US buy difficult to bed down for Steinhoff
Steinhoff disappoints as it overhauls newly acquired but underperforming billion-dollar mattress business
Steinhoff’s foray into the US has come with financial pain as the group overhauls its newly acquired but underperforming billion-dollar mattress business.
Its share price fell 5.67%, to close at R65.50.
The Mattress Firm, acquired in 2016 for $2.4bn, cost Steinhoff about $54m in rebranding in the six months to March 2017.
Speaking to investors and analysts on Wednesday, CEO Markus Jooste said there had been a lot of “complications and store closures” in the US business, but the management team — under executive chairman Steve Stagner and president Ken Murphy — had done well to navigate the challenges.
“Mattresses and bedding have been a key product category since Steinhoff’s inception,” said Jooste.
“Since the acquisition of Mattress Firm, Steinhoff has become the leading multibrand bedding retailer in the world. We are extremely excited about the future of Mattress Firm, especially after these past six months. I believe the company will follow in the footsteps of Conforama and Pepkor. It will be a game changer for Steinhoff.”
In the period under review, Mattress Firm reported a decline in like-for-like sales of 5.9% and revenue of €1.5bn. The business terminated a supply agreement with Tempur Sealy and announced a new strategic partnership with Serta Simmons, the largest manufacturer of mattresses in the US.
The brand consolidation process — in which all Sleepy’s and Sleep Train stores were converted and rebranded to Mattress Firm stores — was completed at the end of March. This led to the temporary closure of 1,400 stores, which hit sales.
Old Mutual Investment Group consumer and industrial sector analyst Brian Pyle said the market had expected disappointing results from Mattress Firm, but perhaps “didn’t understand how bad it was going to be”.
“When they did the acquisition we knew there would be restructuring and costs associated with it. Steinhoff has decided to restructure and rebrand early on instead of phasing it in over three years. Ultimately, we will only know the wisdom of it in a year,” said Pyle.
Apart from the one-off costs associated with all the acquisitions, the results were in line with expectations, Pyle said. Key performers for the group had been Conforama and Poco.
Cratos Wealth portfolio manager Ron Klipin said the results showed strain in certain jurisdictions, but there were “pockets of good” in Africa through Pepkor and in eastern Europe.
Klipin said 2018 could be the turnaround year for Steinhoff.
“The African listing seems to be on track ... and the company says no additional funds need to be raised,” said Klipin.
Steinhoff did not declare a dividend.