Somnigroup International Inc. (SGI) Q2 2026 Earnings Call Transcript

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 has been posted on the company's website at www.somnigroup.com and filed with the FCC. Our comments will supplement the detailed information provided in the press release. And with that, it's my pleasure to turn the call over to Scott.

Good morning, and thank you for joining us on our second quarter 2026 earnings call. I'll begin with a review of our quarterly highlights before turning the call over to Bosker, who will discuss our financial results and 2026 earnings outlook in greater detail. I'll then provide you with a brief update on a proposed Leggett and Platt combination, and then open the call up for questions. We are pleased to deliver a record second quarter in adjusted earnings per share. Against a cautious consumer background and ongoing macroeconomic uncertainty, we generated net sales at $1.8 billion, adjusted EBITDA of $297 million, and adjusted EPS of $0.58, a 9% increase from the prior year. These results reflect our brand strength, a diversified global business model, and consistent discipline execution across our operations. This, in a market that we believe to be down mid to high single digits over prior years. Turning to our first highlight, Mattress Firm delivered results ahead of the broader U.S. market, supported by its industry-leading scale, effective marketing strategy, and broad product assortment that's designed to meet the wide range of consumer needs. We continue to refine our merchandising assortment at Mattress Firm to better align it with customers' preferences, following very encouraging results from a three-month pilot program of Kingsdown's products in 200 Mattress Firm stores, which demonstrated improved performance versus certain other products, we have expanded our relationship with Kingsdown and expect to meaningfully increase the brand's presence across the floor over the next six months. The collection is expected to be available in nearly 800 stores nationwide and brings customers luxury traditional Innerspring options focused on elevated comfort, premium craftsmanship, and lasting support. Our differentiated sleep expert model, supported by ongoing technology investments and a highly trained sales organization, continues to resonate with customers. Also, we've made steady progress on our store refresh program, on track to be completed in 2027, and on our brand wall program, expected to wrap up this year. Both programs are designed to elevate the in-store shopping experience. The improved store environment combined with enhanced product training and new technology are supporting an improved store experience for customers, which we believe over time will drive future sales. Our second highlight is the continued success of our international growth strategy. While the operating environment remains volatile, our international business once again delivered solid results and gained share across many of our key markets. Our legacy Tempur International business again outperformed the broader industry, benefiting from the strength of the Tempur brand, ongoing marketing investments, and strong local execution. Dreams continued to strengthen its brand assortment, customer engagement, and its best-in-class operating model, while managing through a difficult macro backdrop, a highly promotional competitive landscape, and an ERP implementation that is going well but has created some transitory challenges. Over the past several years, we've advanced our global vertical integration strategy by expanding company-owned retail footprint through expansion of our own temporary retail stores combined with targeted acquisitions, such as Dreams in the UK, Sova in Sweden, and our recently announced acquisition of Danish retailer SING. Each acquisition deepens our ability to connect directly with consumers, showcase our brands, and strengthen our market position. Our third highlight is the execution of our new Stearns & Foster product launch, which remains on track and is expected to strengthen our price architecture across the portfolio and drive higher average selling price. The refreshed collection features an upgraded cooling system, a more robust micro-coil support layer, and a new approach to hybrid technology. This redesign positions the brand more distinctly in the premium segment and is designed to expand our footprint. To optimize pricing across our portfolio, we are increasing the entry-level price of Stearns & Foster so that it minimizes the overlap with the high end of our ceiling. And we're focusing on the higher end products of Stearns & Foster. We've increased the number of high-end models by over 50% in the new collection. Our planned national advertising campaign will highlight the craftsmanship and heritage for Stearns and Foster brand as the longest tenured mattress brand in America, while also reinforcing the connection between our advanced materials, quality sleep, and the overall health and wellness. Our marketing strategy balances investments in broad-reach channels with highly targeted digital media. The launch will begin at the end of the third quarter and continue to roll out through early 2027. Mostly expected financial benefit will materialize in 2027 and beyond. Our fourth highlight is the continued resilience of Tempur-Sealy North America's business despite softness in a broader betting market and supply chain disruptions. Our investments in high-quality advertising, discipline cost management, and increased balance of share at Mattress Room, each contributed to another quarter of solid performance. We also benefited from the strength of our manufacturing supply chain operations, which effectively navigated a dynamic global environment. The operational discipline remains an important differentiator of our business and supports our ability to execute during complicated market conditions. With that, I'll turn the call over to Vostra. Thank you, Scott. In the second quarter of 2026, consolidated sales were a solid $1.8 billion, and adjusted earnings per share was 58 cents, up 9% over prior year. There are approximately $16 million of pro forma adjustments in the quarter, all of which are consistent with the terms of our senior credit facility. As a reminder, we have now fully lapped the mattress firm acquisition in the first quarter of this year, and we have lapped the related divestitures of sleep outfitters and certain mattress firm retail locations in May. We will present like-for-like commentary for Tempur-Sealy North America on a standalone basis, which will include the intercompany sales to Mattress Firm and adjust for the divestitures. Now turning to Mattress Firm results. Net sales through Mattress Firm were approximately $922 million in the second quarter, and same-store sales grew slightly. Mattress Firm adjusted gross margin decreased 240 basis points to 33.3%, driven by product mix, consumer financing costs, investment in mattress firm stores, and deleverage. The impact of product mix on gross margin percentage was primarily driven by the increased balance of share of Tempur-Sealy products as Tempur-Sealy's supply contract is structured to provide a portion of mattress firm economics in the form of cooperative advertising credits. This reduces mattress firm's operating expenses, but delivers a lower product gross margin percentage versus other products. When looked at on a conforming basis, there is no material impact on operating margin from the product mix change. It is just landscaping within the income statement. Mattress firm adjusted operating margins declined 130 basis points to 6.5%, driven by consumer financing costs, the investments in-store, and deleverage I mentioned a moment ago. Turning to Tempur-Sealy, North America, sales were flat on a like-for-like basis, with like-for-like net sales through the wholesale channel also flat. Our sales with third-party retailers decreased 5% after normalizing four-floor models, representing continued outperformance relative to an industry we believe was down mid-to-high single-pidget. Like-for-like net sales to the direct channel decreased 1% in the second quarter. North American adjusted gross margins increased a robust 680 basis points to 61.8%. Driven by the achievement of synergies, operational efficiencies, and mix, partially offset by commodity cost inflation before pricing action, we achieved $30 million of net benefit from sales and cost synergies in the second quarter. North American adjusted operating margins improved 400 basis points to 26.7% in the quarter, driven by the improvement in gross margin, partially offset by investments in cooperative advertising, as noted a moment ago. Turning to Semper Steely International results, international net sales grew 2% on a reported basis and 1% on a constant currency basis. Our legacy international business delivered another strong quarter supported by the continued execution as we broaden our consumer reach. Our dreams business, as noted by Scott, continues to navigate a difficult environment given a very tough UK market in the recent ERP implementation. Our international gross margins declined 80 basis points to 47.4%, driven by commodity cost inflation before pricing action, partially offset by operational efficiencies. Our international operating margin declined 120 basis points to 12.4%, primarily driven by the decline in gross margin. Now I'd like to give a brief update on commodity inflation and related pricing actions. We implemented modest pricing actions following the July 4th promotional period to offset higher input and freight costs. As we discussed last quarter, the timing of the cost increases preceded the implementation of our pricing action, creating an approximately $10 million one-time headwind to temporary profits in the second quarter. We expect those impacts to be offset by pricing actions in the second half of the year. I want to point out we grew earnings in the quarter almost 10% while fully absorbing the inflationary environment. Now moving to Somnigroup's balance sheet and cash flow items. At the end of the second quarter, consolidated debt less cash was $4.3 billion, and our leverage ratio under our senior credit facility was 2.99 times, returning to our target leverage range up two to three times, demonstrating our strong cash flow generation and disciplined capital allocation approach. We also further strengthen our capital structure through the refinancing and upsizing of our credit facility. The amended facility extends maturities to 2031, increases liquidity, and allowed us to reduce higher cost debt, lowering future interest expense, turning to our cash flow performance. In a muted market, we delivered record operating cash flow of $236 million and free cash flow of $182 million. We have reduced our net debt by more than $500 million over the trailing 12 months while fully supporting growth initiatives and returning over $160 million to shareholders in the form of dividends and buybacks, now turning to 2026 guidance. As a reminder, our guidance considers the elimination of intercompany sales between Tempur-Sealy and Mattress Farm, which we expect to represent approximately 24% of global Tempur-Sealy 2026 sales. Intercompany eliminations in accordance with GAAP will reduce Tempur-Sealy sales, but will be margin accretive and neutral to dollars of operating profit. We expect adjusted earnings per share to be between $2.85 and $3.15 for the full year. This guidance range contemplates a sales at the midpoint of approximately $7.6 billion after intercompany elimination. Our annual guidance also reflects our expectation that the global betting industry will be down mid-single digits year over year. Tempur-Sealy North America like-for-like sales growing, low single digits, international business growing, low single digits, and like-for-like mattress firm sales down slightly. We also expect reported gross margins slightly above 45%, driven by 100 basis points of net margin expansion from operational efficiencies, including synergies and operating leverage, partially offset by the impact of temporary pricing action, which are intended to neutralize commodity inflation, but are margin diluted. Our 2026 outlook also contemplates our assumption for Tempur-City brands and private labels to be in the mid-60s percent of mattress firm total sales. This represents an incremental $65 million of adjusted EBITDA benefit for 2026 versus 2025. and approximately $690 million of advertising investment. This all results in an estimated adjusted EBITDA for 2026 of approximately $1.39 billion at the midpoint of our guidance. Regarding capital expenditures, we expect 2026 CapEx of approximately $225 million, dollars, including CapEx of $75 million under our Mattress Firm Store Refreshes and Brand Wall Program. We expect our CapEx to normalize to $200 million in future years, and for at least 50% of our fee cash flow in 2026 to go toward quarterly dividends and share repurchases. Now, I'd like to flag a few modeling items. For the full year 2026, we expect DNA of approximately $310 million, interest expense of approximately $230 million, on a tax rate of 25%, with diluted share count of 213 million shares. With that, I'll turn the call back over to Scott. Thank you, Bosker. Well done. In closing, our second quarter results reflect the strength and resilience of our business model, the dedication of our teams, and the benefit of a disciplined long-term strategy. We continue to execute well across our global operations, driving growth and creating long-term shareholder value. Lastly, I'd like to give a brief update on our proposed combination of Leggett and Platt, a leading diversified component manufacturer and longstanding supplier to Somnigroup. We have made significant progress towards finalizing the combination. We have received nearly all regulatory approvals required to consummate the transaction, and the required Leggett and Platt shareholder vote is scheduled for August 20th. we're expecting to close the transaction before the end of the third quarter this timing is considerably ahead of our original expectations legant plat will be incorporated into our guidance post-closing we believe the combination will further strengthen our vertical integration framework and enhance consumer-centric innovation it is expected to expand our addressable market in betting and into non-betting industries it's going to reduce our financial leverage drive operating cash flow and deliver immediate adjusted eps accretion before synergies with opportunities for future shareholder value driving synergies across the combined organization we look forward to welcoming Leggett and Platt into our portfolio of industry leading businesses Operator, that concludes our call. Open the call up for questions.

We will now begin the question and answer session. Please limit yourself to one question. And if you have any follow-ups upon being answered, please press star one to rejoin the line. If you'd like to ask a question, press star one to raise your hand. And to withdraw it, press star one again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Your first question comes from Susan McClary from Goldman Sachs. Your line is ahead.

Thank you. Good morning, everybody. Scott, I want to talk about the revision to the guide. Coming out of the first quarter, it felt like you could still hit the higher end of the range that you had set for earnings. Can you talk about what changed in the quarter that drove the decision to take the numbers down and how you thought about setting the current range of that 285 to 315? What's implied in there and how you got to that?

Sure, Susan. Thank you for the question. I mean, like anything, you start with an estimate, and there were puts and takes during the quarter. Some were favorable. Some were unfavorable. If I had to just like point it, you know, two things that were the largest probably unexpected negatives, if we're going to focus on the negatives for a second. Obviously, the industry trends in the second quarter were not as strong as we expected. We were expecting what, Oscar?

Missing a digit.

Up, down, down, down. And what'd you get?

Mid to high from an industry standpoint.

So your first thing would be industry, and that's generally the U.S. is what we're talking about there. The other thing, the U.K. Operation Dreams, their ERP system was a little rougher than we expected, and the U.K. market was a little more competitive. Those two were the big ones that I would call out, although there were certainly others, some positive, some negative. The other thing probably that weighed on us was the Middle East activity and that we went back in for round two, which has created, you know, some additional uncertainty probably from where we – those would be the things that I think of, Oscar. Now, she asked about in setting the guidance. Why don't you talk a little bit about that? Absolutely. So just to put a – you know, just to recap again is that going into the quarter, we had an expectation from an industry standpoint on a full-year basis. Our expectation is that the industry would be down low single digits. As we sit here now, our expectation is that the industry will be down mid-single digits. And what that effectively implies for the rest of the year is, with the inclusion of pricing, is that what we saw in the second quarter continues. use. So at the midpoint of guide, it's really how we thought about it is that the current trends or current industry trends continue. And as it relates to initiatives that we have in place, we continue to execute. The other item that we did tweak a bit is our assumption around sales synergies. We did take up our expectation based on the report, the performance in the first. Yeah, I think the other thing I probably, since you're talking about guide, that influenced us as I think about it, as you were speaking, Bobsker, is if you look at the second quarter, the first couple of months were solid and looking well. And then we ran into the July 4th holiday period. And I think it's been well documented, but the July 4th holiday period in the U.S. was not robust and was weak. And that was certainly not expected. The good news is, since that holiday period is over and it ended, call it July 15th or so, the market has kind of rebounded back to the trend line that it was before. The thing that we look at, we think is probably the best way to look at the U.S. market is mattress firms, same store sales, because it takes out the inventory fluctuations and order timing that we get over on the Tempur-Seagly side. And if you look at That mattress firm, same-store sales, post the holiday period, it's running, you know, give or take flat, where during the holiday period it was challenged. But it's good it rebounded, but certainly that holiday period was also notable towards the end of the quarter.

Your next question comes from Pedro Gill with Morgan Stanley. Your line is open. Please go ahead.

Good morning. Thank you for taking my question. Nice job managing through a difficult environment. I'd like to focus on profitability for a moment. You have remarkable margin expansion in Tempur-Sealy North America. Could you expand a little bit on what's driving that in terms of manufacturing efficiencies, synergies, and how you're thinking about that in your guidance for the second half with the additional pricing coming into the mix? Thank you.

Absolutely. Absolutely. And our performance in the second quarter was adversely impacted by the commodities ahead of pricing. So we are pleased with our margin performance. So when I think about the key drivers of margin within the second quarter, a couple of things really come through. Continue to execute against our cost energy target. We realized about $15 million, largely as anticipated, for the second quarter. and as it relates to the full year is that our expectations remain that we'll continue to drive those cost synergies. On the sales synergy side, that is where our balance of sales at mattress firm, what percentage that is relative to what they sell, is that we exceeded our expectation and we have revised our expectations for the full year based on that performance. And how you see that from, and therefore from a gross margin expansion perspective, that it's also a key driver related to the North America business performance. And then finally, I would close with is that the productivity. So productivity is those things outside a mattress firm. It's just doing more with less, and our operations group as well as the rest of the organization continues to perform very well. So from a margin standpoint is that we had very nice expansion. And then when I think about that on the operating line, is that we continue to make those investments that are going to drive future growth, whether it be in the form of advertising or supporting the new, sorry, Sturm's line that we have coming out in the back half.

Your next question comes from Rafe Dydrosich with the Bank of America. Your line is open. Please go ahead.

Hi, good morning. Thanks for taking my question. Can you talk about just the cadence for the back half for EPS? Like, what should we be thinking for 3Q versus 4Q, sort of in light of the 3Q-to-date comments on July 4th?

100%. Good question. So, just to get us grounded is that at the midpoint, that would imply about a 10% year-on-year EPS increase. What we've seen in the first half of the year is about a 10% increase. So, therefore, in the back half, that expectation continues. The one thing to be mindful of as you think about phasing between Q3 and Q4, a couple of things. Yes, Ray, this one should be mindful of what we saw on the 4th of July. However, as Scott pointed out, things have stabilized since then. But just as a reminder in the prior year is that the third quarter of 2025, it was on a relative basis, it was strong. So, when you think about the phasing between Q3 and Q4, we'd expect growth in EPS in both quarters, but more of that in Q4 versus in Q3.

Your next question comes from Bobby Griffin with Raymond James. Your line is open. Please go ahead.

Good morning, everybody. Thanks for taking the question, and congrats on getting the legate – look like the legate deal is getting done ahead of schedule. I guess, Scott, I wanted to double-click inside the U.S. industry and kind of get more of your view of what do you think is going on from a demand perspective? I mean, you guys are calling the quarter actually a little slower than 1Q. You compare that to some of the residential furniture reports we've seen recently, which is admittedly not the same product, but correlated, and it looks like it's getting a little bit better. So do you think there's a distribution shift that's taking place here that's negative between the marketplaces or outside mattress firm or just any other color on kind of what you think is going on with the demand environment and the fact that it's actually, you know, getting worse when we're seeing it stabilize in some other areas of related products?

Yeah, great question, Bobby. I mean, if you, you know, just kind of talk about the industry in general in the U.S., I think Leggett's out today with with their numbers and i think they were calling called springs down uh low double low double digits so between that um and what we see and other things so i think we've got a pretty good read on the industry numbers um obviously we've had a some some of our key advertisers uh have had some restructuring during the period that's probably not helpful to the industry because their advertising has been limited um but as far as relative to furniture and i'm not an expert in the furniture side of the house uh but at least it's been my experience that we have these periods where for a quarter or two furniture does better than bedding and bedding does better than furniture uh and i i think that that's all all we're experiencing i don't think there's anything systemic or different going on in the betting process or betting sales, we're probably creating more pent-up demand than we really want to create. But no, I mean, and I think the other thing, other trend that is very evident every quarter and continues to get probably larger every quarter is that the large retailers are clearly taking share from the smaller retailers. We see that, and there's a shift from distribution from that standpoint. Our own temper stores are certainly doing better. They're comping up. They were up almost 3% in the second. When we look at online, and our online business was much improved from the first quarter, but still slightly negative, if I remember correctly, of Oscar. And then when we do our channel checks to call it web-based selling, it is clearly the web side of the industry has been challenged, and that would include throwing in the big. So we're not seeing mortar and a little bit away from web compared to like three years ago. Those would be the primary trends that I can think of in the district.

Your next question comes from Keith Hughes with Truist. Your line is open. Please go ahead.

We can't hear you. Might be the easiest question I've gotten all day.

Can you hear me now? Hello? We can hear you now. I'm not sure what happened. Let me start again. I'll ask you a harder question. The commodity cost referred to $10 million. I think that was a temporary ceiling number. It's a pretty small number compared to what's been going on in petrochemical markets. If you could just talk, is that a net number with productivity or other offsets? And what do you expect to be facing in the second half of the year on that topic?

Absolutely. So what I would tell you, so the $10 million is the impact as a result of the Middle Eastern crisis. So let me put a finer point on that. Coming into the year, we had an expectation about commodities, perhaps a little bit of a headwind for us. However, as a result of the Middle Eastern crisis, as well as some supply disruption around Lion Dell, et cetera, is that the industry, not only us, the industry faced an inflationary environment. The industry, as well as us, we put some pricing out there, and our pricing went in after the 4th of July promotional period. So therefore, in the second quarter, we had a transitory impact where we faced a headwind of about $10 million. And then, just as a reminder, from a pricing standpoint, we put enough price in there to make up for the $10 million in the back half of the year, and that's still our expectation that that will happen. As it relates to commodities just overall, is that things have moved around a bit. Some things have come in, let's say MDI, TDI, perhaps a little bit. But then we see some pressures in other areas. Largely speaking, is that what we anticipated, call it around $90 million of annualized inflation. That's what we saw coming into the quarter. That's where we sit today. Again, puts and takes within that portfolio, but largely consistent.

Your next question comes from Peter Keith with Piper Sandler. Your line is open. please go ahead.

Oh, thank you, and good morning. On the industry backdrop, I was wondering, too, if you think there's any dynamics from a K-shaped economy. It's kind of caught my attention. I think you said it at a mixed benefit to temper sea lead North America, and then also higher financing costs for mattress firms. So both of those would indicate maybe some strength in temper. So what do you see high-end versus low-end overall?

Sure. There's no question there's a K. Entry-level betting has been the hardest hit by far, and luxury betting, we'll call it, has been very resilient and at times strong. The financing cost, and we don't take credit risk, but in the mattress firm organization. We do pay for the 0% financing, and it has gone up because we're selling more higher-end beds, and interest rates have ticked up some during the year where we expected them to tick down. So, there's no question that the, and not just us, but all the betting retailers are living off of ASP, improved higher-end product, and we're seeing the upper-end customer showing up, not being particularly price sensitive. Closing rates are strong, but the entry level is definitely challenged.

Your next question comes from Michael Lasseter with UBS. Your line is open. Please go ahead.

Good morning. Thank you so much for taking my question. As you bring together all of the various pieces of the preeminent betting player around the world, are you seeing more risk, at least in the short term, from two areas? One, that third-party sellers of Tempur-Sealy products are pulling back, and that is exacerbating some of the sales challenges in addition to the industry, and two, given the complexity of the business, that it's just becoming a little bit more difficult to manage, as evidenced by some of the ERP interruptions that were experienced in the UK, and how does that influence how you think about the back half and into 2027 from an earnings power standpoint for the business? Thank you so much.

Well, good. I got one really easy question, one really hard question out of you, but the easy question is impact on sales from third parties. No, we're not seeing any significant impact or pullback on sales of what we call the other other retailers. Generally, what you're focusing on is that when we say that is the U.S. other retailers other than mattress firm. We were down five percent which is give or take what we were down in the first quarter uh that is slightly less than we believe the industry was down so i think from the way we would look at it we would say we incrementally actually took some share uh in the other other you have to be a little careful when we talk other other because that is generally smaller retailers so there's also a share shift going between smaller retailers and larger ones but now we're not seeing any uh impact in that area The second question as to complexity, first of all, the opportunity creation that we get as we grow, I think you'll see over the next few years, the synergies are significant and the innovation will be significant. But you asked about complication. Is it harder? Oh, without question. I mean, everybody is working harder. We have added some complexity to the business. You mentioned ERP, and the ERP dreams thing we worked through, that's not really a factor. That's simply a company that needed to upgrade their systems and work through it. In the legate transaction, we'll have some complications, but we'll also have greater opportunities. So, I mean, you see it in the margin profile, and that's just getting started. We haven't even begun to realize the synergies from the logistic savings, the distribution savings that we'll have. And you can see that we've been able to do some things with people like Kingsdown and Mattress Firm. And, of course, we own a little bit of Kingsdown, too. That is something unique. And we have some interesting plans for Leggett and some of the bedding assets of Leggett that we think more than offset the complexity. But, yes, it is more complex, and we have spent time internally delegating authority and responsibilities to key players so that we can continue to be on top of the business and continue to grow. Just a finer point on the ERP that we put in place in dreams. Like with all things, when you put something new in, there are some transitory issues in the grand scheme of things. They are taking orders. They are shipping, et cetera. But there is some first time through and some distraction as it relates to the new system. But the system, I just want to reiterate, the system is functioning. We're just working through it. And at most, that's maybe another one quarter. I don't think that's going to be, that's not a big issue going forward from my perspective. I think it was just a little choppy bet considering the market was a little choppy at the same time for this quarter.

Your next question comes from Brad Thomas with KeyBank Capital Markets. your line is open. Please go ahead.

Good morning. Thanks for taking the question. I wanted to ask about the multi-year financial outlook that when you presented it called for about a 24% CAGR to 2028. I know that a part of that comes from industry growth. And so I was hoping you could just share your latest thoughts on what you think the underlying growth can be if the industry stays stagnant for a couple more years. And then I know we have to hold off another quarter here, or at least a few more months on how Leggett may weave into it, but is it fair to presume that perhaps that underlying growth rate should get at least a few points better once the Leggett deal closes? Thank you.

Okay, great question. I'm going to talk, but I'm not going to update our perspective, so to be clear, but I can't talk about it because I don't think we're really ready to, but it's a good question, and actually I'm glad you asked it. Obviously, with any estimate it has assumptions in it and since we did we'll call it the 515 the 515 some of those assumptions are probably going to change whenever we update it it would not be a surprise to me that if we when we update it we will lower the industry growth rate during that period which all that really means is there's more pent-up demand it means the outer years outside of 515 will probably be more robust okay so that's probably we'll call that a headwind there's also if you look through that perspective and look at our current margin profile our margins are significantly better that's in that profile and i would be surprised if we update that our margins in that profile aren't stronger we'll call that a good guy in our term terminology And then in that perspective, we basically, I don't believe, got any significant EPS growth from capital allocation, if I remember correctly, Bosco, right? Not overly significant. And I think clearly from our recent capital allocation activity, both with our small acquisition in Europe and the Leggett thing, you can see there's enormous upside as we deploy capital at a high rate of return. So when you mix all that together, I have no idea what that number looks like, haven't done it, but there are puts and takes in it. And if I'm, what I feel today is, I would say we're still in the game on the 5-15 plan and looking forward to updating you when we do the year-end number.

Your next question comes from Philip Blee with William Blair. Your line is open. Please go ahead.

Good morning, Scott Bosker. Thanks for the question. At your investor day in March, you laid out quite a few initiatives that were not included in your synergy targets. I believe logistics consolidation was one, real estate optimization, some of your efforts to revamp the mattress for marketing campaigns, or a few others. Can you just give us an update on these and then when we could start to expect maybe some sort of quantification there?

Thanks. sure um and help me out boss if i'm missing him um mattress firm marketing strategy plan is well underway um based on the share gains that we talked about earlier uh looks like it's been successful but i also don't think that's a journey that's ever over uh and there's still work to be done and will continue to get better and better and i think you'll see you know some leverage which we'll call it in, in 27. Right. But, but we have fixed the problem that was there and got it and got a creative in the marketplace that we're, that we're proud of. And again, I think the share gains support that, but we can get better. Logistics is being worked on by a large group. We'll probably be in a position to put some, some numbers and meet around it probably on the year end. call is based on what the chart I've seen. It's going well. And Leggett is additive to that process, additive being positive. And they'll have to work through that. But that will also be a synergy on that side. Real estate one takes a little longer. We're getting some benefits, minor. And those will come over the next couple of years. And again, some of the real estate is dependent on how the logistics plan comes together as to where your DCs are and other things. So that's the logistics, big pots. I think that's right. I mean, it is fair to say that those items that we identified as opportunities remain as opportunities. And very excited as we get in and out of this year to update the numbers around what those could be. And I think the other thing is not probably I don't know if we talked about it in New York or not. I think, you know, we continue to study Mattress Firm's real estate strategy, and I expect that we'll be back in store growth mode here pretty soon, as the economics of new stores is more compelling now that the balance of share has normalized and flipped compared to what it was going in. It will not go back to what I call rapid growth, but I would expect going forward, net new stores and mattress front. There's some holes in the marketplace that we need.

Your next question comes from Jeff Lick with Stevens. Your line is open. Please go ahead.

Good morning. Thanks for taking my question and a nice job in a difficult environment. Guys, I was wondering if you could maybe drill down a little more on the weakness in Fourth of July. obviously, you know, this business is a, you know, big event business. If, if I recall, President's Day was pretty good. Memorial Day was pretty good. I'm just wondering your thoughts on any, you know, extraordinary circumstances about Fourth of July, you know, we're hearing the World Cup did have an impact because it was a pretty big event. And obviously, there was also some calendar shift issues. I'm just wondering if that had any impact in your view or any other granularity. And then also as it relates to what I would call like the mass affluent, and maybe we'll create a new term called the E-shaped economy. You get the super high net worth, the mass affluent, and then kind of the lower income. I mean, Scott, in your old world, the car business we're seeing, you know, sales of kind of the mass affluent and, you know, the mid-level luxury car has been weak for a while.

And I'm wondering if that maybe is a negative impact on your business as well okay great job getting lots of questions in there all good ones so I mean you know look sometimes holidays hit sometimes they don't you're right the most recent President's Day was a was a very solid holiday and then July 4th was you know kind of a kind of a dud so you get those things and then like all retailers you go back and go huh wonder why you know and I'm glad you used world cup because we couldn't prove it but you kind of think it do um so maybe it was world cup maybe it was the heat dome all the or maybe the way the holidays fell you know so but i i think it's i think it was just one of those holidays that didn't hit i don't think it was any anything significant turning point it just didn't work um president's day the year before what was that 25 five was really weak um so you get these and and clearly the third quarter is all about labor day so uh we're working through that um you know on the on your e-shape which that's a new one for me and i was ready for k hadn't thought about e um i'm gonna say no it really is more k because if I look through the sales, Bosker, you know, if you look at Sealy Posturepedic, you know, what I think of is, you know, higher mid-market sales has been good. Right. So I don't think in the mid-section, but clearly entry level may be a little higher than entry level, but not mid to luxury, which has been strong.

Your next question comes from Marius Morar with Zellman. Your line is open. Please go ahead.

Good morning. Thank you for taking my question. I just wanted to follow up on the shift from e-commerce to brick and mortar that you alluded to earlier. Is that a function of the K-shaped economy? Does that still hold at comparable price points or said differently? Have we reached a natural limit to what e-commerce can do in the mattress category?

Thank you. yeah i'm not smart enough to know but i have an opinion so first of all i'd say uh the last part we've gotten to more of a natural size of e-commerce betting difficult product by online can't feel it all that kind of stuff i think we have reached some of that i think that's in there i think the second factor is ai and the way the search engines optimize and go get words i think all uh retailers are working through uh the changes we'll call it i'm gonna call it from google search to ai that's probably not technically correct but i think you know what i mean and uh we're still working through that it's very apparent to me that larger organizations are going to be benefited from that move to uh the way search engines scrape in my terminology uh for the web But it is a journey, and it's going to take a while. It's going to take a little bit of capital to work through that. And then the third impact, I think, is people stop being dumb and just chase sales with extremely low prices and have gotten more sophisticated about thinking about, well, how much money am I making on this transaction? and did i use up in my terminology and up which is a customer in the marketplace wanting to buy the product i use up and up selling them a bet on the web and not make any money and if i didn't do that they might show up at my store where i'm going to have a more reasonable transaction so i think i think all retailers not just us but anybody have gotten smarter about not just throwing stuff on the web so you can have a big top line sales number. And we certainly have done that. And I think that's been healthy for the business. So that's pushed sales trend down some, but not necessarily been as impactful on profitability.

Your next question comes from William Reuter with Bank of America. Your line is open. Please go ahead.

Hi, I'll keep it to one and hopefully it's simple. After the Leggett and Platt acquisition closes, assuming everything continues to go along the path that it currently is. Do you feel like you are at a point where you're comfortable with your business mix and vertical integration, or do you still see assets across the globe somewhere that you would like to have on your wish list and that we'll continue to see future M&A?

Thank you. First thing, I should give our good friends at Leggett kind of a call out on their quarter. They reported they had a very solid quarter in a tough market and grew EPS significantly. So, a call out to the Leggett team from that standpoint. As far as our future capital allocation, and we said this, I don't know, for eight years, we're constantly talking to people all around the world, some retailers, some supply people, and at times we price things, and sometimes they sit for years before the teams get together and can get agreement on price. It's always price. I mean, it's pretty easy strategically to look at companies and for the target and for us to see the benefits, the synergies, get to know each other culturally, kind of the process we go through, and then you get into price. So there's some of that that's always in the marketplace. We may never do another deal, or we may do in the future. There's nothing out there that is as large as Mattress Firm or as large as Leggett. But there are other assets in the world that I think would be positive, both for the target and for us and we'll continue to work with them and we'll see if we see if we get a fit to the extent that we can't get it priced right we'll be very disciplined and we're fine not ever buying anything else and as we generate significant cash flow we'll clearly be very aggressive in buying our stock as we get as we get down from the leverage standpoint with one, you know, we'll call it footnote. There's always an eye to uncertainty in the world, primarily in the Middle East. We'll keep an eye on that because at times when the world's uncertain, capital is very valuable, and so we'll keep an eye on it. But we feel very good about getting back in the range from a new stock standpoint.

There are no further questions at this time. I'll now turn the call back to Scott Thompson, CEO, for closing remarks.

Thank you, operator. To our over 20,000 associates 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 for attending. You may now disconnect.