Tempur Sealy International, Inc.

Good day, and thank you for standing by. Welcome to the Temporary Sealy first quarter 2023 earnings. At this time, all participants are in listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during that session, you will need to press star 1-1 on your telephone. You will then hear a message advising your hand is raised. To withdraw the question, simply press star 1-1 again. And please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker, Aubrey Moore, Vice President, Investor Relations. The floor is yours.

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 report 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 obligation 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 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 2023 first quarter earnings call. I'll start by sharing some highlights from our first quarter performance, and then Bhaskar will review our financial performance in more detail. After that, I will share some closing comments before we open the call up for Q&A. In the first quarter of 2023, net sales were approximately 1.2 billion and adjusted EPS was 53 cents, which represents a 75% growth in sales and approximately 300% growth in adjusted EPS over the first quarter of 2019, a pre-COVID period. Compared to the same period last year, this represents a 3% decline in sales and a 23% decline in adjusted EPS, driven by launch costs to support our new innovative products and a less robust macroeconomic environment. Our wholesale channel performed well. We reported wholesale sales stable to prior year as our continued global market overperformance mitigated the heightened macroeconomic headwinds. Our direct channel performance was more impacted by the current environment. Unfavorable foreign exchange rates presented a challenge to our international operations and cost us three cents per share per quarter. As I noted, though industry conditions were less favorable than expected, it is very clear we continue to outperform the market. and units appear to be stabilizing at a historical trough level. In the second quarter, our expectation is that our sales will return to growth year over year, driven by continued global market outperformance and the rollout of our new products. We also anticipate industry demand will slowly improve in the back half of the year as comps ease. As a reminder, U.S. produced mattress consumption declined approximately an unprecedented 24% in 2022, representing trough unit production for the last 10 years. Most of the decline was post-first quarter of 2022. As we've now fully lapped the challenging prior year comps, we anticipate the industry will slowly recover, resulting in a more stable U.S. betting environment in the full year 2023, with the back half unit trends stronger than the first half. Turning to highlights and some key wins in the quarter. First, we continue to see positive momentum in our brands and private label products at wholesale. Our high-quality products leading customer service continues to drive third-party retailers to lean into our brands and non-branded products. Our third-party retail partners in the U.S. are especially supportive of the new Stearns and Foster product. We are tracking to expand our third-party retail slots of Stearns by approximately 20% compared to the previous collection. We believe these slots will be coming from competitors, enhancing the total presence of Tempur-Sealy brands on U.S. retail floors. We continue to make progress towards our goal of making Stearns and Foster our next billion-dollar brand, more than doubling its current size today. On the product side, we're well underway with our rollout of the new Stearns and Foster collection in North America. The new products are designed to further differentiate our high-end traditional innerspring brand, while also offering an extended lineup of products that address the needs and differences of consumers. The collection's superior innovation enhanced step-up opportunities and elevated design together create unprecedented luxury Interspring product that meets the needs of what we believe is an underserved consumer seeking a premium Interspring product. Overall, Stearns and Foster's performed well relative to the U.S. market in the first quarter, and we believe it's currently the fastest growing major brand in the U.S. The second highlight of the quarter is the launch of our new Temper Breeze product and our new innovative line of smart adjustable bases in the U.S. These products build on the success of our prior generation of Breeze and adjustable bases to provide even greater consumer benefits to America's most highly recommended mattress. The new Temper Breeze product features our latest temper material innovation, which delivers greater temper feel characteristics and greater cooling benefits. In our new line of adjustable bases, we enhanced our connected sleep platform and our continued focus on improving sleep and overall health and wellness of consumers. In addition to our sense and response technology for snoring, featured in our previous smart base collection, the new bases also feature lumbar support at the touch of a button and advanced technologies, including our industry-first acoustic massage and a range of relaxation features that help prepare customers' bodies and minds for deep, rejuvenative sleep, exclusive to the top-tier Tempur-Ergo ProSmart base, wind-down programs, and soundscape mode, offers an immersive and multi-sensory experience. After very positive feedback consumer studies and retail partner previews, we started shipping the new Tempur Breeze and the new Tempur Ergo power bases in late first quarter. The rollout is going according to plan, and we have shipped over 75% of Breeze floor models to date. We pre-built inventory to support a seamless transition across our valued Tempur-Pedic retail partners network. Most all retailers will be floored and selling for Memorial Day, which is when our new Breeze and SmartBase advertising campaigns begin. This is the first North America temper mattress launch in four years. The third highlight is that we've significantly fortified our supply chain, and we're executing orders within normalized order-to-delivery times. Our U.S. operating team and plant personnel have worked significant amounts of overtime to get us to the point of normalized order-to-delivery times. The overtime and expediting cost hurt us a bit in gross margin this quarter, but we're thrilled to be back on normal customer service ahead of the prime selling season of second and third quarter. This is especially positive as we've accomplished this while outperforming the broader market. The final highlight is that we successfully kicked off the rollout of our new Tempur International product this quarter. This all-new lineup of mattresses, pillows, and bed bases have been strategically designed to optimize Tempur's global addressable market. The expanded price point and consumer-centric innovations in the new collection will continue to appeal to our legacy ultra-premium consumers at prices of $3,000 and above, while also meeting the needs of consumers shopping for mattresses between $2,000 and $3,000. We streamlined the construction of the new products to drive future manufacturing efficiencies and enhance our ability to adapt our products to individual markets' needs. This updated process has enabled us to feel confident in unlocking a broader price range without materially altering our margin profile of our temporary international business. We are manufacturing both the new lines of products and the old line of products as we transition. This is a heavy lift for our overseas team, and after the transition period, we plan to optimize production of the new line, which we expect will be a positive driver for gross margins. We are launching the new lineup in over 90 markets worldwide, and we're staggering the rollout of these new products to allow for a customized approach by region. In the first quarter, we kicked off the launch of our temporary European markets, We expect the rollout to be completed for all of our subsidiary markets in Europe and Asia by the third quarter, and to be completed by the end of the year for our third-party distributors. We expect the total rollout to be completed by the end of 2023, except for the UK, which has some country-specific industry fire retardant regulations. We expect the UK to be fully floored by the first quarter of 2024. The early reaction to the new lineup has been very positive. With that, I'll turn it over to Bhaskar.