- Fourth quarter net sales increased 1% versus the prior
year
- Full year net sales decreased 3% to $2.11 billion, with full
year diluted earnings per share (EPS) of $1.60
- Generated $36 million of operating cash flows for the year
and an Adjusted ROIC of 17.6%
- Provides 2023 earnings outlook of $1.25 to $2.00 per diluted
share
Sleep Number Corporation (Nasdaq: SNBR) today reported results
for the year ended December 31, 2022.
“As we navigated a series of significant macro challenges in
2022, we achieved important strategic advancements that strengthen
our sleep technology leadership. These advancements will position
Sleep Number to capitalize on profitable growth opportunities when
the consumer environment improves,” said Shelly Ibach, Chair,
President and CEO. “Consumer response to our best innovation to
date – the new Climate360 smart bed – has been strong, and we are
excited to introduce our next-generation smart beds beginning in
the second quarter. We are seeing improved demand trends early in
the year, with the consistent flow of microchips supporting
normalized delivery times for our smart beds and adjustable bases.
I am grateful to our Sleep Number team for their resilience and
commitment to our purpose of improving the health and wellbeing of
society through higher quality sleep.”
Fourth Quarter Overview
- Net sales were $498 million, up 1% compared with $492
million last year
- Gross profit decreased 3% to $272 million, or 54.7% of
net sales, compared with $280 million or 56.9% of net sales for the
prior year
- Net loss per diluted share of $0.24, compared to net
income per diluted share of $0.47 last year
Full Year Overview
- Net sales decreased 3% to $2.11 billion in 2022; full
year demand declined 13% versus the prior year, partially offset by
the delivery of excess backlog
- Gross profit decreased 9% to $1.2 billion, or 56.9% of
net sales, including the impact of year-over-year input cost
increases and inefficiencies from semiconductor chip constraints,
partially offset by pricing actions
- Diluted EPS of $1.60, compared to $6.16 last year
Cash Flows and Liquidity Review
- Generated $36 million in net cash from operating
activities
- Invested $69 million in capital expenditures; suspended share
repurchases in the second quarter of 2022
- Leverage ratio of 4.4x EBITDAR at the end of the fourth quarter
versus covenant maximum of 5.0x; $359 million of liquidity remains
against current credit facility
- Adjusted return on invested capital (Adjusted ROIC) was 17.6%
for the trailing twelve-month period
Financial Outlook
The company expects 2023 diluted EPS of $1.25 to $2.00. The 2023
outlook assumes net sales are flat to down mid-single digits versus
the prior year. The outlook assumes gross margin rate improves by
more than 150 basis points versus 2022. The company expects to
generate over $100 million of operating cash flow for the year and
positive free cash flows. The company anticipates 2023 capital
expenditures of $50 million to $60 million and is planning no share
repurchases during the year.
Conference Call Information
Management will host its regularly scheduled conference call to
discuss the company’s results at 5 p.m. EST (4 p.m. CST; 2 p.m.
PST) 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 wellness technology company. Over 14 million
people have had their lives improved by our award-winning sleep
innovations and are experiencing the physical, mental and emotional
benefits of life-changing sleep performance. Our proprietary smart
beds combine the physical and digital worlds, integrating
exceptional sleep with a highly advanced digital technology
platform. This means only Sleep Number can provide a dynamic,
adjustable and adaptive sleep experience that effortlessly responds
to the needs of each sleeper. Our millions of Smart Sleepers
benefit from their smart bed changing with them, over time; it is
unique, like they are.
Our differentiated business model is guided by our purpose to
improve the health and wellbeing of society through higher quality
sleep. We partner with world-leading sleep and health institutions
to bring the power of 18 billion hours of longitudinal sleep data
to sleep science and research. Our retail experience meets our
consumers whenever and wherever they choose – through online and
in-store touchpoints. And our 5,000 mission-driven team members
passionately deliver individualized sleep experiences for
everyone.
For life-changing sleep, visit one of our 670 stores, our
newsroom and investor relations sites, or SleepNumber.com
Forward-looking Statements
Statements used in this news release relating to future plans,
events, financial results or performance, such as the company’s
outlook for full-year 2023 diluted EPS, are forward-looking
statements subject to certain risks and uncertainties including,
among others, such factors as current and future economic
conditions and consumer sentiment; increases in interest rates,
which have increased the cost of servicing the company’s
indebtedness; availability of attractive and cost-effective
consumer credit options; operating with minimal levels of
inventory, which may leave the company vulnerable to supply
shortages; Sleep Number’s dependence on, and ability to maintain
strong working relationships with key suppliers and third parties;
rising commodity costs or third-party logistics costs and other
inflationary pressures; risks inherent in global-sourcing
activities, including tariffs, geo-political turmoil, war, strikes,
labor challenges, government-mandated work closures, outbreaks of
pandemics or contagious diseases, and resulting supply shortages
and production and delivery delays and disruptions; risks of
disruption due to health epidemics or pandemics, such as the
COVID-19 pandemic; regional risks related to having global
operations and suppliers, including climate and other disasters;
the effectiveness of the company’s marketing strategy and
promotional efforts; the execution of Sleep Number’s Total Retail
distribution strategy; ability to achieve and maintain high levels
of product quality; ability to improve and expand Sleep Number’s
product line and execute successful new product introductions;
ability to prevent third parties from using the company’s
technology or trademarks, and the adequacy of its intellectual
property rights to protect its products and brand; ability to
compete; risks of disruption in the operation of any of the
company’s main manufacturing, distribution, logistics, home
delivery, product development or customer service operations; the
company’s ability to comply with existing and changing government
regulation; pending or unforeseen litigation and the potential for
associated adverse publicity; the adequacy of the company’s and
third-party information systems and costs and disruptions related
to upgrading or maintaining these systems; the company’s ability to
withstand cyber threats that could compromise the security of its
systems, result in a data breach or business disruption; Sleep
Number’s ability, and the ability of its suppliers and vendors, to
attract, retain and motivate qualified personnel; the volatility of
Sleep Number stock; environmental, social and governance (ESG)
risks, including increasing regulation and stakeholder
expectations; and the company’s ability to adapt to climate change
and readiness for legal or regulatory responses thereto.
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 December 31, % of January 1, %
of
2022
Net Sales
2022
Net Sales
Net sales
$
497,528
100.0
%
$
491,984
100.0
%
Cost of sales
225,562
45.3
%
212,260
43.1
%
Gross profit
271,966
54.7
%
279,724
56.9
%
Operating expenses: Sales and marketing
219,224
44.1
%
220,236
44.8
%
General and administrative
37,217
7.5
%
29,924
6.1
%
Research and development
14,613
2.9
%
14,907
3.0
%
Total operating expenses
271,054
54.5
%
265,067
53.9
%
Operating income
912
0.2
%
14,657
3.0
%
Interest expense, net
7,633
1.5
%
1,845
0.4
%
(Loss) income before income taxes
(6,721
)
(1.4
%)
12,812
2.6
%
Income tax (benefit) expense
(1,291
)
(0.3
%)
1,671
0.3
%
Net (loss) income
$
(5,430
)
(1.1
%)
$
11,141
2.3
%
Net (loss) income per share – basic
$
(0.24
)
$
0.49
Net (loss) income per share – diluted
$
(0.24
)
$
0.47
Reconciliation of weighted-average shares
outstanding: Basic weighted-average shares outstanding
22,249
22,939
Dilutive effect of stock-based awards 1
-
877
Diluted weighted-average shares outstanding 1
22,249
23,816
1 For the three months ended
December 31, 2022, 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) Twelve Months
Ended December 31, % of January 1, %
of
2022
Net Sales
2022
Net Sales
Net sales
$
2,114,297
100.0
%
$
2,184,949
100.0
%
Cost of sales
912,001
43.1
%
866,102
39.6
%
Gross profit
1,202,296
56.9
%
1,318,847
60.4
%
Operating expenses: Sales and marketing
919,629
43.5
%
905,359
41.4
%
General and administrative
153,266
7.2
%
161,412
7.4
%
Research and development
61,521
2.9
%
58,540
2.7
%
Total operating expenses
1,134,416
53.7
%
1,125,311
51.5
%
Operating income
67,880
3.2
%
193,536
8.9
%
Interest expense, net
18,985
0.9
%
6,245
0.3
%
Income before income taxes
48,895
2.3
%
187,291
8.6
%
Income tax expense
12,285
0.6
%
33,545
1.5
%
Net income
$
36,610
1.7
%
$
153,746
7.0
%
Net income per share – basic
$
1.63
$
6.40
Net income per share – diluted
$
1.60
$
6.16
Reconciliation of weighted-average shares
outstanding: Basic weighted-average shares outstanding
22,396
24,038
Dilutive effect of stock-based awards
456
909
Diluted weighted-average shares outstanding
22,852
24,947
SLEEP NUMBER CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (unaudited – in thousands,
except per share amounts) subject to reclassification
December 31, January 1,
2022
2022
Assets Current assets: Cash and cash equivalents
$
1,792
$
2,389
Accounts receivable, net of allowances of $1,267 and $924,
respectively
26,005
25,718
Inventories
114,034
105,644
Prepaid expenses
16,006
18,953
Other current assets
39,921
54,917
Total current assets
197,758
207,621
Non-current assets: Property and equipment, net
200,605
195,128
Operating lease right-of-use assets
397,755
371,133
Goodwill and intangible assets, net
68,065
70,468
Deferred income taxes
7,958
-
Other non-current assets
81,795
75,190
Total assets
$
953,936
$
919,540
Liabilities and Shareholders’ Deficit Current
liabilities: Borrowings under revolving credit facility
$
459,600
$
382,500
Accounts payable
176,207
162,547
Customer prepayments
73,181
129,499
Accrued sales returns
25,594
22,368
Compensation and benefits
31,291
51,240
Taxes and withholding
23,622
22,087
Operating lease liabilities
79,533
72,360
Other current liabilities
60,785
64,177
Total current liabilities
929,813
906,778
Non-current liabilities: Deferred income taxes
-
688
Operating lease liabilities
356,879
336,192
Other non-current liabilities
105,421
100,835
Total non-current liabilities
462,300
437,715
Total liabilities
1,392,113
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, 22,014
and 22,683 shares issued and outstanding, respectively
220
227
Additional paid-in capital
5,182
3,971
Accumulated deficit
(443,579
)
(429,151
)
Total shareholders’ deficit
(438,177
)
(424,953
)
Total liabilities and shareholders’ deficit
$
953,936
$
919,540
SLEEP NUMBER CORPORATION AND
SUBSIDIARIES Consolidated Statements of Cash Flows
(unaudited - in thousands) subject to
reclassification Twelve Months Ended December
31, January 1,
2022
2022
Cash flows from operating activities: Net income
$
36,610
$
153,746
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization
67,401
60,394
Stock-based compensation
13,223
23,214
Net loss on disposals and impairments of assets
291
37
Deferred income taxes
(8,646
)
446
Changes in operating assets and liabilities: Accounts receivable
(287
)
6,153
Inventories
(11,560
)
(24,282
)
Income taxes
1,356
(3,066
)
Prepaid expenses and other assets
19,379
(13,836
)
Accounts payable
(4,743
)
54,405
Customer prepayments
(56,318
)
57,482
Accrued compensation and benefits
(19,821
)
(24,790
)
Other taxes and withholding
179
1,814
Other accruals and liabilities
(926
)
8,293
Net cash provided by operating activities
36,138
300,010
Cash flows from investing activities: Purchases of property
and equipment
(69,454
)
(66,900
)
Proceeds from sales of property and equipment
49
257
Investment in non-marketable equity securities
(1,202
)
-
Net cash used in investing activities
(70,607
)
(66,643
)
Cash flows from financing activities: Net increase in
short-term borrowings
97,647
145,473
Repurchases of common stock
(64,188
)
(382,376
)
Proceeds from issuance of common stock
1,131
4,441
Debt issuance costs
(718
)
(2,759
)
Net cash provided by (used in) financing activities
33,872
(235,221
)
Net decrease in cash and cash equivalents
(597
)
(1,854
)
Cash and cash equivalents, at beginning of period
2,389
4,243
Cash and cash equivalents, at end of period
$
1,792
$
2,389
SLEEP NUMBER CORPORATION AND SUBSIDIARIES
Supplemental Financial Information (unaudited)
Three Months Ended Twelve Months Ended
December 31, January 1, December 31,
January 1,
2022
2022
2022
2022
Percent of sales: Retail stores
84.8
%
85.8
%
86.3
%
87.1
%
Online, phone, chat and other
15.2
%
14.2
%
13.7
%
12.9
%
Total Company
100.0
%
100.0
%
100.0
%
100.0
%
Sales change rates: Retail comparable-store sales
(3
%)
(11
%)
(8
%)
19
%
Online, phone and chat
10
%
(11
%)
4
%
4
%
Total Retail comparable sales change
(1
%)
(11
%)
(6
%)
17
%
Net opened/closed stores and other
2
%
(2
%)
3
%
1
%
Total Company
1
%
(13
%)
(3
%)
18
%
Stores open: Beginning of period
662
632
648
602
Opened
14
22
49
77
Closed
(6
)
(6
)
(27
)
(31
)
End of period
670
648
670
648
Other metrics: Average sales per store ($ in 000's) 1
$
3,281
$
3,600
Average sales per square foot 1
$
1,081
$
1,212
Stores > $2 million net sales 2
76
%
84
%
Stores > $3 million net sales 2
36
%
48
%
Average revenue per smart bed unit 3
$
5,361
$
5,309
$
5,403
$
5,102
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
December 31, January 1, December 31,
January 1,
2022
2022
2022
2022
Net (loss) income
$
(5,430
)
$
11,141
$
36,610
$
153,746
Income tax (benefit) expense
(1,291
)
1,671
12,285
33,545
Interest expense
7,633
1,844
18,985
6,245
Depreciation and amortization
17,843
15,434
66,626
59,779
Stock-based compensation
4,638
3,512
13,223
23,214
Asset impairments
17
60
295
172
Adjusted EBITDA
$
23,410
$
33,662
$
148,024
$
276,701
Free Cash Flow (in thousands)
Three Months Ended Trailing Twelve Months Ended
December 31, January 1, December 31,
January 1,
2022
2022
2022
2022
Net cash (used in) provided by operating activities
$
(43,984
)
$
7,326
$
36,138
$
300,010
Subtract: Purchases of property and equipment
16,646
17,530
69,454
66,900
Free cash flow
$
(60,630
)
$
(10,204
)
$
(33,316
)
$
233,110
Calculation of Net Leverage Ratio under Revolving Credit
Facility (in thousands) Trailing Twelve
Months Ended December 31, January 1,
2022
2022
Borrowings under revolving credit facility
$
459,600
$
382,500
Outstanding letters of credit
5,947
3,997
Finance lease obligations
420
537
Consolidated funded indebtedness
$
465,967
$
387,034
Capitalized operating lease obligations1
663,939
610,072
Total debt including capitalized operating lease obligations (a)
$
1,129,906
$
997,106
Adjusted EBITDA (see above)
$
148,024
$
276,701
Consolidated rent expense
110,657
101,679
Consolidated EBITDAR (b)
$
258,681
$
378,380
Net Leverage Ratio under revolving credit facility (a
divided by b) 4.4 to 1.0 2.6 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 (Adjusted ROIC) (in
thousands) Adjusted ROIC is a financial measure we use to
determine how efficiently we deploy our capital. It quantifies the
return we earn on our adjusted invested capital. Management
believes Adjusted ROIC is also a useful metric for investors and
financial analysts. We compute Adjusted ROIC as outlined below. Our
definition and calculation of Adjusted ROIC may not be comparable
to similarly titled definitions and calculations used by other
companies. The tables below reconcile adjusted net operating profit
after taxes (Adjusted NOPAT) and total adjusted invested capital,
which are non-GAAP financial measures, to the comparable GAAP
financial measures:
Trailing Twelve Months Ended
December 31,2022 January 1,2022 Adjusted net operating profit after taxes (Adjusted
NOPAT) Operating income
$
67,880
$
193,536
Add: Operating lease interest 1
25,912
24,763
Less: Income taxes 2
(23,542
)
(52,807
)
Adjusted NOPAT
$
70,250
$
165,492
Average adjusted invested
capital Total deficit
$
(438,177
)
$
(424,953
)
Add: Long-term debt 3
460,020
383,037
Add: Operating lease obligations 4
436,412
408,552
Total adjusted invested capital at end of period
$
458,255
$
366,636
Average adjusted invested capital 5
$
400,038
$
350,597
Adjusted ROIC 6
17.6
%
47.2
%
1 Represents the interest expense component of lease expense
included in our financial statements under ASC 842. 2 Reflects
annual effective income tax rates, before discrete adjustments, of
25.1% and 24.2% for December 31, 2022 and January 1, 2022,
respectively. 3 Long-term debt includes existing finance lease
liabilities. 4 Reflects operating lease liabilities included in our
financial statements under ASC 842. 5 Average adjusted invested
capital represents the average of the last five fiscal quarters'
ending adjusted invested capital balances. 6 Adjusted ROIC equals
Adjusted NOPAT divided by average adjusted invested capital.
Note - Our Adjusted 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. We updated our Adjusted ROIC calculation for
the reporting period ended December 31, 2022, to reflect
adjustments consistent with ASC 842, Leases. The prior period has
been updated to reflect this calculation."
GAAP - generally accepted
accounting principles in the U.S.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20230222005059/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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