Sealy Corporation Reports First Quarter Fiscal 2008 Results
Sealy Corporation Reports First Quarter Fiscal 2008 Results Tuesday April 8, 4:01 pm ET
TRINITY, N.C., April 8, 2008 /PRNewswire-FirstCall/ -- Sealy Corporation (NYSE: ZZ - News), the largest bedding manufacturer in the world, today announced results for its first quarter of fiscal 2008.
Net sales for the fiscal quarter ended March 2, 2008 decreased 5.0% to $391.9 million compared to the comparable period in the prior year. Net income for the first quarter was $16.2 million or $0.17 per diluted share versus $24.6 million or $0.26 for the comparable period a year ago.
Total domestic net sales were $281.3 million compared to $316.7 million in the first quarter of 2007. Wholesale domestic net sales, which exclude third party sales from our component plants, were $276.7 million, and were impacted by a 10.5% decline in unit volume and a 1.4% decrease in Average Unit Selling Price (AUSP). Wholesale domestic unit volumes were primarily affected by accounts transitioning to the Company's new Posturepedic line launching this Spring, reduced volumes from certain customers going out of business, and lower sales of promotional products. These factors were partially offset by continued unit growth in the Company's specialty bedding products. Branded domestic specialty bedding product sales increased 17% in the first quarter of 2008 compared to the comparable period in the prior year.
International net sales grew 15.4% from the first quarter of 2007, or 9.0% excluding the effects of currency fluctuation, to $110.6 million. The increase in international net sales represents 18.6% growth in unit volume, partially offset by a decrease in AUSP, primarily due to increased sales of lower-priced OEM products.
First quarter gross profit was $153.2 million, or 39.1% of net sales, versus 43.0% of net sales for the comparable period a year earlier. This decrease in gross margin was due primarily to an increase in U.S. material costs, including an incremental $5.1 million in costs required for the Company's products to be in compliance with the July 2007 federal flame retardant regulations as well as inflationary pressure on core inputs such as steel and foam. In addition, domestic gross profit margin was impacted by higher warranty reserves and a deleveraging of overhead expense on lower volumes. Internationally, gross margins declined primarily due to a shift in product mix in our European business.
Selling, general, and administrative (SG&A) expenses were $116.7 million, a decrease of $10.2 million versus the comparable period a year earlier. As a percentage of net sales, SG&A expenses declined to 29.8% in the first quarter of 2008 from 30.8% in the first quarter of 2007. This improvement in SG&A expenses in both absolute dollars and as a percent of sales was driven primarily by the Company's initiatives to reduce advertising and compensation expenses in addition to lower product launch costs. These factors were partially offset by higher delivery expenses and $0.9 million of severance costs associated with personnel reductions.
Larry Rogers, Sealy's interim Chief Executive Officer and President of North America, stated, "During the first quarter we continued to execute on our strategic initiatives designed to drive AUSP growth, improve operational efficiencies, and position the Company to achieve margin expansion over time. We initiated a pricing increase and instituted a more diligent focus on controlling our costs which enabled us to achieve SG&A expense leverage despite the decline in sales. We also introduced our innovative new Posturepedic line, which will be key to recapturing share of innerspring sales at price points above $1,000, and began shipping floor samples of the new line in March."
"Our specialty business performed well, despite the