Tempur Sealy said its brands would no longer be sold at Mattress Firm stores because of a contract dispute, sending its stock tumbling to the lowest closing price in more than three years.
The shares fell closed down 28% at $45.49 on Monday after Tempur Sealy announced the terminations of its agreements with Mattress Firm, its largest and most profitable customer. The percentage drop was the largest for Tempur Sealy in one day since March 17, 2008.
Mattress Firm was acquired last year by South African retailer Steinhoff International Holdings NV for $3.8 billion
“Over the course of [last] week, we conducted discussions with representatives of Mattress Firm and Steinhoff, and we considered their request for a significant change in economic terms,” Tempur Sealy CEO Scott Thompson said in a news release.
“Ultimately, we concluded that it was in the long-term interest of all of our stakeholders to terminate our contracts with Mattress Firm,” he continued. “This enables us to immediately reorient our employees and resources to support retail partners that exhibit a long-term commitment to Tempur Sealy’s brands.”
Raymond James analyst Budd Bugatch downgraded the company’s stock to “underperform,” saying the financial impact almost certainly would be meaningful and “about $750 million in revenues now seems in doubt” for Tempur Sealy.
Mattress Firm’s outlets include the Sleepy’s chain, which it acquired for $780 million in 2015. According to Tempur Sealy, its sales to Mattress Firm fell about 11% last year, with Mattress Firm stores accounting for 21% of sales.
Tempur Sealy said Monday that, excluding sales to Mattress Firm and Sleepy’s, it expects net sales to increase by approximately 4% and 2% in the fourth quarter and full-year 2016, respectively.
“Tempur Sealy is the premium bedding leader, with the most recognized brands in the mattress sector and industry-leading product innovation,” Thompson said. “We remain committed to maintaining our leadership position and to collaborating with our strong global network of retail partners to create value for both our customers and our shareholders.”