- Net sales of $527 million were consistent with the prior
year
- Net operating profit increased to $26 million, up $22
million versus the prior year, including a 160 basis point (bp)
gross profit rate improvement year-over-year
- Diluted EPS of $0.51 versus $0.09 last year
- Reiterates full-year 2023 earnings outlook of $1.25 to $2.00
per diluted share
Sleep Number Corporation (Nasdaq: SNBR) today reported results
for the quarter ended April 1, 2023.
“First quarter performance was consistent with our expectations,
reflecting our team’s strong execution in a challenged macro
environment with historically low consumer sentiment pressuring
demand. After nearly two years of supply disruption, the consistent
flow of microchips has enabled us to return to more efficient
operations,” said Shelly Ibach, Chair, President and CEO.
“Beginning in the second quarter we are executing a sequence of new
integrated demand drivers, including our next generation Sleep
Number smart beds, lifestyle furniture, and “Sleep Next Level”
brand campaign. These ads inspire consumers to unlock their full
potential through our smart bed’s life-changing, individualized
sleep benefits.”
First Quarter Overview
- Net sales of $527 million were consistent with the prior
year, including a 2% comparable sales decline, offset by two
percentage points of growth from new stores
- Gross margin increased 160 bp to 58.9% of net sales,
including the benefit of pricing actions, improvement in commodity
prices and operating efficiencies resulting from a steady flow of
microchips
- Operating income of $26 million represented a $22
million increase versus the prior year, including an $8 million
gross profit increase and a $14 million reduction in operating
expenses year-over-year
- Diluted EPS of $0.51 compared with $0.09 last year
Cash Flows Review
- Generated $19 million in net cash from operating activities in
the first quarter, compared with $25 million for the same period
last year
- Leverage ratio of 4.0x EBITDAR at the end of the first quarter
versus covenant maximum of 5.0x
- Adjusted Return on Invested Capital (ROIC) of 20.4% for the
trailing twelve months
Financial Outlook
The company reiterates its outlook for 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 and gross margin improves
by more than 150 basis points versus 2022. The company expects to
generate more than $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 under our Board-approved share repurchase program
during the year.
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 wellness technology company. Over 14.5 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 SleepersSM
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 19 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
financial outlook for full-year 2023, including 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
April 1, 2023
% of Net Sales
April 2, 2022
% of Net Sales
Net sales
$
526,527
100.0
%
$
527,130
100.0
%
Cost of sales
216,262
41.1
%
224,832
42.7
%
Gross profit
310,265
58.9
%
302,298
57.3
%
Operating expenses:
Sales and marketing
230,488
43.8
%
240,259
45.6
%
General and administrative
39,401
7.5
%
41,319
7.8
%
Research and development
14,443
2.7
%
16,305
3.1
%
Total operating expenses
284,332
54.0
%
297,883
56.5
%
Operating income
25,933
4.9
%
4,415
0.8
%
Interest expense, net
9,102
1.7
%
2,127
0.4
%
Income before income taxes
16,831
3.2
%
2,288
0.4
%
Income tax expense
5,366
1.0
%
214
0.0
%
Net income
$
11,465
2.2
%
$
2,074
0.4
%
Net income per share – basic
$
0.51
$
0.09
Net income per share – diluted
$
0.51
$
0.09
Reconciliation of weighted-average
shares outstanding:
Basic weighted-average shares
outstanding
22,296
22,760
Dilutive effect of stock-based awards
287
831
Diluted weighted-average shares
outstanding
22,583
23,591
SLEEP NUMBER
CORPORATION
AND SUBSIDIARIES
Consolidated Balance
Sheets
(unaudited – in thousands,
except per share amounts)
subject to
reclassification
April 1, 2023
December 31,
2022
Assets
Current assets:
Cash and cash equivalents
$
1,459
$
1,792
Accounts receivable, net of allowances of
$1,474 and $1,267, respectively
23,288
26,005
Inventories
116,781
114,034
Prepaid expenses
26,986
16,006
Other current assets
39,902
39,921
Total current assets
208,416
197,758
Non-current assets:
Property and equipment, net
194,802
200,605
Operating lease right-of-use assets
398,339
397,755
Goodwill and intangible assets, net
67,565
68,065
Deferred income taxes
11,210
7,958
Other non-current assets
82,477
81,795
Total assets
$
962,809
$
953,936
Liabilities and Shareholders’
Deficit
Current liabilities:
Borrowings under revolving credit
facility
$
470,600
$
459,600
Accounts payable
160,304
176,207
Customer prepayments
68,542
73,181
Accrued sales returns
24,071
25,594
Compensation and benefits
30,706
31,291
Taxes and withholding
31,647
23,622
Operating lease liabilities
81,383
79,533
Other current liabilities
58,441
60,785
Total current liabilities
925,694
929,813
Non-current liabilities:
Operating lease liabilities
355,556
356,879
Other non-current liabilities
106,606
105,421
Total non-current liabilities
462,162
462,300
Total liabilities
1,387,856
1,392,113
Shareholders’ deficit:
Undesignated preferred stock; 5,000 shares
authorized, no shares issued and outstanding
—
—
Common stock, $0.01 par value; 142,500
shares authorized, 22,184 and 22,014 shares issued and outstanding,
respectively
222
220
Additional paid-in capital
6,845
5,182
Accumulated deficit
(432,114
)
(443,579
)
Total shareholders’ deficit
(425,047
)
(438,177
)
Total liabilities and shareholders’
deficit
$
962,809
$
953,936
SLEEP NUMBER
CORPORATION
AND SUBSIDIARIES
Consolidated Statements of
Cash Flows
(unaudited – in
thousands)
subject to
reclassification
Three Months Ended
April 1, 2023
April 2, 2022
Cash flows from operating activities:
Net income
$
11,465
$
2,074
Adjustments to reconcile net income to net
cash provided by
operating activities:
Depreciation and amortization
18,218
15,870
Stock-based compensation
4,639
4,133
Net loss on disposals and impairments of
assets
12
93
Deferred income taxes
(3,252
)
(376
)
Changes in operating assets and
liabilities:
Accounts receivable
2,717
1,216
Inventories
(2,747
)
2,432
Income taxes
8,736
1,102
Prepaid expenses and other assets
(11,056
)
10,877
Accounts payable
(574
)
2,073
Customer prepayments
(4,639
)
12,506
Accrued compensation and benefits
(593
)
(25,348
)
Other taxes and withholding
(711
)
3,104
Other accruals and liabilities
(3,634
)
(5,198
)
Net cash provided by operating
activities
18,581
24,558
Cash flows from investing activities:
Purchases of property and equipment
(15,556
)
(19,604
)
Proceeds from sales of property and
equipment
—
10
Net cash used in investing activities
(15,556
)
(19,594
)
Cash flows from financing activities:
Net (decrease) increase in short-term
borrowings
(384
)
44,712
Repurchases of common stock
(3,363
)
(50,998
)
Proceeds from issuance of common stock
389
531
Debt issuance costs
—
(42
)
Net cash used in financing activities
(3,358
)
(5,797
)
Net decrease in cash and cash
equivalents
(333
)
(833
)
Cash and cash equivalents, at beginning of
period
1,792
2,389
Cash and cash equivalents, at end of
period
$
1,459
$
1,556
SLEEP NUMBER
CORPORATION
AND SUBSIDIARIES
Supplemental Financial
Information
(unaudited)
Three Months Ended
April 1, 2023
April 2, 2022
Percent of sales:
Retail stores
87.1
%
84.3
%
Online, phone, chat and other
12.9
%
15.7
%
Total Company
100.0
%
100.0
%
Sales change rates:
Retail comparable-store sales
1
%
(14
%)
Online, phone and chat
(18
%)
5
%
Total Retail comparable sales change
(2
%)
(11
%)
Net opened/closed stores and other
2
%
4
%
Total Company
0
%
(7
%)
Stores open:
Beginning of period
670
648
Opened
12
13
Closed
(11
)
(8
)
End of period
671
653
Other metrics:
Average sales per store ($ in 000's) 1
$
3,239
$
3,487
Average sales per square foot 1
$
1,060
$
1,167
Stores > $2 million net sales 2
75
%
82
%
Stores > $3 million net sales 2
36
%
46
%
Average revenue per smart bed unit 3
$
5,848
$
4,905
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
April 1, 2023
April 2, 2022
April 1, 2023
April 2, 2022
Net income
$
11,465
$
2,074
$
46,001
$
89,186
Income tax expense
5,366
214
17,437
24,947
Interest expense
9,102
2,127
25,960
7,394
Depreciation and amortization
17,991
15,683
68,934
60,943
Stock-based compensation
4,639
4,133
13,729
20,930
Asset impairments
12
103
204
186
Adjusted EBITDA
$
48,575
$
24,334
$
172,265
$
203,586
Free Cash Flow
(in thousands)
Three Months Ended
Trailing Twelve Months
Ended
April 1, 2023
April 2, 2022
April 1, 2023
April 2, 2022
Net cash provided by operating
activities
$
18,581
$
24,558
$
30,161
$
212,970
Subtract: Purchases of property and
equipment
15,556
19,604
65,406
74,958
Free cash flow
$
3,025
$
4,954
$
(35,245
)
$
138,012
Calculation of Net Leverage
Ratio under Revolving Credit Facility
(in thousands)
Trailing Twelve Months
Ended
April 1, 2023
April 2, 2022
Borrowings under revolving credit
facility
$
470,600
$
413,200
Outstanding letters of credit
7,147
5,947
Finance lease obligations
392
509
Consolidated funded indebtedness
$
478,139
$
419,656
Capitalized operating lease obligations
1
669,559
629,624
Total debt including capitalized operating
lease obligations (a)
$
1,147,698
$
1,049,280
Adjusted EBITDA (see above)
$
172,265
$
203,586
Consolidated rent expense
111,593
104,937
Consolidated EBITDAR (b)
$
283,858
$
308,523
Net Leverage Ratio under revolving credit
facility (a divided by b)
4.0 to 1.0
3.4 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
April 1, 2023
April 2, 2022
Adjusted net
operating profit after taxes (Adjusted NOPAT)
Operating income
$
89,398
$
121,527
Add: Operating lease interest 1
26,487
24,907
Less: Income taxes 2
(29,674
)
(34,753
)
Adjusted NOPAT
$
86,211
$
111,681
Average adjusted
invested capital
Total deficit
$
(425,047
)
$
(469,213
)
Add: Long-term debt 3
470,991
413,709
Add: Operating lease obligations 4
436,939
412,574
Total adjusted invested capital at end of
period
$
482,883
$
357,070
Average adjusted invested capital 5
$
423,287
$
348,804
Adjusted ROIC 6
20.4
%
32.0
%
1
Represents the interest expense component
of lease expense included in our financial statements under ASC
842, Leases.
2
Reflects annual effective income tax
rates, before discrete adjustments, of 25.6% and 23.7% for April 1,
2023 and April 2, 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 - the Company's 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. The Company updated its Adjusted
ROIC calculation effective beginning with the reporting period
ended December 31, 2022, to reflect adjustments consistent with ASC
842. 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/20230426005106/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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