Sweet dreams for mattress companies?
Mattress Firm, Tempur Sealy may reconcile after bankruptcy filing
Mattress Firm for months has been engaged in a legal slugfest with its former supplier, Tempur Sealy, which pulled its high-end Tempur-Pedic beds out of stores last year after the two longtime partners were unable to agree on a new contract.
However, as Mattress Firm reportedly prepares to file for bankruptcy protection this week to solve its financial woes, Wall Street analysts and financial experts predict the Houston-based retailer will emerge from Chapter 11 with new owners amenable to reconciling differences with the Lexington, Ky.-based mattress maker.
“We suspect a new owner / management would look to immediately bring Tempur beds back in stores to improve sales as Mattress Firm is suffering a product gap at the high end,” Peter J. Keith, senior research analyst with Minneapolis, Minn.-based Piper Jaffray & Co., said in a report released this week.
The potential remarriage between the nation’s largest mattress retailer and a leading bedding producer would be a stunning turnabout from the two companies’ acrimonious divorce, which has the bedding heavyweights duking it out in court over accusations of trademark infringement and breach of contract.
Tempur Sealy declined to comment on the analyst report, but pointed out that the manufacturer still does business with Mattress Firm’s parent company, Steinhoff International. The South African conglomerate, which paid $3.8 billion in 2016 to acquire the Houston-based mattress chain, is currently embroiled in a financial accounting scandal that brought the extent of Mattress Firm’s financial problems to light.
Steinhoff has been working to restructure its debt and regain investor confidence amid an ongoing investigation into its finances.
Mattress Firm did not respond to requests for comment Wednesday after Reuters, citing anonymous sources, reported the retailer is expected to file for bankrupt-
cy this week. The retailer for years borrowed heavily to buy up dozens of competitors such as Sleepys. It has more than $1 billion in debt.
Analysts said Mattress Firm expanded too rapidly amid growing competition from online bed-ina-box competitors. As Mattress Firm faced financial pressure, it pushed Tempur Sealy too hard on economic concessions that led to the companies’ parting ways in early 2017.
“Mattress is a very challenging industry,” said Ed Wulfe, chairman and CEO of Wulfe & Co., a Houston-based retail brokerage. “You’ve got competition from mattress stores, furniture stores and bed-in-a-box companies. It’s an industry that needs to sort itself out.”
Chapter 11 bankruptcy protection would allow Mattress Firm to get out of hundreds of underperforming store leases and return to financial stability, analysts said. In the process, Mattress Firm may tempt a buyer, such as a private equity firm, into acquiring the struggling company, said Drew McManigle, managing director of SierraConstellation Partners, a financial advisory firm with a Houston office.
“It’s a little bit like putting lipstick on a pig,” McManigle said. “No one wants to buy Mattress Firm because of its operational issues, leases and overhang. By filing for bankruptcy, they can become much more attractive coming out on the other side as a potential acquisition target.”
Mattress Firm, under bankruptcy proceedings, may shutter from 600 to 1,000 stores nationwide, Keith with Piper Jaffray said. The retailer currently has about 3,300 stores after closing some 200 locations over the past year.
Tempur Sealy could stand to gain regardless of whether it gets back together with Mattress Firm since the manufacturer would likely capture market share left behind by the retailer’s store closures, Keith said. Tempur Sealy’s stock price on Wednesday jumped 10.9 percent on news about Mattress Firm’s potentially imminent bankruptcy, ending the trading day at $53.66 per share.
Serta Simmons, the nation’s largest mattress maker, could be left in the lurch if Mattress Firm decides to contract again with Tempur Sealy.
The Atlanta-based mattress maker, which has a 40 percent market share, expanded its partnership with Mattress Firm last year after it left Tempur Sealy, investing $100 million to open four new plants to meet the retailer’s demands. The first of the new Serta Simmons plants — a 265,000square-foot facility churning out more than 1,000 mattresses daily — opened in Houston last year.
Serta Simmons did not immediately respond to a request for comment Wednesday. Analysts, including Keith, earlier this year said Serta Simmons, now Mattress Firm’s largest supplier, could be a potential buyer, a strategic move that could help the manufacturer vertically integrate.