Shawshank, VA 6/6/12 (StreetBeat) -- Now we know why Tempur-Pedic’s (NYSE: TPX) stock has been unusually weak and downright horrible for the past month: The usual Memorial Day mattress sales didn’t bounce its way.
The company didn’t come right out and say that in its earnings warning Wednesday, but what it did say is that competition is starting to matter.
In a press release warning of a 3 percent to 5 percent drop in second quarter sales, CEO Mark Sarvary said: “Sales trends in our North America business during the second quarter have been disappointing and below plan, primarily due to changes in the competitive environment, including an unprecedented number of new competitive product introductions which have been supported by aggressive marketing and promotion.” To put that in perspective: This will be the first quarterly drop since the third quarter of 2009, when hit hard by the economic gloom — and a far cry from the first quarter’s 18 percent gain.
I’ve been talking about competition since last fall, as Serta’s iComfort bed started to roll-out. Serta, which had failed in prior attempts to make a considerable dent in the memory-foam market, appeared to have hit on something with the iComfort — a relatively low-priced memory foam bed that uses gel-pellets to create a cooler sleep. (Memory foam is famous for what those in the industry call a hot sleep.)
Serta backed the rollout with substantial promotional dollars, igniting the first new competitive threats to Tempur-Pedic in years.
At first Tempur-Pedic (NYSE: TPX 23.99) was typically reserved in its reaction to Serta. On its third-quarter earnings call, in response to an analyst’s question, Sarvary said:
“We are not going to talk specifics about a specific competitor, as we normally don't. Obviously there is always competition in the industry. That is all of whom overtime introduced products that are comparable to ours. We had a growth rate of 30% in the US this last quarter so we are pleased with how it is going. We anticipate one of the things that we see is that growth of specialty market is very significantly. All indications are that it will continue to do so. We are not surprised to see other people come in but we see enormous potential for growth but the big driver of that is a portion of the users will be specialty in general and Tempur...”
And in the fourth quarter:
“... obviously we have had competitors of different types. Visco, Latex and so on over the years and we will continue to and this is a tough market with some good competitors in it and they will continue to introduce product. So, this is what we anticipate. As you said, from our point of view we have grown quite nicely this year. This year and this quarter and we have seen share gains throughout the period.”
Then in January, in an apparent bow to came the competition, Tempur-Pedic rolled out its budget Simplicity line; the company also announced a sharp ramp in its planned promotional spend.
Enter the first quarter and a somewhat changed tone by Sarvary on the April earnings call:.
“As anticipated, there have been significant new competitive launches and aggressive price promotion in the industry, as it has moved increasingly toward non-spring mattresses. Our major initiatives this year, brand advertising, integrated retailer advertising, the new Tempur Simplicity line, and improved dealer margins, will all strengthen our competitive position. The impact of these initiatives will largely be felt in the second quarter and beyond.”
Second quarter? Scratch that.
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