Sleep Number(SNBR) - 2023 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - The company reported net sales of $459 million for Q2 2023, which is 16% lower than the previous year, with demand down mid-single digits [56][61] - The gross profit rate for Q2 was 57.6%, consistent with expectations, and the year-to-date gross margin rate was 58.3%, up nearly 300 basis points from the second half of the previous year [6][62] - Earnings per share (EPS) for the quarter were$ 0.03, a significant decline from $1.54 in the same quarter last year [12][61] - The company expects full-year EPS to be in the range of$ 1.25 to $1.75, narrowing the previous guidance by$ 0.25 [63][59] Business Line Data and Key Metrics Changes - The introduction of next-generation Smart Beds, including the Climate360 model, is expected to drive demand and improve margins [7][57] - The average revenue per unit (ARU) for Smart Beds was just under $6,000, with expectations for ARU to be around$ 5,900 in Q3 and approximately $6,000 in Q4 [86][112] - The company delivered nearly 77,000 Smart Bed units in Q2, leveraging its fulfillment network to manage backlog [86] Market Data and Key Metrics Changes - Year-over-year demand trends improved, with combined May and June demand down low single digits, indicating a recovery from previous lows [6][9] - The mattress industry overall has been operating under recessionary spend levels for six consecutive quarters, with industry unit levels 14% below 2019 [6][56] Company Strategy and Development Direction - The company is focused on expanding gross margin rates with a goal to return to 60% within a year and 62% over the next couple of years [60] - Strategic initiatives include increasing the mix of higher-margin products, leveraging retail and fulfillment networks, and addressing commodity cost pressures [60][64] - The company aims to take market share through brand building, innovation, and connected smart sleepers [81] Management's Comments on Operating Environment and Future Outlook - Management noted that consumer sentiment is improving, and brand indicators are strong, despite the challenging economic environment [59][68] - The company expects continued demand improvements, with mid-single to low double-digit growth anticipated in the back half of the year [81][90] - Management expressed confidence in the new product line's performance and its ability to drive demand during key selling periods [35][68] Other Important Information - The company has made adjustments to its financing strategy to mitigate increased costs associated with higher interest rates [13][117] - The company ended the quarter with$ 334 million of liquidity and a leverage ratio of 4.7x EBITDA, below the amended 5x covenant [63] Q&A Session Summary Question: What are the expectations for demand in the third quarter? - Management indicated expectations for demand to be up mid- to high single digits, with positive trends observed since the start of the year [18][93] Question: How has the financing strategy been impacted by changes in approval rates? - Management confirmed that adjustments to financing plans have been effective, with no significant negative impact on approval rates or sales conversion [22][117] Question: What is the expected impact of the new product line on sales? - Management reported strong performance from the new models, with positive consumer reactions and expectations for improved sales mix [24][35] Question: How are promotional strategies being adjusted for the Labor Day event? - Management expressed confidence in their promotional strategy, noting that they have learned from past experiences and are prepared for the upcoming selling period [129][68] Question: What are the expectations for gross margin in the back half of the year? - Management expects gross margin rates to be approximately 58% in Q3, with expectations to approach 60% in Q4 as margin initiatives mature [90][104]