UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended June 28, 2025

OR

Commission File Number: 000-25121

_______________________________________________________________________

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (763) 551-7000

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities

Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),

and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted

pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the

registrant was required to submit such files). Yes  ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller

reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller

reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for

complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐ No ☒

As of June 28, 2025, 22,771,000 shares of the registrant’s Common Stock were outstanding.

 

INDEX

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets

Condensed Consolidated Statements of Operations

Condensed Consolidated Statements of Shareholders’ Deficit

Condensed Consolidated Statements of Cash Flows

 1. Business and Summary of Significant Accounting Policies

Business & Basis of Presentation

The Company prepared the condensed consolidated financial statements as of and for the three and six months ended

June 28, 2025 of Sleep Number Corporation and its 100%-owned subsidiaries (Sleep Number or the Company), without

audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and they reflect, in the

opinion of management, all normal recurring adjustments, including the elimination of all significant intra-entity balances

and transactions, necessary to present fairly its financial position as of June 28, 2025 and December 28, 2024, and the

consolidated results of operations and cash flows for the periods presented. The historical and quarterly consolidated

results of operations may not be indicative of the results that may be achieved for the full year or any future period.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S.

Generally Accepted Accounting Principles (GAAP) have been condensed or omitted pursuant to such rules and

regulations. These condensed consolidated financial statements should be read in conjunction with the most recent

audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for

the fiscal year ended December 28, 2024 and other recent filings with the SEC.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to

make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities,

disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the

reported amounts of sales, expenses and income taxes during the reporting period. Predicting future events is inherently

an imprecise activity and, as such, requires the use of judgment. As future events and their effects cannot be determined

with precision, actual results could differ significantly from these estimates. Changes in these estimates will be reflected

in the consolidated financial statements in future periods and could be material.

The Company’s critical accounting policies consist of stock-based compensation, warranty liabilities and revenue

recognition.

Accounting Pronouncements Issued But Not Yet Effective

In December 2023, the FASB issued ASU 2023-09, "Income Taxes (Topic 740): Improvements in Income Tax Disclosures"

to enhance the transparency and decision usefulness of income tax disclosures. This amendment requires public

companies to disclose specific categories in the rate reconciliation and provide additional information for reconciling

items that meet a quantitative threshold. Additionally, under the amendment, entities are required to disclose the

amount of income taxes paid disaggregated by federal, state and foreign taxes, as well as disaggregated by material

individual jurisdictions. Finally, the amendment requires entities to disclose income from continuing operations before

income tax expense disaggregated between domestic and foreign and income tax expense from continuing operations

disaggregated by federal, state and foreign. The new rules are effective for annual periods beginning after December

15, 2024. The adoption of this standard is not expected to have a material impact on the Company’s consolidated

In November 2024, the FASB issued ASU 2024-03, "Income Statement - Reporting Comprehensive Income - Expense

Disaggregation Disclosures (Subtopic 220-40)", which requires public business entities to disclose in the notes to the

financial statements more detailed information about the types of expenses included in certain expense captions in the

consolidated financial statements, including purchases of inventory, employee compensation, and depreciation and

amortization. The amendments are effective for the Company beginning with the 2027 annual period and in interim

periods beginning in 2028. Early adoption is permitted. The ASU may be adopted prospectively or retrospectively. The

Company is currently evaluating the impact of ASU 2024-03 on its consolidated financial statements and related

disclosures.

Currently, management does not believe that any other recently issued, but not yet effective accounting

pronouncements, if adopted in their current form, would have a material impact on the Company’s consolidated financial

statements.

Other Investments

The Company made a payment of $3.3 million during the three months ended June 28, 2025 to secure contractual rights

from a strategic product-development partner. This payment is included in prepaid expenses in the Company’s

condensed consolidated balance sheet and as an investing activity in the Company’s condensed consolidated statement

of cash flows.

 2. Fair Value Measurements

At both June 28, 2025 and December 28, 2024, the Company had $19 million of debt and equity securities that fund the

deferred compensation plan and are classified in other non-current assets. The Company also had corresponding

deferred compensation plan liabilities of $19 million at both June 28, 2025 and December 28, 2024 which are included

in other non-current liabilities. The majority of the debt and equity securities are Level 1 as they trade with sufficient

frequency and volume to enable the Company to obtain pricing information on an ongoing basis. Unrealized gains/

(losses) on the debt and equity securities offset those associated with the corresponding deferred compensation plan

liabilities.

 3. Inventories

Inventories consisted of the following (in thousands):

 4. Goodwill and Intangible Assets, Net

Goodwill and Indefinite-lived Intangible Assets

Goodwill was $64.0 million at June 28, 2025 and December 28, 2024. Indefinite-lived trade name/trademarks totaled

$1.4 million at both June 28, 2025 and December 28, 2024.

Definite-lived Intangible Assets

Patents were $2.0 million at both June 28, 2025 and December 28, 2024. Accumulated amortization was $1.1 million at

June 28, 2025 and $1.0 million at December 28, 2024. Amortization expense was $55 thousand for both the three

months ended June 28, 2025 and June 29, 2024, and $0.1 million for both the six months ended June 28, 2025 and

June 29, 2024.

Annual amortization for patents for subsequent years is as follows (in thousands):

 5. Credit Agreement

As of June 28, 2025, the Company’s credit facility had a total commitment amount of $673 million. The credit facility, as

amended, is for general corporate purposes and to meet seasonal working capital requirements. The Amended and

Restated Credit and Security Agreement, dated February 14, 2018, among the Company, U.S. Bank National Association

and the several banks and other financial institutions from time to time party thereto (as amended, the Credit

Agreement), includes an accordion feature which allows the Company to increase the amount of the credit facility from

$673 million to $1.0 billion, subject to lenders’ approval. The Credit Agreement provides the lenders with a collateral

security interest in substantially all of the Company’s assets and those of its subsidiaries and requires the Company to

comply with, among other things, a maximum net leverage ratio and a minimum interest coverage ratio.

The Company amended the Credit Agreement on March 3, 2025. The amendment, among other things: (a) adds a

definition for "Liquidity" which means, on any date of determination, the sum of (x) Borrower's and its Subsidiaries'

unrestricted cash that is free and clear of Liens (other than those in favor of the Administrative Agent) plus (y) the

aggregate amount of unused Revolving Credit Commitments available for Credit Events on such date (including the

Borrower's ability to satisfy the requirements of Section 4.1 on such date) (as each is defined in the Credit Agreement);

(b) adds a Liquidity financial covenant wherein the Borrower shall cause the Liquidity to be equal or exceed $40 million

as of the last day of each fiscal month; (c) deems our Net Leverage Ratio as greater than or equal to 4.50 to 1.00 as of

the effective date to set pricing for the Applicable Commitment Fee Rate and Applicable Margin until receipt of the

compliance certificate for the quarterly reporting period ending September 27, 2025, (d) adjusts the permissible

maximum Net Leverage Ratio (as defined in the Credit Agreement) to (I) 4.75 to 1.00 for the quarterly reporting period

ending June 28, 2025, (II) 4.50 to 1.00 for the quarterly reporting period ending September 27, 2025, (III) 4.35 to 1.00 for

the quarterly reporting period ending January 3, 2026, and (IV) 4.00 to 1.00 for each quarterly reporting period occurring

thereafter, and (e) adjusts the permissible minimum Interest Coverage Ratio (as defined in the Credit Agreement) to (I)

1.90 to 1.00 for the quarterly reporting periods ending June 28, 2025 and September 27, 2025, (II) 2.10 to 1.00 for the

quarterly reporting period ending January 3, 2026, and (III) 3.00 to 1.00 for each quarterly reporting period occurring

thereafter. A fee for the amendment was paid to the approving lenders in an amount equal to 20 basis points multiplied

by the sum of such lender's Revolving Credit Commitment and outstanding Term Loans (as each is defined in the Credit

Agreement).

The carrying amount of the outstanding borrowings under the Credit Agreement approximates fair value because

interest rates approximate the current rates available to the Company. Under the terms of the Credit Agreement, the

Company pays a variable rate of interest and a commitment fee based on its leverage ratio. The Credit Agreement

matures in December 2026. The Company was in compliance with all financial covenants as of June 28, 2025.

The following table summarizes the Company’s borrowings under the credit facility ($ in thousands):

Subsequent to June 28, 2025, the Company’s outstanding letters of credit increased to $9 million.

 6. Leases

The Company leases its retail, office and manufacturing space under operating leases which, in addition to the minimum

lease payments, may require payment of a proportionate share of the real estate taxes and certain building operating

expenses. While the Company’s local market development approach generally results in long-term participation in given

markets, the retail store leases generally provide for an initial lease term of five to ten years. The Company’s office and

manufacturing leases provide for an initial lease term of up to fifteen years. In addition, the Company’s mall-based retail

store leases may require payment of variable rent based on net sales in excess of certain thresholds. Certain leases may

contain options to extend the term of the original lease. The exercise of lease renewal options is at the Company’s sole

discretion. Lease options are included in the lease term only if exercise is reasonably certain at lease commencement.

The Company’s lease agreements do not contain any material residual value guarantees. The Company also leases

vehicles and certain equipment under operating leases with an initial lease term of three to six years.

The Company’s operating lease costs include facility, vehicle and equipment lease costs, but exclude variable lease

costs. Operating lease costs are recognized on a straight-line basis over the lease term, after consideration of rent

escalations and rent holidays. The lease term for purposes of the calculation begins on the earlier of the lease

commencement date or the date the Company takes possession of the property. During lease renewal negotiations that

extend beyond the original lease term, the Company estimates straight-line rent expense based on current market

conditions. Variable lease costs are recorded when it is probable the cost has been incurred and the amount can be

reasonably estimated. Future payments for real estate taxes and certain building operating expenses for which the

Company is obligated are not included in operating lease costs.

At June 28, 2025, the Company’s finance right-of-use assets and lease liabilities were not significant.

Lease costs were as follows (in thousands):

___________________________

(1)Includes short-term lease costs which are not significant.

(2)Variable lease costs include adjustments to percentage rent.

The maturities of operating lease liabilities for subsequent years are as follows(1) (in thousands):

___________________________

(1)Total operating lease payments exclude $8 million of legally binding minimum lease payments for leases signed but not yet commenced.

(2)Includes the current portion of $82 million for operating lease liabilities.

Other information related to operating leases was as follows:

 7. Repurchases of Common Stock

For the three months ended June 28, 2025 and June 29, 2024, we repurchased $0.4 million and $42 thousand,

respectively, of common stock in connection with the vesting of restricted stock grants. For the six months ended

June 28, 2025 and June 29, 2024, we repurchased $0.9 million and $0.6 million, respectively, of common stock in

connection with the vesting of restricted stock grants. We made no purchases under the Board-approved stock purchase

plan in either period. As of June 28, 2025, the remaining authorization under the Board-approved $600 million share

repurchase program was $348 million.

 8. Revenue Recognition

Deferred contract assets and deferred contract liabilities are included in the condensed consolidated balance sheets as

follows (in thousands):

Deferred revenue and costs related to SleepIQ® technology are currently recognized on a straight-line basis over the

product's estimated life of 4.5 to 5.0 years because the Company’s inputs are generally expended evenly throughout the

performance period. During the three months ended June 28, 2025 and June 29, 2024, the Company recognized

revenue of $7 million and $10 million, respectively, that was included in the deferred contract liability balances at the

beginning of the respective periods. During the six months ended June 28, 2025 and June 29, 2024, the Company

recognized revenue of $17 million and $19 million, respectively, that was included in the deferred contract liability

balances at the beginning of the respective periods.

Revenue from goods and services transferred to customers at a point in time accounted for approximately 98% of

revenues for both the three and six months ended June 28, 2025 and June 29, 2024.

Net sales were as follows (in thousands):

Obligation for Sales Returns

The activity in the sales returns liability account was as follows (in thousands):

 9. Stock-Based Compensation Expense

Total stock-based compensation expense was as follows (in thousands):

___________________________

(1) Changes in stock-based compensation expense include the cumulative impact of the change in the expected achievements of certain performance

targets.

 10. Profit Sharing and 401(k) Plan

Under the Company’s profit sharing and 401(k) plan, eligible employees may defer up to 50% of their compensation on a

pre-tax basis, subject to Internal Revenue Service limitations. Each pay period, the Company makes a contribution equal

to a percentage of the employee’s contribution. During the three months ended June 28, 2025 and June 29, 2024, the

Company’s contributions, net of forfeitures, were $1.7 million and $1.2 million, respectively and during the six months

ended June 28, 2025 and June 29, 2024, were $3.5 million and $3.2 million, respectively.

 11. Net Loss per Common Share

The components of basic and diluted net loss per share were as follows (in thousands, except per share amounts):

For the three and six month periods ended June 28, 2025 and June 29, 2024, otherwise 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. Additional potential dilutive stock-based awards totaling

1.6 million and 1.3 million for the three months ended June 28, 2025 and June 29, 2024, respectively, and 1.8 million

and 1.3 million for the six months ended June 28, 2025 and June 29, 2024, respectively, have been excluded from the

diluted net loss per share calculations because these stock-based awards were anti-dilutive.

 12. Restructuring Costs

In the fourth quarter of 2023, the Company initiated cost reduction actions to reduce operating expenses and accelerate

gross margin initiatives, and recognized $33.8 million of restructuring costs through December 28, 2024. The Company

has incurred an additional $8.4 million and of restructuring costs during the six months ended June 28, 2025. Charges

incurred related to this initiative were comprised of contract termination costs, severance and employee-related benefits,

professional fees and other, and asset impairment charges and are included in the restructuring costs line in the

Company’s condensed consolidated statement of operations. The Company expects approximately $8 million of

additional restructuring costs to be incurred through the remainder of 2025, primarily due to severance and employee-

related benefits, contract termination costs, and asset impairment charges.

The following table provides a summary of the Company’s restructuring costs during the three and six months ended

June 28, 2025 and June 29, 2024 (in thousands):

____________________

(1) Primarily comprised of lease termination costs and includes changes in estimate.

(2) Primarily comprised of impairments of property and equipment.

The following table provides the activity in the Company’s restructuring related liabilities, which are included within

accounts payable, compensation and benefits and other current liabilities on the condensed consolidated balance sheet

(in thousands):

Since the initiation of cost reduction actions in the fourth quarter of 2023, the Company has recognized a cumulative

$42.2 million of restructuring costs, as follows (in thousands):

____________________

(1)Primarily comprised of lease termination costs.

(2) Includes impairments of both lease right-of-use assets and property and equipment.

13. Income Taxes

$1.1 million for the same period one year ago. Income tax expense totaled $12.6 million for six months ended June 28,

2025, compared with income tax benefit of $0.4 million for the same period one year ago.

14. Segments

The Company’s chief operating decision maker (CODM), who is the Chief Executive Officer, assesses company-wide

performance and allocates resources based on consolidated financial information. Consequently, the Company views the

entire organization as one reportable segment and the strategic purpose of all operating activities is to support that one

segment.

The CODM manages the Company’s business activities as a single operating and reportable segment at the

consolidated level. The CODM uses consolidated earnings and losses, as reported on the Company’s condensed

consolidated statement of operations, in evaluating performance of the Company in determining how to allocate

resources of the Company as a whole, including investing in the Company’s product development, sales and marketing

campaigns, and employee compensation. The measure of segment assets that is reviewed by the CODM is reported

within the condensed consolidated balance sheet as consolidated total assets. The CODM also uses consolidated

earnings or losses before interest, taxes, depreciation and amortization (Adjusted EBITDA) as the basis to evaluate the

performance of the Company.

The following is a summary of the significant expense categories and consolidated net loss details provided to the

CODM (in thousands):

15. Commitments and Contingencies

Warranty Liabilities

The activity in the accrued warranty liabilities account was as follows (in thousands):

Legal Proceedings

The Company is involved from time to time in various legal proceedings arising in the ordinary course of its business,

including primarily commercial, product liability, employment and intellectual property claims. In accordance with U.S.

GAAP, the Company records a liability in its consolidated financial statements with respect to any of these matters when

it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. If a

material loss is reasonably possible but not known or probable, and may be reasonably estimated, the estimated loss or

range of loss is disclosed. With respect to currently pending legal proceedings, the Company has not established an

estimated range of reasonably possible material losses either because it believes that it has valid defenses to claims

asserted against it, the proceeding has not advanced to a stage of discovery that would enable it to establish an

estimate, or the potential loss is not material. The Company currently does not expect the outcome of pending legal

proceedings to have a material effect on its consolidated results of operations, financial position or cash flows. Litigation,

however, is inherently unpredictable, and it is possible that the ultimate outcome of one or more claims asserted against

the Company could adversely impact its consolidated results of operations, financial position or cash flows. The

Company expenses legal costs as incurred.

On January 14, 2025, purported customers served a putative class action complaint on behalf of themselves and a

putative class of California consumers against Sleep Number in the United States District Court for the Central District of

California alleging that Sleep Number’s beds are perpetually on sale in violation of California law. The Plaintiff seeks

injunctive relief, damages and attorney’s fees. Sleep Number brought a motion to dismiss for failure to state a claim and

a motion to transfer or, alternatively, dismiss based on the first-to-file doctrine (citing the purported class action

complaint filed on September 27, 2024 as described below). On April 8, 2025, the Court granted Sleep Number’s

motion to transfer or, alternatively, dismiss and dismissed the matter in its entirety based on the first-to-file doctrine. The

plaintiffs did not appeal the dismissal.

On September 27, 2024, a purported customer served a putative class action complaint on behalf of themself and a

putative class of California consumers against Sleep Number in the United States District Court for the Eastern District of

California alleging that Sleep Number’s beds are perpetually on sale in violation of California law. The plaintiff seeks

injunctive relief, damages and attorney’s fees.

16. Subsequent Event

business interest expense limitation. ASC 740, “Income Taxes”, requires the effects of changes in tax rates and laws on

deferred tax balances to be recognized in the period in which the legislation is enacted. Consequently, as of the date of

enactment, and during the third quarter of 2025, the Company will evaluate all deferred tax balances under the newly

enacted tax law and identify any other changes required to its financial statements as a result of the OBBBA. The

Company is currently evaluating the impact of the OBBBA on its consolidated financial statements and related

disclosures.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide

a reader of the Company’s condensed consolidated financial statements with a narrative from the perspective of

management on its financial condition, results of operations, liquidity and certain other factors that may affect the

Company’s future results. MD&A is presented in seven sections:

•Forward-Looking Statements and Risk Factors

•Business Overview

•Results of Operations

•Liquidity and Capital Resources

•Non-GAAP Data Reconciliations

•Critical Accounting Policies

Forward-looking Statements and Risk Factors

The discussion in this Quarterly Report on Form 10-Q contains certain forward-looking statements that relate to

future plans, events, financial results or performance. You can identify forward-looking statements by those that

are not historical in nature, particularly those that use terminology such as “may,” “will,” “should,” “could,”

“expect,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “predict,” “intend,” “potential,” “continue” or

the negative of these or similar terms. These statements are subject to certain risks and uncertainties that could

cause actual results to differ materially from the Company’s historical experience and its present expectations or

projections. These risks and uncertainties include, among others:

•Changes in economic conditions and consumer sentiment and related impacts on discretionary consumer spending;

•Interest rates remain elevated, and may further increase and impact the cost of servicing the Company’s

indebtedness;

•Access to alternative financing options may depend on factors beyond the Company’s control or require the

Company to accept unfavorable terms;

•Availability of attractive and cost-effective consumer credit options;

•Ability to achieve cost savings, efficiencies and other benefits from its business restructuring actions and to avoid

adverse effects;

•Effectiveness and efficiency of the Company’s marketing strategy and promotions;

•Ability to execute Sleep Number’s Total Retail distribution strategy;

•Ability to compete effectively;

•Ability to achieve and maintain high levels of product and service quality;

•Ability to improve and expand the product line and execute new product introductions;

•Ability to protect the Company’s technology, trademarks and brand, and the adequacy of its intellectual property

rights;

•Dependence on, and ability to maintain working relationships with key suppliers and third parties, including some

that are the only source of supply or services currently used by the Company;

•Fluctuations in commodity costs or third-party delivery or logistics costs and other inflationary pressures;

•Risks inherent in global-sourcing activities, including tariffs, foreign regulation, geo-political turmoil, war, pandemics,

labor challenges, foreign currency fluctuations, inflation, climate or other disasters and resulting supply shortages,

and production and delivery delays and disruptions;

Operating with minimal levels of inventory, which may leave the Company vulnerable to supply shortages;

•Risks of disruption in the operation of any of the Company’s facilities and operations, including manufacturing,

assembly, distribution, logistics, field services, home delivery, headquarters, product development, retail or customer

service operations;

•Ability to effectively complete potential future acquisitions and business combinations;

•Sleep Number’s ability, and the ability of its suppliers and vendors, to attract, retain and motivate qualified and

effective personnel;

•Ability to comply with existing and changing government regulations and laws, and to commercialize new products

and innovations that meet those existing and changing government regulations and laws;

•Ability to identify and withstand cyber threats that could compromise the security of the Company’s systems or those

of third parties upon which it relies and could result in a data breach or business disruption;

•Risks associated with advancements in or adoption of artificial intelligence technologies;

•Adequacy of the Company’s and third-party information systems, and costs and disruptions related to upgrading or

maintaining these systems;

•Volatility of Sleep Number stock, its removal from various stock indices and the potential negative effects of

shareholder activism or of changes in coverage by securities analysts;

•Unfavorable tax treatment;

•Environmental, social and governance risks, including increasing scrutiny and evolving regulatory and stakeholder

expectations; and

•Ability to adapt to climate change and readiness for legal or regulatory responses thereto.

Additional information concerning these, and other risks and uncertainties is contained under the caption “Risk

Factors” in Part I, Item 1A. in the Company’s Annual Report on Form 10-K and in Part II. Item 1A. in subsequent

Quarterly Reports on Form 10-Q.

The Company has no obligation to publicly update or revise any of the forward-looking statements contained in this

Quarterly Report on Form 10-Q.

Business Overview

Sleep Number is a wellness company and market leader in the design, manufacturing, marketing and distribution of

highly innovative sleep solutions. The Company’s purpose is to improve the health and wellbeing of society through

higher quality sleep; to date, it has improved the lives of nearly 16 million people. Sleep Number’s Smart Sleepers

benefit from individualized sleep experiences, night after night, and are experiencing the physical, mental and emotional

benefits of life-changing sleep.

Sleep Number’s life-changing, differentiated smart beds combine physical and digital innovations, integrating

unparalleled physical comfort with a highly advanced sleep wellness platform. The smart beds offer the Company’s

signature firmness adjustability, enabling each sleeper adjustable comfort. Embedded digital sensors learn the sleep

needs of each individual; “sense and do” technology uses the sensed data to automatically adjust the smart bed to keep

the sleeper comfortable throughout the night. Active temperature balancing technology supports the ideal climate for

each sleeper and solves a prevalent sleep challenge. Additionally, the smart beds are an exceptional value, with

personalized sleep insights delivered daily, new features regularly added to all smart beds through over-the-air updates

and prices to meet most budgets. Sleep Number® smart beds provide unmatched features, benefits and comfort that

can lead to improved sleep health and wellness for both sleepers.

The Company’s advantaged business model is supported by its consumer innovation strategy: an individualized, digital

sleep wellness platform, a network of millions of highly engaged Smart Sleepers who are loyal brand advocates, a

vertically integrated operating model and a culture of individuality, with an ambitious vision to become one of the

world’s most beloved brands.

The Company’s 3,400 mission-driven team members are dedicated to the Company’s mission of improving lives by

individualizing sleep experiences. They passionately innovate to drive value creation, including our exclusive direct-to-

consumer selling in 630 stores and online, which meets customers whenever and wherever they choose to provide an

exceptional experience and a lifelong relationship. Additionally, the Company partners with world-leading institutions to

bring the power of 34 billion hours of longitudinal sleep data to sleep science and research.

The bedding industry has been in a sector level recession for three years with mattress industry unit volumes returning to

an estimated 24 million units in 2024, the lowest level since 2015. Consumer sentiment remains well below historical

averages, and high interest rates are putting ongoing pressure on the housing market. Consumers continue to scrutinize

spending, with inflation and other factors weighing on their purchasing power. Since initiating the Company’s operating

model transformation in the fourth quarter of 2023, the Company has executed structural changes to reduce fixed

expenses, while prioritizing improving margins and generating cash to create greater financial resilience across market

cycles.

business interest expense limitation. The Company is currently evaluating the impact of the OBBBA on its consolidated

Results of Operations

Quarterly and Year-to-Date Results

Quarterly and year-to-date operating results may fluctuate significantly as a result of a variety of factors, including

increases or decreases in sales, timing, amount and effectiveness of advertising expenditures, changes in sales return

rates or warranty experience, timing of investments in growth initiatives and infrastructure, timing of store openings/

closings and related expenses, changes in net sales resulting from changes in the Company’s store base, timing of new

product introductions and related expenses, timing of promotional offerings, competitive factors, changes in commodity

costs, disruptions in global supplies or third-party service providers, seasonality of retail and bedding industry sales,

consumer sentiment and general economic conditions. The extent to which these external factors will impact the

Company’s business and its consolidated financial results will depend on future developments, which are highly

uncertain and cannot be predicted. Therefore, the historical results of operations may not be indicative of the results that

may be achieved for any future period.

Highlights

Financial highlights for the three months ended June 28, 2025 were as follows:

•Net sales for the three months ended June 28, 2025 of $328 million decreased 20% from $408 million for the same

period one year ago driven by lower volume and reduced store count.

•The net sales change resulted from a 19% Total Retail comparable sales decrease. For additional details, see the

components of total net sales change on page 20.

•Average sales per store (sales for stores open at least one year, Total Retail, including online, phone and chat) on a

trailing twelve-month basis for the period ended June 28, 2025 totaled $2.4 million, compared with $2.7 million for

the same period one year ago.

•Operating loss for the three months ended June 28, 2025 was $0.1 million, compared with operating income of

$6.1 million for the same period one year ago. The $6 million decrease in operating income was driven by the lower

net sales and an increase in restructuring expenses of $7 million; partially offset by a $42 million reduction in

operating expenses.

•Adjusted EBITDA for the three months ended June 28, 2025 was $24 million, compared to $28 million for the same

period one year ago. The decrease was primarily due a higher level of net loss.

•Gross profit rate of 59.1% for both the three months ended June 28, 2025 and June 29, 2024. See the gross profit

discussion on page 21 for additional details.

•The $42 million year-over-year reduction in the Company’s operating expenses was due to lower sales and

marketing expenses, general and administrative expenses, and research and development expenses, partially offset

by higher restructuring costs.

•Net loss for the three months ended June 28, 2025 was $25 million, compared with $5 million for the same period

one year ago. Net loss per diluted share was $1.09, compared with $0.22 for the same period one year ago.

•The Company’s adjusted return on invested capital (Adjusted ROIC) was 8.4% on a trailing twelve-month basis for

the period ended June 28, 2025, compared with 3.7% for the comparable period one year ago.

•The Company provided $1 million in cash from operating activities for the six months ended June 28, 2025,

compared with $24 million for the same period one year ago.

•Free cash flow used $7 million for the six months ended June 28, 2025, compared with providing $9 million for the

same period one year ago.

•As of June 28, 2025, the Company had $564 million of borrowings under its revolving credit facility.

The following table sets forth the Company’s results of operations expressed as dollars and percentages of net sales.

Figures are in millions, except percentages and per share amounts. Amounts may not add due to rounding differences.

The percentage of total net sales, by dollar volume, was as follows:

The components of total net sales change, including comparable net sales changes, were as follows:

___________________________

(1)Stores are included in the comparable-store calculations in the 13th full month of operations. Stores that have been remodeled or repositioned

within the same shopping center remain in the comparable-store base.

Other sales metrics were as follows: