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Executives

Mark Boehmer – Vice President, Treasurer

Lawrence Rogers – President, Chief Executive Officer

Jeffrey Ackerman – Chief Financial Officer

Analysts

Budd Bugatch – Raymond James

Brad Thomas – Keybanc Capital Markets

Mark Rupe – Longbow Research

John Baugh – Stifel Nicolaus

Karru Martinson – Deutsche Bank

Joel Havard – Hilliard Lions

[Sophia Sinnes – J.P. Morgan]

Sealy Corporation (ZZ) Q1 2010 Earnings Call March 30, 2010 5:00 PM ET

Operator

Welcome to the Sealy Corporation first quarter 2010 earnings conference call. (Operator Instructions) At this time, I would like to turn the conference call over to Mr. Mark Boehmer, Vice President and Treasurer of Sealy Corporation.

Mark Boehmer

Good afternoon and thank you for joining Sealy’s 2010 fiscal first quarter investor conference call. Before we begin, let me remind everyone that in accordance with the Safe Harbor provision of the Private Securities Litigation Reform Act of 1995, the company knows that certain matters to be discussed by members of management during this call, may constitute forward-looking statements.

Such statements are subject to risks, uncertainties and other factors that may cause the actual performance of Sealy to materially different from the performance indicated or implied by such statements. Such risks and other factors are set forth in the company’s annual report on Form 10-K.

A reconciliation of adjusted EBITDA and adjusted EBITDA margin can be found in our earnings release, which is posted on our website at www.sealy.com.

I will now turn the call over to Larry Rogers, President and Chief Executive Officer of Sealy Corporation.

Lawrence Rogers

Good afternoon. Thank you, Mark. I want to also thank all of your for joining us on this call to discuss Sealy’s 2010 fiscal first quarter results. Joining me today are Jeff Ackerman, our Chief Financial Officer and Mark Boehmer, our Treasurer.

I am very pleased to say that during our fiscal first quarter, our operating and financial performance continued to accelerate in the context of improving but still challenging market conditions.

Total net sales grew 10% year over year to $340 million and represents your second consecutive quarter of year over year growth. Gross profit margin improved 331 basis points from the prior year to 41.3% driven by a 202 basis point improvement in our U.S. market.

Income from operations was up 49% or $11.5 million from the same prior year period, and adjusted EBITDA increase 39% to $49.3 million or 14.5% of sales, a 306 basis point improvement over Q1 2009.

Net income increased 32% to $5.7 million. In addition, with our strong cash flow performance, we drove down the leverage on our balance sheet. Our net debt to EBITDA ratio improved to 3.01 times from 3.2 times at the end of the fourth quarter of 2009.

These results represent a continuing improvement as we build momentum on all facets of the business from sales to adjusted EBITDA.

Let me now put our performance in the context of current industry conditions. We continue to see a solid base developing in the bedding industry demand as a result of the strengthening economic situation and are confident that there has been a stabilization in the industry.

As previously stated, we continue to see a lot of consumer activity surrounding the traditional promotional sales periods, but haven’t experienced consistency in sales follow-through to the degree we would like.

That being said, we delivered sales increases across all of the major geographical business areas due primarily to our innovative new products and better execution. We continue to believe that we are making our own market and driving our own growth on the top of the firming industry baseline.

In addition, we are seeing a number of the traditional industry demand drivers having a more positive impact. Consumer credit conditions appear to have stabilized, which will reduce pressure on the high-end price points and should provide greater buying power across our product lines.

Pent up replacement demand continues to be inconsistent. We expect to see an accelerated recovery in demand when recessionary conditions diminish. Historically, pent up replacement demand following recessionary periods has been a large growth driver for the industry. Thus far, we feel the stabilization in the retail environment has been achieved without a release of pent up demand and we continue to believe this remains a growth opportunity for the industry.

Bedding industry retailers, our retailing partners continue to stress the importance of innovative new products in driving traffic to their stores and their subsequent profitability. It us under this framework, that we view the successful rollout of our new innovative products as paramount to the success of Sealy.

Looking at our first quarter results, we achieved our second consecutive quarter of positive comparisons on a year over year sales basis. Our results today also reflect continued excellent progress against our previously stated set of strategic initiatives for 2010, including our first initiative, to grow profitable market share.

We believe we remain on track to grow profitable market share this year. Our focus on account penetration, new distribution, product launch execution, as well as taking advantage of discrete opportunities in an ever-changing competitive environment remains our path.

On the international side, we achieved a significant turn-around in Canada and gained market share. This was born out by a strong performance in Q1 of a 23% sales growth on a local currency basis.

Our second initiative is to develop strong, innovative products. Again, we believe our ability to develop strong innovative products remains paramount to both Sealy’s and our retailing partners success and profitability, great product wins in this industry and provides us the opportunity and the avenue by which we believe we will outperform average industry growth.

We continue to see strong growth out of our Stearns & Foster line that was originally launched in May 2009. This launch was expanded in 2010 with the rollout of the Stearns & Foster Personality line to take advantage of higher end demand of existing price points.

The Personality line’s subsequent success has proved that great products, even at luxury price points will be accepted by the market place. This provides us additional comfort for the success of our upcoming releases, specifically, in our specialty category.

We had a very strong showing at the Las Vegas market in February, receiving a great response from retailers on our new lines. We are very excited about our new Sealy Promotional line, which will be the first new line to start rolling out this year. This line was revamped with better fabrics and with approved aesthetic appearance and we expect to begin seeing this rollout contribute to sales and operating income starting in the third quarter of 2010.

In addition, we will be shipping our Sealy Posturepedic 60th Anniversary products, as we get closer to the Memorial Day holiday. And finally, our specialty and bodyline was launched in Las Vegas. These mattresses, which retail from between $2,000 and $3,300 were very well received at the Las Vegas market and represent a complete refresh of our prior specialty product. We expect to start seeing this rollout contribute to sales in our third quarter.

Our third initiative was to manage the cost structure. We have continued to aggressively manage our cost structure to drive further improvement in operating income and adjusted EBITDA. We are seeing the benefits from this intense focus on costs coupled with improving top line growth and an increase in operating leverage.

On prior earnings calls, we had spoken about a variable contribution margin of approximately 25% flow-through from sales to the EBITDA line. We have outperformed this contribution margin in the first quarter with our adjusted EBITDA margin improving substantially on a year over year basis as we have benefited from our all-encompassing approach to driving profitability.

Our fourth initiative is to de-lever our balance sheet. We have reaped the benefits of our cost rationalization programs and coupled with sales growth, we have continued to generate cash in order to de-lever our balance sheet as measured by the improvement in our net debt to EBITDA ratio.

In February, we announced our intention to redeem $35 million of our 10 7/8% senior notes, which was completed in March. Our net debt to EBITDA excluding the pick notes at the end of the first quarter now stands at 3.01 times.

With that, I would now like to turn the call over to Jeff Ackerman, our Chief Financial Officer.

Jeffrey Ackerman

Thanks Larry. I would now like to provide some more detailed support for our financial performance during our fiscal first quarter and how that compared to the prior year period.

Our net sales were $339.6 million, an increase of 9.6% compared to the prior year period. Wholesale domestic net sales, which exclude third party sales from our component plants, grew 4.6% to $241.6 million. This growth was due to a 2.4% increase in unit volume as we saw improving consumer demand for our products, and an increase in wholesale AUSP of 2.2%.

The growth in unit volume is primarily attributable to the successful launch of the new Stearns & Foster line and better retail demand.

International net sales were $93.3 million, an increase of 24%, or 12% on a constant currency basis. In Canada, we achieved a local currency sales increase of 22.9% driven by a 32.5% increase in unit volume, which was partially offset by a 7.2% decrease in AUSP. This was primarily due to the success of our new Stearns & Foster line, better execution of promotions and an improvement in retail demand.

We also experienced increases in sales in Europe and the other America’s markets; notably in Mexico and South America. In our Europe segment, local currency sales increases of 1.9% translated into 9.6% in U.S. dollars due to favorable foreign exchange rates.

The increase in local currency sales resulted from a 4.4% increase in sales of OEM Latex cores. Finished goods sales in local currency remained relatively flat to the prior year. This is noteworthy given we began transitioning from the Pirelli brand to our own Sealy brand over the quarter.

Our gross profit was $140.1 million and our gross profit margin was 41.3%, an improvement of 331 basis points compared to the first quarter of 2009. U.S. gross margin was 42.3%, an improvement of 202 basis points. International gross margin increased 780 basis points.

In the U.S., the increase in gross profit margin was driven primarily by lower material costs and improved manufacturing efficiencies. The gross margin improvement in our international businesses was primarily due to the following; one, a10.8% increase in Canada’s gross margin driven by lower material cost per unit and leverage of fixed costs on higher volume, partially offset by lower AUSP; and two, a 4.1% increase in Europe’s gross margin due to improvement in conversion costs.

Our consolidated SG&A expenses increased $12.3 million to $109 million. The increase in absolute dollars is primarily due to a $6.3 million increase in volume driven variable expenses including an $8.8 million increase in co-operating advertising and promotional costs. The increase in these costs have been partially offset by a $3.2 million decrease in bad debt expense.

Fixed operating costs, exclusive of non-cash compensation expense increased $2.9 million primarily due to increases in expected to find contribution plan payments, cash compensation costs and professional services. As a percent of net sales, this expense was 32.1% compared to 31.2% in Q1 2009.

This 90 basis point increase was primarily driven by a $3.1 million increase in non-cash compensation costs related to the restricted share units that were granted in the third quarter of fiscal 2009.

Our income from operations was $34.8 million, an increase of 49% or $11.5 million from the prior year period. Our cash interest expense was $17.1 million and flat to the prior year. We are now breaking out equity in earnings of unconsolidated affiliates. Earnings related to our joint venture activities were $943,000 as we saw increased demand in our Asian markets.

Net income was $5.7 million compared to $4.3 million or $0.03 per diluted share compared to $0.05 in the prior year quarter. The corresponding diluted share counts for 2010 first quarter EPS and 2009 first quarter EPS were 283.6 million and 93.6 million respectively. Please see our press release for additional information related to the change in share count.

Furthermore, the best metric for measuring our success, total adjusted EBITDA grew by 38.8% to $49.3 million or 14.5% of net sales. These results represent an increase of 306 basis points over the prior year period.

Now, I’ll review our balance sheet categories. Compared to the first quarter of 2009, days sales outstanding improved by one day. Days inventory on hand improved by one day. Day’s payable decreased by 14 days as we took advantage of cash discounts for earlier payment. In the prior year, we had managed payables consistent with our credit agreement covenants, which were in place at that time.

Capital expenditures totaled $2.4 million during the quarter compared to $2.3 million in the same prior year period. We will continue to invest in our business and make strategic investments for the long term.

At February 28, 2010, the company’s debt net of cash was $722.9 million, an improvement of $38million compared to May 31, 2009 at the conclusion of our 2009 refinancing. As of February 28, 2010 Sealy’s net debt leverage ratio excluding the convertible pick notes improved by over a full turn to 3.01 times compared to 4.03 times as of May 31, 2009. This is well below the 3.4 times leverage ratio hurdle that would allow us to force conversion of the convertible notes in July of 2012.

Subsequent to the quarter end, we took advantage of certain provisions in the company’s debt agreements to redeem $35 million of its senior notes. This action was announced February 1, 2010 and completed on March 16, 2010.

In summary, we are very pleased with our performance in the first quarter as we have now delivered two consecutive quarters of year over year sales growth and three consecutive quarters of year over year adjusted EBITDA growth and expect that our industry will experience accelerating growth coming out of this most recent recessionary period.

Looking forward for the balance of our 2010 fiscal year, we remain optimistic about our new product introductions will drive significant increases in product launch costs in Q2, but should generate improved sales and profitability in the second half of the year.

In our raw materials area, we are beginning to see inflationary pressures on foam and steel, but are working to mitigate their effects. We remain confident in our ability to achieve our 10% adjusted EIBTDA growth target for 2010. We believe our company has never been in a stronger strategic position to gain profitable market share and drive increasing value for our shareholders.

Operator, would you please open the lines for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Budd Bugatch – Raymond James.

Budd Bugatch – Raymond James

Congratulations on the operating performance. It’s pretty impressive. Nice to see that. My questions would go to a bit of confusion and perhaps I’m trying to reconcile the unit growth domestically to what we see from the ISPA numbers which admittedly have some issues of their own, but I was hoping maybe, I know you have looked at that and maybe you would reconcile that for us because if you look at just on the face of the ISPA numbers, depending on which numbers you want to grasp, three months were anywhere from up 6% to up 8% for units. So help us reconcile how we look at your 2.4% unit growth in domestic units versus the ISPA units.

Lawrence Ackerman

We’ve said this before that we obviously believe ISPA statistics are directionally accurate but we don’t take them as empirical. We do see that it’s 71% of the market now, but there’s been some puts and calls with the new companies coming in year over year. That provides a little bit of volatility to the number.

You also see a dramatic change from January’s number of 1.9% to February of 12.2%. On average, that’s a 6% to 7%. Our quarter is December, January, February. We’re at 4.9%, almost 5%.

Also, our stated objective, one of our initiatives this year is go grow profitable market share, and we’re pretty focused on doing that and we think the results of having a 4.6% to 4.7% increase and a 38% increase in EBITDA kind of indicates that we’re delivering on one of our key initiatives for the year.

Budd Bugatch – Raymond James

One other area of inquiry if I could, you talked a little bit about product launch costs for the new specialty, the Embody line and maybe the OPP line or promotional line that you introduced in Vegas and how they’ll be impacting the second half of the year, the next several quarters.

Jeffrey Ackerman

Where we’ll really see some increase in product launch costs are going to be in the second quarter so just kind of context for everyone, remember last year we were launching the new Stearns & Foster line which really began shipping in May and this year, as you mentioned, we’ve got several launches coming out this year.

So we’re probably going to see just order of magnitude, probably $5 million to $7 million of incremental product launch costs in the second quarter compared, that’s on a sequential basis as well as a year over year basis. But that’s going to put us in a good spot then to accelerate the launch, get these new products out, start driving sales growth and profitability and that’s why we’re confident we’re going to be able to get that EBITDA number of 10% year over year growth for the year.

Operator

Your next question comes from Brad Thomas – Keybanc Capital Markets.

Brad Thomas – Keybanc Capital Markets

I wanted to follow up on your comments about the 25% flow through rate and how you’ve been able to do better than that recently. Could you share with us what the opportunity is this year to maybe drive a continued flow through rate above that 25%?

Lawrence Rogers

We think that clearly bringing strong, innovative product to the markets is the underpinning for us to continue to drive the variable contribution margin at that level and when you think about the lines that we introduced in Las Vegas, clearly the specialty and body line are products that sell between $2,000 and $3,300 so they should be accretive to that as well.

Also, we’re just putting in the street at the moment, the two higher end Personality products in Stearns & Foster that retail at $2,999 and $3,999 and we have a strong offering that is margin accretive even on our promotional products that we launched at the Las Vegas market.

So it all begins with strong innovative products that carry margins that will continue to help us be accretive to that 10% growth in EBITA at the bottom line.

Brad Thomas – Keybanc Capital Markets

Following up on some of your comments about the pace of sales and the macro backdrop, it does sound like we’re seeing some signs of stabilization, yet you referenced that the replacement demand seems to be a little bit inconsistent. Could you share a little bit more in terms of what you’re seeing from different price points and Sealy versus Posturepedic and Stearns & Foster line?

Lawrence Rogers

We don’t get quite that granular on these kind of calls, but we can I think drive to some of the answers to that question. We’re seeing a real solid base developing in the industry right now, so that’s in behind some strengthening economic macro indicators.

We really do believe that we’re going to continue to see improvement in consumer demand for our products and the industry as we move through 2010. That just won’t be relegated to our domestic market. We believe we’re going to see that internationally as well. Clearly, we’ve seen a little bit of improvement in the credit markets.

We’re starting to see a little bit of growth from a GDP perspective. So we think the signs for the market are reasonably healthy going forward, albeit we’re taking a rather conservative approach to what that might mean, and we’re staying focused on our four initiatives for this year which is grow market share, to continue bringing innovative products to the market, to continue to focus on cost containment and to drive that 10% number that Jeff has spoken to from an EBITDA point of view, and to de-lever our balance sheet so those are the things we’re staying focused on right now.

Brad Thomas – Keybanc Capital Markets

I was hoping you could quantify your outlook for materials going forward.

Jeffrey Ackerman

We’re looking at seeing some increases. As I said, we’re experiencing some increases now. We think that we’ve got pretty good visibility about six months out and what we’re seeing with steel prices and oil, would indicate that we would see some increased prices going forward and the oil prices and the timing of what we actually see isn’t a direct relationship, so there’s always a bit of a lag.

So we’ll see increased prices in petrochemicals which we’ve already seen in Polyall, and then that drives down to increased prices in polyurethane. I think as we look at it, we anticipate some price increases on commodities, but we’re taking the right steps to try to mitigate those as well as find offsets elsewhere. That still sets up to drive that 10% EBITDA growth.

Brad Thomas – Keybanc Capital Markets

If we think about gross margin in the quarters ahead, do you think you can still continue this trend of expansion or as we get into the back half of the year is it possible that material price may not be offset by volume?

Jeffrey Ackerman

Our gross margin on a quarterly basis is always a little bit seasonal. It’s driven by the volume and typically, the second and fourth quarters tend to be the lowest margin in the year and then the first and third are the highest because those are also our highest volume quarters.

Brad Thomas – Keybanc Capital Markets

I meant on a year over year basis as we look at it.

Jeffrey Ackerman

We’ll be able to, we feel pretty good about the new products that we’ve got and Larry mentioned what we’re doing to drive some profitability there, so we still think we can see some margin expansion as we move through the year.

Operator

Your next question comes from Mark Rupe – Longbow Research.

Mark Rupe – Longbow Research

Is there any way you could comment on the unit volume in the U.S. and how it flowed through the quarter. Was it pretty even or was there any kind of variability?

Lawrence Rogers

Our focus in the first quarter was on our higher end units and so obviously, it’s a smaller space in the market, and now we’re moving back with the launch of our special promotional product. So we think that our unit volume will grow as we get that out in the market at the end of the second quarter and through the third and fourth.

Mark Rupe – Longbow Research

So the average selling price increase was definitely mix related on the higher end stuff, no other kind of moving variables there?

Lawrence Rogers

No, pretty much Stearns and Foster has been very successful for us, and I think in your channel checks, you’ve probably heard similar comments. It has driven the change. Indeed, if you looked at the ISPA numbers and not that they’re empirical as I say, but we did have expansion in our average unit selling price, whereas they had a little bit of a detraction.

Mark Rupe – Longbow Research

As it relates to the upcoming new product launches, I know you cited new distribution earlier in the call. Is there any new distribution with these upcoming launches, and if so, what kind of impact they might have.

Lawrence Rogers

We do expect some new distribution. Clearly, we have active programs that our people are out there with a missionary program every quarter. They report on them weekly to us. So we expect some new distribution but we wouldn’t necessarily call out these names on a call like this.

Operator

Your next question comes from John Baugh – Stifel Nicolaus.

John Baugh – Stifel Nicolaus

I’m curious whether you’ve seen an instance or instances where any of your accounts have either increased their commitment to you or just tagging along from a zero position as it relates to the merger of your two largest competitors.

Lawrence Rogers

Clearly, we’ve seen distribution increase in behind our Stearns & Foster product. We’ve talked about some of this on prior calls where customers who hadn’t had it on their floor for a year or so like Mattress Firm, like Macy’s if you will, to name a couple, placed that back on their floors. So we have seen certainly movement in that direction.

John Baugh – Stifel Nicolaus

I was curious to Budd’s question early, trying to dissect the volumes. Tempur-pedic and Select Comfort I know don’t have tremendous unit share of the industry but I believe both are up well into the double digits, so I’m just curious as to how that might be influencing numbers.

Lawrence Rogers

That’s a good observation. The volume is somewhat bifurcated at the moment between luxury and lower end product. Unit growth I think largely from an industry point of view, not necessarily ours, but is being driven by the below $1,000 price point.

John Baugh – Stifel Nicolaus

Related to the raw material pressure, I guess we just will not even close to an environment where there will be any level of a pass through these costs. Are you going to make it up in volume gains or can you see any kind of an attempt at price increase by yourself or competitors?

Jeffrey Ackerman

I think we’ve demonstrated in the past our ability to take a price increase if it’s necessary because of material inflation and the most recent case being the third quarter of 2008. We’ll continue to monitor what’s happening with material costs and we’ll just monitor as well what’s going on in the market, but it’s a pretty disciplined industry.

Operator

Your next question comes from Karru Martinson – Deutsche Bank.

Karru Martinson – Deutsche Bank

In terms of the improvement in days payable, the cash discounts, is this vendors or suppliers being a little bit more cash conservative, or why are they being so generous with you this time around?

Jeffrey Ackerman

The days payable remember this year, compared to prior year, our days payable went down by about 14 days. Last year we had a different set of covenants that we were operating under so we were going to the end of the terms with vendors then. This year, we’re taking advantage of some cash discounts and paying earlier.

Karru Martinson – Deutsche Bank

So these are built into the agreement that you have.

Jeffrey Ackerman

Yes.

Karru Martinson – Deutsche Bank

I just didn’t know if there was a change there. On the SG&A front, should we expect another $4 million to $5 million of non-cash comp quarterly going forward?

Jeffrey Ackerman

Going forward it’s probably going to be about $5 million in the second quarter and then it starts stepping down in the third quarter. When we get to the fourth quarter it’s probably going to be down to $2.5 million to $3 million.

Karru Martinson – Deutsche Bank

You bought back the $35 million in senior secured notes. You’re capped now for the next 12 months or so. What’s the plan or the use of cash flow going forward as you build that balance?

Lawrence Rogers

Our priorities remain that we’re going to make our investments in the business first, so we’ll invest in CapEx first and then with the remaining cash flow we’ll look to de-lever. As you pointed out, the first opportunity that we took this year was the senior secured’s and we took that opportunity to call 10% of those at 103, and if you’ll recall from the fourth quarter last year, we went into the open market and purchased $5 million of the sub notes. So those are really the levers that we have available and that’s where our focus will remain.

Karru Martinson – Deutsche Bank

In terms of the competitive pressure as the market picks up, obviously Serta and Simmons are kind of joined under one ownership. What’s the impact that you’re seeing when you reach out to retailers and what’s their reaction in the market to that?

Lawrence Rogers

At the moment we haven’t seen really a lot of Simmons and Serta acting as one company, so they’re still going to market with a separate proposal, so we haven’t seen really any change in the competitive landscape from that perspective.

I would tell you that just in conversation with our retailers, they’re waiting to see if that will change or not. The signals have been that wouldn’t have been a change that they would welcome if they did decide to go to market as one entity and that’s probably the best way to describe, or answer your question at this point.

Operator

Your next question comes from Joel Havard – Hilliard Lions.

Joel Havard – Hilliard Lions

This is a follow up to a previous question. You answered most of it but I wondered if you could add a little detail on what the covenants and restrictions on the debt repayment will allow for additional de-levering over the course of 2010.

Jeffrey Ackerman

For the next 12 months, we can’t really call any of the senior secured notes, so we took the $35 million that we could, so we have to wait another 12 months before we can pull the trigger on that again. Our credit agreement allows us to go ahead into the open market and purchase the senior sub notes that we have.

Joel Havard – Hilliard Lions

On the pick, if I got my notes right here from the document, does that only hit twice a year? Is that January/July?

Jeffrey Ackerman

Let me make sure I understand your question. We accrete the interest every month, every quarter.

Joel Havard – Hilliard Lions

So that shows up equally through the year.

Jeffrey Ackerman

The interest expense, that’s right.

Joel Havard – Hilliard Lions

You did a good job answering a question I wasn’t sure how to ask.

Operator

Your next question comes from [Sophia Sinnes – J.P. Morgan]

[Sophia Sinnes – J.P. Morgan]

You delivered really good results in Canada this quarter. Can you tell us how much of the improvement was due to the change in the promotional calendar which had to have hurt your results in Q4?

Lawrence Rogers

I think it’s largely due to two things. The first is a very robust promotional calendar, but also the strength of the new Stearns & Foster Line that they have in the market, so it’s really two-fold. But clearly, they really had a robust promotional calendar during the first quarter in Canada.

[Sophia Sinnes – J.P. Morgan]

What are your expectations going forward for that market?

Lawrence Rogers

We think the Canadian market will continue to stay strong for us. We believe that international in general, is going to show improvement throughout the year. So we expect some of the same initiatives that we applied to the U.S. market in the previous 18 months, we have now embedded in Europe as well as Canada as well as some of the other markets. So we’re seeing improvements on all fronts.

[Sophia Sinnes – J.P. Morgan]

You talked about the fact that the margins are obviously higher on the new product launches. Can you shed some light on the magnitude of the margin differential?

Jeffrey Ackerman

As Larry mentioned, we’re introducing some beds that are in what we call our promotional line that retail for a queen set anywhere from $299 to $699, all the way up to the Personality bed that we have on Stearns & Foster that retail at $3,999 for a queen set, and the margins vary across those.

I want to just point out that regardless of the price point; we make nice operating income margins on all the beds.

Operator

That concludes the question and answer session. I will now turn the call back to Larry Rogers.

Lawrence Rogers

Thank you very much and thanks everyone for your participation today and for you interest and your continued support for our company, and we wish you a good evening and look forward to our next earnings call. Thank you.

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