Tempur Pedic International's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Tempur Pedic International (TPX)

Q1 2012 Earnings Call

April 19, 2012 5:00 pm ET

Executives

Mark Rupe -

Mark A. Sarvary - Chief Executive Officer, President and Director

Dale E. Williams - Chief Financial Officer and Executive Vice President

Analysts

John A. Baugh - Stifel, Nicolaus & Co., Inc., Research Division

Jessica Schoen - Barclays Capital, Research Division

Keith B. Hughes - SunTrust Robinson Humphrey, Inc., Research Division

Joseph Altobello - Oppenheimer & Co. Inc., Research Division

Bradley B. Thomas - KeyBanc Capital Markets Inc., Research Division

Jon Andersen - William Blair & Company L.L.C., Research Division

Joan L. Bogucki-Storms - Wedbush Securities Inc., Research Division

Budd Bugatch - Raymond James & Associates, Inc., Research Division

Joshua Borstein - Longbow Research LLC

Eric Hollowaty - Stephens Inc., Research Division

Joshua Pollard - Goldman Sachs Group Inc., Research Division

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the TEMPUR-Pedic First Quarter 2012 Earnings Conference Call. [Operator Instructions] And as a reminder, today's conference is being recorded. Now I would like to turn the program over to Mark Rupe.

Mark Rupe

Thanks, Matt. Thank you for participating in today's call. Joining me in our Lexington headquarters are Mark Sarvary, President and CEO; Dale Williams, EVP and CFO. After our prepared remarks, we will open the call for Q&A.

Forward-looking statements that we make during this call are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that forward-looking statements, including the company's expectations regarding sales and earnings, involve uncertainties. Actual results may differ due to a variety of factors that could adversely affect the company's business. The factors that could cause actual results to differ materially from those identified include economic, competitive, operating and other factors discussed in the press release issued today. These factors are also discussed in the company's SEC filings, including the company's annual report on Form 10-K under the headings Special Note Regarding Forward-Looking Statements and Risk Factors. Any forward-looking statement speaks only as of the date on which it is made. The company undertakes no obligations to update any forward-looking statements. The press release, which contains a reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures is posted on the company's website at tempurpedic.com and filed with the SEC.

With that introduction, I will turn the call over to Mark Sarvary.

Mark A. Sarvary

Thanks, Mark. Good evening, everyone, and thanks for joining us. We're pleased with our first quarter, we're off to a good start to the year. Sales were up 18% and earnings per share were up 26%. On a constant-currency basis, North American sales increased 18% and international sales increased 22%. In a few moments, Dale will provide details of the first quarter results, as well as discuss our outlook for 2012.

But first, I'd like to talk about the progress we've made on our key strategic initiatives during the quarter. The first of these initiatives is to make sure that everyone knows that they would sleep better on TEMPUR.

As we discussed at our Investor Day in February, our investment in brand advertising is a key driver of our future growth. We know that increasing recent advertising results in a higher TEMPUR brand awareness, which in turn drives increased sales, share and profitability. And we said we were going to significantly increase our investment in advertising in 2012, and during the first quarter, we did just that. Our advertising was a record $47 million with considerable year-over-year growth both in North America and in our key international markets.

In the U.S., we significantly expanded our heavy-up marketing program. Internationally, we increased our brand advertising investment in Germany, France and the United Kingdom and introduced TV campaigns into additional markets, including Italy and Australia. While it is still early, these marketing campaigns are showing positive results with brand awareness, purchase consideration and website traffic growing in line with plan. In particular, strong performance in our key international markets during the quarter proves that our advertising investment continues to be successful. However, while our confidence is high that these investments will continue to be effective, we will also continue to monitor the results closely and adjust as necessary.

The second of our initiatives is to make sure that there's a TEMPUR mattress and pillow that appeals to everyone by expanding and strengthening our product line. In the U.S., we introduced the TEMPUR-Simplicity Collection at the Las Vegas market in the late January, and just recently begun shipping the product to customers.

As we discussed in detail at the Investor Day, TEMPUR-Simplicity is the most researched product we have ever launched and addresses a very large market segment that we have not previously targeted in a meaningful way. At $1,499 for a Queen set, the 3 bed collection with soft, medium and firm comfort options, addresses the $1,000 to $2,000 price plan, a segment which has the same dollar value as all the segments above $2,000 added together. While it remains very early, we're pleased with the performance we've seen so far. Retailer feedback continues to be very positive and we've gained considerable incremental margin.

Internationally, we continued the successful rollout of the Cloud Collection, as well as just introduced the Sensation deluxe model in certain markets. These launches are part of our collection selling strategy, which drives both slot growth and broadens our addressable market.

Our third strategic initiative is to make sure that TEMPUR is available to everyone by gaining broad, high-quality distribution. During the first quarter, we continued to add distribution and slots both in North America and internationally, and expect additional gains throughout the balance of the year, Simplicity being a large contributor. The recent launch of our new Elite Retailer program is also expected to support and contribute to our distribution network.

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