- Second quarter net sales were $459 million; demand down
mid-single digits versus the prior year
- Reports second quarter diluted EPS of $0.03
- 2023 EPS outlook updated to a range of $1.25 to $1.75 per
share
- Announces the appointment of Francis Lee to Executive Vice
President and Chief Financial Officer
Sleep Number Corporation (Nasdaq: SNBR) today reported results
for the quarter ended July 1, 2023.
“As we continue to navigate a challenging macro environment, our
business is well positioned for growth. Demand has steadily
improved year-to-date, and we expect this trend to continue in the
back-half of the year as we benefit from the launch of our entire
next generation smart bed portfolio, the Climate360 smart bed, and
the advancement of our ‘Sleep Next Level’ advertising campaign with
the start of the NFL season,” said Shelly Ibach, Chair, President
and CEO, Sleep Number. “We have taken actions across the business
to drive efficiencies and remain on track to expand margins and
generate more than $100 million in cash from operations in
2023.”
Today, Sleep Number also announced the appointment of Francis
Lee to Executive Vice President and Chief Financial Officer.
Details can be found on the Sleep Number newsroom.
Second Quarter Overview
- Net sales decreased 16% to $459 million, with demand
down mid-single digits; demand improved throughout the second
quarter, although slightly below our expectations
- Gross margin was 57.6% and in line with our
expectations; as a reminder prior year second quarter results
benefitted from the delivery of more than $100 million in
margin-rich backlog
- Operating expenses were reduced by $22 million to $253
million compared with $275 million last year
- Earnings per diluted share of $0.03 compared with $1.54
for the same period last year
Year-to-Date Overview
- Net sales decreased 8% to $985 million, with demand down
high-single digits versus prior year
- Gross profit decreased to $575 million compared with
$627 million for the prior year; gross margin rate of 58.3% was
consistent with the same period last year and up 290 bp versus the
back half of last year
- Operating income of $37 million compared with $54
million last year, with an 8% decline in gross margin dollars,
partially offset by a $36 million reduction in operating
expenses
- Earnings per diluted share of $0.54 compared with $1.60
for the same period last year
Cash Flows Overview
- Net cash from operating activities of $19 million for the first
six months of the year, compared with $29 million for the same
period last year
- Leverage ratio of 4.7x EBITDAR at the end of the second quarter
versus covenant maximum of 5.0x
- Adjusted ROIC of 12.3% for the trailing twelve months
Financial Outlook
The company updated its full-year 2023 diluted EPS outlook to a
range of $1.25 to $1.75. The 2023 outlook assumes net sales are
down low to mid-single digits versus the prior year and gross
margin improvement of 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.
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. We are guided by
our purpose to improve the health and wellbeing of society through
higher quality sleep; to date, our innovations have improved over
14.5 million lives. Our wellness technology platform helps solve
sleep problems, whether it’s providing individualized temperature
control for each sleeper through our Climate360® smart bed or
applying our 21 billion hours of longitudinal sleep data and
expertise to research with global institutions.
Our smart bed ecosystem drives best-in-class engagement through
dynamic, adjustable, and effortless sleep with personalized digital
sleep and health insights; our millions of smart sleepers are loyal
brand advocates. And our nearly 5,000 mission-driven team members
passionately innovate to drive value creation through our
vertically integrated business model, including our exclusive
direct-to-consumer selling in 670 stores and online.
To learn more about life-changing, individualized sleep, visit a
Sleep Number store near you, 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; bank failures or
other events affecting financial institutions; 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
July 1, 2023
% of
Net Sales
July 2, 2022
% of
Net Sales
Net sales
$
458,789
100.0%
$
549,073
100.0%
Cost of sales
194,544
42.4%
224,128
40.8%
Gross profit
264,245
57.6%
324,945
59.2%
Operating expenses:
Sales and marketing
197,779
43.1%
220,490
40.2%
General and administrative
39,795
8.7%
38,727
7.1%
Research and development
15,445
3.4%
15,817
2.9%
Total operating expenses
253,019
55.1%
275,034
50.1%
Operating income
11,226
2.4%
49,911
9.1%
Interest expense, net
9,948
2.2%
3,619
0.7%
Income before income taxes
1,278
0.3%
46,292
8.4%
Income tax expense
524
0.1%
11,359
2.1%
Net income
$
754
0.2%
$
34,933
6.4%
Net income per share – basic
$
0.03
$
1.56
Net income per share – diluted
$
0.03
$
1.54
Reconciliation of weighted-average
shares outstanding:
Basic weighted-average shares
outstanding
22,460
22,355
Dilutive effect of stock-based awards
42
358
Diluted weighted-average shares
outstanding
22,502
22,713
SLEEP NUMBER
CORPORATION
AND SUBSIDIARIES
Consolidated Statements of
Operations
(unaudited – in thousands,
except per share amounts)
Six Months Ended
July 1, 2023
% of
Net Sales
July 2, 2022
% of
Net Sales
Net sales
$
985,316
100.0%
$
1,076,203
100.0%
Cost of sales
410,806
41.7%
448,960
41.7%
Gross profit
574,510
58.3%
627,243
58.3%
Operating expenses:
Sales and marketing
428,267
43.5%
460,749
42.8%
General and administrative
79,196
8.0%
80,046
7.4%
Research and development
29,888
3.0%
32,122
3.0%
Total operating expenses
537,351
54.5%
572,917
53.2%
Operating income
37,159
3.8%
54,326
5.0%
Interest expense, net
19,050
1.9%
5,746
0.5%
Income before income taxes
18,109
1.8%
48,580
4.5%
Income tax expense
5,890
0.6%
11,573
1.1%
Net income
$
12,219
1.2%
$
37,007
3.4%
Net income per share – basic
$
0.55
$
1.64
Net income per share – diluted
$
0.54
$
1.60
Reconciliation of weighted-average
shares outstanding:
Basic weighted-average shares
outstanding
22,378
22,558
Dilutive effect of stock-based awards
165
594
Diluted weighted-average shares
outstanding
22,543
23,152
SLEEP NUMBER
CORPORATION
AND SUBSIDIARIES
Consolidated Balance
Sheets
(unaudited – in thousands,
except per share amounts)
subject to
reclassification
July 1, 2023
December 31,
2022
Assets
Current assets:
Cash and cash equivalents
$
1,798
$
1,792
Accounts receivable, net of allowances of
$1,475 and $1,267, respectively
24,102
26,005
Inventories
121,446
114,034
Prepaid expenses
21,029
16,006
Other current assets
40,142
39,921
Total current assets
208,517
197,758
Non-current assets:
Property and equipment, net
191,067
200,605
Operating lease right-of-use assets
399,989
397,755
Goodwill and intangible assets, net
67,086
68,065
Deferred income taxes
16,230
7,958
Other non-current assets
82,266
81,795
Total assets
$
965,155
$
953,936
Liabilities and Shareholders’
Deficit
Current liabilities:
Borrowings under revolving credit
facility
$
483,800
$
459,600
Accounts payable
152,205
176,207
Customer prepayments
58,498
73,181
Accrued sales returns
25,476
25,594
Compensation and benefits
38,934
31,291
Taxes and withholding
23,356
23,622
Operating lease liabilities
82,439
79,533
Other current liabilities
57,054
60,785
Total current liabilities
921,762
929,813
Non-current liabilities:
Operating lease liabilities
356,044
356,879
Other non-current liabilities
106,490
105,421
Total non-current liabilities
462,534
462,300
Total liabilities
1,384,296
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, 22,214 and 22,014 shares issued and outstanding,
respectively
222
220
Additional paid-in capital
11,997
5,182
Accumulated deficit
(431,360
)
(443,579
)
Total shareholders’ deficit
(419,141
)
(438,177
)
Total liabilities and shareholders’
deficit
$
965,155
$
953,936
SLEEP NUMBER
CORPORATION
AND SUBSIDIARIES
Consolidated Statements of
Cash Flows
(unaudited – in
thousands)
subject to
reclassification
Six Months Ended
July 1, 2023
July 2, 2022
Cash flows from operating activities:
Net income
$
12,219
$
37,007
Adjustments to reconcile net income to net
cash provided by
operating activities:
Depreciation and amortization
36,749
31,975
Stock-based compensation
9,890
8,043
Net loss on disposals and impairments of
assets
181
179
Deferred income taxes
(8,272
)
(3,794
)
Changes in operating assets and
liabilities:
Accounts receivable
1,903
(2,898
)
Inventories
(7,412
)
(15,674
)
Income taxes
1,808
4,368
Prepaid expenses and other assets
(5,824
)
6,266
Accounts payable
(10,244
)
(1,713
)
Customer prepayments
(14,683
)
(14,754
)
Accrued compensation and benefits
7,594
(17,789
)
Other taxes and withholding
(2,074
)
971
Other accruals and liabilities
(3,115
)
(3,496
)
Net cash provided by operating
activities
18,720
28,691
Cash flows from investing activities:
Purchases of property and equipment
(29,899
)
(36,559
)
Proceeds from sales of property and
equipment
—
23
Issuance of note receivable
(435
)
—
Net cash used in investing activities
(30,334
)
(36,536
)
Cash flows from financing activities:
Net increase in short-term borrowings
14,693
70,836
Repurchases of common stock
(3,501
)
(63,644
)
Proceeds from issuance of common stock
428
585
Debt issuance costs
—
(42
)
Net cash provided by financing
activities
11,620
7,735
Net increase (decrease) in cash and cash
equivalents
6
(110
)
Cash and cash equivalents, at beginning of
period
1,792
2,389
Cash and cash equivalents, at end of
period
$
1,798
$
2,279
SLEEP NUMBER
CORPORATION
AND SUBSIDIARIES
Supplemental Financial
Information
(unaudited)
Three Months Ended
Six Months Ended
July 1, 2023
July 2, 2022
July 1, 2023
July 2, 2022
Percent of sales:
Retail stores
87.7
%
89.4
%
87.4
%
86.9
%
Online, phone, chat and other
12.3
%
10.6
%
12.6
%
13.1
%
Total Company
100.0
%
100.0
%
100.0
%
100.0
%
Sales change rates:
Retail comparable-store sales
(20
%)
10
%
(10
%)
(3
%)
Online, phone and chat
(3
%)
2
%
(12
%)
4
%
Total Retail comparable sales change
(18
%)
9
%
(10
%)
(2
%)
Net opened/closed stores and other
2
%
4
%
2
%
4
%
Total Company
(16
%)
13
%
(8
%)
2
%
Stores open:
Beginning of period
671
653
670
648
Opened
7
10
19
23
Closed
(6
)
(4
)
(17
)
(12
)
End of period
672
659
672
659
Other metrics:
Average sales per store ($ in 000's) 1
$
3,089
$
3,526
Average sales per square foot 1
$
1,007
$
1,172
Stores > $2 million net sales 2
71
%
82
%
Stores > $3 million net sales 2
31
%
45
%
Average revenue per smart bed unit 3
$
5,990
$
6,485
$
5,913
$
5,601
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 1, 2023
July 2, 2022
July 1, 2023
July 2, 2022
Net income
$
754
$
34,933
$
11,822
$
101,869
Income tax expense
524
11,359
6,602
30,442
Interest expense
9,948
3,619
32,289
9,406
Depreciation and amortization
18,304
15,920
71,318
61,857
Stock-based compensation
5,252
3,910
15,071
18,872
Asset impairments
170
80
294
266
Adjusted EBITDA
$
34,952
$
69,821
$
137,396
$
222,712
Free Cash Flow
(in thousands)
Three Months Ended
Trailing Twelve Months
Ended
July 1, 2023
July 2, 2022
July 1, 2023
July 2, 2022
Net cash provided by operating
activities
$
139
$
4,133
$
26,167
$
167,281
Subtract: Purchases of property and
equipment
14,343
16,955
62,794
71,447
Free cash flow
$
(14,204
)
$
(12,822
)
$
(36,627
)
$
95,834
Calculation of Net Leverage
Ratio under Revolving Credit Facility
(in thousands)
Trailing Twelve Months
Ended
July 1, 2023
July 2, 2022
Borrowings under revolving credit
facility
$
483,800
$
443,300
Outstanding letters of credit
7,147
5,947
Finance lease obligations
361
479
Consolidated funded indebtedness
$
491,308
$
449,726
Capitalized operating lease obligations
1
675,108
642,213
Total debt including capitalized operating
lease obligations (a)
$
1,166,416
$
1,091,939
Adjusted EBITDA (see above)
$
137,396
$
222,712
Consolidated rent expense
112,518
107,035
Consolidated EBITDAR (b)
$
249,914
$
329,747
Net Leverage Ratio under revolving credit
facility (a divided by b)
4.7 to 1.0
3.3 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 (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
July 1, 2023
July 2, 2022
Adjusted net
operating profit after taxes (Adjusted NOPAT)
Operating income
$
50,713
$
141,718
Add: Operating lease interest 1
27,040
25,079
Less: Income taxes 2
(21,993
)
(39,798
)
Adjusted NOPAT
$
55,760
$
126,999
Average adjusted
invested capital
Total deficit
$
(419,141
)
$
(442,962
)
Add: Long-term debt 3
484,161
443,779
Add: Operating lease obligations 4
438,483
420,516
Total adjusted invested capital at end of
period
$
503,503
$
421,333
Average adjusted invested capital 5
$
452,573
$
363,986
Adjusted ROIC 6
12.3
%
34.9
%
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 28.3% and 23.9% for July 1,
2023 and July 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/20230727874608/en/
Investor Contact: Dave Schwantes; (763) 551-7498;
investorrelations@sleepnumber.com Media Contact: Julie
Elepano; julie.elepano@sleepnumber.com
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