Tempur Sealy Put To Bed After Cutting Ties With Mattress Firm

The label of a Sealy Posturpedic mattress

Image source The Motley Fool

Tempur Sealy International, the maker of Tempur-Pedic mattresses, announced Monday it terminated its contract with retailer Mattress Firm because there weren't "significant economic concessions".

Following the news, shares of Tempur Sealy fell just over 27% in pre-market trading as of 8:00 a.m. ET. In the past one year, TPX has actually gained 4.72% but year-to-date, the stock is down 7.45%.

After several failed attempts to enter into a mutually agreeable supply deal, the company terminated all contracts with Mattress Firm as of January 27, Tempur Sealy said.

Mattress Firm notified the company last week that it planned to terminate all contracts in the USA if Tempur Sealy didn't agree to changes, "including significant economic concessions", Tempur Sealy said.

"We think this development is a strong negative for TPX as Mattress Firm represented roughly 21% of total sales".

South African retailer Steinhoff International Holdings NV bought Mattress Firm a year ago for $3.8 billion, creating the world's largest mattress retail distribution company.

Tempur Sealy expects it will cease doing business with Mattress Firm during the 2017 first quarter. Zacks estimates earnings of $1.04 per share and revenue of $744 million for the company.

"Over the course of the 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 now expects total 2016 sales to drop 1% to $3.13 billion over a year ago. Analysts on average expect sales of $3.10 billion, according to according to Thomson Reuters I/B/E/S.

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