Lexington, Kentucky - Mattress and pillow maker Tempur-Pedic International Inc. is to institute a series of initiatives to further strengthen its financial flexibility, including repatriation of foreign earnings and a suspension of its cash dividend, with funds redirected to reduce debt.
These moves are part of Tempur-Pedic's strategy to deal with what chief executive officer Mark Sarvary called "the most challenging economic environment in memory," - one he said was unlikely to recover in the short term.
And "Given the extraordinary macro economic events of recent weeks," Tempur-Pedic said it now believes Q4 sales will fall below prior expectations and has revised full year 2008 guidance. It currently expects net sales for 2008 to range from $930 million to $950 million.
The company reported net income of $24.1 million for the third quarter of 2008 as compared to $38.8 million in Q3, 2007. Net sales declined 14 percent to $252.8 million in Q3 2008 from sales in Q3 2007. Net sales in the domestic segment declined 17 percent, while international segment net sales declined 7 percent.
Mattress sales declined 15 percent globally - made up of 18 percent domestically and 10 percent internationally, while pillow units declined 10 percent globally (18 percent domestically, relatively unchanged internationally).
Tempur Pedic's gross profit margin was 41.7 percent, compared to 48.2 percent in Q3 2007, a decline resulting from "significant weakness in the high margin direct channel, increased commodity costs and fixed cost de-leverage related to lower volumes," said the company's 16 Oct results statement. These negative factors were "partially offset by improved manufacturing productivity," Tempur-Pedic added.
Operating cash flow increased 30 percent to $72.6 million in Q3 2008, while inventories were cut by $23.8 million to $69.7 million. Debt was cut by $37.8 million to $518.8 million and cash balance by $19.3 million to $87.7 million.
During Q3 2008, "The economic climate worsened and we responded quickly to improve earnings," said chief executive officer Mark Sarvary. "We reduced our operating expenses and improved our balance sheet by substantially reducing debt."
He went on to detail the group's plans to repatriate about $140 million of foreign earnings, enabling it to utilise $75 million cash held abroad to reduce debt. Tempur-Pedic will also shift some of its domestic segment leverage to the international segment, thereby allowing for more rapid overall debt reduction.