The label of a Sealy Posturpedic mattress

Image source: The Motley Fool.

What happened

Tempur Sealy International Inc (TPX 1.99%) shares were collapsing today after the mattress maker lost its biggest retail partner, Mattress Firm. As of 1:22 p.m. EST, the stock had plunged 31.6%.

So what 

With 3,500 stores nationwide, Mattress Firm, which also owns Sleepy's, is one the biggest national retailers of mattresses and other sleep products. The chain accounts for more than one-fifth of the Tempur-Pedic maker's sales.

Mattress Firm parent Steinhoff International Holdings, which bought the retailer a few months ago, said it wanted to make significant changes to its contract with Tempur Sealy, including economic concessions. After the two sides failed to come to an agreement, Tempur Sealy formally terminated the contract.

Now what

Tempur Sealy CEO Scott Thompson attempted to spin the news positively, saying the company was focusing on partners that "exhibit a long-term commitment to Tempur Sealy's brands." Sales to Mattress Firm had already been falling, declining 11% last year. 

Tempur Sealy also reported preliminary fourth-quarter results that were better than expected; revenue came in at $770 million against estimates of $741 million. 

The loss of Mattress Firm will likely hurt Tempur Sealy, as the mattress industry is generally seen as a commodity business and retail distribution is important. Still, the company said it has plans to offer new products and should overcome this setback over the long term.