Somnigroup Posts Record Q3 but ERP Rollout Costs Dreams $50 Million

Somnigroup International (NYSE:SGI) reported adjusted earnings of $1.04 per share for the third quarter of 2026, up 10 percent from a year earlier, on record sales of $2.4 billion — yet management called the quarter a disappointment. An enterprise resource planning (ERP, integrated business software) rollout at its Dreams unit disrupted manufacturing and deliveries, while the global bedding market stayed weak.

Adjusted EBITDA reached $448 million. Chairman, President and CEO Scott Thompson said the results came against a cautious consumer backdrop and ongoing economic uncertainty. The company completed its acquisition of component manufacturer Leggett & Platt on August 26, giving it 160 manufacturing facilities across 35 countries, Thompson said.

What went wrong at Dreams?

Dreams' reported sales fell approximately 35 percent after the July 1 ERP go-live. Longer delivery times hurt conversion rates online and in stores, reduced customer satisfaction and led to lost orders, Thompson said. The company estimated the disruption cost roughly $50 million in sales and $25 million in adjusted EBITDA against the prior year. Resources have been redirected to fix the problems; Thompson expects Dreams to return to historical operating levels in early 2027, subject to market conditions.

Tempur Sealey International segment sales declined 12 percent, both as reported and in constant currency, largely because of the Dreams disruption. Segment operating margin fell to 9.4 percent from 18.1 percent a year earlier. Thompson said the legacy Tempur International business, excluding the Dreams issue, delivered high-single-digit growth.

CFO Bhaskar Rao said approximately $20 million in tariff refunds arrived earlier than expected in the quarter, effectively offsetting the Dreams hit at the enterprise level. Elevated transportation costs reduced results by roughly $5 million relative to expectations.

How did Mattress Firm perform?

Mattress Firm generated approximately $1 billion in quarterly sales. Same-store sales fell 2 percent and reported sales declined 6 percent, primarily on softer online sales, Rao said. Adjusted operating margin rose to 9.6 percent from 9.4 percent, helped by increased cooperative advertising dollars.

Thompson conceded the company had shifted too much advertising away from Mattress Firm's online channel toward driving store traffic. Investment has since moved back online, and sales there improved after the quarter, though they remain below expectations.

A multiyear store expansion begins in 2027. The chain has about 2,150 stores and could exceed 2,500 over time, with an average payback period of roughly 18 months per store once enterprise-wide benefits are counted.

Tempur Sealy North America's like-for-like sales fell 4 percent, with wholesale down 5 percent and direct up 2 percent. Tempur retail stores posted low-double-digit same-store sales growth. Leggett contributed $373 million in net sales after closing and after eliminating intercompany sales; on a full-quarter, like-for-like basis including those sales, Leggett had $973 million, Rao said.

What does the guidance cut mean?

Somnigroup expects full-year adjusted earnings of $2.85 to $2.95 per share, with sales of approximately $8.65 billion and adjusted EBITDA of $1.4 billion at guidance midpoints. The outlook assumes the global bedding industry declines by a mid-single-digit percentage in the second half of 2026.

The roughly 20-cent reduction in the guidance midpoint from two months earlier reflects worse-than-expected Dreams performance, transportation inflation and a slightly softer industry, Rao said. He put the Dreams shortfall at about $25 million in EBITDA versus prior second-half expectations, and transportation inflation at roughly $15 million across business units. Thompson said a price increase in the first half of 2027 was likely if elevated costs persist, though no decision had been made.

For 2027, Thompson targeted an earnings exit run rate (the annualized level as the year ends) of $3.40 per share: the $2.90 midpoint of 2026 guidance plus roughly 25 cents each from the full-year Leggett effect and scheduled synergies. That figure is a run rate, not full-year guidance.

Can new products carry the growth?

A new Stearns & Foster lineup began launching in the quarter, continuing into early 2027. The company secured an estimated 6 percent gain in retail floor slots from competing brands, with early sales strong where products were placed.

A next-generation Tempur-Pedic Breeze mattress follows in March, and an ultra-premium Stearns & Foster Heritage Collection arrives in late 2027, priced from $7,499 to $10,999 for a queen mattress. Thompson sees approximately $125 million in incremental adjusted EBITDA from synergies in 2027 and beyond, with additional Leggett opportunities still being quantified. He said Somnigroup expects to grow earnings even in a flat industry.