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Tempur Sealy International Inc (TPX) Q1 2019 Earnings Call Transcript

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Tempur Sealy International Inc  (NYSE: TPX)
Q1 2019 Earnings Call
May. 02, 2019, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good day ladies and gentlemen, and welcome to the Tempur Sealy First Quarter 2019 Earnings Conference Call. At this time all participants are in a listen-only mode. (Operator Instructions) As a reminder this conference may be recorded. I would now like to turn the conference over to Aubrey Moore, Investor Relations.

You may begin.

Aubrey Moore -- Investor Relations

Thank you operator. Good morning everyone and thank you for joining in today's call. Joining me in Lexington headquarters are Scott Thompson Chairman President and CEO; and Bhaskar Rao, Executive Vice President and Chief Financial Officer. After prepared remarks, we will open the call for Q&A. Forward-looking statements that we make during this call are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

Investors are cautioned that these forward-looking statements, including the company's expectations regarding sales, earnings, net income and adjusted EBITDA and anticipated performance for 2019 and subsequent periods involve uncertainties. Actual results may differ, due to a variety of factors that could adversely affect the company's business.

The factors that could cause actual results to differ materially from those identified include; economic, regulatory, competitive, operating and other factors discussed in the press release issued today. These factors are also discussed in the company's SEC filings, including, but not limited to, annual reports on Form 10-K and the company's quarterly reports on Form 10-Q under the heading Special Note Regarding Forward-Looking Statements and/or Risk Factors.

Any forward-looking statements, speaks only as of the date on which it is made. The company undertakes no obligation to update any forward-looking statements.

This morning's commentary will include non-GAAP financial measures information. The press release contains reconciliations of the non-GAAP financial information to the most directly comparable GAAP information, except as otherwise discussed in the press release as well as information regarding the methodology used in our constant currency presentations.

We have posted the press release on the company's investor website at investor.tempursealy.com, and have also filed it with the SEC. Our comments will supplement the detailed information provided in the press release.

And now, with that introduction, it is my pleasure to turn it over to, Scott.

Scott Thompson -- Chairman, President and Chief Executive Officer

Thank you Aubrey. Good morning and thank you for joining us on our 2019 first quarter earnings call. I'll start with some comments on the quarter's operating performance, then Bhaskar will review the quarterly financial performance with you in detail. Finally, I'll wrap up with an overview of our long-term corporate initiatives. The year started off well. For the first quarter 2019, net sales were $691 million an increase of 8%. Adjusted EBITDA was $93 million, up 8% and adjusted EPS was $0.54 a share, a robust increase of 17%.

This double-digit growth was driven by strong operating performance. I'm pleased with the overall performance of the team this quarter, as the results were driven by their efforts across several different aspects of our business. This highlights one of the core strengths of the company; the diverse nature of our business platform.

Now some highlights. First, we continue to see strong demand for our US Tempur-Pedic products, with sales growth of 38% and mattress unit growth of 50% during the quarter. We're just now completing our largest Tempur-Pedic rollout in the company's history, which we staggered over multiple quarters due to its size and complexity. In the first quarter of 2019, we introduced the highest price point product of Tempur-Pedic lineup, the TEMPUR-breeze. With industry-leading technology from cover to core, the new formulation of these mattresses provide the ultimate Tempur-Pedic sleep experience for people who sleep warm or hot.

Most importantly, we believe the new breeze is positioned to accelerate ASP growth, mitigating the unfavorable merchandising mix that we've been experiencing, since the wildy successful launch of our entry-level Adapt and ProAdapt models last year.

As you know, these products pressured our average selling price. We expect to complete the breeze rollout by Memorial Day, where these products have already been floored, our third-party retailers are seeing strong sell-through. Between the new breeze and our recently launched LuxeAdapt models, we are starting to see an increase in our average selling price for Tempur, across our US distribution channel.

In addition to the recent success that we have seen with our US Tempur-Pedic mattress sales, we've experienced year-over-year growth of over 30% both in Tempur-Pedic adjustable bases and Tempur-Pedic pillows. I would like to thank the team for their tremendous work in improving and streamlining our accessory business. Second, our US Sealy Bedding business grew 2% in the quarter.

The strength in Sealy was driven by our new Stearns & Foster products, as well as our Sealy branded products above a $1000 price point. This is despite the difficult comparison hit (ph), following successful launch of our Sealy Hybrid last year. We've mentioned before that Sealy business is seeing some softness at below $1000 price point, and this quarter was no different.

We continue to see an influx of low-priced import mattresses. These events are primarily from China. These low-end products are entering the US market, at what we and other industry participants believe is below their cost. This type of behavior is called dumping, and it's illegal according to the US trade standards. A group of domestic mattresses manufacturers including Tempur Sealy have filed a petition to stop these unfair business practices.

This petition is currently under review by the US Department of Commerce and the US International Trade Commission. We anticipate a preliminary ruling this quarter and a final determination during the second half of the year.

While the potential impact of this ruling is not fully known, we believe that return to a competitive pricing in the below $1000 segment will benefit our lower-end Sealy business. I should also mention that we're not just sitting around waiting for regulatory actions to take hold. We're focused on expanding distribution for our low-end Sealy products.

We're making considerable progress growing the business, through high-volume web retailers who are realizing a growth rate of over 100%. Although, we are still in the early stages, we believe we're slowly taking share in the new alternative channels. The third highlight is our distribution optimization. Over the last two years, we've leaned into our most dedicated third-party retail partners, while simultaneously building out our direct-to-customer business, both online and in certain high-end geographies where previously were underserved or we lacked third-party retail support.

The most important pillar of our distribution strategy has, and always will be, our third-party retail partners and these relationships are strong. Retailers recognize that not only do we have the strongest portfolio of products in the industry, but we also have world-class supply chain management, marketing support and in-store support making us a partner of choice. Looking forward, we see opportunities to further strengthen our existing retail relationships as well as doing new business for both Tempur and Sealy, in traditional retail channels.

Our global direct to consumer business continues to grow, reaching a record $75 million in the quarter representing 11% of global sales. Our international direct channel has been expanding with a number of company-owned stores over the last year, which drove a robust 50% growth in sales on a constant-currency basis, year-over-year.

We've established 44 high-end company-owned stores in the US. These Tempur stores are placed in high-traffic, premium locations and are designed to serve high-end customers looking for a simple low-pressure sales experience. These luxury showrooms feature knowledgeable, non-commissioned sleep consultants to educate consumers on our Tempur products and provide further brand awareness in the local marketplace. This results in incremental sales.

Our North America Tempur retail stores were the star performers this quarter, having the benefits of the fully launched line of TEMPUR-Adapt and TEMPUR-breeze products. In fact, exiting the first quarter breeze orders represented approximately 35% of mattress units sold in company-owned stores, up from 20% in the fourth quarter of 2018. These products have an average selling price of $4,300.

Our Tempur-Pedic company-owned stores are proving ground for best-in-class retailing, with same-store sales of approximately 15% an attachment rate of 70% on high-end adjustable basis, and low employee turnover. Another aspect of our distribution strategy is our growing e-commerce business. While we believe the vast majority of customers want to test mattresses in-store before making purchase decision, there is a growing segment of consumers who prefer to purchase bedding products online.

We've invested in building out our own e-commerce platform, and the North American web business experienced over a 30% sales growth for the quarter, while driving incremental EBITDA and most importantly with strong and growing operating margins. In summary, over the last few years, we've seen dramatic change in the industry and we feel good about how we've adapted to this environment.

Now, I'll turn the call over to Bhaskar to review the financial results in more detail.

Bhaskar Rao -- Executive Vice President and CFO

Thank you Scott. Before going into the details, a few highlights from the first quarter. Global net sales were $691 million, an increase of 8.4% and we grew double digits on a constant-currency basis. Gross margin was 40.8%. Adjusted operating margin improved 50 basis points to 9.2% of net sales. Adjusted EBITDA increased to $93 million, and adjusted earnings per share for the quarter was $0.54.

Turning to North America. On a segment basis, sales increased 12%. The wholesale channel increased a solid 11% and the direct channel increased a robust 36%. At a brand level, Tempur's sales grew 37% and Sealy was slightly down in the quarter.

As Scott mentioned, US Sealy bedding which excludes our accessory business grew 2% in the quarter, which is an improvement from prior quarters. As a reminder, our best-selling Sealy Hybrid launched in the first quarter last year. So, we're pleased to report that against a difficult comp, premium Sealy products continued to perform well.

North America gross margin was 37.6%, slightly unfavorable to prior year. The largest headwinds to gross margin included continued commodity pressure, floor model expenses and negative merchandising mix within the Tempur portfolio. While still negative year-over-year, Tempur's merchandising mix improved sequentially from the prior quarter due to the launch of the new high-end models.

We expect this particular headwind to dissipate in the back half of 2019. These headwinds were partially offset by favorable brand mix, as Tempur grew faster than Sealy and pricing. North America adjusted operating margin improved 70 basis points to 11.8% as compared to prior year.

This was primarily driven by improved operating expense leverage, as we phased our advertising to support to be later this year, following the completion of our product launches. Before turning to International, I would like to talk briefly about our newly acquired, Sleep Outfitters business. As previously announced, we acquired Sleep Outfitters from Innovative Mattress Solutions through its Chapter 11 bankruptcy process.

Although our preference is to work with high-quality, independent third-party distributors, Sleep Outfitters recently found themselves financially challenged and we chose to protect the distribution footprint within the market by acquiring the business. Sleep Outfitters is a regional bedding retailer, with less than 100 stores across the handful of states.

Each store, carrying a selection of Tempur-Pedic, Sealy and Stearns & Foster products. During the quarter, we recorded a charge of $3 million in corporate, primarily associated with professional fees from this acquisition. In the second quarter, we anticipate $2 million to $3 million of charges for the post-acquisition restructuring of Sleep Outfitters. Our Sleep Outfitters acquisition closed on April 1, 2019 so which retail revenue and earnings did not impact our first quarter results, but will impact our results, starting in the second quarter.

We're expecting this business to generate between $80 million to $90 million of retail revenues on an annualized basis, of which, only about half would be incremental as we previously sold to them as a wholesaler. We expect near-term EBITDA headwinds from Sleep Outfitters on a retail basis of $5 million to $8 million in 2019, but our goal is to reach retail EBITDA breakeven within the first 12-months of operation.

We expect to turn the business around, and once we do, we'll evaluate our long-term strategy for the business. Today, we are pleased with the progress that the team is making, so far, and we're on track to achieve goals we have outlined. Turning to International. Although some markets are decelerating, total International performance was in line with our expectations.

Net sales decreased 4% on a reported basis. On a constant-currency basis, International net sales increased 3%. The direct channel increased 50% and the wholesale channel declined 6%. Our European business performed well, in light of an even more challenging than anticipated macroenvironment from the ongoing situations in the UK and France. In Asia-Pacific, we felt a bit of a slowdown, but overall it grew.

We're pleased with our strong international direct channel growth, as we have expanded our company-owned stores in both Europe and Asia-Pacific. But, as you can see, we still have some work to do on wholesale side.

As anticipated, the quarter was impacted by unfavorable foreign exchange rate as the US dollar has been strong relative to other currencies. As we mentioned on the last earnings call, we recently extended the Asian joint venture relationship for an additional 20-years, continuing a solid foundation for growth of our Sealy brand in Asia. During the first quarter, the joint venture sold its interest in the Sealy business in New Zealand.

This sale resulted in a gain of $7 million, which has been adjusted out of our results. Going forward, we will continue to realize royalty from the sale of Sealy products sold in New Zealand, and do not expect much of a change in our earnings stream. Our International gross margin was 53%, a slight decline to prior year. This was primarily driven by unfavorable foreign exchange rate, offset by improvement in operations.

International adjusted operating margin declined 140 basis points to 17.4%. This decrease was principally driven by operating expense deleverage, the Asian joint venture, and unfavorable gross margin. Turning to the company's global performance. Adjusted operating income was $64 million and adjusted EBITDA was $93 million, up $7 million from last year.

The increase in EBITDA was primarily driven by increases in volume and pricing benefit. This was partially offset by launch related expenses, commodities, Tempur merchandising mix, and foreign exchange. The adjusted tax rate was 28.7%, interest expense was $22 million and adjusted EPS for the quarter was $0.54.

Now, moving on to the balance sheet and cash flow items. We generated operating cash flow from continuing operations of $5 million in the first quarter. As a reminder, we typically generate the majority of our cash in the back half of the year.

Cash cycle was unfavorable by five days, compared to the first quarter of 2018. This was principally driven by higher inventory levels required to support the launch of our new products, and to maintain high customer service levels in North America, and the timing of cash payments. In accordance with the new lease accounting standard under US GAAP, the company recognized about $200 million of lease obligations and $200 million of right-to-use assets on to the balance sheet, related to operating leases.

As a reminder, the first quarter is normally the high watermark for our debt during the year, and at the end of the first quarter, net debt was $1.7 billion. On a trailing 12-month basis, our leverage ratio was 3.8 times, slightly below our leverage in the prior quarter. The lease accounting change does not impact our leverage ratio calculation, as defined by the company's debt agreements.

Turning to our annual adjusted EBITDA guidance. Today, based on our solid start to the year, we increased the low end of our guidance and now expect, full-year adjusted EBITDA to be between $435 million to $475 million. It is important to note that our guidance range now includes the expected $5 million to $8 million of headwinds to adjusted EBITDA, related to Sleep Outfitters acquisition and slightly more foreign exchange. This increase raises the midpoint of our guidance by approximately $10 million, driven by our improved operating performance and more favorable outlook for the US.

We continue to expect strong sales growth of Tempur-Pedic in North America, primarily weighted in the front half of the year, and Sealy sales being stable to slightly up. Regarding commodities; we have seen an improvement in the outlook for chemical and foam input costs, which has slightly improved our commodity outlook for the full year 2019, from flat to slightly favorable.

I would like to flag a few items for modeling purposes. For the full year of 2019, we currently expect D&A to be between $115 million and $120 million. Total CapEx to be between $70 million and $75 million, which includes maintenance CapEx of $60 million; interest expense of $90 million to $95 million; a tax rate of 26% to 28%; and the diluted share count to be 57 million shares.

With that, I will turn the call back over to, Scott.

Scott Thompson -- Chairman, President and Chief Executive Officer

Thank you Bhaskar. Great job. Turning to our long-term corporate initiatives. First, developing the most innovative bedding products in all the markets, we serve. In 2018, we kicked off the launch of our most comprehensive and integrated product offering in Tempur-Pedic's history. This customer focus portfolio allowed us to streamline architecture, with fewer SKUs organized in clear families, based on key consumer benefits that provide strong differentiation in step-up stories.

In North America our Adapt and ProAdapt mattresses line gained significant market share at a price point where we were previously underpenetrated. LuxeAdapt and our all new TEMPUR-breeze models complete the Tempur-Pedic's suite of products that are positioned to drive improved product mix for both third-party retailers and our direct-to-consumer business.

We showcased a lot of innovation at the Las Vegas market in January, with the launch of our Tempur-Pedic breeze collection, as well as our fully revamped Stearns & Foster suite of products. Both lines were met with rave reviews. But we're not taking our foot off the innovation accelerator. The last quarter, we mentioned the sizable investment that we are making to develop and test new product opportunities that will complement our existing product lines, ensure that our brands continue to be the most highly desired in the industry.

As you know, we are constantly pursuing new areas of consumer interest, when balance these new ideas against each of our long-term initiatives. We're excited to disclose that we will be in market testing three new innovative products. First, a cutting edge sleep tracker and monitoring solution. Second, the most premium Tempur-Pedic mattress in history, featuring state-of-the-art active cooling technology.

And finally, an all new innovative Tempur-Pedic mattress in a box product. I'm confident that each of these new innovations will extend our leadership position by providing the most innovative bedding solutions in the world. As discussed last quarter, these innovation investments will be a drag on this year's earnings, but we anticipate they'll be accretive in 2020.

Now, turning to our second long-term initiative; to invest significant marketing dollars to promote our worldwide brands. On a full year basis, we expect to have increased advertising investments, both in dollars and its percentage of sales as we support our retailers and our new product portfolio. But even more important, in dollar spent, we're driving toward more effective advertising as we improve our media mix to speak to customers where ever they want to engage. We're particularly focused on digital advertising, an area where the brands have been underrepresented.

Our new marketing approach will begin to ramp up around Memorial Day selling period. The third long-term initiative is to optimize worldwide distribution, to make sure our products are properly represented in all channels. Retailers are leaning into our premium brands because they recognize that our products drive the highest average selling price in the industry, and therefore help them maximize their profit dollars.

Additionally our Retail Edge program, which lets our North American retailers leverage our consumer insights to stay cutting-edge in both brick-and-mortar and online marketing strategy, further complements our best-in-class product offering. In short, we are dedicated to giving our retail partners all of the tools they need to win in the marketplace. At the same time, our own e-commerce business is performing well and we have focused resources on growing our balance of share within various web-centric retailers.

Our team made significant inroads during the quarter, to make sure the company is well positioned to capture our fair share of this growing pie. On the brick-and-mortar side, we continue to be excited by the performance of our US Tempur company-owned retail stores, and anticipate bringing our total store count to over 60 stores by year-end with a long-term target of 125 to 150 stores.

Internationally, we're pleased to share that we've extended our European Distribution Network by reaching a sales agreement with Beter Bed Holding, one of Europe's leading bedding and manufacturing retailers. Their stores in the Netherlands, Belgium and Sweden will begin carrying the Tempur brand this year. This is a significant win for our European business in 2020, as we roll out to over to 100 stores, approximately 10% of the total store base controlled by Beter Bed.

I'll save someone a question on the call, by giving you a brief update on our Mattress Firm discussions. We continue to have dialogues with Mattress Firm, at the highest levels, including the management team. These communications are productive and ongoing. Both companies continue to share information. I think both companies are focused on exploring a win-win relationship, not only for the two companies but also for the North American bedding industry.

Now, last initiative; to drive EBITDA. As we look forward to 2019, we believe the combination of innovative new premium products, our powerful omni-distribution platform, our increased focus on marketing efficiency, our internal productivity initiatives will all help drive profitability and create shareholder value. And finally, before I open the call up to questions, let me again save someone a question, and answer the question about current trends. Second quarter has started off well. North American sales trends for the first quarter have continued in both direct-to-consumer and wholesale.

This is driven by reasonable economic backdrop and our new product roll outs, which have been received well. International is performing in line with our expectations, with generally the same major trends reported in the first quarter. I should highlight, April was the smallest month in the quarter as Memorial Day holiday really drives the performance for the quarter.

With that operator, please open the call up for questions.

Questions and Answers:

Operator

Thank you. (Operator Instructions) Our first question comes from Bobby Griffin of Raymond James. Your line is now open.

Bobby Griffin -- Raymond James. -- Analyst

Good morning everybody, congrats on a good start to the year, and thank you for taking my questions. Clearly, a lot of cost flowing to the P&L here with the incremental R&D investments, and some of the new product launch costs. Bhaskar, can you maybe just help size some of the headwinds in North America gross margin for us, where we can get a better and clear picture of the core operating performance?

Bhaskar Rao -- Executive Vice President and CFO

Sure. Absolutely. Let's start off with the innovation investments first. As we pointed out, we're anticipating about $15 million for the full year, and the way think about that is we saw $1 million or $2 million in the first quarter, and how I think about the balance of that is pro rata for the full year -- for the rest of the year. As I think about floor models, we did incur -- as we indicated on a overall basis, we would anticipate floor models to be flat on a year-over-year basis.

However, when you think about our rollout last year, which predominantly in the second and fourth quarter is that floor models were a drag this year or were a drag in the quarter. And if I think about from a order of magnitude, we have commodities which will be the biggest drag and then floor models would come in slightly after that.

Operator

Thank you. And our next question comes from Michael Lasser of UBS. Your line is now open.

Michael Lasser -- UBS -- Analyst

Good morning, thanks a lot for taking my question. Can you give us a little more detail on the Tempur and Sealy units in North America during the quarter?

Scott Thompson -- Chairman, President and Chief Executive Officer

Sure. As we indicated is that on the Tempur side, we saw a growth on the Tempur brand revenue about 40%. However, on the unit basis we felt good about what we're seeing is about 50% on units. Sealy overall, from a bedding perspective, we saw Sealy bedding grow on a dollar basis about 2%.

Operator

Thank you. And our next question comes from Seth Basham of Wedbush Securities. Your line is now open.

Seth Basham -- Wedbush Securities -- Analyst

Thanks a lot and good morning. My question is around the new product that you mentioned, Scott the Tempur-Pedic bed in a box product. Can you give us a little bit more color as to price point of that, and how you expect to roll it out without risking cannibalization.

Scott Thompson -- Chairman, President and Chief Executive Officer

Sure. I mean, and step back a second, we have quite a few bed in the box products within the family already. Obviously, we got Sealy to go, which is the low end, then we've got Cocoon which is kind of the middle market. And what we're announcing today is TEMPUR-Cloud. We've been working on this for a couple of years. Anybody can make a bed in a box, it's taken us quite a while to make sure that we can make a Tempur.

And I think that's the highlight here is this is a Tempur that happens to be in a box, and I think when you see the product, and test the product you will conclude also that this truly is a Tempur bed. From an ASP standpoint, it will be (ph) $1,799. You asked about cannibalization; this product won't have any cannibalization going through the direct channel. So, we don't think we're going to have a merchandising mix issue.

It's been tested in Seattle, and over time, we'll roll it out to some other high-density locations, major cities. I still believe that the bed in the box industry is generally a niche market, but there's quite a few units out there. There are some people who are trying to move upscale, and what we've always said is, we want a product and participate wherever customers want to be, and this TEMPUR-Cloud products gives us that product in, what I'll call the high-end bedding industry.

Operator

Thank you. And our next question comes from Keith Hughes of SunTrust. Your line is now open.

Keith Hughes -- SunTrust. -- Analyst

Thank you. Questions on the advertising, you characterized it's going to be back half of the year. Can you just talk, what was the advertising year-over-year in the first and then what it'll look like, once the year is fully completed?

Scott Thompson -- Chairman, President and Chief Executive Officer

Sure. The way I think about that is, what we wanted to do was phase our advertising with the roll out of our new product. So, on a year-over-year basis, advertising overall was essentially flat. And as I think about the balance of the year, we indicated that advertising would be up on a rate and dollar basis. So, you should think about that as you think about the balance of the year.

Operator

Thank you. And our next question comes from John Baugh of Stifel. Your line is now open.

John Baugh -- Stifel -- Analyst

Good morning, congrats. I was curious on the merchandising mix margin pressure that you, of course have experienced for several quarters running, and (inaudible) has begun into the back half. Won't it be a significant tailwind in the back half? And if not, why? Thank you.

Scott Thompson -- Chairman, President and Chief Executive Officer

Yes. That's absolutely fair. So, just a bit of color on that. What we did indicate is as the new products start rolling out -- or the high-end products start rolling out, we would see the merchandising mix start to mitigate. We did see that in the fourth quarter, and we feel good about what we've seen in the first quarter. So, you are absolutely correct that as we get in the back half, the tailwind -- sorry, the headwind that we saw last year will be favorable as we get there.

Operator

Thank you. And our next question comes from Curtis Nagle of Bank of America Merrill Lynch. Your line is now open.

Curtis Nagle -- Bank America Merrill Lynch -- Analyst

Great. Thanks very much for taking the question. So, just a real quick one on Sealy, I think you said now it's supposed to be flat to up, which sounds like a step change to me from prior expectations, and if so, why is that? And just thinking back on Keith's question on the merchandising mix, I think the prior expectations were basically flat -- no tailwind, in terms of the guidance. Is that still the case? Or kind of how you're thinking about how much mix could help you this year, and how much is in the guidance?

Scott Thompson -- Chairman, President and Chief Executive Officer

Yes. I'll start with it, and I'll let Bhaskar fix it after I talk for a little while. First of all, on the Sealy, I think that's absolutely right. There is a small step change in our thinking on Sealy, on growth this year. The reason why? Look, our strategy on Sealy has been, put the money in the product and make sure that we service our customers at a high level, and our service quality has been very good, and our product quality has been very good and it would appear that we're taking some share from our major competitor, in that area, in North America.

On the merchandising mix, Bhaskar, do you want to kind of work through that? I mean, it improved quite a bit during the first quarter.

Bhaskar Rao -- Executive Vice President and CFO

Absolutely.

Scott Thompson -- Chairman, President and Chief Executive Officer

...and we're certainly seeing more of that in the third quarter, already. But go ahead.

Bhaskar Rao -- Executive Vice President and CFO

Yes. Absolutely. To just tie back on things that we indicated prior, is that the combination of pricing as well as merchandising mix, we did indicate would be favorable. If you were to unpack that and just look at merchandising mix in isolation, we would anticipate it being favorable, in the current year.

Operator

Thank you. And our next question comes from Matt McClintock of Barclays. Your line is now open.

Matt McClintock -- Barclays -- Analyst

Hi yes, good morning everyone. Scott, I would like to focus on innovation because you really spent a good amount of time -- in the prepared remarks about that. Can you kind of give us a sense of the acceleration of innovation that's coming through the pipeline, going forward? How to think about the cadence of innovation over the next several years? And then, as you roll out these new beds and these new products, how to think about the cost headwinds that we should expect?

Are we going to get a point where you're just constantly rolling out new products that we're always comparing against cost -- that we don't ever get to really compare against those costs? And then lastly, just the guardrails that you have as you think about adjacencies that the consumer allows you to go into; how do you put those guardrails in place to make sure you don't overreach in terms of what the consumers allow -- giving you credibility for? Thanks.

Scott Thompson -- Chairman, President and Chief Executive Officer

Hey, you win the award for 45 questions in one, and Bhaskar is taking quick notes to see if we can remember what they were, so we can try to answer them, we'll do the best we can. First, let's just talk about innovation. You got to start with the Tempur product, as you know this was a complicated roll out over the last year, and we successfully executed the North America Tempur roll out, which was complicated and successful and the new breeze product is really the final piece of that, and I think it'll do very well in the marketplace.

So, that's obviously drove some of the quarter's performance. As you know, Tempur stays in the market for a while. So, we're going to call that a major launch, usually good for four years. So, you shouldn't expect that there is going to be another major launch for quite a while. On the Sealy side, we're on a normal rotation.

The normal rotation now is three years, rather than two, and I would highlight that this is the third year of Sealy and we're seeing good performance. So, that tells me that our strategy of kind of going to a three-year launch, but when we do these launches, make sure that they are innovative and we got all the quality that we need in the product for it to last three years is the right strategy.

So, the thought of having extra cost -- launch, actually I think we're going the other way. We're actually reducing cost over a multi-year period, although certainly last couple of years, we've had quite a bit of launch cost. On the new innovation products that I mentioned in the prepared remarks, there won't be any significant launch costs relative to those products. Those are more niche products, those are more halo products and I don't see those as being major launch cost in 2020.

We got a little bit of cost, obviously this year, to test these products because these are new products. So, I think probably launch costs are probably going down as opposed to going up over the next three or four years, just kind of off the top of my head. What else was on his list Bhaskar that I might have missed? Guardrails, make sure that we don't overextend. Look, certainly we look at that and we've got some small products outside of the main mattress bedding business, but I think the group's pretty disciplined and I don't think we'll be chasing anything outside of our core competency.

Operator

Thank you. And our next question comes from Brad Thomas of KeyBanc Capital Markets. Your line is now open.

Brad Thomas -- KeyBanc Capital Markets -- Analyst

Hi, good morning and congrats on a great quarter here. Couple of housekeeping items, if I could here. For one, could you just give us an update on what inning you are on the roll out of the and the Luxe and the breeze where they'll stand? For two, could you talk a little bit about your current top line assumptions for North America and International as we think about this year, and then just kind of tying it altogether, given that you're still rolling out product and have a tailwind, as it ramps, why couldn't North America further accelerate from the 12% that we just posted in 1Q? And any more context on how to think about top line, would be great. Thank you.

Scott Thompson -- Chairman, President and Chief Executive Officer

Okay, I'll do a little bit of the -- first of all, since we haven't given revenue guidance I don't think we said it couldn't accelerate from a top line standpoint. But from a roll out standpoint, the Stearns & Foster launch is on time, on budget it's been a very smooth launch into the marketplace, and it's just been a great job by the team there, and we'll see the -- most of the benefits of that starting really in the second quarter.

On the Tempur roll out of breeze and the Luxe which you asked about, specifically. Luxe has been rolled out and that roll out is complete, it was on time, on budget, and the breeze roll out is going to be completed by Memorial Day. No issues on that roll out and it's gone as scheduled. So, we would expect those products -- breeze primarily would be the primary product to ramp up during the year.

Bhaskar Rao -- Executive Vice President and CFO

Yes. I think the only thing I would add would be a couple of things. As you think about -- as Scott said, we don't give guidance from a sales perspective, but a couple of things to think about. I think, we did indicate that Tempur we would expect it to grow, and what we'd anticipate is, is that the majority of that growth would come in the front half of the year. If you look at what happened in 2018 with the Adapt and ProAdapt rolling out, we saw very nice growth rates in the back half.

So overall, we would anticipate growth for the year however with the majority of it coming in the first half. More broadly speaking, we also indicated that from a Sealy perspective is, sitting here today, and the strength that we've seen in the brand in the first quarter, whereas we saw that being perhaps the headwind for us from a sales perspective, isn't that we now anticipate that being flat to slightly up for the full year.

Scott Thompson -- Chairman, President and Chief Executive Officer

Now, I would mitigate those comments, if it had (ph) because I think -- make sure everyone understands it, that's assuming there's no new distribution in North America, your comments on growth rates on Tempur.

Bhaskar Rao -- Executive Vice President and CFO

Correct.

Operator

Thank you. (Operator Instructions) Our next question comes from Peter Keith of Piper Jaffray. Your line is now open.

Unidentified Participant -- -- Analyst

Hey, it's actually (inaudible) in for Peter this morning, thanks for taking my question. Just on Mattress Firm, so hypothetically if Tempur and Mattress Firm were to start doing business again, can you help us think about the time line there? How long would it be to place a product back in Mattress Firm stores from the time of an announcement, would it be like, three months, six month, longer than that? Any color there would be great. Thank you.

Scott Thompson -- Chairman, President and Chief Executive Officer

Sure. I'll give you some color, but obviously, it's total hypothetical, so I'll do the best I can because when you talk about a roll out, usually, the biggest issue is what can the retailer do, and what velocity can the retailer floor the beds. So, it's not generally all within the manufacturer's control. But, in general, when you think about 2,500 stores, it would be a phased roll out, and it's going to take you probably -- depends on the time of year, seasonality and those kinds of things -- and again, how the retailer structured to perform roll out. That's probably going to take you six months, from probably, beginning to end would be my guess. But, that gives you something to kind of work with.

Operator

Thank you. And our next question comes from Carla Casella of JPMorgan. Your line is now open.

Carla Casella -- JPMorgan -- Analyst

Hi, I'm just wondering on the -- given the changes you're making in terms of adding some new doors, changes in terms of buying one retailer, potentially going into Mattress Firm. If you just look into your overall wholesale retail balance today, where would you like that to be, in a few years?

Scott Thompson -- Chairman, President and Chief Executive Officer

Yes. Great question. I think we were at 11% or so direct versus wholesale. I'd point out, both wholesale and direct grew during the period. So, I kind of define that as successful execution of an omni strategy. I do think that direct business probably has more tailwinds behind it than the wholesale business; and I could see us going to 20% maybe worldwide direct versus wholesale, but clearly wholesale (inaudible) target 80% is still going to be the largest share of the business.

Operator

Thank you. And our next question comes from Karru Martinson of Jefferies. Your line is now open.

Karru Martinson -- Jefferies -- Analyst

Good morning. Just in terms of the petition on the imports, can you walk us through what happens in terms of a preliminary decision? Whether it's in your favor or not? Does that get appealed and does that affect the import cycle? And then, when does it -- if it goes through, when would tariffs be levied on or anti-dumping duties levied on to those products?

Scott Thompson -- Chairman, President and Chief Executive Officer

Yes. I'm not going to touch that one, too far because that gets into a whole lot of the regulatory environment, and the lawyers and quite frankly that's not my total expertise. I would point you toward, maybe Leggett's call, I think they're a little more granular on their disclosure. But, my understanding is that we will expect a preliminary ruling in the second quarter. And if things went kind of as they would expect, we would expect some tariffs possibly in, by the end of the year. And that's about as much detail as I'm capable of giving you on that topic.

Operator

Thank you. And we do have a follow-up question from Seth Basham of Wedbush Securities. Your line is now open.

Seth Basham -- Wedbush Securities -- Analyst

Hi, just following up on the 1Q revenue growth and Tempur as well, as Sealy. Could you give us a sense of how much of that revenue growth was driven by sell-in as opposed to sell-through of product?

Bhaskar Rao -- Executive Vice President and CFO

Sure. I believe, you're speaking to floor models. What I would say is, is that both on the -- let me answer it like this. Overall, it cost us about 1% of growth, so what that would put us at is Tempur is still with very strong growth, and Sealy where we were saying 2% on bedding, it would be about 1%.

Scott Thompson -- Chairman, President and Chief Executive Officer

So, what you're saying, you take the floor models out of first quarter last year and take the floor models out of first quarter this year, it cost us about 1% off the growth, right?

Bhaskar Rao -- Executive Vice President and CFO

That's correct.

Operator

Thank you. And we do have another follow-up question from Curtis Nagle of Bank of America Merrill Lynch. Your line is now open.

Curtis Nagle -- Bank America Merrill Lynch -- Analyst

So, I guess not to divulge too many secrets here, but what exactly does active cooling mean and do you guys expect to show the new bed, in late July, in Las Vegas?

Scott Thompson -- Chairman, President and Chief Executive Officer

Active means there is air blowing through the bed to create the cooling rather than passive, which does not have air blowing through the bed. The active/breeze product will be in the marketplace, in the third quarter at select locations.

Operator

Thank you. And, ladies and gentlemen this does conclude our question-and-answer session. I would now like to turn the call back over to Scott Thompson for any closing remarks.

Scott Thompson -- Chairman, President and Chief Executive Officer

Thank you. To the over 6,000 employees worldwide, thank you for what you do every day to make the company successful. To our retail partners, thank you for your outstanding representation of our brands. To our shareholders and lenders, thank you for your confidence in Tempur Sealy leadership team, and its Board of Directors.

This ends the call today. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone have a great day.

Duration: 49 minutes

Call participants:

Aubrey Moore -- Investor Relations

Scott Thompson -- Chairman, President and Chief Executive Officer

Bhaskar Rao -- Executive Vice President and CFO

Bobby Griffin -- Raymond James. -- Analyst

Michael Lasser -- UBS -- Analyst

Seth Basham -- Wedbush Securities -- Analyst

Keith Hughes -- SunTrust. -- Analyst

John Baugh -- Stifel -- Analyst

Curtis Nagle -- Bank America Merrill Lynch -- Analyst

Matt McClintock -- Barclays -- Analyst

Brad Thomas -- KeyBanc Capital Markets -- Analyst

Unidentified Participant -- -- Analyst

Carla Casella -- JPMorgan -- Analyst

Karru Martinson -- Jefferies -- Analyst

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