false000082718700008271872022-04-272022-04-27

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):  July 27, 2022 

SLEEP NUMBER CORPORATION

(Exact name of registrant as specified in its charter)

Minnesota

(State or other jurisdiction of incorporation)

000-25121			41-1597886
(Commission File Number)			(IRS Employer Identification No.)

1001 Third Avenue South, Minneapolis, MN  55404

(Address of principal executive offices) (Zip Code) 

(763) 551-7000

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

☐			Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐			Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐			Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐			Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.01 per share

SNBR

Nasdaq Global Select Market

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter). 

Emerging growth company  ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

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ITEM 2.02			RESULTS OF OPERATIONS AND FINANCIAL CONDITION.

On July 27, 2022, Sleep Number issued a press release announcing results for the fiscal second quarter ended July 2, 2022. A copy of the press release is attached as Exhibit 99.1 to this Current Report on Form 8-K.

ITEM 9.01.			FINANCIAL STATEMENTS AND EXHIBITS.

(d)    Exhibits.

Exhibit No.			Description of Exhibit
99.1			Press Release dated July 27, 2022
104			Cover Page Interactive Data File (embedded within the Inline XBRL document)

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

SLEEP NUMBER CORPORATION

(Registrant)

Dated:  July 27, 2022

By:

/s/ Samuel R. Hellfeld

Name:

Samuel R. Hellfeld

Title:

Executive Vice President, Chief Legal and Risk Officer

Exhibit 99.1

FOR IMMEDIATE 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 – (July 27, 2022) – 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.

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Sleep Number Announces Second-quarter 2022 Results - Page 2 of 9

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.

# # #

Investor Contact: Dave Schwantes; (763) 551-7498; [email protected]

Media Contact: Julie Elepano; (414) 732-9840; [email protected]

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Sleep Number Announces Second-quarter 2022 Results - Page 3 of 9

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited – in thousands, except per share amounts)

 

			Three Months Ended
			July 2, 2022						% of Net Sales						July 3, 2021						% of 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

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Sleep Number Announces Second-quarter 2022 Results - Page 4 of 9

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Operations

(unaudited – in thousands, except per share amounts)

 

			Six Months Ended
			July 2, 2022						% of Net Sales						July 3, 2021						% of 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

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Sleep Number Announces Second-quarter 2022 Results - Page 5 of 9

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Consolidated Balance Sheets

(unaudited – in thousands, except per share amounts)

subject to reclassification

  

			July 2, 2022						January 1, 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

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Sleep Number Announces Second-quarter 2022 Results - Page 6 of 9

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited – in thousands)

subject to reclassification

 

			Six Months Ended
			July 2, 2022						July 3, 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

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Sleep Number Announces Second-quarter 2022 Results - Page 7 of 9

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Supplemental Financial Information

(unaudited)

 

			Three Months Ended												Six Months Ended
			July 2, 2022						July 3, 2021						July 2, 2022						July 3, 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.

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Sleep Number Announces Second-quarter 2022 Results - Page 8 of 9

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, 2022						July 3, 2021						July 2, 2022						July 3, 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, 2022						July 3, 2021						July 2, 2022						July 3, 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, 2022						July 3, 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 obligations 1			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 1.0						2.2 to 1.0

1A 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.

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Sleep Number Announces Second-quarter 2022 Results - Page 9 of 9

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		%

1			Rent 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.