Somnigroup International Inc. (SGI) Q3 2026 earnings review
Somnigroup's existing mattress businesses shrink, and management cuts its outlook
Somnigroup, the owner of Tempur-Pedic, Sealy and Mattress Firm, grew headline revenue only because it bought spring maker Leggett & Platt in August. Sales at the businesses it owned a year ago shrank 7% by our math, as Mattress Firm, North America manufacturing and UK stores all declined. Chief executive Scott Thompson pointed to a record $1.04 in profit per share excluding one-offs, but he trimmed the full-year profit outlook to a range that leaves fourth-quarter profit per share falling about 4% by our math.
| Sales from businesses owned a year ago | $1,978M -6.8% from a year ago (by our math) |
|---|---|
| Reported net sales (including Leggett & Platt) | $2,351M +10.8% from a year ago |
| Profit per share, excluding one-offs | $1.04 +9.5% from a year ago |
| Full-year profit per share outlook | Cut $0.10 middle of the range: $2.90 (+7% growth) |
⚖️ Verdict: 🔴 Bearish
The story got worse because underlying sales fell twice as fast as last quarter and management cut its full-year profit plan for a second consecutive time, even after folding in Leggett & Platt's earnings. In addition, a troubled software rollout cut sales at the UK Dreams chain by 35%. The bright spot: North America manufacturing gross margin excluding one-offs jumped 6.9 percentage points to 65.5% on tariff refunds and Mattress Firm cost savings.
The question now is whether North America's 65.5% gross margin and Leggett & Platt's cost savings can carry earnings while US mattress demand keeps shrinking. Either those factory gains are durable enough to grow profit without store traffic, or one-time tariff refunds masked how much volume the core business is losing. Management's fourth-quarter results and its promised revision to the 2028 profit target will settle it.
🐂 Bull Case
Tariff Refunds and Store Synergies Lifted North America Margins
Tempur Sealy North America, the group's main mattress manufacturing arm, is the profit engine of the business. Even though its external sales fell 5.8% to $693.1 million this quarter, its gross margin excluding one-offs jumped 6.9 percentage points from a year ago to 65.5%, and its operating margin excluding one-offs rose 4.5 percentage points to 34.0%.
The company said these gains were "primarily driven by tariff refunds and the achievement of synergies from the Mattress Firm acquisition", which more than offset raw material inflation. Because the press release does not separate one-time tariff refunds from ongoing factory savings and July's price increases, investors cannot yet tell how much of the 65.5% margin will repeat.
What to watch: the exact dollar amount of tariff refunds in the quarterly filing or conference call. If tariff refunds provided most of the 6.9-point jump, North America's underlying profit margin is closer to last quarter's 61.8% than today's headline.
Leggett & Platt Closed Early and Added Profit
Chief executive Scott Thompson said Somnigroup "completed the Leggett & Platt acquisition, improving our leverage, enhancing our supply chain and accelerating product development". The deal closed on August 26, ahead of the original year-end schedule, bringing in a major supplier of mattress springs and automotive seating components.
In just over a month of ownership, Leggett & Platt contributed $372.6 million in external sales, $27.6 million in internal sales to Somnigroup's own factories, and $40.8 million in operating profit excluding one-offs. Without that $40.8 million contribution, Somnigroup's consolidated operating profit excluding one-offs would have fallen 5.9% from a year ago by our math instead of rising 6.0%.
What to watch: fourth-quarter operating margin at Leggett & Platt, its first full quarter inside the group. Holding near the stub period's 11.0% margin excluding one-offs during a seasonally slower winter quarter would confirm immediate earnings support.
🐻 Bear Case
Sales Shrank Across All Three Existing Businesses
"While executing our strategy in a challenging macroeconomic environment, we delivered strong third-quarter GAAP EPS and record adjusted EPS, reflecting the resilience of our business and our global team," chief executive Scott Thompson said. Yet headline sales growth of 10.8% came entirely from adding Leggett & Platt for five weeks.
- Sales from businesses owned a year ago: $1,978.2 million, down 6.8% from a year ago by our math
- Mattress Firm net sales: $1,008.3 million, down 5.8% "primarily driven by softer online sales"
- Tempur Sealy North America external sales: $693.1 million, down 5.8%, with wholesale down 7.2%
- Consolidated cost of making the products: rose 2.9 percentage points of revenue as lower-margin Leggett & Platt joined the mix
The underlying contraction worsened from a 3.0% drop in the second quarter to 6.8% in the third, even after the bedding maker raised prices in July. Because price increases were meant to add revenue in the second half, a deeper sales drop means unit volumes fell harder across both company-owned stores and third-party retailers.
What to watch: fourth-quarter same-store sales at Mattress Firm after the new Stearns & Foster mattress line reaches retail floors. A second consecutive drop in comparable store sales would show that new models are not offsetting weak US shopper traffic.
Full-Year Profit Outlook Cut Again Despite Adding Leggett
Somnigroup lowered the top end of its 2026 outlook for profit per share excluding one-offs by $0.20, bringing the range to $2.85–2.95 and the middle of the range down $0.10 to $2.90. That marks a second straight quarterly cut from the $3.20 middle of the range management stood behind in May.
The cut is worse than it looks because the prior $3.00 target excluded Leggett & Platt, whereas the new $2.90 target includes more than four months of the acquired supplier's profits. By our math, after earning $2.21 per share in the first nine months, the new plan leaves $0.69 for the fourth quarter, a 4.2% drop from $0.72 a year ago.
What to watch: management's update to its 2028 profit target of $5.15 per share on the fourth-quarter call. Reaching $5.15 from the new $2.90 baseline would require 33% annual profit growth per share over the next two years by our math.
Software Rollout Cut UK Store Sales by a Third
Tempur Sealy International, which runs the Dreams retail chain in the UK alongside European and Asian operations, had been a steady growth source until mid-year. In the third quarter, International sales fell 12.3% to $276.8 million, or 11.7% in constant currency.
Sales at Dreams dropped 34.7% "following the implementation of a new ERP system, leading to operational disruption throughout the third quarter", while International sales outside Dreams grew by high single digits. Because retail stores carry fixed rent and payroll, the software disruption pushed International operating margin down 8.7 percentage points to 9.4%, costing $31.1 million in segment operating profit.
What to watch: fourth-quarter direct-channel sales in the International segment, which fell 21.2% to $159.9 million this quarter. A rebound toward last year's $224.6 million fourth-quarter level will show whether the software fix is complete or if orders were permanently lost.
Risks this quarter didn't answer
Three standing concerns around store profitability, internal brand share and cash returns remained unresolved in the third-quarter release.
- Mattress Firm gross margin excluding one-offs: fell 1.0 percentage point to 34.6% "primarily driven by investments in Mattress Firm's stores and consumer financing costs, partially offset by the achievement of cost synergies"; watch fourth-quarter gross margin to see if financing costs ease.
- Internal brand share at Mattress Firm: North America inter-segment sales to Mattress Firm were $315.2 million, up 0.4% from $314.0 million a year ago (31.3% of Mattress Firm sales vs 29.3% by our math); watch the call for the actual retail sales share against the mid-60% target.
- Share buybacks: Somnigroup spent $0.1 million on share retirements in the third quarter by our math ($26.3 million over nine months), returning 20.4% of nine-month free cash flow via dividends and buybacks against its 50% full-year goal; watch fourth-quarter repurchases now that the Leggett & Platt deal has closed.
💲 Other KPIs
Cash generated from operations fell 14.5% from last year's record $408.2 million third quarter, though it rose from $236.0 million in the second quarter. Subtracting $59.1 million of capital spending leaves $290.0 million of free cash flow by our math, down 19.8% from a year ago as acquisition costs and higher capital investments weighed on cash.
Total debt minus cash rose by $690.6 million from the second quarter as Somnigroup took on Leggett & Platt's borrowings. Yet the company's credit-facility leverage ratio fell from 2.99 times to 2.69 times because the bank calculation adds $330.5 million of Leggett & Platt's pre-closing profit and $145.0 million of future, unrealized cost savings. Without those add-backs, net debt is 3.61 times trailing profit by our math.
Diluted shares rose 3.6% from 212.5 million in Both last year's third quarter and this year's second quarter because Somnigroup issued stock on August 26 to buy Leggett & Platt. Because the deal closed two-thirds of the way through the quarter, the fourth quarter will carry a higher full-quarter share count.
🔮 Guidance
Cut. The company trimmed $0.20 off the top of the range, lowering the middle of the range to $2.90, or about 7.4% growth over 2025. By our math, that leaves $0.69 per share for the fourth quarter, down 4.2% from $0.72 a year ago. This is the second straight cut to the full-year profit plan after midpoints of $3.20 in February, $3.20 in May, and $3.00 in August.
❓ Key Questions
How big were the third-quarter tariff refunds in North America?
North America gross margin excluding one-offs jumped 6.9 percentage points to 65.5% on tariff refunds and Mattress Firm synergies. Without the dollar size of the tariff refunds, investors cannot separate one-time duty recoveries from ongoing factory and pricing gains.
Has the UK software disruption at Dreams ended?
A new enterprise software rollout cut third-quarter sales at Dreams by 34.7% and dragged International operating margin down 8.7 percentage points to 9.4%. Investors need to know whether order and delivery systems were back to normal by October.
What are the updated full-year sales and share-count assumptions?
The press release updated only full-year profit per share excluding one-offs. Because Leggett & Platt closed on August 26 in an all-stock deal, investors need the revised full-year revenue, EBITDA, interest and fourth-quarter diluted share count figures.
Will Somnigroup meet its 50% cash return target this year?
Management previously planned to return at least 50% of 2026 free cash flow through dividends and buybacks. Over the first nine months, dividends and share retirements totaled $134.4 million, or just 20.4% of free cash flow by our math.