Mattress Firm Reports Net Loss on Increased Q1 Sales

Furniture World News Desk on 6/28/2016

Mattress Firm Holding Corp. (the “Company”) (MFRM), the nation's largest specialty mattress retailer, recently announced its financial results for the first fiscal quarter (13 weeks) ended May 3, 2016. Net sales for the first fiscal quarter increased 49.2% over the prior year period to $839.4 million, reflecting incremental sales from acquired and new stores, partially offset by a comparable-store sales decline of 1.1%. The Company reported first fiscal quarter earnings (loss) per diluted share (“EPS”) on a generally accepted accounting principles (“GAAP”) basis of $(3.22), and EPS on a non-GAAP adjusted basis, excluding intangible asset impairment charges, acquisition-related costs, fixed asset impairment costs and severance charges (“Adjusted”), of $(0.17). Excluding the non-cash amortization of tradenames, Adjusted EPS excluding Tradename Amortization was $(0.10), compared with the Company’s guidance for $(0.07) to $0.00 in Q1.

Reported sales results and expected GAAP and Adjusted EPS are preliminary and remain subject to adjustment until the filing of the Company's Quarterly Report on Form 10-Q with the U.S. Securities and Exchange Commission.

“We are disappointed in our first quarter results, as we experienced unrelated challenges in three primary areas,” stated Steve Stagner, executive chairman and chairman of the board. “These issues have been resolved and are largely behind us, however, there was clearly an impact to sales in Q1 that continued early into Q2. Due to our results to date, we are revising our guidance for the full year.”

Mr. Stagner concluded, “Trends have returned to positive low-single digit comparable-store sales growth over Memorial Day and in the days since the holiday, in-line with our revised guidance for the remainder of the year. This gives us additional confidence that we have put these obstacles behind us. Despite a challenging quarter, I am proud to say that our team worked tirelessly to move the organization past these challenges, and we are now better positioned to execute on our long-term strategy, as we build a national chain under the Mattress Firm brand.”

Preliminary First Quarter Financial Summary

Net sales for the first fiscal quarter increased 49.2% as compared with the comparable prior year period to $839.4 million, reflecting incremental sales from acquired and new stores, partially offset by a comparable-store sales decline of 1.1%. Comparable-store sales growth in the prior year period was 1.3%.

The Company acquired 1,065 stores, opened 85 new stores and closed 37 stores, bringing the total number of Company-operated stores to 3,472 as of the end of the fiscal quarter.

Loss from operations was $167.7 million. Excluding a total of $181.4 million of intangible asset impairment charges, acquisition-related costs, fixed asset impairment costs and severance charges, Adjusted income from operations was $13.7 million, as compared with $29.0 million for the comparable prior year period. Adjusted operating income margin was 1.6% of net sales as compared to 5.2% in the first fiscal quarter of 2015, and included a 280 basis-point decline in gross margin, an 80 basis-point decrease from sales and marketing expense deleverage, and 20 basis-points of combined operating margin declines from franchise fees and losses on store closings, partially offset by a 20 basis-point improvement in general and administrative expense leverage. Please refer to “Reconciliation of Reported (GAAP) to Adjusted Statements of Operations Data” for a reconciliation of income from operations to Adjusted income from operations and other information.

Net loss attributable to Mattress Firm Holding Corp. was $119.2 million and GAAP EPS was $(3.22). Excluding $112.7 million, net of income taxes, of intangible asset impairment charges, acquisition-related costs, fixed asset impairment costs and severance charges, Adjusted net loss was $6.5 million and Adjusted EPS was $(0.17). Please refer to “Reconciliation of Reported (GAAP) to Adjusted Statements of Operations Data” for a reconciliation of net income (loss) and GAAP EPS to Adjusted net income (loss) and Adjusted EPS, respectively, and other information.

Announces Plan to Consolidate All Stores Under the Mattress Firm Banner Nationwide

The Company decided in late April 2016 to rebrand all of its stores operating under different brand names to the Mattress Firm brand name over the next approximately 12 to 18 months. The Company expects to largely complete this rebranding by the first fiscal quarter of 2017. In connection with this decision, the Company revalued certain of the tradename intangible assets held by the Company and recorded the corresponding non-cash impairment charge of $138.7 million in the first fiscal quarter to write down these intangible assets to fair value. The remaining value of the tradename intangible assets will be amortized over the period of the transition to one nationwide banner.

Real Estate Optimization

The Company continues to review its real estate portfolio as part of the real estate optimization strategy announced on March 21, 2016. The Company plans to provide an update on this process on its second quarter earnings call in early September. After completion of its store optimization review, the Company will provide the estimated number of store closings and related costs. This store optimization effort is expected to drive a more efficient deployment of capital under one national banner going forward.

Balance Sheet

The Company had cash and cash equivalents of $1.1 million on May 3, 2016, the end of the fiscal first quarter. Net cash provided by operating activities was $7.2 million for the first fiscal quarter. As of May 3, 2016, there were $95.0 million in borrowings outstanding under the revolving portion of the Senior Credit Facility (as defined in the Company’s filings with the Securities and Exchange Commission) and approximately $12.3 million in outstanding letters of credit, with additional borrowing capacity of $64.2 million.

Financial Guidance

The Company is providing updated financial guidance for the full fiscal year (52 weeks) ending January 31, 2017 (“fiscal 2016”) based on business trends to date and expectations for the remainder of fiscal 2016. These projections are forecasts and are intended solely to give investors an understanding of management’s expectations for the full fiscal year in light of recent conditions and strategies. The projections do not take into account, or give effect for, any acquisitions that may be completed by the Company during the fiscal year or any other events that are beyond the Company’s reasonable control. Please refer to “Reconciliation of Reported (GAAP) to Adjusted Statements of Operations Data” for a reconciliation of GAAP EPS to Adjusted EPS and other information which is not calculated on a GAAP basis. Adjusted data for future periods reflects management’s reasonable estimates of appropriate adjustments based on historical experience.

Sleepy’s quarterly sales mix is similar to that of Mattress Firm’s legacy businesses. However, the expected profitability (as illustrated by Adjusted EBITDA) of the Sleepy’s business differs dramatically by quarter, with approximately breakeven first quarter and 80% to 85% of profitability generated during the second and third quarters. As a result of the impact of incorporating the Sleepy’s business into the Company’s consolidated results, the Company plans to provide quarterly earnings guidance in connection with its regular earnings announcements throughout fiscal 2016 to provide additional insight. The Company anticipates returning to its historical practice of only providing annual guidance in fiscal 2017. For the second quarter, the Company anticipates GAAP EPS of $0.27 to $0.32, and Adjusted EPS before Tradename Amortization of $0.62 to $0.69.

Net Sales and Store Unit Information

Historically the Company has provided the composition of net sales by major category of product and services, including conventional mattresses, specialty mattresses, furniture and accessories, and delivery service revenue. Given the growth of the “hybrid” mattress category, which includes characteristics of both conventional and specialty mattresses, the Company will be providing detail on the composition of mattress sales (excluding foundations) by retail price band going forward. The composition of mattress sales (excluding foundations) by retail price point were as follows:


More about Mattress Firm Holding Corp.: With more than 3,500 company-operated and franchised stores across 48 states, Mattress Firm Holding Corp. (MFRM) has the largest geographic footprint in the United States among multi-brand mattress retailers. Founded in 1986, Houston-based MFRM is the nation's leading specialty bedding retailer with over $3.5 billion in pro forma sales in 2015. MFRM, through its brands including Mattress Firm, Sleepy's and Sleep Train, offers a broad selection of both traditional and specialty mattresses, bedding accessories and other related products from leading manufacturers, including Serta, Simmons, Tempur-Pedic, Sealy, Stearns & Foster, King Coil and Hampton & Rhodes. More information is available at www.mattressfirm.com. The Company's website is not part of this release.