Core Insights - The company is optimistic about turning around its top line by 2026 through new product initiatives and improved marketing strategies [1][4][12] - A comprehensive turnaround plan is in place, focusing on cost reductions, financial flexibility, and commercial strategies to stabilize sales and drive growth [3][11][18] Financial Performance - Q3 net sales were $343 million, down 19.6% year-over-year, attributed to reduced marketing spend and competitive pressures [12][13] - Adjusted EBITDA for Q3 was $13.3 million, down $14.4 million from the previous year, driven by lower sales and gross profit margin compression [14] - The company expects full-year net sales to be approximately $1.4 billion, with a gross profit margin of around 60% [16] Cost Management - The company has reduced operating expenses by $115 million since the beginning of the year, exceeding its $130 million cost-out target [10] - Fixed cost reductions will continue into 2026, with a focus on consolidating real estate and optimizing the store footprint [18][36] Marketing and Sales Strategy - A new marketing strategy is being deployed to drive traffic to stores and digital channels, with a focus on efficiency and higher returns [5][30] - The company plans to increase marketing spend slightly in 2026 compared to 2025, while still reducing overall operating expenses [6][50] Product Development - The company is working on a product lineup refresh aimed at appealing to a broader consumer base, emphasizing comfort, durability, and value [12][40] - New product offerings are expected to launch in early 2026, focusing on price point moderation while maintaining premium quality [39][51] Distribution Strategy - The company is exploring new distribution channels, including partnerships and digital expansions, to enhance market reach [5][27] - A test show on HSN is planned as part of the strategy to expand distribution while retaining the strength of its vertical model [6][26]

Sleep Number (SNBR) reported $342.88 million in revenue for the quarter ended September 2025, representing a year-over-year decline of 19.6%. EPS of $0.07 for the same period compares to -$0.14 a year ago.The reported revenue compares to the Zacks Consensus Estimate of $365.85 million, representing a surprise of -6.28%. The company delivered an EPS surprise of -53.33%, with the consensus EPS estimate being $0.15.While investors scrutinize revenue and earnings changes year-over-year and how they compare with ...

Financial Data and Key Metrics Changes - Q3 net sales were $343 million, down 19.6% year-over-year, reflecting challenges in the product portfolio and reduced marketing investments [11][12] - Gross profit margin was 59.9%, down 93 basis points year-over-year but up 82 basis points from Q2 [12] - Adjusted EBITDA was $13.3 million, down $14.4 million from the previous year, driven by lower net sales and gross profit margin compression [14] - Full-year net sales are now expected to be approximately $1.4 billion, with an adjusted EBITDA of approximately $70 million and negative free cash flow of approximately $50 million [15] Business Line Data and Key Metrics Changes - Significant reductions in operating expenses, excluding restructuring and non-recurring costs, by $115 million since the beginning of 2023, with expectations to exceed the $130 million cost-out target [9][10] - Operating expenses for Q3 were $204 million, an 18% decline from 2024 [12] Market Data and Key Metrics Changes - The competitive environment became more aggressive during the Labor Day period, impacting top-line performance [5][9] - Marketing efficiency improved, with cost per acquisition declining 6% versus the prior year, but traffic to stores and the website needs to increase [12] Company Strategy and Development Direction - The company is focused on a comprehensive turnaround strategy, including cost reductions, product evolution, and marketing efficiency improvements [3][9] - Plans to revamp the product offering to better serve consumer priorities of comfort, durability, and total value, with new product initiatives expected to launch in early 2026 [16][48] - The company is exploring new distribution channels, including partnerships and digital expansion, while optimizing its store footprint [6][29] Management's Comments on Operating Environment and Future Outlook - Management acknowledges current performance is below expectations but remains confident in the actions being taken to stabilize demand trends [15] - The company anticipates that the competitive environment will remain intense, but it is prepared to invest in marketing to drive future growth [39][40] Other Important Information - The company secured an amendment and extension of its bank agreement through 2027, providing financial flexibility to focus on growth initiatives [4][10] - Total marketing spend in 2026 is expected to be slightly up compared to 2025, while still reducing operating expenses [7] Q&A Session Summary Question: What is the cash part of the restructuring for all of 2025? - The cash charges include contract termination costs and employee severance costs, with guidance not provided for 2026 [19][20] Question: What are the biggest strategic changes to improve sales? - The company is focusing on refining its product offering and improving marketing efficiency to drive traffic and conversion [39][40] Question: What is the timing for new product introductions? - New products are expected to be introduced in early 2026, focusing on providing value at accessible price points while maintaining premium quality [48][63] Question: How did the competitive advertising impact sales? - The company experienced a 32% decrease in media spend, which limited its ability to compete effectively during high-demand periods like Labor Day [39][66] Question: What is the new debt structure and interest rate? - The new debt agreement includes scaled covenants and adjusted interest rates, details of which will be available in the 8-K filing [69]

Core Viewpoint - Sleep Number (SNBR) reported quarterly earnings of $0.07 per share, missing the Zacks Consensus Estimate of $0.15 per share, and compared to a loss of $0.14 per share a year ago, indicating a significant earnings surprise of -53.33% [1] Financial Performance - The company posted revenues of $342.88 million for the quarter ended September 2025, missing the Zacks Consensus Estimate by 6.28%, and down from $426.62 million in the same quarter last year [2] - Over the last four quarters, Sleep Number has surpassed consensus EPS estimates only once [2] Stock Performance - Sleep Number shares have declined approximately 63.9% since the beginning of the year, contrasting with the S&P 500's gain of 15.1% [3] Future Outlook - The company's earnings outlook will be crucial for investors, particularly in light of recent earnings expectations and revisions [4] - The current consensus EPS estimate for the upcoming quarter is $0.10 on revenues of $352.8 million, while for the current fiscal year, it is projected at -$1.22 on revenues of $1.44 billion [7] Industry Context - The Furniture industry, to which Sleep Number belongs, is currently ranked in the top 41% of over 250 Zacks industries, suggesting that the industry outlook can significantly impact stock performance [8]

Core Insights - Sleep Number Corporation will participate in investor conferences on December 8 and 9, 2025, at the Raymond James TMT and Consumer Conference [1] - The company will also host virtual small group and individual meetings with institutional investors on December 12, 2025 [1] Company Participation - CEO Linda Findley and interim CFO Bob Ryder will represent the company at the upcoming investor conferences [1] - The participation includes a panel discussion and direct engagement with institutional investors [1]

Core Insights - Sleep Number reported a significant decline in revenue and a widening net loss for Q2 2025, indicating a challenging quarter for the business [1][5][10] Financial Performance - Q2 2025 GAAP revenue was $327.9 million, down 19.7% from $408.4 million in Q2 2024 and below analyst expectations of $357.4 million [1][2] - The company reported a net loss per share of $(1.09), compared to expectations of $(0.11) and a loss of $(0.22) per share a year ago, reflecting a 395.5% increase in loss [1][2] - Gross profit margin remained stable at 59.1%, consistent with Q2 2024, despite the revenue decline [2][6] - Adjusted EBITDA fell 16.7% year-over-year to $23.6 million [2][6] - Free cash flow was negative at $(6.9) million, a decline of 173.4% from $9.4 million in Q2 2024 [2][6] Business Strategy and Operations - Sleep Number focuses on smart beds with technology that personalizes sleep experiences, with nearly 88% of sales from its direct-to-consumer network [3] - The company has been reducing marketing expenses significantly, attributing the revenue decline to previous inefficient marketing strategies [5][7] - Operating expenses before restructuring decreased by 21% year-over-year, but the net loss widened to $25 million due to weaker sales volume and adjustments to deferred tax assets [7] Market Position and Sales Channels - Sleep Number ended Q2 2025 with 630 retail stores, a decrease of 16 from the previous year, with comparable-store sales down 18% [8] - Online and phone sales also fell by 19%, while the average revenue per smart bed unit increased slightly to $5,880 [8] Future Outlook - The company forecasts full-year 2025 net sales of $1.45 billion, representing a 14% year-over-year decline, with an expected slight improvement in gross profit margin to 61% [10] - Operating expenses are projected to be $830 million for the year, with a target of break-even free cash flow in the second half [10] - The leverage ratio stands at 4.56 times EBITDAR, nearing the maximum allowed by banks, indicating potential financial strain [10]

Financial Performance - Sleep Number reported revenue of $327.93 million for the quarter ended June 2025, reflecting a year-over-year decline of 19.7% [1] - The EPS for the same period was -$1.09, compared to -$0.22 a year ago, indicating a significant deterioration in profitability [1] - The reported revenue was an 8.97% miss compared to the Zacks Consensus Estimate of $360.25 million [1] - The EPS surprise was -808.33% against the consensus estimate of -$0.12 [1] Market Performance - Sleep Number's shares have returned +15.9% over the past month, outperforming the Zacks S&P 500 composite's +3.4% change [3] - The stock currently holds a Zacks Rank 4 (Sell), suggesting potential underperformance relative to the broader market in the near term [3] Store Metrics - The number of stores at the end of the period was 630, compared to an average estimate of 638 by two analysts [4] - Total company sales change rate was -20%, significantly worse than the -8.7% estimated by two analysts [4] - The number of stores at the beginning of the period remained unchanged at 637, matching the average estimate [4]

Company Performance - Sleep Number reported a quarterly loss of $1.09 per share, significantly worse than the Zacks Consensus Estimate of a loss of $0.12, representing an earnings surprise of -808.33% [1] - The company's revenues for the quarter ended June 2025 were $327.93 million, missing the Zacks Consensus Estimate by 8.97%, and down from $408.41 million a year ago [2] - Over the last four quarters, Sleep Number has surpassed consensus EPS estimates only two times and topped revenue estimates just once [2] Stock Outlook - Sleep Number shares have declined approximately 46.5% since the beginning of the year, contrasting with the S&P 500's gain of 8.3% [3] - The company's current Zacks Rank is 4 (Sell), indicating expectations of underperformance in the near future [6] - The consensus EPS estimate for the upcoming quarter is $0.15 on revenues of $405.95 million, while for the current fiscal year, it is -$0.25 on revenues of $1.54 billion [7] Industry Context - The Furniture industry, to which Sleep Number belongs, is currently ranked in the bottom 25% of over 250 Zacks industries, suggesting a challenging environment for stock performance [8] - Empirical research indicates a strong correlation between near-term stock movements and trends in earnings estimate revisions, which could impact investor sentiment [5]

Financial Data and Key Metrics Changes - Net sales for Q2 2025 were $328 million, down 19.7% year over year, primarily due to a significant cut in marketing spend [22][24] - Gross profit margin remained flat at 59.1%, with reductions in material costs offset by unit volume deleverage and a shift towards lower-priced products [23] - Operating expenses were $185 million, down 21% year over year, reflecting cost-saving initiatives [24][26] - Adjusted EBITDA was $23.6 million, down $4.7 million from the prior year, with an adjusted EBITDA margin of 7.2%, which is 30 basis points higher than the prior year [24][25] Business Line Data and Key Metrics Changes - The company is focusing on optimizing its product portfolio and distribution channels, with plans to enhance the product lineup to meet a broader customer base [12][13] - Marketing efficiency has improved, with a 24% increase in conversion year over year in Q2 [15] Market Data and Key Metrics Changes - The company expects full-year net sales of approximately $1.45 billion, representing a 14% year-over-year decline, with second-half sales anticipated to be roughly comparable to the first half [29][30] - The promotional strategies implemented are driving a higher Average Revenue per Unit (ARU) while improving product mix [31] Company Strategy and Development Direction - The company is implementing a reset strategy focused on cost discipline, commercial and product improvement, and better cash flow management [21][26] - Plans include exploring digital-first retail partnerships and enhancing distribution channels while maintaining a strong margin profile [40][49] - The company aims to generate breakeven cash flow in the second half of the year, prioritizing debt repayment with any positive operating cash flow [28][34] Management's Comments on Operating Environment and Future Outlook - Management acknowledges that sales results are not yet in line with the industry but sees encouraging recent trends [27] - The company is actively engaged with lenders to improve its capital structure and is exploring refinancing options [28][16] - Management remains focused on executing the sales forecast and maintaining compliance with debt covenants [29][69] Other Important Information - The company has identified $130 million in cost reductions for 2025, exceeding the original target of $80 million to $100 million [26] - The organizational redesign has led to significant savings, with a 22% reduction in operating expenses compared to Q1 [26] Q&A Session Summary Question: Breakdown of additional cost savings expected this year - Management indicated that the $130 million in cost savings roughly follows the same percentages as previously announced, focusing on structural changes in G&A and R&D [36][37] Question: Consideration for digital-first retail partnerships - Management emphasized the importance of their vertically integrated model and the intent to enhance distribution without compromising margins [39][40] Question: Changes to product assortment and pricing strategy - Management is conducting significant consumer research to understand customer needs and will start rolling out new products in 2026 [44][46] Question: Advertising strategy and future marketing spend - Management aims to optimize marketing spend as a percentage of sales, expecting it to become more efficient and lower in the long term [53][54] Question: Guidance on gross margin expansion and tariff pressure - Management expects to mitigate tariff impacts through previous pricing actions and material cost reductions, maintaining confidence in their gross profit margin [62][63]

[Executive Summary & Strategic Update](index=1&type=section&id=1.%20Executive%20Summary%20%26%20Strategic%20Update) This section provides an overview of the company's recent financial performance and outlines strategic initiatives for business turnaround and profitable growth [Second Quarter 2025 Highlights](index=1&type=section&id=1.1.%20Second%20Quarter%202025%20Highlights) Sleep Number reported a significant decline in net sales for Q2 2025, alongside an increased net loss. However, the company achieved substantial operating expense reductions and exceeded its cost savings targets, maintaining compliance with debt covenants Second Quarter 2025 Highlights | Metric | Q2 2025 | Q2 2024 | Change (YoY) | | :----------------------- | :---------- | :---------- | :----------- | | Net Sales | $328 million | $408 million | -19.7% | | Gross Profit Margin | 59.1% | 59.1% | Flat | | Operating Expenses (pre-restructuring) | N/A | N/A | -$48 million (-21%) | | Net Loss | $25 million | $5 million | +$20 million | | Adjusted EBITDA | $24 million | $28 million | -17% | - The company is implementing **$130 million** of cost savings for 2025, exceeding its prior annualized target of **$80 million to $100 million**, while maintaining compliance with debt covenants[4](index=4&type=chunk)[10](index=10&type=chunk) - The net sales decline was primarily driven by lower volume and a reduced store count[5](index=5&type=chunk) [CEO Commentary & Business Turnaround Initiatives](index=1&type=section&id=1.2.%20CEO%20Commentary%20%26%20Business%20Turnaround%20Initiatives) CEO Linda Findley outlined the company's turnaround strategy, focusing on enhancing product assortment, value proposition, and consumer engagement. Key initiatives include aggressively reducing expenses, resetting the cost structure, and rebuilding marketing programs for efficiency to drive a return to profitable growth - The new leadership team is focused on enhancing product assortment, value proposition, and consumer engagement to return to profitable growth[2](index=2&type=chunk)[10](index=10&type=chunk) - Aggressively reduced expenses in Q2 to reset the cost structure and ensure ongoing compliance with debt covenants, including a dramatic cut in inefficient marketing spend[3](index=3&type=chunk) - Rebuilding the marketing program with a new, more efficient approach and optimizing the product portfolio, value, and distribution[3](index=3&type=chunk)[10](index=10&type=chunk) [Financial Performance Overview](index=1&type=section&id=2.%20Financial%20Performance%20Overview) This section provides a high-level summary of the company's financial results, including key income statement, cash flow, and balance sheet metrics [Second Quarter 2025 Key Financials](index=1&type=section&id=2.1.%20Second%20Quarter%202025%20Key%20Financials) The second quarter saw a significant decline in net sales and an increased net loss, primarily due to lower sales volume. Despite this, the gross profit margin remained stable, and operating expenses were substantially reduced Consolidated Statements of Operations (Three Months Ended) | Metric (in thousands) | June 28, 2025 | June 29, 2024 | | :-------------------- | :------------ | :------------ | | Net sales | $327,925 | $408,413 | | Cost of sales | $134,180 | $166,923 | | Gross profit | $193,745 | $241,490 | | Total operating expenses | $193,820 | $235,370 | | Operating (loss) income | $(75) | $6,120 | | Net loss | $(25,012) | $(5,051) | | Net loss per share – diluted | $(1.09) | $(0.22) | - Net loss increased by **$20 million**, driven primarily by lower net sales, partially offset by lower operating expenses[9](index=9&type=chunk) [Cash Flows, Liquidity and Balance Sheet Highlights](index=2&type=section&id=2.2.%20Cash%20Flows,%20Liquidity%20and%20Balance%20Sheet%20Highlights) The company experienced a decrease in net cash provided by operating activities and a negative free cash flow for the quarter. While the leverage ratio increased, it remained within the covenant maximum, indicating maintained compliance with debt obligations Cash Flow Highlights (Three Months Ended) | Metric (in thousands) | June 28, 2025 | June 29, 2024 | Change (YoY) | | :-------------------- | :------------ | :------------ | :----------- | | Net cash provided by operating activities | $1,196 | $23,518 | -$22,322 | | Free cash flow | $(6,856) | $9,443 | -$16,300 | - The company's leverage ratio was **4.56x EBITDAR** on a trailing 12-month basis, compared to the covenant maximum of **4.75x**, indicating compliance with debt covenants[9](index=9&type=chunk)[27](index=27&type=chunk) Balance Sheet Snapshot (in thousands) | Metric | June 28, 2025 | December 28, 2024 | | :-------------------- | :------------ | :---------------- | | Cash and cash equivalents | $1,349 | $1,950 | | Total assets | $804,512 | $860,810 | | Total liabilities | $1,285,200 | $1,312,396 | | Total shareholders' deficit | $(480,688) | $(451,586) | [Financial Outlook](index=2&type=section&id=3.%20Financial%20Outlook) This section provides the company's forward-looking projections for the full year, including anticipated sales, margins, expenses, and cash flow targets [Full Year 2025 Projections](index=2&type=section&id=3.1.%20Full%20Year%202025%20Projections) Sleep Number projects a decline in full-year net sales for 2025, with a stable gross profit margin and controlled operating expenses. The company anticipates achieving break-even free cash flow in the latter half of the year Full Year 2025 Financial Outlook | Metric | Projection | | :-------------------------- | :----------- | | Net Sales | ~$1.45 billion (approx. 14% YoY decline) | | Gross Profit Margin | 61% (consistent with Q1 2025) | | Operating Expenses (excl. restructuring) | ~$830 million | | Free Cash Flow | Break-even in H2 2025 | [Detailed Consolidated Financial Statements](index=4&type=section&id=4.%20Detailed%20Consolidated%20Financial%20Statements) This section presents the comprehensive consolidated financial statements, including income statements, balance sheets, and cash flow statements for various periods [Consolidated Statements of Operations (Three Months Ended June 28, 2025)](index=4&type=section&id=4.1.%20Consolidated%20Statements%20of%20Operations%20(Three%20Months%20Ended%20June%2028,%202025)) This section presents the detailed income statement for the three months ended June 28, 2025, compared to the same period in 2024, showing a decrease in net sales and a shift from operating income to operating loss, resulting in a higher net loss | Metric (in thousands) | June 28, 2025 | June 29, 2024 | | :-------------------------------- | :----------------- | :----------------- | | Net sales | $327,925 | $408,413 | | Cost of sales | $134,180 | $166,923 | | Gross profit | $193,745 | $241,490 | | Sales and marketing | $146,464 | $182,400 | | General and administrative | $29,604 | $39,573 | | Research and development | $9,420 | $11,578 | | Restructuring costs | $8,332 | $1,819 | | Total operating expenses | $193,820 | $235,370 | | Operating (loss) income | $(75) | $6,120 | | Interest expense, net | $11,734 | $12,270 | | Loss before income taxes | $(11,809) | $(6,150) | | Income tax expense (benefit) | $13,203 | $(1,099) | | Net loss | $(25,012) | $(5,051) | | Net loss per share – diluted | $(1.09) | $(0.22) | [Consolidated Statements of Operations (Six Months Ended June 28, 2025)](index=5&type=section&id=4.2.%20Consolidated%20Statements%20of%20Operations%20(Six%20Months%20Ended%20June%2028,%202025)) This section provides the year-to-date income statement for the six months ended June 28, 2025, compared to the same period in 2024, illustrating a broader trend of decreased net sales and a significantly higher net loss | Metric (in thousands) | June 28, 2025 | June 29, 2024 | | :-------------------------------- | :----------------- | :----------------- | | Net sales | $721,186 | $878,862 | | Cost of sales | $286,906 | $361,198 | | Gross profit | $434,280 | $517,664 | | Sales and marketing | $335,567 | $390,912 | | General and administrative | $68,223 | $78,652 | | Research and development | $20,323 | $24,019 | | Restructuring costs | $8,392 | $12,419 | | Total operating expenses | $432,505 | $506,002 | | Operating income | $1,775 | $11,662 | | Interest expense, net | $22,815 | $24,569 | | Loss before income taxes | $(21,040) | $(12,907) | | Income tax expense (benefit) | $12,618 | $(374) | | Net loss | $(33,658) | $(12,533) | | Net loss per share – diluted | $(1.48) | $(0.56) | [Consolidated Balance Sheets](index=6&type=section&id=4.3.%20Consolidated%20Balance%20Sheets) The consolidated balance sheets show a decrease in total assets and total liabilities from December 2024 to June 2025, with a notable increase in borrowings under the revolving credit facility and a larger shareholders' deficit | Metric (in thousands) | June 28, 2025 | December 28, 2024 | | :-------------------- | :------------ | :---------------- | | Cash and cash equivalents | $1,349 | $1,950 | | Total current assets | $175,525 | $181,284 | | Total assets | $804,512 | $860,810 | | Borrowings under revolving credit facility | $563,900 | $546,600 | | Total current liabilities | $903,221 | $908,012 | | Total liabilities | $1,285,200 | $1,312,396 | | Total shareholders' deficit | $(480,688) | $(451,586) | [Consolidated Statements of Cash Flows (Six Months Ended June 28, 2025)](index=7&type=section&id=4.4.%20Consolidated%20Statements%20of%20Cash%20Flows%20(Six%20Months%20Ended%20June%2028,%202025)) For the six months ended June 28, 2025, net cash provided by operating activities significantly decreased compared to the prior year. Cash used in investing activities also decreased, while financing activities shifted from a net use to a net provision of cash, resulting in a net decrease in cash and cash equivalents | Metric (in thousands) | Six Months Ended June 28, 2025 | Six Months Ended June 29, 2024 | | :-------------------- | :----------------------------- | :----------------------------- | | Net cash provided by operating activities | $1,196 | $23,518 | | Net cash used in investing activities | $(11,332) | $(17,017) | | Net cash provided by (used in) financing activities | $9,535 | $(7,020) | | Net decrease in cash and cash equivalents | $(601) | $(519) | | Cash and cash equivalents, at end of period | $1,349 | $2,020 | [Supplemental Financial Information & Operational Metrics](index=8&type=section&id=5.%20Supplemental%20Financial%20Information%20%26%20Operational%20Metrics) This section provides additional details on sales channel performance, store metrics, and other operational insights supporting the financial results [Sales Channel Performance & Store Metrics](index=8&type=section&id=5.1.%20Sales%20Channel%20Performance%20%26%20Store%20Metrics) Retail stores continue to be the dominant sales channel, though both retail and online channels experienced significant comparable sales declines. The company also saw a reduction in its store count and average sales per store, while average revenue per smart bed unit slightly increased Sales Channel Performance (Three Months Ended) | Channel | June 28, 2025 (% of sales) | June 29, 2024 (% of sales) | | :-------------------- | :------------------------- | :------------------------- | | Retail stores | 87.8% | 87.8% | | Online, phone, chat and other | 12.2% | 12.2% | Sales Change Rates (Three Months Ended) | Metric | June 28, 2025 | June 29, 2024 | | :-------------------- | :------------ | :------------ | | Retail comparable-store sales | (18%) | (11%) | | Online, phone and chat | (19%) | (13%) | | Total Company | (20%) | (11%) | - The number of stores open decreased from **646** at the end of Q2 2024 to **630** at the end of Q2 2025. Average sales per store (trailing twelve months) declined from **$2,732 thousand** to **$2,395 thousand**[21](index=21&type=chunk) - Average revenue per smart bed unit (trailing twelve months) increased to **$5,880** in Q2 2025 from **$5,802** in Q2 2024[21](index=21&type=chunk) [Non-GAAP Financial Measures Reconciliations](index=9&type=section&id=6.%20Non-GAAP%20Financial%20Measures%20Reconciliations) This section provides reconciliations of non-GAAP financial measures, including Adjusted EBITDA, Free Cash Flow, Net Leverage Ratio, and Adjusted ROIC, to their most directly comparable GAAP measures [Adjusted EBITDA](index=9&type=section&id=6.1.%20Adjusted%20EBITDA) Adjusted EBITDA, a non-GAAP measure, decreased for both the three months and trailing twelve months ended June 28, 2025, compared to the prior year, reflecting the impact of lower net sales despite operating expense reductions Adjusted EBITDA Reconciliation (in thousands) | Metric | Three Months Ended June 28, 2025 | Three Months Ended June 29, 2024 | Trailing Twelve Months Ended June 28, 2025 | Trailing Twelve Months Ended June 29, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------------------- | :----------------------------------------- | | Net loss | $(25,012) | $(5,051) | $(41,459) | $(40,039) | | Income tax expense (benefit) | $13,203 | $(1,099) | $7,830 | $(10,730) | | Interest expense | $11,734 | $12,270 | $46,614 | $48,214 | | Depreciation and amortization | $13,697 | $16,347 | $59,590 | $69,676 | | Stock-based compensation | $1,549 | $3,992 | $8,835 | $13,073 | | Restructuring costs | $8,332 | $1,819 | $14,039 | $28,147 | | CEO transition/Proxy contest costs | $53 | — | $2,825 | — | | Asset impairments | — | — | $1,220 | $490 | | **Adjusted EBITDA** | **$23,556** | **$28,278** | **$99,494** | **$108,831** | [Free Cash Flow](index=9&type=section&id=6.2.%20Free%20Cash%20Flow) Free cash flow, a non-GAAP measure, turned negative for both the three months and trailing twelve months ended June 28, 2025, primarily due to reduced net cash provided by operating activities and continued capital expenditures Free Cash Flow Reconciliation (in thousands) | Metric | Three Months Ended June 28, 2025 | Three Months Ended June 29, 2024 | Trailing Twelve Months Ended June 28, 2025 | Trailing Twelve Months Ended June 29, 2024 | | :-------------------- | :------------------------------- | :------------------------------- | :----------------------------------------- | :----------------------------------------- | | Net cash provided by (used in) operating activities | $1,196 | $23,518 | $(9,228) | $(4,230) | | Subtract: Purchases of property and equipment | $8,052 | $14,075 | $18,796 | $41,232 | | **Free cash flow** | **$(6,856)** | **$9,443** | **$(28,024)** | **$(45,462)** | [Net Leverage Ratio](index=10&type=section&id=6.3.%20Net%20Leverage%20Ratio) The Net Leverage Ratio under the revolving credit facility, a non-GAAP measure, increased to 4.56 to 1.0 for the trailing twelve months ended June 28, 2025, from 4.35 to 1.0 in the prior year, reflecting changes in total debt and EBITDAR Net Leverage Ratio Calculation (in thousands) | Metric | Trailing Twelve Months Ended June 28, 2025 | Trailing Twelve Months Ended June 29, 2024 | | :-------------------- | :----------------------------------------- | :----------------------------------------- | | Borrowings under revolving credit facility | $563,900 | $540,200 | | Consolidated funded indebtedness | $570,948 | $547,627 | | Total debt including operating lease liabilities (a) | $940,742 | $956,351 | | Consolidated EBITDAR (b) | $206,231 | $219,768 | | **Net Leverage Ratio (a divided by b)** | **4.56 to 1.0** | **4.35 to 1.0** | [Adjusted Return on Invested Capital (ROIC)](index=11&type=section&id=6.4.%20Adjusted%20Return%20on%20Invested%20Capital%20(ROIC)) Adjusted ROIC, a non-GAAP measure of capital deployment efficiency, improved significantly to 8.4% for the trailing twelve months ended June 28, 2025, compared to 3.7% in the prior year, driven by an increase in Adjusted NOPAT and a decrease in average adjusted invested capital Adjusted ROIC Calculation (in thousands) | Metric | Trailing Twelve Months Ended June 28, 2025 | Trailing Twelve Months Ended June 29, 2024 | | :-------------------- | :----------------------------------------- | :----------------------------------------- | | Adjusted NOPAT | $40,018 | $19,091 | | Average adjusted invested capital | $477,676 | $509,369 | | **Adjusted ROIC** | **8.4%** | **3.7%** | [Corporate Information & Disclosures](index=2&type=section&id=7.%20Corporate%20Information%20%26%20Disclosures) This section provides background information on Sleep Number Corporation, details on forward-looking statements, and investor contact information [About Sleep Number Corporation](index=2&type=section&id=7.1.%20About%20Sleep%20Number%20Corporation) Sleep Number Corporation is a sleep wellness company dedicated to improving health through high-quality sleep. It leverages innovations like the Climate360 smart bed and extensive sleep data, operating a vertically integrated direct-to-consumer model through stores and online channels - Sleep Number is a sleep wellness company guided by its purpose to improve the health and wellbeing of society through higher quality sleep, having improved nearly **16 million** lives[8](index=8&type=chunk) - Innovations include the Climate360 smart bed and the application of **34 billion** hours of longitudinal sleep data for personalized insights[8](index=8&type=chunk) - The company operates a vertically integrated business model with exclusive direct-to-consumer selling in **630** stores and online[8](index=8&type=chunk) [Forward-Looking Statements](index=2&type=section&id=7.2.%20Forward-Looking%20Statements) This section serves as a cautionary statement, indicating that any projections or future-oriented statements in the news release are subject to various risks and uncertainties that could cause actual results to differ materially. The company explicitly states it does not undertake any obligation to update these statements - Statements regarding future plans, events, financial results, or performance are forward-looking and subject to risks and uncertainties[9](index=9&type=chunk)[10](index=10&type=chunk) - The most important risks and uncertainties are described in the company's SEC filings, including Item 1A of its Annual Report on Form 10-K[10](index=10&type=chunk) - The company does not undertake any obligation to update any forward-looking statement[10](index=10&type=chunk) [Conference Call & Investor Contact Information](index=2&type=section&id=7.3.%20Conference%20Call%20%26%20Investor%20Contact%20Information) Details for accessing the company's conference call to discuss the second quarter results and contact information for investor and media inquiries are provided - Management hosted a conference call on July 30, 2025, at 8:30 a.m. EDT to discuss results, with webcast replay available for approximately **60 days** at https://ir.sleepnumber.com[7](index=7&type=chunk) - Investor contact: investorrelations@sleepnumber.com[11](index=11&type=chunk) - Media contact: Muriel Lussier, muriel.lussier@sleepnumber.com[11](index=11&type=chunk)