Tempur Sealy International, Inc.

Good day and thank you for standing by. Welcome to the Tempur-Sealy first quarter 2022 earnings conference call. At this time, all participants are in the listen-only mode. After the speaker presentation, there will be a question and answer session. To ask a question during the session, you need to press star 1 on your telephone. And if you require any further assistance, please press star 0. I would like to hand the conference over to your speaker today, Ray 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 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. This morning's commentary will also include non-GAAP financial information. Reconciliations of the non-GAAP financial information can be found in the accompanying press release, which has been posted on the company's investor 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 2022 first quarter earnings call. I'll begin with some brief comments on this quarter's sales and earnings results, then address certain top of mind issues and how they impact our global operations. To conclude our prepared remarks, Bhaskar will discuss our record first quarter financial performance in more detail. In the first quarter of 2022, net sales grew 19% year over year to 1.2 billion and adjusted EPS grew 8% year-over-year to 69 cents. This was a record first quarter financial performance. But as we shared in our market update at the end of March, sales came in below what we had initially expected entering the year, and commodity prices, primarily energy, moved against us. However, taking into account the turbulence of the global operating environment, we were pleased to report another quarter of double-digit sales growth, the 10th out of the last 11, as well as EPS growth. I should also note there were no adjustments in our operating performance this quarter. The team achieved several noteworthy non-financial accomplishments during the quarter as well. We began the rollout of our new premium Sealy product in the U.S., continued the successful launch of our new ERP system in the U.S., launched the new Stearns and Foster e-commerce platform, and fully returned to normalized order-to-delivery times for both Tempur and Sealy. I should also mention that our new plant, our new Tempur plant that we're building in Crawfordsville is on plan to be operational next year. Now I'd like to take a moment and address a few macroeconomic issues and discuss how we're managing the business in this rapidly changing operating environment. Like you, we are watching the tragic events that are unfolding in the Ukraine in absolute horror. In an effort to support those displaced by the war, the Tempur-Sili International Foundation contributed financial aid to support Ukrainian children and families. And our European operations have donated over 1,000 bedding products to the refugee centers with more on its way. In the terms of the impact to our business, when we do not have any operations in the Ukraine or Russia, the war has introduced elements in the near term risk to our international supply chain, which has been largely mitigated at this point. It is also having a ripple effect on consumer confidence in Europe, which has negatively impacted our trends in the region. To give you an idea of the impact, our order trends were running up approximately 30% in Europe in the eight weeks pre-invasion, and have turned negative in the eight weeks since the invasion. Given the uncertainty around the evolution of this conflict, we expect these pressures on the European market to continue in the near term. As previously announced, given the circumstances, we've elected to postpone the launch of our new Tempr International product line that was planned for 2022. We now expect to begin the launch in the first quarter of 2023 to allow time for the international retail market to normalize. Consequently, this will be moving 20 million of associated costs into 2023. Additionally, we'll have to move expected sales growth from the new product line out a few quarters. Turning to the U.S., U.S. consumer confidence has been shaken by the rampant inflation and geopolitical uncertainty in recent months. Yet, we also see signs in the market that point to a resilience in the U.S. consumer, such as record wage gains, low unemployment, and a projected 3% domestic GDP growth in 2022, despite significant pressures from COVID and supply chain challenges. We anticipate that once we work through the immediate shock to the recent macro developments and we lap the impact of stimulus in the prior year, we should see a modest improvement in the U.S. retail market, most likely in the back half of 2022. The third external factor is commodity inflation. As we've previously discussed, input costs for the entire betting industry have been rising over the last two years. In response, we've been able to neutralize the dollar impact of these commodity increases through multiple pricing actions. Last time we reported, we had fully passed on price inflation. Subsequent to reporting, another wave of inflation driven by oil and fuel supply issues generally caused by the Ukrainian war hit the market. Our latest outlook for 2022 commodity cost has increased. So we have announced another round of pricing actions for both our domestic and our international markets that will take effect in the second half of 2022. We expect these additional pricing actions will offset the expected incremental inflation headwinds, resulting in normal profitability on a dollar basis once fully rolled out across the markets worldwide. Turning to COVID, COVID continues to impact operations. Although cases have been decreasing globally, benefiting our operations in many of the markets we serve, recent flare-ups of variances in China have negatively impacted our wholly owned and joint venture operations that operate in Asia. As a ballpark number, we expect a $10 million EBITDA headwind in the second quarter as a result of this most recent COVID outbreak. Lastly, I want to update you on the ongoing supply chain disruptions. The global supply chain is in better shape overall this year than it was this time last year, although certainly continues to have some challenges. For example, the recent challenges in China that have materially impacted the supply chain in Eastern Asia, though it has had minimal impact on our North American and European supply chains, as most of our supplies come from the U.S. and Europe. We do source adjustable bases from East Asian suppliers, but we've largely mitigated that risk in the near term, as we are well stocked for 2022. As I mentioned, our supply chain has improved, although we are still experiencing some plant inefficiencies. and it may take a few more quarters for the plant's operations to normalize. We've taken many actions to secure our global supply chain against future disruptions, including diversifying our supplier base, improving vendor and customer communications, and strengthening our inventory positions of both temper-finished goods and adjustable bases. The team is focused on driving long-term growth of the company, through delivering on key initiatives which we believe will facilitate future EPS growth. These include, first, develop the highest quality bedding products in all the markets that we serve. Second, promote worldwide brands with compelling marketing. Third, optimize our growing omni-channel distribution platform. And fourth, drive increased EPS and prudent deployed capital. Over the last few years, our long-term initiatives have led us to diversify our brands, products, channels, markets, and technologies to meet the needs of more consumers wherever and however they want to shop. This diversification of our business has significantly broadened our addressable market worldwide, securing our position in the global betting industry. These same initiatives are driving the building blocks to our next stage of growth. These building blocks include investing in innovation to meet consumer needs, seeding Stearns and Foster to be our next billion-dollar brand, growing our global wholesale business through existing and third-party partnerships, investing in our operations to position our business for significant growth, expanding our direct-to-consumer business worldwide through growing our e-commerce and company-owned store presence, increase our international total addressable market through launching all new temper products in Europe and Asia, and executing on our capital allocation strategy. With that, I'll turn the call over to Bhaskar.