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Somnigroup Q3 Earnings Miss on Dreams Disruption & Soft Demand
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Key Takeaways
SGI's Q3 adjusted EPS rose 9.5% to $1.04, but earnings and sales missed estimates amid soft demand.
Dreams disruptions hit sales by $50M and adjusted EBITDA by $25M, while Mattress Firm sales fell 5.8%.
SGI cuts its 2026 adjusted EPS outlook to $2.85-$2.95 despite record adjusted EBITDA of $447.5M.
Somnigroup International Inc. (SGI - Free Report) reported third-quarter 2026 adjusted earnings of $1.04 per share, up 9.5% year over year but missing the Zacks Consensus Estimate of $1.06. Net sales increased 10.8% to $2.35 billion but missed the consensus mark of $2.42 billion.
The top line benefited from the Leggett & Platt acquisition, while weaker Mattress Firm sales and operational disruptions at Dreams weighed on performance. Mattress Firm's same-store sales declined 2%, reflecting challenging consumer demand.
Somnigroup International Inc. Price, Consensus and EPS Surprise
Gross margin contracted 290 basis points (bps) year over year to 42%, while adjusted gross margin declined 260 bps to 43%.
Operating income declined 5.5% to $297.4 million, primarily due to acquisition-related costs. However, adjusted operating income increased 6% to a record $364.2 million. Adjusted operating margin contracted 70 bps to 15.5%.
Adjusted EBITDA increased 6.8% to a record $447.5 million. The company benefited from acquisition synergies and approximately $20 million in tariff refunds, although higher transportation costs and operational challenges at Dreams partially offset these gains.
Somnigroup's Mattress Firm Sales Decline in Q3
Mattress Firm generated net sales of $1.01 billion, down 5.8% from $1.07 billion a year earlier, primarily due to softer online sales. Management attributed part of the online weakness to advertising investments shifting toward driving in-store traffic.
Adjusted gross margin declined 100 bps to 34.6%, reflecting store investments and higher consumer financing costs, partially offset by synergies. Adjusted operating margin improved 20 bps to 9.6%, supported by favorable cooperative advertising expenses.
The company plans to begin expanding Mattress Firm's retail footprint in 2027, targeting more than 2,500 locations over time. Management expects an enterprise-wide payback period of approximately 1.5 years per new store.
SGI's North America Margins Expand
Tempur Sealy North America reported net sales of $693.1 million, down 5.8% year over year. Wholesale bedding and furnishings sales declined 7.2% to $581.5 million, while direct bedding sales increased 1.7% to $111.6 million.
On a like-for-like basis, North American sales declined 4%, reflecting continued industry weakness. However, the direct channel benefited from improved customer conversion and stronger retail execution.
Adjusted gross margin expanded 690 bps to 65.5%, primarily driven by tariff refunds and Mattress Firm acquisition synergies. Adjusted operating margin improved 450 bps to 34%, with higher cooperative advertising investments partly offsetting gross margin gains.
Somnigroup's International Business Faces Headwinds in Q3
Tempur Sealy International sales declined 12.3% to $276.8 million, while constant-currency sales decreased 11.7%. Wholesale sales increased 3.5% to $116.9 million, whereas direct sales fell 21.2% to $159.9 million.
Dreams experienced a 34.7% sales decline following implementation of a new enterprise resource planning system, which disrupted manufacturing and deliveries. Management estimated the disruption's year-over-year impact at approximately $50 million in sales and $25 million in adjusted EBITDA. Excluding Dreams, International sales grew at a high-single-digit rate.
International gross margin contracted 360 bps to 45.5%, while operating margin declined 870 bps to 9.4%, reflecting operating deleverage and unfavorable product mix.
SGI's Leggett Acquisition Adds to Sales
Leggett contributed $372.6 million in sales following the acquisition's completion on Aug. 26, 2026. Wholesale bedding and furnishings generated $271.3 million, while specialized products contributed $101.3 million.
The acquired business recorded an adjusted gross margin of 21.9% and an adjusted operating margin of 11%. On a full-quarter, like-for-like basis, Leggett generated $973 million in sales, including intercompany transactions. Strength in trade, rod and wire, and geotextiles helped offset weakness in residential and automotive markets.
Somnigroup's Cash Flow Strengthens, Outlook Cut
Somnigroup generated operating cash flow of $349 million and free cash flow of $290 million during the quarter. It ended September with $612.1 million in cash and cash equivalents and consolidated indebtedness less netted cash of approximately $5 billion. Leverage improved to 2.69 times.
The company lowered its 2026 adjusted earnings guidance to $2.85-$2.95 per share from $2.85-$3.15. The revised outlook assumes approximately $8.65 billion in sales and adjusted EBITDA of $1.4 billion at the respective midpoints.
Management expects the global bedding industry to decline by a mid-single-digit percentage in the second half of 2026. Capital expenditures are projected at approximately $255 million, including $75 million for Mattress Firm store refreshes and brand-wall installations.
Somnigroup's shares have lost 0.4% in the past six months against the industry’s 11.1% growth. SGI currently has a Zacks Rank #4 (Sell).
The Zacks Consensus Estimate for Williams-Sonoma’s current fiscal-year sales and EPS implies growth of 4.1% and 7.5%, respectively, from the year-ago figures. WSM delivered a trailing four-quarter earnings surprise of 4.9%, on average. Target Corporation (TGT - Free Report) , which operates as a general merchandise retailer, currently carries a Zacks Rank #2. TGT delivered a trailing four-quarter earnings surprise of 10.5%, on average.
The Zacks Consensus Estimate for Target’s current fiscal-year sales and EPS implies growth of 4.6% and 39%, respectively, from the year-ago figures.
Wayfair Inc. (W - Free Report) , a leading online retailer of furniture and home goods, currently carries a Zacks Rank #2. Wayfair delivered a trailing four-quarter earnings surprise of 11.5%, on average.
The Zacks Consensus Estimate for Wayfair’s current fiscal-year sales and EPS calls for growth of 7.9% and 15.4%, respectively, from the year-ago figures.
View the Zacks #1 Rank List
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Somnigroup Q3 Earnings Miss on Dreams Disruption & Soft Demand
Key Takeaways
Somnigroup International Inc. (SGI - Free Report) reported third-quarter 2026 adjusted earnings of $1.04 per share, up 9.5% year over year but missing the Zacks Consensus Estimate of $1.06. Net sales increased 10.8% to $2.35 billion but missed the consensus mark of $2.42 billion.
The top line benefited from the Leggett & Platt acquisition, while weaker Mattress Firm sales and operational disruptions at Dreams weighed on performance. Mattress Firm's same-store sales declined 2%, reflecting challenging consumer demand.
Somnigroup International Inc. Price, Consensus and EPS Surprise
Somnigroup International Inc. price-consensus-eps-surprise-chart | Somnigroup International Inc. Quote
SGI's Margin Picture Reflects Acquisition Costs
Gross margin contracted 290 basis points (bps) year over year to 42%, while adjusted gross margin declined 260 bps to 43%.
Operating income declined 5.5% to $297.4 million, primarily due to acquisition-related costs. However, adjusted operating income increased 6% to a record $364.2 million. Adjusted operating margin contracted 70 bps to 15.5%.
Adjusted EBITDA increased 6.8% to a record $447.5 million. The company benefited from acquisition synergies and approximately $20 million in tariff refunds, although higher transportation costs and operational challenges at Dreams partially offset these gains.
Somnigroup's Mattress Firm Sales Decline in Q3
Mattress Firm generated net sales of $1.01 billion, down 5.8% from $1.07 billion a year earlier, primarily due to softer online sales. Management attributed part of the online weakness to advertising investments shifting toward driving in-store traffic.
Adjusted gross margin declined 100 bps to 34.6%, reflecting store investments and higher consumer financing costs, partially offset by synergies. Adjusted operating margin improved 20 bps to 9.6%, supported by favorable cooperative advertising expenses.
The company plans to begin expanding Mattress Firm's retail footprint in 2027, targeting more than 2,500 locations over time. Management expects an enterprise-wide payback period of approximately 1.5 years per new store.
SGI's North America Margins Expand
Tempur Sealy North America reported net sales of $693.1 million, down 5.8% year over year. Wholesale bedding and furnishings sales declined 7.2% to $581.5 million, while direct bedding sales increased 1.7% to $111.6 million.
On a like-for-like basis, North American sales declined 4%, reflecting continued industry weakness. However, the direct channel benefited from improved customer conversion and stronger retail execution.
Adjusted gross margin expanded 690 bps to 65.5%, primarily driven by tariff refunds and Mattress Firm acquisition synergies. Adjusted operating margin improved 450 bps to 34%, with higher cooperative advertising investments partly offsetting gross margin gains.
Somnigroup's International Business Faces Headwinds in Q3
Tempur Sealy International sales declined 12.3% to $276.8 million, while constant-currency sales decreased 11.7%. Wholesale sales increased 3.5% to $116.9 million, whereas direct sales fell 21.2% to $159.9 million.
Dreams experienced a 34.7% sales decline following implementation of a new enterprise resource planning system, which disrupted manufacturing and deliveries. Management estimated the disruption's year-over-year impact at approximately $50 million in sales and $25 million in adjusted EBITDA. Excluding Dreams, International sales grew at a high-single-digit rate.
International gross margin contracted 360 bps to 45.5%, while operating margin declined 870 bps to 9.4%, reflecting operating deleverage and unfavorable product mix.
SGI's Leggett Acquisition Adds to Sales
Leggett contributed $372.6 million in sales following the acquisition's completion on Aug. 26, 2026. Wholesale bedding and furnishings generated $271.3 million, while specialized products contributed $101.3 million.
The acquired business recorded an adjusted gross margin of 21.9% and an adjusted operating margin of 11%. On a full-quarter, like-for-like basis, Leggett generated $973 million in sales, including intercompany transactions. Strength in trade, rod and wire, and geotextiles helped offset weakness in residential and automotive markets.
Somnigroup's Cash Flow Strengthens, Outlook Cut
Somnigroup generated operating cash flow of $349 million and free cash flow of $290 million during the quarter. It ended September with $612.1 million in cash and cash equivalents and consolidated indebtedness less netted cash of approximately $5 billion. Leverage improved to 2.69 times.
The company lowered its 2026 adjusted earnings guidance to $2.85-$2.95 per share from $2.85-$3.15. The revised outlook assumes approximately $8.65 billion in sales and adjusted EBITDA of $1.4 billion at the respective midpoints.
Management expects the global bedding industry to decline by a mid-single-digit percentage in the second half of 2026. Capital expenditures are projected at approximately $255 million, including $75 million for Mattress Firm store refreshes and brand-wall installations.
Somnigroup's shares have lost 0.4% in the past six months against the industry’s 11.1% growth. SGI currently has a Zacks Rank #4 (Sell).
Image Source: Zacks Investment Research
Stocks Looking Red Hot
Williams-Sonoma, Inc. (WSM - Free Report) , which operates as an omni-channel specialty retailer of various products for home, currently carries a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Williams-Sonoma’s current fiscal-year sales and EPS implies growth of 4.1% and 7.5%, respectively, from the year-ago figures. WSM delivered a trailing four-quarter earnings surprise of 4.9%, on average.
Target Corporation (TGT - Free Report) , which operates as a general merchandise retailer, currently carries a Zacks Rank #2. TGT delivered a trailing four-quarter earnings surprise of 10.5%, on average.
The Zacks Consensus Estimate for Target’s current fiscal-year sales and EPS implies growth of 4.6% and 39%, respectively, from the year-ago figures.
Wayfair Inc. (W - Free Report) , a leading online retailer of furniture and home goods, currently carries a Zacks Rank #2. Wayfair delivered a trailing four-quarter earnings surprise of 11.5%, on average.
The Zacks Consensus Estimate for Wayfair’s current fiscal-year sales and EPS calls for growth of 7.9% and 15.4%, respectively, from the year-ago figures.