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Tempur-pedic International (TPX) |
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WIKI ANALYSIS
Tempur-pedic International (NYSE: TPX) manufacturers and sells visco-elastic (or memory foam) mattresses, pillows, and a variety of other cushions and comfort items. The company charges a price premium for its high-tech foam compared to traditional innerspring mattresses (the foam is even certified by NASA). Tempur-Pedic distributes its premium bedding products in 80 different countries through bedding specialty stores, which represent 84.5% of net sales, and also sells directly to customers, healthcare providers, and others.
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 $6 billion U.S. bedding market. 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. 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. In addition, a sluggish US economy means weakened demand for Tempur-pedic's mattresses. In 2009, the company's net sales fell 10.4%.[1]
Company Overview
Tempur-Pedic operates in two segments, domestic and international. The International segment accounts for 37% of net sales. The company manufacturers its premium specialty sleep products in Virginia and Denmark, and in New Mexico.
Products[2]
- Mattresses - represent 66.2% of net sales. The company's mattresses are composed of proprietary multi-layer, temperature sensitive, pressure-relieving TEMPUR® material.
- Pillows - represent 12.9% of net sales. Pillows are also made from the same material as the mattresses.
- Other - represent 20.9% of net sales. Items in this category include foundations that support mattresses, adjustable beds, and other types of cushions and comfort products.
Sales[3]
The company sells at wholesale through three channels:
- Retail (84.5% of net sales): sells to furniture and bedding retailers, specialty stores and department stores.
- Direct (6.0% of net sales): sells directly to customers though call center operations and the internet.
- Healthcare (4.3% of net sales): sells to hospitals, nursing homes, healthcare professionals and medical retailers.
- Third Party (5.2% of net sales): uses third party distributors to serve markets outside the range of wholly-owned subsidiaries. The company uses third party retailers in 60 countries.
Business Growth
FY 2009 (ended December 31, 2009)[1]
- Net sales fell 10.4% to $834 million. The company attributes the loss to the sluggish economy, weak housing market, and low consumer confidence. Mattress sales fell 12.9% and retail sales fell 10.1% for the year.
- Operating margin increased by 300bps to 17.4% of net sales. Operating income was $145 million.
- Net income grew 44% to $85 million on lower SG&A expenses and interest expense.
Trends and Forces
- Specialty Sleep is the fastest growing segment of the estimated 6 billion dollar mattress market. 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 develop products that rivals the Tempur-Pedic mattress. This scenario would weaken Tempur-Pedic sales. Moreover, Tempur-Pedic faces the risk that lower-priced imitators of its visco-elastic memory foam products may steal market share away from Tempur-Pedic.
- A sluggish US economy could adversely effect Tempur-Pedic sales as domestic sales account for 63% of net sales. 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.
Competitors
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 lead approximately 500 U.S. bedding manufacturers. According to International Sleep Products Association, industry wholesale shipments of mattresses and foundations were estimated to be $5.7 billion in 2009, a 9.0% decline compared to $6.2 billion in 2008.[4]
Bedding products fall in either traditional and/or specialty sleep products and most companies have developed products in recent years to address the faster growing specialty segment. Sealy (ZZ), the largest bedding manufacturer in the world, and Simmons Bedding offer air mattresses that directly compete with Select Comfort's Sleep Number Beds.
References
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