Somnigroup International (NYSE: SGI) reported Q2 2026 net sales of $1.8235 billion, down 3.0% year over year, while diluted EPS increased 10.6% to $0.52 from $0.47. Gross margin expanded and quarterly operating cash flow reached a record $236 million, although sales declined at both Mattress Firm and Tempur Sealy North America.

Core earnings results

The quarter’s central contrast was lower revenue but higher GAAP profit. Gross profit declined 1.2%, less than the decline in sales, allowing gross margin to rise 80 basis points to 44.8%.

GAAP operating income increased 12.1%, but adjusted operating income fell 3.5% and adjusted operating margin remained unchanged at 11.9%. Adjusted EBITDA increased by approximately 2.0%, indicating that the improvement in reported operating profit was partly affected by lower adjustment charges than in the prior-year quarter.

All dollar figures are in U.S. dollars. Adjusted operating income, adjusted EPS, and adjusted EBITDA are non-GAAP measures.

Business and segment performance

International was the only segment to report higher external sales, while Tempur Sealy North America produced the largest margin improvement. Mattress Firm remained the largest segment but was pressured by store closures and lower profitability.

Mattress Firm’s sales decline was primarily caused by store closures, while same-store sales were up slightly. Its adjusted gross margin fell 240 basis points to 33.3% because of product mix, consumer financing costs, store investments, and operating deleverage. Adjusted operating margin declined 130 basis points to 6.5%, with favorable cooperative advertising expense providing a partial offset.

Tempur Sealy North America’s external sales declined under challenging market conditions, including a 5.5% reduction in wholesale sales. Direct sales fell 6.7%, primarily because of the prior-year divestiture of Sleep Outfitters. However, sales to Mattress Firm—which are eliminated from consolidated results—increased 11.6% to $294.0 million.

North America’s adjusted gross margin rose 680 basis points to 61.8%, supported by Mattress Firm acquisition synergies, operating efficiencies, and mix. Adjusted operating margin improved 400 basis points to 26.7%. Commodity inflation before pricing actions limited the benefit, and Somnigroup implemented price increases after quarter-end to reflect higher key production input costs.

International sales increased 2.0% as reported and 1.3% in constant currency. Wholesale sales rose 7.5% to $116.8 million, while direct sales declined 1.2% to $182.7 million. Commodity inflation before pricing actions reduced gross margin by 80 basis points and operating margin by 120 basis points, despite operating efficiencies.

Profitability, cash flow, and the balance sheet

Somnigroup generated record second-quarter operating cash flow of $236 million. For the first six months of 2026, operating cash flow was $482.8 million, compared with $292.5 million in the prior-year period. Capital expenditures increased to $115.2 million from $60.7 million over the same six-month periods.

Cash and cash equivalents ended the quarter at $112.0 million, down from $134.9 million at the end of 2025. The company had approximately $4.4 billion of total debt and $4.3243 billion of consolidated indebtedness less netted cash.

The leverage ratio under the company’s credit agreement declined to 2.99 times from 3.56 times a year earlier and remained below the required maximum of 5.00 times. That calculation uses adjusted EBITDA under the credit agreement, including $85.0 million of future Mattress Firm cost synergies permitted by the agreement.

Lower prior-year charges widened the gap between GAAP and adjusted profit

The 12.1% increase in GAAP operating income contrasted with a 3.5% decline in adjusted operating income. Operating-income adjustments totaled $14.9 million in Q2 2026, down from $44.5 million in Q2 2025, when results included a business disposal loss and larger combination and disposition-related charges.

Current-quarter adjustments included $8.3 million of transaction costs, primarily legal and professional fees for the proposed Leggett & Platt acquisition, and business combination charges associated with Mattress Firm. Lower net interest expense, which declined to $59.0 million from $72.5 million, also supported GAAP earnings, while the income tax provision increased to $37.2 million from $3.2 million.

Full-year guidance

Somnigroup revised its full-year 2026 adjusted EPS guidance to $2.85-$3.15. The midpoint of $3.00 represents approximately 11% growth from 2025 adjusted EPS, according to the company, but the release did not provide the previous guidance range, so the direction of the revision cannot be determined from the supplied information.

The outlook is non-GAAP and was not reconciled to projected GAAP EPS because Somnigroup said it could not reasonably predict certain potential adjustments.

Separately, the company expects its approximately $2.5 billion all-stock acquisition of Leggett & Platt, including the target’s existing indebtedness, to close by the end of Q3 2026. Completion remains subject to Leggett & Platt shareholder approval, regulatory clearances, and other customary conditions.

Recent insider transactions

The supplied insider data show 28,727 shares purchased across eight transactions and 6,657 shares sold in one transaction during the most recent six-month period, for net purchases of 22,070 shares. The listed transactions also included stock awards and derivative activity, which should be distinguished from market purchases and sales.

Several directors also received zero-price stock awards on May 13, 2026. These compensation-related grants do not represent market purchases at prevailing prices.

Risks investors should monitor

• Persistent sales pressure: Consolidated revenue fell 3.0%, with declines at Mattress Firm and Tempur Sealy North America. Continued weak market conditions or additional store closures could limit profit growth.
• Input costs and pricing execution: Commodity inflation pressured International margins and partially offset North American efficiencies. The benefit of post-quarter price increases will depend on their ability to recover costs without further weakening demand.
• Mattress Firm profitability: Product mix, financing costs, store investments, and deleverage reduced Mattress Firm’s adjusted gross and operating margins despite slightly positive same-store sales.
• Acquisition and integration risk: The pending Leggett & Platt transaction requires shareholder and regulatory approvals, while Somnigroup is still realizing Mattress Firm synergies. Delays or weaker-than-planned synergies could affect costs, leverage, and earnings.
• Tariffs and trade policy: Somnigroup identified new or retaliatory tariffs and broader trade-policy changes as factors that could affect material costs, pricing, supply, and sales.

Summary

Somnigroup’s Q2 2026 results combined lower sales with better consolidated gross margin, higher EPS, and record second-quarter operating cash flow. Tempur Sealy North America’s synergy-driven margin expansion offset weaker margins at Mattress Firm and International, while lower prior-year charges amplified GAAP profit growth relative to adjusted operating performance. The next areas to monitor are demand, the effectiveness of recent pricing actions, Mattress Firm margin stabilization, and completion of the Leggett & Platt acquisition.

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