Company Chairman and CEO Scott Thompson commented, "We are pleased to see our global market outperformance mitigate the impact of softer than anticipated industry volumes. Despite an estimated mid-single digit industry decline over the quarter, more than our anticipated low-single digit decline for the period, our sales were only slightly below internal expectations. Our strong gross margin performance and solid cost controls resulted in healthy earnings growth in the second quarter.
Thompson continued, "I am pleased to share that we recently executed a new post-closing supply agreement with one of Mattress Firm's medium size mattress suppliers. This is one of several post-closing supply agreements we have executed in preparation for our planned acquisition of Mattress Firm, and is consistent with our plan for Mattress Firm to continue as a multi-branded retailer. Regarding the FTC's challenge of the Mattress Firm acquisition, we are confident in the pro-competitive rationale for this transaction and look forward to presenting the facts of our case. We believe that a successful litigation process can be completed in the coming months, which would allow us to close the transaction in late 2024 or early 2025."
Business Segment Highlights
The Company's business segments include North America and International. Corporate operating expenses are not included in either of the business segments and are presented separately as a reconciling item to consolidated results.
North America net sales decreased 3.8% to $978.4 million as compared to $1,016.8 million in the second quarter of 2023. Net sales through the wholesale channel decreased $41.2 million, or 4.6%, to $854.8 million as compared to the second quarter of 2023, primarily driven by continued macroeconomic pressures impacting U.S. consumer behavior. Net sales through the direct channel increased $2.8 million, or 2.3%, to $123.6 million as compared to the second quarter of 2023.
North America gross margin was 41.9% as compared to 39.7% in the second quarter of 2023. Gross margin improved 200 basis points as compared to adjusted gross margin(1) in the second quarter of 2023. There were no adjustments to gross margin in the second quarter of 2024. The improvement was primarily driven by favorable commodity costs, operational efficiencies and favorable product launch costs. These improvements were partially offset by the mix impact of the new distribution win for our OEM business.
North America operating margin was 18.4% as compared to 17.1% in the second quarter of 2023. Operating margin improved 100 basis points as compared to adjusted operating margin(1) in the second quarter of 2023. There were no adjustments to operating margin in the second quarter of 2024. The improvement was primarily driven by the improvement in gross margin, partially offset by investments in growth initiatives.
International net sales increased 0.9% to $255.2 million as compared to $252.9 million in the second quarter of 2023. On a constant currency basis(1), International net sales increased 1.9% as compared to the second quarter of 2023. Net sales through the wholesale channel increased $2.5 million, or 2.7%, to $95.7 million as compared to the second quarter of 2023. Net sales through the direct channel decreased $0.2 million, or 0.1%, to $159.5 million as compared to the second quarter of 2023.
International gross margin improved 170 basis points to 56.6% as compared to 54.9% in the second quarter of 2023. The improvement was primarily driven by operational efficiencies and favorable product launch costs.
International operating margin declined 90 basis points to 12.5% as compared to 13.4% in the second quarter of 2023. The decline was primarily driven by investments in growth initiatives and Asia joint venture performance, partially offset by the improvement in gross margin.
Corporate operating expense decreased to $38.9 million as compared to $49.2 million in the second quarter of 2023. Adjusted operating expense(1) was $31.6 million as compared to $38.6 million in the second quarter of 2023, primarily driven by reduced variable compensation expense.
Consolidated net income increased 14.8% to $106.1 million as compared to $92.4 million in the second quarter of 2023. Adjusted net income(1) increased 9.5% to $111.7 million as compared to $102.0 million in the second quarter of 2023. EPS increased 15.4% to $0.60 as compared to $0.52 in the second quarter of 2023. Adjusted EPS(1) increased 8.6% to $0.63 as compared to $0.58 in the second quarter of 2023.
The Company ended the second quarter of 2024 with total debt of $2.5 billion and consolidated indebtedness less netted cash(1) of $2.4 billion. Leverage based on the ratio of consolidated indebtedness less netted cash(1) to adjusted EBITDA(1) was 2.70 times for the trailing twelve months ended June 30, 2024.
Financial Guidance
For the full year 2024, the Company revised its expectations for an adjusted EPS(1) range of $2.45 to $2.65. This contemplates the Company's current outlook that 2024 sales will be consistent versus prior year. At the midpoint, this revised guidance represents a 6% increase in adjusted EPS(1) from the prior year.
The Company noted that its expectations are based on information available at the time of this release, and are subject to changing conditions and risks, many of which are outside the Company's control. The Company is unable to reconcile forward–looking adjusted EPS, a non–GAAP financial measure, to EPS, its most directly comparable forward–looking GAAP financial measure, without unreasonable efforts, because the Company is currently unable to predict with a reasonable degree of certainty the type and extent of certain items that would be expected to impact EPS in 2024.
Dividend Declared
The Company's Board of Directors declared a quarterly cash dividend of $0.13 per share, payable on August 29, 2024, to shareholders of record at the close of business on August 15, 2024.
Conference Call Information
Tempur Sealy International, Inc. will host a live conference call to discuss financial results today, August 6, 2024, at 8:00 a.m. Eastern Time. The call will be webcast and can be accessed on the Company's investor relations website at investor.tempursealy.com. After the conference call, a webcast replay will remain available on the investor relations section of the Company's website for 30 days.
Non-GAAP Financial Measures and Constant Currency Information
For additional information regarding EBITDA, adjusted EBITDA, adjusted EPS, adjusted net income, adjusted gross profit, adjusted gross margin, adjusted operating income (expense), adjusted operating margin, consolidated indebtedness and consolidated indebtedness less netted cash (all of which are non-GAAP financial measures), please refer to the reconciliations and other information included in the attached schedules. For information on the methodology used to present information on a constant currency basis, please refer to "Constant Currency Information" included in the attached schedules.
Source: Tempur
