Tempur Sealy International Inc (TPX) 2009 Q2 法說會逐字稿

Good day, and welcome to the Tempur-Pedic second quarter 2009 earnings conference call.

Today's call is being recorded.

At this time, I would like to turn the call over to Mr.

Barry Hytinen.

Please go ahead.

Thank you, Melanie, and thank you for participating in today's call.

Joining me in our Lexington headquarters are Mark Sarvary, President and CEO, and Dale Williams, CFO.

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 forward-looking statements, including the Company's expectations regarding sales and earnings, 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; competitive; operating; and other factors discussed in the press release issued today.

These factors are also discussed in the Company's SEC filings, including the Company's annual report on Form 10-K under the headings Special Note Regarding Forward-looking Statements and Risk Factors.

Any forward-looking statement speaks only as of the date on which it is made.

The Company undertakes no obligations to update any forward-looking statements.

The press release, which contains a reconciliation of non-GAAP financial measures to the most likely comparable GAAP measures, is posted on the Company's website at tempurpedic.com, and filed with the SEC.

And now with that introduction, I will turn the call over to Mark.

Thanks, Barry, and good evening, everybody.

Thanks for joining us tonight.

Today, I will provide a brief overview of our performance in the second quarter, and then will give you an update on our progress on our key strategic initiatives.

Dale will then provide a detailed review of the quarterly results and guidance.

During the second quarter, we executed well.

Our focus on maximizing sales, improving margins, and generating cash flow continued to show progress.

From a sales perspective, volumes are still significantly down from last year, and we don't yet see any clear of a turnaround in trend.

Sales continue to be volatile week-to-week and month-to-month, and retailers continue to report the environment is tough.

But having said that, we have seen a degree of stabilization in US demand, and we do know the initiatives we have underway are helping.

Our domestic sales performance in the second quarter clearly improved versus the first quarter.

We've sailed up sequentially 13%.

Indeed, some of the programs we had in place during the second quarter exceeded our expectations.

Productivity projects helped us expand the gross margins and together with pricing and lower commodity costs, gross margins increased 220 basis points compared to last year, and 40 basis points compared to last quarter.

Throughout the quarter, we managed expenses tightly.

Our EBIT margin of 15.9% was higher than last year and last quarter.

And we'll continue to manage costs tightly, until we see further evidence that the macro environment is improving.

Finally, our focus on cash generation and the strength of our business model enabled us to lower debt by $31 million during the quarter.

Looking forward, we're confident in our ability to continue to improve our margins, manage our expenses, and lower our debt.

And with each quarter, we become better positioned for the eventual economic recovery.

Dale will provide more detail on the financials in a moment, so I'll focus the rest of my commentary on progress on the strategic initiatives that we have outlined previously.

The first key strategic initiative is to improve gross margins.

And I have talked about it, and here we've made good progress this quarter.

Our operations teams have improved productivity and utilization rates.

The redesign of our transportation network is nearing completion, and has allowed us to lower inventories; and sourcing initiatives continue to drive lower raw material costs.

We expect continued margin favorability, as these actions should continue to modestly ramp through the rest of the year.

We also showed progress on our second key initiative, to improve effectiveness with our retail customers.

We executed the second of a series of scheduled promotional events.

Timed with the Memorial Day shopping period, the Tempur-Pedic Test Drive promotion, was successful in driving consumer traffic to retail, and most of our retail customer base took part.

In addition, we successfully completed the transition of our US entry-level offering to the AdvantageBed, and we're experiencing strong sales of this model, and I believe we are expanding marketshare.

Finally, the Foundation Close-out event was very successful, as we transition from our old foundation to the new improved model now in the market.

Retailers across the country took advantage of the close-out price, and the event exceeded our expectations.

We believe it drove at least $5 million of incremental sales.

And we continue to look for and evaluate additional ways to improve our retail effectiveness.

The third focus area is broadening the range of products that we offer.

And I'm pleased with the results here too, although I can't share the details right now.

On our last call, I mentioned we'd completed some significant consumer research, and we've been able to quickly integrate the findings into our product development plans.

Late this quarter, at the Las Vegas Bedding Show, we plan to unveil compelling new products as a result of these efforts.

Fourthly, we set ourselves the goal of stabilizing and ultimately growing the direct business.

Well, on a sequential basis, the direct business was up in the second quarter, which has not occurred in a long time.

Partly driving this growth has been a significant improvement in e-commerce sales and Internet-generated leads.

And this is also important for our retail business.

We know that the majority of leads that become buyers, buy at retail, and that almost all consumers are using the Internet to research their mattress purchase before they buy.

During the quarter, we revamped our website and increased our online marketing efforts, and we will continue to develop our online presence.

Fifth and lastly, we continued to see a substantial opportunity to improve our household penetration in our international markets.

The rollout of the new Sensation mattress in international is going quite well.

It looks like it will be one of our most successful international launches ever.

In addition, we had recently completed a comprehensive analysis of the industry and our businesses in each of the major international markets.

And as a result, we've developed a set of action plans, customized by country.

In closing, I'd just like to make a couple of last comments.

I've been at Tempur-Pedic for a year now, and it was certainly a interesting year to join the industry -- we're now 18 months into the worst economic period this industry has ever seen.

But I'm confident that the steps we've taken over this time will ensure we come out of this recession stronger than we went in.

And when we do, we believe we have a significant growth runway ahead of us.

In an industry that's characterized by relatively weak consumer brand and product knowledge, we have a differentiated, branded product line that consumers ask for by name, and that users literally rave about to their friends.

With that, I'll now hand it over to Dale.

Thanks, Mark.

I'll focus my commentary on the financials and our 2009 guidance.

In total, net sales were $185 million, a decline of 22% over the same period last year.

Foreign exchange rates were unfavorable during the quarter.

On a constant currency basis, net sales declined 19%.

Domestic sales were down 19%, while international sales were down 29%.

However, on a constant currency basis, our international sales declined 19%.

By channel and domestic retail, net sales were $106 million, a decline of 19%, yet up 13% on a sequential basis.

The direct business to client, however, as Mark mentioned, on a sequential basis, it was up 11%.

Internationally, retail sales were down 28% to $50 million.

On a constant currency basis, international retail sales were down 18%.

On a product basis, mattresses were down 24%, driven by a 21% decline in units.

Domestic mattress sales declined 20% on a 21% decline in units.

This reflects a modest improvement in average selling price in our domestic business, which we are particularly pleased to see, since our new entry-priced AdvantageBed has been performing well.

In the International segment, mattress sales declined 31% on a 22% unit decline.

The sales decline reflects the negative impact of foreign exchange rates.

On a constant currency basis, international mattress sales declined 21%.

In total, pillows were down 17%, driven by a 16% decline in units.

Domestic pillow sales declined 12% with a 16% unit decline.

International pillow sales were down 20%, with a 16% decline in volume.

Similar to mattresses, foreign exchange rates negatively impacted international pillow sales.

On a constant currency basis, international pillow sales declined 12%.

Gross margin for the quarter was 46.6%, up 220 basis points year-on-year and 40 basis points sequentially.

Following our improvement last quarter, this represents the first time in the Company's public history of consecutive quarters of year-on-year improvement in gross margin.

On a year-over-year basis, the gross margin improved principally related to three factors.

First, commodity costs were down slightly versus last year.

Next, our focus on driving manufacturing efficiencies continues to yield benefits.

Lastly, pricing actions taken early in the year continue to benefit the business.

These factors were partially offset by fixed cost deleverage as production volumes were down versus last year.

While we spent over $15 million on advertising to drive brand awareness and consumer traffic, we lowered selling and marketing expenses nearly $10 million year-over-year.

We also lowered G&A expenses by over $3 million as compared to the second quarter of last year, as we continue to tightly manage expenses.

Interest expense was $4.5 million, down $1 million year-on-year, reflecting lower debt and LIBOR rates.

Our second quarter tax rate was 32.5%, reflecting favorable geographic mix from a tax perspective.

Net income was $17 million, down $3 million from the prior-year, and EPS was $0.22.

Turning to the balance sheet, we continued to improve our financial flexibility.

Cash increased $4 million sequentially, and we generated $39 million of operating cash flow.

Capital expenditures were $3.3 million, in line with last year.

Our accounts receivable balance was flat sequentially despite higher sales, and we lowered DSOs by two days from the first quarter, and six days from last year.

Improving even from last quarter's excellent showing, our accounts receivable aging continues to improve, with more of the balance being current than at any other quarter point in the Company's public history.

With a more streamlined distribution network and improved efficiencies, we lowered inventory [of] $9 million sequentially to $52 million.

As a result of this strong operational performance, we reduced debt $31 million to $369 million.

We've reduced debt $50 million this year, and over the past 12 months, have lowered debt by $188 million.

Our funded debt to EBITDA ratio was 2.29 times, down slightly from last quarter, and well below our debt covenant of three times.

This is the first time, since we began feeling the effects of the recession in the first quarter of 2008, that this metric has improved on a year-over-year basis.

Now I would like to address our guidance for full-year 2009.

I'd like to start by echoing a point Mark made earlier.

While we've seen a degree of stabilization, sales visibility remains low.

We've not seen any clear signs that a turnaround is underway.

We enter the second half with a cautious outlook.

The Company has confirmed its prior sales and EPS guidance, which I reviewed in detail in last quarter's call.

We currently expect net sales to range from $700 million to $740 million.

We currently expect EPS to range from $0.70 to $0.90 per diluted share.

There are a few minor updates to the details I mentioned last quarter that I would like to go into.

When investors review Tempur-Pedic's historical second half sales, they should note that, typically, our third and fourth quarter sales are roughly equivalent.

This was not the case last year, when the economy and our business substantially weakened in the fourth quarter.

For interest expense, I'd like to remind investors that $300 million of our debt is currently swapped to a fixed rate, such that we pay approximately 4.75%.

Therefore, we recommend investors anticipate interest expense to approximate $17.5 million for the full year.

This is down from the amount I mentioned last quarter, as LIBOR rates have continued to be relatively, low and we exceeded our expectations for debt paydown in the second quarter.

In light of the price per share, as well as modest option grants, we are using a share count of 75.5 million shares for the full year.

Regarding our tax rate, based on our current expectations, we anticipate the full-year tax rate to be approximately 34%.

This takes into account the elevated rate in the first quarter, and the lower rate we experienced in the second quarter.

As noted in our press release, our guidance in these expectations are based on information available at the time of the release and are subject to changing conditions, many of which are outside the Company's control.

This concludes our prepared remarks, and at this point, Operator, we'd like to open the call to questions.

(Operator Instructions).

Bob Drbul, Barclays Capital.

Just, I guess, a couple questions.

Can you elaborate a little bit more in terms of the trend of the business, when you say you're seeing a degree of stabilization?

And just the other question I have is -- from the consumers' perspective, are you guys seeing signs of credit falling at all for sort of a bigger ticket item, like a Tempur mattress, from your consumers' perspective?

From a stabilization point of view is that, in the fourth quarter of last year, obviously, there was a collapse in the demand -- or a very fast decline.

And we projected the first quarter based on a continuation of the fourth quarter, and then the second quarter based on a continuation of the first quarter.

And what we're seeing right now is sort of a stability.

And it's not -- there is not a marked increase and neither -- but on the other hand, we don't see any ongoing decrease.

It's a little bit more complicated if you look around the world, because in some parts of the world, there is more of a decrease as the rest of -- some of the bigger countries in the rest of world sort of catch up with the US.

But essentially, what we're seeing is, we don't feel -- we feel like, so far, what we've experienced in the second quarter is a sort of stability in demand.

And that's what we're projecting, looking forward.

And in terms of your question about credit, we are seeing some easing of credit.

It is getting a little easier, both our retailers and our direct business is seeing more -- or say, better than the worst situations that we saw in the fourth quarter and the first.

But it's still not back to its normal levels.

Okay.

And then just one more question that I have is -- can you discuss the expectations about how much in sales were pulled forward, given some of the closeout movement that you had?

Quite honestly, I don't think any was.

I mean, it's hard to be absolutely definitive, but we don't believe there was.

And the promotion finished a couple of weeks before the end of the quarter; so, whatever would have happened, has happened.

So I don't believe that's significant.

Right.

Nice job.

Thank you very much.

Brad Thomas, KeyBanc Capital Markets.

I wanted to follow up on a question on sales.

Can you talk about the product assortment?

I mean, is there any change in the pace of sales at the upper end of the range versus the lower end of the range?

We've said throughout this period that, contrary to what one might have expected, we haven't seen a -- kind of a decline in the higher end products greater than the decline in the lower end products.

And we continue not to see that, if you aggregate it as a whole.

If you look at our more expensive items as a whole and compared to the lower ones as a whole, it's roughly the same.

The one thing that has changed is that the mix of our entry-level products has switched somewhat, because the Advantage -- which is our new product that we launched in the fall of last year and has really rolled out this year -- has grown quite well.

And it is taking a large part of the lower end items.

But in aggregate, there's no change in the overall shape of the price curve.

Okay, thanks.

And then just to follow up on the gross margin.

Dale, maybe, would you mind sharing a little bit more color on those three drivers of your gross margin improvements?

I know you mentioned commodities down just slightly; I mean, I would have thought maybe it was a little bit more than that, but I'd be interested to hear your thoughts on gross margin.

Yes, well, on commodities, remember that the commodity prices were increasing throughout the year last year, and not at the same curve as what oil was doing.

So there was a delay in the commodity increases.

But we did see commodity improvement year-over-year.

At the end of the first quarter, we talked about that half of the gross margin improvement was related to commodities.

About 25% was related to the productivity and 25% related to the price increases.

Based on the second quarter trend -- look at it and analyze it, we think that it's about 40% of the improvement was related to commodities; 40% related to productivity, where we saw a nice step-up in productivity in the second quarter, and that left pricing at about 20%.

Now, all these things are all positive.

Certainly, there are some negatives that occur within the business; volumes down, which means that our fixed cost leverage is a hurt.

And there's various mixes that we see that sometimes can put some pressure on margin.

But overall, we're seeing very good margin performance and we expect that margin performance to continue.

Okay.

And then any update on the outlook for the year on gross margin?

I mean, still feeling like 300 basis points of improvement is the goal or is the minimum you'd expect to see?

Yes, certainly I would say that it's probably the minimum if you look at what we've done in the first half.

Our gross margins for the first half is about 46.4%.

Last year, for the full year, it was 43.4% roughly.

So, we're at about, compared to the full year last year, we're at about 300 basis points better, compared to the full-year rate.

So we would expect, for the year, to see 300 or a little bit better than 300 basis points of improvement in gross margin.

Great.

Thanks so much and congratulations.

Keith Hughes, SunTrust.

First question on SG&A spending -- you've been at mid-50s per quarter for several quarters now.

Is that what we should expect until you see a real improvement in revenue or volume levels?

Yes, Keith, that is kind of where we should expect.

We do -- on the first quarter call, we said that we thought we would see advertising pick up a little bit as a percent of revenue.

It did pick up modestly, but not to the 9% level that we thought it would be; the business did a little bit better in the second quarter on the top line.

Also, advertising rates continued to be in the 10% to 20% less than the prior-year cost.

So, we're getting good performance in our advertising.

We plan to spend a little bit more in the second quarter as a percentage, and outperformed on the top line.

And in the last call, you had talked about -- I guess you'd built, in some of your forecasts, some higher raw material costs as 2009 progressed.

Could you just give us kind of an update where sequentially prices have gone?

Yes.

From 1Q to 2Q, commodity costs were basically flat.

We did, as I say, in the first quarter, that we expected in the second half to see some commodity cost increases.

The current situation is that the chemical companies have nominated some price increases.

So we continue to have that built into our second half forecast, that there will be some increase in commodity costs.

We're sitting here today, since oil has pulled back a little bit in the last couple weeks, we'll try to fight that off as long as we can; but we do have -- still have that built into the second half plan.

Okay.

Final question on revenues.

Are you seeing any sort of distinction in terms of business, whether you're looking at sleep shop versus a multi-line furniture retailer?

Any sort of distinction among the channels?

Not really.

I mean, the -- there are individual situations; but in aggregate, we're not seeing anything like that.

(Operator Instructions).

John Baugh, Stifel Nicolaus.

Good afternoon.

Nice quarter.

Utilization rates -- what did you run in the second quarter?

Inventories are still coming down.

Kind of how do you feel about that number going forward?

And what's the inventory goal for the year, in light of the second quarter performance?

From a utilization standpoint, our utilization rates in the factories continue to be relatively low.

However, we do believe now that we have inventories at the right level.

And realistically, probably a little bit low.

So I would expect, in the second half of the year, you'll see some modest increase in inventory levels, to continue to provide support to the retail community, and other elements of our working capital -- receivables, we'll track with revenue.

Accounts payable, we'll track with COGS; but we do think that we probably have gotten inventories as low as they can go at this stage, and maybe even a little bit too low; so we may see a small increase in inventory in the back half.

Okay.

And if I'm not mistaken, I think the average selling price point per unit of mattress domestically was, what, flat or slightly down, was it?

And the question is, you've got some moving things.

You raise your prices on roughly half your line; that's a plus.

You've introduced Advantage -- I know it was last year, but it's a much higher part of the mix this year.

So what's the sort of give-and-take of those?

And I guess -- and Mark, I think you made the comment earlier, that you're still really not seeing much of a mix shift outside of the Advantage.

But is the Advantage mix increase more or less offsetting the price increase?

Is that the right way to think about it?

Yes, let me just -- this is Dale.

Let me just give you a little data.

As we calculate the ASP's, we see in the US that ASP was up about 1%.

So, in the first quarter, I think ASP was up about 2%.

It's not quite up as much as it was in the first quarter.

And that is partly because of the success of the Advantage.

But that's why we did the Advantage.

We expected to have success there and we wanted a stronger entry-level model.

And then Mark, (multiple speakers) you care to make a comment?

Yes, I mean, it's been an -- it's an important -- remember, it replaced two other products.

And it is a -- it's a strong entry-level product at a good price.

And frankly, given the environment, given the economic environment, we knew and we were right that it was something that was important to focus on.

And it has and will continue to grow.

It's an important thing.

But at the same time, the Rhapsody's and the more expensive products are also selling proportionately well.

So it's not -- what we believe and the strategic rationale for it is that, while at any time you risk by offering a product at that price, you risk people trading down, what we're also doing and what we believe we're able to be effective at, is trading people up, who would otherwise buy a bed that would cost $1,000 or $1,200, and trading them up to buy a Tempur-Pedic.

Great.

Thank you.

Joe Altobello, Oppenheimer.

The first question, I just want to go back to something you mentioned earlier, Dale, about is, the typical seasonality of the business, as you said, is third quarter and fourth quarter are generally in line.

The third quarter is usually slightly bigger.

It sounds like, given your guidance in your comments earlier, that the third quarter and the fourth quarter, you expect this year to be roughly equal.

One, is that the case?

And two, if so, it seems like it would indicate that you expect an acceleration in the sales decline in the third quarter versus what we saw in 2Q, and actually potentially even a sequential sales decline.

Is that the case?

Yes, let me explain that.

Thank you for asking that question, Joe.

Historically -- and let's split the business between domestic and international.

The domestic business tends to be a little bit stronger in the third quarter and a little bit softer in the fourth quarter.

The international business is the inverse.

It is a little bit weaker in the third quarter and stronger in the fourth quarter, such that if you go back and look at the last three or four years, with the exception of last year, when everything kind of fell apart at late September, what you see is third quarter and fourth quarter, within a percent or two, roughly equivalent.

Now, from a guidance standpoint, what we have -- the position that we have taken with guidance, going back several quarters now, is we're going to take our current run rate and roll that forward.

Because we're not economists; we're not going to project further deterioration or further improvement in the business.

So, at year end, we took a fourth quarter run rate and projected that for the year.

At the end of the first quarter, we took the first quarter run rate and projected that for the year.

So, if you look at the year and you take the first half revenue and double it, you get kind of to the middle of our guidance.

If you take the first half and then repeat the second quarter two times, you get a little bit closer to, but not at, the high end of our guidance.

So we're just continuing our run rate projection based on what we've seen in the second quarter, in terms of the overall business.

Does that make sense?

It does.

Are you guys seeing -- I mean, post-July 4 -- are you seeing anything in your -- any trends in your business that would indicate that the typical seasonal bump up in the US is not happening?

No, but we don't -- the seasonality in the third quarter typically occurs much later.

What we have not seen in the business in the last year or so is seasonality at all.

We haven't really seen much seasonality in the business.

So, we're not trying to project seasonality.

What we've seen in July so far is that, based on what we did in the second quarter and the run rates, rolling that forward, that's how it's going.

But even back in the 2004/2005/'06/'07, where seasonality impact is later in the quarter, and there's nothing today that would say that there's going to be seasonality or there isn't going to be seasonality.

We just don't know.

So basically you're not ready to commit to a seasonal bump, come Labor Day, for example?

Correct.

Okay, fair enough.

And then in terms of your early comments about variability from week to week, in terms of consumer demand, I mean, obviously we know what's going on in the economy, but is there anything beyond just macro factors that may be causing that variability?

Because typically, if you look historically, the mattress industry has been pretty stable.

So I'm just curious -- is something driving demand this time around that's different that's been driving demand historically?

No, I mean what I mean is that it -- it's -- I don't mean it goes 50% up and down; I just mean it's not as though there's any sort of steady trend that one can see.

And when you average it out over an extended period of time, it looks like a relatively flat line.

It's not as though -- I don't want to imply more than that, by it.

Okay, I got it.

Perfect.

Thank you, guys.

Budd Bugatch, Raymond James.

Congratulations on the quarter, Mark, Dale, Barry.

My question -- first question kind of goes to the gross margin for the balance of the year.

Dale, if I do the calculation right, at the end -- at second half of last year, I think gross margin was about 42.2%.

And it seems to me that with the 300 basis points of improvement, that may be a bit just a bit conservative, given what you're comparing against the second half.

And what am I missing here?

No, I'm talking for the year, Budd.

And like I said just a second ago, through the first half, our gross margin rate through the first half is a little bit over 300 basis points better than the prior year in total.

So we would expect a little bit of continued -- hopefully, a little bit of continued gross margin improvement in the business; but we do feel and have been notified of some chemical price increases coming.

So that will moderate a little bit the productivity efforts that we continue to have.

So that's why we think that we will be 300, a little bit better than 300 [per] -- basis points on a year-over-year basis on gross margin at this stage.

Because we're slightly over that now.

But if you build inventory a little bit, even just modestly, that will probably -- and if you do get some seasonal bump in the second half or the third quarter particularly, you'll probably see something improve in terms of utilization factor, right?

Yes.

It all depends on what the flow is, but projecting a continued flow -- I mean, we're not talking about a big increase in inventory here.

We're talking a small increase in inventory that really is not material enough to impact the utilization rates.

Okay.

So inventory at year end would be what, versus in terms of days, cost of sales, or however you'd like to give it, what do you think is kind of a rational goal?

I think a rational goal is maybe to have a couple more days of inventory from where we're at right now, which would translate into, at this run rate, single-digit, $1 million higher.

$1 million higher.

No, a single-digit million --

Single-digit million.

Okay, I got you.

And at the year end, what about the debt?

What do you think that will look like at year end?

And how are you planning to use the excess free cash flow?

We said at the start of the year, we thought that we would do, at a minimum, $80 million of debt reduction this year.

We're a little bit ahead of that.

So I would say we'll do a little bit better than $80 million, since we've done $50 million through the first half.

Should we double that, like we did -- like you're doing with the guidance?

You know, I think that that's possible and likely probable that the performance that we had in the first half would continue on a debt reduction basis, in terms of what we're doing with cash.

For the time being, our -- we're investing where we think we need to invest in the business, in the areas that need some capital; it's not significant.

But we are going to continue for the time being until we decide differently, to focus our cash flow on debt reduction.

Okay.

And last two questions -- just CapEx again for the year and FX -- shouldn't that now be a little bit of a tail wind for you?

Well, we expected CapEx for this year to be in the $10 million to $12 million range, based on what we see as investment opportunities in the business.

It may be a couple of million dollars higher than that.

But it's still (multiple speakers) --

And the FX effect on revenues, it should be -- starting to be a little bit of a tail wind, right?

Well, FX cost us 11 points on the international business.

On a composite basis, it cost us about 3 points.

FX will continue to be a tailwind on the business -- I'm sorry, a headwind on the business.

Certainly through the third quarter, depending on what rates do, as we look at the bank forecast rates, in the fourth quarter, FX would be anywhere from a slight headwind to a slight tailwind.

That's where I was (multiple speakers) --.

Okay.

Thank you very much.

(multiple speakers) [Comparisons will] get easier in fourth quarter on FX.

Mark Rupe, Longbow Research.

Hey, guys, congrats on the quarter.

It appears that you guys took a decent amount of share in the Specialty category during the quarter.

Is there anything that you guys were doing differently in the quarter or competition might have been doing differently?

Well, from our point of view, as I said, we put a focus on being as effective as we could be, both in direct marketing to the consumers and also the promotions that we ran with the retailers, which seemed to be reasonably effective.

From our competitors' point of view, there's a lot of turmoil going on and it's -- there's a lot of different things going on.

It's hard for me to comment on that.

Yes.

And we won't really know what happened from a Specialty share standpoint for several more weeks, because there's no Specialty number -- you know, ISPA doesn't report Specialty numbers except once a quarter.

And that would come out typically in early August.

Okay.

Any movement in the door count during the quarter?

The door count was down just slightly [as we] continue to clean up the retail community.

You still have some retailers in various forms of financial difficulty, that we've taken some retailers -- continue to take some retailers out that are not meeting our performance requirements, but on a -- within the quarter, was just down a little bit.

Okay.

And then just lastly, on the new product development front, I know that Advantage is doing well right now, and you have probably some spots or gaps at kind of that $1,000 to $2,000 price range.

Can you give any more thought about possibly putting some product development efforts in that price range here in the near future?

Come to Vegas.

Okay, fair enough.

Thank you.

Robert Straus, [Gilbert].

Just a couple of questions.

First one being -- on regional performance, can you talk a little bit more about any difference in performance you saw domestically, and then separately, internationally?

Well, let me go -- I'll make some comments and then Dale will, I'm sure, elaborate.

But there have been differences in different parts of the country, some -- and it's -- there have been periods, one side of the country or the other was doing better or worse.

But there's been, not that we've seen, any sort of systematic difference in the market.

In the country -- in the rest of the world, there have been -- and you've been reading the same newspapers that we have -- there have been some of the big European countries that have been, in this year, have been hit quite hard economically.

And the movement of the economies have been incredibly correlated to our ups and downs in those major overseas businesses.

What we've seen is a -- the rate of decline in some of the big overseas countries is now -- has come down to the level to match roughly where, as you heard, we're down about 19% in international and roughly 19% in America.

It's got a bit better in America and a bit worse in the rest of the world.

What we haven't seen, though, and what we have yet -- we have not seen, and it's a component of this thing about there being a degree of stabilization is that, while there were ups and downs in different countries, it still appears to us as though -- that there is no reason to believe there's going to be a market turndown in international right now.

But it's -- but it, frankly, it's more volatile than America at the moment.

Yes, I think you hit it on the head there.

Okay.

And then, Dale, on the retail side in the US, I know that you're tracking quite closely how the retailers are doing.

You're not going to name names, but any group of retailers that are customers or one or two retailers that you're particularly concerned about, that could be a significant adverse impact to the business?

Well, we continue to monitor our entire retail base very closely.

And the Credit and Collections team and the sales team, and the whole US team that interacts with customers, have collectively worked together wonderfully to continue to make sure that we're getting the payments that we're due.

And if we have difficulty there, we take action.

I think the key thing that you're driving at, and I would agree is -- it's, at this stage, not over, in terms of the economic situation and the potential economic impacts.

We don't have any one or two people that we think are significantly more in danger than others, per se; but we continue to monitor everybody pretty closely.

Okay.

And one question, Dale, on the inventory side.

Your comments earlier about your expected inventory levels in the back half of this year -- do those comments include the new product introductions and the builds for the product coming out in Las Vegas?

Yes.

Okay.

And then lastly, given that the Las Vegas market is shifting a little bit from July to September this year, tell us, if at all, that shift, how it impacts you guys, in terms of your rollouts and/or anything we should be thinking about third and fourth quarter, first quarter kind of rollouts and sales, and that sort of thing.

Well, it's hard to be explicit -- it's hard to be helpful without being very explicit, but the --

Let me try this.

I think that what historically, when Vegas was -- late in July, we would start shipping products two or three months later that we showed at Vegas; with Vegas moving to September, essentially what we're having to do is shorten the cycle between when we show a new product and when it will be available.

And are you thinking that product rollouts still take kind of that six month period?

Is that within an acceptable range?

Yes, certainly, it depends on our economic environment at the time.

The products that we introduced last summer at Vegas, the Advantage being one, it took longer to get rolled out because shortly after we introduced it, everybody's world collapsed a little bit.

So, it took a little bit longer to get the Advantage out; but once we got it distributed, it, as Mark commented earlier, it's performing very well.

But getting new products out into the market will -- and that time of the rollout certainly depends on how the retailers are feeling at the time.

Okay.

Congratulations and good luck.

Brad Thomas, KeyBanc Capital Markets.

I just had one last follow-up question.

Mark, you had mentioned that you guys completed a comprehensive review of your international markets with an action plan.

And just wondering if you could share a little bit more color on what steps you have to take in your international business.

Well, the thing is that, obviously, international is a very non-homogeneous group.

And what we did was -- that we have businesses in different countries and in different -- both states of development, but also countries that are quite close to each other geographically, which have very, very different mattress industry -- mattress market, consumer preferences, and brand awareness and so forth.

But also, macro factors, like their GDP and their GDP growth, and their average income and so on.

And what we found is that, by looking at it country by country and taking some of the analysis across the board, is that it made it quite good for us, because it enables us to give quite clear focus areas for which elements of the marketing mix we have to put the biggest emphasis on by country -- whether it be gaining distribution, gaining slots per store, increasing customer -- consumer awareness, brand awareness and so forth.

There are different challenges by country.

And it just makes it very clear.

And it also helps take the best learnings from one country and apply it to another.

Okay.

And any sense of the timing with which you could start to implement some of the initiatives you have to put in place?

Or where you think the business is right now versus where you'd like it to be?

Well, I think that first of all, this starts immediately, but it's something that takes time.

I mean, it's a question of how you focus the organization.

And we will -- you know, it will take time, but it starts immediately.

The second thing is that I think it's an important thing to recognize that in the US, and even more in the rest of world, we have really very small marketshare and we have enormous potential.

It's not as though we're nearly where we need to be.

We still have a long way to go and a lot of potential.

Great.

Thanks so much.

And it appears that we have no further questions at this time.

I'd like to turn the call back over to the Company for any additional or closing remarks.

Okay, everybody, well, thanks again for joining us, and we look forward to talking with you all again in October, when we will review the third quarter.

Thanks.

Good day.

Ladies and gentlemen, that does conclude today's call.

Thank you all for your participation.