Somnigroup (NYSE:SGI) Misses Q2 Revenue Estimates

Bedding manufacturer Somnigroup (NYSE:SGI) fell short of the market’s revenue expectations in Q2 CY2025, but sales rose 52.5% year on year to $1.88 billion. Its non-GAAP profit of $0.53 per share was 3.6% above analysts’ consensus estimates.

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Company Chairman and CEO Scott Thompson commented, "We are pleased to report another solid quarter of market outperformance, driven by the successful combination with Mattress Firm, the North American launch of our new Sealy line, and another quarter of robust sales growth for our international business. We have made significant progress on bringing Mattress Firm into Somnigroup. Teams are aligned and we are realizing both cost and sales synergies ahead of our purchase assumptions.

Company Overview

Established through the merger of Tempur-Pedic and Sealy in 2012, Somnigroup (NYSE:SGI) is a bedding manufacturer known for its innovative memory foam mattresses and sleep products

Revenue Growth

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Somnigroup grew its sales at a 13.5% annual rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the consumer discretionary sector, which enjoys a number of secular tailwinds.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. Somnigroup’s recent performance shows its demand has slowed as its annualized revenue growth of 10.1% over the last two years was below its five-year trend.

We can dig further into the company’s revenue dynamics by analyzing its most important segments, Wholesale and Direct, which are 34.2% and 65.8% of revenue. Over the last two years, Somnigroup’s Wholesale revenue (sales to retailers) averaged 7.7% year-on-year declines. On the other hand, its Direct revenue (sales made directly to consumers) averaged 46.5% growth.

This quarter, Somnigroup achieved a magnificent 52.5% year-on-year revenue growth rate, but its $1.88 billion of revenue fell short of Wall Street’s lofty estimates.

Looking ahead, sell-side analysts expect revenue to grow 27.8% over the next 12 months, an improvement versus the last two years. This projection is eye-popping and implies its newer products and services will catalyze better top-line performance.

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Operating Margin

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Somnigroup’s operating margin has shrunk over the last 12 months, but it still averaged 10.4% over the last two years, decent for a consumer discretionary business. This shows it generally does a decent job managing its expenses.

This quarter, Somnigroup generated an operating margin profit margin of 9.6%, down 4.5 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Somnigroup’s EPS grew at a solid 15.8% compounded annual growth rate over the last five years, higher than its 13.5% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

In Q2, Somnigroup reported adjusted EPS at $0.53, down from $0.63 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 3.6%. Over the next 12 months, Wall Street expects Somnigroup’s full-year EPS of $2.44 to grow 13.8%.

Key Takeaways from Somnigroup’s Q2 Results

It was encouraging to see Somnigroup beat analysts’ adjusted operating income expectations this quarter. We were also happy its EPS outperformed Wall Street’s estimates. On the other hand, its revenue slightly missed and its EBITDA fell short of Wall Street’s estimates. Zooming out, we think this was a mixed quarter. Investors were likely hoping for more, and shares traded down 1.1% to $72.76 immediately after reporting.

So do we think Somnigroup is an attractive buy at the current price? We think that the latest quarter is only one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.