Sealy Corporation Reports Fiscal Fourth Quarter 2011 Results

TRINITY, N.C., Jan. 18, 2012 /PRNewswire/ -- Sealy Corporation (NYSE: ZZ), a leading global bedding manufacturer, today announced results for its fiscal fourth quarter 2011. 

Fiscal 2011 4th Quarter Recap for Continuing Operations

• Net sales decreased by $27.3 million to $269.3 million, compared to the same prior year quarter. 
• Gross profit decreased by $24.8 million to $98.1 million compared to the same prior year quarter.
• Income from operations decreased by $25.1 million to $3.7 million compared to the same prior year quarter.
• Net loss from continuing operations was $(14.0) million or $(0.14) per diluted share, compared to net income from continuing operations of $3.5 million or $0.03 per diluted share in the prior year quarter.  The corresponding share counts for 2011 and 2010 fourth quarter EPS were 100.9 million and 296.2 million, respectively. For further information on the calculation of diluted shares, please see the attached Reconciliation of Fully Diluted Sharecount schedule. 
• Adjusted EBITDA decreased by $24.7 million to $15.1 million compared to the same prior year quarter.

"We were disappointed with our performance in the fourth quarter and the full fiscal year 2011," stated Larry Rogers, Sealy's President and Chief Executive Officer.  "These results were not in line with the goals that we set forth in the beginning of 2011 and we are making operational changes to improve our future business results."  

Fiscal 2011 Fourth Quarter Results

Total U.S. net sales decreased 9.6% to $203.0 million from the fourth quarter of fiscal 2010. Excluding third party sales from the component plants, wholesale unit volume decreased 5.7%. The decrease in unit volume was driven primarily by a decrease in sales of products at lower price points due to increased competition.  Net sales were also unfavorably impacted by a change in estimates for non-warrantable product returns and an increase in subsidies charged as deductions to revenues, partially offset by reductions in Cost of Goods Sold ("COGS") and Selling, General and Administrative ("SG&A") expenses.  For further information on the changes in Net Sales, COGS and SG&A, please see the attached Reconciliation of Certain Fourth Quarter Financial Results to Prior Year schedule.

International net sales decreased $5.7 million, or 7.9%, from the fourth quarter of fiscal 2010 to $66.3 million. The decrease in international net sales was primarily due to lower sales in the Canadian market which saw a decline in unit volume of lower priced, Sealy promotional product and reduced promotional activity for Posturepedic. Excluding the effects of currency fluctuation, international net sales decreased 6.4% from the fourth quarter of fiscal 2010. 

Gross profit for the fourth fiscal quarter decreased by $24.8 million to $98.1 million from the prior year quarter.  Gross margin decreased 5.0 percentage points to 36.4%. The decrease as a percentage of net sales was primarily due to a decrease in gross profit margin in the U.S. and Canadian operations.  U.S. gross profit margin decreased 5.8 percentage points to 35.0%. Higher raw material and other inflation, especially related to foam and steel, negatively impacted gross margin by 3.5 percentage points.  The above mentioned shift in subsidies and higher product launch costs associated with the Next Generation Stearns & Foster line further reduced gross margin.

Selling, general, and administrative expenses were $98.9 million for the fourth quarter of fiscal 2011, a decrease of $0.1 million versus the comparable period a year earlier. As a percentage of net sales, this expense was 36.7% and 33.4% for the quarters ended November 27, 2011 and November 28, 2010, respectively, an increase of 3.3 percentage points.  The increase as a percentage of sales was primarily a result of deleveraging of the fixed cost structure along with higher advertising costs.  

Income from operations for the fourth quarter decreased $25.1 million to $3.7 million.  

Net loss from continuing operations for the fourth quarter was $(0.14) per diluted share.  Net loss from discontinued operations for the period was $(0.01) per diluted share.  As described below, the net loss from discontinued operations includes the operational results related to the European and Brazilian businesses and the related losses on disposition. 

Cash flow from operations was $26.9 million driven primarily by improvements in working capital.

Fiscal 2011 Full Year Results

Net sales for the fiscal year ended November 28, 2011 increased 1.0% to $1,230.2 million from $1,219.5 million for the prior fiscal year. Gross profit was $478.7 million, or 38.9% of net sales, versus $509.5 million, or 41.8% of net sales, for the prior fiscal year.  For the 2011 fiscal year, net loss from continuing operations was $(5.7) million, net loss from discontinued operations was $(4.2) million and net loss for the fiscal year was $(9.9) million.  Adjusted EBITDA decreased 29.0% to $126.3 million, or 10.3% of net sales, from $177.9 million, or 14.6% of net sales, in the prior fiscal year.  For further information on the change in Adjusted EBITDA, please see the attached Reconciliation of 2011 Adjusted EBITDA to Prior Year schedule.

As of November 28, 2011, the Company's debt net of cash was $683.9 million and Net Debt to Adjusted EBITDA ratio (excluding the Convertible Payment In Kind Notes) was 3.95x. 

"As we look forward into 2012, we expect the industry to continue to experience higher growth in upper and lower priced product rather than growth in products at the middle price points.  Accordingly, we are focused on a successful launch of our Next Generation Stearns & Foster and the development of our new Specialty Division at the upper price points of the market and recapturing momentum at the lower price points.  We are also continuing our successful digital marketing strategy and driving growth across our multiple business models in the international markets. With new organizational and operational changes being implemented across our business we believe we are positioned to improve sales and Adjusted EBITDA performance in 2012," concluded Mr. Rogers.

Results from Discontinued Operations

During the fourth quarter of 2010, the company divested the assets of its manufacturing operations in France and Italy, which represented all of the assets in its Europe segment.  In addition, the company discontinued manufacturing operations in Brazil.  The company has transitioned to a license arrangement with third parties in both of these markets.  These businesses are accounted for as discontinued operations, and accordingly, the company has reclassified its financial data for all periods presented to reflect these actions.  Unless otherwise noted, the reported financial data pertains to Sealy's continuing operations. 

Non-GAAP Measures

Sealy provides information regarding Adjusted EBITDA and Adjusted EBITDA Margin which are not recognized terms under GAAP (Generally Accepted Accounting Principles) and do not purport to be alternatives to operating income or net income as a measure of operating performance or to cash flows from operating activities as a measure of liquidity. The Company presents Adjusted EBITDA, because the covenants contained in the Company's senior debt agreements are based upon these measures and Adjusted EBITDA is a material component of those covenants. Additionally, management uses Adjusted EBITDA to evaluate the Company's operating performance.  The Company also presents Adjusted EBITDA margin, which is Adjusted EBITDA reflected as a percentage of net sales because it believes that this measure provides useful incremental information to investors regarding the Company's operating performance.  Additionally, these measures are not intended to be measures of available cash flow for management's discretionary use, as these measures do not consider certain cash requirements such as interest payments, tax payments and debt service requirements. Because not all companies use identical calculations, this presentation may not be comparable to other similarly titled measures of other companies.  A reconciliation of Adjusted EBITDA and Adjusted EBITDA Margin to the Company's net income is provided in the attached schedule. 

Additionally, the Company provides certain information on a constant currency basis which reflects a comparison of current period results translated at the prior period currency rates.  This information is provided because the Company believes that it provides useful incremental information to investors regarding the Company's operating performance.

Conference Call

The Company will hold a conference call today to discuss its fiscal fourth quarter 2011 results at 5:00 p.m. (Eastern Standard Time).  The conference call can be accessed live over the phone by dialing 1-877-941-4774, or for international callers, 1-480-629-9760. A replay will be available one hour after the call and can be accessed by dialing 1-877-870-5176, or for international callers, 1-858-384-5517. The passcode for the live call and the replay is 4501834. The replay will be available until January 25, 2012.

Interested investors and other parties may also listen to a simultaneous webcast of the conference call by logging onto the Investors section of the Company's website at www.sealy.com. The on-line replay will be available for a limited time beginning immediately following the call in the Investors section of the Company's website at www.sealy.com.

About Sealy

Sealy owns one of the largest bedding brands in the world, with sales of $1.2 billion in fiscal 2011. The Company manufactures and markets a broad range of mattresses and foundations under the Sealy(R), Sealy Posturepedic(R), Sealy Embody(TM), Stearns & Foster(R), and Bassett(R) brands. Sealy operates 25 plants in North America, and has the largest market share and highest consumer awareness of any bedding brand on the continent. In the United States, Sealy sells its products to approximately 3,000 customers with more than 7,000 retail outlets. Sealy is also a leading supplier to the hospitality industry. For more information, please visit www.sealy.com. 

This document contains forward-looking statements within the meaning of the safe harbor provisions of the Securities Litigation Reform Act of 1995. Terms such as "expect," "believe," "continue," and "grow," as well as similar comments, are forward-looking in nature. Although the Company believes its growth plans are based upon reasonable assumptions, it can give no assurances that such expectations can be attained. Factors that could cause actual results to differ materially from the Company's expectations include: general business and economic conditions, competitive factors, raw materials purchasing, and fluctuations in demand. Please refer to the Company's Securities and Exchange Commission filings for further information. 

The condensed consolidated statements of operations and related information presented below have been adjusted for discontinued operations presentation for all periods presented.  However, the condensed consolidated balance sheets and statements of cash flows have not been adjusted for such presentation.

SOURCE Sealy Corporation

WANT YOUR COMPANY'S NEWS FEATURED ON PRNEWSWIRE.COM?

440k+
Newsrooms &
Influencers

9k+
Digital Media
Outlets

270k+
Journalists
Opted In

GET STARTED