Good day and thank you for standing by. Welcome to the Tempur Sealy’s Third Quarter 2023 Earnings Conference Call. At this time all participants are in a listen-only mode. After the speaker’s presentation there will be a question-and-answer session. [Operator Instructions]. Please be advised that today’s conference is being recorded.

I would now like to hand the conference over to your speaker today, Aubrey Moore, Vice President, Investor Relations. Please go ahead..

Thank you, operator. Good morning, everyone and thank you for participating in today's call. Joining me today are Scott Thompson, Chairman, President and CEO; and 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 involve 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 Reports on Form 10-K and Quarterly Reports on Form 10-Q. Any forward-looking statement speaks only as of the date on which it was made. The company undertakes no obligations to update any forward-looking statements.

This morning's commentary will include non-GAAP financial information. Reconciliations of the 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 now with that introduction, it is my pleasure to turn the call over to Scott..

Thanks Aubrey. Good morning everyone and thank you for joining us on our 2023 third quarter earnings call. I will start by sharing some highlights for my third quarter performance and then Bhaskar will review our financial performance in more detail.

After that I will provide an update on a proposed acquisition of Mattress Firm before opening up the call for Q&A. Today we are reporting the third best third quarter sales and ETF in the company's history. For the third quarter of 2023, we reported net sales of approximately 1.3 billion and adjusted EPS of $0.77.

Our results are approximately consistent with the third quarter of last year despite a more challenging macroeconomic operating background. The U.S. betting industry as a whole underperformed our expectations with estimated volume down low double-digits in the quarter. We mitigated the impact of the softer than expected U.S.

market with solid company performance that exceeded our expectations on both a relative market performance and year-over-year gross margin expansion. Internationally, the betting industry and our operations performed in line with our expectations.

Overall, despite down markets and the disruption of a major cyber security incident in the third quarter, our strong relative performance and cash flow generation demonstrate strong -- strength of our brands, operations, and team. We believe Tempur Sealy is well positioned for continued success. Turning to highlights for the quarter.

First, our industry leading brands and products continue to resonate with the U.S. consumer, driving our strong performance relative to the broader market. All of our new Tempur products and supporting advertising initiatives has strengthened Tempur’s appeal to the premium, relative minded consumer.

The incremental cooling and comfort innovation of our new lineup of breeze mattresses generate robust retail advocacy and favorable mix in the quarter compared to the prior year.

The lumbar feature acoustic massage, the wake up and wind down technologies, and our new smart based lineup continue to strengthen the value proposition of our adjustable offering driving an improvement in detachment rates year-over-year. These innovations drove a 5% increase in Tempur Mattress and Foundation ASP in the third quarter.

Looking ahead to 2024, we expect to complete the full refresh of our U.S. Tempur portfolio by introducing our next generation of adapter products. We expect strong returns on investment and our new products for years to come.

Over the quarter we continued to support our new Tempur products and along from health of our Tempur brands with continued investments in national and digital Tempur-Pedic advertising. These marketing investments support very solid e-commerce performance and drove an increase in US Tempur search interest year-over-year.

Our strategic investment and product distribution and marketing also continue to drive strong performance and expand brand awareness of Stearns & Foster in the U.S. market. We completed the roll out of our all new Stearns & Foster mattress collection earlier this year.

We continue to see these new products connecting with the premium traditional inner spring consumer driving sales growth year-over-year. The consumer centric innovation, elevated design, and pants step up opportunities are resonating with premium inner spring customer.

We are thrilled that our high end products are performing well and the ASP of Stearns & Foster product is up double-digit from last year. Additionally, Stearns & Foster’s search interest and e-commerce traffic were up 50% this year. Clearly our multiyear strategy for Stearns & Foster is working well for us and our retailers.

Second highlight, our international operation is performing well and driving solid sales growth amid the current macro backdrop. We successfully launched our new international Tempur lineup in over 90 markets worldwide including the rollout in nearly all the key markets in Europe and Asia.

The launch is on track and will be substantially completed before the end of the year. The new products are being well received. Additionally, Dreams our UK retail operation is also performing well in both sales outperforming versus the broader market and has a record customer satisfaction.

This quarter performance demonstrates the strength of our international strategy and pain [ph], highlighting the long-term opportunity for the international operations. Third, we choose significant consolidated growth margin expansion year-over-year, and are progressing towards normalized margins.

After multiple years of COVID overhang, rapid inflation, macroeconomic disruption, pressured margins for a while, we are pleased to report 340 basis point improvement to consolidated adjusted gross margin year-over-year thanks to the successful management of commodity fluctuations, improved supplier contracts, and operational improvements.

This is a significant step towards driving profitability, which the team remains laser focus on achieving. The growth driver of our gross margin improvement is our ability to pass on pricing to offset commodity inflation. As you may recall we experienced approximately 400 basis points of margin compression between 2020 and 2022.

This commodity price has increased at a historical pace. Now that pricing changes have been implemented, the commodity prices have started to normalize. You can see the positive results in our reported financial statements.

Additionally, we're optimistic that our scale in the market and our new product innovations would drive further gross margin expansion. The second driver of gross margin improvement is operational efficiencies.

In 2022 we invested approximately 80 million above normal operating levels to ensure we met our customer's needs during period of supply chain disruptions. All these actions were critical to maintaining and strengthening our third party retail relationships during the period of uncertainty that put significant pressure on our margins.

Beginning in the back half of 2023, operations began to drive year-over-year improvements in supply contracts, labor productivity, and logistic efficiencies. As we look ahead we remain focused on cost reductions and achieving our multiyear operational targets. Third driver to gross margin improvement is our brand and product mix.

Our new Tempur and Stearns & Foster products are continuing to resonate with our premium consumers driving momentum at the. high end of the portfolio. We're also seeing a favorable mix [indiscernible] as premium consumers are less impacted by the current softness in the market.

Lastly, our final highlight is the JD Power Award announcement we made this morning. The Tempur-Pedic ranked number one in customer satisfaction with batches online in the JD Power 2023 report.

We are thrilled to achieve this distinction for the third year in a row for online mattress category and the fifth consecutive year of winning at least one of JD Powers Awards. Now I'll turn the call over to Bhaskar to take you through our financial statements in more detail. .

Thank you, Scott. In the third quarter of 2023, consolidated sales were approximately $1.3 billion and adjusted earnings per share was $0.77. While these results were slightly below our expectations, we believe we continue to outperform our competitive set in a challenging market.

We have approximately $32 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 cost incurred in connection with the planned acquisition of Mattress Firm and the previously disclosed cyber event. Turning to North American results.

Net sales declined 3% in the third quarter. On a reported basis the wholesale channel declined 4% and the direct channel declined 1%. North American adjusted gross margin improved a very robust 300 basis points to 43.2% driven by favorable commodities and operational efficiencies partially offset by deleverage.

North American adjusted operating margin improved 50 bps to 20.3% driven by improvement in gross margins partially offset by investments in growth initiatives. Now turning to international. International net sales increased a very solid 12% on a reported basis and 7% on a constant currency basis.

As compared to the prior year, our international gross margin improved a robust 320 basis points to 56.6% driven by commodities, mix, and favorable leverage. Our international adjusted operating margin improved a 150 basis points to 16.2% driven by improvements in gross margin partially offset by investments.

Global commodity prices continued to brand largely in line with our expectations. We continue to expect favorable commodity prices for the remainder of the year, though remaining significantly elevated from 2020 levels.

In addition to the benefit of favorable commodity markets we assigned multiple agreements with certain global suppliers who have recognized our scale momentum. These relationships will benefit our gross margins over the long-term Now moving on to the balance sheet and cash flow items.

We have paid down approximately $200 million of debt over the first nine months of this year. At the end of the third quarter, consolidated net debt was $2.5 billion and our leverage ratio under our credit facility was 2.9 times within our historical target range of two to three times.

We generated third quarter operating cash flow approximately $230 million. In the last five years the company has realized over $2.5 billion in operating cash flow, proving the business model and providing financial flexibility. I'm pleased to highlight that over the last few weeks we have successfully refinanced our credit facilities.

With this refinancing, we have meaningfully extended our debt maturities, improved our financial flexibility, and increased our potential of total senior credit funding all while maintaining our current cost of funds in what is clearly a tight commercial banking market.

As we previously reported under the terms of our purchase agreement with Mattress Firm, we have temporarily suspended repurchases under our share repurchase authorization as we work towards the closing of the transaction. Over this interim period between sign and close, we expect to significantly deleverage as we plan to use cash to pay down debt.

After the acquisition closes we anticipate our leverage ratio to be between 3 and 3.25 times. Now turning to 2023 guidance. We now expect adjusted EPS to be in the rage of $2.30 and $2.50. We have maintained a $0.20 range which reflects the global uncertainty. The midpoint of our revised annual guidance is based on sales consistent with prior year.

This includes our updated expectation that the U.S. industry volumes will be down low double-digits year-over-year versus our prior expectation of high single-digits and the execution of our key initiatives, new product launches, and the wrap around impact of pricing.

Sales and marketing investments of $20 million to support product launches, and record advertising spend of approximately $480 million as we continue to support our leading brands and new products. All this result in adjusted EBITDA for the year of approximately $885 million at the midpoint of the range consistent with prior year.

I should point out the adjusted EPS range as well as foreign exchange rates that are unfavorable versus our previous expectations. Our current outlook for 2023 now contemplates an FX headwind indicating our fourth quarter 2023 adjusted EPS has been reduced $0.04 versus our previous expectations.

Our guidance also considers the following allocations of capital, a quarterly dividend of $0.11, representing a 10% increase relative to 2022 and CAPEX of approximately $200 million, which includes $90 million of growth, primarily to fund the completion of our Crawfordsville facility.

Going forward, we would expect our CAPEX to return to a more normalized level of spend. We think of annualized CAPEX as approximately $150 million driven by maintenance spend of $110 million and gross spend of approximately $40 million. Lastly, I would like to flag a few modeling items.

For the full year 2023 we expect D&A of approximately $185 million to $190 million, interest expense of about $130 million on a tax rate of 25%, and a diluted share count of 177.5 million shares. With that, I'll turn the call back over to Scott..

Thanks. Nice job, Bhaskar. Before opening up the call for questions let me provide a brief update on our pending acquisition of Mattress Firm. Consistent with our expectations we're currently responding to the Federal Trade Commission's robust second request, which we expect to complete in the fourth quarter of 2023.

We continue to expect the transactions to close in mid to late 2024. We continue to work closely with Mattress Firm’s leadership team. We received high level updates on numerous topics, including their financial performance.

Mattress Firm has an October 3 fiscal year end and will report their physical results when their audit is complete, most likely in early December. The preliminary results are in line with our expectations.

Finally, I'm pleased to share that Tempur Sealy and Mattress Firm continue to make joint progress in planning for post-closing, including solidifying key supplier relations ahead of the expected close.

Since announcing the acquisition in May Tempur Sealy has signed numerous post-closing supply agreements with existing Mattress Firm suppliers and one supply agreement for the company not currently supplying Mattress Firm. These contracts are consistent with our expectation for Mattress Firm to continue as a multi branded retailer post-closing.

A few additional discussions regarding supplier relations are ongoing. In summary, our progress towards the transaction close is on track and we look forward to joining with the Mattress Firm team. And with that, I'll open up the call for questions. Operator..

Thank you. [Operator Instructions]. Our first question comes from the line of Susan Maklari with Goldman Sachs. Your line is now open..

Thank you. Good morning, everyone. Scott, why don't we start by talking a bit about the demand environment. I think that, obviously things felt a little softer in the quarter than maybe some had anticipated and appreciating the color you gave in your comments.

But, can you talk a bit more about how things trended during the quarter, any sort of anything of note in there, and how you're thinking about the business as we progress through the balance of this year?.

Sure. Thanks for your question, Susan. I mean, first of all, let's not overlook that the international team had good solid growth in the quarter. And I think your question is really more directed towards North America. And then to kind of streamline your question even further, our Mexico operations had a great quarter and Canada was solid.

So kind of ratcheted down our largest market, which is where your question is really focused is the U.S. market.

As far as how that quarter progressed, the same trends that I think we talked about probably in the second quarter we saw in the third quarter, which is in non-holiday periods, the troughs had gotten deeper and then during holiday periods, we're seeing growth in the market. But the holiday periods haven't been strong enough to offset the trough.

So that would be we'll call that in quarter kind of trend. That's the same trend that we would expect in the fourth quarter. It continues to be what I'd call the normalization of the seasonality that the business used to incur before COVID with maybe slightly deeper troughs, and slightly higher peaks during the holiday period.

I think you also kind of asked in general, just like demand.

I mean, I think as you well know, the industry has been -- from a unit standpoint has been in decline for nine quarters, making it where we currently are sitting at great recession kind of volumes in the industry that we're working through and ensure some of that has to do with slowdown in the general economy. And we're talking U.S.

here and wallet shift. There's probably some minor pullback, a pull forward from COVID. Although we've never really thought that that was a big number. I think the biggest thing that the industry is working through is really advertising.

And, as you know, we've got a lot of smart people, a lot of analytics that go on to look at advertising both ours and the effectiveness of it, what goes on in the industry. And in looking at it as we tried to understand why the industry is having such a tough slug compared to historical volumes that were offered trend lines.

If you look at it manufacturer advertising over the last three years is down 40%. And if you look at the retailer's, their advertising is down 20%. And yeah, that's an issue.

But I think probably a bigger issue is when you dive into that reduced advertising and you look at the mix of what people are doing both from a manufacturing standpoint and a retailer standpoint. They've moved from top of funnel advertising over the last three years to the bottom of the funnel.

The manufacturers have moved about 40% of their advertising from the top of the funnel to the bottom. And retailers have also moved probably 40% to 40% plus of their advertising from the top of the funnel to the bottom of the funnel.

So what's that mean? That means we're not putting enough customers in the funnel triggering, they're thinking about mattresses, and we're all kind of fighting for the few customers that happen to trip into the funnel is what's going on in the industry.

If you play with the math, that means total top funnel advertising for manufacturers is down 64% when you include the decline in advertising plus the mix change. And for retailers, it's down 44%. That is an enormous amount of advertising dollars taken off the top of the funnel. And I think that's the big problem in traffic.

I think that's actually the bigger issue than share of wallet and other things that people like to talk about. Now from our standpoint, we continue to support the industry as a manufacturer and in our advertising expense we have not cut. So with us not cutting, you can see the other ad manufacturers are clearly not helping pull the funnel forward.

We have moved some to the bottom of the funnel and we're looking at that. And what we're doing to help kind of get the industry back on track is we're working with other retailers and major retailers, walking them through some of this analysis, talking to them about it. And it's resonating with them.

And some of the large retailers are really looking at their advertising mix in dollar amount..

Thank you. One moment for your next question. And next question comes from the line of Peter Keith with Piper Sandler. Your line is now open. Peter, your line is now open..

Sorry about that. Good morning, everyone. It's a really nice gross margin -- really nice gross margin expansion. I think the surprise to me and I think from others was the growth in SG&A and you did reference that you're making some growth investments.

So could you unpack a little bit what changed with Q3, did anything accelerate and maybe detail what some of these growth investments are?.

Absolutely, so one of the important things that Scott mentioned is, is that we want to continue to support our brands and products. So we continue to advertise and what we believe is that that advertising is showing itself and that we continue to outperform the market and capture share. So a piece of that is going to be advertising.

What I would further say is that we remained very positive and constructive on our own door, specifically our temporary retail store strategy. And as you can imagine, those are very unique type of shopping experiences that have unique locations, very long tail on those. So those, we've identified those opportunities.

So as you think about the investments in those stores, that's what’s flowing through selling and marketing as well. Outside of that and as we think about those things, if those things are going to continue to pay dividends as you think about growth in the out years, we're going to continue to invest in future growth..

Yes, I mean, that's consistent with what we said, we did not pull back what I'd call short-term things to worry about, quarter earnings.

When we look at the market share gains we're getting and what we're doing as far as strengthening our competitive position, we felt like those investments we should continue to make them and they are advertising and there are some new stores in Tempur and those takes some startup costs and stuff. But we stayed on track with our growth plan..

Thank you. One moment for our next question. And next question comes from the line of Bobby Griffin with Raymond James. Your line is now open. .

Good morning, buddy. Thanks for taking my questions. Bhaskar, clearly a very dynamic market here and not asking really for 2024 for guidance, we all make our own predictions.

But when you look at this year and you kind of look at how it played out, can you maybe highlight a few of the aspects that might not repeat from a cost standpoint in 2024 that we should keep in mind.

And then on the other side is there things coming in 2024 that we should also model and that maybe didn't occur this year from a product investment standpoint or anything about that, just to help us think about the flow in and flow out of costs and expenses next year?.

Sure, I'll start and then Bhaskar probably will enhance it and clean it up. I think the one thing that jumps to mind, it's really a highlight for the quarter is the operational efficiencies that we're beginning to flow through the financial statements.

But the last few years were really a mess in operations because supply chain issues, commodity changes, an AX conversion, staffing issues. I mean, look, the operating team has done a great job in a very, very tough operating environment.

Well, not all that's kind of normalized and we're back to focusing, like we used to do historically on driving efficiencies. We're getting back on our metrics and this is really the first quarter that you're beginning to see that in the margins. So that's an internal issue. And I'm optimistic that you're going to continue to see that in 2024.

I think you can also see one of the big highlights is the international sales group. As we've talked about this cube project, which again took a lot of energy from operations, and got them not caught off focus from an efficiency standpoint, we're through that project. So I'm expecting some operating efficiencies internationally.

Plus, the product is resonating in the marketplace. There was like a 12% growth, give or take Bhaskar for the international group. And think about that, this is high end product in the international market at a time of geopolitical complications, we'll call it. So we're thrilled. This is higher ASP product and it's resonating.

We'd expect to get leverage in the international operation from sales. Bhaskar, what are the just off the top of your head on this. .

No, I think all those are the right way to think about it. A number of growth initiatives to drive the top line, and then the operations or from a gross margin standpoint, we should see those tailwinds continue..

Thank you. One moment for our next question. Our next question comes from the line of Jason Haas with Bank of America. Your line is now open..

Hey, good morning, and thanks for taking my question.

Scott, in light of your comments to a previous question, I'm curious if you could say what you think is needed for the industry to get back to more normalized unit levels, do you think we need to see a pickup in industry advertising, do we need to see more housing turnover, is it just going to take time, what do you think is key to get there?.

Yeah, I think we all fell in love with low funnel advertising. And some others pulled back on their advertising hoping to draft on other people. I think the bedding is an industry that you have to trigger the customer to think about.

People don't wake up one day and say let's go buy a bunch of beds and the industry is very successful when it advertises. And so I think it's primarily a lack of advertising by people and probably a little bit of a mixed fine tuning. I think I would also point to if you look at what Tempur Sealy has done, I mean, look, it's not any secret.

We've gathered a lot of market share and you can see that in our Stearns & Foster product where we've done higher than historical advertising dollars in there. So we've proven that advertising works. Yeah, the product is great, sales team is great but you got to have the advertising in there. And so yeah, I think advertising is the key.

You'll hear retailers talk about traffic and that is the issue and everybody needs to get back to working a little bit on the top funnel and getting people in the funnel rather than waiting till the last minute grab them off their purchase journey at the end.

Things like manufacturers slot mind are doing spiffs those kinds of dollar investments are all just fighting over the customers in the marketplace and aren't productive. And they really aren't something that Tempur Sealy is done. We've had some other manufacturers try to work that angle..

Thank you. One moment for our next question. Our next question comes from the line of Seth Basham with Wedbush Securities. Your line is now open..

Thanks a lot. And good morning. Help me put a little more color around the supply agreements that you're talking about.

So the new supply agreements that you're signing with existing suppliers, or even one new supplier, you mentioned, are these beneficial to you because of the proposed acquisition master term or are those independent? And how should we think about the benefits to gross margin from these into 2024?.

Okay, let's talk about those. I mean, we're buying Mattress Firm, it has other suppliers, and we decided it would be advantageous to go ahead and sign some post-merger supply agreements with the suppliers. Why did we think that? One is some of these suppliers Mattress Firm is their largest customer, and it creates an uncertainty in their mind.

Some of them need to refinance their debt. Some of them just need to figure out their staffing. Some of these products have long lead times. And so in order to have a stable market, it seemed appropriate to go ahead and both parties come together, make sure we have a meeting of the mind and contractually arrange what that looks like.

So it's good for them, it's also good for us because it gives us certainty that we're not going to have any supply disruptions. And with the contracts we've signed, we've got enough non Tempur Sealy suppliers to have a multi branded Mattress Firm floor and service our customers.

It also gives the Mattress Firm folks the RSAs comfort that they're going to have some of the non Tempur Sealy products that they love to market. It also is friendly from an FTC standpoint, to the extent if the FTC has concerns that suppliers are going to get shut out, it's not consistent with our business plan overseas, it dreams or anywhere else.

It's not our business plan here. But we've got contracts also we put in place to demonstrate that our business plan is being executed..

Thank you. One moment for our next question. Our next question comes from the line of Brad Thomas with KeyBanc Capital Markets. Your line is now open..

Hey, thanks, good morning. Scott, was hoping I could get a little bit of your kind of first blush on how you're thinking about the industry as you look out to 2024. Obviously, some of the leading indicators of the health of the consumer like ramping student loan payments could be a headwind, obviously interest rates are going higher.

Housing has been slower. So curious, your early take on 2024 and if the industry stays challenge, can you help us think about how Tempur might change strategy if at all in that kind of environment? Thanks. .

And we certainly see and agree that there are some headwinds in 2024 and don't want to underestimate those or let you think that we've got our head in the sand. Those are those are all good points of why the macro, there should be some headwinds in there.

But if you look at the industry, we're already so far on the bottom from historical standpoint that I think that we probably are in good shape. I think some of this is self-inflicted from our execution of an industry standpoint on advertising. So I've used the term bouncing around the bottom.

Probably the industry took a little bit of a step down, probably bounced a little further down in the bottom. But I think you either get in 2024 bouncing around the bottom or you get this slow recovery that we've been looking for in the industry.

What that means for Tempur Sealy, I see nothing going on in the marketplace that would make me think that we would not continue to take market share. And so without I don't know what 2024 looks like yet, we haven't finished our budgeting.

But I think even if it's we'll call it a softer overall market, I think more market share gains will help offset issues there. And then as I mentioned earlier on the call, we've got some internal issues that we're in control of from a cost standpoint, that I think give us some optimism, as to we'll call it EPS, when you get down there.

Top line is going to be a little more volatile to look at but I think we feel relatively comfortable going into 2024 with more details coming when it's appropriate..

Thank you. One moment for our next question, please. And next question comes from the line of Atul Maheshwari with UBS. Your line is now open..

Good morning. Thanks a lot for taking my question.

Scott, the question that we keep getting from investors who are taking a fresh look at the TPX story is that who is TPX getting all the share from and why is it getting share, so really a two-part question, can you provide some color on the who and then on the Y, how's the product marketing strategy at TPX different? And then related to that, Scott, where was the incremental opportunity to continue to gain share given your order, your robust share position in the U.S.

and then what is the risk that some of your competitors might ultimately catch up, the ones who have been disruptive? Thank you..

Sure. Sure. Good, detailed question. First, I don't want to skip the international market. So, first of all, just internationally taking a large amount of share obviously, with what we reported this quarter, lots of competition out there. So we're not going to talk about it, because it takes all day to go through each country.

So I think your question really is more pointed towards the U.S. Okay, so I'm going to focus on the U.S. But let's not forget, internationally, we're taking a good bit of share all around the world. So when you go to the U.S. policy, wait a second, I think this is -- I think we're taking share from everybody.

I mean, there might be a smaller player somewhere in the group but, I think we think the industry was down call it low double-digits. I think that's not far off what our friends over at Leggett think. I think as others report their numbers, we can kind of solidify and perfect that number.

And so if you'd call the industry, let’s call it down 10% for talking terms. And in the U.S., Bhaskar we were down like one or two -- something like that. So if you play with the numbers, that means that other competitors had a really tough time. When I sit on sales calls, I don't hear of another competitor taking share from us.

So I'm going to say we're taking a little bit of share from probably most everybody. At some point, and I've said this in the past, the share gains probably will reduce as a percentage because our base is bigger and their base is smaller. But by then I would expect that the industry also is probably in recovery.

But, I think there's still further share gains. We've got some stuff in the works and I would expect from what I've seen in 2024 that we would take share in the U.S. and certainly take share internationally. Well you kind of asked about how are we doing it and what's our secret sauce. I mean, look it’s not too big a secret.

It's -- we put the money in the beds with great product, we don't cut corners, we don't optimize to the detriment of our retailers or to our customers and our product. We invest in our people and our sales force has been very stable and productive. And our marketing departments and our staff have been very stable.

We invest in people in good times and bad times. We believe in advertising. It drives the industry. And, we've been advertising significantly. It will continue to advertise. And we make what I think at times are, long-term decision over the short-term decision.

And in this quarter there were some decisions that we made during the quarter that I think will pay dividends to us in 2024. And we don't have discussions about optimizing quarters. We have discussions about optimizing our competitive position. So hopefully that's helpful..

Thank you. One moment for our next question, please. Our next question comes from the line of Keith Hughes was Truist. Your line is now open..

Thank you. Had a question on international.

Amongst that 7% organic growth, you talked about how [indiscernible] versus that, and are we starting to feel the influence of the new product launches, is there enough out there to be affecting the numbers?.

Yeah. So, thank you for that direct question because it's actually a great story. As you may know, the UK market is really tough. I mean, the UK market from a retail standpoint for durable goods and home is a very tough market and maybe one of the toughest that we're experiencing around the world. And the Dreams team has done a fabulous job.

They actually had growth in sales in the quarter, which is what I just told you, it should indicate they had significant market share gains, that continue to be able to hit their acquisition EBITDA budget. And the team has done it with outstanding execution.

So on the product standpoint, there's new products coming into the UK, they actually do not have the new Tempur project. They are the only major market that doesn't have it, because there's some special fire retardant requirements in the UK. So it takes a little, that was the last on it.

So they'll actually start gearing up in the first part of next year for what I call the new Tempur beds. They've got some other new products coming. They make a good bit of their own product, their own plant.

But they're still dealing with a tough market but boy, they have really done which from a Harvard Business Study you would want people to do, which is in a tough market really solidify their competitive position. And outside of Dreams, the new product is resonating with the consumer.

And we saw a nice growth outside of Dreams as well, in a very tough market..

Thank you. One moment for our next question. Our next question comes from the line of Laura Champine with Loop Capital. Your line is now open..

Thanks for taking my question. And I appreciate the commentary that Mattress Firm has met your internal expectations but not being privy to those.

Can you just give us a sense of how they're tracking versus the industry, which I think you commented that Tempur believes the mattress industry was down low double-digits in the quarter?.

Yeah, let me put some words around it but appreciate that. I'm also trying to respect my future partners. But look, I would say -- I guess I could say these words, Mattress Firm has performed -- the industry has been worse than we expected, that's very clear from our previous comment.

And Mattress Firm actually has performed better than we would have expected in this particular U.S. economy. I think that probably helps reconcile you to what you're trying to work on. But no, they they've done well. We'll let them report and we're certainly thrilled to have them join the company..

Thank you. One moment for our next question, please. Our next question comes from the line of Carla Casella with J.P. Morgan. Your line is now open..

Hi, thank you for taking the question. You commented on commodities and how they're improving or normalizing a bit but there's still some that are well above the pandemic.

Can you just break it down a little bit in terms of what some of the key commodities that you're seeing?.

Absolutely. So the way I think about that is just from a framing standpoint is that we indicated historically that we've been able to cover the cost of the commodity inflation through taking price however, from a mathematical standpoint that created a margin, meaning the math issue approximately 400 basis points.

So sitting here today, we think there is still about half of that to go. The way I think about from a commodity overall standpoint, it's really puts and takes. Everything is definitely off its peaks and whether that be chemicals, lumber, steel, etc. However, if you look at where we started this journey, there's still a way, there's still a way to go.

However, commodities in and of itself is not the story. It is that there's also another component of that story, which is we continue to work with our suppliers, our major suppliers to make sure that they understand the potential from a company standpoint and the momentum that we have.

So yes, we've seen some tailwinds from commodities over the last couple of bps.

However, what we've also done is we've entered into very constructive win-win contracts and relationships with our existing suppliers to ensure that the gift keeps on giving not only from a commodity standpoint but as a relationship, strategic relationship to see benefits from an EBITDA standpoint..

Thank you. One moment for our next question. Our next question comes from the line of William Reuter [ph] with Bank of America. Your line is now open. .

Good morning. There's clearly a little bit of concern about lower income and middle income customers that may be experiencing increasing debt levels.

I was wondering if you could talk a little bit about how your sales break down between different demographics and if you're seeing some of those trends start to impact your results?.

Sure, consistent with the last few quarters there's no question that entry level customer is challenged. We have -- the higher end products are doing well and growing call it Stearns & Foster and Tempur and especially high end Tempur. And where you see real pressure in this game we're talking in U.S.

is in the entry level customer, which would be our entry level Sealy product. Sealy Foster [ph] Pedic big markets doing better. But we would share that that the entry level customer is really not active in the current market. .

Thank you. One moment for our next question. Our next question comes from the line of Seth Basham with Wedbush Securities. Your line is now open.

Thanks, just had a follow up. You guys talked about being on track to respond [Technical Difficulty], is that timing at all longer than previously expected.

I thought you'd be done with responding that way now?.

I would say it's a complicated process obviously. I think we've provided the government with over 1 million documents just to be clear. We've always said that we would be substantially complete in the fourth quarter. We're off probably maybe two to three weeks probably from the original timeline at the very start. .

Thank you. At this time, I'd like to hand the conference back to Mr. 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. To our shareholders and lenders, thank you for your confidence and leadership and the leadership of the company and its Board.

This ends today's call operator. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day..