Sleep Number Announces Record Fourth-Quarter and Full-Year 2020 Results

Rhea-AI Summary

Sleep Number Corporation (NASDAQ: SNBR) reported a strong performance for the year ended January 2, 2021, with net sales increasing 9% to $1.86 billion. The company's operating income rose by 65% to $185 million, and earnings per diluted share jumped 81% to $4.90. The fourth quarter alone saw net sales grow 29% to $568 million. Cash from operating activities hit a record $280 million, reflecting a 48% increase from last year. Looking ahead, Sleep Number anticipates 2021 earnings of at least $6.00 per share, signifying a 30% increase over 2020 results, excluding the 53rd week impact.

Positive

• Net sales increased 9% to $1.86 billion in 2020.
• Operating income rose 65% to $185 million.
• Earnings per diluted share increased 81% to $4.90.
• Fourth quarter net sales grew 29% to $568 million.
• Generated a record $280 million in net cash from operating activities.

Negative

• COVID-19 significantly disrupted operations in Q2.

Sleep Number Corporation (Nasdaq: SNBR) today reported results for the year ended January 2, 2021.

“In a year of challenge and change, our mission-driven team delivered exceptional results by leveraging the power of vertical integration, digitization and focusing on what matters most to our stakeholders,” said Shelly Ibach, President and Chief Executive Officer. “We broadened our sleep leadership and brand relevance with our revolutionary 360^® smart beds as consumers’ increased their understanding of the link between proven quality sleep and wellbeing. With strong momentum in the first quarter and ongoing investments in sleep science-based innovations and digital technologies, we are well-positioned to generate sustainable profitable growth for years to come.”

Full Year Overview

• Net sales increased 9% to $1.86 billion in 2020, including a 6% comparable sales gain, 1.5 percentage points (ppt.) of growth from new stores and 2.5 ppt. of growth from the extra week
• Gross profit rate increased 40 basis points (bp) to 62.3% of net sales, despite significant disruption from COVID-19 in the second quarter
• Operating income increased 65% to $185 million, or 10.0% of net sales; increased 55% excluding the 53^rd week
• Earnings per diluted share increased 81% to $4.90; increased 70% excluding the 53^rd week
• Fiscal 2020 included a 53^rd week, which we estimate added approximately $41 million in sales, $11.2 million in operating income and $0.30 of diluted earnings per share

Fourth Quarter Overview

• Net sales increased 29% to $568 million, including a 19% comparable sales gain, one ppt. of growth from new stores and 9 ppt. of growth from the additional week in the fourth quarter
• Operating income increased 126% to $75 million; increased 92% excluding the 53^rd week
• Earnings per diluted share increased 167% to $2.19; increased 129% excluding the 53^rd week

Cash Flows and Liquidity Review

• Generated a record $280 million in net cash from operating activities, up 48% versus last year, with operating free cash flows of $243 million, up 87% versus prior year
• Invested $37 million in capital expenditures and $228 million in SNBR share repurchases in 2020, including $190 million in the fourth quarter; more than $1 billion cash returned to shareholders over the past six years; $247 million remains under our share repurchase authorization
• Return on invested capital (ROIC) of 25% for the year, up 720 bp versus 2019 and more than three times our weighted average cost of capital
• Leverage ratio of 2.2x EBITDAR at the end of 2020, compared with 2.7x at the end of 2019; continue to operate with a targeted range of 2.5x to 3.0x EBITDAR

Financial Outlook

The company expects to generate full-year 2021 earnings per diluted share of at least $6.00, which is 30% higher than 2020 full-year results excluding the impact of the 53^rd week. The outlook assumes an estimated effective income tax rate of approximately 23% (including an estimated $5 million of excess tax benefits related to stock-based compensation largely in Q1), compared to an effective tax rate of 20.9% for 2020. The company anticipates 2021 capital expenditures of $70 million to $75 million.

Conference Call Information

Management will host its regularly scheduled conference call to discuss the company’s results at 5 p.m. EST (4 p.m. CST; 2 p.m. PST) 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 our foundation at Sleep Number. Our purpose driven company is comprised of over 4,800 passionate team members who are dedicated to our mission of improving lives by individualizing sleep experiences. Our 360^® smart beds provide each sleeper with adjustable, personalized comfort for proven quality sleep. We have improved over 13 million lives as we strive to improve society’s wellbeing through higher quality sleep.

Sleep science and data are the core of our innovations. Our award-winning 360 smart beds benefit from our proprietary SleepIQ^® technology - learning from over 9 billion hours of highly accurate sleep data - to provide effortless comfort and individualized sleep health insights, including your daily SleepIQ^® score.

For life-changing sleep, visit SleepNumber.com or one of our more than 600 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 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 and related consequences such as supply shortages, labor disruptions, and recommendations and/or mandates from federal, state and local authorities to close certain businesses or limit occupancy or operating hours; 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 or do not comply with laws or regulations; availability of attractive and cost-effective consumer credit options; our lean manufacturing processes 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 providers of services; rising commodity costs and other inflationary pressures; risks inherent in global sourcing activities, including tariffs, outbreaks of pandemics or contagious diseases, such as the COVID-19 pandemic, strikes and the potential for shortages in supply; risks of disruption in the operation of any of our main manufacturing facilities or assembly and distribution facilities; 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 enhancing, patching, upgrading 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 or accessibility of our systems, result in a data breach or disrupt our business; and our ability 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)
		Fourteen						Thirteen
		Weeks Ended						Weeks Ended
		January 2,			% of			December 28,			% of
		2021			Net Sales			2019			Net Sales
Net sales		$	567,896		100.0	%		$	441,166		100.0	%
Cost of sales			211,997		37.3	%			165,052		37.4	%
Gross profit			355,899		62.7	%			276,114		62.6	%
Operating expenses:
Sales and marketing			221,712		39.0	%			198,123		44.9	%
General and administrative			47,084		8.3	%			35,490		8.0	%
Research and development			12,511		2.2	%			9,510		2.2	%
Total operating expenses			281,307		49.5	%			243,123		55.1	%
Operating income			74,592		13.1	%			32,991		7.5	%
Interest expense, net			813		0.1	%			2,619		0.6	%
Income before income taxes			73,779		13.0	%			30,372		6.9	%
Income tax expense			12,420		2.2	%			6,279		1.4	%
Net income		$	61,359		10.8	%		$	24,093		5.5	%
Net income per share – basic		$	2.28					$	0.85
Net income per share – diluted		$	2.19					$	0.82
Reconciliation of weighted-average
shares outstanding:
Basic weighted-average shares outstanding			26,960						28,309
Dilutive effect of stock-based awards			1,100						1,047
Diluted weighted-average shares outstanding			28,060						29,356

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
		Fifty-Three						Fifty-Two
		Weeks Ended						Weeks Ended
		January 2,			% of			December 28,			% of
		2021			Net Sales			2019			Net Sales
Net sales		$	1,856,555		100.0	%		$	1,698,352		100.0	%
Cost of sales			700,555		37.7	%			646,429		38.1	%
Gross profit			1,156,000		62.3	%			1,051,923		61.9	%
Operating expenses:
Sales and marketing			771,195		41.5	%			766,922		45.2	%
General and administrative			158,999		8.6	%			137,956		8.1	%
Research and development			40,910		2.2	%			34,950		2.1	%
Total operating expenses			971,104		52.3	%			939,828		55.3	%
Operating income			184,896		10.0	%			112,095		6.6	%
Interest expense, net			8,924		0.5	%			11,587		0.7	%
Income before income taxes			175,972		9.5	%			100,508		5.9	%
Income tax expense			36,783		2.0	%			18,663		1.1	%
Net income		$	139,189		7.5	%		$	81,845		4.8	%
Net income per share – basic		$	5.03					$	2.78
Net income per share – diluted		$	4.90					$	2.70
Reconciliation of weighted-average
shares outstanding:
Basic weighted-average shares outstanding			27,665						29,472
Dilutive effect of stock-based awards			763						883
Diluted weighted-average shares outstanding			28,428						30,355

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited – in thousands, except per share amounts)
subject to reclassification
		January 2,				December 28,
		2021				2019
Assets
Current assets:
Cash and cash equivalents		$	4,243			$	1,593
Accounts receivable, net of allowance for doubtful accounts
of $1,046 and $898, respectively			31,871				19,978
Inventories			81,362				87,065
Prepaid expenses			20,839				15,335
Other current assets			43,489				36,397
Total current assets			181,804				160,368
Non-current assets:

FAQ

What were Sleep Number Corporation's earnings per share for 2020?

Sleep Number reported earnings per diluted share of $4.90 for 2020.

How much did Sleep Number's net sales increase in 2020?

Net sales increased by 9% to $1.86 billion in 2020.

What is Sleep Number's financial outlook for 2021?

Sleep Number expects to generate earnings per diluted share of at least $6.00 in 2021.

What was the operating income increase for Sleep Number in 2020?

Operating income increased by 65% to $185 million for the year.

How did Sleep Number's cash flow perform in 2020?

The company generated a record $280 million in net cash from operating activities, up 48% from last year.