The mattress business is clearly not very restful: Tempur-Pedic's share price has dropped from $87 in April to $22 on Friday, a 66% decline. A colleague suggested I take a look at buying the stock. So I did a bit of research:
Says CEO Mark Sarvary:
“Sales trends in our North America business during the second quarter have been disappointing and below plan, primarily due to changes in the competitive environment, including an unprecedented number of new competitive product introductions (italics added) which have been supported by aggressive marketing and promotion.”
In other words, competition, mainly Serta with iComfort, a relatively low-priced memory foam bed that also offers a cooler sleep, has out innovated the once innovative leader. And backed it with a lot of promotional dollars (read discounts).
So, what did Tempur-Pedic do? Launch Simplicity, a low price brand, and announce a sharp increase in promotional spend (discounts). And now buyers are wondering if the brand premium is really worth the price. By the results, it appears not.
You could ask if Sarvary had any other choice but to cut prices and launch a discount brand. But before you answer, note that in the last year, Tempur-Pedic bought back $370 million of its shares at prices ranging from $56 to $73, while spending $13 million on R&D.
Says CEO Mark Sarvary:
“Sales trends in our North America business during the second quarter have been disappointing and below plan, primarily due to changes in the competitive environment, including an unprecedented number of new competitive product introductions (italics added) which have been supported by aggressive marketing and promotion.”
In other words, competition, mainly Serta with iComfort, a relatively low-priced memory foam bed that also offers a cooler sleep, has out innovated the once innovative leader. And backed it with a lot of promotional dollars (read discounts).
So, what did Tempur-Pedic do? Launch Simplicity, a low price brand, and announce a sharp increase in promotional spend (discounts). And now buyers are wondering if the brand premium is really worth the price. By the results, it appears not.
You could ask if Sarvary had any other choice but to cut prices and launch a discount brand. But before you answer, note that in the last year, Tempur-Pedic bought back $370 million of its shares at prices ranging from $56 to $73, while spending $13 million on R&D.
Can Tempur-Pedic get back in the game? Maybe. But not by cheapening its brand.
Would I buy this stock? No, not until the strategy changes.
Innovation matters.
Would I buy this stock? No, not until the strategy changes.
Innovation matters.
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