Yahoo Finance Tempur Sealy International Inc (TPX) Q2 2019 Earnings Call Transcript
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Tempur Sealy International Inc (NYSE: TPX)
Q2 2019 Earnings Call
Jul 25, 2019, 8:00 a.m. ET
Contents:
Prepared Remarks
Questions and Answers
Call Participants
Prepared Remarks:
Operator
Good day, ladies and gentlemen, and welcome to Tempur Sealy Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, this conference may be recorded. I would now like to turn the conference over to your host for today, Aubrey Moore with Investor Relations. You may begin.
Aubrey Moore -- Investor Relations
Thank you, operator. Good morning everyone and thank you for participating in today's call. Joining me in our Lexington headquarters are Scott Thompson, Chairman, President and CEO and Bhaskar Rao, Executive Vice President and CFO. After prepared remarks we will open the call for Q&A. Forward-looking statements that we make during this call are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.
Investors are cautioned that these forward-looking statements, including the Company's expectations regarding sales, earnings, net income and adjusted EBITDA and anticipated performance for 2019 and subsequent periods involve uncertainties, actual results may differ due to a variety of factors that could adversely affects the Company's business. The factors that could cause actual results to differ materially from those identified include economic, regulatory, competitive, operating and other factors discussed in the press release issued today. These factors are also discussed in the company's SEC filings, including but not limited to annual reports on Form 10-K and the company's quarterly reports on Form 10-Q under the headings Special Note Regarding Forward-Looking Statements and or Risk Factors. Any forward-looking statement speaks only as of the date on which it is made. The company undertakes no obligation to update any forward-looking statements.
This morning's commentary will include non-GAAP financial information. The press release contains reconciliations of this non-GAAP financial information to the most directly comparable GAAP information except as otherwise discussed in the press release. As well as information regarding the methodology used in our constant currency presentations. We have posted the press release on the company's investor website at investor.tempursealy.com and have also filed it with the SEC. Our comments will supplement the detailed information provided in the press release.
And now with that introduction, it is my pleasure to turn the call over to Scott.
Scott L. Thompson -- Chairman, President and Chief Executive Officer
Thank you, Aubrey. Good morning and thank you for joining us on our 2019 second quarter earnings call. I'll start with comments on the quarter's operating performance, then Bhaskar will review our financial performance with you in more detail. Finally, I'll wrap up with our overview of our long-term corporate initiatives.
Our strong momentum from earlier this year continued into the second quarter and beyond. In fact, from an adjusted EBITDA perspective, the second quarter was just short of our best second quarter in the company's history. For the second quarter 2019, net sales increased double digit, adjusted EBITDA grew 21% and adjusted EPS was $0.79 a share, a robust increase of 39%. The adjusted EPS growth was driven by growth in operations not share repurchase. Our results have been propelled our premium brands in our industry leading product quality and services combined with our powerful worldwide omnichannel platform.
Now some highlights. First, we grew our relationships with existing third-party retailers in North America, during the quarter, we grew North America wholesale channel by 7% including significant growth from our Tempur Pedic brand which was benefited from the strength of our new TEMPUR-Breeze products. As a reminder, this is the first quarter that our full line-up of the new Tempur-Pedic products were in market and these new products continue to receive rave reviews on the basis of their innovation and product quality.
Total North American Tempur-Pedic sales grew 17% in the quarter and excluding floor models grew 30%, clearly we are expanding the higher in mattress market and taking a good bit of market share. Sealy including Stearns & Foster continue to outperform our expectations during the quarter, growing 7% versus the second quarter last year. We were particularly pleased that the Sealy growth was broad-based across all price point. The Sealy Hybrid continues to perform exceptionally well even against very difficult comps and our new Stearns & Foster line has exceeded our expectation and it's been successful in driving average retail sales price, perhaps the biggest positive inflection this quarter with Sealy's returned to growth within the challenging sub 1000 price point.
I believe Sealy's performance was driven by internal initiatives targeting new channels of distribution, market-leading product quality and the recent favorable tariff ruling. We believe this momentum will continue. The second highlight is our global direct channel, which grew a robust 55% in the second quarter. In North America our direct channel grew 78%, which was above our expectation. Excluding the recently acquired Sleep Outfitters business, North America direct channel grew a very robust 37% in the quarter. This was driven by strong growth in both our e-commerce business and our company-owned stores.
During the quarter we opened three new Tempur-Pedic stores, bringing our total to 47 and we expect to be approximately 60 by year-end. In terms of our recent acquisition of Sleep Outfitters, I'm pleased to report the integration is complete. And the turnaround of that business is running at good bit ahead of point. In addition to driving sales growth, our North America direct to consumer web team has continued to focus on marketing efficiencies, keeping our customer acquisition cost low, resulting in a very profitable business. This is the second quarter in a row we've experienced declining customer acquisition cost and expanding profit margins.
The third last highlight I'd like to discuss is our record second quarter gross profit margin. Our gross margin expanded over 200 basis points versus the same period last year. After several quarters of ongoing efforts to offset significant headwinds from commodities, launch costs and unfavorable merchandising mix. We're now reporting the positive impact of our efforts. Drivers of margin expansion are the completion of our Tempur-Pedic product launch. All our price actions implemented in 2018 being fully set the market, our continued efficiency efforts and our expansion of our direct channel.
One area that was a bit of a challenge during the quarter was International. Although we experienced 7% net sales growth on a constant currency basis, this was slightly below our expectations. Our internal operations dealt with an unprecedented heat wave in Europe uncertainty of Brexit, unrest in France and a slowing Asia business. I think all these items are industry or country-specific issues. I believe our international team is performing well considering the environment. This quarter we point out one of our strengths, diversity of operation which mitigates regional issues to makes Tempur Sealy a stronger enterprise.
Let me save someone a question regarding current trends. Third quarter from a sales perspective overall has served off well with growth rates in North America being similar to the second quarter and International, a bit slower, but in line with expectations.
We're very pleased with our market position and our recent financial performance. It is interesting that this quarter is just short of our best second quarter in the company's history with our without Mattress Firm as a customer. As you know, we are now working on rolling out our full array of brands to Mattress Firm and expect to ship in the fourth quarter of 2019 to the first quarter of 2020. We expect this incremental volume will fund increased advertising, improved operating leverage and enhance our relationship with our component suppliers all over the world.
Now I'll turn the call over to Bhaskar, to review our financial results with you in more detail.
Bhaskar Rao -- Executive Vice President and Chief Financial Officer
Before going into the details, a few highlights from the second quarter. Global net sales were $723 million, an increase of 10%, gross margin was 43.4% , adjusted operating margin improved 200 basis points to a 11.6%, adjusted EBITDA increased 21% to $113 million and adjusted earnings per share for the quarter was $0.79, an increase of 39%.
Turning to North America. First, I would like to discuss the financial reporting items. As previously announced, we have acquired Sleep Outfitters which was fully integrated into North American direct channel beginning in the second quarter. Sleep Outfitters had historically been one of our part of our wholesale channel since they were previously a third party retailer. Accordingly, this impacts our growth rates within both channels. In addition, our GAAP operating income in North America was impacted by changes from post-acquisition restructuring activities and professional fees. We do not expect further pro forma charges related to Sleep Outfitters.
North American net sales increased 11%, on a reported basis the North American wholesale channel increased 7% and the direct channel increased 78%. Excluding Sleep Outfitters the wholesale channel increased 10%. North American gross profit margin improved 230 basis points to 40.8% as compared to the prior year. This was primarily driven by favorable brand and Tempur merchandising mix pricing benefits and decreased floor model expenses. This was partially offset by incremental over time at our plants, due to the higher-than-expected demand for Sealy products.
Going forward, we expect Tempur merchandising mix to continue to be favorable, marking the end of negative mix which we had experienced in 2018 due to the Phase launch. North American adjusted operating margin improved a 170 basis points to 13.9% as compared to the prior year. This was primarily driven by improved gross margins and slight deleverage to operating expenses from the integration of Sleep Outfitters.
Turning to International, net sales increased 2% on a reported basis on a constant currency basis, international net sales increased 7%, the direct channel increased a robust 32% and the wholesale channel increased slightly. As Scott previously mentioned, we faced a challenging environment across the handful of countries during the second quarter. We anticipate these headwinds will continue into the back half of the year.
Our International gross margin improved 200 basis points to 54.5% as compared to the prior year. This is primarily driven by foreign exchange country mix. International operating margin improved a 190 basis points to 20.2% this was principally driven by improvement in gross margin and advertising expense leverage.
Turning to our company's global performance. Adjusted operating margin was $84 million and adjusted EBITDA was $113 million, up $20 million from last year. The increase in adjusted EBITDA was primarily driven by pricing benefits, higher volume, favorable for model expenses and product mix. This was partially offset by higher variable compensation, innovation investments and headwinds as we turn around the Sleep Outfitters business. The adjusted tax rate was 28%, interest expense was $23 million and adjusted EPS for the quarter was $0.79.
Now moving to the balance sheet and cash flow items. We generated operating cash flow from continuing operations of $41 million in the second quarter. The cash cycle was unfavorable by seven days compared to the second quarter of 2018. This was principally driven by the timing of cash payments. At the end of the second quarter, net debt was $1.6 billion, down slightly from the first quarter of 2019. Our leverage ratio was 3.65 times, down versus the prior quarter.
Turning now to our annual adjusted EBITDA guidance. We have raised our adjusted EBITDA guidance to be between $450 million and $480 million, this narrow the range around the midpoint of $465 million. The increase of the midpoint is primarily driven by our over performance of the North American Sealy bedding products and our direct business today. Both have been above our expectations. This is slightly offset by increases to variable compensation and softness internationally.
As previously announced, we recently signed supply agreements with two new retail account, not just from a big loss. We will be bringing on significantly higher volume into our North American operations. We anticipate some investments during these launches. We will hire new personnel and our focus will remain on producing quality products and continue to provide great customer service to our existing third-party retailers. This will result in some inefficiencies of about $5 million in the third quarter, which will not be offset by incremental revenues. We continue to expect that these new accounts will be immaterial to EBITDA in total for 2019.Significant contributors in 2020 and beyond.
I would like to flag, a few items for modeling purposes. For the full year 2019 we currently expect D&A to be between $115 million and $120 million, total capex to be between $70 million and $75 million, which includes maintenance capex of $50 million, interest expense of $90 million to $95 million, a tax rate of 27% to 28% and a diluted share count of 56 million to 57 million shares. Please note the above items consider the impact of our new share repurchase plan.
With that I will turn the call back over to Scott.
Scott L. Thompson -- Chairman, President and Chief Executive Officer
Before going into the details, a few highlights from the second quarter. Global net sales were $723 million, an increase of 10%, gross margin was 43.4% , adjusted operating margin improved 200 basis points to a 11.6%, adjusted EBITDA increased 21% to $113 million and adjusted earnings per share for the quarter was $0.79, an increase of 39%.
Turning to North America. First, I would like to discuss the financial reporting items. As previously announced, we have acquired Sleep Outfitters which was fully integrated into North American direct channel beginning in the second quarter. Sleep Outfitters had historically been one of our part of our wholesale channel since they were previously a third party retailer. Accordingly, this impacts our growth rates within both channels. In addition, our GAAP operating income in North America was impacted by changes from post-acquisition restructuring activities and professional fees. We do not expect further pro forma charges related to Sleep Outfitters.
North American net sales increased 11%, on a reported basis the North American wholesale channel increased 7% and the direct channel increased 78%. Excluding Sleep Outfitters the wholesale channel increased 10%. North American gross profit margin improved 230 basis points to 40.8% as compared to the prior year. This was primarily driven by favorable brand and Tempur merchandising mix pricing benefits and decreased floor model expenses. This was partially offset by incremental over time at our plants, due to the higher-than-expected demand for Sealy products.
Going forward, we expect Tempur merchandising mix to continue to be favorable, marking the end of negative mix which we had experienced in 2018 due to the Phase launch. North American adjusted operating margin improved a 170 basis points to 13.9% as compared to the prior year. This was primarily driven by improved gross margins and slight deleverage to operating expenses from the integration of Sleep Outfitters.
Turning to International, net sales increased 2% on a reported basis on a constant currency basis, international net sales increased 7%, the direct channel increased a robust 32% and the wholesale channel increased slightly. As Scott previously mentioned, we faced a challenging environment across the handful of countries during the second quarter. We anticipate these headwinds will continue into the back half of the year.
Our International gross margin improved 200 basis points to 54.5% as compared to the prior year. This is primarily driven by foreign exchange country mix. International operating margin improved a 190 basis points to 20.2% this was principally driven by improvement in gross margin and advertising expense leverage.
Turning to our company's global performance. Adjusted operating margin was $84 million and adjusted EBITDA was $113 million, up $20 million from last year. The increase in adjusted EBITDA was primarily driven by pricing benefits, higher volume, favorable for model expenses and product mix. This was partially offset by higher variable compensation, innovation investments and headwinds as we turn around the Sleep Outfitters business. The adjusted tax rate was 28%, interest expense was $23 million and adjusted EPS for the quarter was $0.79.
Now moving to the balance sheet and cash flow items. We generated operating cash flow from continuing operations of $41 million in the second quarter. The cash cycle was unfavorable by seven days compared to the second quarter of 2018. This was principally driven by the timing of cash payments. At the end of the second quarter, net debt was $1.6 billion, down slightly from the first quarter of 2019. Our leverage ratio was 3.65 times, down versus the prior quarter.
Turning now to our annual adjusted EBITDA guidance. We have raised our adjusted EBITDA guidance to be between $450 million and $480 million, this narrow the range around the midpoint of $465 million. The increase of the midpoint is primarily driven by our over performance of the North American Sealy bedding products and our direct business today. Both have been above our expectations. This is slightly offset by increases to variable compensation and softness internationally.
As previously announced, we recently signed supply agreements with two new retail account, not just from a big loss. We will be bringing on significantly higher volume into our North American operations. We anticipate some investments during these launches. We will hire new personnel and our focus will remain on producing quality products and continue to provide great customer service to our existing third-party retailers. This will result in some inefficiencies of about $5 million in the third quarter, which will not be offset by incremental revenues. We continue to expect that these new accounts will be immaterial to EBITDA in total for 2019.Significant contributors in 2020 and beyond.
I would like to flag, a few items for modeling purposes. For the full year 2019 we currently expect D&A to be between $115 million and $120 million, total capex to be between $70 million and $75 million, which includes maintenance capex of $50 million, interest expense of $90 million to $95 million, a tax rate of 27% to 28% and a diluted share count of 56 million to 57 million shares. Please note the above items consider the impact of our new share repurchase plan.
With that I will turn the call back over to Scott.
Question-and-Answer Session
Operator -- Chairman, President and Chief Executive Officer
[Operator Instructions] Our first question comes from Seth Basham of Wedbush Securities. Your line is now open.
Seth Basham -- Chairman, President and Chief Executive Officer
Thanks a lot, and good morning.
Scott L. Thompson -- Chairman, President and Chief Executive Officer
Good morning.
Seth Basham -- Chairman, President and Chief Executive Officer
Congrats on a good quarter. My question is on the outlook, you guys raised the EBITDA outlook for the year, I'm just hoping to understand a little bit more on the drivers behind and then moving pieces in the back half of the year versus release to Sealy do you expect that strength to continue or do you expect acceleration. Second, as it relates to some of the costs associated with Big Lots of Mattress Firm. You mentioned a $5 million headwind, what's the gross number you're expecting in incremental cost for the back half of the year? Thank you.
Scott L. Thompson -- Chairman, President and Chief Executive Officer
Great, good questions. First of all, let me take Sealy and then we'll pass it on to Bhaskar for some of the details. Sealy has surprised us so far this year. The momentum was obviously strong in the second quarter at 7% if I remember correctly. Bhaskar?
Bhaskar Rao -- Executive Vice President and Chief Financial Officer
Correct.
Scott L. Thompson -- Chairman, President and Chief Executive Officer
And I think as I've said on the call, it is continued and we would expect that momentum to continue it for a good while.
Bhaskar Rao -- Executive Vice President and Chief Financial Officer
As it relates to the Mattress Firm Big Lots cost, what we'd estimate is during the third quarter is to make sure that our quality is where it needs to be and then obviously scaling for the launches that we have is that we would invest an incremental $5 million into the third quarter.
Scott L. Thompson -- Chairman, President and Chief Executive Officer
And I think we highlighted on even on the last call that during this period, where we're taking on large customers. The primary focus will be on quality of product and service and we won't be shy about spending some money to get those businesses up and running correctly and continuing to support our other third party retail stores.
Operator -- Chairman, President and Chief Executive Officer
[Operator Instructions]. Our next question comes from Curtis Nagle of Bank of America Merrill Lynch. Your line is now open.
Curtis Nagle -- Chairman, President and Chief Executive Officer
Great, thanks very much for taking my question. So kind of looking at the quarter outstanding gross margin numbers, particularly in North America. Just kind of rolling through the next of the year or the rest of the year, I should say, how should we think about rate growth in the terms of things like commodities that continued to be pretty weak, product mix, mix within brands DTC growing really well, should we continue or expect to continue gross margin to grow on a rate base at a very high rate. I guess?
Bhaskar Rao -- Executive Vice President and Chief Financial Officer
Sure. Good question, Curt. So the way I would think about that is the underlying margin excluding their new business that we're adding. We would expect that the gross margin to grow on that. So as you mentioned, is that we would anticipate getting it continued improvement from a channel mix perspective as well as our outlook for commodities has slightly improved from where we were at the end of the first quarter. What I would want to call out is, is that at the end of the third quarter will be selling in the Big Lots business, which is principally in a $1000 and below. And then the fourth quarter, what we would have is the Mattress Firm sell-in, which is going to be heavily weighted toward floor models that which will be sold at a discount.
Operator -- Executive Vice President and Chief Financial Officer
Thank you. And our next question comes from Bobby Griffin of Raymond James, your line is now open.
Bobby Griffin -- Executive Vice President and Chief Financial Officer
Good morning and thank you for taking my questions. Congrats on another good quarter. I think I want to talk a little bit about our advertising expense during the quarter and then kind of plans going forward. And when we should expect kind of the uptick to involve Mattress Firm In the new and Big Lots as well and what promotional activity or advertising, we could expect from those two new relationships in the fourth quarter?
Scott L. Thompson -- Chairman, President and Chief Executive Officer
Okay, sure. First of all advertising, we think is core expense, but certainly there is some variability in it. And as you can see from the sales growth numbers, there was no reason to pull the advertising lever very hard during the quarter, but we certainly expect that we'll continue to spend approximately the same percentage of our sales number in advertising. There is no uptick in advertising expense as a ratio during the third and fourth quarter, but certainly we would expect from a ratio standpoint, to continue about the same. Is that fair, Bhaskar?
Bhaskar Rao -- Executive Vice President and Chief Financial Officer
Yes, we would continue to -- if I think about it on a full-year basis, is that we would continue to believe that our dollars would be up and our rate would be up on a year-over-year basis.
Operator -- Executive Vice President and Chief Financial Officer
Thank you. And our next question comes from Michael Lasser of UBS, your line is now open.
Michael Lasser -- Executive Vice President and Chief Financial Officer
Good morning. Thanks a lot for taking my question. What do you think drove your improvement in return on advertising your lower customer acquisition costs, is it possible because Mattress Firm is going through this transition that they're just seeing less aggressive and it's allowing me to big share, particularly at a time where one of your big competitors going through some of its own dynamic?
Scott L. Thompson -- Chairman, President and Chief Executive Officer
No, I don't think our advertising efficiency has anything to do with anything with Mattress Firm, although I think your theory has some validity. I think it's more likely that the very aggressive bed in the box companies that their advertising budgets have been probably pulled back quite a bit as those companies continue to run at a deficit. I think probably that has helped us some. Also I think as a company, we continue to get better from an advertising standpoint and the team is doing a great job focusing on efficiency. So I'm going to say some less competitive market coming from the bed in the box guys is their volumes have in North America mattress is probably flat at best, and then our own efficiencies from internal initiatives.
Operator -- Chairman, President and Chief Executive Officer
Thank you. And our next question comes from John Baugh of Stifel. Your line is now open.
John Baugh -- Chairman, President and Chief Executive Officer
Good morning and thanks for taking my question. I was curious, Scott is too early in the Breeze Launch to look at the mix of what you're selling and you commented about it for your stores, but I was thinking about overall including wholesale. Is there been enough time to get a sense for North America Tempur-Pedic brand only how the mix compares today say to pre the initial launch of pro and adapt, is it same, better or worse, any trends there? Thank you.
Scott L. Thompson -- Chairman, President and Chief Executive Officer
Great question. Clearly we called out some outstanding performance in our direct channel, where we can control the process. When I look at the total Tempur launch in North America, I think we can clearly say that we've eliminated the negative mix that we've been working through. And when you look at the totality of the launch, the mix is where we expected it. We don't expect mix issues in Tempur-Pedic going forward. Having said that, the mix is going to be slightly less rich than it was before. But that was planned. And so, overall, the new launch was a big driver in the creation of EBITDA and we again don't expect any negative mix issues going forward out of the Tempur product.
Operator -- Chairman, President and Chief Executive Officer
Thank you and our next question comes from Laura Champine of Loop Capital, your line is now open.
Laura Champine -- Chairman, President and Chief Executive Officer
Thanks for taking my question. The gross margin beat was particularly impressive. And I'm wondering if you've got any help, any material help from input costs and what the trend is in the current quarter?
Bhaskar Rao -- Executive Vice President and Chief Financial Officer
Sure. As it relates to the second quarter and what we saw from a gross margin standpoint, the outlook where we're sitting at today has slightly improved versus where we were in the second quarter. Some of that came to pass in the second quarter. However, what I would say is that from an overall perspective what we feel good about was our product mix, specifically as it relate to what we've seen historically, which was the cannibalization. And we saw at the beginning is that turning, as Scott mentioned, what we'd anticipate going forward is that would be fully offset.
Scott L. Thompson -- Chairman, President and Chief Executive Officer
And so when you look at the second quarter, was driven basically on brand and then positive Tempur mix and then a very strong performance by Direct, all of which should continue and really no help from commodities to speak up in the second quarter, although going forward, we would expect it to be a little bit of benefit.
Operator -- Chairman, President and Chief Executive Officer
Thank you. And our next question comes from Peter Keith of Piper Jaffray. Your line is now open.
Peter Keith -- Chairman, President and Chief Executive Officer
Thanks, good morning. Great results, guys. Just looking at the adjustment to the guidance, if you could tie together, the midpoint implies a notable step-down in the growth rate of EBITDA from first half to second half. So, I wonder if you could just give us some insight on what some of the changes and headwinds might be that are evolving?
Bhaskar Rao -- Executive Vice President and Chief Financial Officer
Sure. We had a couple of things that we called out. So on what we have working in our direction is the continuing momentum that we see on the Sealy side as well as what's happening from our direct. Direct has performed very well in the first half and we would expect that would continue. We did call out a couple of items that we have headwinds principally, it is the variable compensation. Just a little bit about that is, it does vary based on our expectations in prior year it was zeroed out based on our performance. And in the current year we're achieving above our expectations. So it's a headwind as we think about the back half. And then finally, we did call out some softness internationally and that helps us bridge from midpoint to midpoint.
Operator -- Executive Vice President and Chief Financial Officer
Thank you. And our next question comes from Brad Thomas of KeyBanc Capital. Your line is now open.
Brad Thomas -- Executive Vice President and Chief Financial Officer
Thanks. Good morning. Great quarter, great results and I'm looking forward to seeing new products next week. My question is around capital allocation. I mean you're pretty explicit today with what your plans are, but I guess Scott and Bhaskar, I was hoping for a little bit more thinking on why not be a little bit more aggressive today with share repurchase given the strong cash flow outlook and strong EBITDA outlook?
Scott L. Thompson -- Chairman, President and Chief Executive Officer
Good question. Obviously, capital allocation is a Board issue. So, we get lots of input from investors, debt holders Board members and everybody else and it's one of our core responsibilities. I mean if you look at the history of the company, it was in 2016, we bought back over $500 million worth of stock buyback. So from a strategy standpoint or an appetite standpoint, the company has had a history at times to be very aggressive. I think what we said today, basically is things look pretty good. And we've given you some number that we've kind of budgeted for share repurchase. It could be more. We've given you the way we look at it as far as our expectations of cash flow, stock price, alternative investments, but then at the same time we said, look, we would like to leverage ratio to come down a little bit from where we are, but still obviously within the range that we've said. But I'd look at the 50 more as a minimum than a maximum and we will continue to fine-tune the actual investment as we learn more about as the year goes forward as Mattress Firm and Big Lots come on board. But I wouldn't be surprised if the company didn't become more aggressive in share buyback over the next couple of years. When you look at the anticipated cash flows, not just really for this year, but if you start looking at 2020, the flow through and the cash flows are really impressive when you get to 2020 and I suspect a lot of that cash flow will end up in share repurchase.
Operator -- Chairman, President and Chief Executive Officer
Thank you. And our next question comes from Carla Casella of JP Morgan. Your line is now open.
Carla Casella -- Chairman, President and Chief Executive Officer
On the other side of the capital allocation that question, any thoughts on, you've outlined on that's [Indecipherable] on continue to step down a call price your thoughts on refinancing or cap structure in terms of loans versus bonds. Do you prefer to tap certain market versus the other?
Scott L. Thompson -- Chairman, President and Chief Executive Officer
Great question. And we do look on up in the capital structure at the debt structure too, and we will continue to study that. Obviously, the markets are very attractive. Obviously, our leverage profile is getting better and our outlook certainly looks rosy. So we'll continue to look at the debt structure. I think that sometime in the future, there is some opportunity to optimize in the debt structure also.
Operator -- Chairman, President and Chief Executive Officer
Thank you. And our next question comes from Karru Martinson of Jefferies, your line is now open.
Karru Martinson -- Chairman, President and Chief Executive Officer
Good morning. Given the strong direct to consumer business that you had, are we seeing a shake-out in the bed in a box model here?
Bhaskar Rao -- Executive Vice President and Chief Financial Officer
I don't know I'm going to say you've seen several things. One is I think that we're tapping the market that's not well served right now, which just going to call high-end bedding in North America. And our Tempur-Pedic flagship stores are designed for high-end customers and I think that's an underserved market. So I think that would be the first driver. I think the second driver is clearly a lot of disruption in the traditional distribution model some large customers have gotten into financial trouble and their share of the markets declined. So there's quite a bit of what a bedding, it's kind of opened for a good retail performance and we're seeing some of our strong retail performers who are really good taking significant share themselves.
So I think there is some bedding that's up for grabs in the marketplace. And then I think, third is really kind of the point you probably raised is there certainly a significant deceleration what I'll call the traditional bed in the box brands in the marketplace. But having said that some people get confused. That doesn't mean that there is a decline and compressed bedding, if we look at our compressed bedding offerings, in total, they grew 40% in the second quarter and most people have it really focused on. We've got a total compressed bed offering starting with Sealy conform which starts at 399 which is very competitive in the marketplace. Then we kind of have our middle market compressed bed cocoon which is like a 799 product, which is doing very well and in fact, since we've changed some marketing strategies to go kind of directly after the disruptors it's up 250% and then we have our in test our Tempur-Cloud product, which is a premium product that starts at 1799 and you compare that premium product with what some of the bed in the box guys are trying to do in the premium area, you would see that it's a relative value.
So when you look across our offering in that area, because we are vertically integrated in our scale, we can produce a higher quality bed for a lower cost and make money. The part that we needed to learn over the last couple of years was really marketing and how to market online. And I think our performance recently shows that we've learned a lot in that area and are very competitive.
Operator -- Executive Vice President and Chief Financial Officer
Thank you. And if we have a follow-up question from Michael Lasser of UBS, your line is now open.
Michael Lasser -- Executive Vice President and Chief Financial Officer
Thanks a lot for taking my follow-up, can you give us more detail on the breakdown between units and price for the Tempur line on the Sealy business? How much of the improvement is coming on a same-store basis versus expanded relationship?
Bhaskar Rao -- Executive Vice President and Chief Financial Officer
Sealy is easy because that's all on same-stores effectively. We haven't picked up any of the new business yet on Sealy.
Scott L. Thompson -- Chairman, President and Chief Executive Officer
Right. And more broadly the nicety about Sealy is that we're seeing growth in all the price point. We were challenged from legacy standpoint in that sub $1,000 business. So what we've seen in the second quarter is remaining growing in the above $1,000 and a good opportunity there in the below $1,000 as it relates to the Tempur side, is that we have seen a growth in units. The momentum that we saw in the first quarter that continues in the second quarter and with the launching of the Breeze in the high-end, our ASP continues to improve.
Operator -- Chairman, President and Chief Executive Officer
Thank you. And ladies and gentlemen, this does conclude our question-and-answer session. I would now like to turn the call back over to Scott Thompson for any closing remarks.
Scott L. Thompson -- Chairman, President and Chief Executive Officer
Thank you. To the overall 6,000 employees worldwide, thank you for what you do every day to make the company successful. To our retail partners, thank you for your outstanding representation of our brands. To our shareholders and lenders, thank you for your confidence in Tempur Sealy's leadership team and its Board of Directors. This ends our call today, operator. Thank you.
Operator -- Chairman, President and Chief Executive Officer
[Operator Closing Remarks]
Questions and Answers:
Duration: 41 minutes
Call participants:
Aubrey Moore -- Investor Relations
Scott L. Thompson -- Chairman, President and Chief Executive Officer
Bhaskar Rao -- Executive Vice President and Chief Financial Officer
Seth Basham -- Wedbush Securities
Curtis Nagle -- Bank of America Merrill Lynch
Bobby Griffin -- Raymond James
Michael Lasser -- UBS
John Baugh -- Stifel
Laura Champine -- Loop Capital
Peter Keith -- Piper Jaffray.
Brad Thomas -- KeyBanc Capital
Carla Casella -- JPMorgan
Karru Martinson -- Jefferies
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