Financial Performance - Net sales for Q1 were $393 million, a decrease of 16% compared to the prior year [9] - Gross profit margin expanded to 61.2%, up 250 basis points from last year, driven by operational efficiencies and product mix [9] - Adjusted EBITDA for the quarter was $22 million, a decrease of $15 million from the prior year, with an adjusted EBITDA margin of 5.6%, down 230 basis points [11] - Operating expenses excluding restructuring costs totaled $237 million, a $23 million or 9% improvement over last year [10] Business Lines and Market Data - Positive consumer response to the Climate Series beds helped expand Average Revenue per Unit (ARU) by approximately 4% versus last year [9] - The company is closely monitoring tariffs and estimates an unmitigated impact of approximately $30 million for 2025, with $17 million potentially offset through supplier partnerships [12][13] Company Strategy and Industry Competition - The company is focused on stabilizing the business and enhancing shareholder returns through operational efficiencies and cost reductions [5][18] - A new executive leadership structure has been implemented to streamline decision-making and improve organizational efficiency [22][24] - The company plans to reduce annualized costs by $80 million to $100 million compared to the 2025 cost structure [14][29] Management Commentary on Operating Environment and Future Outlook - Management acknowledges challenges in the current consumer environment but is committed to creating a stable business that can perform under various market conditions [8][41] - The company is not providing full guidance due to the rapidly evolving macroeconomic environment, including consumer sentiment [14] - Management emphasizes a customer-centric approach, leveraging data to better understand customer needs and improve product offerings [20][21] Other Important Information - The company is evaluating its supply chain, distribution strategy, and product selection to create a flexible cost structure for future growth [30] - A focus on marketing efficiency is emphasized, with plans to lower marketing spend as a percentage of revenue while increasing productivity [25][37] Q&A Session Summary Question: What are the low hanging fruit for improvement? - Management identified opportunities in marketing efficiency, organizational structure changes, and leveraging past innovations to meet current customer needs [34][36] Question: Can you provide any color on quarter to date demand? - Management noted a challenging environment with declining consumer confidence impacting spending, but emphasized efforts to rightsizing the organization [40][41] Question: What are the biggest opportunities to strengthen the brand? - Management sees opportunities in leveraging new technologies for effective marketing and optimizing existing partnerships to maximize benefits [49][50] Question: Is there an increased appetite to explore wholesale distribution? - Management stated that everything is on the table and they are open to exploring various strategic options [54] Question: How do you think about the level of promotion necessary in the short and long term? - Management indicated a well-oiled promotional machine and a focus on balancing pricing strategies while managing tariff impacts [78][80] Question: How are you thinking about store openings versus closures? - Management confirmed maintaining the current strategy of store openings and closures while reviewing the overall strategy and operations [81]

Financial Performance - Net sales for Q1 2025 were $393 million, a decrease of 16% compared to the prior year [8] - Gross profit margin expanded to 61.2%, up 250 basis points from last year, driven by operational efficiencies and product mix [8][9] - Adjusted EBITDA for the quarter was $22 million, a decrease of $15 million from the prior year, with an adjusted EBITDA margin of 5.6%, down 230 basis points [10] - Operating expenses, excluding restructuring and one-time costs, totaled $237 million, a $23 million or 9% improvement over last year [9] Business Lines and Market Performance - Positive consumer response to the Climate Series beds helped expand Average Revenue per Unit (ARU) by approximately 4% versus last year [8] - The company is focusing on marketing efficiency to drive sustainable returns [8] - The impact of tariffs is estimated to be approximately $30 million for 2025, with $17 million potentially offset through supplier partnerships [11] Company Strategy and Industry Competition - The company is undergoing significant changes to stabilize the business and enhance competitive advantages [4][5] - A new executive and senior leadership structure has been created to streamline operations and improve decision-making [20][21] - The focus is on customer obsession, leveraging data to understand customer needs and improve product offerings [19][30] Management Commentary on Operating Environment and Future Outlook - Management acknowledges challenges in the current consumer environment, with a decline in consumer confidence impacting spending [39] - The company is not providing full guidance due to the rapidly evolving macroeconomic environment [13] - There is an expectation of continued top-line pressure in the near term, but cost management strategies are in place to maintain gross profit margins [14][15] Other Important Information - The company anticipates annualized cost reductions of $80 million to $100 million compared to the 2025 cost structure [13][27] - A focus on optimizing the debt capital structure without diluting current shareholders is underway [12] Q&A Session Summary Question: What are the low-hanging fruit for improvement in 2025? - Management identified opportunities in marketing efficiency, organizational structure changes, and leveraging past innovations to meet current customer needs [33][34][36] Question: Can you provide color on quarter-to-date demand? - Management noted a challenging environment with declining consumer confidence impacting spending, but emphasized a focus on rightsizing the organization [39][40] Question: What are the biggest opportunities to strengthen the brand and messaging? - Management sees opportunities in leveraging new technologies for effective marketing and optimizing existing partnerships for maximum benefit [48][50][52] Question: Is there an increased appetite to explore wholesale distribution? - Management stated that everything is on the table and they are open to exploring various strategic options [53] Question: How does the company view its core value proposition? - Management emphasized the importance of communicating the core benefits of Sleep Number beds, focusing on comfort and quality sleep [58][60] Question: How is the company navigating tariffs and pricing? - Management is evaluating various strategies to manage tariff impacts, including potential pricing adjustments and maintaining core pricing for key products [77][78] Question: What is the strategy regarding store openings and closures? - Management plans to maintain the current strategy of store openings and closures while reviewing the overall distribution strategy [79]