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Sleep Number Announces First Quarter 2024 Results
"Our actions to increase operating model efficiencies drove first quarter adjusted EBITDA and gross margin rate ahead of our expectations. We also generated a significant year-over-year increase in free cash flow, as planned, and continue to prioritize paying down debt and reducing leverage," said Shelly Ibach, Chair, President and CEO. "As we build a more durable operating model and as demand for our category improves from recessionary levels, we expect to capitalize on our significant opportunity as a sleep wellness technology company."
First Quarter Overview
Net sales of $470 million declined 11% versus the prior year, including approximately four percentage points of pressure from year-over-year order backlog changes Gross margin of 58.7% compared with 58.9% last year; the first quarter gross margin rate represented a significant sequential improvement from the back-half of the prior year Operating expenses were reduced by $24 million to $260 million (before restructuring charges) compared with $284 million last year Adjusted EBITDA of $37 million compared to $49 million last year, as ongoing cost reduction actions partially offset the year-over-year net sales decline
Cash Flows and Liquidity Review
Net cash provided by operating activities of $34 million in the first quarter, compared with $19 million for the same period last year Free cash flow of $24 million in the first quarter, compared with $3 million for the same period last year Leverage ratio of 4.2x EBITDAR at the end of the first quarter versus covenant maximum of 5.0x
Financial Outlook
The company reiterates its outlook for 2024 adjusted EBITDA of $125 million to $145 million. We continue to expect a mid-single digit net sales decline for the year on a low-single digit demand decline. The company expects approximately 100 basis points of gross margin rate improvement and $14 million of restructuring charges for the year. The company expects to generate $60 million to $80 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.
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(R) smart bed or applying our nearly 26 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 4,000 mission-driven team members passionately innovate to drive value creation through our vertically integrated business model, including our exclusive direct-to-consumer selling in over 650 stores and online.
To learn more about life-changing, individualized sleep, visit a Sleep Number(R) 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 is building a more durable business model as the bedding industry demand environment improves from recessionary levels and the company's financial outlook, including the company's expected adjusted EBITDA, in 2024 and future capital expenditures and operating expenses, are forward-looking statements subject to certain risks and uncertainties including, among others, changes in economic conditions and consumer sentiment and related impacts on discretionary consumer spending; increases in interest rates, which have increased the cost of servicing our indebtedness; availability of attractive and cost-effective consumer credit options; ability to achieve savings and efficiencies from cost savings plans related to operating model transformation and to avoid unexpected adverse effects; dependence on, and ability to maintain working relationships with key suppliers and third parties; fluctuations in commodity costs or third-party delivery or logistics costs and other inflationary pressures; risks inherent in global-sourcing activities, including tariffs, foreign regulation, geo-political turmoil, war, pandemics, labor challenges, foreign currency fluctuations, inflation, and climate or other disasters, and resulting supply shortages and production and delivery delays and disruptions; operating with minimal levels of inventory, which may leave us vulnerable to supply shortages; the effectiveness of our marketing strategy and promotional efforts; the execution of our Total Retail distribution strategy; ability to achieve and maintain high levels of product quality and to improve and expand the product line; ability to protect our technology, trademarks, and brand and the adequacy of our intellectual property rights; ability to effectively compete; risks of disruption in the operation of our facilities and operations, including manufacturing, assembly, distribution, logistics, field services, home delivery, headquarters, product development, retail or customer service operations; ability to comply with existing and changing government regulations and laws; 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; our ability to identify and withstand cyber threats that could compromise the security of our systems, result in a data breach or business disruption; risks associated with advancements in or adoption of artificial intelligence technologies; our ability, and the ability of our suppliers and vendors, to attract, retain and motivate qualified and effective personnel; the volatility of Sleep Number stock, our removal from various stock indices, and the potential negative effects of shareholder activism or of changes in coverage by securities analysts; environmental, social and governance risks, including increasing regulation and stakeholder expectations; and our 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, including the Annual Report on Form 10-K and other periodic reports. We have no obligation to publicly update or revise any of these forward-looking statements.
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited - in thousands, except per share amounts)
Three Months Ended
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
March 30, % of April 1, % of
2024 Net Sales 2023 Net Sales
------------------------------------------------------------ ------------------- ---------------------------------------- -------------------
Net sales $ 470,449 100.0 % $ 526,527 100.0 %
Cost of sales 194,275 41.3 % 216,262 41.1 %
-------------------- -------------------- -------------------- ---------- --------- -------------------- -------------------- -------------- -----
276,174 58.7 % 310,265 58.9 %
Gross profit
-------------------- -------------------- -------------------- ---------- --------- -------------------- -------------------- -------------- -----
Operating expenses:
208,512 44.3 % 230,488 43.8 %
Sales and marketing
39,079 8.3 % 39,401 7.5 %
General and administrative
12,441 2.6 % 14,443 2.7 %
Research and development
10,600 2.3 % -- -- %
Restructuring costs
-------------------- -------------------- -------------------- ---------- --------- -------------------- -------------------- -------------- -----
270,632 57.5 % 284,332 54.0 %
Total operating expenses
Operating income 5,542 1.2 % 25,933 4.9 %
Interest expense, net 12,299 2.6 % 9,102 1.7 %
-------------------- -------------------- -------------------- ---------- --------- -------------------- -------------------- -------------- -----
(Loss) income before income taxes (6,757 ) (1.4 %) 16,831 3.2 %
Income tax expense 725 0.2 % 5,366 1.0 %
-------------------- -------------------- -------------------- ---------- --------- -------------------- -------------------- -------------- -----
Net (loss) income $ (7,482 ) (1.6 %) $ 11,465 2.2 %
==================== ==================== ==================== ========== ========= ==================== ==================== ============== =====
Net (loss) income per share - basic $ (0.33 ) $ 0.51
==================== ==================== ==================== ==================== ====================
Net (loss) income per share - diluted $ (0.33 ) $ 0.51
==================== ==================== ==================== ==================== ====================
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding 22,506 22,296
-- 287
Dilutive effect of stock-based awards
-------------------- -------------------- -------------------- -------------------- --------------------
Diluted weighted-average shares outstanding 22,506 22,583
==================== ==================== ==================== ==================== ====================
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited - in thousands, except per share amounts)
subject to reclassification
March 30, December 30,
2024 2023
------------------------------------------------------ ------------------------------------------------------
Assets
Current assets:
$ 2,068 $ 2,539
Cash and cash equivalents
21,833 26,859
Accounts receivable, net of allowances of $1,090 and $1,437, respectively
100,904 115,433
Inventories
20,655 16,660
Prepaid expenses
35,589 44,637
Other current assets
-------------------- -------------- -------------------- -------------------- -------------- --------------------
181,049 206,128
Total current assets
Non-current assets:
167,037 179,503
Property and equipment, net
387,942 395,411
Operating lease right-of-use assets
66,579 66,634
Goodwill and intangible assets, net
21,181 20,253
Deferred income taxes
84,685 82,951
Other non-current assets
-------------------- -------------- -------------------- -------------------- -------------- --------------------
$ 908,473 $ 950,880
Total assets
==================== ============== ==================== ==================== ============== ====================
Liabilities and Shareholders' Deficit
Current liabilities:
$ 523,500 $ 539,500
Borrowings under revolving credit facility
125,304 135,901
Accounts payable
50,262 49,143
Customer prepayments
22,415 22,402
Accrued sales returns
28,296 28,273
Compensation and benefits
16,661 17,134
Taxes and withholding
81,300 81,760
Operating lease liabilities
58,454 61,958
Other current liabilities
-------------------- -------------- -------------------- -------------------- -------------- --------------------
906,192 936,071
Total current liabilities
Non-current liabilities:
343,447 351,394
Operating lease liabilities
104,697 105,343
Other non-current liabilities
-------------------- -------------- -------------------- -------------------- -------------- --------------------
448,144 456,737
Total non-current liabilities
-------------------- -------------- -------------------- -------------------- -------------- --------------------
1,354,336 1,392,808
Total liabilities
Shareholders' deficit:
-- --
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding
223 222
Common stock, $0.01 par value; 142,500 shares authorized, 22,326 and 22,235 shares issued and outstanding, respectively
20,262 16,716
Additional paid-in capital
(466,348 ) (458,866 )
Accumulated deficit
-------------------- -------------- -------------------- -------------------- -------------- --------------------
(445,863 ) (441,928 )
Total shareholders' deficit
-------------------- -------------- -------------------- -------------------- -------------- --------------------
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited - in thousands)
subject to reclassification
Three Months Ended
--------------------------------------------------------------------------------------------------------------------------------
March 30, April 1,
2024 2023
------------------------------------------------------ ------------------------------------------------------
Cash flows from operating activities:
$ (7,482 ) $ 11,465
Net (loss) income
Adjustments to reconcile net income to net cash provided by
operating activities:
17,487 18,218
Depreciation and amortization
4,117 4,639
Stock-based compensation
2,500 12
Net loss on disposals and impairments of assets
(928 ) (3,252 )
Deferred income taxes
Changes in operating assets and liabilities:
5,026 2,717
Accounts receivable
14,529 (2,747 )
Inventories
1,587 8,736
Income taxes
5,473 (11,056 )
Prepaid expenses and other assets
(2,765 ) (574 )
Accounts payable
1,119 (4,639 )
Customer prepayments
30 (593 )
Accrued compensation and benefits
(2,060 ) (711 )
Other taxes and withholding
(4,888 ) (3,634 )
Other accruals and liabilities
-------------------- -------------- -------------------- -------------------- -------------- --------------------
33,745 18,581
Net cash provided by operating activities
-------------------- -------------- -------------------- -------------------- -------------- --------------------
Cash flows from investing activities:
(9,308 ) (15,556 )
Purchases of property and equipment
(2,942 ) --
Issuance of notes receivable
-------------------- -------------- -------------------- -------------------- -------------- --------------------
(12,250 ) (15,556 )
Net cash used in investing activities
-------------------- -------------- -------------------- -------------------- -------------- --------------------
Cash flows from financing activities:
(21,396 ) (384 )
Net decrease in short-term borrowings
(570 ) (3,363 )
Repurchases of common stock
-- 389
Proceeds from issuance of common stock
-------------------- -------------- -------------------- -------------------- -------------- --------------------
(21,966 ) (3,358 )
Net cash used in financing activities
-------------------- -------------- -------------------- -------------------- -------------- --------------------
Net decrease in cash and cash equivalents (471 ) (333 )
Cash and cash equivalents, at beginning of period 2,539 1,792
-------------------- -------------- -------------------- -------------------- -------------- --------------------
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
Three Months Ended
----------------------------------------------------------------------------------------------------------------
March 30, April 1,
2024 2023
---------------------------------------------- ----------------------------------------------
Percent of sales:
88.2 % 87.1 %
Retail stores
11.8 % 12.9 %
Online, phone, chat and other
-------------------- ------ -------------------- -------------------- ------ --------------------
100.0 % 100.0 %
Total Company
-------------------- ------ -------------------- -------------------- ------ --------------------
Sales change rates:
(10 %) 1 %
Retail comparable-store sales
(19 %) (18 %)
Online, phone and chat
-------------------- ------ -------------------- -------------------- ------ --------------------
(11 %) (2 %)
Total Retail comparable sales change
0 % 2 %
Net opened/closed stores and other
-------------------- ------ -------------------- -------------------- ------ --------------------
(11 %) 0 %
Total Company
-------------------- ------ -------------------- -------------------- ------ --------------------
Stores open:
672 670
Beginning of period
6 12
Opened
(17 ) (11 )
Closed
-------------------- ------ -------------------- -------------------- ------ --------------------
661 671
End of period
-------------------- ------ -------------------- -------------------- ------ --------------------
Other metrics:
$ 2,786 $ 3,239
Average sales per store ($ in 000's) (1)
$ 903 $ 1,060
Average sales per square foot (1)
63 % 75 %
Stores > $2 million net sales (2)
23 % 36 %
Stores > $3 million net sales (2)
(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).
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
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
March 30, April 1, March 30, April 1,
2024 2023 2024 2023
--------------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------ --------------------------------------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------
Net (loss) income $ (7,482 ) $ 11,465 $ (34,234 ) $ 46,001
Income tax expense (benefit) 725 5,366 (9,107 ) 17,437
Interest expense 12,299 9,102 45,892 25,960
Depreciation and amortization 17,145 17,991 71,633 68,934
Stock-based compensation 4,117 4,639 14,333 13,729
Restructuring costs (1) 10,600 -- 26,328 --
Asset impairments -- 12 660 204
--------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- --------------------------------------------- ---------------------------------------------
$ 37,404 $ 48,575 $ 115,505 $ 172,265
Adjusted EBITDA
============================================= ============================================= ============================================= ============================================= ============================================= ============================================= ============================================= ============================================= ============================================= =============================================
Free Cash Flow
(in thousands)
Three Months Ended Trailing Twelve Months Ended
----------------------------------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
March 30, April 1, March 30, April 1,
2024 2023 2024 2023
-------------------------------------------------- -------------------------------------------------- --------------------------------------------------------------------------- ---------------------------------------------------------------------------
Net cash provided by operating activities $ 33,745 $ 18,581 $ 6,136 $ 30,161
9,308 15,556 50,808 65,406
Subtract: Purchases of property and equipment
------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- ------------------------- -------------------------
Free cash flow $ 24,437 $ 3,025 $ (44,672 ) $ (35,245 )
========================= ========================= ========================= ========================= ========================= ========================= ========================= ========================= ========================= =========================
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.
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
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
March 30, April 1,
2024 2023
-------------------------------------------------------------------------------------------------------- ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Borrowings under revolving credit facility $ 523,500 $ 470,600
Outstanding letters of credit 7,147 7,147
Finance lease obligations 300 392
------------------------------------------------------------------------------------------------- ------- ------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Consolidated funded indebtedness $ 530,947 $ 478,139
Operating lease liabilities (1) 424,746 436,939
------------------------------------------------------------------------------------------------- ------- ------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total debt including operating lease liabilities (a) $ 955,693 $ 915,078
================================================================================================= ======= ================================================================================================= ===========================================================================================================================================================================================
Adjusted EBITDA (see above) $ 115,505 $ 172,265
Consolidated rent expense 112,233 111,593
------------------------------------------------------------------------------------------------- ------- ------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Consolidated EBITDAR (b) $ 227,738 $ 283,858
================================================================================================= ======= ================================================================================================= ===========================================================================================================================================================================================
(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.