Any way you look at it, Tempur-Pedic (NYSE:TPX) reported an outstanding quarter yesterday.
Despite price increases being implemented the quarter before, volumes still grew, with 17% more mattresses and an additional 19% more pillows being sold in the United States. As a result, net sales rose 18%, to $257.6 million, and earnings grew 30%, to $0.39 a share. Higher prices and higher volumes? That's a marketing executive's dream! And I don't think demand will fall, even though the company just announced a price hike in the coming quarter for its Deluxe and Classic models.
Its high-end, foam technology mattresses have many attractive features. Your spouse can roll over (or even jump) and you won't feel it on the other side. It holds your body heat and conforms to your body to offer you a comfortable night's sleep. It comes with a 20-year warranty, and there is no need to turn or flip the mattress (how many of us forget to do this?).
In its advertisements, Tempur-Pedic states that you will never get a bedbug. I realize that might not seem like a benefit at first (unless you move your bed to the woods), but people unknowingly bring these critters home with them from hotels. On the downside (and this is no joke), people have compared the mattress's initial smell to kitty litter, but that goes away in about a week. In my limited survey, most people seem to love the mattress.
Simmons, another bed manufacturer, has just purchased the Comfor-Pedic line of memory and foam mattresses and pillows. However, in my visits to stores, salespeople have said it doesn't compare to the Tempur-Pedic line in terms of quality or comfort.
Rival and Motley Fool Hidden Gems recommendation Select Comfort (NASDAQ:SCSS) warned last month that its sales will be disappointing, despite a heavy increase in marketing. It also slashed its earnings forecast. Sealy's (NYSE:ZZ) is having problems as well, reporting disappointing results for the latest quarter as it had to discount its merchandise. This should only help Tempur-Pedic continue to take market share as these two struggle to get their acts together.
Tempur-Pedic seems to be operating on all cylinders. It raised its expectations for the rest of this year, as it expects higher sales and earnings per share. Although some of the earnings improvement can be attributed to a lower tax rate, interest expense, and share buybacks, higher sales volume and prices are the real story. And with the cash flow it has been generating, the board of directors authorized an additional $200 million for these share repurchases (it already completed its prior authorization). So there very well could be a positive earnings surprise, since the new earnings expectation does not assume the company will buy back any additional shares.
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Fool contributor Larry Rothman is happy to receive feedback, and promises to read it when not being wrestled by his three children. He doesn't have any positions in the companies mentioned. The Fool's disclosure policy makes a great bedtime story.
