scott, I appreciate the details there on the pending acquisition.

Thank you.

I guess, so for my question, Bhaskar, I think it's probably more centered on the numbers towards you. But can we talk a little bit about the contribution margin of the business today? There's been a lot of changes. You called out manufacturing optimization, new distribution, some growth in the OEM, and then, obviously, so far, a very successful launch internationally. So can you maybe just unpack kind of what your view is on International and North America go-forward contribution margin? And is there anything in 2024 results that we should be mindful of when we think about kind of level setting our model on that going forward, either good guys or bad guys against the P&L?

Absolutely. Let me start with the latter one first. As I think about from a go-forward standpoint, let's just assume status quo, which is the existing new distribution continues in the mix of the brands. Those continue as well as International perform. So there isn't any transitory items that I would specifically call out, one-time good guys or one-time bad guys. We're confident, we're proud of the performance that the business has produced in the third quarter. As it relates to the contribution profit from a go-forward standpoint, how I would think about it is, again, assuming status quo and I'll define what I mean by that. The International business is doing extremely well. That new addressable market that we've been going after for a number of years, we've seen the green shoots. Now we're seeing the grass grow. International is growing low double-digits. As you know, historically the contribution profit on that side of the pond is a little bit richer than the U.S., given the price points they historically play at. So when I think about the fleet being about 35% from a contribution standpoint, the International should come in a bit higher than that. From a U.S. standpoint, North America is, again assuming that status quo, in and around the fleet, let's call it 30% to 35% from an incremental dollar standpoint. Now, the item to come back to is that we do believe that the low-end consumer that's been sitting on their hands is going to come back. As Scott pointed out, we've got an exciting new product launch coming in next year right at that value consumer. So as that mixes in, it will be incremental EBITDA dollars. However, it is something to be mindful of as that mixes in from a contribution standpoint.

You basically have a product mix issue that you have to keep an eye on. But as Bhaskar pointed out, incremental EBITDA into the meat of the market. In the third quarter, as I mentioned in the prepared remarks, Tempur grew and Stearns & Foster was the best performing brand. So clearly the weakness has been in that lower price point.

And we'll take our next question from Rafe Jadrosich with Bank of America. Please go ahead. Your line is open.

Hi. Good morning. It's Rafe. Thanks for taking my questions.

Good morning.

I was just heading into sort of '25. I was wondering if you could just sort of give a state-of-the-industry view. We've had, as you mentioned, three years of declines; the mattress industry is depressed, 30% below peak. But if you're looking at some of the housing indicators, existing home sales haven't turned yet and still feel like it's under pressure. Just sort of where do you think we are broadly in the market heading into 2025?

Sure. First, let me talk a little bit about the housing market. We've never really thought the housing market was the primary driver for bedding. We've always described it as a slight headwind or a slight tailwind. It's been a slight headwind for a little while, so we expect it to be maybe a slight tailwind. Really, we think more of advertising, innovation and consumer confidence are the bigger drivers. I think if you think about all the stuff that went on in the third quarter and into the fourth quarter, particularly in the United States, the U.S. consumer has held up very well. So if we can get to some more normal politics and a little more normal housing, when I look at the bedding industry specifically, product innovation is very strong. And while I'm talking our book of business, from an industry standpoint, products that our competitors are making are also innovative. Everyone has been very conservative on their advertising. As I've talked about on previous calls, I probably think we ought to spend more money on the top of the funnel driving customers into stores and thinking about bedding less on the bottom of the funnel chasing the last three customers with search ads. It looks like it's set up pretty well. We're not providing 2025 guidance today, but clearly there are green shoots out there. International is really doing well. The Posturepedic launch is the entire Sealy Posturepedic brand reimagined and will have national advertising behind it. It is targeted at the meat of the market that has had problems and we think it's something that will help turn the industry back to normalization, which we might call a 5% or 6% growth rate. Maybe you don't get that in 2025, but you get on the path back to a normal industry. When you look at population growth and everything else, the number of units we're selling today is extremely low. I'm not a big believer in pent-up demand, but you can't stay at these levels based on any stat you would look at, beds sold per person in the country or anything else. We've been in this decline; it's deep and it's lasted a long time. We're looking forward to getting back to a normal market.

And just leveraging off Scott's comments about volumes, as this does come back, and Scott mentioned we're not providing 2025 guidance today, the leverage component is going to be extremely powerful from a business standpoint as that goes through gross margin. So when you think about the mix I talked about previously, as well as the leverage that will go through those plants combined with the productivity initiatives that we continue to drive, margin expansion in the third quarter has legs that will be very constructive as it relates to EBITDA margins and profitability.

And we will take our next question from Michael Lasser with UBS. Please go ahead. Your line is open.

Good morning. Thank you so much for taking my question. It's a two-parter. First, how does the North American gross margin performance in the third quarter inform how we should think about gross margin into next year given the mix shift to the Sealy products? And two, how does the prospect of tariffs impact the outlook for Tempur Sealy into 2025 and beyond? Thank you so much.

Great questions. I'll take the easy one first. We don't think tariffs impact us much. We don't really buy anything from China directly anymore. So any additional tariffs on China really don't impact us. As for overseas, about the only thing we import are adjustable bases. They come in through Mexico and Vietnam. There might be a small impact if there are tariffs related to those countries. The history of the industry is we pass tariffs on. If they put some tariffs in, maybe it helps a little bit, but that would be on the low-end bedding and I wouldn't expect it to be material either way. Now the more complex question is the mix impact on gross margin.

Pretty straightforward. When I think about North America third quarter margins and how it informs the outlook, on a consolidated basis we saw a nice gross margin expansion. We saw productivity driving gross margin expansion in the quarter, offset by mix. As you get into the fourth quarter and beyond, that mix will start lapping itself a little bit in the fourth quarter and will start being grandfathered as we get more into 2025. So as a tail or a headwind, I wouldn't think about that on a go-forward basis. Again, incremental EBITDA, but it is something to think about as it relates to margins. We feel good about the productivity we've accomplished so far and we do feel like that has legs from a go-forward standpoint. Tempur continues to have a new product launch that will be constructive; Stearns & Foster was a leading growth driver in the third quarter, which will be constructive to the fleet. So when I think about tailwinds to North America margins, there's a nice tailwind. The item to be mindful of is as this low-end consumer comes back it will mix in incremental EBITDA, but it is something to be mindful of from a rate standpoint.

And we'll take our next question from Peter Keith with Piper Sandler. Please go ahead. Your line is open.

Hey, good morning, guys. I'm going to sneak in a two-parter here, but just on the advertising spend, we know the importance. It seems like you pulled back on ad spend in Q3 because you saw nice sales and marketing leverage. Could you talk about the ad strategy going from Q3 into Q4? And then on a related basis, just maybe the domestic versus international sales dynamics implied for Q4. Do you think International is going to slow from the strong growth? Does domestic get a little worse? How should we think about those two?

Let me see if I can answer. First, advertising naturally flexes up and down based on what's going on in the market. If you're talking about D2C spend, it literally changes daily depending on its performance marketing. In general, we were relatively conservative in the fourth quarter considering the election and the noise around it. So I'd say we've been a little conservative, but we pretty much spent the same percentage of sales. I would expect we'll be a little more aggressive next year with advertising. As for momentum internationally, we would expect them to continue to have significant momentum. We don't think this is a one-quarter phenomenon. Whether it's double-digits or high-singles, I don't know, but in a market that's clearly down, I expect the international teams to continue very good performance both in total numbers and relatively speaking. One more point: because others have pulled back in advertising, we've found our advertising to be more effective because it's not as noisy out there. That's been a positive from an effectiveness standpoint.

So to add, advertising was about 9.2% to 9.3% of sales, consistent on a prior year basis. In total dollars, it was about $119 million in the third quarter for total advertising. In the fourth quarter we assumed the U.S. industry is chugging along where it is, call it down mid-single-digits from a dollar standpoint. We've assumed that same in the fourth quarter. So when you think about sales from this side of the pond versus the other, it's a consistent profile. As Scott said, International could be high-single to low-double and North America is consistent, perhaps slightly down a little bit. So similar profiling.

We'll take our next question from Seth Basham with Wedbush Securities. Please go ahead. Your line is open.

Thanks a lot and good morning. My question is regarding the third quarter. Can you just give us some color on the shape of sales through the quarter, how Labor Day performed and your promotional strategy during and after Labor Day? How did that shake out and what did the competition do to react? Thanks.

Sure. Consistent with what we've seen in previous quarters, the troughs are deeper and the peaks are higher. So in holiday periods we typically see actual growth and a good bit of growth, and in the troughs we are negative, and then you blend it together. That's the trend we've seen for four or five quarters post pandemic. I don't think our promotional activity was significantly different year-over-year. We fine-tuned here and there to match some promotions we talked about last quarter—nickel and dime adjustments. More recently, the promotional environment in general has lessened in the marketplace as others are being a little less promotional and trying to conserve dollars to advertise, which I consider a net positive for the industry.

We will take our next question from Brad Thomas with KeyBanc Capital Markets. Please go ahead. Your line is open.

Thanks for taking my question. Scott, you talked a bunch about your industry outlook. We get a lot of questions about how the luxury part of the market is performing. Could you talk a bit more about that and how you think about the luxury in terms of how much it's declined from peak and how you think about it going forward specifically? Thanks.

Yeah, luxury is holding up well at Tempur Sealy. As I mentioned in the prepared remarks, Stearns & Foster was the best performing brand. Tempur also performed well and both brands had growth in the third quarter. For the U.S. industry overall, I'd guess it was down maybe 9% to 10% in sales, and both those brands were in growth. I've seen other reports from public companies that they were down significantly, so it's hard to make a general call on the high-end customer, but from what we're seeing on our products, the high-end is holding up very well.

We'll take our next question from Judy Merrick with Truist. Please go ahead. Your line is open.

Thank you. This is Judy on for Keith Hughes. I was wondering if you could give us a sense of how much the new Sealy Posturepedic launch would be a drag on earnings in the first half of next year, either from the advertising you talked about or the channel load?

Great question. From a year-over-year standpoint, there really won't be any incremental launch cost when you compare the Sealy Posturepedic launch in 2025 to what we did in 2024. So there won't be an incremental launch cost. Advertising would be an incremental cost, but we expect to be able to self-fund it through cost reduction initiatives that we're working through. The way we're thinking about that incremental advertising is it will not be an incremental expense as we offset other cost reductions.

And we'll take our next question from Laura Champine with Loop Capital. Please go ahead. Your line is open.

Thanks for taking my question. I thought the international growth was impressive. And I hear you, Scott, that you view that as sustainable. Can you put a little more meat on those bones and tell us why growth in international markets should be that sustainable in a pretty tough macro there too?

Yes. If you remember, we worked on new Tempur products for four years before launching this new Tempur product. It was expensive and took a long time, but we finally got it where we needed to. The first big driver is the new Tempur product: we got the product right and the market has been receptive and we backed it up with new creative advertising. On the Tempur side, we've also had a strategy to bring the Tempur product a little closer to the high-end of the market, but not the super-premium, bringing it down just a bit, and we're working through that. As I mentioned in the prepared remarks, we've had some expansion in distribution and I don't think we're finished on that front. On the Dreams side, the Dreams team has executed very well in the U.K., taking significant share and being very crisp from an execution standpoint. The U.K. economy, although not robust, has stabilized and feels like it's beginning to perk up a bit. So it's product on the Tempur side and execution on both the Dreams and Tempur sides.

And we'll take our last question today from Bobby Griffin with Raymond James. Please go ahead. Your line is open.

Hey, guys. Thanks for letting me back in real quick. Scott, I just wanted to actually dive in a little bit more on Stearns & Foster. You called it out as the strongest brand during the quarter. I think that's a reversal in maybe some prior trends in the past couple of quarters. Can you unpack that a little? Did you step up advertising? Anything to help us understand the turnaround there because that's pretty encouraging given the opportunity on Stearns over a multi-year basis?

I don't have all the numbers in front of me, Bobby. My perception is Stearns was really hot for a while. The last couple of quarters it did okay but cooled down. It was still in growth and then had a very strong third quarter. I'd give credit first to the sales group because we noticed it had slowed down and they made it a focus. We also had one or two SKUs in Stearns that weren't as productive as we'd like; we tweaked them, brought in new SKUs to replace them and got those floored where we had a couple of underperforming SKUs. With that, it had a very strong quarter. There were no additional promotions and no additional advertising; in fact, advertising is a little bit down on Stearns actually.

And there are no further questions on the line at this time. I will turn the call to Scott for any additional or closing remarks.

Thank you, operator. To our 12,000 employees around the world, thank you for what you do every day to make the company successful. To our retail partners, thank you for your outstanding representation of our brands. To our shareholders and lenders, thank you for your confidence in the company's leadership and its Board of Directors. This ends the call today, operator. Thank you very much.

Thank you and thank you everyone for your participation today. You may now disconnect.