Reports Mattress Firm Exploring Bankruptcy Seen as Positive For Tempur Sealy International

Reports that Mattress Firm (MFRM) is exploring bankruptcy is positive for Tempur Sealy International (TPX) as the company likely would capture some share of sales that would otherwise go to the struggling retailer, Wedbush said in a note to clients on Tuesday.

A Reuters report on Monday said Steinhoff and Mattress Firm hired Alix Partners, potentially to prepare for Chapter 11 bankruptcy filings, Wedbush said. That drove Tempur Sealy shares up more than 5% for the day.

“We view this news very positively for (Tempur Sealy) as it would facilitate abundant store closures by giving the company the ability to reject store leases,” the firm’s analysts said. “TPX, in turn, could capture its fair share of these displaced sales.”

Wedbush earlier this year said it expected 600 stores to close this year, and upgraded Tempur Sealy considering $32 million earnings accretion. Now the firm said it sees up to 1,000 stores closing of the 3,200 base, which could drive earnings accretion to $50 million following liquidation.

Bankruptcy would also lead Mattress Firm to operate more “rationally,” a change from its “desperate” unit-sales focused promotional strategy that didn’t reverse mounting losses but has instead weighed on Tempur Sealy’s performance..

“Now, with working capital constraints peaking ahead of the key Labor Day holiday sales period and Steinhoff having reached commercial terms to restructure the debt of its Steinhoff Europe AG division that includes Mattress Firm, we would not be surprised by a Mattress Firm bankruptcy filing in the coming days or weeks,” Wedbush said.

“Lastly, we further point out that a sale of Mattress Firm following a bankruptcy is not out of the question; that’s notable as most potential buyers would be inclined to reintroduce TPX products to Mattress Firm stores, enabling an even greater recapture of the $128 million EBITDA that TPX has shed since it parted ways with Mattress Firm in April 2017.”