•Reported third quarter net sales of $427 million; delivered adjusted EBITDA of $28 million for the quarter which was consistent with expectations

•Achieved gross margin rate of 60.8% for the third quarter, up 340 basis points versus last year, ahead of expectations and the highest quarterly gross margin rate since the third quarter of 2021

•Reduced operating expenses by $17 million for the third quarter and $60 million year-to-date (before restructuring costs)

•Increased year-to-date free cash flow by $50 million compared with the same period last year

•Updated full-year 2024 adjusted EBITDA outlook to a revised range of $115 million to $125 million

MINNEAPOLIS – (October 30, 2024) – Sleep Number Corporation (Nasdaq: SNBR) today reported results for the quarter ended September 28, 2024.

“Our actions throughout the business over the past year are driving sustainable operating model improvements and contributing to our increased financial flexibility and durability. Our initiatives drove broad cost efficiencies and a gross margin rate improvement to 60.8%, resulting in third quarter adjusted EBITDA of $28 million, which was in-line with expectations even with persistent consumer demand weakness,” said Shelly Ibach, Chair, President and CEO. “At the same time, we continue to leverage our innovation superiority to provide customers with life-changing sleep solutions, like our new ClimateCool™ smart bed.”

“Throughout my tenure, I have been inspired by our team’s commitment to our purpose, beloved brand, and pioneering smart beds that deliver proven quality sleep,” added Ibach. “As I transition to retirement, our talented team and strong competitive advantages, combined with our increased financial resilience, give me confidence in Sleep Number’s continued market leadership and its ability to accelerate profitable growth and value creation for all stakeholders when industry demand recovers.”

•Net sales of $427 million were down 10% versus the prior year, including approximately two percentage points of pressure from year-over-year order backlog changes and one-point of pressure from lower store count versus the prior year

•Gross margin of 60.8% was up 340 basis points versus the prior year, driven by year-over-year product cost reductions through value engineering and ongoing supplier negotiations, favorable product mix, and efficiency gains in our home delivery and logistics operations

•Operating expenses of $249 million (before restructuring charges) were down $17 million versus the prior year’s third quarter, with year-to-date operating expenses down $60 million (before restructuring charges)

•Adjusted EBITDA of $28 million was up 11% compared to the prior year, with an adjusted EBITDA margin of 6.5%, up 120 bp versus the prior year

•Net cash provided by operating activities of $51 million for the first nine months of the year, up $19 million, or 60%, versus the same period last year

•Free cash flow of $34 million for the first nine months of the year, up $50 million versus the same period last year

•Leverage ratio of 4.2x EBITDAR at the end of the third quarter versus covenant maximum of 5.0x for the quarter

With ongoing weakness in the bedding industry, the company has updated its full-year 2024 adjusted EBITDA outlook to a revised range of $115 million to $125 million. The company expects 2024 full-year net sales to be down approximately 10%, consistent with year-to-date net sales performance. The company’s outlook includes at least 150 basis points of gross margin rate improvement for the year. The company expects to generate $10 million to $20 million of free cash flow for the year with capital expenditures of approximately $25 million.

In a separate release today, the company announced the following:

•Ibach to retire no later than the 2025 Annual Meeting of Shareholders (the “2025 Annual Meeting”), following a comprehensive search to identify her successor conducted by an independent executive search firm

•Ibach will not stand for reelection to the Board at the 2025 Annual Meeting, at which time, the Board intends to appoint Michael J. Harrison as independent Chair of the Board

•The Board intends to reduce its size, with two longer serving directors to retire at or before the 2026 Annual Meeting

•The Board intends to amend the company’s governing documents, requesting shareholder approval at the 2025 Annual Meeting to begin a process to declassify the Board and adopt a majority voting standard for approval of mergers and amendments to the company’s Articles of Incorporation

Management will host its regularly scheduled conference call to discuss the company’s results at 5 p.m. EDT (4 p.m. CDT; 2 p.m. PDT) today. To access the webcast, please visit the investor relations area of the Sleep Number website at https://ir.sleepnumber.com. The webcast replay will remain available for approximately 60 days. We have also posted an updated investor presentation to the investor relations area of the Sleep Number website.

Sleep Number is a wellness technology company. We are guided by our purpose to improve the health and wellbeing of society through higher quality sleep; to date, our innovations have improved nearly 16 million lives. Our wellness technology platform helps solve sleep problems, whether it’s providing individualized temperature control for each sleeper through our Climate360® smart bed or applying our more than 29 billion hours of longitudinal sleep data and expertise to research with global institutions.

Our smart bed ecosystem drives best-in-class engagement through dynamic, adjustable, and effortless sleep with personalized digital sleep and health insights; our millions of Smart Sleepers are loyal brand advocates. And our 3,700 mission-driven team members passionately innovate to drive value creation through our vertically integrated business model, including our exclusive direct-to-consumer selling in nearly 650 stores and online.

To learn more about life-changing, individualized sleep, visit a Sleep Number® store near you, our newsroom and investor relations sites, or SleepNumber.com

Statements used in this news release relating to future plans, events, financial results or performance, such as the statements that the company is driving sustainable operating model improvements and contributing to its increased financial flexibility and durability, continues to leverage its innovation superiority to provide customers with life-changing sleep solutions, and is positioned for continued market leadership and to accelerate profitable growth and value creation for all stakeholders when demand recovers; statements about the company’s financial outlook, including the company’s expected 2024 adjusted EBITDA and future net sales, demand, gross margin, and free cash flow expectations; and statements about its CEO and Board retirements and governance changes are forward-looking statements subject to certain risks and uncertainties which could cause the company’s results to differ materially. The most important risks and uncertainties are described in the company’s filings with the Securities and Exchange Commission, including in Item 1A of the company’s Annual Report on Form 10-K and other periodic reports. Forward-looking statements speak only as of the date they are made, and the company does not undertake any obligation to update any forward-looking statement.

Investor Contact: Dave Schwantes; (763) 551-7498; investorrelations@sleepnumber.com

Media Contact: Julie Elepano; (414) 732-9840; julie.elepano@sleepnumber.com

 

			Three Months Ended
			September 28, 2024						% of Net Sales						September 30, 2023						% of Net Sales
Net sales			$	426,617					100.0		%				$	472,648					100.0		%
Cost of sales			167,089						39.2		%				201,537						42.6		%
Gross profit			259,528						60.8		%				271,111						57.4		%
Operating expenses:
Sales and marketing			205,480						48.2		%				221,143						46.8		%
General and administrative			33,070						7.8		%				31,948						6.8		%
Research and development			10,583						2.5		%				12,633						2.7		%
Restructuring costs			1,963						0.5		%				—						0.0		%
Total operating expenses			251,096						58.9		%				265,724						56.2		%
Operating income			8,432						2.0		%				5,387						1.1		%
Interest expense, net			12,057						2.8		%				10,958						2.3		%
Loss before income taxes			(3,625)						(0.8		%)				(5,571)						(1.2		%)
Income tax benefit			(489)						(0.1		%)				(3,253)						(0.7		%)
Net loss			$	(3,136)					(0.7		%)				$	(2,318)					(0.5		%)
Net loss per share – basic			$	(0.14)											$	(0.10)
Net loss per share – diluted			$	(0.14)											$	(0.10)
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding			22,643												22,479
Dilutive effect of stock-based awards			—												—
Diluted weighted-average shares outstanding			22,643												22,479

For the three months ended September 28, 2024 and September 30,2023, potentially dilutive stock-based awards have been excluded from the calculation of diluted weighted-average shares outstanding, as their inclusion would have had an anti-dilutive effect on our net loss per diluted share.

 

			Nine Months Ended
			September 28, 2024						% of Net Sales						September 30, 2023						% of Net Sales
Net sales			$	1,305,479					100.0		%				$	1,457,964					100.0		%
Cost of sales			528,287						40.5		%				612,343						42.0		%
Gross profit			777,192						59.5		%				845,621						58.0		%
Operating expenses:
Sales and marketing			596,392						45.7		%				649,410						44.5		%
General and administrative			111,722						8.6		%				111,144						7.6		%
Research and development			34,602						2.7		%				42,521						2.9		%
Restructuring costs			14,382						1.1		%				—						0.0		%
Total operating expenses			757,098						58.0		%				803,075						55.1		%
Operating income			20,094						1.5		%				42,546						2.9		%
Interest expense, net			36,626						2.8		%				30,008						2.1		%
(Loss) income before income taxes			(16,532)						(1.3		%)				12,538						0.9		%
Income tax (benefit) expense			(863)						(0.1		%)				2,637						0.2		%
Net (loss) income			$	(15,669)					(1.2		%)				$	9,901					0.7		%
Net (loss) income per share – basic			$	(0.69)											$	0.44
Net (loss) income per share – diluted			$	(0.69)											$	0.44
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding			22,588												22,412
Dilutive effect of stock-based awards			—												146
Diluted weighted-average shares outstanding			22,588												22,558

For the nine months ended September 28, 2024, potentially dilutive stock-based awards have been excluded from the calculation of diluted weighted-average shares outstanding, as their inclusion would have had an anti-dilutive effect on our net loss per diluted share.

  

			September 28, 2024						December 30, 2023
Assets
Current assets:
Cash and cash equivalents			$	1,592					$	2,539
Accounts receivable, net of allowances of $1,134 and $1,437, respectively			17,026						26,859
Inventories			93,039						115,433
Prepaid expenses			17,827						16,660
Other current assets			40,784						44,637
Total current assets			170,268						206,128
Non-current assets:
Property and equipment, net			140,406						179,503
Operating lease right-of-use assets			367,133						395,411
Goodwill and intangible assets, net			66,468						66,634
Deferred income taxes			27,267						20,253
Other non-current assets			93,109						82,951
Total assets			$	864,651					$	950,880
Liabilities and Shareholders’ Deficit
Current liabilities:
Borrowings under revolving credit facility			$	516,500					$	539,500
Accounts payable			127,990						135,901
Customer prepayments			43,514						49,143
Accrued sales returns			19,688						22,402
Compensation and benefits			28,909						28,273
Taxes and withholding			17,685						17,134
Operating lease liabilities			82,488						81,760
Other current liabilities			57,268						61,958
Total current liabilities			894,042						936,071
Non-current liabilities:
Operating lease liabilities			318,665						351,394
Other non-current liabilities			100,728						105,343
Total non-current liabilities			419,393						456,737
Total liabilities			1,313,435						1,392,808
Shareholders’ deficit:
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding			—						—
Common stock, $0.01 par value; 142,500 shares authorized, 22,371 and 22,235 shares issued and outstanding, respectively			224						222
Additional paid-in capital			25,527						16,716
Accumulated deficit			(474,535)						(458,866)
Total shareholders’ deficit			(448,784)						(441,928)
Total liabilities and shareholders’ deficit			$	864,651					$	950,880

 

			Nine Months Ended
			September 28, 2024						September 30, 2023
Cash flows from operating activities:
Net (loss) income			$	(15,669)					$	9,901
Adjustments to reconcile net (loss) income to net cash provided by    operating activities:
Depreciation and amortization			50,379						55,196
Stock-based compensation			9,541						10,872
Net loss on disposals and impairments of assets			2,457						464
Deferred income taxes			(7,014)						(13,433)
Changes in operating assets and liabilities:
Accounts receivable			9,833						7,374
Inventories			22,394						(2,190)
Income taxes			1,708						3,571
Prepaid expenses and other assets			(8,012)						(5,903)
Accounts payable			4,980						5,199
Customer prepayments			(5,629)						(27,279)
Accrued compensation and benefits			788						(6,923)
Other taxes and withholding			(1,157)						5
Other accruals and liabilities			(13,775)						(5,038)
Net cash provided by operating activities			50,824						31,816
Cash flows from investing activities:
Purchases of property and equipment			(17,218)						(48,022)
Proceeds from sales of property and equipment			156						10
Issuance of notes receivable			(2,942)						(1,317)
Net cash used in investing activities			(20,004)						(49,329)
Cash flows from financing activities:
Net (decrease) increase in short-term borrowings			(31,039)						20,334
Repurchases of common stock			(728)						(3,711)
Proceeds from issuance of common stock			—						428
Net cash (used in) provided by financing activities			(31,767)						16,627
Net decrease in cash and cash equivalents			(947)						(886)
Cash and cash equivalents, at beginning of period			2,539						1,792
Cash and cash equivalents, at end of period			$	1,592					$	906

 

			Three Months Ended												Nine Months Ended
			September 28, 2024						September 30, 2023						September 28, 2024						September 30, 2023
Percent of sales:
Retail stores			87.8		%				86.6		%				87.9		%				87.1		%
Online, phone, chat and other			12.2		%				13.4		%				12.1		%				12.9		%
Total Company			100.0		%				100.0		%				100.0		%				100.0		%
Sales change rates:
Retail comparable-store sales			(7		%)				(14		%)				(9		%)				(11		%)
Online, phone and chat			(18		%)				(14		%)				(17		%)				(13		%)
Total Retail comparable sales change			(9		%)				(14		%)				(10		%)				(11		%)
Net opened/closed stores and other			(1		%)				1		%				0		%				1		%
Total Company			(10		%)				(13		%)				(10		%)				(10		%)
Stores open:
Beginning of period			646						672						672						670
Opened			1						8						11						27
Closed			(4)						(2)						(40)						(19)
End of period			643						678						643						678
Other metrics:
Average sales per store ($ in 000's) 1			$	2,670					$	2,952
Average sales per square foot 1			$	863					$	963
Stores > $2 million net sales 2			60		%				67		%
Stores > $3 million net sales 2			20		%				27		%
Average revenue per smart bed unit 3			$	5,771					$	5,640					$	5,778					$	5,822

1 Trailing twelve months Total Retail comparable sales per store open at least one year.

2 Trailing twelve months for stores open at least one year (excludes online, phone and chat sales).

3 Represents Total Retail (stores, online, phone and chat) net sales divided by Total Retail smart bed units.

We define earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) as net income plus: income tax expense, interest expense, depreciation and amortization, stock-based compensation, restructuring costs and asset impairments. Management believes Adjusted EBITDA is a useful indicator of our financial performance and our ability to generate cash from operating activities. Our definition of Adjusted EBITDA may not be comparable to similarly titled definitions used by other companies. The table below reconciles Adjusted EBITDA, which is a non-GAAP financial measure, to the comparable GAAP financial measure:

			Three Months Ended												Trailing Twelve Months Ended
			September 28, 2024						September 30, 2023						September 28, 2024						September 30, 2023
Net (loss) income			$	(3,136)					$	(2,318)					$	(40,857)					$	4,471
Income tax (benefit) expense			(489)						(3,253)						(7,966)						1,346
Interest expense			12,057						10,958						49,313						37,641
Depreciation and amortization			15,859						18,200						67,335						72,338
Stock-based compensation			1,432						982						13,523						15,511
Restructuring costs 1			1,963						—						30,110						—
Asset impairments			—						292						198						491
Adjusted EBITDA			$	27,686					$	24,861					$	111,656					$	131,798

1 Represents costs related to business restructuring actions initiated in the fourth quarter of fiscal 2023.

 

Note - Our Adjusted EBITDA calculations and Free Cash Flow data are considered non-GAAP financial measures and are not in accordance with, or preferable to, "as reported," or GAAP financial data. However, we are providing this information as we believe it facilitates analysis of the Company's financial performance by investors and financial analysts.

Our calculation of Net Leverage Ratio under Revolving Credit Facility was changed effective with the amendment of our credit facility on November 2, 2023. Prior to the amendment, the calculation included capitalized operating lease obligations based on a multiple of six times annual rent expense. The amendment replaced this line item with operating lease liabilities included in our financial statements under ASC 842. The calculations in accordance with the November 2, 2023 amendment are presented below. The prior year is presented in conformity with the November 2, 2023 amendment.

 

1Reflects operating lease liabilities included in our financial statements under ASC 842. The prior period has been updated to reflect this calculation.

Note - Our Net Leverage Ratio under Revolving Credit Facility, Adjusted EBITDA and EBITDAR calculations are considered non-GAAP financial measures and are not in accordance with, or preferable to, "as reported," or GAAP financial data. However, we are providing this information as we believe it facilitates analysis of the Company's financial performance by investors and financial analysts.

 

Adjusted ROIC is a financial measure we use to determine how efficiently we deploy our capital. It quantifies the return we earn on our adjusted invested capital. Management believes Adjusted ROIC is also a useful metric for investors and financial analysts. We compute Adjusted ROIC as outlined below. Our definition and calculation of Adjusted ROIC may not be comparable to similarly titled definitions and calculations used by other companies. The tables below reconcile adjusted net operating profit after taxes (Adjusted NOPAT) and total adjusted invested capital, which are non-GAAP financial measures, to the comparable GAAP financial measures:

1 Represents costs related to business restructuring actions initiated in the fourth quarter of fiscal 2023.

2 The income tax expense is calculated using the estimated U.S. federal and state statutory tax rate of 23.7%.

Note - Our "as adjusted" data is considered a non-GAAP financial measure and is not in accordance with, or preferable to, "as reported," or GAAP financial data. However, we are providing this information as we believe it facilitates year-over-year comparisons for investors and financial analysts.