Somnigroup International (SGI) Q2 2026 earnings call transcript

Thank you, operator. Good morning, and thank you for participating in today's call. Joining me today are Scott Thompson, Chairman, President, and CEO, and Foster Rau, 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 10K and quarterly reports on Form 10Q. Any forward-looking statement speaks only as of the date on which it is made. The company undertakes no obligation to update any forward-looking statement. This morning's commentary will also include non-GAP financial information.

Reconciliation of this non-GAP financial information can be found in the accompanying press release, which has been posted on the company's website at www. somnigroove. com and filed with the FCC. Our comments will supplement the detailed information provided in the press release. And with that, it's my pleasure to turn the call over to Scott.

Good morning, and thank you for joining us on our second quarter, 2,026 earnings call. I'll begin with a review of our quarterly highlights before turning the call over to Foster. We'll discuss our financial results and 2,026 earnings outlook in greater detail. I'll then provide you with a brief update on a proposed legged and flat combination and then open the call up for questions.

We are pleased to deliver a record second quarter in adjusted earnings per share against the cautious consumer background and ongoing macroeconomic uncertainty. We generated net sales at $1.8 billion, adjusted EBITDA of $297 million, and adjusted EPS of $0.58, a 9% increase from the prior year. These results reflect our brand strength, the diversified global business model, and consistent discipline execution across our operations.

This and a market that we believe to be down mid to high single digits over prior years. Turning to our first highlight, mattress firm delivered results ahead of the broader U. S. market, supported by its industry leading scale, effective marketing strategy, and broad product assortment that's designed to meet the wide range of consumer needs.

We continue to refine our merchandising assortment and mattress firm to better align it with customers' preferences, following very encouraging results from a three month pilot program of Kingstown's products in 200 mattress firm stores, which have demonstrated improved performance versus certain other products. We have expanded our relationship with Kingstown and expect to meaningfully increase the brand's presence across the floor over the next six months.

The collection is expected to be available in nearly 800 stores nationwide and brings customers' luxury traditional innerspring options focused on elevated comfort, premium craftsmanship, and lasting support.

Our differentiated sleep expert model, supported by ongoing technology investments and a highly trained sales organization, continues to resonate with customers.

Also, we've made steady progress on our store refresh program, on track to be completed in 2027, and on our brand wall program, expected to wrap up this year. Both programs are designed to elevate the in-store shopping experience, the improved store environment combined with enhanced product training and new technology are supporting and improved store experience for customers, which we believe over time will drive future sales.

Our second highlight is the continued success of our international growth strategy. While the operating environment remains volatile, our international business once again delivered solid results and gained share across many of our key markets. Our legacy temper international business again outperformed the broader industry, benefiting from the strength of the temper brand, ongoing marketing investments, and strong local execution.

Dreams continued to strengthen its brand assortment, customer engagement, and its best in class operating model. While managing through a difficult macro backdrop, a highly promotional competitive landscape and an ERP implementation that is going well, but has created some transitory challenges.

Over the past several years, we've advanced our global vertical integration strategy by expanding company-owned retail footprint through expansion of our own temper retail stores combined with targeted acquisitions, such as Dreams in the UK, SOVA, and Sweden, and our recently announced acquisition of Danish retailer Singh. Each acquisition deepens our ability to connect directly with consumers, showcase our brands, and strengthen our market position.

Our third highlight is the execution of our new Stearns & Foster product launch, which remains on track and is expected to strengthen our price architecture across the portfolio and drive higher average selling price. The refreshed collection features an upgraded cooling system, a more robust micro coil support layer, and a new approach to hybrid technology. This redesigned positions the brand more distinctly in the premium segment and is designed to expand our footprint.

To optimize pricing across our portfolio, we're increasing the entry level price of Stearns & Foster so that it minimizes the overlap with the high end of our ceiling. And we're focusing on the higher end products of Stearns & Foster.

We've increased the number of high end models by over 50% in the new collection. Our planned national advertising campaign will highlight the craftsmanship and heritage of Stearns & Foster brand as the longest tenured mattress brand in America, while also reinforcing the connection between our advanced materials, quality sleep, and overall health and wellness.

Our marketing strategy balances investments in broad reach channels with highly targeted digital media. The launch will begin at the end of the third quarter and continue to roll out through the early 2027. Most of the expected financial benefit will materialize in 2027 and beyond.

Our fourth highlight is the continued resilience of timber, Sealy, North America's business, despite softness in a broader betting market and supply chain disruptions. Our investments in high quality advertising, discipline cost management, and increased balance to share at mattress room, each contributed to another quarter of solid performance. We also benefited from the strength of our manufacturing supply chain operations, which effectively navigated a dynamic global environment.

The operational discipline remains an important differentiator of our business and supports our ability to execute during complicated market conditions. With that, I'll turn the call over to Foster.

Thank you, Scott. In the second quarter of 2026, consolidated sales were a solid $1.8 billion and adjusted earnings per share with 58 cents, up 9% over prior year.

There are approximately $16 million of performance adjustments in the quarter, all of which are consistent with the terms of our senior credit facility.

As a reminder, we have now fully lapped the mattress firm acquisition in the first quarter of this year, and we have lapped the related divestitures of sleep outfitters and certain mattress firm retail locations in May.

We will present, like for like commentary for Tempers, Sealy, North America on a standalone basis, which will include the intercompany sales to mattress firm and adjust the divestitures, now turning to mattress firm results.

Net sales through mattress firm were approximately $922 million in the second quarter, and same store sales grew slightly. Mattress firm adjusted gross margin decreased 240 basis points to 33.3%, driven by product mix, consumer financing costs, investment in mattress firm stores, and deleverage.

The impact of product mix on gross margin percentage was primarily driven by the increased balance of share of Tempers, Sealy products, as Tempers, Sealy supply contract is structured to provide a portion of mattress firm economics in the form of cooperative advertising credits.

This reduces mattress firms operating expenses, but delivers a lower product gross margin percentage versus other products. When looked at on a conforming basis, there is no material impact on operating margins from the product mix change. It is just landscaping within the income statements.

Mattress firm adjusted operating margins declined 130 basis points to 6.5%, driven by consumer financing costs, the investments in store, and deleverage I mentioned a moment ago.

Turning to Tempers, Sealy, North America, sales were flat on a like-for-like basis with like-for-like net sales to the wholesale channel also flat.

Our sales with third-party retailers decreased 5% after normalizing floor models. Representing continued out performance relative to an industry, we believe was down mid to high single digits.

Like-for-like net sales to the direct channel decreased 1% in the second quarter. North American adjusted gross margins increased a robust 680 basis points to 61.8%, driven by the achievement of synergies, operational efficiencies, and mix, partially offset by commodity cost inflation for four pricing actions.

We achieved $30 million of net benefit from sales and cost synergies in the second quarter. North American adjusted operating margins improved 400 basis points to 26.7% in the quarter, driven by the improvement in gross margin, partially offset by investments in cooperative advertising as noted a moment ago.

Turning to Tempers, Sealy international results. International net sales grew 2% on a reported basis and 1% on a constant currency basis.

Our legacy international business delivered another strong quarter supported by the continued execution as we broaden our consumer reach. Our dreams business as noted by Scott continues to navigate a difficult environment given a very tough UK market in the recent ERP implementation.

Our international gross margins declined 80 basis points to 47.4%, driven by commodity cost inflation before pricing action, partially offset by operational efficiencies. Our international operating margin declined 120 basis points to 12.4%, primarily driven by the decline in gross margin.

Now I'd like to give a brief update on commodity inflation and related pricing actions. We implemented modest pricing actions following the July 4 promotional period to offset higher input and freight costs. As we discussed last quarter, the timing of the cost increases preceded the implementation of our pricing action, creating an approximately $10 million one-time headwind to temporally profit in the second quarter.

We expect those impacts to be offset by pricing actions in the second half of the year. I want to point out we grew earnings in the quarter almost 10% while fully absorbing the inflationary environment.

Now moving to some of the group's balance sheet and cash flow items. At the end of the second quarter, consolidated debt less cash was $4.3 billion. And our leverage ratio under our senior credit facility was 2.99 times, returning to our target leverage range up two to three times, demonstrating our strong cash flow generation and discipline capital allocation approach.

We also further strengthen our capital structure through the refinancing and up sizing of our credit facility. The amended facility extends maturity to 2031, increases liquidity, and allowed us to reduce higher cost debt, lowering future interest expense, turning to our cash flow performance. In a muted market, we delivered record operating cash flow of $236 million, and free cash flow of $182 million.

We have reduced our net debt by more than $500 million over trailing 12 months, while fully supporting growth initiatives and returning over $160 million to shareholders in the form of dividend and buybacks.

Now turning to 2026 guidance. As a reminder, our guidance considers the elimination of intercompany sales between temporary and mattress firms, which we expect to represent approximately 24% of global temporary twenty twenty six sales.

Intercompany eliminations in accordance with GAP or reduced temporary sales, but will be margin accretive and neutral the dollars of operating profit.

We expect adjusted earnings per share to be between $2.85 and $3.15 for the full year. This guidance range contemplates a sale at the midpoint of approximately $7.6 billion after intercompany elimination.

Our annual guidance also reflects our expectation that the global betting industry will be down mid single digits year over year. Tempered Sealy North America like for like sales growing low single digits, international business growing low single digits, and like for like mattress firm sales down slightly.

We also expect reported gross margins slightly above 45% driven by a hundred basis points of net margin expansion from operational efficiencies, including synergies and operating leverage. Partially offset by the impact of Tempered Sealy's pricing action, which are intended to neutralize commodity inflation, but are margin deluded.

Our twenty twenty six outlook also contemplates our assumption for Tempered Sealy brands and private labels to be in the mid 60s percent of mattress firm total sales. This represent an incremental $65 million of adjusted EBITDA benefit for 2026 versus 2025.

And approximately $690 million of advertising investment. This all results in an estimated adjusted EBITDA for 2026 of approximately $1.39 billion at the midpoint of our guidance. Regarding capital expenditures, we expect 2026 capex of approximately $225 million, including capex at 75 million under our mattress firm store refreshes and brand wall program.

We expect our capex to normalize to $200 million in future years and for at least 50% of our free cash flow in 2026 to go toward quarterly dividend and share repurchases.

Now I'd like to flag a few modeling items. For the full year 2026, we expect DNA of approximately $310 million.

Interest expense of approximately $230 million on a tax rate of 25% with diluted share count of 213 million shares.

With that, I'll turn the call back over to Scott.

Thank you, Bosker. Well done. In closing, our second quarter results reflect the strength and resilience of our business model, the dedication of our teams and the benefit of a disciplined long-term strategy. We continued to execute well across our global operations, drive and growth, and creating long-term shareholder value.

Lastly, I'd like to give a brief update on our proposed combination of Legget and Platt. A leading diversified component manufacturer and long-standing supplier to some degree. We have made significant progress towards finalizing the combination. We have received nearly all regulatory approvals required to consummate the transaction. And the required Legget and Platt shareholder vote is scheduled for August 20th.

We're expecting to close the transaction before the end of the third quarter. This timing is considerably ahead of our original expectations.

Legget and Platt will be incorporated into our guidance post-closing. We believe the combination will further strengthen our vertical integration framework and enhance consumer centric innovation.

It is expected to expand our addressable market embedding and into non-betting industries. It's going to reduce our financial leverage, drive, operating cash flow, and deliver immediate adjusted EPS accretion before synergies, with opportunities for future shareholder value driving synergies across the combined organization. We look forward to welcoming Legget and Platt into our portfolio of industry leading businesses. Operator, that concludes our call.

Open the call up for questions.

Sure, Susan. Thank you. Thank you for the question. I mean, like anything, you start with an estimate and there were puts and takes during the quarter. Some were favorable, some were unfavorable. If I had to just point it, you know, two things that were the largest, probably unexpected negatives, if we're going to focus on the negatives for a second. Obviously, the industry trends in the second quarter were not as strong as we expected. We were expecting, what, Bosker?

Miss single digits? Up, down, down, in what you get? Mid-high for an industry standpoint. So your first thing would be industry, and that's generally the U. S. is what we're talking about there. The other thing, the UK operation dreams, their ERP system was a little rougher than we expected, and the UK market was a little more competitive. Those two were the big ones that I would call out, although there were certainly other, some positive, some negative.

The other thing probably that weighed on us was the Middle East activity, and that we went back in for round two, which is created, you know, some additional uncertainty, probably from where we were thinking. Those were the things that I think of, Bosker. Now, she asked about, in setting the guidance, why don't you talk about a little bit about that?

Absolutely. So just to put, you know, just to recap again, is that going into the quarter, we had an expectation from an industry standpoint on a full year basis. Our expectation is that the industry will be down low single digits. As we sit here now, our expectation is that the industry will be down mid-single digits. And what that effectively implies for the rest of the year is, with the inclusion of pricing, is that what we saw in the second quarter continues.

So at the midpoint of guide, it's really how we thought about it is that the current trends or current industry trends continue. And as it relates to initiatives that we have in place, we continue to execute. The other item that we did tweak a bit is our assumption around sales synergies. We did take up our expectation based on the report, the performance in the first half.

Yeah, I think the other thing I probably, since you're talking about the guy that influenced us as I think about it, as you were speaking, Bosker, is if you look at the second quarter, the first couple of months were solid and looking, looking well. And then we ran into the July 4th holiday period. And I think it's been well documented, but the July 4th holiday period in the U. S. was not robust and was weak.

And that was certainly not expected. The good news is, since that holiday period is over and it ended, July 15th or so, the market has kind of rebounded back to the trend line that it was before. The thing that we look at, we think is probably the best way to look at the U. S. market is mattress from same store sales. Could it take out the inventory fluctuations in order timing that we get a 1 to 10 per se, we signed.

And if you look at mattress from same store sales, post the holiday period, it's running, you know, give or take flat.

Where during the holiday period, it was challenged, but it's good. It rebounded, but it's certainly that holiday period was also notable towards the end of the quarter.

Absolutely. And what we are performance in the second quarter was adversely impacted by the commodities ahead of, ahead of price. And so we are pleased with our margin performance. So when I think about the key drivers of margin within the second quarter, a couple of things really come through, continue to execute against our cost energy target. We realized about $15 million, largely as anticipated for the for the second quarter. And as it relates to the full year, is that our expectations remains that will continue to drive those cost energy on the sales energy side. That is where our balance of sales, that mattress firm, what percentage that is relative to what they sell is that we exceeded our expectations and we have revised our expectations for the full year based on our based on that performance.

And how you see that from and therefore from a gross margin expansion perspective, that is also a key driver related to the North America business performance. And then finally I'll close with is that the productivity. So productivity is those things outside of mattress firm is just doing more with with less and our operations group, the rest as well as the rest of the organization continues to perform very well. So from a margin standpoint is that we had nice, very nice expansion. And then when I think about that on the operating line is that we continue to make those investments that are going to drive future growth, whether it be in the form of advertising or support.

The new seat, sorry, stirs line that we have coming out in the back half.

100% good question. So just to get us grounded is that at the midpoint, that would imply about a 10% year on your EPS increase. What we've seen in the first half of the year is about a 10% increase. So therefore in the back half that expectation continues. The one thing to be mindful of as you think about facing between Q3 and Q4, a couple of things, yes, Rafe, this one should be mindful of what we saw on the 4th of July, however, Scott pointed out things that stabilized and sent. But just as a reminder in the prior year is that the 3rd quarter of 2025, it was on a relative basis. It was it was strong.

So when you think about the phase in between Q3 and Q4, we would expect growth in EPS in both quarters, but more of that in Q4 versus in Q2.

Yeah, great question, Bobby. I mean, if you just kind of talk about the industry in general, the US, I think I think legates out today with their numbers and I think they were calling called springs down low double digits. So between that and what we see and other things, I think we've got a pretty good read on the industry numbers.

Obviously, we've had some, some of our key advertisers have had some restructuring in the period. That's probably not helpful to the industry because they're advertising and limited.

But as far as relative to furniture, and I'm not an expert in the furniture side of the house, but at least it's been my experience that we have these periods where for a quarter or two furniture does better than betting and betting does better than furniture. And I think that that's all we're experiencing. I don't think there's anything systemic or different going on in betting process or betting sales.

We're probably creating more pent up demand than we want than we really want to create. But no, I mean, and I think the other thing other trend that is very evident every quarter and continues to get probably larger every quarter is that the large retailers are clearly taking share from the smaller retailers. We see that in our orders.

And there is a shift from distribution from that standpoint. Our own temper stores are certainly doing better. They're they're copying up. They were up almost 3% in the second quarter. We when we look at online and our online business was much improved in the first quarter, but still slightly negative. I remember correctly.

That's correct.

And when we do our channel checks to call it web-based sellers, it is clearly the website of the industry has been challenged. And I think the brick and mortar side of the house has done better. And that would include throwing in the big online companies too. So we're not seen we're seeing more removed. I think the brick and mortar and a little bit away from web compared to like 3 years ago. Those would be the primary trends that I can think of from the distribution standpoint.

Absolutely. So what I would tell. So the 10 million is the is the impact as a result of the Middle Eastern crisis. So let me put a finer point on that coming into the year. We had an expectation about commodities, perhaps a little bit of a headwind for us. However, as a result of the Middle Eastern crisis as well as some supply disruption around line Dell, etc. Is that the industry, not only us, the industry based inflationary environment, the industry as well as us, we put some pricing out there and our pricing went in after the Fourth of July promotional period. So therefore, in the second quarter, we had a trans-tory impact where we faced the headwind of about 10 million dollars.

And then just as a reminder, from a pricing standpoint, we put enough price in there to make up for the 10 million dollars in the back half of the year and that's still our expectation that that will happen. As it relates to commodities, just overall, is that things have moved around a bit. Some things have come in to pay MDI, TDI perhaps a little bit, but then we see some pressures in other areas. Largely speaking, is that what we anticipated, call it around 90 million dollars of annualized inflation. That's what we saw coming into the quarter. That's where we that's where we sit today. Again, puts and takes within that portfolio, but largely consistent.

Sure. There's no question there's a K. Entry level betting has been the hardest hit by far, and luxury betting will call it. It's been very resilient and at times strong. The financing cost and we don't take credit risk, but at the in the mattress from organization, we do pay for the 0% financing. And it has gone up because we're selling more higher in beds and interest rates have ticked up some during the year where we expected them to to tick down. So there's no question that the and not just us, but all the betting retailers are living off of ASP improved higher end product.

And we're seeing the the upper end customer showing up not being particularly price sensitive, closing rates are strong. But the but the entry level is definitely challenged.

Well, good. I got one really easy question. One really hard question out of you. But the easy question is impact on sales from third parties. No, we're not seeing any significant impact or pullback on sales of what we call the other other retailers, generally what you're focusing on that when we say that is the US other retailers other than mattress firm.

We were down 5%, which is overtake what we were down in the first quarter. That is slightly less than we believe the industry was down. So I think from the way we would look at it, we would say we incrementally actually took some share in the other other. You have to be a little careful when we talk other other because that is generally smaller retailers. So there's also a share shift going between smaller retailers and larger ones. But now we're not seeing any impact in that area. The second question as to complexity.

First of all, the opportunity creation that we get when we're as we grow, I think you'll see over the next few years, the synergies are significant and the innovation will be significant. But you asked about complication. Is it harder? Oh, without question. I mean, everybody is working harder. We have added some complexity to the business. You mentioned ERP and ERP dreams thing we work through. That's not really a factor. That's simply a company that needed to upgrade their systems and work through it. In the in the legate transaction, we'll have some we'll have some complications that will also have greater opportunities from that position.

So how do you see it in the margin profile? And that's just getting started. We haven't even begun to realize the synergies from the logistics savings, the distribution savings that will have. And you can see that we've been able to do some things with people like Kingsdown and mattress firm. And of course, we own a little bit of Kingsdown too. That is something unique. And we have some interesting plans for legate and some of the betting assets of legate that we think more than offset the complexity. But yes, it is more complex and we have spent time internally delegating authority and responsibilities to keep players so that we can continue to be on top of the business and continue to grow.

Just a finer point on the ERP and we put in place and dreams like with all things when you put something new in. There are some transitory issues in the in the grand scheme of things. They are taking orders. They are shipping, et cetera. But there is the first time through and some some distraction as it relates to the new system. But the system to want to reiterate the system is functioning. We're just working through it. And that at most that's maybe another one quarter. I don't think that's going to be that's not a big issue going forward from my perspective.

I think it was just a little choppy back considering the market was a little choppy at the same time for this quarter.

Okay, great question. I'm going to talk, but I'm not going to update our perspective to be clear, but I can't talk about it because I don't think we're really ready to. But it's a good question and actually I'm glad you asked it. Obviously with with any estimate, it has assumptions in it. And since we did, we'll call it the 515, the 515, some of those assumptions are probably going to change whenever we update it. It would not be a surprise to me that if we when we update it, we will lower the industry growth rate during that period, which all that really means is there's more pent up demand. It means the outer years outside of 515 will probably be more robust.

Okay, so that's probably we'll call that a headwind. There's also, if you look through that perspective and look at our current margin profile, our margins are significantly better that's in that profile. And I would be surprised if we update that our margins in that profile aren't stronger. We'll call that a good guy in our terminology. And then in that perspective, we've basically, I don't believe got any significant EPS growth from capital allocation.

I remember correctly, right? Not overly significant.

And I think clearly from our recent capital allocation activity, both with our small acquisition in Europe. And the legged thing, you can see there's enormous upside as we deploy capital at a high rate of return. So when you mix all that together, I have no idea what that number looks like, haven't done it. But there are puts and takes in it. And if I'm what I feel today is I would say we're still in the game on the 515 plan. And looking forward to updating you at the year end numbers.

Sure. And help me out, boss, if I'm missing you. Mattress firm marketing strategy plan is well underway based on the share games that we talked about earlier. Looks like it's been successful, but I also don't think that's a journey that's ever over. And it's still work to be done and will continue to get better and better. And I think you'll see, you know, some leverage will call it in in 27, right? But we have fixed the problem that was there and got it and got it created in the marketplace that we're proud of. And again, I think the share gains support that, but we can get better.

Logistics is being worked on by a large. A group will probably be in a position to put some numbers and meet around it probably on the year end.

Call is based on what the chart I've seen. It's going well. And legged is additive to that process, additive being positive. And they'll have to have to work through that. But that's a that will also be a synergy on that side.

Real estate one takes a little longer. We're getting some benefits minor. And those will come over the next couple of years. And again, some of the real estate is dependent on how the logistics plan comes together. As to where your DC's are and other things. So that's the logistics.

Big pot big pots. I think that's right.

I mean, it is fair to say that those items that we identified as opportunities remain as opportunities and very excited as we get in and out of this year to update the numbers around what those could be.

And I think the other thing is not. Probably I don't know if we talked about it in New York or not. I think, you know, we continue to study mattress from real estate strategy. And I expect that we'll be back in store growth mode here, here pretty soon as the economics of new stores is more compelling now that the balance of share has normalized and flipped.

Compared to what it was going in, it will not go back to what I call rapid growth, but I would expect going forward net new stores at mattress. There's some there's some holes in the marketplace that we need to fill in.

Okay, great job getting lots of questions in there. All good ones. So, I mean, you know, look, sometimes holidays hit, sometimes they don't. You're right. Most recent presidents day was a very solid holiday.

And then July 4th, you know, kind of a kind of a dud. So you get those things and then like all retailers, you go back and go, huh, wonder why.

You know, and I'm glad you used World Cup because we couldn't prove it, which kind of think it do. So maybe it was World Cup, maybe it was the heat dome, or maybe it's way the holidays fell, you know, so. But I think it was just one of those holidays that didn't hit. I don't think it was any anything significant turning point. It just didn't work.

Presidents day, the year before post at 25 was really weak. So you get these and clearly the third quarter is all about Labor Day. So we're working through that.

You know, on your e-shape, which that's new and for me. And I was ready for K. I hadn't thought about E. I'm going to say no. It really is more K. Because if I look through the sales posture, you know, if you look at Celie post repeated. You know, what I think of is, you know, mid mark higher mid market sales has been good.

Right. Yeah. So I don't think in the mid mid section, we really felt it that much. But clearly entry level may be a little higher than entry level, but not mid to luxury, which has been strong. That's right.

Yeah, I'm not smart enough to know, but I have an opinion. So first, I'd say the last part. We've gotten to more of a natural size of e-commerce betting, difficult product by online, can't feel it, all that kind of stuff. I think we have reached some of that. I think that's in there. I think the second factor is AI and the way the search engines optimize and go get words. I think all retailers are working through the changes. I'm going to call it from Google search to AI. That's probably not technically correct, but I think you know what I mean.

And we're still working through that. It's very apparent to me that larger organizations are going to be benefited from that move to the way search engines scrape in my terminology for the web, but it is a journey. It's going to take a little bit of capital to work through that. And then the third impact, I think, is people have stopped being dumb and just chase sales with extremely low prices and have gotten more sophisticated about thinking about, well, how much money am I making on this transaction?

And did I use up in my terminology and up, which is a customer in the marketplace wanting to buy the product? I use up an up, sell them a bet on the web, and not make any money. And if I didn't do that, they might show up at my store where I'm going to have a more reasonable transaction. So I think I think all retailers, not just us, but anybody have gotten smarter about not just throwing stuff on the web so you can have a big top line sales number.

And we certainly have done that. And I think that's been healthy for the business. So that's pushed sales trend down some, but not necessarily been as impactful on profitability.

First thing I should give our good friends at Leggen a kind of a call out on their quarter. They reported they had a very solid quarter in a tough market and grew EPS significantly. So a call out to the Leggen team from that standpoint. As far as our future capital allocation, we've said this, I don't know, for eight years, we're constantly talking to people all around the world.

Some retailers, some supply people. And at times we price things and sometimes they sit for years before the teams get together and can get agreement on price. It's always price. I mean, it's pretty easy strategically to look at companies and for the target and for us to see the benefits, the synergies, get to know each other culturally, kind of process we go through, and then you get into price.

So there's some of that that's always in the marketplace. We may never do another deal or we may do some more deals in the future. There's nothing out there that is as large as mattress firm or as large as Leggen. But there are other assets in the world that I think would be positive both for the target and for us and we'll continue to work with them. And we'll see if we see if we get a fit to the extent that we can't get a price drive will be very disciplined and refine not ever buying anything else.

And as we generate significant cash flow will clearly be very aggressive in buying our stock as we get as we get down from the leverage standpoint. With one, you know, call it footnote. But always an eye to uncertainty in the world, primarily Middle East. We'll keep an eye on that because at times when the world's uncertain capital is very valuable. And so we'll keep an eye on it, but we feel very good about getting back in the range from an end to standpoint.

Thank you, operator to over 20,000 associates 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 company's leadership and its board of directors. This ends the call today, operator.