- Second-quarter net sales increased 13% and diluted EPS grew
75% versus the prior year
- Year-to-date net sales increased 2% with year-to-date
diluted EPS of $1.60 versus $3.44 for the same period last year on
constrained electronics supply, inflation pressures and low
consumer sentiment
- Updated 2022 EPS outlook to a range of $3.00 to $4.00 per
share
Sleep Number Corporation (Nasdaq: SNBR) today reported results
for the quarter ended July 2, 2022.
“Our second-quarter performance reflects our team’s incredible
agility in navigating a complex business environment. Ongoing
electronic supply disruptions, inflationary pressures and record
low consumer sentiment are reflected in our revised 2022 EPS
outlook. We are taking prudent actions to preserve liquidity and
financial flexibility,” said Shelly Ibach, Chair, President and
CEO. “Sleep Number brand metrics are strong, and we continue to
advance our life changing innovations. We are positioned to rebound
rapidly as consumer confidence and flow of electronic parts
improve.”
Second Quarter Overview
- Net sales increased 13% to $549 million, while demand
decreased 12% for the quarter, reflecting record low consumer
sentiment
- Gross margin of 59.2% of net sales, more than 100 basis
points above expectations due to favorable product mix which more
than offset operating inefficiencies resulting from the uneven flow
of electronics supply
- Earnings per diluted share increased 75% to $1.54,
compared with $0.88 for the prior year
Cash Flows and Liquidity Review
- Year-to-date net cash from operating activities of $29 million
were pressured by year-over-year changes in working capital and
lower net income
- Invested $37 million in capital expenditures and $55 million in
Sleep Number stock for the first six months of the year; planning
no share repurchases in the third quarter as we prioritize
performance-driving investments
- Leverage ratio of 3.3x EBITDAR at the end of the second
quarter; more than $375 million of liquidity remains against
current debt facility
- Return on invested capital (ROIC) was 21.8% for the trailing
twelve-month period
Financial Outlook
The company updated its full-year 2022 diluted EPS outlook to a
range of $3.00 to $4.00 per share based on macro conditions. The
outlook assumes low single-digit net sales growth for 2022 on a
high single-digit demand decline, while servicing excess backlog.
The company anticipates 2022 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 5,500 passionate team members
who are dedicated to our mission of improving lives by
individualizing sleep experiences. We have improved more than 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 1.95 billion sleep sessions of highly-accurate,
real world sleep data – the culmination of over 15 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 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 war in
Ukraine), strikes, labor shortages, government-mandated work
closures, 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 operate 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
July 2,
% of
July 3,
% of
2022
Net Sales
2021
Net Sales
Net sales
$
549,073
100.0
%
$
484,316
100.0
%
Cost of sales
224,128
40.8
%
191,465
39.5
%
Gross profit
324,945
59.2
%
292,851
60.5
%
Operating expenses: Sales and marketing
220,490
40.2
%
205,994
42.5
%
General and administrative
38,727
7.1
%
41,220
8.5
%
Research and development
15,817
2.9
%
15,916
3.3
%
Total operating expenses
275,034
50.1
%
263,130
54.3
%
Operating income
49,911
9.1
%
29,721
6.1
%
Interest expense, net
3,619
0.7
%
1,607
0.3
%
Income before income taxes
46,292
8.4
%
28,114
5.8
%
Income tax expense
11,359
2.1
%
5,864
1.2
%
Net income
$
34,933
6.4
%
$
22,250
4.6
%
Net income per share – basic
$
1.56
$
0.91
Net income per share – diluted
$
1.54
$
0.88
Reconciliation of weighted-average shares
outstanding: Basic weighted-average shares outstanding
22,355
24,371
Dilutive effect of stock-based awards
358
823
Diluted weighted-average shares outstanding
22,713
25,194
SLEEP NUMBER
CORPORATION
AND SUBSIDIARIES
Consolidated Statements of
Operations
(unaudited – in thousands,
except per share amounts)
Six Months Ended
July 2,
% of
July 3,
% of
2022
Net Sales
2021
Net Sales
Net sales
$
1,076,203
100.0
%
$
1,052,572
100.0
%
Cost of sales
448,960
41.7
%
403,803
38.4
%
Gross profit
627,243
58.3
%
648,769
61.6
%
Operating expenses: Sales and marketing
460,749
42.8
%
429,611
40.8
%
General and administrative
80,046
7.4
%
83,812
8.0
%
Research and development
32,122
3.0
%
29,202
2.8
%
Total operating expenses
572,917
53.2
%
542,625
51.6
%
Operating income
54,326
5.0
%
106,144
10.1
%
Interest expense, net
5,746
0.5
%
2,584
0.2
%
Income before income taxes
48,580
4.5
%
103,560
9.8
%
Income tax expense
11,573
1.1
%
14,676
1.4
%
Net income
$
37,007
3.4
%
$
88,884
8.4
%
Net income per share – basic
$
1.64
$
3.57
Net income per share – diluted
$
1.60
$
3.44
Reconciliation of weighted-average shares
outstanding: Basic weighted-average shares outstanding
22,558
24,874
Dilutive effect of stock-based awards
594
995
Diluted weighted-average shares outstanding
23,152
25,869
SLEEP NUMBER
CORPORATION
AND SUBSIDIARIES
Consolidated Balance
Sheets
(unaudited – in thousands,
except per share amounts)
subject to
reclassification
July 2,
January 1,
2022
2022
Assets Current assets: Cash and cash equivalents
$
2,279
$
2,389
Accounts receivable, net of allowances of $1,326 and $924,
respectively
28,616
25,718
Inventories
121,318
105,644
Prepaid expenses
24,575
18,953
Other current assets
45,077
54,917
Total current assets
221,865
207,621
Non-current assets: Property and equipment, net
196,888
195,128
Operating lease right-of-use assets
382,324
371,133
Goodwill and intangible assets, net
69,267
70,468
Deferred income taxes
3,106
-
Other non-current assets
76,637
75,190
Total assets
$
950,087
$
919,540
Liabilities and Shareholders’ Deficit Current
liabilities: Borrowings under revolving credit facility
$
443,300
$
382,500
Accounts payable
167,213
162,547
Customer prepayments
114,745
129,499
Accrued sales returns
24,656
22,368
Compensation and benefits
33,274
51,240
Taxes and withholding
27,426
22,087
Operating lease liabilities
76,041
72,360
Other current liabilities
58,605
64,177
Total current liabilities
945,260
906,778
Non-current liabilities: Deferred income taxes
-
688
Operating lease liabilities
344,475
336,192
Other non-current liabilities
103,314
100,835
Total non-current liabilities
447,789
437,715
Total liabilities
1,393,049
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, 21,964
and 22,683 shares issued and outstanding, respectively
220
227
Additional paid-in capital
-
3,971
Accumulated deficit
(443,182
)
(429,151
)
Total shareholders’ deficit
(442,962
)
(424,953
)
Total liabilities and shareholders’ deficit
$
950,087
$
919,540
SLEEP NUMBER
CORPORATION
AND SUBSIDIARIES
Consolidated Statements of
Cash Flows
(unaudited - in
thousands)
subject to
reclassification
Six Months Ended
July 2,
July 3,
2022
2021
Cash flows from operating activities: Net income
$
37,007
$
88,884
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization
31,975
29,800
Stock-based compensation
8,043
12,385
Net loss on disposals and impairments of assets
179
78
Deferred income taxes
(3,794
)
421
Changes in operating assets and liabilities: Accounts receivable
(2,898
)
8,666
Inventories
(15,674
)
(7,215
)
Income taxes
4,368
(11,625
)
Prepaid expenses and other assets
6,266
(13,407
)
Accounts payable
(1,713
)
23,232
Customer prepayments
(14,754
)
47,418
Accrued compensation and benefits
(17,789
)
(22,387
)
Other taxes and withholding
971
487
Other accruals and liabilities
(3,496
)
4,683
Net cash provided by operating activities
28,691
161,420
Cash flows from investing activities: Purchases of property
and equipment
(36,559
)
(32,012
)
Proceeds from sales of property and equipment
23
12
Net cash used in investing activities
(36,536
)
(32,000
)
Cash flows from financing activities: Net increase in
short-term borrowings
70,836
146,447
Repurchases of common stock
(63,644
)
(280,915
)
Proceeds from issuance of common stock
585
3,535
Debt issuance costs
(42
)
(557
)
Net cash provided by (used in) financing activities
7,735
(131,490
)
Net decrease in cash and cash equivalents
(110
)
(2,070
)
Cash and cash equivalents, at beginning of period
2,389
4,243
Cash and cash equivalents, at end of period
$
2,279
$
2,173
SLEEP NUMBER
CORPORATION
AND SUBSIDIARIES
Supplemental Financial
Information
(unaudited)
Three Months Ended
Six Months Ended
July 2,
July 3,
July 2,
July 3,
2022
2021
2022
2021
Percent of sales: Retail stores
89.4
%
88.1
%
86.9
%
87.0
%
Online, phone, chat and other
10.6
%
11.9
%
13.1
%
13.0
%
Total Company
100.0
%
100.0
%
100.0
%
100.0
%
Sales change rates: Retail comparable-store sales
10
%
102
%
(3
%)
41
%
Online, phone and chat
2
%
(28
%)
4
%
17
%
Total Retail comparable sales change
9
%
65
%
(2
%)
37
%
Net opened/closed stores and other
4
%
5
%
4
%
2
%
Total Company
13
%
70
%
2
%
39
%
Stores open: Beginning of period
653
607
648
602
Opened
10
26
23
37
Closed
(4
)
(12
)
(12
)
(18
)
End of period
659
621
659
621
Other metrics: Average sales per store ($ in 000's) 1
$
3,526
$
3,542
Average sales per square foot 1
$
1,172
$
1,203
Stores > $2 million net sales 2
82
%
82
%
Stores > $3 million net sales 2
45
%
47
%
Average revenue per smart bed unit 3
$
6,485
$
5,094
$
5,601
$
5,059
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
Trailing Twelve Months
Ended
July 2,
July 3,
July 2,
July 3,
2022
2021
2022
2021
Net income
$
34,933
$
22,250
$
101,869
$
201,563
Income tax expense
11,359
5,864
30,442
43,564
Interest expense
3,619
1,607
9,406
5,227
Depreciation and amortization
15,920
15,006
61,857
59,802
Stock-based compensation
3,910
5,968
18,872
27,114
Asset impairments
80
-
266
142
Adjusted EBITDA
$
69,821
$
50,695
$
222,712
$
337,412
Free Cash Flow
(in thousands)
Three Months Ended
Trailing Twelve Months
Ended
July 2,
July 3,
July 2,
July 3,
2022
2021
2022
2021
Net cash provided by operating activities
$
4,133
$
49,822
$
167,281
$
354,080
Subtract: Purchases of property and equipment
16,955
20,466
71,447
47,417
Free cash flow
$
(12,822
)
$
29,356
$
95,834
$
306,663
Calculation of Net Leverage
Ratio under Revolving Credit Facility
(in thousands)
Trailing Twelve Months
Ended
July 2,
July 3,
2022
2021
Borrowings under revolving credit facility
$
443,300
$
382,200
Outstanding letters of credit
5,947
3,997
Finance lease obligations
479
594
Consolidated funded indebtedness
$
449,726
$
386,791
Capitalized operating lease obligations1
642,213
571,358
Total debt including capitalized operating lease obligations (a)
$
1,091,939
$
958,149
Adjusted EBITDA (see above)
$
222,712
$
337,412
Consolidated rent expense
107,035
95,226
Consolidated EBITDAR (b)
$
329,747
$
432,638
Net Leverage Ratio under revolving credit facility (a
divided by b) 3.3 to 1.0 2.2 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:
Trailing Twelve Months
Ended
July 2, 2022
July 3, 2021
Net operating profit after taxes
(NOPAT) Operating income
$
141,718
$
250,352
Add: Rent expense 1
107,035
95,226
Add: Interest income
-
2
Less: Depreciation on capitalized operating leases 2
(27,078
)
(24,577
)
Less: Income taxes 3
(52,891
)
(76,939
)
NOPAT
$
168,784
$
244,064
Average invested capital Total
deficit
$
(442,962
)
$
(403,658
)
Add: Long-term debt 4
443,779
382,794
Add: Capitalized operating lease obligations 5
856,280
761,808
Total invested capital at end of period
$
857,097
$
740,944
Average invested capital 6
$
772,772
$
733,151
Return on invested capital (ROIC) 7
21.8
%
33.3
%
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 23.9% and 24.0% for July 2, 2022 and July 3, 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/20220727005088/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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