Sector financial performance:

This company, who is primarily a developer, manufacturer, and marketer(wholesale) of bedding products including mattress, foundation, pillow, and accessories, has been grouped into bedding sector in furnishing industry.

It seems that demand for bedding products has not been strong in the past several years as indicated by continuingly declining companies’ unit sales (-7-0% annual decrease for typical retail sales). While rising average price (0-10% annual increase for typical retail sales), probably as a result of both rising costs and sales’ shifting to more expensive products, may play a role in the decrease in unit sales, weak demand for lower price products provided by companies in this sector may be the major reason. However, it seems that demand for higher price products has

been strong and growing during the same period. And it seems that demand for lower price products is bouncing back in 2018.

Online sales seem to have been growing fast (20-100% annual growth) but the pace slows down in 2018.

International demand for high price products has been strong (4-10% annual growth).

Benefited from sales’ shifting to higher margin products and lowered products costs, companies have seen improved gross margin across the sector. The typical average gross margin increased to about 52% in 2018. The typical SG&A as percentage of sales has been increasing due to deleverage of decreased sales or expansion of stores and reached to about 43% and caused an average operating margin down to 8% in 2018.

The typical enterprise price/EBI (adjusted) ratio: 25 (interest/EBI ratio of 25%).

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Company performance:

It seems that the demand for products of this company from domestic retailers has been declining in the past three years but downturning pace has slowed down in 2018 as indicated by the comparable growth in wholesale of 8%, 3%, -4%,and  -1% for 2015, 2016, 2017, and 2018(so far). The increased sale of this company seems to have come from direct sales – stores and ecommerce. The e-commerce increased quickly in 2017 but increase slowed down in 2018. International sale has kept increasing.

The first six months of fiscal 2018 compared with the same period of 2017

North America:

Whole sale to comparable retailors (organic) decreased 1.1% due to decrease in sales to department stores retailor. Whole sale decreased 0.3% in second quarter.

Direct sales increased by 21%. Direct sales increased 14% due to new stores offset by decrease in online in second quarter.

International:

Organic sales increased about 7% due to increase in all regions. Organic sales increased 5.4% in second quarter.

 The fiscal 2017 compared with the 2016

North America:

Whole sales decreased by 18% due to decrease in sales to mattress firm and department store retailer. (Excluding mattress firm impact, decrease about4%).

Direct sales increased by 107% due to increase in e-commerce.

International:

Organic increase in sales is 4.6% primarily from Asia-pacific and Latin America.

Fiscal 2016 compared with 2015

North America:

Whole sale to comparable retailors was flat due to decrease in sales to mattress firm.

Direct sales increased by 27% due to increase in e-commerce.

International:

Organic increase in sales is 3.7% primarily from Asia-pacific and Latin America.                              

Fiscal 2015 compared with 2014

North America:

Whole sales to comparable retailors increased by 8.5% due to increase in bedding.

International:

Organic increase in sales is 13% primarily from Asia-pacific and Latin America.

Its gross margin has gone up from about 38.5% to 42% in 2018 primarily due to improvement in sourcing and operation and sales’ shifting to higher margin products. While the increase of 220 basis points in SG&A as percentage of sales, its operating margin has gone up from 9% to 10% in 2018.

Stock price

This stock currently has a stock price/cash flow ratio of 27 ($57). We think that its stock is being relatively slightly undervalued.