RAISES FULL-YEAR EARNINGS OUTLOOK
- Increased first-quarter net sales 20% and demand more than
30% year-over-year
- More than $50 million of deliveries (two weeks) shifted out
of the quarter due to temporary foam supply constraints
- Operating income increased 45% to 13.4% of net sales, up 220
bp, with a 31% increase in operating cash flows
- Grew first-quarter diluted earnings per share 85% to a
record $2.51
- Raised full-year 2021 EPS outlook to at least $6.50 versus
prior EPS outlook of at least $6.00
Sleep Number Corporation (Nasdaq: SNBR) today reported results
for the quarter ended April 3, 2021.
“Guided by our purpose to improve the health and wellbeing of
society through higher quality sleep, Sleep Number is broadening
our brand relevance and driving significant performance
acceleration,” said Shelly Ibach, President and CEO. “Our
first-quarter demand growth of greater than 30% demonstrates
consumers’ enthusiastic response to our sleep science-based
innovations, digital solutions and authentic mission-driven
culture. Sleep Number is improving millions of lives through better
quality sleep, while delivering exceptional value for all
stakeholders.”
First Quarter Overview
- Net sales increased 20% to $568 million with a 20%
comparable store sales gain; more than $50 million of deliveries
(two weeks) shifted out of the quarter due to temporary foam supply
constraints
- Gross profit increased 18% to a record $356 million or
62.6% of net sales
- Operating income increased 45% to $76 million, or 13.4%
of net sales, up 220 bp versus the prior-year’s first quarter
- Earnings per diluted share increased 85% to a record
$2.51
Cash Flows and Liquidity Review
- Generated $112 million in net cash from operating activities in
the first quarter, up 31% versus the prior year; invested $12
million in capital expenditures and $167 million in Sleep Number
stock
- Leverage ratio of 2.3x EBITDAR at the end of the first quarter,
compared with 2.6x a year ago
- Increased return on invested capital (ROIC) to 27.6% for the
trailing twelve-month period, up 850 bp versus the prior-year
comparable period
- Amended revolving credit facility to expand the aggregate
availability from $450 million to $600 million
Share Repurchase Authorization
The company also replenished its outstanding share repurchase
authorization to $600 million, effective at the beginning of the
fiscal second quarter. The company remains committed to its capital
deployment priorities focused on performance drivers.
Financial Outlook
The company raised its 2021 earnings per diluted share outlook
to at least $6.50, which is more than 40% greater than 2020
full-year results excluding the impact of the 53rd week. The
outlook assumes an estimated effective income tax rate of 25% for
the balance of the year. The company expects to generate
approximately $300 million of operating cash flows in 2021 with
capital expenditures of approximately $75 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
Individuality is our foundation at Sleep Number. Our purpose
driven company is comprised of over 5,000 passionate team members
who are dedicated to our mission of improving lives by
individualizing sleep experiences. Our 360® smart beds provide each
sleeper with adjustable, personalized comfort for proven quality
sleep. We have improved over 13 million lives as we strive to
improve society’s wellbeing through higher quality sleep.
Sleep science and data are the core of our innovations. Our
award-winning 360 smart beds benefit from our proprietary SleepIQ®
technology - learning from over 9 billion hours of highly accurate
sleep data - to provide effortless comfort and individualized sleep
health insights, including your daily SleepIQ® score.
For life-changing sleep, visit SleepNumber.com or one of our
more than 600 Sleep Number® stores. More information is available
on our newsroom and investor relations sites.
Forward-looking Statements
Statements used in this news release relating to future plans,
events, financial results or performance are forward-looking
statements subject to certain risks and uncertainties including,
among others, such factors as current and future general and
industry economic trends and consumer confidence; risks inherent in
outbreaks of pandemics or contagious disease, including the
COVID-19 pandemic and related consequences such as supply
shortages, labor disruptions, and recommendations and/or mandates
from federal, state and local authorities to close certain
businesses or limit occupancy or operating hours; the effectiveness
of our marketing messages; the efficiency of our advertising and
promotional efforts; our ability to execute our Total Retail
distribution strategy; our ability to achieve and maintain
acceptable levels of product and service quality, and acceptable
product return and warranty claims rates; our ability to continue
to improve and expand our product line, and consumer acceptance of
our products, product quality, innovation and brand image; industry
competition, the emergence of additional competitive products and
the adequacy of our intellectual property rights to protect our
products and brand from competitive or infringing activities;
claims that our products, processes, advertising, or trademarks
infringe the intellectual property rights of others or do not
comply with laws or regulations; availability of attractive and
cost-effective consumer credit options; our lean manufacturing
processes with minimal levels of inventory, which may leave us
vulnerable to shortages in supply; our dependence on significant
suppliers and third parties and our ability to maintain
relationships with key suppliers or third parties, including
several sole-source suppliers or providers of services; rising
commodity costs and other inflationary pressures; risks inherent in
global-sourcing activities, including tariffs, outbreaks of
pandemics or contagious diseases, such as the COVID-19 pandemic,
strikes and the potential for shortages in supply; risks of
disruption in the operation of any of our main manufacturing
facilities or assembly and distribution facilities; increasing
government regulation; pending or unforeseen litigation and the
potential for adverse publicity associated with litigation; the
adequacy of our and third-party information systems to meet the
evolving needs of our business and existing and evolving risks and
regulatory standards applicable to data privacy and cybersecurity;
the costs and potential disruptions to our business related to
enhancing, patching, upgrading our information systems; the
vulnerability of our and third-party information systems to attacks
by hackers or other cyber threats that could compromise the
security or accessibility of our systems, result in a data breach
or disrupt our business; and our ability to attract, retain and
motivate qualified management, executive and other key team
members, including qualified retail sales professionals and
managers. Additional information concerning these and other risks
and uncertainties is contained in the company’s filings with the
Securities and Exchange Commission (SEC), including the Annual
Report on Form 10-K, and other periodic reports filed with the SEC.
The company has no obligation to publicly update or revise any of
the forward-looking statements in this news release.
SLEEP NUMBER CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations (unaudited – in
thousands, except per share amounts)
Three Months Ended
April 3,
% of
March 28,
% of
2021
Net Sales
2020
Net Sales
Net sales
$
568,256
100.0
%
$
472,566
100.0
%
Cost of sales
212,338
37.4
%
170,435
36.1
%
Gross profit
355,918
62.6
%
302,131
63.9
%
Operating expenses: Sales and marketing
223,617
39.4
%
207,744
44.0
%
General and administrative
42,592
7.5
%
31,072
6.6
%
Research and development
13,286
2.3
%
10,501
2.2
%
Total operating expenses
279,495
49.2
%
249,317
52.8
%
Operating income
76,423
13.4
%
52,814
11.2
%
Interest expense, net
977
0.2
%
2,344
0.5
%
Income before income taxes
75,446
13.3
%
50,470
10.7
%
Income tax expense
8,812
1.6
%
11,330
2.4
%
Net income
$
66,634
11.7
%
$
39,140
8.3
%
Net income per share – basic
$
2.63
$
1.40
Net income per share – diluted
$
2.51
$
1.36
Reconciliation of weighted-average shares
outstanding: Basic weighted-average shares outstanding
25,377
27,858
Dilutive effect of stock-based awards
1,167
914
Diluted weighted-average shares outstanding
26,544
28,772
SLEEP NUMBER CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited – in thousands,
except per share amounts) subject to reclassification
April 3, January 2,
2021
2021
Assets Current assets: Cash and cash equivalents
$
2,238
$
4,243
Accounts receivable, net of allowances of $1,028 and $1,046,
respectively
25,923
31,871
Inventories
82,308
81,362
Prepaid expenses
27,189
20,839
Other current assets
33,844
43,489
Total current assets
171,502
181,804
Non-current assets: Property and equipment, net
182,113
175,223
Operating lease right-of-use assets
329,714
314,226
Goodwill and intangible assets, net
72,270
72,871
Other non-current assets
66,610
56,012
Total assets
$
822,209
$
800,136
Liabilities and Shareholders’ Deficit Current
liabilities: Borrowings under revolving credit facility
$
314,900
$
244,200
Accounts payable
122,098
91,904
Customer prepayments
92,569
72,017
Accrued sales returns
24,610
24,765
Compensation and benefits
42,185
76,786
Taxes and withholding
39,098
23,339
Operating lease liabilities
64,076
62,077
Other current liabilities
57,833
60,856
Total current liabilities
757,369
655,944
Non-current liabilities: Deferred income taxes
1,757
242
Operating lease liabilities
298,475
283,084
Other non-current liabilities
97,258
84,844
Total non-current liabilities
397,490
368,170
Total liabilities
1,154,859
1,024,114
Shareholders’ deficit: Undesignated preferred stock; 5,000
shares authorized, no shares issued and outstanding
-
-
Common stock, $0.01 par value; 142,500 shares authorized, 24,464
and 25,390 shares issued and outstanding, respectively
245
254
Additional paid-in capital
-
-
Accumulated deficit
(332,895
)
(224,232
)
Total shareholders’ deficit
(332,650
)
(223,978
)
Total liabilities and shareholders’ deficit
$
822,209
$
800,136
SLEEP NUMBER CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited - in
thousands) subject to reclassification Three
Months Ended April 3, March 28,
2021
2020
Cash flows from operating activities: Net income
$
66,634
$
39,140
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization
14,638
15,371
Stock-based compensation
6,416
2,051
Net loss (gain) on disposals and impairments of assets
78
(22
)
Deferred income taxes
1,515
5,334
Changes in operating assets and liabilities: Accounts receivable
5,948
12,808
Inventories
(946
)
5,044
Income taxes
6,847
5,798
Prepaid expenses and other assets
(3,113
)
7,478
Accounts payable
12,390
11,282
Customer prepayments
20,552
(8,432
)
Accrued compensation and benefits
(34,605
)
(13,157
)
Other taxes and withholding
8,912
(479
)
Other accruals and liabilities
6,332
2,725
Net cash provided by operating activities
111,598
84,941
Cash flows from investing activities: Purchases of property
and equipment
(11,546
)
(10,351
)
Proceeds from sales of property and equipment
12
25
Net cash used in investing activities
(11,534
)
(10,326
)
Cash flows from financing activities: Net increase in
short-term borrowings
74,087
201,170
Repurchases of common stock
(178,613
)
(41,445
)
Proceeds from issuance of common stock
2,460
3,283
Debt issuance costs
(3
)
(3
)
Net cash (used in) provided by financing activities
(102,069
)
163,005
Net (decrease) increase in cash and cash equivalents
(2,005
)
237,620
Cash and cash equivalents, at beginning of period
4,243
1,593
Cash and cash equivalents, at end of period
$
2,238
$
239,213
SLEEP NUMBER CORPORATION AND SUBSIDIARIES
Supplemental Financial Information (unaudited)
Three Months Ended April 3, March 28,
2021
2020
Percent of sales: Retail stores
86.1
%
92.1
%
Online, phone, chat and other
13.9
%
7.9
%
Total Company
100.0
%
100.0
%
Sales change rates: Retail comparable-store sales
12
%
6
%
Online, phone and chat
116
%
21
%
Total Retail comparable sales change
20
%
7
%
Net opened/closed stores and other
0
%
4
%
Total Company
20
%
11
%
Stores open: Beginning of period
602
611
Opened
11
8
Closed
(6
)
(8
)
End of period
607
611
Other metrics: Average sales per store ($ in 000's)
1, 4
$
3,196
$
2,932
Average sales per square foot 1, 4
$
1,095
$
1,040
Stores > $2 million net sales 2, 4
71
%
71
%
Stores > $3 million net sales 2, 4
33
%
32
%
Average revenue per mattress unit 3
$
5,030
$
4,884
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
mattress units.
4 Fiscal 2020 included 53 weeks,
as compared to 52 weeks in fiscal 2021 and 2019. The additional
week in 2020 was in the fiscal fourth quarter. Total Retail
comparable sales have been adjusted to remove the estimated impact
of the additional week on those metrics.
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 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:
Fifty-Three
Fifty-Two Three Months Ended Weeks Ended
Weeks Ended
April 3,
March 28,
April 3,
March 28,
2021
2020
2021
2020
Net income
$
66,634
$
39,140
$
166,683
$
95,567
Income tax expense
8,812
11,330
34,265
25,313
Interest expense
978
2,357
7,642
11,338
Depreciation and amortization
14,519
15,253
60,049
61,026
Stock-based compensation
6,417
2,051
26,179
15,070
Asset impairments
89
3
388
49
Adjusted EBITDA
$
97,449
$
70,134
$
295,206
$
208,363
Free Cash Flow (in thousands)
Fifty-Three Fifty-Two Three Months Ended
Weeks Ended Weeks Ended
April 3,
March 28,
April 3,
March 28,
2021
2020
2021
2020
Net cash provided by operating activities
$
111,598
$
84,941
$
306,318
$
205,965
Subtract: Purchases of property and equipment
11,546
10,351
38,295
49,847
Free cash flow
$
100,052
$
74,590
$
268,023
$
156,118
Calculation of Net Leverage Ratio under Revolving Credit
Facility (in thousands)
Fifty-Three
Fifty-Two
Weeks Ended
Weeks Ended
April 3,
March 28,
2021
2020
Borrowings under revolving credit facility
$
314,900
$
446,003
Outstanding letters of credit
3,997
3,997
Finance lease obligations
622
730
Consolidated funded indebtedness
$
319,519
$
450,730
Capitalized operating lease obligations1
555,903
535,425
Aggregate unrestricted cash-on-hand and cash equivalents in excess
of $40,000,000
-
(199,213
)
Total debt including capitalized operating lease obligations (a)
$
875,422
$
786,942
Adjusted EBITDA (see above)
$
295,206
$
208,363
Consolidated rent expense
92,650
89,237
Consolidated EBITDAR (b)
$
387,856
$
297,600
Net Leverage Ratio under revolving credit facility (a
divided by b)
2.3 to 1.0
2.6 to 1.0
1 A multiple of six times annual rent expense is used as an
estimate for capitalizing our operating lease obligations in
accordance with our credit facility.
Note - Our Adjusted EBITDA and EBITDAR
calculations, Free Cash Flow data and Calculation of Net Leverage
Ratio under Revolving Credit Facility 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 (ROIC) (in thousands)
ROIC is a financial measure we use to determine how efficiently we
deploy our capital. It quantifies the return we earn on our
invested capital. Management believes ROIC is also a useful metric
for investors and financial analysts. We compute ROIC as outlined
below. Our definition and calculation of ROIC may not be comparable
to similarly titled definitions and calculations used by other
companies. The tables below reconcile net operating profit after
taxes (NOPAT) and total invested capital, which are non-GAAP
financial measures, to the comparable GAAP financial measures:
Fifty-Three Fifty-Two Weeks Ended
Weeks Ended
April 3,
March 28,
2021
2020
Net operating profit after taxes
(NOPAT) Operating income
$
208,506
$
132,203
Add: Rent expense 1
92,650
89,237
Add: Interest income
84
15
Less: Depreciation on capitalized operating leases 2
(24,258
)
(22,883
)
Less: Income taxes 3
(66,118
)
(47,453
)
NOPAT
$
210,864
$
151,119
Average invested capital Total
deficit
$
(332,650
)
$
(155,909
)
Less: Cash greater than target 4
-
(113,397
)
Add: Long-term debt 5
315,522
446,733
Add: Capitalized operating lease obligations 6
741,200
713,896
Total invested capital at end of period
$
724,072
$
891,323
Average invested capital 7
$
763,227
$
790,420
Return on invested capital (ROIC) 8
27.6
%
19.1
%
1 Rent expense is added back to
operating income to show the impact of owning versus leasing the
related assets.
2 Depreciation is based on the
average of the last five fiscal quarters' ending capitalized
operating lease obligations (see note 6) for the respective
reporting periods with an assumed thirty-year useful life. This
life assumption is based on our long-term participation in given
markets though specific retail location lease commitments are
generally 5 to 10 years at inception. This is subtracted from
operating income to illustrate the impact of owning versus leasing
the related assets.
3 Reflects annual effective
income tax rates, before discrete adjustments, of 23.9% and 23.9%
for 2021 and 2020, respectively.
4 Cash greater than target is
defined as cash, cash equivalents and marketable debt securities
less customer prepayments in excess of $100 million.
5 Long-term debt includes
existing finance lease liabilities.
6 A multiple of eight times
annual rent expense is used as an estimate for capitalizing our
operating lease obligations. The methodology utilized aligns with
the methodology of a nationally recognized credit rating
agency.
7 Average invested capital
represents the average of the last five fiscal quarters' ending
invested capital balances.
8 ROIC equals NOPAT divided by
average invested capital.
Note - Our 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.
GAAP - generally accepted accounting principles in the U.S.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20210421005886/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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