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Sealy Corporation (ZZ) announced its financial results on Tuesday for the second quarter ended May 31, 2009.
Net sales for the second fiscal quarter were $298.5 million compared to $375.4 million in the same prior year period. Net loss for the second quarter was $(5.2) million or $(0.06) per diluted share versus net income of $12.0 million or $0.13 per diluted share for the comparable period last year.
Jeffrey Ackerman, CFO of Sealy, commented in a conference call, "Sales and unit volumes continued to be impacted by economic conditions in Q2. International net sales fell 22.2%. We experienced weakness in a number of areas, especially Europe and Canada. Although our Canadian business continues to be pressured by weak retail conditions, we believe that we are continuing to gain share in that market."
He continued, "Our gross profit margins improved 1.4% over Q2 of 2008. This was driven primarily by a 2.2% increase in our U.S. gross margin, which resulted from fewer floor sample discounts, improved manufacturing efficiencies and price increases implemented last July. This was partially offset by lower margins in Canada, and the deleveraging of fixed costs and slightly higher raw materials in the U.S."
Mr. Ackerman added, "Our SG&A expenses improved by $20.8 million (17.9%) from the same period last year. This reduction was principally driven by a $9.5 million decline in volume variable expenses and our efforts to aggressively reduce our cost structure. We are currently in the process of implementing additional actions to streamline our cost structure, particularly in our international markets, as well as reducing domestic delivery expenses."
Larry Rogers, Sealy's President and CEO, explained, "We made significant progress in Q2 on areas of the business that we can control. Our Q2 results reflect the continuation of the sequential improvement of our financial performance. We achieved significant sequential improvement in gross profit, income from operations and adjusted EBITDA in terms of dollars and margins. While we significantly improved our operating performance versus Q1, we were also be able to strengthen our competitive position and execute consistently on our strategic initiatives despite the continuation of macro-economic conditions and a difficult retail environment."
He noted, "We are very pleased with the launch of our Stearns & Foster(R) line. This line has extended our distribution footprint and is beginning to produce profitable market share gains."
Mr. Rogers added, "While our bottom line profitability was significantly impacted by one time charges related to our refinancing plan, Our adjusted EBITDA margins improved substantially on a year-over-year and sequential basis. Our continued strong cash flow generation and the impending completion of our comprehensive financing restructuring plan creates a stable and long term financial position with greater flexibility for the company."
He concluded, "While bedding demand remains somewhat soft, a number of traditional industry demand drivers are beginning to have a more positive impact. Tighter credit standards have impacted unit sales, pressured high-end price points and promoted a product mix shift towards more inner spring products. We also believe that there is significant pent-up replacement demand building, and we expect to see a strong recovery in demand when the recession ends. While we expect for market conditions to remain challenging, we have never been in a stronger stategic position on a global basis."
Piper Jaffray upgraded Sealy Corporation (ZZ) today to Overweight from Neutral after changing its rating system to Underweight, Neutral, Overweight from Sell, Neutral, Buy.
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