Tempur Sealy International Inc (TPX) 2024 Q2 法說會逐字稿

Please stand by.

Your program is about to begin.

Good day, everyone, and welcome to the Tempur Sealy second-quarter 2024 earnings call.

(Operator Instructions) Please note this call is being recorded and I will be standing by should you need any assistance.

It is now my pleasure to turn the conference over to Aubrey Moore with Investor Relations.

Please go ahead.

Good morning, everyone and thank you for participating in today's call.

Joining me today are Scott Thompson, Chairman, President and CEO; Bhaskar Rao, Executive Vice President and Chief Financial Officer.

This call includes forward-looking statements that are subject to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995.

These forward-looking statements involves uncertainties, and actual results may differ materially due to a variety of factors that could adversely affect the company's business.

These factors are discussed in the company's SEC filings, including its annual report on Form 10-K and quarterly reports on Form 10-Q.

Any forward-looking statement 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 also include non-GAAP financial information.

Reconciliations of this non-GAAP financial information can be found in the accompanying press release which is posted on the company's investor website at investor.tempursealy.com and filed with the SEC.

Our comments will supplement the detailed information provided in the press release.

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

Thank you, Aubrey.

Good morning, everyone.

And thank you for joining us on our second quarter 2024 earnings call.

I'll begin with some highlights from the quarter and then turn the call over to Bhaskar to review our financial performance in more detail.

After that, I'll open up the call for Q&A.

In the second quarter, net sales were approximately $1.2 billion and adjusted EBITDA $231 million an improvement of 6% versus the second quarter of 2023.

Our adjusted EPS grew a solid 9% to $0.63, while also improving our leverage ratio.

We're pleased to see our global market outperformance mitigate the impact of softer-than-anticipated industry volumes.

Despite an estimated mid-single digit industry decline in the quarter, more than our anticipated low-single digit declined for the period.

Our sales were only slightly below internal expectations.

Our strong gross margin performance and solid cost controls resulted in healthy earnings growth in the second quarter.

Turning to a few of second quarter highlights.

First, our US business outperformed the market, driven by the enduring strengths of our brands and products and supported by some recently introduced consumer-centric innovation and compelling marketing initiatives.

Tempur-Pedic emerged as our top-performing brand again this quarter, supported by our all-new adapt products.

As a reminder, our updated collection is designed to alleviate aches and pains by leveraging our innovative Tempur material, which delivers a 20% improvement in pressure release compared to standard materials.

The recently introduced ActiveBreeze product, our advanced heating and cooling sleep system priced at approximately $13,800 for a king, has resonated strongly with discerning ultra-luxury customers.

In addition to active climate management, this product integrates Sleeptracker-AI and is driving premium tickets upward of $20,000 when bundled with complementary items.

While sales volume is expected to be moderate, we believe this ultra-premium offering plays an important role in enhancing brand perception and signaling the future for bedding innovation.

Our North American direct-to-consumer business experienced an ASP uplift and 2% sales growth in the quarter, driven by our new Tempur-Pedic products, clearly outperforming the industry as a whole.

Our US Tempur retail stores and e-commerce platform reported a mid-single-digit expansion of ASP over the prior year in both our Tempur-Pedic and Stearns & Foster e-commerce websites experienced strong traffic.

Our value-priced products also performed well in the quarter, supported by our recent distribution wins with two large US bedding retailers.

These wins drove solid performance within our OEM and Sealy brands, mitigating the impact of soft industry-wide demand for entry-level and value-oriented price points.

Overall, our broad-based momentum from our new products and distribution wins grow mid-single-digit growth in North America mattress units.

Excluding the growth in our OEM business, North America mattress units were down low-single-digits.

And mattress ASP was consistent with prior years, indicating consumers maintaining their willingness to invest in bedding innovation.

To support all our brands, products and third-party retailers, we continue to execute a balanced media strategy, with focus on both broad-based and targeted digital outlets, to engage consumers throughout their purchasing journey.

Our recent creative campaign has spring consumer interest across our product categories, supported the successful launch of our new Tempur offering and fostered the continued momentum of Stearns & Foster collection.

In the second quarter, we introduced new targeted TV spots and digital assets to support the new TEMPUR-Adapt collection, which resonated with our target customer base and is driving strong interest in our newly rolled-out lineup.

We're also continuing to support the Stearns & Foster product with campaigns that reinforced the brand's 175-year legacy of superior comfort, quality and craftsmanship.

As an investment in Stearns & Foster advertising continues to drive among the fastest-growing level of Google search interest in the category.

In fact, we've realized nearly 30% increase in Stearns & Foster's search interest since January, outpacing search interest in the overall category by a factor of 7 times.

Second highlight.

We are pleased with our performance with our international business, which continues to generate strong results against a challenging operating background.

In the second quarter, the Tempur International team delivered solid growth year over year.

And the Dreams business in the UK also performed well in what has been a challenging market.

Our recently concluded international rollout of all-new Tempur mattresses, bed bases, and pillows is a key driver to these International results.

The new lineup features consumer-centric innovation, a high level of customization and a broader range of price points, ensuring we meet the diverse needs of the consumers across some various markets and channels.

Turning to the third highlight.

In the second quarter, we achieved consolidated adjusted gross margin expansion of 200 basis points and adjusted EBITDA margin expansion of 170 basis points year over year.

Operationally, we continue to drive gross margin efficiencies through enhanced supply contracts, improve the labor productivity and optimized logistics.

These efforts, coupled with normalized commodity prices, contributed to a significant gross margin improvement in both North America and our international segments.

We successfully translated that gross margin expansion into increased profitability while concurrently investing in certain long-term growth initiatives.

Finally, I'd like to highlight the flexibility of our business model which allows us to remain agile in a dynamic operating environment.

Approximately 70% of our total costs flex with sales, helping to mitigate the impact of periods of softer demand.

In the second quarter, our flexible operating model adapted to the muted operating conditions, while continuing to support our brands and delivering best-in-class service to our third-party retailers.

Our strong cash flow and solid balance sheet continue to differentiate us from competition.

In the second quarter, we reported a robust $122 million in free cash flow, our strongest second quarter free cash flow since 2021.

We also reported debt-to-EBITDA leverage of 2.7 times, well within our target range.

And we expect our total leverage to trend down as we prepare for the Mattress Firm acquisition.

And with that, I'll turn call over to Bhaskar.

Thank you, Scott.

As mentioned, in the second quarter of 2024, consolidated sales were approximately $1.2 billion and adjusted earnings per share was $0.63. There are approximately $7 million of pro forma adjustments in the quarter, all of which are consistent with the terms of our senior credit facility.

These adjustments are primarily related to costs incurred in connection with the planned acquisition of Mattress Firm.

Turning to North American results.

Net sales declined 4% in the second quarter.

On a reported basis, the wholesale channel declined 5% and the direct channel grew 2%.

North American gross margin improved a robust 200 basis points to 41.9%, driven by favorable commodity, operational efficiencies, and launch costs.

These improvements were partially offset by the mix impact of the new distribution win for our OEM business unit.

North American operating margin improved 100 basis points to 18.4%, driven by the improvement in gross margin, partially offset by investments in growth initiatives, including advertising investments to support our newly launched products and investments to support our growing direct-to-consumer business.

Now turning to international results.

International sales grew 1% on a reported basis and 2% on a constant currency basis.

As compared to the prior year, our international gross margin improved 170 basis points to 56.6%, driven by operational efficiencies and favorable launch costs.

Our international operating margin declined 90 basis points to 12.5%, driven by investments in growth initiatives to support our new advertising campaigns and the Asia joint venture performance, partially offset by the improvement in gross margin.

Now moving on to the balance sheet and cash flow items.

At the end of the second quarter, consolidated debt less cash was $2.4 billion.

And our leverage ratio under our credit facility was 2.7 times, within our historical target range of 2 to 3 times.

We expect to continue to deleverage as we prepare for the Mattress Firm acquisition.

Now turning to our 2024 guidance, we now expect adjusted EPS to be in the range of $2.45 to $2.65. At the midpoint of the range, this represents a 6% growth year over year.

A notable expansion of profitability in a prolonged challenge market.

Our guidance is based on slight sales growth in the back half of the year, resulting in full year sales that are approximately consistent with the prior year.

This also considers our expectations that 2024, US bedding industry unit volumes will be down mid-single digits, which implies the industry headwinds will moderate sequentially but will continue through the back half of the year.

Our sales performance outperforming the industry due to recent distribution wins in the US and the continued success from the new product launches, with advertising spend approaching $475 million as we support our leading brands and new products, resulting in an adjusted EBITDA of approximately $940 million at the midpoint of the range.

Our guidance also considers the following allocation of capital in 2024: CapEx of approximately $140 million, down significantly from prior years as our major capital projects are complete.

This level of spend is driven by maintenance CapEx of $110 million and growth CapEx of approximately $30 million.

And a quarterly dividend of $0.13, an increase of 18% year over year.

Lastly, I would like to flag a few modeling items.

For the full year 2024, we expect D&A of approximately $200 million to $210 million, interest expense of approximately $130 million to $135 million on a tax rate of 25%, with a diluted share count of 179 million shares.

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

Thank you, Bhaskar.

Nice job.

Turning to a brief update related to the Mattress Firm acquisition.

I'm pleased to share that we have recently successfully executed a new post-closing supply agreement with one of Mattress Firm's medium-size mattress suppliers.

This is one of several post-closing supply agreements that we have executed in preparation for our planned acquisition of Mattress Firm and is consistent with our plan for Mattress Firm to continue as a multi-branded retailer.

We'll not be providing any further comments on Mattress Firm acquisition beyond what we've shared on our July 8 update call, a replay of which you can find on the investor website.

And because we're in litigation, we will not be taking any questions on the acquisition this morning.

Thank you for your understanding as we move through this process.

And with that, operator, please open the call up for questions.

(Operator Instructions) Susan Maklari, Goldman Sachs.

Thank you.

Good morning, everyone.

Good morning, Susan.

Good morning, Scott.

I want to start with the demand side of the equation.

There's been obviously a lot of focus on the health of the consumer and overall demand trends through the quarter.

Can you talk about how things did change as we move through the second quarter and how you're thinking about the setup relative to your guide for the back half to be up -- back half revenues to be up modestly, the full year flat, with the volumes down mid-single digits?

Just put some context to that, perhaps around those parts and how we should think about it relating to the broader consumer.

Sure.

Thank you for your question.

I mean, if you look at the pace of sales during the quarter, the quarter started out, I'd call it, solid, positive.

I think that was probably retail -- retailers kind of loading up for the holiday, and we're fairly optimistic going into the holiday.

Then I think the sell-through was a little weak during the holiday, and sales were a little bit lighter towards the end of the quarter.

And even though you didn't ask, but to get full context, then you have to get after quarter end.

Sales kind of got back to what I'll call normal and were solid to, I'll call it, flattish post quarter end, with high-end Tempur actually being positive after 6/30.

So that's kind of the trend.

On the setup, Bhas, do you want to talk about the guide?

And I think the primary reconciling item is probably the share gains that we've continued to have each quarter.

Absolutely.

So when you think about the back half, as you pointed out, Susan, we would expect slight growth in the back half and, let's say, international doing a bit better than the US.

And as we think about from a share opportunity standpoint, the continuation of what we've seen continue to outperform the competitive set.

And fundamentally that is focused on the new distribution that we have in our OEM channel as well as the continued success that we have with new products on the Tempur side at the moment.

Rafe Jadrosich, Bank of America.

Great.

Thank you.

Thanks for taking my questions.

I just wanted to -- when you think about the promotional environment across the industry, it looks like price has held up even though the end market has been a little bit choppy.

How do you think about kind of pricing through the back half and into next year with sort of the challenging end market environment?

Have you seen any changes on the broader promotional environment?

Sure.

I'd say that, that promotional environment is probably a tad bit more promotional this year than same period last year.

Generally, that takes the -- it's been on promotional for a longer period of time, as opposed to, we'll call it, depth of the promotion.

Some of the manufacturers, you have excess capacity and have had some share issues.

They have become a little bit more promotional.

If you look at our -- the way we think about it, we try to match the promotions, but we also focus mainly on profits.

And from share gains, we had what I'd call reasonable share gain in the US and good share gain internationally in sales.

If you look at share gains from a profit standpoint, I imagine our profit performance would stand up extremely good, share gains from a profit standpoint, but I would expect, if the market stays kind of bouncing around the bottom or soft, it will be in a slightly more promotional environment, as far as link the periods, but not depth, as far as ASP.

Bobby Griffin, Raymond James.

Good morning, guys.

Thanks for taking my question.

Bhaskar, I want to switch over to gross margins, clearly a lot going on in the industry.

You guys are regaining some of the operational efficiencies.

You have deleverage, maybe some commodity tailwinds and different things with the new manufacturing facility, but when you strip all that out, how do you view these -- this level of gross margins?

Is it sustainable?

Is it over-earning?

Is there anything we should keep in mind about this as we think about eventually getting to an industry recovery?

And admittedly, predicting that is becoming harder and harder to do on a quarterly basis.

Bobby, great question.

The way I think about our gross margin performance: We start seeing green shoots in the back half of last year really driven by the operational productivity.

Just as a reminder, back in the day, coming out of COVID, we made some investments to support our customers.

And we committed to ourselves that we would get that back.

And what we've seen here from an operational activity standpoint is that we're well within that journey.

And when I look -- when I think about our gross margin, what I'm really excited about is really the durability of what we've been able to demonstrate, so the operational efficiencies that we saw in the second quarter, that does have legs.

It has legs and it's going to drive gross margin and EBITDA improvement both sequentially as well as year-over-year, when you get into the back half of the year.

And as I think about 2025, this is just -- as I mentioned before, this is just the beginning of the journey.

It's not the end of the journey, so there's opportunity left not only from a gross margin standpoint, but that's flowing through from an EBITDA margin standpoint as well.

I'd also add to that is I think everybody knows that it's a lot easier to get gross margin expansion, when the market is growing.

So to be able to deliver really strong gross margin performance in a softer market is outstanding, I think, really bodes well for when the market turns around.

Michael Lasser, UBS.

Good morning.

Thank you so much for taking my question.

Hey, good morning.

Great to talk to you, Scott.

I know this is a tough question to answer, but if interest rates come down, but that's because unemployment is weakening, what does that mean for the outlook for units and overall industry revenues for the next 18 months?

And then separately, it does seem like, as the industry softness continues, some of the players are pulling back on promotional activity and advertising, in an effort to preserve profitability.

Doesn't that create an opportunity for Tempur Sealy to be more aggressive, gain even more market share and be in an even better spot coming out of this downturn?

Thank you very much.

Yeah, thanks for your question.

First of all, just to interest rates because it's kind of interesting.

And I'm going to call it a 100 basis point decline in interest rates just kind of to put some math around it.

And if you look at our business model as we sit today, a 100 basis point decline in interest rates generate, what, Bhaskar, probably about $10 million worth of EBITDA?

Correct.

And that's probably a little bit more than you would probably initially think if you look through our variable debt.

But the piece that you're probably missing is we also get a benefit on the retail side because of the cost of financing and our direct business has gotten to be a reasonable size.

So we pick up about $5 million in interest savings from our variable debt.

And then we pick up another, call it, $5 million in reduced cost of financing throughout our retail operations.

So that would be the first kind of point.

That's the direct benefit.

Obviously, there's also an indirect benefit, which we don't try to compute, which allows our retail customers to help drive traffic through, call it, aggressive interest rate offers.

So a little more interest sensitive probably than you would think and clearly would be a tailwind for us and the industry.

As far as, like, strategy you're talking about, as far as companies, some of -- some manufacturers that might be pulling back on advertising due to financial concerns, sure, those financial concerns have been here for quite a while.

People have pulled back.

I don't think there's more pullback in the industry from that standpoint.

And yes, it has been an opportunity for us to gain share, and we continue to gain share in the US and in overseas.

Peter Keith, Piper Sandler.

Thanks.

Good morning, everyone.

I was hoping you could just talk about the North American business, maybe with a few more specifics.

I think if we're looking at industry data points generally suggests that Q2 was less negative than Q1 industry-wide, but your sales did get a little bit worse.

So could you pull that apart a bit maybe with the lapping of four models?

And did anything change on the competitive front?

Absolutely.

Just from a quantitative standpoint, let's say that the industry was slightly better sequentially from Q1 to Q2.

However, when you look at our performance, just be mindful on a year-over-year basis, we did have large for models on a year-over-year basis.

So when you -- on a print, we've got 6% up on unit.

It's really being benefited from the new distribution.

And if you were to factor out what core models, we still captured share on a year-over-year basis.

Keith Hughes, Truist.

Thank you.

My question is on international.

You said in the prepared comments, it would probably be greater growth or higher numbers than domestic.

The 2% excluding currency this quarter, is kind of what you're expecting for the second half or what directionally number are we looking for?

Good question.

Just one thing to be mindful of: In the first half of prior year, that's when the products are launching.

So what we've commented on is that the underside of the underlying legacy international business has been approaching double digit growth through the back half of last year.

And once you factor out for model, is you see that again.

So as that was implied in the guide in the back half of the year is, call it mid to high single digit growth from an international perspective.

And really what's happening is it's not an improvement, necessarily trend.

It's just now you can see the growth because we're not competing for models.

Brad Thomas, KeyBanc Capital Markets.

Thanks.

Good morning.

I will follow up on the margin side of things.

Bhaskar, wondering if there's any more color you can share about how you're thinking about margins in 3Q and 4Q.

Thanks.

Absolutely.

So the bottom line from a gross margin and EBITDA margin standpoint as -- in each quarter, we would expect to both of the margin to improve both in Q3 and Q4.

Just as a reminder, most of our -- or seasonally, the third quarter is the biggest.

So just as historical pattern would indicate, our gross margins in the third quarter would be higher in Q3 versus Q4.

Again, we would see expansion both in the EBITDA margin as well as gross margins both sequentially as well as a year-over-year basis.

However, one thing to be mindful is the rate of expansion that we saw in the first half, we would expect a little bit less than that in the back half as we start lapping some of our productivity initiatives.

The other items I would just call out is the beauty of our business model is that we do have some natural flex in the business.

So from an advertising standpoint, we've called out about $475 million versus where we were prior.

So as you think about facing of that, just thinking about holding that rate in the back half of the year.

Seth Basham, Wedbush Securities.

Thanks a lot, and good morning.

I'd like to follow up on the share performance in the US.

It seems like you are still gaining share.

But especially if you strip out some of the OEM business wins, the share gains are more limited and that could be within the higher end potentially.

So any commentary there would be helpful.

And then relatedly, as we see the anti-dumping measures go into effect in the US, are you seeing inventory levels of the importers coming down such that we could see more share gains for you guys at the lower end of the industry despite the excess capacity that many manufacture in the US have?

Yes.

Let me see if I can unpack some of that, Bhaskar.

And you can clean me up.

I mean, the second part of your question, yeah, I do think the inventories are coming down from the imported goods.

And yeah, theoretically that should benefit us on the low end.

As you know, there's relatively little profit at that low end, so I don't think it will be huge to us from a profit standpoint.

Maybe, from a sales or unit standpoint, it would certainly be somewhat of a tailwind.

When you go to share gain, everything that we've seen when you look at it from an industry standpoint, we're talking US would indicate that we gained share in the second quarter.

The amount of share gain is probably less robust than it was in the first quarter, probably mostly due to promotional activity which we chose not to participate in.

So it's been slightly less, but as I think I've explained before, we manage sales and profits, not just sales.

So it's been a little bit less, but I -- from everything I've seen, I would expect us to have share gains in the US for the next few quarters based on what I can see.

And I just can't see any further out than that.

On the international side, I would say our share gains probably expanded in the second quarter versus first quarter.

As Bhaskar mentioned, it's the new product is doing very well internationally.

And we're more getting -- moving more into the meat of the market internationally.

Phillip Blee, William Blair.

Hi, good morning.

Thanks for taking my question.

It seems like newness continues to be a big driver of demand in the space.

So can you speak about how some of your product -- newer products are performing relative to the rest of the assortment?

And then any key drivers behind the variance in performance, whether it's price advertising or just consumer appetite?

And then anything about how we should think about sustainability of that going into next year?

Thank you.

Sure.

I mean the newer products, almost by definition performed better than the older products, the new shiny penny on the floor.

The Adapt product is been wildly successful.

We're looking forward to a relatively large -- would be the largest launching in Sealy's history, the 2025 Sealy brand, which we would expect to be very robust no matter what the industry is if we launch that product.

What drives business is obviously advertising, consumer confidence, innovation.

So things continue to be foundational in the industry.

Bhaskar, do you have anything to this question?

I think, no.

Scott.

(Operator Instructions) Laura Champine, Loop Capital.

Thanks for taking my question.

It's really about your marketing spend.

I think maybe last quarter, you talked about continuing to spend to drive people to the category which may or may not be working.

So I just wanted to talk about where those marketing dollars are going.

If you've switched channels at all or focus whether it comes to top, bottom or mid-funnel?

Yeah.

Great question.

And as I said in prepared remarks, is kind of a balanced media mix.

We really haven't changed the mix.

We have redirected some of our advertising dollars to support promotional activity.

So the way we think about it is we moved a little bit from the top of the funnel, which is to drive customers into retail stores and move some of those dollars more to promotional expense so that our product is on sale at same time other products are on sale.

We've had a little bit of a mismatched last couple of quarters on that.

And we've decided to go ahead and match off.

So when a customer comes in, our product will be on sale like others.

The good news is its pretty much EBITDA neutral for us as we just shipped around the dollars between advertising and promotion.

Jonathan Matuszewski, with Jefferies.

Great.

Good morning and thanks for taking my question.

I wanted to ask about commodity cost tailwinds for gross margin this quarter.

Could you just expand on kind of the puts and takes that drove that?

And then elaborate on the expectations embedded in the guide for the second half?

Thank you so much.

Absolutely.

So from commodity standpoint, call it about 100 basis points benefit on a year-over-year perspective.

And when I think about the puts and takes, I would say the tailwinds that we've seen, whether it would be steel, chemicals, CDI, MDI, cotton, et cetera, is that those continue to help us.

However, one thing that we are mindful of, and it is that in the guide, it is just the costs of transportation, specifically ocean cargo and whatnot.

So that was a bit of a drag in the first half and specifically in the second quarter.

As I think about the outlook is that we do expect that benefit to moderate as we get into the back half and really, if you think about how commodities have flowed over last year or so is that we started seeing improvements in the back half of the year, so sitting here today, the expectation is that we'll see a little bit of commodity benefit in the back half of the year that will drive the gross margin improvement and EBITDA improvement; however, not to the extent that we saw in the first half.

William Reuter, Bank of America.

Good morning.

The expectation that industry declines will moderate in the second half of the year, it seems to be a little bit in conflict with what the markets are telling us about how the consumers feeling and recent anxiety about weakness.

I guess is your expectation that lower interest rates are going to benefit you more than they may consumer products spending in general?

Or to what do you do you attribute the fact that you expect trends to -- the declines to decelerate across the industry?

Yeah, great question.

Because I think it really has more to do with industry-specific issues, which are the comps are much lower.

The bedding market, mattress market specifically went into, call it recession/ depression earlier.

So our comps are much easier as opposed to us having a more of a sunshine kind of opinion about the general economy.

It's really a comp issue on to discuss over.

That's right.

And when you think about second half expectations, as Scott said, it is comp driven and when you think about first half, back half, or second quarter to back half.

We're just talking about a very slight improvement on a rate year-over-year perspective.

Peter Keith, Piper Sandler.

Well, thanks again.

And so there's been some, I guess, some bankruptcy risk with a few of your distributor partners.

And I think one has gone to full liquidation.

Is that factored into the outlook?

And maybe what percentage would that be a hit to sales for the back half?

Yeah, that's fully considered in the guidance.

It's insignificant in the portfolio.

It's also generally low in bedding.

So I think, what, 98% of receivables are current.

Correct.

Clearly, in an elongated unturned, you're going to have some, we'll call them blips.

And generally that would be in those retailers who retail primarily lower-end mattresses.

And we are seeing -- we've seen pressure there from some accounts, which are obviously public, but not -- it's in the guidance, but I also don't think it's what I would consider to be significant from a financial standpoint.

Just to double tap on that.

When you go back in history, coming out of COVID, the retailers were perhaps in the best health that we've seen, at least in my time.

However, as Scott mentioned, with the elongated kind of downturn is that we have seen some pressure.

What I would say is that we are broadly distributed.

And you can find it, that the consumers want to interact with our brands and products is that they can find it an alternative distribution point.

And as Scott mentioned, as it relates to from a credit exposure standpoint, very fairly healthy at 98% and it is -- Scott?

The other thing I'd mention is the customer doesn't go away.

The customer ends up showing up in another channel.

And some of our other channels, quite frankly, do a better job moving customers into higher end products.

And so it's sometimes -- some of those changes are net positive when you work through the system.

And you realize how well we're distributed.

Bobby Griffin, Raymond James.

Hey guys, thanks for letting me get back in.

Bhaskar, I was just hoping maybe we could talk a little bit more detail on the moving parts around floor samples.

If my notes are correct, the floor samples, given the timing shift this year were -- would be a year-over-year revenue headwind to reported 2Q North America revenue.

And then what was it to 1Q?

Was it actually it tailwind to 1Q '24?

So when I want to think about the sequential performance, I need to neutralize that.

That's correct.

So it was it was a slight benefit in the first quarter, call it a percent.

And as you think about the second quarter, call it 3% on a consolidated basis with most of it being in North America.

Very astute observation.

Thank you.

And I will now turn the call over to Scott Thompson for closing remarks.

Thank you, operator.

To our over 12,000 employees around the world, 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.

And to our shareholders and lenders, thank you for your confidence in the company's leadership and its Board of Directors.

That ends our call today.

Operator, thank you.

Thank you.

And this does conclude today's conference.

Thank you for your participation.

You may disconnect at any time.