EX-99.1 2 a2023-q1ex991.htm EX-99.1 Document
Exhibit 99.1
snbrlogojpg.jpg

FOR IMMEDIATE RELEASE

SLEEP NUMBER ANNOUNCES FIRST QUARTER 2023 RESULTS

•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

MINNEAPOLIS – (April 26, 2023) – 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.

Sleep Number Announces First-quarter 2023 Results - Page 2 of 8
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.

# # #

Investor Contact: Dave Schwantes; (763) 551-7498; investorrelations@sleepnumber.com
Media Contact: Julie Elepano; (414) 732-9840; julie.elepano@sleepnumber.com

Sleep Number Announces First-quarter 2023 Results - Page 3 of 8

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 sales216,262 41.1 %224,832 42.7 %
Gross profit310,265 58.9 %302,298 57.3 %
Operating expenses:
Sales and marketing230,488 43.8 %240,259 45.6 %
General and administrative39,401 7.5 %41,319 7.8 %
Research and development14,443 2.7 %16,305 3.1 %
Total operating expenses284,332 54.0 %297,883 56.5 %
Operating income25,933 4.9 %4,415 0.8 %
Interest expense, net9,102 1.7 %2,127 0.4 %
Income before income taxes16,831 3.2 %2,288 0.4 %
Income tax expense5,366 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 outstanding22,296  22,760  
Dilutive effect of stock-based awards287  831  
Diluted weighted-average shares outstanding22,583  23,591  




Sleep Number Announces First-quarter 2023 Results - Page 4 of 8
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 
Inventories116,781 114,034 
Prepaid expenses26,986 16,006 
Other current assets39,902 39,921 
Total current assets208,416 197,758 
Non-current assets:  
Property and equipment, net194,802 200,605 
Operating lease right-of-use assets398,339 397,755 
Goodwill and intangible assets, net67,565 68,065 
Deferred income taxes11,210 7,958 
Other non-current assets82,477 81,795 
Total assets$962,809 $953,936 
Liabilities and Shareholders’ Deficit  
Current liabilities:  
Borrowings under revolving credit facility$470,600 $459,600 
Accounts payable160,304 176,207 
Customer prepayments68,542 73,181 
Accrued sales returns24,071 25,594 
Compensation and benefits30,706 31,291 
Taxes and withholding31,647 23,622 
Operating lease liabilities81,383 79,533 
Other current liabilities58,441 60,785 
Total current liabilities925,694 929,813 
Non-current liabilities:
Operating lease liabilities355,556 356,879 
Other non-current liabilities106,606 105,421 
Total non-current liabilities462,162 462,300 
Total liabilities1,387,856 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 capital6,845 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 Announces First-quarter 2023 Results - Page 5 of 8
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 amortization18,218 15,870 
Stock-based compensation4,639 4,133 
Net loss on disposals and impairments of assets12 93 
Deferred income taxes(3,252)(376)
Changes in operating assets and liabilities:
Accounts receivable2,717 1,216 
Inventories(2,747)2,432 
Income taxes8,736 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 activities18,581 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 stock389 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 period1,792 2,389 
Cash and cash equivalents, at end of period$1,459 $1,556 


Sleep Number Announces First-quarter 2023 Results - Page 6 of 8
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
 
 Three Months Ended
 April 1,
2023		April 2,
2022
Percent of sales:  
Retail stores87.1 %84.3 %
Online, phone, chat and other12.9 %15.7 %
Total Company100.0 %100.0 %
Sales change rates:
Retail comparable-store sales1 %(14 %)
Online, phone and chat(18 %)5 %
Total Retail comparable sales change(2 %)(11 %)
 Net opened/closed stores and other
2 %4 %
Total Company0 %(7 %)
Stores open:
Beginning of period670 648 
Opened12 13 
Closed(11)(8)
End of period671 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 Announces First-quarter 2023 Results - Page 7 of 8
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
 April 1,
2023		April 2,
2022		April 1,
2023		April 2,
2022
Net income$11,465 $2,074 $46,001 $89,186 
Income tax expense5,366 214 17,437 24,947 
Interest expense9,102 2,127 25,960 7,394 
Depreciation and amortization17,991 15,683 68,934 60,943 
Stock-based compensation4,639 4,133 13,729 20,930 
Asset impairments12 103 204 186 
Adjusted EBITDA$48,575 $24,334 $172,265 $203,586 
 
Free Cash Flow
(in thousands)
 Three Months EndedTrailing 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 equipment15,556 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 credit7,147 5,947 
Finance lease obligations392 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 expense111,593 104,937 
Consolidated EBITDAR (b)$283,858 $308,523 
Net Leverage Ratio under revolving credit facility (a divided by b)4.0 to 1.03.4 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 First-quarter 2023 Results - Page 8 of 8
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.