Tempur-pedic International (TPX)

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See all Bulls Reasons Bulls: Reasons To Buy Tempur-Pedics segment expanding more rapidly than traditional market 0% agree Tempur-Pedics segment expanding more rapidly than traditional market The specialty segment (foam, visco-elastic, latex) of the mattress industry is expanding much faster than the traditional (innersprings) one. Tempur-Pedic is positioned well to benefit from this trend. View or Edit Reason 0 votes 0% agree first-mover advantage in the visco-elastic mattress market 0% agree first-mover advantage in the visco-elastic mattress market Tempur-Pedic has first-mover advantage in the visco-elastic mattress market. The company has brand recognition and manufactures the only mattress recognized by the U.S. Space Foundation. Tempur-Pedic may be able to continue holding its high profit margins compared to its industry. View or Edit Reason 0 votes 0% agree New onshore site to help cut expenses 0% agree New onshore site to help cut expenses Tempur-Pedic no longer has to import mattresses from Denmark to the States, because it opened a manufacturing site in New Mexico. This third plant should allow Tempur-Pedic to save on expenses by making sourcing and distribution more efficient. View or Edit Reason 0 votes 0% agree See all Bears Reasons Bears: Reasons To Sell Bigger companies threatening Tempur-Pedic operations 0% agree Bigger companies threatening Tempur-Pedic operations Top mattress manufacturers, such as Sealy (ZZ), are agressively entering the specialty sleep segment in which Tempur-Pedic operates. They may provide better and/or cheaper alternatives to that of Tempur-Pedic. View or Edit Reason 0 votes 0% agree Saturation feared 0% agree Saturation feared Sales may slow after Tempur-pedic International (TPX) has entered all target retail outlets. View or Edit Reason 0 votes 0% agree Unsustainable premium prices if imitators come into market 0% agree Unsustainable premium prices if imitators come into market Tempur-Pedic may not be able to sustain its premium profit margins if imitators become more successful at marketing their competing visco-elastic mattresses. View or Edit Reason 0 votes 0% agree Send the authors a comment or suggestion Be the first to make a suggestion See All Suggestions

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The company will likely benefit from the aging of baby boomers, many of whom are willing to pay premiums to ease the pains of growing older and sleep more comfortably. Already, consumers such as these have made the specialty sleep market the fastest growing segment of the $12 billion U.S. bedding market. ^[4] However, a slowdown in the U.S. housing market could decrease the number of upgrades to larger homes (with more bedrooms) and second home purchases, both which directly drive mattress sales.^[5]

Tempur-Pedic competes largely with traditional innerspring mattress companies such as Select Comfort (SCSS), Sealy (ZZ), Serta, and Simmons in addition to a rising number of memory foam imitators.^[6]

[edit] Business Overview

Tempur-Pedic operates in two segments, domestic and international. International accounted for 34% of 2006 sales.^[8] The company manufacturers its premium specialty sleep products in Virginia and Denmark, and in January 2007 began production in New Mexico.

Tempur-pedic markets its memory-foam mattresses via four different channels. The largest (80% of 2006 sales) and fastest growing segment is retail. Tempur-Pedic's sales team targets and works with retailers to introduce its product line. The mattress company also directly markets to customers through call center and internet operations located in the United States and United Kingdom.

Tempur-Pedic markets the visco-elastic products to healthcare providers as means to increase patient comfort. In some instances, the medical providers will even recommend or sell Tempur-Pedic products. This segmented accounted for 5% of 2006 sales.

Last, the home furnishing company uses third party vendors in approximately 60 countries, where Tempur-Pedic does not have any wholly-owned subsidiaries selling directly to customers^[9]. The following tables break down 2006 sales and income.

Sales by Channel Comparison^[10]

Retails accounts for a significant portion of sales (80% of 2006 sales) and shows the greatest growth (19% increase from 2005 to 2006). The company attributes the growth to continued penetration of furniture and bedding retail stores, along with new product offerings. ^[11]

Sales by Product Comparison^[12]

Mattresses attribute to the greatest portion of net sales (69% in 2006) and outpaced growth in pillow sales. Foundations and bed frames, which are included in the 'other' category and usually sold with mattresses, also carry lower margins. As a result, gross margins were slightly down from 2005 to 2006.^[13]

As shown above, Tempur-Pedic total sales have increased over the past three years. Similar, the company achieved profitability in all three years as well. The graph shows total domestic and international sales, along with net income, for the previous three years. ^[14]

The following table compares the first nine months of 2006 to the 2007 numbers.

Sales by Channel Comparison^[15]

Management attributes the increase in sales to the expansion of its retail distribution. Also, pillow sales have increased as more consumers purchase them when buying a Tempur-Pedic mattress.

[edit] Key Trends and Forces

• Specialty Sleep is the fastest growing segment of the estimated 12 billion dollar mattress market^[16]. Specialty sleep includes water beds, foam, air beds, and visco-elastic. Tempur-Pedic uses visco-elastic in its mattresses. The same trend towards specialty sleep is occurring in the pillow segment. Should this move away from traditional innerspring mattresses and feather pillows continue, Tempur-Pedic will likely benefit from increase in sales. The trend is an increasing number of consumers are realizing the positive effects a good night's sleep, and as a result, looking to buy specialty sleep products.

• Aging Baby Boomers should benefit the overall demand for Tempur-Pedic visco-elastic mattresses and pillows. The company's products claim to apply less stress than traditional metal spring mattresses. As baby boomers age, they will likely experience increases in pain in joints and muscles, and buy products that diminish the pain.

• A Single Technology, which is its visco-elastic memory foam, may be susceptible to new and possibly better innovations in the specialty sleeping market. The main traditional mattress players, Select Comfort (SCSS), Sealy (ZZ), Simmons, and Serta, could development a product that rivals the Tempur-Pedic mattress. This scenario could weaken Tempur-Pedic sales. Moreover, Tempur-Pedic faces a risk that lower-priced imitators of its visco-elastic memory foam products may steal market share away from Tempur-Pedic.

• A US recession could adversely effect Tempur-Pedic sales. Domestic sales accounted for 67% of 2006 sales^[17]. Tempur-Pedic mattresses list for higher prices than alternatives. Consumers may purchase less mattresses overall and may opt to buy a cheaper priced mattress if they feel crunched.

• The U.S. Housing Market and U.S. Population Growth impact the overall market for mattresses. If Americans add second homes and buy larger houses, this would likely increase mattress demand. This increased demand would result from a need to buy bedding for a secondary home and an increase in space leads to buying bigger mattresses. Another factor is overall population growth. As the United State's population grows, mattress sales would likely rise.

• Limited Retail Expansion will place emphasis on growth in existing retail markets. The current growth strategy involves expanding its current 6,050 domestic retailers to between 7,000 and 8,000.^[18] Once Tempur-Pedic has moved into all desired markets, then sales growth could slow as it may be tougher to grow sales in existing locations.

[edit] Competition and Market Share

The mattress industry consists a few large national players, Serta, Sealy (ZZ), Select Comfort (SCSS), Simmons, Tempur-pedic International (TPX), and Spring Air. These six leaders account for more than 60% of the industry's sales and are among approximately 500 bedding manufacturers^[19]. There exist many regional mattress manufacturers and distributors also. Manufacturers offer traditional and/or specialty sleep products. Most of these companies have recently developed products to sell in the faster growing specialty segment in which Tempur-Pedic operates. Sealy (ZZ), the largest bedding manufacturer in the world, now offers visco-elastic and latex bedding products.

The International Sleep Products Association reported that the wholesale bedding manufacturers reported total sales of $6.4 billion in 2005. This figure increased 6.3% in 2006^[20]. Wholesale bedding shipments increased at a compound annual growth rate of 6.8%, 7.2%, and 6.8% for the 5-year, 10-year, and 20-year periods ended 2005, respectively^[21]. The market for U.S. bedding industry was $12 billion in 2005 and estimated to have been $12.5 billion in 2006^[22]. The following table shows total domestic sales figures, along with the number of retail outlets, for the largest firms in the mattress manufacturing industry.

Comparing Companies in the U.S. Bedding Industry^{[23][24][25][26]}

Competition is rather fierce in the bedding industry. Most companies compete on price, quality, and brand recognition.^[27] After first designing its visco-elastic memory foam in 1992, Tempur-Pedic has seen many imitators offering lower-cost items that try to mimic Tempur-Pedic's design. Tempur-Pedic operates an incentive-design structure with its carrying retailers in order to limit imitators’ exposure to the consumer.

[edit] References

1. ↑ http://www.tempurpedic.com/
2. ↑ Tempur-pedic International (TPX) Form 10-K, Fiscal Year 2006, “General”, Page 1
3. ↑ Tempur-pedic International (TPX) Form 10-K, Fiscal Year 2006, “General”, Page 1
4. ↑ Select Comfort Form 10-K, Fiscal Year 2006, "Competitive Strengths", Page 2
5. ↑ Tempur-pedic International (TPX) Form 10-K, Fiscal Year 2006, “Risk Factors”, Page 8
6. ↑ Tempur-pedic International (TPX) Form 10-K, Fiscal Year 2006, “Competition”, Page 6
7. ↑ http://www.tempurpedic.com/
8. ↑ Tempur-pedic International (TPX) Form 10-K, Fiscal Year 2006, “Marketing and Sales”, Page 4
9. ↑ Tempur-pedic International (TPX) Form 10-K, Fiscal Year 2006, “Marketing and Sales”, Page 4
10. ↑ Tempur-pedic International (TPX) Form 10-K, Fiscal Year 2006, “Management's Discussion and Analysis”, Page 26
11. ↑ Tempur-pedic International (TPX) Form 10-K, Fiscal Year 2006, “Management's Discussion and Analysis”, Page 27
12. ↑ Tempur-pedic International (TPX) Form 10-K, Fiscal Year 2006, “Management's Discussion and Analysis”, Page 27
13. ↑ Tempur-pedic International (TPX) Form 10-K, Fiscal Year 2006, “Gross Profit”, Page 28
14. ↑ Tempur-pedic International (TPX) Form 10-K, Fiscal Year 2006, “Business Segment Information”, Page 28
15. ↑ Tempur-pedic International (TPX) Form 10-Q, 3 Quarter 2007, “Comparing Nine Months ended September 30”, Page 25
16. ↑ Tempur-pedic International (TPX) Form 10-K, Fiscal Year 2006, “Our Market Position”, Page 2
17. ↑ Tempur-pedic International (TPX) Form 10-K, Fiscal Year 2006, “Marketing and Sales”, Page 4
18. ↑ Tempur-pedic International (TPX) Form 10-K, Fiscal Year 2006, “General”, Page 1
19. ↑ Simmons Form 10-K, Fiscal Year 2006, "Competition", Page 5
20. ↑ Simmons Form 10-K, Fiscal Year 2006, "Industry", Page 2
21. ↑ Select Comfort Form 10-K, Fiscal Year 2006, "Industry and Competition", Page 8
22. ↑ Select Comfort Form 10-K, Fiscal Year 2006, "Industry and Competition", Page 8
23. ↑ Sealy From 10-K, Fiscal Year 2006, "Results of Operations", Page 32
24. ↑ Simmons Form 10-K, Fiscal Year 2006, "Customers", Page 4
25. ↑ http://www.selectcomfort.com/corporation/investor_relations/select_comfort_investor_relations.cfm
26. ↑ Tempur-Pedic Form 10-K, Fiscal Year 2006 "Comparing Sales", Page 27
27. ↑ Tempur-pedic International (TPX) Form 10-K, Fiscal Year 2006, “Risk Factors”, Page 8