- Generated adjusted EBITDA of $28 million for the second
quarter
- Delivered gross margin rate of 59.1% for the second quarter,
up 150 basis points versus last year and ahead of
expectations
- Reduced operating expenses by $19 million year-over-year for
the quarter and $44 million year-to-date (both periods before
restructuring costs)
- Year-to-date free cash flow increased $21 million compared
with the same period last year
- Reiterate full-year 2024 adjusted EBITDA outlook of $125
million to $145 million
Sleep Number Corporation (Nasdaq: SNBR) today reported results
for the quarter ended June 29, 2024.
“The implementation of our transformative initiatives is
improving gross margin, operating expenses and free cash flow, as
our teams continue to execute sustainable changes across the
business. In the second quarter, we delivered gross margin rate
expansion and adjusted EBITDA slightly ahead of expectations,
despite facing a more challenging industry sales environment than
anticipated,” said Shelly Ibach, Chair, President and CEO. “In this
environment, we continue to prioritize paying down debt and
reducing leverage. Our more durable operating model is enabling us
to effectively navigate the persistent macroeconomic headwinds and
prolonged industry recession, while positioning us for even greater
profitability when the industry recovers.”
Second Quarter Overview
- Net sales of $408 million were down 11% versus the prior
year, including approximately six percentage points of pressure
from year-over-year order backlog changes
- Gross margin of 59.1% was up 150 basis points versus the
prior year, driven by ongoing product cost reductions through value
engineering and supplier negotiations, efficiency gains in our home
delivery and logistics operations and improved product returns
rates
- Operating expenses of $234 million (before restructuring
charges) were down $19 million versus the prior year’s second
quarter, including broad-based cost reductions across the
business
- Adjusted EBITDA of $28 million compared to $35 million
last year, with a higher gross margin rate and $19 million
operating expense improvement, partially offsetting the
year-over-year net sales decline
Cash Flows and Liquidity Review
- Net cash provided by operating activities of $24 million
for the first six months of the year, a $5 million increase versus
the same period last year
- Free cash flow of $9 million for the first six months of
the year, up $21 million versus the same period last year
- Leverage ratio of 4.4x EBITDAR at the end of the second
quarter versus covenant maximum of 5.5x for the quarter
Financial Outlook
The company reiterates its outlook for 2024 adjusted EBITDA of
$125 million to $145 million. We expect a mid-single digit net
sales decline for the year. For the second half of the year, we
expect demand and net sales to be flat to down low-single digits
versus the prior year, as we lap easier comparisons from the prior
year and benefit from demand driving initiatives. The company
expects at least 100 basis points of gross margin rate improvement
and $14 million of restructuring charges for the year. The company
now expects to generate $50 million to $70 million of free cash
flow with capital expenditures of $30 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. We have also posted an updated
investor presentation to the investor relations area of the Sleep
Number website.
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
15 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 nearly 28 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 3,800 mission-driven team members
passionately innovate to drive value creation through our
vertically integrated business model, including our exclusive
direct-to-consumer selling in nearly 650 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 statement
that the company continues to prioritize paying down debt and
reducing leverage and that the company’s more durable operating
model is enabling the company to effectively navigate the
persistent macroeconomic headwinds and prolonged industry
recession, while positioning the company for even greater
profitability, and the company’s financial outlook, including the
company’s expected 2024 adjusted EBITDA and future net sales,
demand, gross margin, and free cash flow expectations, are
forward-looking statements subject to certain risks and
uncertainties which could cause the company’s results to differ
materially. The most important risks and uncertainties are
described in the company’s filings with the Securities and Exchange
Commission, including in Item 1A of the company’s Annual Report on
Form 10-K and other periodic reports. Forward-looking statements
speak only as of the date they are made, and the company does not
undertake any obligation to update any forward-looking
statement.
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of
Operations
(unaudited – in thousands,
except per share amounts)
Three Months Ended
June 29, 2024
% of
Net Sales
July 1, 2023
% of
Net Sales
Net sales
$
408,413
100.0
%
$
458,789
100.0
%
Cost of sales
166,923
40.9
%
194,544
42.4
%
Gross profit
241,490
59.1
%
264,245
57.6
%
Operating expenses:
Sales and marketing
182,400
44.7
%
197,779
43.1
%
General and administrative
39,573
9.7
%
39,795
8.7
%
Research and development
11,578
2.8
%
15,445
3.4
%
Restructuring costs
1,819
0.4
%
—
0.0
%
Total operating expenses
235,370
57.6
%
253,019
55.1
%
Operating income
6,120
1.5
%
11,226
2.4
%
Interest expense, net
12,270
3.0
%
9,948
2.2
%
(Loss) income before income taxes
(6,150
)
(1.5
%)
1,278
0.3
%
Income tax (benefit) expense
(1,099
)
(0.3
%)
524
0.1
%
Net (loss) income
$
(5,051
)
(1.2
%)
$
754
0.2
%
Net (loss) income per share – basic
$
(0.22
)
$
0.03
Net (loss) income per share – diluted
$
(0.22
)
$
0.03
Reconciliation of weighted-average
shares outstanding:
Basic weighted-average shares
outstanding
22,614
22,460
Dilutive effect of stock-based awards
—
42
Diluted weighted-average shares
outstanding
22,614
22,502
For the three months ended June 29, 2024,
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)
Six Months Ended
June 29, 2024
% of
Net Sales
July 1, 2023
% of
Net Sales
Net sales
$
878,862
100.0
%
$
985,316
100.0
%
Cost of sales
361,198
41.1
%
410,806
41.7
%
Gross profit
517,664
58.9
%
574,510
58.3
%
Operating expenses:
Sales and marketing
390,912
44.5
%
428,267
43.5
%
General and administrative
78,652
8.9
%
79,196
8.0
%
Research and development
24,019
2.7
%
29,888
3.0
%
Restructuring costs
12,419
1.4
%
—
0.0
%
Total operating expenses
506,002
57.6
%
537,351
54.5
%
Operating income
11,662
1.3
%
37,159
3.8
%
Interest expense, net
24,569
2.8
%
19,050
1.9
%
(Loss) income before income taxes
(12,907
)
(1.5
%)
18,109
1.8
%
Income tax (benefit) expense
(374
)
0.0
%
5,890
0.6
%
Net (loss) income
$
(12,533
)
(1.4
%)
$
12,219
1.2
%
Net (loss) income per share – basic
$
(0.56
)
$
0.55
Net (loss) income per share – diluted
$
(0.56
)
$
0.54
Reconciliation of weighted-average
shares outstanding:
Basic weighted-average shares
outstanding
22,560
22,378
Dilutive effect of stock-based awards
—
165
Diluted weighted-average shares
outstanding
22,560
22,543
For the six months ended June 29, 2024,
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 Balance
Sheets
(unaudited – in thousands,
except per share amounts)
subject to
reclassification
June 29, 2024
December 30,
2023
Assets
Current assets:
Cash and cash equivalents
$
2,020
$
2,539
Accounts receivable, net of allowances of
$1,098 and $1,437, respectively
20,272
26,859
Inventories
95,845
115,433
Prepaid expenses
21,322
16,660
Other current assets
37,925
44,637
Total current assets
177,384
206,128
Non-current assets:
Property and equipment, net
153,676
179,503
Operating lease right-of-use assets
373,518
395,411
Goodwill and intangible assets, net
66,523
66,634
Deferred income taxes
25,397
20,253
Other non-current assets
87,147
82,951
Total assets
$
883,645
$
950,880
Liabilities and Shareholders’
Deficit
Current liabilities:
Borrowings under revolving credit
facility
$
540,200
$
539,500
Accounts payable
106,039
135,901
Customer prepayments
44,518
49,143
Accrued sales returns
20,531
22,402
Compensation and benefits
35,305
28,273
Taxes and withholding
16,563
17,134
Operating lease liabilities
80,914
81,760
Other current liabilities
56,500
61,958
Total current liabilities
900,570
936,071
Non-current liabilities:
Operating lease liabilities
327,810
351,394
Other non-current liabilities
102,229
105,343
Total non-current liabilities
430,039
456,737
Total liabilities
1,330,609
1,392,808
Shareholders’ deficit:
Undesignated preferred stock; 5,000 shares
authorized, no shares issued and outstanding
—
—
Common stock, $0.01 par value; 142,500
shares authorized, 22,355 and 22,235 shares issued and outstanding,
respectively
224
222
Additional paid-in capital
24,211
16,716
Accumulated deficit
(471,399
)
(458,866
)
Total shareholders’ deficit
(446,964
)
(441,928
)
Total liabilities and shareholders’
deficit
$
883,645
$
950,880
SLEEP NUMBER
CORPORATION
AND SUBSIDIARIES
Consolidated Statements of
Cash Flows
(unaudited – in
thousands)
subject to
reclassification
Six Months Ended
June 29, 2024
July 1, 2023
Cash flows from operating activities:
Net (loss) income
$
(12,533
)
$
12,219
Adjustments to reconcile net (loss) income
to net cash provided by
operating activities:
Depreciation and amortization
34,177
36,749
Stock-based compensation
8,109
9,890
Net loss on disposals and impairments of
assets
2,500
181
Deferred income taxes
(5,144
)
(8,272
)
Changes in operating assets and
liabilities:
Accounts receivable
6,587
1,903
Inventories
19,588
(7,412
)
Income taxes
774
1,808
Prepaid expenses and other assets
(1,483
)
(5,824
)
Accounts payable
(18,464
)
(10,244
)
Customer prepayments
(4,625
)
(14,683
)
Accrued compensation and benefits
7,153
7,594
Other taxes and withholding
(1,345
)
(2,074
)
Other accruals and liabilities
(11,776
)
(3,115
)
Net cash provided by operating
activities
23,518
18,720
Cash flows from investing activities:
Purchases of property and equipment
(14,075
)
(29,899
)
Issuance of notes receivable
(2,942
)
(435
)
Net cash used in investing activities
(17,017
)
(30,334
)
Cash flows from financing activities:
Net (decrease) increase in short-term
borrowings
(6,408
)
14,693
Repurchases of common stock
(612
)
(3,501
)
Proceeds from issuance of common stock
—
428
Net cash (used in) provided by financing
activities
(7,020
)
11,620
Net (decrease) increase in cash and cash
equivalents
(519
)
6
Cash and cash equivalents, at beginning of
period
2,539
1,792
Cash and cash equivalents, at end of
period
$
2,020
$
1,798
SLEEP NUMBER
CORPORATION
AND SUBSIDIARIES
Supplemental Financial
Information
(unaudited)
Three Months Ended
Six Months Ended
June 29, 2024
July 1, 2023
June 29, 2024
July 1, 2023
Percent of sales:
Retail stores
87.8
%
87.7
%
88.0
%
87.4
%
Online, phone, chat and other
12.2
%
12.3
%
12.0
%
12.6
%
Total Company
100.0
%
100.0
%
100.0
%
100.0
%
Sales change rates:
Retail comparable-store sales
(11
%)
(20
%)
(10
%)
(10
%)
Online, phone and chat
(13
%)
(3
%)
(16
%)
(12
%)
Total Retail comparable sales change
(11
%)
(18
%)
(11
%)
(10
%)
Net opened/closed stores and other
0
%
2
%
0
%
2
%
Total Company
(11
%)
(16
%)
(11
%)
(8
%)
Stores open:
Beginning of period
661
671
672
670
Opened
4
7
10
19
Closed
(19
)
(6
)
(36
)
(17
)
End of period
646
672
646
672
Other metrics:
Average sales per store ($ in 000's) 1
$
2,732
$
3,089
Average sales per square foot 1
$
883
$
1,007
Stores > $2 million net sales 2
62
%
71
%
Stores > $3 million net sales 2
21
%
31
%
Average revenue per smart bed unit 3
$
5,802
$
5,990
$
5,782
$
5,913
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, restructuring costs 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
June 29, 2024
July 1, 2023
June 29, 2024
July 1, 2023
Net (loss) income
$
(5,051
)
$
754
$
(40,039
)
$
11,822
Income tax (benefit) expense
(1,099
)
524
(10,730
)
6,602
Interest expense
12,270
9,948
48,214
32,289
Depreciation and amortization
16,347
18,304
69,676
71,318
Stock-based compensation
3,992
5,252
13,073
15,071
Restructuring costs 1
1,819
—
28,147
—
Asset impairments
—
170
490
294
Adjusted EBITDA
$
28,278
$
34,952
$
108,831
$
137,396
1 Represents costs related to business
restructuring actions initiated in the fourth quarter of fiscal
2023.
Free Cash Flow
(in thousands)
Six Months Ended
Trailing Twelve Months
Ended
June 29, 2024
July 1, 2023
June 29, 2024
July 1, 2023
Net cash provided by (used in) operating
activities
$
23,518
$
18,720
$
(4,230
)
$
26,167
Subtract: Purchases of property and
equipment
14,075
29,899
41,232
62,794
Free cash flow
$
9,443
$
(11,179
)
$
(45,462
)
$
(36,627
)
Note - Our Adjusted EBITDA calculations
and Free Cash Flow data 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 Net Leverage
Ratio under Revolving Credit Facility
(in thousands)
Our calculation of Net Leverage Ratio
under Revolving Credit Facility was changed effective with the
amendment of our credit facility on November 2, 2023. Prior to the
amendment, the calculation included capitalized operating lease
obligations based on a multiple of six times annual rent expense.
The amendment replaced this line item with operating lease
liabilities included in our financial statements under ASC 842. The
calculations in accordance with the November 2, 2023 amendment are
presented below. The prior year is presented in conformity with the
November 2, 2023 amendment.
Trailing Twelve Months
Ended
June 29, 2024
July 1, 2023
Borrowings under revolving credit
facility
$
540,200
$
483,800
Outstanding letters of credit
7,147
7,147
Finance lease obligations
280
361
Consolidated funded indebtedness
$
547,627
$
491,308
Operating lease liabilities 1
408,724
438,483
Total debt including operating lease
liabilities (a)
$
956,351
$
929,791
Adjusted EBITDA (see above)
$
108,831
$
137,396
Consolidated rent expense
110,937
112,518
Consolidated EBITDAR (b)
$
219,768
$
249,914
Net Leverage Ratio under revolving credit
facility (a divided by b)
4.4 to 1.0
3.7 to 1.0
1 Reflects operating lease liabilities
included in our financial statements under ASC 842. The prior
period has been updated to reflect this calculation.
Note - Our Net Leverage Ratio under
Revolving Credit Facility, Adjusted EBITDA and EBITDAR calculations
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
June 29, 2024
July 1, 2023
Adjusted net
operating profit after taxes (Adjusted NOPAT)
Operating (loss) income
$
(2,555
)
$
50,713
Add: Operating lease interest 1
27,750
27,040
Less: Income taxes 2
(6,104
)
(21,993
)
Adjusted NOPAT
$
19,091
$
55,760
Average adjusted
invested capital
Total deficit
$
(446,964
)
$
(419,141
)
Add: Long-term debt 3
540,480
484,161
Add: Operating lease liabilities 4
408,724
438,483
Total adjusted invested capital at end of
period
$
502,240
$
503,503
Average adjusted invested capital 5
$
509,369
$
452,573
Adjusted ROIC 6
3.7
%
12.3
%
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 24.2% and 28.3% for June 29,
2024 and July 1, 2023, 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.
GAAP - generally accepted accounting
principles in the U.S.
SLEEP NUMBER CORPORATION AND
SUBSIDIARIES
Reported to Adjusted
Statements of Operations Data Reconciliation
(in thousands, except per
share amounts)
Three Months Ended
June 29, 2024
July 1, 2023
As
Reported
Restructuring Costs
1,2
As
Adjusted
As
Reported
Operating income
$
6,120
$
1,819
$
7,939
$
11,226
Interest expense, net
12,270
—
12,270
9,948
(Loss) income before income taxes
(6,150
)
1,819
(4,331
)
1,278
Income tax (benefit) expense
(1,099
)
431
(668
)
524
Net (loss) income
$
(5,051
)
$
1,388
$
(3,663
)
$
754
Net (loss) income per share:
Basic
$
(0.22
)
$
0.06
$
(0.16
)
$
0.03
Diluted
$
(0.22
)
$
0.06
$
(0.16
)
$
0.03
Basic Shares
22,614
22,614
22,614
22,460
Diluted Shares
22,614
22,614
22,614
22,502
Six Months Ended
June 29, 2024
July 1, 2023
As
Reported
Restructuring Costs
1,2
As
Adjusted
As
Reported
Operating income
$
11,662
$
12,419
$
24,081
$
37,159
Interest expense, net
24,569
—
24,569
19,050
(Loss) income before income taxes
(12,907
)
12,419
(488
)
18,109
Income tax (benefit) expense
(374
)
2,943
2,569
5,890
Net (loss) income
$
(12,533
)
$
9,476
$
(3,057
)
$
12,219
Net (loss) income per share:
Basic
$
(0.56
)
$
0.42
$
(0.14
)
$
0.55
Diluted
$
(0.56
)
$
0.42
$
(0.14
)
$
0.54
Basic Shares
22,560
22,560
22,560
22,378
Diluted Shares
22,560
22,560
22,560
22,543
1
Represents costs related to business
restructuring actions initiated in the fourth quarter of fiscal
2023.
2
The income tax expense is calculated using
the estimated U.S. federal and state statutory tax rate of
23.7%.
Note - Our "as adjusted" data is
considered a non-GAAP financial measure and is not in accordance
with, or preferable to, "as reported," or GAAP financial data.
However, we are providing this information as we believe it
facilitates year-over-year comparisons for 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/20240731365319/en/
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