Sign in

You're signed outSign in or to get full access.

SI

SOMNIGROUP INTERNATIONAL INC. (SGI)·Q3 2025 Earnings Summary

Executive Summary

  • Record quarter with consolidated sales up 63% to $2.12B, GAAP diluted EPS $0.83 and adjusted EPS $0.95; management raised FY25 adjusted EPS guidance to $2.60–$2.75 from $2.40–$2.70, citing synergy progress and improving bedding trends .
  • SGI beat Wall Street consensus on revenue and EPS: Q3 revenue $2.12B vs $2.06B consensus (+3%), EPS (Primary) $0.95 vs $0.86 consensus (+11%); outlook embeds Q4 revenue “a little north of $1.9B” and gross margins slightly above 44%* .
  • Integration momentum: Mattress Firm delivered ~5% same‑store sales growth and adjusted operating margin of 9.4%; North America wholesale like‑for‑like grew ~10% as SGI gained balance‑of‑share at Mattress Firm; International grew 11% with resilient margins .
  • Balance sheet and capital allocation: leverage improved to 3.28x TTM adjusted EBITDA (from 3.56x in Q2), record operating cash flow of $408M in Q3; board declared a $0.15 dividend; management targets 2–3x leverage by early 2026 and intends to return ~50% of FCF to shareholders starting Q1’26 .
  • Key catalysts: faster‑than‑expected synergy capture (sales mix shift to Tempur‑Chili mid‑50% at Mattress Firm), advertising “Sleep Easy” campaign traction, incremental pricing actions to offset tariff headwinds, and raised FY25 EPS guide .

What Went Well and What Went Wrong

  • What Went Well

    • Strong top‑line and mix: Net sales +63% to $2.12B with direct channel rising to 65.2% of sales; adjusted gross margin expanded to 45.6% and adjusted operating margin to 16.2% .
    • Synergies and share gains: Mattress Firm SSS +5% with 9.4% adjusted operating margin; North America like‑for‑like wholesale +~10% aided by increased balance‑of‑share at Mattress Firm .
    • Management confidence and raised guide: FY25 adjusted EPS raised to $2.60–$2.75; CEO: “record sales, profits and operating cash flow… underpinned by slightly improving bedding industry trends” .

  • What Went Wrong

    • Tariff/FX and mix headwinds: International gross margin −40 bps YoY on mix; NA like‑for‑like adjusted gross margin −40 bps YoY on mix despite intercompany elimination tailwinds .
    • Ongoing non‑GAAP adjustments: Q3 included $32.2M business combination charges and $7.3M supply chain transition costs; GAAP EPS ($0.83) trails adjusted ($0.95), highlighting integration costs .
    • Tariff exposure evolving: incremental ~$20M cost exposure (primarily adjustable bases) prompting a small price increase effective early 2026 to offset headwinds .

Financial Results

  • Consolidated results vs prior year, prior quarters, and margins.
MetricQ3 2024Q1 2025Q2 2025Q3 2025
Revenue ($USD Millions)$1,300.0 $1,604.7 $1,880.8 $2,122.6
Diluted EPS ($)$0.73 $(0.17) $0.47 $0.83
Adjusted EPS ($)$0.82 $0.49 $0.53 $0.95
Gross Margin (%)42.4% 36.2% 44.0% 44.9%
Adjusted Gross Margin (%)43.2% 42.2% 44.2% 45.6%
Operating Margin (%)15.5% 0.8% 9.6% 14.8%
Adjusted Operating Margin (%)17.2% 11.4% 11.9% 16.2%
  • Segment snapshot (Q3 2025):
SegmentNet Sales ($M)Gross MarginAdjusted Gross MarginOperating MarginAdjusted Operating Margin
Tempur Sealy North America$736.1 58.4% 58.6% 29.1% 29.5%
Tempur Sealy International$315.7 49.1% 49.1% 18.1% 18.1%
Mattress Firm$1,070.8 34.4% 35.6% 7.6% 9.4%
  • KPIs and Cash/Leverage:
KPIQ2 2025Q3 2025
Direct Sales Mix of Net Sales66% 65.2%
Adjusted EBITDA ($M)$290.7 $418.9
TTM Leverage (Consolidated Indebtedness less netted cash / Adj. EBITDA per credit facility)3.56x 3.28x
Operating Cash Flow ($M, quarter)—$408
Free Cash Flow ($M, quarter)—$360
  • Consensus vs Actual (and next quarter baseline):
MetricQ3 2025 ActualQ3 2025 ConsensusSurpriseQ4 2025 Consensus
Revenue ($M)$2,122.6 $2,061.3*+$61.3 (+3.0%)*$1,925.6*
EPS (Primary) ($)0.95 0.858*+0.092 (+10.7%)*0.716*

Values with asterisks (*) retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Adjusted EPSFY 2025$2.40–$2.70 (Aug 7) (Prior: $2.30–$2.65 on May 8) $2.60–$2.75 Raised
Sales (after intercompany eliminations)FY 2025Not disclosedMidpoint ≈ $7.5B (implied) New disclosure
Gross MarginFY 2025Not disclosedSlightly above 44% New disclosure
Advertising SpendFY 2025Not disclosed~$700M New disclosure
Adjusted EBITDAFY 2025Not disclosed≈ $1.3B midpoint New disclosure
CapExFY 2025Not disclosed~$175M (≈$150M normal + ~$25M store refresh); ~+$125M over next couple years; LT normalized ~$200M New disclosure
D&AFY 2025Not disclosed≈ $295M New disclosure
Interest ExpenseFY 2025Not disclosed≈ $260M New disclosure
Tax RateFY 2025Not disclosed~25% New disclosure
Diluted SharesFY 2025Not disclosed~210M New disclosure
DividendQ4 2025$0.15 declared 8/7 $0.15 declared 11/6 (payable Dec 4; record Nov 20) Maintained

Earnings Call Themes & Trends

TopicPrevious Mentions (Q1 & Q2 2025)Current Period (Q3 2025)Trend
Mattress Firm integration and synergiesQ1: Early integration with significant non‑GAAP costs; Mattress Firm adj. op margin 7.2% (stub); guide initiated . Q2: Combination “ahead of plan”; adj. op margin 7.8% .SSS +5%; adj. op margin 9.4%; Tempur‑Chili mid‑50% of Mattress Firm sales in 2025 (was low‑50s); $60M EBITDA benefit in 2025; scaling “Sleep Easy” ad campaign .Improving faster than plan
North America like‑for‑likeQ1: NA like‑for‑like pressured by macro; intercompany elimination boosts margins . Q2: Wholesale like‑for‑like +~10% normalized; direct −4% .NA like‑for‑like wholesale +~10%; mix weighed margins −40 bps like‑for‑like; intercompany elimination drives GAAP margin optics .Better demand; mix headwinds persist
International growthQ1: +5.7% reported (+7.7% cc); margins improved . Q2: +15% reported (+10% cc); operating margin +110 bps .+10.9% reported (+7.2% cc); GM −40 bps on mix; operating margin ~flat (18.1%) .Continued outperformance with modest mix pressure
Tariffs and pricingQ1: Not prominent. Q2: Cost inflation cited; actions ongoing .July price increase ≈2% of NA sales offset tariffs; incremental ~$20M tariff exposure led to additional small price increase effective early 2026 .Proactive pricing to offset headwinds
Advertising/brand activationQ2: Launch of new Sealy line; strong ad spend .>$110M Q3 spend; Mattress Firm “Sleep Easy” the highest‑performing campaign in recent history .Stronger ROI on brand investment
AI/technology initiativesLicensing Fullpower‑AI Sleeptracker‑AI LAM; $25M strategic investment; 300k+ smartbeds deployed .No new Q3 AI deals disclosed; ongoing innovation positioning .Platform foundation in place

Management Commentary

  • CEO Scott Thompson: “We are pleased to report record sales, profits and operating cash flow in the third quarter, driven by strong operational execution across all of Somnigroup's business units, augmented by progress on our acquisition‑related sales and cost synergy initiatives… [and] slightly improving bedding industry trends” .
  • On Mattress Firm synergies: Tempur‑Chili to “mid‑50%” of Mattress Firm sales in 2025; on track for $100M run‑rate cost synergies and ~$60M 2025 EBITDA benefit from sales synergies; “Sleep Easy” campaign is the highest‑performing in recent history .
  • CFO Bhaskar Rao: Q3 adjusted EPS $0.95 “record,” leverage down to ~3.3x with record operating cash flow of $408M and record FCF $360M; expects return to 2–3x leverage early 2026; FY25 guidance assumptions include gross margin slightly above 44% and ~$700M advertising .
  • Interest rate sensitivity: A 100 bps decline in rates could add ~$0.18–$0.20 per share (~7% lift vs midpoint), including lower cost of promotional financing, separate from any demand uplift .
  • Capital returns: Intend to allocate ~50% of FCF to dividends and buybacks beginning Q1 2026, while continuing deleveraging to 2–3x and remaining open to selective M&A .

Q&A Highlights

  • Demand vs housing: Bedding demand can improve independent of housing; innovation and advertising are key drivers; industry appears “close to flat” YoY with better sequential trends; SGI outperformed with accelerating EPS trajectory through the year .
  • Fourth‑quarter outlook: Implies Q4 revenue a bit above $1.9B; Tempur Sealy like‑for‑like mid‑ to high‑single‑digit growth; Mattress Firm low single digits; typical seasonal step‑down in margins from Q3 to Q4 .
  • Balance‑of‑share at Mattress Firm: Reasonable long‑term target around ~62% for family brands, with variability by innovation and advertising cycles .
  • Tariffs and pricing: July pricing (≈2% of NA sales) offset tariffs with no discernible demand impact; incremental ~$20M exposure addressed via small 2026 price increase .
  • Capital allocation/M&A: Priority is disciplined leverage and shareholder returns; open to adjacencies/manufacturers/retailers if economics are compelling, without relying on M&A in targets .

Estimates Context

  • Q3 2025: SGI beat consensus on revenue and EPS (Primary). Revenue $2,122.6M vs $2,061.3M (+3.0%); EPS $0.95 vs $0.858 (+10.7%)* .
  • Q4 2025 baseline: Consensus revenue ~$1,925.6M and EPS ~$0.716*; management commentary implies stable demand and continued like‑for‑like growth across units with seasonal margin step‑down .

Values marked with asterisks (*) retrieved from S&P Global.

Key Takeaways for Investors

  • SGI is executing well on Mattress Firm integration with accelerating sales and cost synergies, evidenced by SSS +5% and adj. operating margin 9.4% at Mattress Firm, and raised FY25 EPS guidance .
  • Mix and intercompany eliminations are structurally accretive to consolidated margins; like‑for‑like margin puts and takes remain driven by product mix and advertising levels .
  • Tariff headwinds are being actively offset via targeted pricing and product strategy, limiting demand risk while protecting margins .
  • Balance sheet is de‑risking ahead of plan (3.28x vs 3.56x last quarter), with record operating cash flow supporting deleveraging and future capital returns (50% of FCF beginning Q1’26) .
  • Interest‑rate sensitivity is a meaningful upside lever (~$0.18–$0.20 EPS per 100 bps lower rates), with additional potential demand tailwinds if housing activity improves .
  • Near‑term trading setup: Raised guide, visible synergy cadence, and strong holiday ad campaign form supportive catalysts; watch Q4 like‑for‑like trends, tariff developments, and pricing power execution into early 2026 .
  • Medium‑term thesis: Vertically integrated platform (brands + retail) with data/advertising scale, expanding smart‑bed/AI ecosystem, and synergy runway positions SGI for above‑market growth and margin resilience through the cycle .

Appendix: Notable Additional Items

  • Dividend: $0.15/share declared; payable Dec 4, record Nov 20 .
  • Non‑GAAP adjustments (Q3): $32.2M business combination charges; $7.3M supply chain transition; $1.3M disposition‑related; $(0.9)M net transaction cost benefit (reimbursement) .
  • AI/Technology: 10‑year global license with Fullpower‑AI for Sleeptracker‑AI LAM; $25M strategic investment; 300k+ smartbeds equipped .