Sleep Number Announces Second Quarter 2022 Results

Rhea-AI Summary

Sleep Number Corporation (Nasdaq: SNBR) reported a 13% increase in second-quarter net sales, reaching $549 million, with diluted EPS growing 75% to $1.54.

Year-to-date results showed a 2% increase in net sales, but diluted EPS dropped to $1.60 from $3.44 last year, impacted by electronic supply constraints and low consumer sentiment. The company updated its 2022 EPS outlook to $3.00 to $4.00 per share, while maintaining a liquidity of over $375 million against current debt.

Positive

• Second-quarter net sales increased 13% to $549 million.
• Diluted EPS rose 75% to $1.54 compared to $0.88 last year.
• Gross margin was 59.2%, exceeding expectations due to favorable product mix.
• Liquidity remains strong with over $375 million available against current debt.

Negative

• Year-to-date diluted EPS decreased to $1.60 from $3.44 a year ago.
• Demand decreased 12% in the second quarter, reflecting low consumer sentiment.
• Ongoing electronic supply disruptions and inflation pressures impacted financial performance.

• 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--(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/

Investor Contact: Dave Schwantes; (763) 551-7498; investorrelations@sleepnumber.com

Media Contact: Julie Elepano; (414) 732-9840; julie.elepano@sleepnumber.com

Source: Sleep Number Corporation

FAQ

What were Sleep Number's second-quarter net sales for 2022?

Sleep Number's second-quarter net sales for 2022 were $549 million, a 13% increase from the previous year.

How much did Sleep Number's diluted EPS change in the second quarter of 2022?

Sleep Number's diluted EPS increased by 75% to $1.54 compared to $0.88 in the prior year.

What is Sleep Number's updated EPS outlook for 2022?

Sleep Number's updated EPS outlook for 2022 is in the range of $3.00 to $4.00 per share.

What factors are affecting Sleep Number's financial performance in 2022?

Sleep Number's financial performance is being impacted by electronic supply disruptions, inflation pressures, and low consumer sentiment.

What is the liquidity status of Sleep Number as of the second quarter of 2022?

As of the second quarter of 2022, Sleep Number has over $375 million in liquidity against its current debt.