Tempur Sealy International, Inc.

Good day and thank you for standing by. Welcome to the Tempur-Sealy International Inc. Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Aubrey Moore, Investor Relations. Please go ahead.

Thank you, Operator. Good morning, everyone, and thank you for participating in today's call. Joining me today are Scott Thompson, Chairman, President, and CEO, and Bhaskar Rao, Executive Vice President and Chief Financial Officer. After prepared remarks, we will open the call for Q&A. This call includes forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements involve uncertainties, and actual results may differ materially due to a variety of factors that could adversely affect the company's business. These factors are discussed in the company's SEC filings, including its annual reports on Form 10-K and quarterly reports on Form 10-Q. under the heading 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 obligation to update any forward-looking statement. This morning's commentary will also include non-GAAP financial information. Reconciliations of non-GAAP financial information can be found on the accompanying press release, which has been posted on the company's investor website. website at investor.tempersealy.com and filed with the SEC. Our comments will supplement the detailed information provided in the press release. And now, with that introduction, it's my pleasure to turn the call over to Scott.

Thank you, Aubrey. Good morning, everyone, and thank you for joining us on our 2021 fourth quarter and full year earnings call. I'll begin with a few highlights from our fourth quarter. Bhaskar then will review our record financial performance in more detail. Finally, we'll conclude with some comments on how our long-term initiatives will drive growth. The team continues to deliver strong results across the world and our omnichannel footprint. In the fourth quarter of 2021, net sales grew 29% year over year, driven by our successful company initiatives, our pricing actions, improved order to delivery times, and a solid industry backdrop. The full year and fourth quarter results were outstanding overall, especially considering the unexpected flare-up of COVID in the fourth quarter, causing disruption in most of our markets. We delivered strong performance across the international segment ahead of our expectations. U.S. order trends in the fourth quarter were slightly below our expectations, particularly with low-end consumers. In the U.S., the rapid spread of the Omicron variant, combined with major retailers' inventory positions being stronger than anticipated, negatively impacted orders in the fourth quarter. But I should note, we still achieved a record performance. The inventory dynamics have largely normalized by the end of January. Adjusted earnings per share for the fourth quarter was 88 cents, an increase of 31% versus the same period last year. This represents double-digit adjusted EPS growth for 10 out of the last 11 quarters. Consumers' trend in health and wellness, advances in sleep technology, and ongoing innovation in sleep products bode well for the long-term growth of our sector. We are well positioned to capitalize on those trends as the industry leader in innovation. As a testament to our confidence and our potential, from 2016 through 2021, we have repurchased approximately 80 million shares of our stock, approximately 32% of our shares outstanding, at an average cost of about $23 per share. Those repurchases were made while maintaining low leverage closing strategic acquisitions, and, of course, reinvesting in the business and driving product innovation. To date, in 2022, we have opportunistically repurchased approximately 8 million additional shares, and we expect our diluted share count to be 189 million for the first quarter. I would now like to review some of the key highlights from the quarter. our ability to service our customers improved throughout the fourth quarter. As you may recall, we entered the quarter with a record backlog of about 100 million in U.S. Tempur-Pedic orders, and our U.S. Sealy business and OEM customers were on forced allocation due to supply chain issues. As expected, in the fourth quarter, normal seasonality allowed us to make significant progress in working down our Tempur-Pedic backlog We were able to successfully take our customers off allocation for Sealy products at the end of October. Our U.S. Tempur-Pedic product delivery time significantly improved as well, and today Tempur is operating under a normalized order-to-delivery time. Second, I want to highlight the outstanding performance of our direct channel, where sales more than doubled compared to the prior year. driven by strong organic growth and the acquisition of dreams. Our temper retail stores, sleep outfitter stores, dreams, all of our company owned stores had robust same store sales of over 25% this quarter. We also continue to invest in growing our e-commerce channel, which had a solid fourth quarter performance considering the difficult comp in prior years and inventory constraints. which were partially offset by double digit increases in their conversion rate. We continue to leverage our direct channel to get closer to the customer. Over the last three years, we've increased the number of customers in our database by nearly 50%, leading to increased conversion and more effective and efficient direct marketing. Regarding our own stores, we now operate over 650 retail stores around the world through our wholly owned companies and joint venture operations. These stores vary in format based on local market and consumer preferences, which results in a wide variety of sales on a per-store basis. Our average sales per store in 2021, including e-commerce, were over $2 million each, with our U.S.-based Tempur retail stores averaging over $4 million each. We see potential to continue to open additional retail locations as we see market opportunities arise. Third, I want to call out some exciting awards and recognitions we've received. Our Tempur-Pedic brand was awarded number one in customer satisfaction for the retail mattress category in the J.D. Power 2021 mattress satisfaction report. but this is the third year in a row we've won that award. We're thrilled to share with you that for the first time, our Tempur-Pedic grant also was awarded the number one in customer satisfaction for the online mattress category in the same report. In addition to being ranked number one overall in customer satisfaction, Tempur-Pedic earned number one ranking across all factors in the retail mattress category, which includes support, durability, comfort, variety of features, value, warranty, and contact with customer service. In addition to the awards received by Tempur-Pedic, our Sealy brand achieved the number one selling mattress brand in the U.S. for the second year in a row in 2021, while also being named America's number one trusted mattress by Consumer Report. This recognition from our customers is a testament to our commitment to providing innovation, high-quality product solutions that address their sleepy needs. It is also an important recognition of the growing importance of our online and retail businesses, which continue to be growth drivers for the company. A little later, I will discuss our 2022 product launch plans that will allow us to continue delivering industry innovation. Fourth, despite the many changes and challenges that we faced in 2021. We continued steadfast in our commitment to protecting the environment and the communities in which we operate. Success at Tempur-Sealy is defined more broadly than just financial metrics, and it is inclusive of our environmental, social, and governance impact. We firmly believe that ESG initiatives create value for our stakeholders and contribute to the long-term financial success of our business. Last month, we published our 2022 Corporate Social Value Report. The report detailed the significant progress we've made on our environmental goals in 2021. Notably, we furthered our goal of achieving zero landfill waste through improving the percentage of waste recycled in our U.S. manufacturing operations to 94 percent. We also achieved 8.4 percent reduction in greenhouse gas emissions per unit produced, furthering our progress towards our goal to achieve carbon neutrality by 2040. The full report includes additional information about our 2021 initiatives in progress and can be found on our website. Finally, before turning the call over to Bhaskar, I want to take a moment and welcome two new members of our Tempur-Sealy Board of Directors. Meredith Siegfried Madden, and Simon Dyer. Meredith currently serves as a director and the chief executive officer of Nordam Group Inc., a global aerospace manufacturing company, and brings over 25 years of experience to our board. Simon currently serves as chairman of the board and chief executive officer of the Dyer Group, which, among other things, operates our international joint ventures. Simon brings 35 years of leadership in mattress and bedding industry to the Board, including extensive knowledge of the international bedding market. Meredith and Simon both have multiple areas of expertise, including international markets, strategy, sales, logistics, manufacturing, and finance. We are thrilled to have them join the Board of Directors. With that, I'll turn the call over to Bhaskar.