EX-99 2 a2022-q3ex991.htm EX-99 Document
Exhibit 99.1
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FOR IMMEDIATE RELEASE

SLEEP NUMBER ANNOUNCES THIRD QUARTER 2022 Results

•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

MINNEAPOLIS – (October 26, 2022) – 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.

Sleep Number Announces Third-quarter 2022 Results - Page 2 of 9
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 SleeperSM 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.
# # #
Investor Contact: Dave Schwantes; (763) 551-7498; investorrelations@sleepnumber.com
Media Contact: Julie Elepano; (414) 732-9840; julie.elepano@sleepnumber.com

Sleep Number Announces Third-quarter 2022 Results - Page 3 of 9

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
 
Three Months Ended
 October 1,
2022		% of
Net Sales		October 2,
2021		% of
Net Sales
Net sales$540,566 100.0 %$640,393 100.0 %
Cost of sales237,479 43.9 %250,039 39.0 %
Gross profit303,087 56.1 %390,354 61.0 %
Operating expenses:
Sales and marketing239,656 44.3 %255,512 39.9 %
General and administrative36,003 6.7 %47,676 7.4 %
Research and development14,786 2.7 %14,431 2.3 %
Total operating expenses290,445 53.7 %317,619 49.6 %
Operating income12,642 2.3 %72,735 11.4 %
Interest expense, net5,606 1.0 %1,816 0.3 %
Income before income taxes7,036 1.3 %70,919 11.1 %
Income tax expense2,003 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 outstanding22,218  23,464  
Dilutive effect of stock-based awards355  769  
Diluted weighted-average shares outstanding22,573  24,233  





Sleep Number Announces Third-quarter 2022 Results - Page 4 of 9

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
 
 Nine Months Ended
October 1,
2022		% of
Net Sales		October 2,
2021		% of
Net Sales
Net sales$1,616,769 100.0 %$1,692,965 100.0 %
Cost of sales686,439 42.5 %653,842 38.6 %
Gross profit930,330 57.5 %1,039,123 61.4 %
Operating expenses:
Sales and marketing700,405 43.3 %685,123 40.5 %
General and administrative116,049 7.2 %131,488 7.8 %
Research and development46,908 2.9 %43,633 2.6 %
Total operating expenses863,362 53.4 %860,244 50.8 %
Operating income66,968 4.1 %178,879 10.6 %
Interest expense, net11,352 0.7 %4,400 0.3 %
Income before income taxes55,616 3.4 %174,479 10.3 %
Income tax expense13,576 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 outstanding22,444  24,404  
Dilutive effect of stock-based awards515  920  
Diluted weighted-average shares outstanding22,959  25,324  


Sleep Number Announces Third-quarter 2022 Results - Page 5 of 9
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited – in thousands, except per share amounts)
subject to reclassification
  
 October 1,
2022		January 1,
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 
Inventories113,554 105,644 
Prepaid expenses21,214 18,953 
Other current assets34,803 54,917 
Total current assets197,666 207,621 
Non-current assets:  
Property and equipment, net199,917 195,128 
Operating lease right-of-use assets389,524 371,133 
Goodwill and intangible assets, net68,666 70,468 
Deferred income taxes6,267 — 
Other non-current assets78,741 75,190 
Total assets$940,781 $919,540 
Liabilities and Shareholders’ Deficit  
Current liabilities:  
Borrowings under revolving credit facility$406,300 $382,500 
Accounts payable199,154 162,547 
Customer prepayments95,274 129,499 
Accrued sales returns25,651 22,368 
Compensation and benefits27,339 51,240 
Taxes and withholding31,361 22,087 
Operating lease liabilities77,243 72,360 
Other current liabilities60,949 64,177 
Total current liabilities923,271 906,778 
Non-current liabilities:
Deferred income taxes— 688 
Operating lease liabilities350,370 336,192 
Other non-current liabilities104,611 100,835 
Total non-current liabilities454,981 437,715 
Total liabilities1,378,252 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 capital458 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 Announces Third-quarter 2022 Results - Page 6 of 9
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited – in thousands)
subject to reclassification
 
 Nine Months Ended
 October 1,
2022		October 2,
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 amortization49,342 44,786 
Stock-based compensation8,585 19,701 
Net loss (gain) on disposals and impairments of assets274 (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 taxes4,530 5,615 
Prepaid expenses and other assets20,082 (13,879)
Accounts payable28,889 51,543 
Customer prepayments(34,225)35,785 
Accrued compensation and benefits(23,735)(12,725)
Other taxes and withholding4,744 7,636 
Other accruals and liabilities(1,340)17,630 
Net cash provided by operating activities80,122 292,684 
Cash flows from investing activities:
Purchases of property and equipment(52,808)(49,370)
Proceeds from sales of property and equipment49 257 
Net cash used in investing activities(52,759)(49,113)
Cash flows from financing activities:
Net increase in short-term borrowings34,781 132,222 
Repurchases of common stock(64,141)(381,496)
Proceeds from issuance of common stock998 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 period2,389 4,243 
Cash and cash equivalents, at end of period$1,348 $1,830 


Sleep Number Announces Third-quarter 2022 Results - Page 7 of 9
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
 
 Three Months EndedNine Months Ended
 October 1,
2022		October 2,
2021		October 1,
2022		October 2,
2021
Percent of sales:    
Retail stores86.3 %88.4 %86.7 %87.5 %
Online, phone, chat and other13.7 %11.6 %13.3 %12.5 %
Total Company100.0 %100.0 %100.0 %100.0 %
Sales change rates:
Retail comparable-store sales(21 %)19 %(10 %)32 %
Online, phone and chat0 %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 period659 621 648 602 
Opened12 18 35 55 
Closed(9)(7)(21)(25)
End of period662 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 Announces Third-quarter 2022 Results - Page 8 of 9
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 EndedTrailing Twelve Months Ended
 October 1,
2022		October 2,
2021		October 1,
2022		October 2,
2021
Net income$5,033 $53,721 $53,181 $203,964 
Income tax expense2,003 17,198 15,247 44,294 
Interest expense5,606 1,816 13,196 5,214 
Depreciation and amortization17,180 14,820 64,217 59,539 
Stock-based compensation542 7,317 12,097 25,961 
Asset impairments95 23 338 154 
Adjusted EBITDA$30,459 $94,895 $158,276 $339,126 
 
Free Cash Flow
(in thousands)
 Three Months EndedTrailing Twelve Months Ended
 October 1,
2022		October 2,
2021		October 1,
2022		October 2,
2021
Net cash provided by operating activities
$51,431 $131,264 $87,448 $285,063 
Subtract: Purchases of property and equipment16,249 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,
2022		October 2,
2021
Borrowings under revolving credit facility$406,300 $359,100 
Outstanding letters of credit5,947 3,997 
Finance lease obligations450 566 
Consolidated funded indebtedness$412,697 $363,663 
Capitalized operating lease obligations 1
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 expense108,457 98,839 
Consolidated EBITDAR (b)$266,733 $437,965 
Net Leverage Ratio under revolving credit facility (a divided by b)4.0 to 1.02.2 to 1.0
1A 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 Announces Third-quarter 2022 Results - Page 9 of 9
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.