Sleep Number(SNBR) - 2025 Q2 - Quarterly Results

Executive Summary & Strategic Update 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 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][10] - The net sales decline was primarily driven by lower volume and a reduced store count[5] CEO Commentary & Business Turnaround Initiatives 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][10] - 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] - Rebuilding the marketing program with a new, more efficient approach and optimizing the product portfolio, value, and distribution[3][10] Financial Performance Overview 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 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] Cash Flows, Liquidity and Balance Sheet Highlights 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][27] 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 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 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 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) 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) 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 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) 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 This section provides additional details on sales channel performance, store metrics, and other operational insights supporting the financial results Sales Channel Performance & Store Metrics 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] - Average revenue per smart bed unit (trailing twelve months) increased to $5,880 in Q2 2025 from $5,802 in Q2 2024[21] Non-GAAP Financial Measures Reconciliations 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 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 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 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) 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 This section provides background information on Sleep Number Corporation, details on forward-looking statements, and investor contact information About Sleep Number Corporation 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] - Innovations include the Climate360 smart bed and the application of 34 billion hours of longitudinal sleep data for personalized insights[8] - The company operates a vertically integrated business model with exclusive direct-to-consumer selling in 630 stores and online[8] Forward-Looking Statements 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][10] - 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] - The company does not undertake any obligation to update any forward-looking statement[10] Conference Call & Investor Contact Information 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] - Media contact: Muriel Lussier, muriel.lussier@sleepnumber.com[11]