- Net sales declined 7% versus the prior year on constrained
supply of semiconductor chips
- Demand for the quarter declined 3% on acute macro factors in
January and March; backlog increased 20% since December
- Diluted EPS of $0.09 on lower-than-expected delivered net
sales due to worsened external factors
- Updated 2022 EPS outlook to a range of $5.00 to $6.00 per
share
Sleep Number Corporation (Nasdaq: SNBR) today reported results
for the quarter ended April 2, 2022.
“External factors continue to disrupt global supply and weaken
consumer confidence, resulting in increased business complexity and
volatility,” said Shelly Ibach, President and CEO. “In this dynamic
environment, we remain focused on deepening consumer relationships
and innovating for broad relevance while taking decisive actions to
address near-term pressures. Our team is highly engaged and
resilient, and our business model, liquidity and competitive
advantages are strong. We remain steadfast in our commitment to
fulfilling our purpose and creating superior long-term shareholder
value.”
First Quarter Overview
- Net sales decreased 7% to $527 million while demand
decreased 3% for the quarter, reflecting the impact of Omicron in
January and the war in Ukraine in late February; excess backlog
increased to over $200 million
- Gross margin of 57.3% of net sales was approximately 100
basis points above expectations due to level-loaded delivery
efficiencies during the quarter
- Diluted EPS of 9 cents for the first quarter was below
expectation of 30 to 40 cents on lower-than-expected delivered net
sales
Cash Flows and Liquidity Review
- Generated $25 million in net cash from operating activities in
the first quarter, compared with $112 million for the same period
last year on constrained current year deliveries and changes in
working capital
- Invested $42 million in Sleep Number stock compared to $167
million for the same period last year
- Leverage ratio of 3.4x EBITDAR at the end of the first quarter;
more than $400 million of liquidity remains against current
revolver
- Return on invested capital (ROIC) of 20.5% for the trailing
twelve-month period reflecting two consecutive quarters constrained
by electronics component supply
Financial Outlook
The company updated its full-year 2022 diluted EPS outlook to a
range of $5.00 to $6.00 per share. The outlook assumes low
double-digit net sales growth for 2022 on flat to low single-digit
demand growth the balance of the year, while servicing significant
excess backlog. The company expects to generate approximately $200
million of cash from operations and anticipates 2022 capital
expenditures of $70 million to $80 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 5,500 passionate team members
who are dedicated to our mission of improving lives by
individualizing sleep experiences. We have improved over 14 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 14 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 650
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 full-year 2022 diluted EPS, 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; risks inherent in global-sourcing activities,
including tariffs, outbreaks of pandemics or contagious diseases,
such as the COVID-19 pandemic, geo-political turmoil, acts of
terrorism, global conflicts or war (such as the current conflict in
Ukraine), strikes and the potential for shortages in supply or
disruption or delay of production and delivery of materials and
products in our supply chain; risks of disruption in the operation
of any of our main manufacturing, distribution, logistics, home
delivery, product development, or customer service facilities or
operations; our 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 service
providers; rising commodity costs and other inflationary pressures;
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; availability of attractive and cost-effective
consumer credit options; 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 upgrading or maintaining 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 of our systems, result in a data breach or
disrupt our business; environmental risks, including increasing
environmental regulation and the broader impacts of climate change
such as from weather-related events; and our ability, and the
ability of our suppliers and vendors, 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 2,
% of
April 3,
% of
2022
Net Sales
2021
Net Sales
Net sales
$
527,130
100.0
%
$
568,256
100.0
%
Cost of sales
224,832
42.7
%
212,338
37.4
%
Gross profit
302,298
57.3
%
355,918
62.6
%
Operating expenses: Sales and marketing
240,259
45.6
%
223,617
39.4
%
General and administrative
41,319
7.8
%
42,592
7.5
%
Research and development
16,305
3.1
%
13,286
2.3
%
Total operating expenses
297,883
56.5
%
279,495
49.2
%
Operating income
4,415
0.8
%
76,423
13.4
%
Interest expense, net
2,127
0.4
%
977
0.2
%
Income before income taxes
2,288
0.4
%
75,446
13.3
%
Income tax expense
214
0.0
%
8,812
1.6
%
Net income
$
2,074
0.4
%
$
66,634
11.7
%
Net income per share – basic
$
0.09
$
2.63
Net income per share – diluted
$
0.09
$
2.51
Reconciliation of weighted-average shares
outstanding: Basic weighted-average shares outstanding
22,760
25,377
Dilutive effect of stock-based awards
831
1,167
Diluted weighted-average shares outstanding
23,591
26,544
SLEEP NUMBER CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited – in thousands,
except per share amounts) subject to reclassification
April 2, January 1,
2022
2022
Assets Current assets: Cash and cash equivalents
$
1,556
$
2,389
Accounts receivable, net of allowances of $1,047 and $924,
respectively
24,502
25,718
Inventories
103,212
105,644
Prepaid expenses
22,001
18,953
Other current assets
40,624
54,917
Total current assets
191,895
207,621
Non-current assets: Property and equipment, net
197,644
195,128
Operating lease right-of-use assets
374,650
371,133
Goodwill and intangible assets, net
69,867
70,468
Other non-current assets
78,529
75,190
Total assets
$
912,585
$
919,540
Liabilities and Shareholders’ Deficit Current
liabilities: Borrowings under revolving credit facility
$
413,200
$
382,500
Accounts payable
177,025
162,547
Customer prepayments
142,005
129,499
Accrued sales returns
20,277
22,368
Compensation and benefits
25,702
51,240
Taxes and withholding
26,293
22,087
Operating lease liabilities
74,046
72,360
Other current liabilities
59,390
64,177
Total current liabilities
937,938
906,778
Non-current liabilities: Deferred income taxes
312
688
Operating lease liabilities
338,528
336,192
Other non-current liabilities
105,020
100,835
Total non-current liabilities
443,860
437,715
Total liabilities
1,381,798
1,344,493
Shareholders’ deficit: Undesignated preferred stock; 5,000
shares authorized, no shares issued and outstanding
-
-
Common stock, $0.01 par value; 142,500 shares authorized, 22,232
and 22,683 shares issued and outstanding, respectively
222
227
Additional paid-in capital
-
3,971
Accumulated deficit
(469,435
)
(429,151
)
Total shareholders’ deficit
(469,213
)
(424,953
)
Total liabilities and shareholders’ deficit
$
912,585
$
919,540
SLEEP NUMBER
CORPORATION
AND SUBSIDIARIES
Consolidated Statements of
Cash Flows
(unaudited - in
thousands)
subject to
reclassification
Three Months Ended
April 2,
April 3,
2022
2021
Cash flows from operating activities:
Net income
$
2,074
$
66,634
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization
15,870
14,638
Stock-based compensation
4,133
6,416
Net loss on disposals and impairments of assets
93
78
Deferred income taxes
(376
)
1,515
Changes in operating assets and liabilities: Accounts receivable
1,216
5,948
Inventories
2,432
(946
)
Income taxes
1,102
6,847
Prepaid expenses and other assets
10,877
(3,113
)
Accounts payable
2,073
12,390
Customer prepayments
12,506
20,552
Accrued compensation and benefits
(25,348
)
(34,605
)
Other taxes and withholding
3,104
8,912
Other accruals and liabilities
(5,198
)
6,332
Net cash provided by operating activities
24,558
111,598
Cash flows from investing activities:
Purchases of property and equipment
(19,604
)
(11,546
)
Proceeds from sales of property and equipment
10
12
Net cash used in investing activities
(19,594
)
(11,534
)
Cash flows from financing activities:
Net increase in short-term borrowings
44,712
74,087
Repurchases of common stock
(50,998
)
(178,613
)
Proceeds from issuance of common stock
531
2,460
Debt issuance costs
(42
)
(3
)
Net cash used in financing activities
(5,797
)
(102,069
)
Net decrease in cash and cash
equivalents
(833
)
(2,005
)
Cash and cash equivalents, at beginning of
period
2,389
4,243
Cash and cash equivalents, at end of
period
$
1,556
$
2,238
SLEEP NUMBER CORPORATION AND SUBSIDIARIES
Supplemental Financial Information (unaudited)
Three Months Ended April 2, April 3,
2022
2021
Percent of sales: Retail stores
84.3
%
86.1
%
Online, phone, chat and other
15.7
%
13.9
%
Total Company
100.0
%
100.0
%
Sales change rates: Retail comparable-store sales
(14
%)
12
%
Online, phone and chat
5
%
116
%
Total Retail comparable sales change
(11
%)
20
%
Net opened/closed stores and other
4
%
0
%
Total Company
(7
%)
20
%
Stores open: Beginning of period
648
602
Opened
13
11
Closed
(8
)
(6
)
End of period
653
607
Other metrics: Average sales per store ($ in 000's) 1
$
3,487
$
3,196
Average sales per square foot 1
$
1,167
$
1,095
Stores > $2 million net sales 2
82
%
71
%
Stores > $3 million net sales 2
46
%
33
%
Average revenue per smart bed unit 3
$
4,905
$
5,030
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 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
Twelve Months Ended
April 2,
April 3,
April 2,
April 3,
2022
2021
2022
2021
Net income
$
2,074
$
66,634
$
89,186
$
166,683
Income tax expense
214
8,812
24,947
34,265
Interest expense
2,127
978
7,394
7,642
Depreciation and amortization
15,683
14,519
60,943
60,049
Stock-based compensation
4,133
6,417
20,930
26,179
Asset impairments
103
89
186
388
Adjusted EBITDA
$
24,334
$
97,449
$
203,586
$
295,206
Free Cash Flow
(in thousands)
Three Months Ended
Twelve Months Ended
April 2,
April 3,
April 2,
April 3,
2022
2021
2022
2021
Net cash provided by operating
activities
$
24,558
$
111,598
$
212,970
$
306,318
Subtract: Purchases of property and
equipment
19,604
11,546
74,958
38,295
Free cash flow
$
4,954
$
100,052
$
138,012
$
268,023
Calculation of Net Leverage
Ratio under Revolving Credit Facility
(in thousands)
Twelve Months Ended
April 2,
April 3,
2022
2021
Borrowings under revolving credit
facility
$
413,200
$
314,900
Outstanding letters of credit
5,947
3,997
Finance lease obligations
509
622
Consolidated funded indebtedness
$
419,656
$
319,519
Capitalized operating lease
obligations1
629,624
555,903
Total debt including capitalized operating
lease obligations (a)
$
1,049,280
$
875,422
Adjusted EBITDA (see above)
$
203,586
$
295,206
Consolidated rent expense
104,937
92,650
Consolidated EBITDAR (b)
$
308,523
$
387,856
Net Leverage Ratio under revolving credit
facility (a divided by b)
3.4 to 1.0
2.3 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:
Twelve Months Ended
April 2, 2022
April 3, 2021
Net operating profit
after taxes (NOPAT)
Operating income
$
121,527
$
208,506
Add: Rent expense 1
104,937
92,650
Add: Interest income
-
84
Less: Depreciation on capitalized
operating leases 2
(26,311
)
(24,258
)
Less: Income taxes 3
(47,503
)
(66,118
)
NOPAT
$
152,650
$
210,864
Average invested
capital
Total deficit
$
(469,213
)
$
(332,650
)
Add: Long-term debt 4
413,709
315,522
Add: Capitalized operating lease
obligations 5
839,496
741,200
Total invested capital at end of
period
$
783,992
$
724,072
Average invested capital 6
$
746,167
$
763,227
Return on invested capital (ROIC) 7
20.5
%
27.6
%
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 23.7% and 23.9%
for 2022 and 2021, 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/20220420005177/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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