Daniel Silverstein

Daniel Silverstein inquired about the reasonable penetration level for Somnigroup's family brands at Mattress Firm for 2026 or 2027, including the upper bound, and the strategic placement of the Kingsdown brand within Mattress Firm's assortment.

Answer

Scott Thompson, Chairman, President, and CEO, Somnigroup International, indicated that a reasonable balance of share for family brands at Mattress Firm is in the low 60s, around 62%, which they expect to reach by year-end, with fluctuations based on innovation and advertising. Regarding Kingsdown, Thompson explained that the brand was underrepresented and will be expanded in-store, primarily in the high-end spring category, to meet customer demand. Somnigroup made a passive equity investment in Kingsdown to participate in its anticipated success.

Daniel Silverstein from UBS asked about the projected upper bound for family brand penetration at Mattress Firm in 2026 or 2027, and where the Kingsdown brand will be positioned within Mattress Firm's product assortment.

Answer

Chairman, President, and CEO Scott Thompson stated that a reasonable balance of share for family brands at Mattress Firm is in the low 60s, specifically around 62%, which they expect to reach by the end of the year, with some fluctuation based on innovation and advertising strength. Regarding Kingsdown, he explained that it was underrepresented and will be expanded at the high end of the assortment, primarily in the spring area, bringing differentiated products and leveraging its brand strength in Canada and the Northeast. Somnigroup's 25% passive equity investment allows them to participate in Kingsdown's success.

Daniel Silverstein, on behalf of Michael Lasser at UBS, questioned the economic details of the Mattress Firm partnership, including its effect on wholesale margins, the applicability of the 35% incremental flow-through rate, and potential cooperative advertising synergies.

Answer

CEO Rob DeMartini confirmed the partnership is a 'good business for both' parties but declined to share specific customer margins, noting the arrangement with Sherwood was designed to take costs out of the system. He affirmed the 35% flow-through rate is applicable at a macro level and acknowledged that while there are opportunities for advertising efficiency, the immediate focus is on innovation and driving consumers to all retailers.

Inquired about opportunities in marketing, including brand messaging and partnerships, and asked about the potential for strategic shifts like exploring wholesale distribution.

Answer

The company plans to improve marketing effectiveness through digital channels and a shift to benefits-focused messaging. All partnerships are being reviewed for optimization. Regarding wholesale or other strategic changes, the new CEO confirmed that "everything is on the table" but provided no specific details.

Daniel Silverstein from UBS asked for the 2025 industry demand outlook, the potential for more expense savings, and the minimum revenue level required to stay within the newly amended debt covenants.

Answer

CEO Shelly Ibach stated that pre-February industry forecasts called for a slight recovery in 2025, but recent weakness may temper that outlook. CFO Francis Lee confirmed the company has contingency plans for further cost reductions. Regarding covenants, Lee said the new terms provide an 'appropriate cushion,' and VP David Schwantes added that the required revenue would be lower than the previously discussed $1.7 billion due to the higher leverage multiple allowed.