- Net sales of $470 million; adjusted EBITDA of $37 million
slightly ahead of expectations
- Reduced operating expenses by $24 million year-over-year
(before restructuring costs) and remain on track to deliver $40
million to $45 million of operating expense reductions for the
year
- Free cash flow increased $21 million compared with the prior
year’s first quarter
- Reiterate full-year 2024 adjusted EBITDA outlook of $125
million to $145 million
Sleep Number Corporation (Nasdaq: SNBR) today reported results
for the quarter ended March 30, 2024.
“Our actions to increase operating model efficiencies drove
first quarter adjusted EBITDA and gross margin rate ahead of our
expectations. We also generated a significant year-over-year
increase in free cash flow, as planned, and continue to prioritize
paying down debt and reducing leverage,” said Shelly Ibach, Chair,
President and CEO. “As we build a more durable operating model and
as demand for our category improves from recessionary levels, we
expect to capitalize on our significant opportunity as a sleep
wellness technology company.”
First Quarter Overview
- Net sales of $470 million declined 11% versus the prior
year, including approximately four percentage points of pressure
from year-over-year order backlog changes
- Gross margin of 58.7% compared with 58.9% last year; the
first quarter gross margin rate represented a significant
sequential improvement from the back-half of the prior year
- Operating expenses were reduced by $24 million to $260
million (before restructuring charges) compared with $284 million
last year
- Adjusted EBITDA of $37 million compared to $49 million
last year, as ongoing cost reduction actions partially offset the
year-over-year net sales decline
Cash Flows and Liquidity Review
- Net cash provided by operating activities of $34 million
in the first quarter, compared with $19 million for the same period
last year
- Free cash flow of $24 million in the first quarter,
compared with $3 million for the same period last year
- Leverage ratio of 4.2x EBITDAR at the end of the first
quarter versus covenant maximum of 5.0x
Financial Outlook
The company reiterates its outlook for 2024 adjusted EBITDA of
$125 million to $145 million. We continue to expect a mid-single
digit net sales decline for the year on a low-single digit demand
decline. The company expects approximately 100 basis points of
gross margin rate improvement and $14 million of restructuring
charges for the year. The company expects to generate $60 million
to $80 million of free cash flow with capital expenditures of $30
million.
Conference Call Information
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.
About Sleep Number Corporation
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 over
15 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 nearly 26 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 4,000 mission-driven team members
passionately innovate to drive value creation through our
vertically integrated business model, including our exclusive
direct-to-consumer selling in over 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
Forward-looking Statements
Statements used in this news release relating to future plans,
events, financial results or performance, such as the statement
that the company is building a more durable business model as the
bedding industry demand environment improves from recessionary
levels and the company’s financial outlook, including the company’s
expected adjusted EBITDA, in 2024 and future capital expenditures
and operating expenses, are forward-looking statements subject to
certain risks and uncertainties including, among others, changes in
economic conditions and consumer sentiment and related impacts on
discretionary consumer spending; increases in interest rates, which
have increased the cost of servicing our indebtedness; availability
of attractive and cost-effective consumer credit options; ability
to achieve savings and efficiencies from cost savings plans related
to operating model transformation and to avoid unexpected adverse
effects; dependence on, and ability to maintain working
relationships with key suppliers and third parties; 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, and climate or other disasters, and
resulting supply shortages and production and delivery delays and
disruptions; operating with minimal levels of inventory, which may
leave us vulnerable to supply shortages; the effectiveness of our
marketing strategy and promotional efforts; the execution of our
Total Retail distribution strategy; ability to achieve and maintain
high levels of product quality and to improve and expand the
product line; ability to protect our technology, trademarks, and
brand and the adequacy of our intellectual property rights; ability
to effectively compete; risks of disruption in the operation of our
facilities and operations, including manufacturing, assembly,
distribution, logistics, field services, home delivery,
headquarters, product development, retail or customer service
operations; ability to comply with existing and changing government
regulations and laws; pending or unforeseen litigation and the
potential for associated adverse publicity; the adequacy of the
company’s and third-party information systems and costs and
disruptions related to upgrading or maintaining these systems; our
ability to identify and withstand cyber threats that could
compromise the security of our systems, result in a data breach or
business disruption; risks associated with advancements in or
adoption of artificial intelligence technologies; our ability, and
the ability of our suppliers and vendors, to attract, retain and
motivate qualified and effective personnel; the volatility of Sleep
Number stock, our removal from various stock indices, and the
potential negative effects of shareholder activism or of changes in
coverage by securities analysts; environmental, social and
governance risks, including increasing regulation and stakeholder
expectations; and our 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 in the company’s filings with the Securities and Exchange
Commission, including the Annual Report on Form 10-K and other
periodic reports. We have no obligation to publicly update or
revise any of these forward-looking statements.
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of
Operations
(unaudited – in thousands,
except per share amounts)
Three Months Ended
March 30, 2024
% of
Net Sales
April 1, 2023
% of
Net Sales
Net sales
$
470,449
100.0
%
$
526,527
100.0
%
Cost of sales
194,275
41.3
%
216,262
41.1
%
Gross profit
276,174
58.7
%
310,265
58.9
%
Operating expenses:
Sales and marketing
208,512
44.3
%
230,488
43.8
%
General and administrative
39,079
8.3
%
39,401
7.5
%
Research and development
12,441
2.6
%
14,443
2.7
%
Restructuring costs
10,600
2.3
%
—
—
%
Total operating expenses
270,632
57.5
%
284,332
54.0
%
Operating income
5,542
1.2
%
25,933
4.9
%
Interest expense, net
12,299
2.6
%
9,102
1.7
%
(Loss) income before income taxes
(6,757
)
(1.4
%)
16,831
3.2
%
Income tax expense
725
0.2
%
5,366
1.0
%
Net (loss) income
$
(7,482
)
(1.6
%)
$
11,465
2.2
%
Net (loss) income per share – basic
$
(0.33
)
$
0.51
Net (loss) income per share – diluted
$
(0.33
)
$
0.51
Reconciliation of weighted-average
shares outstanding:
Basic weighted-average shares
outstanding
22,506
22,296
Dilutive effect of stock-based awards
—
287
Diluted weighted-average shares
outstanding
22,506
22,583
For the three months ended March 30, 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.
SLEEP NUMBER
CORPORATION
AND SUBSIDIARIES
Consolidated Balance
Sheets
(unaudited – in thousands,
except per share amounts)
subject to
reclassification
March 30, 2024
December 30,
2023
Assets
Current assets:
Cash and cash equivalents
$
2,068
$
2,539
Accounts receivable, net of allowances of
$1,090 and $1,437, respectively
21,833
26,859
Inventories
100,904
115,433
Prepaid expenses
20,655
16,660
Other current assets
35,589
44,637
Total current assets
181,049
206,128
Non-current assets:
Property and equipment, net
167,037
179,503
Operating lease right-of-use assets
387,942
395,411
Goodwill and intangible assets, net
66,579
66,634
Deferred income taxes
21,181
20,253
Other non-current assets
84,685
82,951
Total assets
$
908,473
$
950,880
Liabilities and Shareholders’
Deficit
Current liabilities:
Borrowings under revolving credit
facility
$
523,500
$
539,500
Accounts payable
125,304
135,901
Customer prepayments
50,262
49,143
Accrued sales returns
22,415
22,402
Compensation and benefits
28,296
28,273
Taxes and withholding
16,661
17,134
Operating lease liabilities
81,300
81,760
Other current liabilities
58,454
61,958
Total current liabilities
906,192
936,071
Non-current liabilities:
Operating lease liabilities
343,447
351,394
Other non-current liabilities
104,697
105,343
Total non-current liabilities
448,144
456,737
Total liabilities
1,354,336
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, 22,326 and 22,235 shares issued and outstanding,
respectively
223
222
Additional paid-in capital
20,262
16,716
Accumulated deficit
(466,348
)
(458,866
)
Total shareholders’ deficit
(445,863
)
(441,928
)
Total liabilities and shareholders’
deficit
$
908,473
$
950,880
SLEEP NUMBER
CORPORATION
AND SUBSIDIARIES
Consolidated Statements of
Cash Flows
(unaudited – in
thousands)
subject to
reclassification
Three Months Ended
March 30, 2024
April 1, 2023
Cash flows from operating activities:
Net (loss) income
$
(7,482
)
$
11,465
Adjustments to reconcile net income to net
cash provided by
operating activities:
Depreciation and amortization
17,487
18,218
Stock-based compensation
4,117
4,639
Net loss on disposals and impairments of
assets
2,500
12
Deferred income taxes
(928
)
(3,252
)
Changes in operating assets and
liabilities:
Accounts receivable
5,026
2,717
Inventories
14,529
(2,747
)
Income taxes
1,587
8,736
Prepaid expenses and other assets
5,473
(11,056
)
Accounts payable
(2,765
)
(574
)
Customer prepayments
1,119
(4,639
)
Accrued compensation and benefits
30
(593
)
Other taxes and withholding
(2,060
)
(711
)
Other accruals and liabilities
(4,888
)
(3,634
)
Net cash provided by operating
activities
33,745
18,581
Cash flows from investing activities:
Purchases of property and equipment
(9,308
)
(15,556
)
Issuance of notes receivable
(2,942
)
—
Net cash used in investing activities
(12,250
)
(15,556
)
Cash flows from financing activities:
Net decrease in short-term borrowings
(21,396
)
(384
)
Repurchases of common stock
(570
)
(3,363
)
Proceeds from issuance of common stock
—
389
Net cash used in financing activities
(21,966
)
(3,358
)
Net decrease in cash and cash
equivalents
(471
)
(333
)
Cash and cash equivalents, at beginning of
period
2,539
1,792
Cash and cash equivalents, at end of
period
$
2,068
$
1,459
SLEEP NUMBER
CORPORATION
AND SUBSIDIARIES
Supplemental Financial
Information
(unaudited)
Three Months Ended
March 30, 2024
April 1, 2023
Percent of sales:
Retail stores
88.2
%
87.1
%
Online, phone, chat and other
11.8
%
12.9
%
Total Company
100.0
%
100.0
%
Sales change rates:
Retail comparable-store sales
(10
%)
1
%
Online, phone and chat
(19
%)
(18
%)
Total Retail comparable sales change
(11
%)
(2
%)
Net opened/closed stores and other
0
%
2
%
Total Company
(11
%)
0
%
Stores open:
Beginning of period
672
670
Opened
6
12
Closed
(17
)
(11
)
End of period
661
671
Other metrics:
Average sales per store ($ in 000's) 1
$
2,786
$
3,239
Average sales per square foot 1
$
903
$
1,060
Stores > $2 million net sales 2
63
%
75
%
Stores > $3 million net sales 2
23
%
36
%
Average revenue per smart bed unit 3
$
5,765
$
5,848
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.
SLEEP NUMBER CORPORATION AND
SUBSIDIARIES
Earnings before Interest,
Taxes, Depreciation and Amortization (Adjusted EBITDA)
(in thousands)
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
March 30, 2024
April 1, 2023
March 30, 2024
April 1, 2023
Net (loss) income
$
(7,482
)
$
11,465
$
(34,234
)
$
46,001
Income tax expense (benefit)
725
5,366
(9,107
)
17,437
Interest expense
12,299
9,102
45,892
25,960
Depreciation and amortization
17,145
17,991
71,633
68,934
Stock-based compensation
4,117
4,639
14,333
13,729
Restructuring costs 1
10,600
—
26,328
—
Asset impairments
—
12
660
204
Adjusted EBITDA
$
37,404
$
48,575
$
115,505
$
172,265
1 Represents costs related to business
restructuring actions initiated in the fourth quarter of fiscal
2023.
Free Cash Flow
(in thousands)
Three Months Ended
Trailing Twelve Months
Ended
March 30, 2024
April 1, 2023
March 30, 2024
April 1, 2023
Net cash provided by operating
activities
$
33,745
$
18,581
$
6,136
$
30,161
Subtract: Purchases of property and
equipment
9,308
15,556
50,808
65,406
Free cash flow
$
24,437
$
3,025
$
(44,672
)
$
(35,245
)
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.
GAAP - generally accepted accounting principles in the U.S.
SLEEP NUMBER CORPORATION AND
SUBSIDIARIES
Calculation of Net Leverage
Ratio under Revolving Credit Facility
(in thousands)
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.
Trailing Twelve Months
Ended
March 30, 2024
April 1, 2023
Borrowings under revolving credit
facility
$
523,500
$
470,600
Outstanding letters of credit
7,147
7,147
Finance lease obligations
300
392
Consolidated funded indebtedness
$
530,947
$
478,139
Operating lease liabilities 1
424,746
436,939
Total debt including operating lease
liabilities (a)
$
955,693
$
915,078
Adjusted EBITDA (see above)
$
115,505
$
172,265
Consolidated rent expense
112,233
111,593
Consolidated EBITDAR (b)
$
227,738
$
283,858
Net Leverage Ratio under revolving credit
facility (a divided by b)
4.2 to 1.0
3.2 to 1.0
1
Reflects 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.
GAAP - generally accepted accounting
principles in the U.S.
SLEEP NUMBER CORPORATION AND
SUBSIDIARIES
Calculation of Return on
Invested Capital (Adjusted ROIC)
(in thousands)
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:
Trailing Twelve Months
Ended
March 30, 2024
April 1, 2023
Adjusted net
operating profit after taxes (Adjusted NOPAT)
Operating income
$
2,550
$
89,398
Add: Operating lease interest 1
27,882
26,487
Less: Income taxes 2
(7,479
)
(29,674
)
Adjusted NOPAT
$
22,953
$
86,211
Average adjusted
invested capital
Total deficit
$
(445,863
)
$
(425,047
)
Add: Long-term debt 3
523,800
470,991
Add: Operating lease liabilities 4
424,746
436,939
Total adjusted invested capital at end of
period
$
502,683
$
482,883
Average adjusted invested capital 5
$
505,498
$
423,287
Adjusted ROIC 6
4.5
%
20.4
%
1
Represents the interest expense component
of lease expense included in our financial statements under ASC
842, Leases.
2
Reflects annual effective income tax
rates, before discrete adjustments, of 24.6% and 25.6% for March
30, 2024 and April 1, 2023, respectively.
3
Long-term debt includes existing finance
lease liabilities.
4
Reflects operating lease liabilities
included in our financial statements under ASC 842.
5
Average adjusted invested capital
represents the average of the last five fiscal quarters' ending
adjusted invested capital balances.
6
Adjusted ROIC equals Adjusted NOPAT
divided by average adjusted invested capital.
Note - the Company's adjusted ROIC
calculation and data are considered non-GAAP financial measures and
are not in accordance with, or preferable to, 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. The Company updated its Adjusted
ROIC calculation effective beginning with the reporting period
ended December 31, 2022, to reflect adjustments consistent with ASC
842.
GAAP - generally accepted accounting
principles in the U.S.
SLEEP NUMBER CORPORATION AND
SUBSIDIARIES
Reported to Adjusted
Statements of Operations Data Reconciliation
(in thousands, except per
share amounts)
Three Months Ended
March 30, 2024
April 1, 2023
As Reported
Restructuring Costs 1,
2
As Adjusted
As Reported
Operating income
$
5,542
$
10,600
$
16,142
$
25,933
Interest expense, net
12,299
—
12,299
9,102
(Loss) income before income taxes
(6,757
)
10,600
3,843
16,831
Income tax expense
725
2,512
3,237
5,366
Net (loss) income
$
(7,482
)
$
8,088
$
606
$
11,465
Net (loss) income per share:
Basic
$
(0.33
)
$
0.36
$
0.03
$
0.51
Diluted
$
(0.33
)
$
0.36
$
0.03
$
0.51
Basic Shares
22,506
22,506
22,506
22,296
Diluted Shares
22,506
22,506
22,506
22,583
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.
GAAP - generally accepted accounting
principles
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240424397878/en/
Investor Contact: Dave Schwantes; (763) 551-7498;
investorrelations@sleepnumber.com Media Contact: Julie
Elepano; (414) 732-9840; julie.elepano@sleepnumber.com
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