- Third-quarter net sales grew 21% to a record $640 million
(+35% versus 2019); generated double-digit demand growth for fourth
consecutive third quarter
- Third-quarter operating income increased 4% to a record $73
million (+86% versus 2019), while absorbing significant input cost
increases; year-to-date operating income increased 62% versus prior
year
- Third-quarter diluted EPS grew 24% to $2.22; year-to-date
EPS of $5.63 increased 106% versus last year (+199% versus
2019)
- Generated $293 million in year-to-date operating cash flows
and a trailing twelve-month (ttm) ROIC greater than 34%
Sleep Number Corporation (Nasdaq: SNBR) today reported results
for the quarter ended October 2, 2021.
“Our record third quarter financial results exceeded our
expectations and demonstrate the power of our advantaged business
model and our teams’ stellar execution. We are driving sustainable
demand and market share gains with our life-changing 360 smart beds
by advancing proven initiatives,” said Shelly Ibach, President and
CEO. “Given our unique competitive leadership at the intersection
of wellbeing and technology, the worldwide shortage of
semiconductors and other electronic components are a major
challenge, elongating the timing of some customer deliveries. I
could not be prouder of how our teams are aggressively pursuing
solutions for these shortages to ensure we fulfill our mission of
improving lives by individualizing sleep experiences.”
Financial Overview
- Net sales for the third quarter grew 21% versus last
year (+35% versus 2019) with a 16% comp gain; year-to-date net
sales increased 31% versus last year (+35% versus 2019) including a
28% comp gain
- Gross profit increased 17% to $390 million, or 61.0% of
net sales, while offsetting significant input cost increases with
pricing actions and efficiency gains
- Operating income increased 4% to $73 million, or 11.4%
of net sales; year-to-date operating income increased 62% versus
last year and was up 200 basis points on a rate basis versus
2020
- Earnings per diluted share increased 24% to $2.22;
year-to-date EPS grew 106% to a record $5.63, significantly
exceeding 2020 full-year EPS of $4.90 ($4.60 adjusted for 53rd
week) and 2019 EPS of $2.70
Cash Flows and Liquidity Review
- Generated $293 million in net cash from operating activities
for the first nine months of 2021 compared with $287 million for
the same period last year and 54% greater than the first nine
months of 2019
- Invested $49 million in capital expenditures and repurchased
$364 million in Sleep Number stock during the first nine months of
2021
- Leverage ratio of 2.2x EBITDAR at the end of the third quarter,
compared with 1.9x a year ago and our 2.5x-3.0x longer-term
target
- Increased return on invested capital (ROIC) to more than 34%
for the ttm period, compared with nearly 21% for the prior-year
comparable period
Financial Outlook
The company is targeting 2021 earnings per diluted share of
$7.25, compared with $4.60 for 2020 (excluding the impact of the
53rd week), and nearly three times 2019 EPS. The timing of
receiving electronic components could elongate some of our customer
deliveries into the first quarter of 2022. The outlook assumes an
estimated effective income tax rate of 25% for the balance of the
year with full-year capital expenditures of approximately $70
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 12 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
more than 625 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
October 2,
% of
September 26,
% of
2021
Net Sales
2020
Net Sales
Net sales
$
640,393
100.0%
$
531,155
100.0%
Cost of sales
250,039
39.0%
196,195
36.9%
Gross profit
390,354
61.0%
334,960
63.1%
Operating expenses: Sales and marketing
255,512
39.9%
211,574
39.8%
General and administrative
47,676
7.4%
44,127
8.3%
Research and development
14,431
2.3%
9,644
1.8%
Total operating expenses
317,619
49.6%
265,345
50.0%
Operating income
72,735
11.4%
69,615
13.1%
Interest expense, net
1,816
0.3%
1,827
0.3%
Income before income taxes
70,919
11.1%
67,788
12.8%
Income tax expense
17,198
2.7%
16,468
3.1%
Net income
$
53,721
8.4%
$
51,320
9.7%
Net income per share – basic
$
2.29
$
1.83
Net income per share – diluted
$
2.22
$
1.79
Reconciliation of weighted-average shares
outstanding: Basic weighted-average shares outstanding
23,464
27,973
Dilutive effect of stock-based awards
769
661
Diluted weighted-average shares outstanding
24,233
28,634
SLEEP NUMBER CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations (unaudited – in
thousands, except per share amounts) Nine Months
Ended October 2, % of September 26, %
of
2021
Net Sales
2020
Net Sales Net sales
$
1,692,965
100.0%
$
1,288,659
100.0%
Cost of sales
653,842
38.6%
488,558
37.9%
Gross profit
1,039,123
61.4%
800,101
62.1%
Operating expenses: Sales and marketing
685,123
40.5%
549,483
42.6%
General and administrative
131,488
7.8%
111,915
8.7%
Research and development
43,633
2.6%
28,399
2.2%
Total operating expenses
860,244
50.8%
689,797
53.5%
Operating income
178,879
10.6%
110,304
8.6%
Interest expense, net
4,400
0.3%
8,111
0.6%
Income before income taxes
174,479
10.3%
102,193
7.9%
Income tax expense
31,874
1.9%
24,363
1.9%
Net income
$
142,605
8.4%
$
77,830
6.0%
Net income per share – basic
$
5.84
$
2.79
Net income per share – diluted
$
5.63
$
2.73
Reconciliation of weighted-average shares
outstanding: Basic weighted-average shares outstanding
24,404
27,918
Dilutive effect of stock-based awards
920
642
Diluted weighted-average shares outstanding
25,324
28,560
SLEEP NUMBER CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited – in thousands,
except per share amounts) subject to reclassification
October 2,
January 2,
2021
2021
Assets Current assets: Cash and cash equivalents
$
1,830
$
4,243
Accounts receivable, net of allowances of $1,116 and $1,046,
respectively
33,388
31,871
Inventories
86,129
81,362
Prepaid expenses
24,346
20,839
Other current assets
49,634
43,489
Total current assets
195,327
181,804
Non-current assets: Property and equipment, net
184,697
175,223
Operating lease right-of-use assets
360,269
314,226
Goodwill and intangible assets, net
71,069
72,871
Other non-current assets
72,258
56,012
Total assets
$
883,620
$
800,136
Liabilities and Shareholders’ Deficit Current
liabilities: Borrowings under revolving credit facility
$
359,100
$
244,200
Accounts payable
163,894
91,904
Customer prepayments
107,802
72,017
Accrued sales returns
28,518
24,765
Compensation and benefits
63,896
76,786
Taxes and withholding
36,590
23,339
Operating lease liabilities
69,316
62,077
Other current liabilities
61,767
60,856
Total current liabilities
890,883
655,944
Non-current liabilities: Deferred income taxes
533
242
Operating lease liabilities
327,521
283,084
Other non-current liabilities
104,749
84,844
Total non-current liabilities
432,803
368,170
Total liabilities
1,323,686
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, 22,647
and 25,390 shares issued and outstanding, respectively
226
254
Additional paid-in capital
-
-
Accumulated deficit
(440,292
)
(224,232
)
Total shareholders’ deficit
(440,066
)
(223,978
)
Total liabilities and shareholders’ deficit
$
883,620
$
800,136
SLEEP NUMBER CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (unaudited - in
thousands) subject to reclassification Nine
Months Ended October 2, September 26,
2021
2020
Cash flows from operating activities: Net income
$
142,605
$
77,830
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization
44,786
46,244
Stock-based compensation
19,701
15,554
Net (gain) loss on disposals and impairments of assets
(20
)
208
Deferred income taxes
291
3,229
Changes in operating assets and liabilities: Accounts receivable
(1,517
)
(12,710
)
Inventories
(4,767
)
3,807
Income taxes
5,615
5,103
Prepaid expenses and other assets
(13,879
)
3,666
Accounts payable
51,543
58,547
Customer prepayments
35,785
40,795
Accrued compensation and benefits
(12,725
)
21,376
Other taxes and withholding
7,636
4,756
Other accruals and liabilities
17,630
18,877
Net cash provided by operating activities
292,684
287,282
Cash flows from investing activities: Purchases of property
and equipment
(49,370
)
(28,074
)
Proceeds from sales of property and equipment
257
53
Purchase of intangible assets
-
(945
)
Net cash used in investing activities
(49,113
)
(28,966
)
Cash flows from financing activities: Net increase
(decrease) in short-term borrowings
132,222
(220,968
)
Repurchases of common stock
(381,496
)
(41,923
)
Proceeds from issuance of common stock
3,847
4,650
Debt issuance costs
(557
)
(303
)
Net cash used in financing activities
(245,984
)
(258,544
)
Net decrease in cash and cash equivalents
(2,413
)
(228
)
Cash and cash equivalents, at beginning of period
4,243
1,593
Cash and cash equivalents, at end of period
$
1,830
$
1,365
SLEEP NUMBER CORPORATION AND SUBSIDIARIES
Supplemental Financial Information (unaudited)
Three Months Ended
Nine Months Ended
October 2,
September 26,
October 2,
September 26,
2021
2020
2021
2020
Percent of sales: Retail stores
88.4%
86.0%
87.5%
85.2%
Online, phone, chat and other
11.6%
14.0%
12.5%
14.8%
Total Company
100.0%
100.0%
100.0%
100.0%
Sales change rates: Retail comparable-store sales
19%
2%
32%
(8%)
Online, phone and chat
0%
111%
11%
109%
Total Retail comparable sales change
16%
11%
28%
1%
Net opened/closed stores and other
5%
1%
3%
2%
Total Company
21%
12%
31%
3%
Stores open: Beginning of period
621
598
602
611
Opened
18
6
55
20
Closed
(7)
(8)
(25)
(35)
End of period
632
596
632
596
Other metrics: Average sales per store ($ in 000's)
1, 4
$
3,689
$
2,920
Average sales per square foot 1, 4
$
1,249
$
1,012
Stores > $2 million net sales 2, 4
85%
64%
Stores > $3 million net sales 2, 4
50%
26%
Average revenue per mattress unit 3
$
5,021
$
4,802
$
5,045
$
4,824
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
October 2,
September 26,
October 2,
September 26,
2021
2020
2021
2020
Net income
$
53,721
$
51,320
$
203,964
$
101,923
Income tax expense
17,198
16,468
44,294
30,642
Interest expense
1,816
1,829
5,214
10,829
Depreciation and amortization
14,820
15,083
59,539
61,071
Stock-based compensation
7,317
8,470
25,961
20,177
Asset impairments
23
11
154
276
Adjusted EBITDA
$
94,895
$
93,181
$
339,126
$
224,918
Free Cash Flow (in thousands)
Fifty-Three
Fifty-Two
Three Months Ended
Weeks Ended
Weeks Ended
October 2,
September 26,
October 2,
September 26,
2021
2020
2021
2020
Net cash provided by operating activities
$
131,264
$
200,281
$
285,063
$
286,610
Subtract: Purchases of property and equipment
17,358
6,379
58,396
40,556
Free cash flow
$
113,906
$
193,902
$
226,667
$
246,054
Calculation of Net Leverage Ratio under Revolving Credit
Facility (in thousands)
Fifty-Three
Fifty-Two
Weeks Ended
Weeks Ended
October 2,
September 26,
2021
2020
Borrowings under revolving credit facility
$
359,100
$
33,500
Outstanding letters of credit
3,997
3,997
Finance lease obligations
566
677
Consolidated funded indebtedness
$
363,663
$
38,174
Capitalized operating lease obligations1
593,034
546,850
Total debt including capitalized operating lease obligations (a)
$
956,697
$
585,024
Adjusted EBITDA (see above)
$
339,126
$
224,918
Consolidated rent expense
98,839
91,142
Consolidated EBITDAR (b)
$
437,965
$
316,060
Net Leverage Ratio under revolving credit facility (a
divided by b) 2.2 to 1.0 1.9 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 October 2,2021
September 26,2020 Net operating profit
after taxes (NOPAT) Operating income
$
253,472
$
143,295
Add: Rent expense 1
98,839
91,142
Add: Interest income
-
97
Less: Depreciation on capitalized operating leases 2
(25,030
)
(23,700
)
Less: Income taxes 3
(78,975
)
(50,584
)
NOPAT
$
248,306
$
160,250
Average invested capital Total
deficit
$
(440,066
)
$
(102,827
)
Add: Long-term debt 4
359,666
34,177
Add: Capitalized operating lease obligations 5
790,712
729,136
Total invested capital at end of period
$
710,312
$
660,486
Average invested capital 6
$
717,670
$
770,197
Return on invested capital (ROIC) 7
34.6
%
20.8
%
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 24.1% and 24.0% 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/20211027005966/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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