The company borrows money to repurchase its shares at the times when P/E ratios (current and estimated future ones) are in 20's, thus increasing the company's debt above the tangible equity level. At the current rate of stock repurchase the company's book value will soon approach zero.
I'd be interested to see which banks provide the revolving credit facility to TPX as their interest expense on the balance sheet appears to be quite low compared to the level of debt.
Another item worth analyzing is the interest free financing offered to consumers by Wells Fargo on TPX product purchases. It's hard to tell from public sources for how long that program had been in place and what credit loss rates Wells has on this program (in other words is it prime or subprime lending)?
Tempur-Pedic may not be able to sustain its premium profit margins if imitators become more successful at marketing their competing visco-elastic mattresses.
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.
