- Third-quarter net sales declined 16% versus the prior year
as expected on semiconductor chip supply constraints
- Third-quarter diluted EPS of $0.22 ahead of expectation for
breakeven profits
- Revised 2022 EPS outlook to a range of $1.50 to $2.00 per
diluted share due to constrained, uneven flow of chip supply and
softer demand
Sleep Number Corporation (Nasdaq: SNBR) today reported results
for the quarter ended October 1, 2022.
“We continue to navigate a very difficult environment, including
persistent electronic chip inventory constraints and
softer-than-expected consumer demand. We are aggressively pursuing
actions to improve supply, margin, and demand,” said Shelly Ibach,
Chair, President and CEO. “While the consumer is understandably
cautious, our brand health remains very strong, and our customer
loyalty is stellar. Guided by our purpose, we continue to develop
life-changing sleep innovations, including this month’s
introduction of our revolutionary Climate360™ smart bed, that
position us to generate renewed demand growth. This new smart bed
solves one of our consumer’s greatest sleep issues – temperature,
while also capitalizing on future profitable growth opportunities
in health and wellbeing.”
Third Quarter Overview
- Net sales decreased 16% to $541 million, with demand
decreasing 16% for the quarter, as consumer sentiment remains at
historically low levels
- Gross margin of 56.1% of net sales, reflecting
expediting costs and operating inefficiencies resulting from the
uneven flow of electronics supply
- Diluted EPS of 22 cents, reflecting ongoing chip supply
constraints and challenging macroenvironment
Cash Flows and Liquidity Review
- Year-to-date net cash from operating activities of $80 million
despite macroeconomic pressures
- Invested $53 million in capital expenditures; suspended share
repurchases (in the second quarter) until macroeconomic conditions
improve
- Leverage ratio of 3.99x EBITDAR at the end of the third
quarter; $413 million of liquidity remains against current debt
facility
- Return on invested capital (ROIC) was 15.8% for the trailing
twelve-month period
Financial Outlook The company updated its full-year 2022
diluted EPS outlook to a range of $1.50 to $2.00 per share driven
by insufficient and uneven flow of chip supply and softer demand.
The outlook assumes flat net sales versus the prior year for the
fourth quarter. 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 Sleep Number is a leader
in sleep and wellness technology. Our 360® smart bed platform
connects the physical and digital worlds, creating an immersive,
adaptive, and individualized sleep health experience. Quality sleep
is vital for physical, mental, and emotional wellbeing; our smart
beds deliver exceptional sleep by automatically sensing and
effortlessly adjusting to the needs of each sleeper. Through
partnerships with the world’s leading health and research
institutions, we are advancing sleep science with our 17 billion
hours of highly accurate, longitudinal sleep data from millions of
sleepers in our Smart Sleeper℠ community.
Sleep Number is a company with purpose, with over 5,300
mission-driven team members who are dedicated to improving the
health and wellbeing of society through higher quality sleep. We
have improved more than 14 million lives and are committed to
lifelong relationships with our smart sleepers.
For life-changing sleep, visit SleepNumber.com or one of our
more than 660 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
October 1,
% of
October 2,
% of
2022
Net Sales
2021
Net Sales
Net sales
$
540,566
100.0
%
$
640,393
100.0
%
Cost of sales
237,479
43.9
%
250,039
39.0
%
Gross profit
303,087
56.1
%
390,354
61.0
%
Operating expenses: Sales and marketing
239,656
44.3
%
255,512
39.9
%
General and administrative
36,003
6.7
%
47,676
7.4
%
Research and development
14,786
2.7
%
14,431
2.3
%
Total operating expenses
290,445
53.7
%
317,619
49.6
%
Operating income
12,642
2.3
%
72,735
11.4
%
Interest expense, net
5,606
1.0
%
1,816
0.3
%
Income before income taxes
7,036
1.3
%
70,919
11.1
%
Income tax expense
2,003
0.4
%
17,198
2.7
%
Net income
$
5,033
0.9
%
$
53,721
8.4
%
Net income per share – basic
$
0.23
$
2.29
Net income per share – diluted
$
0.22
$
2.22
Reconciliation of weighted-average shares
outstanding: Basic weighted-average shares outstanding
22,218
23,464
Dilutive effect of stock-based awards
355
769
Diluted weighted-average shares outstanding
22,573
24,233
SLEEP NUMBER
CORPORATION
AND SUBSIDIARIES Consolidated Statements of
Operations (unaudited – in thousands, except per share
amounts)
Nine Months Ended
October 1,
% of
October 2,
% of
2022
Net Sales
2021
Net Sales
Net sales
$
1,616,769
100.0
%
$
1,692,965
100.0
%
Cost of sales
686,439
42.5
%
653,842
38.6
%
Gross profit
930,330
57.5
%
1,039,123
61.4
%
Operating expenses: Sales and marketing
700,405
43.3
%
685,123
40.5
%
General and administrative
116,049
7.2
%
131,488
7.8
%
Research and development
46,908
2.9
%
43,633
2.6
%
Total operating expenses
863,362
53.4
%
860,244
50.8
%
Operating income
66,968
4.1
%
178,879
10.6
%
Interest expense, net
11,352
0.7
%
4,400
0.3
%
Income before income taxes
55,616
3.4
%
174,479
10.3
%
Income tax expense
13,576
0.8
%
31,874
1.9
%
Net income
$
42,040
2.6
%
$
142,605
8.4
%
Net income per share – basic
$
1.87
$
5.84
Net income per share – diluted
$
1.83
$
5.63
Reconciliation of weighted-average shares
outstanding: Basic weighted-average shares outstanding
22,444
24,404
Dilutive effect of stock-based awards
515
920
Diluted weighted-average shares outstanding
22,959
25,324
SLEEP NUMBER
CORPORATION
AND SUBSIDIARIES Consolidated Balance Sheets
(unaudited – in thousands, except per share amounts)
subject to reclassification
October 1,
January 1,
2022
2022
Assets Current assets: Cash and cash equivalents
$
1,348
$
2,389
Accounts receivable, net of allowances of $1,508 and $924,
respectively
26,747
25,718
Inventories
113,554
105,644
Prepaid expenses
21,214
18,953
Other current assets
34,803
54,917
Total current assets
197,666
207,621
Non-current assets: Property and equipment, net
199,917
195,128
Operating lease right-of-use assets
389,524
371,133
Goodwill and intangible assets, net
68,666
70,468
Deferred income taxes
6,267
-
Other non-current assets
78,741
75,190
Total assets
$
940,781
$
919,540
Liabilities and Shareholders’ Deficit Current
liabilities: Borrowings under revolving credit facility
$
406,300
$
382,500
Accounts payable
199,154
162,547
Customer prepayments
95,274
129,499
Accrued sales returns
25,651
22,368
Compensation and benefits
27,339
51,240
Taxes and withholding
31,361
22,087
Operating lease liabilities
77,243
72,360
Other current liabilities
60,949
64,177
Total current liabilities
923,271
906,778
Non-current liabilities: Deferred income taxes
-
688
Operating lease liabilities
350,370
336,192
Other non-current liabilities
104,611
100,835
Total non-current liabilities
454,981
437,715
Total liabilities
1,378,252
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, 22,001
and 22,683 shares issued and outstanding, respectively
220
227
Additional paid-in capital
458
3,971
Accumulated deficit
(438,149
)
(429,151
)
Total shareholders’ deficit
(437,471
)
(424,953
)
Total liabilities and shareholders’ deficit
$
940,781
$
919,540
SLEEP NUMBER
CORPORATION
AND SUBSIDIARIES Consolidated Statements of Cash
Flows (unaudited - in thousands) subject to
reclassification
Nine Months Ended
October 1,
October 2,
2022
2021
Cash flows from operating activities: Net income
$
42,040
$
142,605
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization
49,342
44,786
Stock-based compensation
8,585
19,701
Net loss (gain) on disposals and impairments of assets
274
(20
)
Deferred income taxes
(6,955
)
291
Changes in operating assets and liabilities: Accounts receivable
(1,029
)
(1,517
)
Inventories
(11,080
)
(4,767
)
Income taxes
4,530
5,615
Prepaid expenses and other assets
20,082
(13,879
)
Accounts payable
28,889
51,543
Customer prepayments
(34,225
)
35,785
Accrued compensation and benefits
(23,735
)
(12,725
)
Other taxes and withholding
4,744
7,636
Other accruals and liabilities
(1,340
)
17,630
Net cash provided by operating activities
80,122
292,684
Cash flows from investing activities: Purchases of property
and equipment
(52,808
)
(49,370
)
Proceeds from sales of property and equipment
49
257
Net cash used in investing activities
(52,759
)
(49,113
)
Cash flows from financing activities: Net increase in
short-term borrowings
34,781
132,222
Repurchases of common stock
(64,141
)
(381,496
)
Proceeds from issuance of common stock
998
3,847
Debt issuance costs
(42
)
(557
)
Net cash used in financing activities
(28,404
)
(245,984
)
Net decrease in cash and cash equivalents
(1,041
)
(2,413
)
Cash and cash equivalents, at beginning of period
2,389
4,243
Cash and cash equivalents, at end of period
$
1,348
$
1,830
SLEEP NUMBER
CORPORATION
AND SUBSIDIARIES Supplemental Financial Information
(unaudited)
Three Months Ended
Nine Months Ended
October 1,
October 2,
October 1,
October 2,
2022
2021
2022
2021
Percent of sales:
Retail stores
86.3
%
88.4
%
86.7
%
87.5
%
Online, phone, chat and other
13.7
%
11.6
%
13.3
%
12.5
%
Total Company
100.0
%
100.0
%
100.0
%
100.0
%
Sales change rates:
Retail comparable-store sales
(21
%)
19
%
(10
%)
32
%
Online, phone and chat
0
%
0
%
3
%
11
%
Total Retail comparable sales change
(18
%)
16
%
(8
%)
28
%
Net opened/closed stores and other
2
%
5
%
3
%
3
%
Total Company
(16
%)
21
%
(5
%)
31
%
Stores open:
Beginning of period
659
621
648
602
Opened
12
18
35
55
Closed
(9
)
(7
)
(21
)
(25
)
End of period
662
632
662
632
Other metrics:
Average sales per store ($ in 000's) 1
$
3,302
$
3,689
Average sales per square foot 1
$
1,093
$
1,249
Stores > $2 million net sales 2
77
%
85
%
Stores > $3 million net sales 2
38
%
50
%
Average revenue per smart bed unit 3
$
5,083
$
5,021
$
5,416
$
5,045
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
October 1,
October 2,
October 1,
October 2,
2022
2021
2022
2021
Net income
$
5,033
$
53,721
$
53,181
$
203,964
Income tax expense
2,003
17,198
15,247
44,294
Interest expense
5,606
1,816
13,196
5,214
Depreciation and amortization
17,180
14,820
64,217
59,539
Stock-based compensation
542
7,317
12,097
25,961
Asset impairments
95
23
338
154
Adjusted EBITDA
$
30,459
$
94,895
$
158,276
$
339,126
Free Cash Flow
(in thousands)
Three Months Ended
Trailing Twelve Months
Ended
October 1,
October 2,
October 1,
October 2,
2022
2021
2022
2021
Net cash provided by operating activities
$
51,431
$
131,264
$
87,448
$
285,063
Subtract: Purchases of property and equipment
16,249
17,358
70,338
58,396
Free cash flow
$
35,182
$
113,906
$
17,110
$
226,667
Calculation of Net Leverage
Ratio under Revolving Credit Facility
(in thousands)
Trailing Twelve Months
Ended
October 1,
October 2,
2022
2021
Borrowings under revolving credit facility
$
406,300
$
359,100
Outstanding letters of credit
5,947
3,997
Finance lease obligations
450
566
Consolidated funded indebtedness
$
412,697
$
363,663
Capitalized operating lease obligations1
650,742
593,034
Total debt including capitalized operating lease obligations (a)
$
1,063,439
$
956,697
Adjusted EBITDA (see above)
$
158,276
$
339,126
Consolidated rent expense
108,457
98,839
Consolidated EBITDAR (b)
$
266,733
$
437,965
Net Leverage Ratio under revolving credit facility (a
divided by b) 4.0 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 October 1,2022
October 2,2021 Net operating profit
after taxes (NOPAT) Operating income
$
81,625
$
253,472
Add: Rent expense 1
108,457
98,839
Less: Depreciation on capitalized operating leases 2
(27,784
)
(25,030
)
Less: Income taxes 3
(36,853
)
(78,975
)
NOPAT
$
125,445
$
248,306
Average invested capital Total
deficit
$
(437,471
)
$
(440,066
)
Add: Long-term debt 4
406,750
359,666
Add: Capitalized operating lease obligations 5
867,656
790,712
Total invested capital at end of period
$
836,935
$
710,312
Average invested capital 6
$
791,970
$
717,670
Return on invested capital (ROIC) 7
15.8
%
34.6
%
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 22.7% and 24.1% for October 1, 2022 and October 2,
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/20221026005059/en/
Investor Contact: Dave Schwantes; (763) 551-7498;
investorrelations@sleepnumber.com Media Contact: Julie
Elepano; (414) 732-9840; julie.elepano@sleepnumber.com
Sleep Number (NASDAQ:SNBR)
Historical Stock Chart
From May 2024 to Jun 2024
Sleep Number (NASDAQ:SNBR)
Historical Stock Chart
From Jun 2023 to Jun 2024