Good morning, everyone. My name's Curtis Nagle . I'm the analyst at Bank of America that covers Tempur Sealy. Welcome everyone in the room and online. Really pleased today to have Scott Thompson, who is the Chairman and CEO of Tempur. Scott came in to the company in 2005 to turn what has been a very successful turnaround.
Scott also was, in his prior roles, the CEO of Dollar Thrifty and led a turnaround there as well, and was a founder of Group 1 Automotive . We also have with us in the audience Bhaskar Rao, the CFO, and Aubrey Moore and Lauren Averett, who help run IR.
Scott, before we dive into specific questions, I think it would just be helpful, perhaps for people who may not be super familiar with the story, to, I guess, go through the transformation you guys have been through over the past few years, since you know, you joined the company and, yeah, how that positions the company for growth, you know, now and over the next few years.
Sure. Thank you, Curtis, and thank you for having us at this conference. Look, when I came in, there were two companies that had just really kinda merged. There was Tempur and Sealy. The company was having a little bit of indigestion with that merger and had great brands, but wasn't performing probably as well as it should have.
I came in, got a new team formed. The last 5 years, the company's grown EPS at a compound annual growth rate of 40%. We've had a good run, we'll call it pre-pandemic, and continue to have a very good run. What we've done is we've broadened the base of the business. We've gone after some different business.
We started the direct business and really pushing online. Now our online business, combined with our own stores, represent about 25% of our global revenues. Five years ago, we were nowhere from a direct business standpoint. We've also gone after the OEM business, and we build beds for other manufacturers, that's probably about 20% of the market.
Five years ago, we were not in that market, and we're working very hard to get our share of that new market. That helps spread the fixed cost of building a bed over all of our products. Gives us more leverage with our suppliers. We like the OEM business. We've done some acquisitions. We bought Sherwood, which was a small bedding manufacturer, to add to the family.
The most recent acquisition was the Dreams acquisition in the U.K., which is a bedding retailer, as we continue to kinda do a slow vertical integration. One thing I would tell you that I think that's been, you know, very important to the change is we've changed the entire compensation system of the executive team and the officers and the leaders of the company so that we're all driven on the same metric.
It's generally driven by EBITDA, although we do have some TSR and some ESG factors in there now. We've got the team aligned with the shareholders, and I think that's been very beneficial. The other thing is we like our stock, and we've bought a significant amount of our stock.
I think we've bought about 30% of the company over the last few years and continue to aggressively buy back the stock, 'cause the business has great attributes from a cash flow standpoint. In fact, I think we've bought 4% of the company in the first quarter of this year and signaled that we expect to buy at least 10% of the company this year from a stock buyback standpoint.
Got it. Yeah, I mean, as you kinda summarized, you know, over the past few years, track record has been pretty impressive in terms of the earnings growth, the execution, the share gains, rock solid balance sheet, all that. Yet, multiple, you know, is perhaps not as high as it should be, only 8x earnings.
I think maybe in part that might be due to perception that, you know, for whatever reason, growth is sustainable. You know, we hear because of either lapping COVID or, you know, the magnitude of the share gains you've had, you know, plenty of reasons people try to pick out.
I guess, what do you think the market here is missing at this point, particularly, you know, for the first time, I think in your tenure, you've given long-term targets, double-digit earnings and sales growth. Clearly you do think it's sustainable. I guess, how would you address that perception of sustainability or just, you know, the low multiple at this point?
Yeah. Thanks for reminding me that the multiple's 8. That makes my morning. I'm just teasing you. Look, I mean, you know, first of all, let me kinda bracket that a little bit. Look, I think the team's job is to execute on the plan, to drive the business, to drive cash flows, put the company in the best competitive position possible, and to communicate to the Street what the hell we're doing.
That's kinda what we do. The Street gets the pleasure of taking that information and pricing us, and we get to look at our price every day in the stock market. I generally don't like whining about stock price, 'cause I don't think that's my job, and you have to accept what the market gives you.
There is at some point you go like, "This is just getting kinda weird and stupid." I don't know for sure what they're missing. When I came to this business, it attracted me because of the cash flow attributes. Very low maintenance CapEx, great cash flow, stable business, bedding, and Tempur Sealy is the largest bedding manufacturer in the world by a big, big distance.
Tempur is iconic brand. It's the number two brand in the United States and the number one brand Sealy. So we're number one and number two in the US. Now, why the stock's priced like it is, don't know.
I think we probably, about the time we really got going and started grabbing market share and started adding big accounts like Mattress Firm, Badcock, Big Lots, Conn's, as those numbers rolled into our numbers, was exactly the same time as COVID took off. When you look at our stock and our revenues, we look like we're a COVID stock. Okay? I understand. Look, yeah, it looks like it's a COVID stock.
Then we bought Dreams, okay, and everything. If you dissect it and pull out the numbers, what you'd find is that there's not that much growth that we captured that wasn't directly related to market share gains and new customers, or pricing or Dreams. You have to do a little bit of work.
I think we're just kinda thrown in with the COVID stocks, for lack of a better way of saying it. Look, from our standpoint, I think it's an opportunity, and we're taking that opportunity by buying shares back, and we'll see what the future brings.
For sure. Yeah, just, I guess, staying on the topic of growth over the next few years, how important is international?
Mm-hmm.
You mentioned Dreams, you know, a pretty big acquisition. It's something that you guys have been talking and executing more over the past couple years, you know, you cinched up the U.S. market a little bit more and that's looking pretty good.
I guess just relative to your long-term growth targets of double-digit sales, how important is international to that? Where do you see the biggest opportunities and challenges? Where do you see relative share going? Yeah, how would you fold all that in?
Sure. I mean, for people who aren't that familiar with the story, international, call it 25, maybe 30% of the pie, okay? We have a very strong, dominant share in North America. After you get out of North America, our balance of share or market share, whatever you wanna say it, is relatively small.
It's generally the Tempur brand primarily, and Tempur internationally is not just priced luxury, it's super high. In car terms, think of it, if you're looking at a Tempur bed internationally, you're buying a Bentley rather than a Mercedes, okay? I mean, it's up there. Good news is, great business, great margins, great cash flows, but at that size, at that price point, we haven't been able to grow it because that segment's not very big.
In order to get our balance of share or market share growing internationally, we've got a strategy to expand the addressable market and bring another product line in below our flagship stores.
That will about double our addressable market internationally. That's the first piece you need to understand is we're doing something different internationally to put it on a growth trajectory, where it's been more of a stable cash flow, cash cow kind of thing.
When you look at it, you've got to really kind of separate the world a little bit. Asia versus we'll call it everybody else, and that's primarily Europe. Asia's just good. Okay? Middle class is growing. People are getting off the floor buying beds.
That's a really strong organic growth long term, and we're doing very well there with the Tempur brand, and we have an Asian joint venture that runs the Sealy operations kind of in that marketplace, which has been highly successful.
You go over to Europe. Europe, as everybody knows, is a little, barring even our little events we've had here lately, or Europe's always a little bit up and down. In Europe, we're growing. The Dreams acquisition gives us some retail experience that we may be able to expand into other parts of Europe. I would say, yeah, I mean, Europe over the next, call it 3-5 years, is a major part of our growth initiative and very important to the company.
Got it. Thinking about, I guess from a product perspective, you know, be a relatively big year, so we've talked a bit about Tempur and introducing a less premium or whatever you wanna call it.
Luxury.
A luxury.
It's about luxury.
Yes. Yeah, exactly. To expand market or your market position. In the U.S., you're doing a big launch of Stearns & Foster, which I'm not sure if too many people are familiar with it, but it's effectively a premium sub-brand to be, I guess, its own brand, you know, or however you wanna categorize it, you know, of Sealy.
On the earnings call, I think you called out it being a billion-plus opportunity. I think that implied maybe doubling. I could be off in terms of where it is now. Can we walk through just, you know, what the drivers are aside from just the new launch?
Sure.
What's the timeframe, how differentiated the product is, all that kind of good stuff?
Well, Stearns & Foster is a brand that's been in the market for 175 years, which nobody knows about. If you go back and you look at the stats, unaided awareness of like a Sealy brand would be 98%. To put that in comparison, Stearns & Foster's would probably be 42%.
Although it's been around forever, has a loyal small following, it's not well known. It is owned by Sealy, so we picked up Stearns & Foster in the Sealy acquisition, and it's been what I'll call an underloved brand.
It is innerspring, so it's a traditional construction, traditional feel versus Tempur, which is made of Tempur material. You know, ultimately, we decided not everybody in the world wants to sleep on Tempur.
Fabulous bed, great following, but some people want more of a traditional feel. We looked at Stearns & Foster and said, "We need to invest in this brand and we need to move it up." Yes, we think it can be, you know, a billion or more brand, okay? That is, yeah, that's more than a double actually, where it sits today.
We've got new Stearns & Foster beds coming out in the fourth quarter of this year. What we're doing that's different is we're spending real advertising dollars behind the brand, doing national advertising.
In fact, we're doing national advertising now for the Sealy product, even though that Sealy, excuse me, the Stearns product, even though the Stearns & Foster product, new product doesn't come out till the fourth quarter.
We're seeding the market. We've got the retailers excited about this opportunity. What are we trying to do? Okay. If you look in bedding and you want an innerspring mattress, if you went around to all the stores and you were trying to spend some money or, you know, you're a luxury buyer, you can spend a couple thousand dollars, you know, on a queen size innerspring bed.
But to spend more than that, to go to the next level, you almost have to go to $10,000, and you have to probably go to one of the super luxury niche brands, okay? There's not a major brand from, call it $2,000-$10,000, okay?
That's the hole we're trying to work on with Stearns & Foster, so that you can move customers up from a $2,000 innerspring bed up to maybe a $4,000 innerspring bed. That creates value for us, okay, because we make more money, okay. It creates value for the retailer, okay, because they now have a higher priced ASP product, so they're excited about it.
Quite frankly, it gives the customer a more premium product that really doesn't sit in the marketplace today. What sits in the marketplace today, you'd have to go exotic, and it gets real expensive. We're excited about it. You'll see it's gonna be a drag on this year's earnings, which is in the guidance. It'll be a benefit to the out years in 2022, 2023.
Yeah. I mean, maybe just kind of thinking about it another way. For both Tempur launch and for Stearns & Foster, I mean, of course, opportunity to take share, maybe some slots. You know, certainly trade up, you know, category enhancement, all that kind of stuff. Demand creation, I think it sounds like it's a big part of the strategy here.
It is, but it also just grows the pie.
Yeah.
I think that a more successful strategy is things that grow the entire bedding pie for us and the retailers, rather than just fighting about, you know, getting some other manufacturer's unit across the aisle for us.
Makes sense. Would love to dive a little bit more into DTC. Like you said, this has been, you know, a big focus for you, Scott.
Yeah.
Was an underutilized channel, I suppose. You started with online and have been moving up into.
Yeah.
Adding a bunch of Tempur stores and you know, gearing up internationally as well. Going forward, how big do you think this could be for the entire company in terms of a specific channel? Where do you think the growth comes from? Is it primarily more online? Is it more stores?
Yeah.
How does that balance out?
Yeah. Let me give a little bit of history. We did not do any significant direct-to-consumer business five years ago. There was a little industry called Bed in a Box that showed up, made a little bit of noise.
You know, we learned a little bit. We were a little bit flat-footed, so we learned a little bit. But we learned to do it pretty well. We got our own webpage of tempur.com, which has been very successful and very profitable. We started opening up our own flagship stores, which have been very profitable and very successful and brand enhancing. We were able to purchase a, what I'll call middle market, bed retailer, Sleep Outfitters, that was in financial trouble.
We bought that, turned it around, probably paid maybe 1x, maybe. We got into the traditional market. It's probably a 100-store operation. We're driving forward on that. Now, the execution or the hard part was the channel conflict, because you obviously have a lot of other retailers, and we've been able to navigate the channel conflict because we don't try to direct customers to our particular channels, whether it be our own stores or our webpage.
We just wanna be wherever the customer happens to be. The market's accepted that. The customers accepted that. You ask, how big can it be? The way I always answer that question is, I don't know. I think the customer's gonna decide. We're not gonna decide.
I'm not gonna try to go steal other people's customers that are our retailers. The way we compete is by quality of service, and we aggressively compete on quality of service. Right now it's close to 25% of the business. It's growing faster than the core business, so I expect that number to continue to increase.
It's the customers are gonna decide how big it's gonna be. It wouldn't surprise me that, you know, in the out years that, you know, we don't get closer to 30% or 40% eventually, you know, from the direct standpoint. There's just a lot of efficiencies. It's a very crisp offering, and we don't have a lot of distractions in that area.
Understood. At least at this point, the strategy is mostly focused around Tempur. Talk about, I guess, opportunities for your other brands.
Mm-hmm.
at this point and, you know, anything you're doing, you know, over the next couple years.
Sure. We have, I'll call it on the shelf, sealy.com DTC strategy and Stearns & Foster DTC strategy. We haven't launched it because up until here recently, we were constrained from a manufacturing standpoint, and it seemed rude to be launching a direct channel when you weren't fully servicing your current customers.
Now that that issue got resolved, you should expect sometime during the year that you'll see a Stearns & Foster push online and/or Sealy. The way we do this is we kind of go slow. We don't go in and buy customers and all that kind of stuff. We let the market decide that's where they wanna buy.
You'll at least see one of those brands and maybe both those brands this year, from a DTC standpoint.
Got it. Inflation obviously super topical at the moment, topical for the industry, you know, the bedding industry over the past couple of years for a variety of reasons. Tempur has been a leader in terms of, you know, pricing.
You've taken at least a few rounds over the past year, mostly around foam and steel and things of that nature, distribution, a whole slew of stuff. I think the last round you did take was in January. With oil, which is an input for foam, highest since 2008, should we expect another price increase this year? Any pushback from consumers or retailers, you know, in your price points?
Yeah.
I guess, how are your competitors behaving in terms of handling these costs?
The way this industry works, the manufacturer, when they get commodity increases, they pass them on to the retailer, who passes them on to the customer. The industry's been very efficient in that process for years. I think we did three price increases last year. You're right, the last price increase was in January, which, with that one, we think we fully offset the dollar impact of commodity increases.
Now, we didn't put margin on top of that impact, but we've offset the cost increases. Those increases went through very smoothly, I would almost say easily. The only thing we usually have to do is show some retailers sometimes, you know, what commodities went up and, you know, how you compute what the increase is.
Very smoothly our largest competitor has followed those pricing increases, or they led one. Actually, they led one of them, which would be Serta Simmons. Up until probably, I don't know, I think on the earnings call, I think I actually said, we think we're probably through with price increases for a while.
It looked like to us we've captured everything we needed to. When we capture commodity increases, it's oil, it's labor, it's steel, it's everything that goes up in value. It's not just, you know, one thing. Obviously, we've had a little increase in oil since then. If it sticks, and it probably will, would be my guess, then we'll have to roll through another price increase. I don't expect any issues.
You asked from a customer standpoint and does or have the price increases impacted, you know, demand for the product. Always hard to tell, particularly. Let me tell you what we've looked at and what we do know. First of all, we grew 30% in the fourth quarter, last quarter we reported. Tempur very strong. Stearns & Foster is 35%.
There clearly has not been any impact, I think, on demand at the high end. Like, we can't find anything. I don't see anything in any of the numbers we've seen. It doesn't look like any customers are trading down, like they can't afford our bed now and they had to trade down. We're not seeing any trade down.
The one area that I can't just say, "Okay, there's no impact," is if you look at the low end of bedding, where there used to be maybe a $499 bed in the market, you can't find a $499 bed in the market. It's now $699. I mean, it just doesn't exist. And at the same time, the low end has been relatively weak.
So I don't know if that's a pricing issue, whether that's a stimulus checks have been pulled out of the system and you got a tough comp. But the only place, if there's any impact, it's been at the low end. The good news is we don't make much money at the low end. It covers a little bit of fixed cost. It's just not where you make much money.
The low end's been a little bit soft.
Yeah. I think you said 10%-15% of sales and something-
Yeah.
South of that in terms of earnings, maybe.
Oh.
Yeah.
Yeah. The margin profile difference between, we'll call it a Sealy low-end bed and a Tempur bed, if you go out to retail and ask them, all they need to do is sell one Tempur bed. They're happy for the day. You can't sell enough Sealy beds to matter.
For sure. I want to go back to spend a little bit of time on capital allocation.
Sure.
On the call, as you mentioned, at least 10% of shares this year, 4% already taken out as of the call. Current leverage is below your 2-3 times target, right? Cash flow good. I mean, I just sort of bluntly, I mean, should we expect you to be more aggressive and emphasize the plus on ten, right? You know, given you know.
Yeah.
-where the multiples and all that? Or, would you pause because of-
Yeah.
you know, ex macro, you know, factors of uncertainty?
Yeah. Great question, and I'll try not to be too wordy, but I think I've got to frame it up a little bit. The company used to run a lot higher leverage. We brought the leverage down for a lot of different reasons, but we think the business should run between 2 and 3 times from a leverage standpoint.
The pandemic, we said, you know, we don't really know what the leverage, you know, let's take it down because I've never been through a pandemic before. We've been running under 2 for quite a while, actually.
What we told the market was, "Look, when the pandemic cleans up, we'll get back into, we'll call it 2-3, our target probably at the lower end of 2." I think we ended the year, like, at 1.8, if I remember correctly. That's you have to kinda understand the leverage piece. We're trying to get back into low 2s because we think the pandemic is declining, as we'll say.
The way the capital allocation works is we generate, like, a lot of free cash flow, which you can see. The business gets the first call on the cash. If the business has a project with a high rate of return, they get it.
The good news, bad news, or however you wanna say it, is the business doesn't need that much cash. Okay. They have a few projects. We are building a new Tempur plant, so we're running a little hotter on CapEx, but we still have a lot of free cash.
It goes to, do you do an acquisition or you do stock buyback? 'Cause I've gotta do something, otherwise I de-lever at an incredibly quick rate, and I'm not gonna hit my leverage targets, which I just told you about, right? We look at our acquisition pipeline. You know, we talked to lots of people. Our position is if it's in bedding and it's in the world, we'd like to talk to you, okay? We do.
If one of those deals makes sense and it's highly accretive and better than buying our stock back, we'll go that direction. If not, we're gonna buy our stock back. So if you kinda run through all that math, the answer to your question is, look, we feel really good that you're gonna get at least 10%,
And then it could be more than that if there's no acquisitions, and it's gonna be more than that to the extent probably the stock's down because it makes the stock always uses the hurdle rate on acquisitions. When the hurdle rate gets so damn low, you're gonna end up obviously probably leaning more into stock repurchase. It's kind of a long-winded answer, but it depends on lots of factors.
The other thing I would say to understand what we did, the way we think about it is we don't wanna do, you know, kind of a, you know, one quarter buy stock back and not be in the marketplace. We wanna be in the marketplace every quarter. We do try to spread it out throughout the year, but be opportunistic, you know, at times.
Just a quick point of clarification. In terms of the 10% and then potential acquisitions, right?
Yeah.
Yeah. Okay.
Yeah.
Understood. Maybe just a quick, you know, a few quick comments on, I guess, the framework for acquisitions. You've made a few over the past few years, usually at pretty low multiples, usually, you know, as a means to enhance the business or things, you know, it just makes sense to buy for whatever reason.
I guess going forward, I guess potentially where do you see the biggest opportunities, either from a capacity or capability or regional standpoint? Would you consider buying another brand just as a, you know, just another question to throw out there, or do you feel you're pretty filled in at this point?
Yeah. A couple of comments on acquisitions. One, you're right. If you were to go through, I think it's like five or six acquisitions, look at the multiples there, they're incredibly low, especially after synergies. You know, we're a relatively conservative group when it comes to acquisitions, and we don't really know how to price concepts.
You know, the cash is gonna come in the future. We have to typically be more grounded on, like, what are we really buying. I think you should expect that probably will continue to be low multiple. Look, one of the quick criteria is if we buy something, can we run it better than the people we're buying it from? If we can't, we don't really want it.
You have to be able to say you're gonna execute and run it better, and you have to have, like, real synergies that you can touch and feel that are almost kind of immediate. When you kinda put that framework in place and you think about the bedding business, it could be a supplier, it could be a retailer.
It's a big universe in the world. They're generally smaller deals, to be frankly honest. Anything that we think when we buy it enhances our competitive position in the world, we look at it. We probably, I don't know, Oscar is here, we look at eight deals a year. We might do one.
Most of the time, we can find a business that meets all the criteria that I just talked about, and then we get down to pricing, and we have this pricing issue. We don't feel like we have to do anything. I mean, we don't feel like we got a gun to our head. There is no acquisition budget that says you've got to hit this acquisition budget.
There's no pressure on the acquisition team because I don't want pressure on them. Then we kinda price the deal, and then we kinda sit and wait, and wait and see how that business performs and how their pricing expectations change, and sometimes it takes a while. I think it took a solid four years to buy Dreams.
Mm-hmm.
The only issue was we were working on price. We don't feel like we have to do anything. We really think this is a business with our cash flows, our supply contracts, and our relationships that we should be able to buy some stuff and add value to the industry.
Got it. Before we go into maybe some questions from the audience, would love to talk about some, I guess, near-term questions and expectations for the year. Q4 30% growth, right, incredibly solid revenue growth, you know, strong margins. Sales did come in a little lower than expected.
Yes.
Attributed choppiness in the market and, you know, a little bit of mismatch in terms of sell in and sell out. However, you know, for this year, guided to 15%-20% growth, which was above street expectations.
Market, you know, off to a little bit of a slow start as of at least January. What just, you know, gives the confidence that this is achievable? Then yeah, just any, you know, building blocks or just
Sure.
How to think about that build up to, you know, 20% potentially.
Sure. Look, I mean, the most recent, you know, data point you have is really the holiday week and Presidents' Day. Very strong for the industry. You know, our stores were up 20% in our Tempur stores and our Sleep Outfitters store. The most recent holiday period, which is where you sell most of the beds, really good performance.
As you said, a little slower start in January to February, which is built into the guidance. When you look at this current year, we've got the tailwind of Dreams, you know, because we didn't have it for the full year. Call that, you know, single digit growth, just adding Dreams to us. You've got another increment of single digit growth.
Call it just price increases because we increased the prices last year. We'll get the full benefit this year. You've got some pricing benefit in there. You've got opening of our own Tempur stores that you're gonna have in there. Then we think the industry, you know, overall, grows some. Robust? No.
You know, I think the unit growth is kind of in the industry are kinda talking about or call it 0%-4% unit growth. Then you're gonna have some price growth on top of that that we've talked about. When you kinda add that in, it looks pretty good. Now, we're focused on the U.S. consumer because that's really the heart of the profitability.
When we look at the U.S. consumer and our customer, where we make money, good net worth, you know, they're in good shape. The U.S. economy looks okay to us. Now, it may be different three months from now, but I mean, when we look at it looks like it's a growing economy.
I think we're in good shape, you know, on the guidance. I think the other thing that I would kinda throw in there is from a competitive position, you've got to go look at the competitors in the marketplace, how they're doing, and I think you would come to the conclusion that from a competitive position, our competitive position continues to strengthen. That makes us a little bit, we'll call it better than the industry, whatever you think the industry perspective is.
Understood. Just from a perspective of new product launches, is that more of a tailwind for 2023?
Mm-hmm.
How do we think about it for this year?
You have two major launches. Both of them are not what I would call normal launches. We refresh products, you know, normally. These are both different than that. These are bigger launches and more important launches than our normal launches because we're trying to do something different.
First one I talked, Stearns & Foster, and I talked about that. We're trying to take that brand upscale and really grow it. That comes in the fourth quarter. You're not gonna get much benefit this year. In fact, it's a drag as we pre-advertise for it. The other big launch is the Tempur launch I talked about, which, again, is not just refreshing Tempur product, it's also trying to expand the addressable market internationally. Again, we're spending a bunch of money.
That will launch, maybe it's the second quarter, maybe it's the third quarter. We're watching the events in Europe closely, and we may delay it a quarter or two, depending on what goes on in Europe. Quite frankly, if we delay it would probably be a positive to this year's EPS, but it would delay the benefits some. Those benefits for both those launches will really be next year.
not particularly big and nothing obviously embedded in terms of, you know, new customer growth or slots or anything like that. That's all.
Mm.
That's not in there. Okay. That makes sense. Then, yeah, I mean, kind of along that, as you talked about, these are different launches and the strategy around marketing is also different, at least as I understand it.
Record year spend this year after a record year last year, right? It seems obviously to be working in terms of, you know, your revenue growth over the past couple of years. Can you talk about, I guess, aside from just the dollar amount, what is different? What gives the confidence to really make these commitments early on?
Sure.
far ahead of the launches?
Sure. A couple of things. When you look at the total advertising spend, make sure you, when you look at the total dollars compared to last year, you realize Dreams is in there for the full year this year. A lot of that the advertising increase is because of the Dreams acquisition. We're gonna increase advertising on top of that.
I mean, as I said, we've got Stearns & Foster already growing at 35%. When you look at our competition, they are not in the position to do what we're doing. We think this is a great time to really go after a share. Quite frankly, it's been working. We're gonna keep pushing it. I would hesitate with your words, locked in.
I would say that the business is very flexible. If you go back and look at, like, when the virus hit, you know, 75% of our costs are variable. If we have to pivot because the world's a little different than we thought it was, we can pivot fairly quickly, and advertising can be changed.
You know, right now, as I've said before, we've got the business positioned to be on the offense. That's what we see, and that's what we'll be on. As far as the business model standpoint, it's a business that flexes, you know, quite frankly, fairly easily.
Maybe just, I'll pause here for a minute and open it up to any questions from the audience, if there are any.
Thanks a lot. I was wondering if you could talk about what the innovation curve looks like for Tempur Sealy over the next five years. You have this sleep tracker and smart base product.
Mm-hmm.
How are you thinking about growing the attach rate on that?
Mm-hmm.
You know, like, what's the role of those products?
Mm-hmm.
in the future? How do you view it?
Sure. Great question. This business is driven by innovation. We've got a couple of—obviously, we've got the new Stearns & Foster beds coming out, and we would tell you the feels are innovative and the cooling's innovative. The new Tempur beds internationally at those price points are innovative.
Your main focus was on sleep tracker and some of the technology side of the equation. We have a product in the marketplace, a sleep tracker, smart based, that monitors your sleep from a health standpoint, takes that data, sends it up to the cloud processes it, then sends you individual coaching down to an app on your phone so that you can monitor your sleep from a health and wellness standpoint. It has been highly successful.
It has been more successful than I thought when we launched it. Retailers love it. The attach rate is actually pretty good. I think what you're gonna see over time is customers, not just us, but there's some other companies in the industry that are also kind of pushing what we call that part of the technology, and I think that's gonna become more table stakes and you're gonna see better and hopefully price come down a little bit on some of the cost of that.
These technologies really are getting very good at monitoring people's health and wellness, and customers are receptive to it. There's gonna be continued changes in that area, none of which I'm gonna talk about on an open mic because I've got a few competitors that are also chasing that particular vector.
I will tell you the other big benefit for it is it's exciting, and when you advertise it helps drive traffic and people's interest in bedding. Even the people that don't actually buy the product, it has been a very good product for people who want to come in and look at and talk about it and make bedding a little more exciting than it would be otherwise.
Do we have time for maybe just one more? We haven't touched on supply chain. Sounds like things are in a lot better shape than they were, you know, from, say, a quarter ago or you know, even you know, before that. I guess in terms of you know, any remaining bottlenecks, where does that stand?
Sure.
Where are you from a capacity standpoint at this point?
Sure. Thanks for the question. The great news is I didn't have to talk about the supply chain the entire time here today, because the supply chain has gotten a lot better, and I would almost call it normal at this point. Now, we always have to remember that the bedding supply chain is relatively built up by smaller companies, so something could change. But right now, we feel good about springs.
Leggett & Platt's done a great job. We feel good about chemicals. Pricing is still a little high, but they're available. You know, we are from a capacity standpoint, our order delivery times are back in line with what is tradition, as is the industry. So as we sit here today, supply chain feels good, and we're ready for the busy season. The one watch out is Eastern Europe.
Eastern Europe, there's a lot of covers and textiles that get made over in Poland and in Eastern Europe. All those plants are operating and supplies are coming out of that area. Obviously, with the news in that area, we're watching that area. Right now, everything's a go.
With that, I think we'll conclude. Scott, thank you very much for your time and everyone who participated in the audience and have a great rest of the day.
Thank you very much for having me.