Trinity, North Carolina - Major bedding manufacturer Sealy Corp. reported sales down 6.6 percent for the second quarter of 2008, compared to Q2 2007, and said income was also down, at $12 million as opposed to $16.1 million in Q2 2007.
Sealy, which says it is the largest bedding manufacturer in the world, had domestic sales of $258.7 million for Q2 2008, compared to $303.2 million in the Q2 2007.
"The US mattress retail environment deteriorated during the second quarter of 2008, impacting our ability to drive domestic sales volumes," said Larry Rogers, Sealy's interim chief executive officer and president of North America.
Despite competitive pressure on sales and inflation affecting profitability, cost reductions were effective, Rogers indicated. He added that Sealy's speciality business was hurt by "industry-wide softening in retail demand" for higher price mattresses.
In the US, a 0.6 percent increase in average unit selling price (AUSP) was offset by a 16.1-percent decline in wholesale business, Trinity-headquartered Sealy said.
Wholesale volumes in the US were affected by softer demand, as well as by lost distribution from accounts such as Levitz and Wickes, who shut operations in Q4 2007 as a result of "the difficult economic environment," said Sealy, in its 8 July results statement for Q2 2008.
International sales grew 18.3 percent compared to Q2 of 2007 (or 6.1 percent excluding currency fluctuation) to $116.7 million. This is 7.6-percent growth in unit volume, partially offset by a decrease in AUSP, from increased sales of lower-priced original equipment products in Europe.
Gross profit in Q2 was $148.4 million, or 39.5 percent of net sales, versus 42.9 percent for Q2 2007. Sealy attributes this decrease primarily to rising US material costs, "including an unprecedented increase in inflation on core inputs such as steel and foam." Another factor her was $3.0 million extra needed to ensure Sealy's products comply with the July 2007 federal flame retardant regulations, the company stressed.
Domestic profit margins were also cut by costs associated with the new Posturepedic line, but Sealy said sales of this and other speciality products outperformed other items in its US portfolio.
But price increases implemented in December 2007 and continuing improvements in manufacturing efficiency - in labour and scrap management- pushed margins up Sealy said.
Rogers added that Sealy expects the second half of 2008 "to be challenging as industry trends weakened further in June and retail traffic remains soft." And Sealy is also expecting "significantly higher material costs due to rapidly growing inflation on core materials," and additional promotional expenses associated with new product launches.