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Tempur Sealy's shares were down 22.9 percent at $48.73 before
the bell on Monday.
Shares are tanking because Mattress Firm is Tempur Sealy's
largest and most profitable customer, so estimates for future
periods must be lowered, ROE Equity Research analyst Laura
Champine told Reuters.
Mattress Firm has been under new ownership since September, and
is adjusting sourcing, she added.
South African retailer Steinhoff International Holdings NV
bought Mattress Firm last year for $3.8 billion, creating the
world's largest mattress retail distribution company.
The negative financial impacts almost certainly would be
meaningful to both companies, Raymond James analyst Budd Bugatch
said in a note, after downgrading Tempur Sealy's stock to "underperform."
Mattress Firm is Tempur Sealy's largest customer and "about $750
million in revenues now seems in doubt," he added.
The company said Mattress Firm's senior management and
representatives of Steinhoff International verbally notified
Tempur Sealy, during the week of Jan. 23, of intentions to
terminate contracts if they could not agree on the proposed
changes.
After several failed attempts to enter into a mutually agreeable
supply deal, the company terminated all contracts with Mattress
Firm as of Jan. 27, Tempur Sealy said.
The Lexington, Kentucky-based company declined to disclose the
details of the negotiations, as the terms of the contracts are
confidential.
Tempur Sealy said it expects to cease doing business with
Mattress Firm during the first quarter of 2017.
Mattress Firm accounted for about 21 percent of Tempur Sealy's
worldwide sales in 2016. Sales to Mattress Firm, however, fell
about 11 percent in 2016, including sales to Sleepy's, a chain
Mattress Firm bought in 2015.
Tempur Sealy said it now expects total sales to fall 1 percent
to $3.13 billion in 2016. Analysts on average expect sales of
$3.10 billion, according to according to Thomson Reuters
I/B/E/S.
Excluding sales to Mattress Firm and Sleepy's, the company
estimates a 2 percent rise in net sales in 2016.
(Reporting by Jessica Kuruthukulangara in Bengaluru; Editing by
Martina D'Couto)
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