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Sealy Corporation Reports 32.9% U.S. Net Sales Increase For 4th Quarter

Furniture Industry News Update - Furniture World Magazine
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Article Summary: Company says that improved results were driven by the success of the Optimum by Sealy Posturepedic and Next Generation Stearns & Foster product lines.


Sealy Corporation announced results for its fiscal fourth quarter and full year 2012. The fiscal year ended December 2, 2012 was a 53-week year compared to a 52-week fiscal year ended November 27, 2011.

Fiscal 2012 4th Quarter Recap for Continuing Operations

Net sales increased by $88.9 million or 33.0% to $358.1 million, compared to the same prior year quarter. The increase in net sales attributable to the 53rd week was approximately $37.1 million, which added growth of 13.8% over the prior year quarter.

Gross profit increased by $43.8 million to $141.9 million compared to the same prior year quarter. The increase due to the 53rd week was approximately $14.5 million.

Gross profit margin increased approximately 320 bps to 39.6% of sales compared to 36.4% in the same prior year quarter.

Income from operations increased by $12.3 million to $16.1 million compared to the same prior year quarter.

Net loss from continuing operations attributable to common shareholders was $2.7 million or $0.03 per diluted share, compared to net loss from continuing operations of $14.0 million or $0.14 per diluted share in the prior year quarter. Excluding the impact of restructuring expense, merger costs and income tax expense on repatriated foreign earnings, our adjusted EPS was $0.04. Please see the attached reconciliation of adjusted EPS.

Adjusted EBITDA increased by $20.1 million to $35.2 million compared to the same prior year quarter. The increase due to the 53rd week was approximately $3.9 million.

"We were pleased with our performance in 2012 as we continued to execute on our strategic initiatives," stated Larry Rogers, Sealy's President and Chief Executive Officer. "Strong product offerings in both the specialty and innerspring lines, compelling advertising and continued financial discipline led to these financial results and we are working to ensure these trends continue."

Fiscal 2012 Fourth Quarter Results

Total U.S. net sales increased 32.9% to $269.7 million from the fourth quarter of fiscal 2011. The increase in net sales attributable to the 53rd week was approximately $27.7 million. Also contributing to the increase in U.S. net sales was a 13.3% increase in wholesale unit volume, coupled with a 15.8% increase in wholesale average unit selling price. The significant improvement in both of these metrics was primarily driven by the success of the Optimum by Sealy Posturepedic and Next Generation Stearns & Foster product lines, both of which sell at higher price points in the market.

International net sales increased $22.1 million, or 33.3%, from the fourth quarter of fiscal 2011 to $88.4 million. The increase in net sales attributable to the 53rd week was approximately $9.3 million. This increase was primarily attributable to the strong sales performance of Canada, Mexico and South America. In Canada, local currency sales increases of 28.1% translated into increases of 31.8% in U.S. dollars due to the strengthening of the Canadian dollar versus the U.S. dollar. Excluding the effects of currency fluctuation, international net sales increased 32.1% from the fourth quarter of fiscal 2011.

Gross profit for the fourth fiscal quarter increased by $43.8 million to $141.9 million from the prior year quarter. Gross margin increased 3.2 percentage points to 39.6%. The increase as a percentage of net sales was primarily due to increases in gross profit margins in U.S. operations partially offset by declines in Canada. U.S. gross profit margin increased 4.8 percentage points to 39.8%. The increase as a percentage of net sales was primarily attributable to improved operational efficiencies on higher sales volumes and an improvement in manufacturing processes which resulted in a 2.4 percentage point increase in U.S. gross profit margin. Additionally, the leveraging of fixed costs due to the higher sales volumes contributed a 2.6 percentage point improvement in gross margin. The local currency gross profit margin in Canada was 37.6% as a percentage of net sales which represents a decrease of 4.6 percentage points from fiscal 2011. This decrease was primarily driven by the impact of promotional activities to gain market share, and higher raw material costs.
Selling, general, and administrative expenses were $127.8 million for the fourth quarter of fiscal 2012, an increase of $28.9 million versus the comparable period a year earlier. A portion of this increased expense was driven by the 53rd week. The increased variable expense was primarily driven by higher cooperative advertising and promotional costs, and the increased fixed expense was driven primarily by higher incentive compensation and an increase in defined contribution costs and professional fees. As a percentage of net sales, this expense was 35.7% and 36.7% for the quarters ended December 2, 2012 and November 27, 2011, respectively, a decrease of 1.0 percentage points.
Cash flow from operations was $50.7 million for the fourth quarter of fiscal 2012, driven primarily by improvements in working capital. As a result of our cash generation and the repatriation of a portion of our non US cash, subsequent to the end of the fiscal year, the Company redeemed an additional $35 million of its senior notes.

Fiscal 2012 Full Year Results

Net sales for the fiscal year ended December 2, 2012 increased 9.6% to $1,347.9 million from $1,230.2 million for the prior fiscal year. Gross profit was $539.5 million, or 40.0% of net sales, versus $478.7 million, or 38.9% of net sales, for the prior fiscal year. For the 2012 fiscal year, net income attributable to common shareholders from continuing operations was $2.0 million and net loss from discontinued operations was $2.0 million, resulting in overall net income for the fiscal year of $0.0 million. Adjusted EBITDA increased 18.9% to $150.1 million, or 11.1% of net sales, from $126.3 million, or 10.3% of net sales, in the prior fiscal year.  

As of December 2, 2012, the Company's debt net of cash was $641.4 million and Net Debt to Adjusted EBITDA ratio (excluding the Convertible Payment In Kind Notes) was 2.94x.

"We were pleased to deliver improved year over year net sales, gross margin, net income and Adjusted EBITDA results in 2012. As we move into 2013, we expect to drive growth across our entire portfolio in both our domestic and international markets," concluded Mr. Rogers.

Results from Discontinued Operations

During the fourth quarter of 2010, the company divested the assets of its manufacturing operations in France and Italy, which represented all of the assets in its Europe segment. In addition, the company discontinued manufacturing operations in Brazil. The company has transitioned to a license arrangement with third parties in both of these markets. These businesses are accounted for as discontinued operations, and accordingly, the company has reclassified its financial data for all periods presented to reflect these actions. Unless otherwise noted, the reported financial data pertains to Sealy's continuing operations.


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