U.S. Markets closed
  • S&P 500

    4,280.15
    +72.88 (+1.73%)
     
  • Dow 30

    33,761.05
    +424.38 (+1.27%)
     
  • Nasdaq

    13,047.19
    +267.27 (+2.09%)
     
  • Russell 2000

    2,016.62
    +41.36 (+2.09%)
     
  • Crude Oil

    91.88
    -2.46 (-2.61%)
     
  • Gold

    1,818.90
    +11.70 (+0.65%)
     
  • Silver

    20.83
    +0.49 (+2.39%)
     
  • EUR/USD

    1.0257
    -0.0068 (-0.6565%)
     
  • 10-Yr Bond

    2.8490
    -0.0390 (-1.35%)
     
  • Vix

    19.53
    -0.67 (-3.32%)
     
  • GBP/USD

    1.2139
    -0.0064 (-0.5220%)
     
  • USD/JPY

    133.4800
    +0.4810 (+0.3617%)
     
  • BTC-USD

    24,496.74
    +542.21 (+2.26%)
     
  • CMC Crypto 200

    574.64
    +3.36 (+0.59%)
     
  • FTSE 100

    7,500.89
    +34.98 (+0.47%)
     
  • Nikkei 225

    28,546.98
    +727.65 (+2.62%)
     

Sleep Number Announces Second Quarter 2022 Results

  • Oops!
    Something went wrong.
    Please try again later.
·16 min read
In this article:
  • Oops!
    Something went wrong.
    Please try again later.
  • Second-quarter net sales increased 13% and diluted EPS grew 75% versus the prior year

  • Year-to-date net sales increased 2% with year-to-date diluted EPS of $1.60 versus $3.44 for the same period last year on constrained electronics supply, inflation pressures and low consumer sentiment

  • Updated 2022 EPS outlook to a range of $3.00 to $4.00 per share

MINNEAPOLIS, July 27, 2022--(BUSINESS WIRE)--Sleep Number Corporation (Nasdaq: SNBR) today reported results for the quarter ended July 2, 2022.

"Our second-quarter performance reflects our team’s incredible agility in navigating a complex business environment. Ongoing electronic supply disruptions, inflationary pressures and record low consumer sentiment are reflected in our revised 2022 EPS outlook. We are taking prudent actions to preserve liquidity and financial flexibility," said Shelly Ibach, Chair, President and CEO. "Sleep Number brand metrics are strong, and we continue to advance our life changing innovations. We are positioned to rebound rapidly as consumer confidence and flow of electronic parts improve."

Second Quarter Overview

  • Net sales increased 13% to $549 million, while demand decreased 12% for the quarter, reflecting record low consumer sentiment

  • Gross margin of 59.2% of net sales, more than 100 basis points above expectations due to favorable product mix which more than offset operating inefficiencies resulting from the uneven flow of electronics supply

  • Earnings per diluted share increased 75% to $1.54, compared with $0.88 for the prior year

Cash Flows and Liquidity Review

  • Year-to-date net cash from operating activities of $29 million were pressured by year-over-year changes in working capital and lower net income

  • Invested $37 million in capital expenditures and $55 million in Sleep Number stock for the first six months of the year; planning no share repurchases in the third quarter as we prioritize performance-driving investments

  • Leverage ratio of 3.3x EBITDAR at the end of the second quarter; more than $375 million of liquidity remains against current debt facility

  • Return on invested capital (ROIC) was 21.8% for the trailing twelve-month period

Financial Outlook

The company updated its full-year 2022 diluted EPS outlook to a range of $3.00 to $4.00 per share based on macro conditions. The outlook assumes low single-digit net sales growth for 2022 on a high single-digit demand decline, while servicing excess backlog. 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.

About Sleep Number Corporation

Individuality is the foundation of Sleep Number. Our purpose driven company is comprised of over 5,500 passionate team members who are dedicated to our mission of improving lives by individualizing sleep experiences. We have improved more than 14 million lives and are positively impacting society’s wellbeing through higher quality sleep.

Our award-winning 360® smart beds are informed by science. They learn from over 1.95 billion sleep sessions of highly-accurate, real world sleep data – the culmination of over 15 billion hours’ worth - to automatically adjust to each sleeper and provide effortless comfort and proven quality sleep. Our 360 smart beds deliver individualized sleep health reports and insights, including a daily SleepIQ® score, and are helping to advance meaningful sleep health solutions by applying sleep science and research.

For life-changing sleep, visit SleepNumber.com or one of our more than 650 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.

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited – in thousands, except per share amounts)

Three Months Ended

July 2,

% of

July 3,

% of

2022

Net Sales

2021

Net Sales

Net sales

$

549,073

100.0

%

$

484,316

100.0

%

Cost of sales

224,128

40.8

%

191,465

39.5

%

Gross profit

324,945

59.2

%

292,851

60.5

%

Operating expenses:

Sales and marketing

220,490

40.2

%

205,994

42.5

%

General and administrative

38,727

7.1

%

41,220

8.5

%

Research and development

15,817

2.9

%

15,916

3.3

%

Total operating expenses

275,034

50.1

%

263,130

54.3

%

Operating income

49,911

9.1

%

29,721

6.1

%

Interest expense, net

3,619

0.7

%

1,607

0.3

%

Income before income taxes

46,292

8.4

%

28,114

5.8

%

Income tax expense

11,359

2.1

%

5,864

1.2

%

Net income

$

34,933

6.4

%

$

22,250

4.6

%

Net income per share – basic

$

1.56

$

0.91

Net income per share – diluted

$

1.54

$

0.88

Reconciliation of weighted-average shares outstanding:

Basic weighted-average shares outstanding

22,355

24,371

Dilutive effect of stock-based awards

358

823

Diluted weighted-average shares outstanding

22,713

25,194

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited – in thousands, except per share amounts)

Six Months Ended

July 2,

% of

July 3,

% of

2022

Net Sales

2021

Net Sales

Net sales

$

1,076,203

100.0

%

$

1,052,572

100.0

%

Cost of sales

448,960

41.7

%

403,803

38.4

%

Gross profit

627,243

58.3

%

648,769

61.6

%

Operating expenses:

Sales and marketing

460,749

42.8

%

429,611

40.8

%

General and administrative

80,046

7.4

%

83,812

8.0

%

Research and development

32,122

3.0

%

29,202

2.8

%

Total operating expenses

572,917

53.2

%

542,625

51.6

%

Operating income

54,326

5.0

%

106,144

10.1

%

Interest expense, net

5,746

0.5

%

2,584

0.2

%

Income before income taxes

48,580

4.5

%

103,560

9.8

%

Income tax expense

11,573

1.1

%

14,676

1.4

%

Net income

$

37,007

3.4

%

$

88,884

8.4

%

Net income per share – basic

$

1.64

$

3.57

Net income per share – diluted

$

1.60

$

3.44

Reconciliation of weighted-average shares outstanding:

Basic weighted-average shares outstanding

22,558

24,874

Dilutive effect of stock-based awards

594

995

Diluted weighted-average shares outstanding

23,152

25,869

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Consolidated Balance Sheets

(unaudited – in thousands, except per share amounts)

subject to reclassification

July 2,

January 1,

2022

2022

Assets

Current assets:

Cash and cash equivalents

$

2,279

$

2,389

Accounts receivable, net of allowances of $1,326 and $924, respectively

28,616

25,718

Inventories

121,318

105,644

Prepaid expenses

24,575

18,953

Other current assets

45,077

54,917

Total current assets

221,865

207,621

Non-current assets:

Property and equipment, net

196,888

195,128

Operating lease right-of-use assets

382,324

371,133

Goodwill and intangible assets, net

69,267

70,468

Deferred income taxes

3,106

-

Other non-current assets

76,637

75,190

Total assets

$

950,087

$

919,540

Liabilities and Shareholders’ Deficit

Current liabilities:

Borrowings under revolving credit facility

$

443,300

$

382,500

Accounts payable

167,213

162,547

Customer prepayments

114,745

129,499

Accrued sales returns

24,656

22,368

Compensation and benefits

33,274

51,240

Taxes and withholding

27,426

22,087

Operating lease liabilities

76,041

72,360

Other current liabilities

58,605

64,177

Total current liabilities

945,260

906,778

Non-current liabilities:

Deferred income taxes

-

688

Operating lease liabilities

344,475

336,192

Other non-current liabilities

103,314

100,835

Total non-current liabilities

447,789

437,715

Total liabilities

1,393,049

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, 21,964 and 22,683 shares issued and outstanding, respectively

220

227

Additional paid-in capital

-

3,971

Accumulated deficit

(443,182

)

(429,151

)

Total shareholders’ deficit

(442,962

)

(424,953

)

Total liabilities and shareholders’ deficit

$

950,087

$

919,540

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited - in thousands)

subject to reclassification

Six Months Ended

July 2,

July 3,

2022

2021

Cash flows from operating activities:

Net income

$

37,007

$

88,884

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

31,975

29,800

Stock-based compensation

8,043

12,385

Net loss on disposals and impairments of assets

179

78

Deferred income taxes

(3,794

)

421

Changes in operating assets and liabilities:

Accounts receivable

(2,898

)

8,666

Inventories

(15,674

)

(7,215

)

Income taxes

4,368

(11,625

)

Prepaid expenses and other assets

6,266

(13,407

)

Accounts payable

(1,713

)

23,232

Customer prepayments

(14,754

)

47,418

Accrued compensation and benefits

(17,789

)

(22,387

)

Other taxes and withholding

971

487

Other accruals and liabilities

(3,496

)

4,683

Net cash provided by operating activities

28,691

161,420

Cash flows from investing activities:

Purchases of property and equipment

(36,559

)

(32,012

)

Proceeds from sales of property and equipment

23

12

Net cash used in investing activities

(36,536

)

(32,000

)

Cash flows from financing activities:

Net increase in short-term borrowings

70,836

146,447

Repurchases of common stock

(63,644

)

(280,915

)

Proceeds from issuance of common stock

585

3,535

Debt issuance costs

(42

)

(557

)

Net cash provided by (used in) financing activities

7,735

(131,490

)

Net decrease in cash and cash equivalents

(110

)

(2,070

)

Cash and cash equivalents, at beginning of period

2,389

4,243

Cash and cash equivalents, at end of period

$

2,279

$

2,173

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Supplemental Financial Information

(unaudited)

Three Months Ended

Six Months Ended

July 2,

July 3,

July 2,

July 3,

2022

2021

2022

2021

Percent of sales:

Retail stores

89.4

%

88.1

%

86.9

%

87.0

%

Online, phone, chat and other

10.6

%

11.9

%

13.1

%

13.0

%

Total Company

100.0

%

100.0

%

100.0

%

100.0

%

Sales change rates:

Retail comparable-store sales

10

%

102

%

(3

%)

41

%

Online, phone and chat

2

%

(28

%)

4

%

17

%

Total Retail comparable sales change

9

%

65

%

(2

%)

37

%

Net opened/closed stores and other

4

%

5

%

4

%

2

%

Total Company

13

%

70

%

2

%

39

%

Stores open:

Beginning of period

653

607

648

602

Opened

10

26

23

37

Closed

(4

)

(12

)

(12

)

(18

)

End of period

659

621

659

621

Other metrics:

Average sales per store ($ in 000's) 1

$

3,526

$

3,542

Average sales per square foot 1

$

1,172

$

1,203

Stores > $2 million net sales 2

82

%

82

%

Stores > $3 million net sales 2

45

%

47

%

Average revenue per smart bed unit 3

$

6,485

$

5,094

$

5,601

$

5,059

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 2,

July 3,

July 2,

July 3,

2022

2021

2022

2021

Net income

$

34,933

$

22,250

$

101,869

$

201,563

Income tax expense

11,359

5,864

30,442

43,564

Interest expense

3,619

1,607

9,406

5,227

Depreciation and amortization

15,920

15,006

61,857

59,802

Stock-based compensation

3,910

5,968

18,872

27,114

Asset impairments

80

-

266

142

Adjusted EBITDA

$

69,821

$

50,695

$

222,712

$

337,412

Free Cash Flow

(in thousands)

Three Months Ended

Trailing Twelve Months Ended

July 2,

July 3,

July 2,

July 3,

2022

2021

2022

2021

Net cash provided by operating activities

$

4,133

$

49,822

$

167,281

$

354,080

Subtract: Purchases of property and equipment

16,955

20,466

71,447

47,417

Free cash flow

$

(12,822

)

$

29,356

$

95,834

$

306,663

Calculation of Net Leverage Ratio under Revolving Credit Facility

(in thousands)

Trailing Twelve Months Ended

July 2,

July 3,

2022

2021

Borrowings under revolving credit facility

$

443,300

$

382,200

Outstanding letters of credit

5,947

3,997

Finance lease obligations

479

594

Consolidated funded indebtedness

$

449,726

$

386,791

Capitalized operating lease obligations1

642,213

571,358

Total debt including capitalized operating lease obligations (a)

$

1,091,939

$

958,149

Adjusted EBITDA (see above)

$

222,712

$

337,412

Consolidated rent expense

107,035

95,226

Consolidated EBITDAR (b)

$

329,747

$

432,638

Net Leverage Ratio under revolving credit facility (a divided by b)

3.3 to 1.0

2.2 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 (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

July 2,
2022

July 3,
2021

Net operating profit after taxes (NOPAT)

Operating income

$

141,718

$

250,352

Add: Rent expense 1

107,035

95,226

Add: Interest income

-

2

Less: Depreciation on capitalized operating leases 2

(27,078

)

(24,577

)

Less: Income taxes 3

(52,891

)

(76,939

)

NOPAT

$

168,784

$

244,064

Average invested capital

Total deficit

$

(442,962

)

$

(403,658

)

Add: Long-term debt 4

443,779

382,794

Add: Capitalized operating lease obligations 5

856,280

761,808

Total invested capital at end of period

$

857,097

$

740,944

Average invested capital 6

$

772,772

$

733,151

Return on invested capital (ROIC) 7

21.8

%

33.3

%

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 23.9% and 24.0% for July 2, 2022 and July 3, 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.

View source version on businesswire.com: https://www.businesswire.com/news/home/20220727005088/en/

Contacts

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