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Tempur Sealy CEO on outlook: 2021 & 2022 ‘look very good to us’

Yahoo Finance’s Brian Sozzi, Myles Udland, and Julie Hyman speak with Tempur Sealy CEO & Chairman, Scott Thompson, about the company’s latest earnings report and what he’s seeing in the mattress industry.

Video Transcript

BRIAN SOZZI: Armed with their stimulus checks and feeling better about the economy, consumers spend big on mattresses in the first quarter. And that proved to be a major tailwind for the top and bottom lines of mattress maker Tempur Sealy. First quarter sales rose 26.9% from a year ago, while adjusted earnings surged 88.2%. The company raised its full year outlook, but did warn about rising levels of inflation.

Scott Thompson is Tempur Sealy chairman and CEO, and he joins us now. Scott, good to see you this morning here. You said something very interesting that I liked on the earnings call. You said consumers worldwide are, in quote, pretty damn good shape. Are they in good enough shape financially to continue to spend on mattresses later this year when they're out of stimulus checks?

SCOTT THOMPSON: Sure. First of all, thank you for having me. Tempur Sealy obviously sells mattresses all around the world. We're in about 100 different countries. So we've got a good footprint to look at consumers worldwide. Our largest market is North America. But when we look around the world, we see a really robust retail market. Obviously, there's a lot of liquidity in the system. Interest rates are low. Consumer confidence coming out of the virus is very strong.

If you kind of go around the world briefly, Asia is a little bit ahead of the US as far as consumer confidence and where the retail environment is. China's is good as it's been for us. We're doing great in South Korea. If you go into Europe, it's been spotty. There's been some closings, obviously. But when the markets come out of closing, very robust. The UK recently opened back up. And bedding sales are on fire in the UK.

When you go to the United States, continuing to be very strong. Yes, there are stimulus checks coming. And actually, there have been stimulus checks that have come through. And we do feel it when the stimulus checks hit. But that's generally at the lower end of the market, the Sealy brand. The way we're thinking about it in the US specifically, which goes to your question, is, yes, stimulus checks will eventually dry up. I'm not sure exactly when, but they'll dry up.

But at the same time, the overall economy should be recovering with an improvement in unemployment. And if you look at just the wealth that's been created, whether it's stock market or housing, it's certainly going to support some additional retail sales. And as you know, a lot of the stimulus checks got saved. If you look at the savings rate, that money hasn't been spent. So we look-- we think, look, 2021, to us, looks very robust. And 2022 looks very good to us. And that's about as far out as I'm able to see right now.

MYLES UDLAND: And, you know, Scott, I know that the trends kind of run together, the strength of the economy and the strength of the housing market. But when you look at the real drivers for you guys, how important is the housing market in terms of its dynamism? Right now, there is a huge demand for homes that really cannot be met. But we are still going to see basically as many people as the economy will handle are going to move over the next 18 months, you know, as they can. How big of a driver is that for you guys on the sales line?

SCOTT THOMPSON: Certainly, great question. First of all, housing formation is a driver, as is consumer confidence. But if you go back and look even before the pandemic, a couple of quarters before the pandemic, we had very robust double digit sales going into the pandemic. But there's been a health and wellness trend that we've been feeling for a number of years. And what really happened is during the pandemic, that health and wellness trend has really exploded across the world. So, you know, when you look at tailwinds, yes, housing formation is one. The health and wellness trend is certainly a big one.

But also recently, we had tariffs implemented on some companies that were dumping beds into the US. And the anti-dumping tariffs that has come through over the last year is also stimulating manufacturing domestically. We added a plant in Dallas late last year. We've got a couple of more plants that we expect to put in, in our Sherwood operation. And we've also announced a large Tempur plant that we expect to start construction on by the end of the year. So, we're in heavy growth mode from a lot of different factors.

JULIE HYMAN: Hey, Scott, it's Julie here. I want to talk to you about pricing because I know you guys talked on the call about prices having gone up in the double digits in the first quarter, prices-- average selling price, that is, not input costs-- for you guys. We keep having the debate here, as, of course, most economists and the Fed is having, about whether inflation is going to be transitory here. In the past, when you have raised prices to that degree, do they end up coming down again? Or does that tend to stick if there's a price increase, even if supply chain constraints start to ease a bit?

SCOTT THOMPSON: Yeah, clearly, we're dealing with inflation like all manufacturers. And our business model is, is when we have input cost increases, we pass them on to the end consumer. Had a fairly large price increase in the fourth quarter last year and another price increase in April, April 1st. But those are what we say we go through the long-term inflation trends that we see.

Recently, as you know, there was a huge freeze that came through the Gulf of Mexico. It damaged some chemical plants. And so there's been a big spike in chemical prices. OK, we did not pass that price increase on. That's a price increase when we looked at it, it looked like it was temporary. We expect that market to normalize. And those kind of price increases we'll absorb. And that'll cost us-- I don't know-- $20, $25 million this year as we absorb that one because we expect the commodity price to go down.

So to answer your question, if we think it's a long-term commodity price increase, we pass it on. If we think it's short-term, then we absorb it. And so, I think on your debates you're having, there's some commodities we think are going to be inflationary for quite a while. And then there's some that are very short-term in nature. And we split those out when we set our pricing.

BRIAN SOZZI: Now, Scott, did you-- just following up on that, did you take a price increase on April 1st? And if so, how much?

SCOTT THOMPSON: It varies by product. As you might guess, we've got a lot of SKUs, and we've got a lot of different brands, whether it be the Tempur-Pedic brand, the Stearns & Foster, or Sealy. You should say probably single digits for the last round of price increases. But we're watching it. And look, if they keep moving up, then we'll keep moving the price up. If they stabilize, then our pricing will be stable.

What's interesting from a manufacturing standpoint is you're getting some price increases on all inputs. You know, normally what you have is you'll have one commodity go one way and the other commodity go the other way and kind of offset. But, you know, as we sit here today, whether it be lumber, steel, transportation logistics, chemicals for sure that I mentioned, you know, we're getting-- we're feeling it in every part of the business. The other interesting thing is that the price increases are going through the market very smoothly. Consumers are obviously accepting them. And you can see from our robust sales of 27%, we're not having any pushback from the pricing standpoint.

BRIAN SOZZI: All right, we'll leave it there. Scott Thompson, Tempur Sealy chairman and CEO, good luck this quarter.