Raises Full-Year Earnings Outlook
- Year-to-date demand up more than 40% versus 2019; drove 18%
average demand growth over the last twelve quarters
- Grew second-quarter net sales 70% (+36% versus 2019) with
year-to-date net sales up 39% (+35% versus 2019)
- Reported second-quarter diluted EPS of $0.88; year-to-date
EPS of $3.44, up 270% versus last year (+262% versus 2019)
- Generated $161 million in year-to-date operating cash flows
and a trailing twelve-months ROIC greater than 33%
- Raised full-year 2021 EPS outlook to at least $7.25 versus
prior EPS outlook of at least $6.50
Sleep Number Corporation (Nasdaq: SNBR) today reported results
for the quarter ended July 3, 2021.
“Our differentiated sleep solutions have driven 18% average
demand growth over the last twelve quarters including further
acceleration in the second quarter,” said Shelly Ibach, President
and CEO. “Robust consumer demand for Sleep Number 360® smart beds
exceeded our expectations, while near-term supply constraints
limited delivered net sales in June and July. We have made
substantial progress in addressing temporary component shortages
and expect strong delivery volumes the balance of the year. Sleep
Number teams are driving higher than expected operational
efficiencies, including operating profit margin expansion of 500
basis points versus the first half of 2019. We are raising our
guidance for 2021 EPS to at least $7.25.”
Financial Overview
- Net sales year to date increased 39% compared with last
year to $1.05 billion and were up 35% versus the first half of
2019; average trailing twelve-months (ttm) sales per store were
more than $3.5 million; supply constraints limited second-quarter
deliveries
- Gross profit year to date increased 39% to $649 million,
or 61.6% of net sales, compared with 61.4% in 2020, and 61.3% in
2019 comparable periods
- Operating income year to date increased 161% to $106
million, or 10.1% of net sales, compared with 5.4% in 2020, and
5.1% in 2019 comparable periods
- Earnings per diluted share year to date increased 270%
to a record $3.44 compared with $0.93 in 2020, and $0.95 in 2019
comparable periods
Cash Flows and Liquidity Review
- Generated $161 million in net cash from operating activities
for the first six months of 2021, up 86% versus last year and 129%
greater than the first six months of 2019
- Invested $32 million in capital expenditures and $267 million
in Sleep Number stock during the first six months of 2021
- Leverage ratio of 2.2x EBITDAR at the end of the second
quarter, compared with 2.8x a year ago and our 2.5x-3.0x
longer-term target
- Increased return on invested capital (ROIC) to more than 33%
for the ttm period, compared with 17.2% for the prior-year
comparable period
Financial Outlook The company raised its 2021 earnings
per diluted share outlook to at least $7.25, which is at least 58%
greater than 2020 full-year results excluding the impact of the
53rd week and nearly three times 2019 EPS. The outlook assumes an
estimated effective income tax rate of 25% for the balance of the
year. The company expects to generate more than $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 the
foundation of 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. We
have improved over 13 million lives and are positively impacting
society’s wellbeing through higher-quality sleep.
Our award-winning 360® smart beds are informed by science. They
learn from over one billion sleep sessions of highly-accurate,
real-world sleep data – the cumulation of nearly 11 billion hours’
worth - to automatically adjust to each sleeper and provide
effortless comfort and proven quality sleep. Our 360 smart beds
deliver individualized sleep health reports and insights, including
a daily SleepIQ® score, and are helping to advance meaningful sleep
health solutions by applying sleep science and research.
For life-changing sleep, visit SleepNumber.com or one of our
approximately 620 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, such as the company’s expectations for generating
certain operating cash flows in 2021, 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 July 3, % of June 27, % of
2021
Net Sales
2020
Net Sales Net sales
$
484,316
100.0
%
$
284,938
100.0
%
Cost of sales
191,465
39.5
%
121,928
42.8
%
Gross profit
292,851
60.5
%
163,010
57.2
%
Operating expenses: Sales and marketing
205,994
42.5
%
130,165
45.7
%
General and administrative
41,220
8.5
%
36,716
12.9
%
Research and development
15,916
3.3
%
8,254
2.9
%
Total operating expenses
263,130
54.3
%
175,135
61.5
%
Operating income (loss)
29,721
6.1
%
(12,125
)
(4.3
%)
Interest expense, net
1,607
0.3
%
3,940
1.4
%
Income (loss) before income taxes
28,114
5.8
%
(16,065
)
(5.6
%)
Income tax expense (benefit)
5,864
1.2
%
(3,435
)
(1.2
%)
Net income (loss)
$
22,250
4.6
%
$
(12,630
)
(4.4
%)
Net income (loss) per share – basic
$
0.91
$
(0.45
)
Net income (loss) per share – diluted
$
0.88
$
(0.45
)
Reconciliation of weighted-average shares
outstanding: Basic weighted-average shares outstanding
24,371
27,923
Dilutive effect of stock-based awards 1
823
-
Diluted weighted-average shares outstanding 1
25,194
27,923
1
For the three months ended June 27, 2020,
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 Statements of Operations (unaudited – in
thousands, except per share amounts) Six Months
Ended July 3, % of June 27, % of
2021
Net Sales
2020
Net Sales Net sales
$
1,052,572
100.0
%
$
757,504
100.0
%
Cost of sales
403,803
38.4
%
292,363
38.6
%
Gross profit
648,769
61.6
%
465,141
61.4
%
Operating expenses: Sales and marketing
429,611
40.8
%
337,909
44.6
%
General and administrative
83,812
8.0
%
67,788
8.9
%
Research and development
29,202
2.8
%
18,755
2.5
%
Total operating expenses
542,625
51.6
%
424,452
56.0
%
Operating income
106,144
10.1
%
40,689
5.4
%
Interest expense, net
2,584
0.2
%
6,284
0.8
%
Income before income taxes
103,560
9.8
%
34,405
4.5
%
Income tax expense
14,676
1.4
%
7,895
1.0
%
Net income
$
88,884
8.4
%
$
26,510
3.5
%
Net income per share – basic
$
3.57
$
0.95
Net income per share – diluted
$
3.44
$
0.93
Reconciliation of weighted-average shares
outstanding: Basic weighted-average shares outstanding
24,874
27,890
Dilutive effect of stock-based awards
995
633
Diluted weighted-average shares outstanding
25,869
28,523
SLEEP NUMBER CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited – in thousands,
except per share amounts) subject to reclassification
July 3, January 2,
2021
2021
Assets Current assets: Cash and cash equivalents
$
2,173
$
4,243
Accounts receivable, net of allowances of $1,098 and $1,046,
respectively
23,205
31,871
Inventories
88,577
81,362
Income taxes receivable
1,578
-
Prepaid expenses
28,900
20,839
Other current assets
42,564
43,489
Total current assets
186,997
181,804
Non-current assets: Property and equipment, net
182,398
175,223
Operating lease right-of-use assets
344,423
314,226
Goodwill and intangible assets, net
71,669
72,871
Other non-current assets
69,009
56,012
Total assets
$
854,496
$
800,136
Liabilities and Shareholders’ Deficit Current
liabilities: Borrowings under revolving credit facility
$
382,200
$
244,200
Accounts payable
129,922
91,904
Customer prepayments
119,435
72,017
Accrued sales returns
21,217
24,765
Compensation and benefits
54,219
76,786
Taxes and withholding
13,779
23,339
Operating lease liabilities
67,648
62,077
Other current liabilities
57,708
60,856
Total current liabilities
846,128
655,944
Non-current liabilities: Deferred income taxes
663
242
Operating lease liabilities
311,672
283,084
Other non-current liabilities
99,691
84,844
Total non-current liabilities
412,026
368,170
Total liabilities
1,258,154
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, 23,622
and 25,390 shares issued and outstanding, respectively
236
254
Additional paid-in capital
-
-
Accumulated deficit
(403,894
)
(224,232
)
Total shareholders’ deficit
(403,658
)
(223,978
)
Total liabilities and shareholders’ deficit
$
854,496
$
800,136
SLEEP NUMBER CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited - in
thousands) subject to reclassification Six
Months Ended July 3, June 27,
2021
2020
Cash flows from operating activities: Net income
$
88,884
$
26,510
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization
29,800
30,811
Stock-based compensation
12,385
7,084
Net loss on disposals and impairments of assets
78
224
Deferred income taxes
421
4,383
Changes in operating assets and liabilities: Accounts receivable
8,666
4,224
Inventories
(7,215
)
5,391
Income taxes
(11,625
)
2,508
Prepaid expenses and other assets
(13,407
)
7,018
Accounts payable
23,232
(14,804
)
Customer prepayments
47,418
16,987
Accrued compensation and benefits
(22,387
)
(7,405
)
Other taxes and withholding
487
(3,594
)
Other accruals and liabilities
4,683
7,664
Net cash provided by operating activities
161,420
87,001
Cash flows from investing activities: Purchases of property
and equipment
(32,012
)
(21,695
)
Proceeds from sales of property and equipment
12
25
Purchase of intangible assets
-
(945
)
Net cash used in investing activities
(32,000
)
(22,615
)
Cash flows from financing activities: Net increase
(decrease) in short-term borrowings
146,447
(26,364
)
Repurchases of common stock
(280,915
)
(41,774
)
Proceeds from issuance of common stock
3,535
4,100
Debt issuance costs
(557
)
(290
)
Net cash used in financing activities
(131,490
)
(64,328
)
Net (decrease) increase in cash and cash equivalents
(2,070
)
58
Cash and cash equivalents, at beginning of period
4,243
1,593
Cash and cash equivalents, at end of period
$
2,173
$
1,651
SLEEP NUMBER CORPORATION AND SUBSIDIARIES
Supplemental Financial Information (unaudited)
Three Months Ended Six Months Ended July
3, June 27, July 3, June 27,
2021
2020
2021
2020
Percent of sales: Retail stores
88.1
%
72.2
%
87.0
%
84.6
%
Online, phone, chat and other
11.9
%
27.8
%
13.0
%
15.4
%
Total Company
100.0
%
100.0
%
100.0
%
100.0
%
Sales change rates: Retail comparable-store sales
102
%
(40
%)
41
%
(14
%)
Online, phone and chat
(28
%)
209
%
17
%
107
%
Total Retail comparable sales change
65
%
(21
%)
37
%
(5
%)
Net opened/closed stores and other
5
%
1
%
2
%
2
%
Total Company
70
%
(20
%)
39
%
(3
%)
Stores open: Beginning of period
607
611
602
611
Opened
26
6
37
14
Closed
(12
)
(19
)
(18
)
(27
)
End of period
621
598
621
598
Other metrics: Average sales per store ($ in 000's)
1, 4
$
3,542
$
2,830
Average sales per square foot 1, 4
$
1,203
$
988
Stores > $2 million net sales 2, 4
82
%
63
%
Stores > $3 million net sales 2, 4
47
%
25
%
Average revenue per mattress unit 3
$
5,094
$
4,767
$
5,059
$
4,839
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 July 3, June 27, July 3,
June 27,
2021
2020
2021
2020
Net income (loss)
$
22,250
$
(12,630
)
$
201,563
$
78,657
Income tax expense (benefit)
5,864
(3,435
)
43,564
22,141
Interest expense
1,607
4,022
5,227
12,131
Depreciation and amortization
15,006
15,253
59,802
60,951
Stock-based compensation
5,968
5,033
27,114
15,853
Asset impairments
-
246
142
294
Adjusted EBITDA
$
50,695
$
8,489
$
337,412
$
190,027
Free Cash Flow (in thousands)
Fifty-Three Fifty-Two Three Months Ended
Weeks Ended Weeks Ended July 3, June
27, July 3, June 27,
2021
2020
2021
2020
Net cash provided by operating activities
$
49,822
$
2,060
$
354,080
$
205,814
Subtract: Purchases of property and equipment
20,466
11,344
47,417
47,038
Free cash flow
$
29,356
$
(9,284
)
$
306,663
$
158,776
Calculation of Net Leverage Ratio under Revolving Credit
Facility (in thousands) Fifty-Three
Fifty-Two Weeks Ended Weeks Ended July
3, June 27,
2021
2020
Borrowings under revolving credit facility
$
382,200
$
227,240
Outstanding letters of credit
3,997
3,997
Finance lease obligations
594
704
Consolidated funded indebtedness
$
386,791
$
231,941
Capitalized operating lease obligations1
571,358
542,095
Total debt including capitalized operating lease obligations (a)
$
958,149
$
774,036
Adjusted EBITDA (see above)
$
337,412
$
190,027
Consolidated rent expense
95,226
90,349
Consolidated EBITDAR (b)
$
432,638
$
280,376
Net Leverage Ratio under revolving credit facility (a
divided by b) 2.2 to 1.0 2.8 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 July 3,2021 June 27,2020
Net operating profit after taxes
(NOPAT) Operating income
$
250,352
$
112,831
Add: Rent expense 1
95,226
90,349
Add: Interest income
2
97
Less: Depreciation on capitalized operating leases 2
(24,577
)
(23,331
)
Less: Income taxes 3
(76,939
)
(42,735
)
NOPAT
$
244,064
$
137,211
Average invested capital Total
deficit
$
(403,658
)
$
(163,018
)
Add: Long-term debt 4
382,794
227,944
Add: Capitalized operating lease obligations 5
761,808
722,792
Total invested capital at end of period
$
740,944
$
787,718
Average invested capital 6
$
733,151
$
797,862
Return on invested capital (ROIC) 7
33.3
%
17.2
%
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 5) 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 24.0% and 23.7% for 2021 and
2020, respectively.
4
Long-term debt includes existing finance
lease liabilities.
5
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.
6
Average invested capital represents the
average of the last five fiscal quarters' ending invested capital
balances.
7
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/20210720006022/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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