SNBR
$33.59
Sleep Number
($2.52)
(6.98%)
Earnings Details
2nd Quarter June 2022
Wednesday, July 27, 2022 4:01:00 PM
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Summary

Sleep Number Beats but Guides Lower

Sleep Number (SNBR) reported 2nd Quarter June 2022 earnings of $1.54 per share on revenue of $549.1 million. The consensus earnings estimate was $0.62 per share on revenue of $523.7 million. The Earnings Whisper number was $0.51 per share. Revenue grew 13.4% on a year-over-year basis.

The company said it expects 2022 earnings of $3.00 to $4.00 per share. The company's previous guidance was earnings of $5.00 to $6.00 per share and the current consensus earnings estimate is $4.57 per share for the year ending December 31, 2022.

Results
Reported Earnings
$1.54
Earnings Whisper
$0.51
Consensus Estimate
$0.62
Reported Revenue
$549.1 Mil
Revenue Estimate
$523.7 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Sleep Number Announces Second Quarter 2022 Results

  • 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 1.02.2 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

%

1Rent 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.

 

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