Somnigroup Q2 Earnings Meet, Sales Miss on Mattress Firm Decline

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Somnigroup’s shares have lost more than 6% during the trading session yesterday, thanks to soft quarterly results. In the past three months, the stock has dipped 6.2% against the industry’s 8.9% growth.

SGI's Margin Picture

Gross margin expanded 80 basis points (bps) year over year to 44.8%, while the adjusted gross margin increased 90 bps to 45.1%.

Adjusted operating income, however, declined 3.5% to $216.6 million. However, adjusted operating margin remained flat year over year at 11.9%.

Somnigroup's Mattress Firm Sales Ease

Mattress Firm generated net sales of $922.2 million, down 2.8% from $948.8 million a year earlier, primarily because of store closures. The retailer continued investing in store refreshes, merchandising and customer experience.

Adjusted gross margin fell 240 bps year over year to 33.3%, reflecting product mix, higher consumer financing costs, store investments and deleverage. Adjusted operating margin contracted 130 bps to 6.5%, with lower gross margin partly offset by favorable cooperative advertising expenses.

SGI's North America Margins Expand

Tempur Sealy North America reported sales of $601.8 million, down 5.7% year over year. The segment’s sales lagged the Zacks Consensus Estimate of $613 million.

Wholesale sales declined 5.5% to $504.4 million, while direct sales decreased 6.7% to $97.4 million. On a like-for-like basis, management said North American sales were flat. Wholesale sales came below the Zacks Consensus Estimate of $519 million, whereas direct sales exceeded the consensus mark of $94 million.

Sales to Mattress Firm, which are eliminated from consolidated results, climbed 11.6% to $294 million.

Somnigroup's International Growth Moderates

Tempur Sealy International sales increased 2% to $299.5 million and rose 1.3% on a constant-currency basis. The segment’s sales lagged the Zacks Consensus Estimate of $311 million.

Wholesale sales grew 7.5% to $116.8 million, whereas direct sales dipped 1.2% to $182.7 million. Wholesale sales came above the Zacks Consensus Estimate of $115 million, whereas direct sales missed the consensus mark of $195 million. 

International gross margin fell 80 bps to 47.4%, primarily due to commodity cost inflation before pricing actions, partly offset by operating efficiencies. Operating margin declined 120 bps to 12.4% on lower gross margin.

Somnigroup's Cash Flow and Leverage Improve

This Zacks Rank #3 (Hold) company generated operating cash flow of $482.8 million in the six months ended June 30. It ended the quarter with total debt of $4.4 billion and consolidated indebtedness less netted cash of $4.3 billion. The company exited the quarter with $112 million of cash and cash equivalents.

Leverage was 2.99 times for the trailing 12 months ended June 30, 2026, returning to Somnigroup’s 2-3 times target range. Management expects nearly 50% of 2026 free cash flow to fund dividends and share repurchases. The proposed Leggett & Platt acquisition remains targeted to close before the end of the third quarter.

Somnigroup has announced a third-quarter cash dividend of 17 cents per share, payable Sept. 3, 2026, to shareholders of record as of Aug. 20, 2026.

SGI Revises 2026 Outlook

Somnigroup lowered its 2026 adjusted earnings guidance to $2.85-$3.15 per share from the prior $3.00-$3.40 range. The midpoint implies approximately 11% growth from 2025. Management now expects roughly $7.6 billion in sales after intercompany eliminations and adjusted EBITDA of about $1.39 billion at the midpoint. 

The outlook assumes the global bedding industry declines by a mid-single-digit percentage on a year-over-year basis. Tempur Sealy North America like-for-like sales are expected to grow at a low-single-digit rate, International sales are projected to rise low single digits and Mattress Firm like-for-like sales are expected to decline slightly. Reported gross margin is projected to be slightly above 45%, thanks to 100 bps of net margin expansion from operational efficiencies, with synergies and operating leverage, somewhat offset by the impact of Tempur Sealy's pricing efforts. 

This outlook contemplates the company’s assumption for Tempur Sealy brands and private labels to be in the mid-60s percent of Mattress Firm total sales. This highlights an incremental $65 million of adjusted EBITDA benefit for 2026 from 2025, and roughly $690 million of advertising investments.

CapEx is expected to be approximately $225 million for 2026, including CapEx of $75 million under the Mattress Firm store refreshes and brand wall program.

Eye These Solid Picks in Retail

Abercrombie & Fitch Co. ANF is a specialty retailer of premium, high-quality casual apparel for men, women and kids. At present, ANF carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for ANF’s current fiscal-year sales and EPS indicates growth of 4.9% and 6.1%, respectively, from the year-ago figures. ANF delivered a trailing four-quarter earnings surprise of 8.1%, on average. 

American Eagle Outfitters, Inc. AEO operates as a specialty retailer of casual apparel, accessories and footwear for men and women. At present, AEO carries a Zacks Rank of 2. 

The Zacks Consensus Estimate for AEO’s current fiscal-year sales and EPS indicates growth of 8.8% and 17.3%, respectively, from the year-ago figures. American Eagle delivered a trailing four-quarter earnings surprise of 48.5%, on average.

Designer Brands Inc. DBI, a designer and retailer of footwear and accessories, currently has a Zacks Rank of 2. The company delivered a trailing four-quarter earnings surprise of 112.8%, on average.

The Zacks Consensus Estimate for DBI’s current fiscal-year sales and EPS indicates growth of 0.5% and 137.5%, respectively, from the year-ago figures.

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