View all news

Sleep Number Announces First Quarter 2022 Results

04/20/2022
  • Net sales declined 7% versus the prior year on constrained supply of semiconductor chips
  • Demand for the quarter declined 3% on acute macro factors in January and March; backlog increased 20% since December
  • Diluted EPS of $0.09 on lower-than-expected delivered net sales due to worsened external factors
  • Updated 2022 EPS outlook to a range of $5.00 to $6.00 per share

MINNEAPOLIS--(BUSINESS WIRE)-- Sleep Number Corporation (Nasdaq: SNBR) today reported results for the quarter ended April 2, 2022.

“External factors continue to disrupt global supply and weaken consumer confidence, resulting in increased business complexity and volatility,” said Shelly Ibach, President and CEO. “In this dynamic environment, we remain focused on deepening consumer relationships and innovating for broad relevance while taking decisive actions to address near-term pressures. Our team is highly engaged and resilient, and our business model, liquidity and competitive advantages are strong. We remain steadfast in our commitment to fulfilling our purpose and creating superior long-term shareholder value.”

First Quarter Overview

  • Net sales decreased 7% to $527 million while demand decreased 3% for the quarter, reflecting the impact of Omicron in January and the war in Ukraine in late February; excess backlog increased to over $200 million
  • Gross margin of 57.3% of net sales was approximately 100 basis points above expectations due to level-loaded delivery efficiencies during the quarter
  • Diluted EPS of 9 cents for the first quarter was below expectation of 30 to 40 cents on lower-than-expected delivered net sales

Cash Flows and Liquidity Review

  • Generated $25 million in net cash from operating activities in the first quarter, compared with $112 million for the same period last year on constrained current year deliveries and changes in working capital
  • Invested $42 million in Sleep Number stock compared to $167 million for the same period last year
  • Leverage ratio of 3.4x EBITDAR at the end of the first quarter; more than $400 million of liquidity remains against current revolver
  • Return on invested capital (ROIC) of 20.5% for the trailing twelve-month period reflecting two consecutive quarters constrained by electronics component supply

Financial Outlook

The company updated its full-year 2022 diluted EPS outlook to a range of $5.00 to $6.00 per share. The outlook assumes low double-digit net sales growth for 2022 on flat to low single-digit demand growth the balance of the year, while servicing significant excess backlog. The company expects to generate approximately $200 million of cash from operations and anticipates 2022 capital expenditures of $70 million to $80 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 over 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 one billion sleep sessions of highly-accurate, real world sleep data – the cumulation of 14 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 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 conflict in Ukraine), strikes 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 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

April 2,

 

% of

 

April 3,

 

% of

2022

 

Net Sales

 

2021

 

Net Sales

 
Net sales

$

527,130

 

100.0

%

$

568,256

 

100.0

%

Cost of sales

 

224,832

 

42.7

%

 

212,338

 

37.4

%

Gross profit

 

302,298

 

57.3

%

 

355,918

 

62.6

%

Operating expenses:
Sales and marketing

 

240,259

 

45.6

%

 

223,617

 

39.4

%

General and administrative

 

41,319

 

7.8

%

 

42,592

 

7.5

%

Research and development

 

16,305

 

3.1

%

 

13,286

 

2.3

%

Total operating expenses

 

297,883

 

56.5

%

 

279,495

 

49.2

%

Operating income

 

4,415

 

0.8

%

 

76,423

 

13.4

%

Interest expense, net

 

2,127

 

0.4

%

 

977

 

0.2

%

Income before income taxes

 

2,288

 

0.4

%

 

75,446

 

13.3

%

Income tax expense

 

214

 

0.0

%

 

8,812

 

1.6

%

Net income

$

2,074

 

0.4

%

$

66,634

 

11.7

%

 
Net income per share – basic

$

0.09

 

$

2.63

 

 
Net income per share – diluted

$

0.09

 

$

2.51

 

 
 
Reconciliation of weighted-average
shares outstanding:
Basic weighted-average shares outstanding

 

22,760

 

 

25,377

 

Dilutive effect of stock-based awards

 

831

 

 

1,167

 

Diluted weighted-average shares outstanding

 

23,591

 

26,544

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited – in thousands, except per share amounts)
subject to reclassification

 

April 2, January 1,

2022

2022

Assets
Current assets:
Cash and cash equivalents

$

1,556

 

$

2,389

 

Accounts receivable, net of allowances
of $1,047 and $924, respectively

 

24,502

 

 

25,718

 

Inventories

 

103,212

 

 

105,644

 

Prepaid expenses

 

22,001

 

 

18,953

 

Other current assets

 

40,624

 

 

54,917

 

Total current assets

 

191,895

 

 

207,621

 

 
Non-current assets:
Property and equipment, net

 

197,644

 

 

195,128

 

Operating lease right-of-use assets

 

374,650

 

 

371,133

 

Goodwill and intangible assets, net

 

69,867

 

 

70,468

 

Other non-current assets

 

78,529

 

 

75,190

 

Total assets

$

912,585

 

$

919,540

 

 
Liabilities and Shareholders’ Deficit
Current liabilities:
Borrowings under revolving credit facility

$

413,200

 

$

382,500

 

Accounts payable

 

177,025

 

 

162,547

 

Customer prepayments

 

142,005

 

 

129,499

 

Accrued sales returns

 

20,277

 

 

22,368

 

Compensation and benefits

 

25,702

 

 

51,240

 

Taxes and withholding

 

26,293

 

 

22,087

 

Operating lease liabilities

 

74,046

 

 

72,360

 

Other current liabilities

 

59,390

 

 

64,177

 

Total current liabilities

 

937,938

 

 

906,778

 

 
Non-current liabilities:
Deferred income taxes

 

312

 

 

688

 

Operating lease liabilities

 

338,528

 

 

336,192

 

Other non-current liabilities

 

105,020

 

 

100,835

 

Total non-current liabilities

 

443,860

 

 

437,715

 

Total liabilities

 

1,381,798

 

 

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,
22,232 and 22,683 shares issued and outstanding, respectively

 

222

 

 

227

 

Additional paid-in capital

 

-

 

 

3,971

 

Accumulated deficit

 

(469,435

)

 

(429,151

)

Total shareholders’ deficit

 

(469,213

)

 

(424,953

)

Total liabilities and shareholders’ deficit

$

912,585

 

$

919,540

 

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(unaudited - in thousands)

subject to reclassification

 

 

 

Three Months Ended

April 2,

 

April 3,

2022

 

2021

 

Cash flows from operating activities:

Net income

$

2,074

 

$

66,634

 

Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization

 

15,870

 

 

14,638

 

Stock-based compensation

 

4,133

 

 

6,416

 

Net loss on disposals and impairments of assets

 

93

 

 

78

 

Deferred income taxes

 

(376

)

 

1,515

 

Changes in operating assets and liabilities:
Accounts receivable

 

1,216

 

 

5,948

 

Inventories

 

2,432

 

 

(946

)

Income taxes

 

1,102

 

 

6,847

 

Prepaid expenses and other assets

 

10,877

 

 

(3,113

)

Accounts payable

 

2,073

 

 

12,390

 

Customer prepayments

 

12,506

 

 

20,552

 

Accrued compensation and benefits

 

(25,348

)

 

(34,605

)

Other taxes and withholding

 

3,104

 

 

8,912

 

Other accruals and liabilities

 

(5,198

)

 

6,332

 

Net cash provided by operating activities

 

24,558

 

 

111,598

 

 

Cash flows from investing activities:

Purchases of property and equipment

 

(19,604

)

 

(11,546

)

Proceeds from sales of property and equipment

 

10

 

 

12

 

Net cash used in investing activities

 

(19,594

)

 

(11,534

)

 

Cash flows from financing activities:

Net increase in short-term borrowings

 

44,712

 

 

74,087

 

Repurchases of common stock

 

(50,998

)

 

(178,613

)

Proceeds from issuance of common stock

 

531

 

 

2,460

 

Debt issuance costs

 

(42

)

 

(3

)

Net cash used in financing activities

 

(5,797

)

 

(102,069

)

 

Net decrease in cash and cash equivalents

 

(833

)

 

(2,005

)

Cash and cash equivalents, at beginning of period

 

2,389

 

 

4,243

 

Cash and cash equivalents, at end of period

$

1,556

 

$

2,238

 

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)

 

Three Months Ended
April 2, April 3,

2022

2021

 
Percent of sales:
Retail stores

 

84.3

%

 

86.1

%

Online, phone, chat and other

 

15.7

%

 

13.9

%

Total Company

 

100.0

%

 

100.0

%

 
Sales change rates:
Retail comparable-store sales

 

(14

%)

 

12

%

Online, phone and chat

 

5

%

 

116

%

Total Retail comparable sales change

 

(11

%)

 

20

%

Net opened/closed stores and other

 

4

%

 

0

%

Total Company

 

(7

%)

 

20

%

 
Stores open:
Beginning of period

 

648

 

 

602

 

Opened

 

13

 

 

11

 

Closed

 

(8

)

 

(6

)

End of period

 

653

 

 

607

 

 
Other metrics:
Average sales per store ($ in 000's) 1

$

3,487

 

$

3,196

 

Average sales per square foot 1

$

1,167

 

$

1,095

 

Stores > $2 million net sales 2

 

82

%

 

71

%

Stores > $3 million net sales 2

 

46

%

 

33

%

Average revenue per smart bed unit 3

$

4,905

 

$

5,030

 

 

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

 

 

Twelve Months Ended

April 2,

 

April 3,

 

 

April 2,

 

April 3,

2022

 

2021

 

 

2022

 

2021

 

Net income

$

2,074

 

$

66,634

 

$

89,186

 

$

166,683

 

Income tax expense

 

214

 

 

8,812

 

 

24,947

 

 

34,265

 

Interest expense

 

2,127

 

 

978

 

 

7,394

 

 

7,642

 

Depreciation and amortization

 

15,683

 

 

14,519

 

 

60,943

 

 

60,049

 

Stock-based compensation

 

4,133

 

 

6,417

 

 

20,930

 

 

26,179

 

Asset impairments

 

103

 

 

89

 

 

186

 

 

388

 

 

Adjusted EBITDA

$

24,334

 

$

97,449

 

$

203,586

 

$

295,206

 

 

Free Cash Flow

(in thousands)

 

Three Months Ended

Twelve Months Ended

April 2,

April 3,

April 2,

April 3,

2022

2021

2022

2021

 

Net cash provided by operating activities

$

24,558

 

$

111,598

 

$

212,970

 

$

306,318

 

Subtract: Purchases of property and equipment

 

19,604

 

 

11,546

 

 

74,958

 

 

38,295

 

 

Free cash flow

$

4,954

$

100,052

$

138,012

 

$

268,023

 

 

Calculation of Net Leverage Ratio under Revolving Credit Facility

(in thousands)

 

Twelve Months Ended

April 2,

April 3,

2022

2021

 

Borrowings under revolving credit facility

$

413,200

 

$

314,900

 

Outstanding letters of credit

 

5,947

 

 

3,997

 

Finance lease obligations

 

509

 

 

622

 

Consolidated funded indebtedness

$

419,656

 

$

319,519

 

Capitalized operating lease obligations1

 

629,624

 

 

555,903

 

Total debt including capitalized operating lease obligations (a)

$

1,049,280

 

$

875,422

 

 

Adjusted EBITDA (see above)

$

203,586

 

$

295,206

 

Consolidated rent expense

 

104,937

 

 

92,650

 

Consolidated EBITDAR (b)

$

308,523

$

387,856

 

Net Leverage Ratio under revolving credit facility (a divided by b)

3.4 to 1.0

2.3 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:
 

Twelve Months Ended

April 2,
2022

April 3,
2021

Net operating profit after taxes (NOPAT)

Operating income

$

121,527

 

$

208,506

 

Add: Rent expense 1

 

104,937

 

 

92,650

 

Add: Interest income

 

-

 

 

84

 

Less: Depreciation on capitalized operating leases 2

 

(26,311

)

 

(24,258

)

Less: Income taxes 3

 

(47,503

)

 

(66,118

)

NOPAT

$

152,650

 

$

210,864

 

 

Average invested capital

Total deficit

$

(469,213

)

$

(332,650

)

Add: Long-term debt 4

 

413,709

 

 

315,522

 

Add: Capitalized operating lease obligations 5

 

839,496

 

 

741,200

 

Total invested capital at end of period

$

783,992

 

$

724,072

 

 

 

 

Average invested capital 6

$

746,167

 

$

763,227

 

 

Return on invested capital (ROIC) 7

 

20.5

%

 

27.6

%

 

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 23.7% and 23.9% for 2022 and 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

Multimedia Files:

Categories: Press Releases
View all news