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Sleep Number Announces Fourth-Quarter and Full-Year 2021 Results

02/23/2022
  • Fourth-quarter demand increased high-single digits over prior-year demand (adjusted for extra fiscal week last year); a late receipt of semiconductor components from a large global supplier delayed more than $125 million of delivered net sales
  • Full-year net sales grew to a record $2.18 billion with full-year diluted earnings per share (EPS) of $6.16
  • Generated record operating cash flows of $300 million for the year and full-year ROIC of 27.6%
  • Provides 2022 outlook for a 10-15% increase in diluted EPS versus 2021, including constrained first quarter

MINNEAPOLIS--(BUSINESS WIRE)-- Sleep Number Corporation (Nasdaq: SNBR) today reported results for the year ended January 1, 2022.

“Strong demand for Sleep Number’s 360 smart beds again drove record earnings in 2021, even with pandemic-induced global supply chain disruptions,” said Shelly Ibach, President and CEO. “The fourth quarter proved to be the most challenging as we received semiconductor components too late in December to fulfill our planned deliveries. Global electronics supplies remain constrained in the near-term, while demand for our 360 smart beds remains strong, reflecting increased consumer engagement and referrals from more than two million connected smart sleepers. We continue to focus on delivering long-term stakeholder value to build upon our 5-year EPS CAGR of 41% through 2021.”

Fourth Quarter Overview

  • Net sales decreased 13% to $492 million (-7% adjusted); with a late December receipt of semiconductor components constraining delivered net sales by more than $125 million (about two and half weeks of deliveries)
  • Diluted EPS of $0.47 for the fourth quarter, compared to $2.19 for the same period last year, or $1.89 excluding the 53rd week
  • Fiscal 2020 included a 53rd week in the fourth quarter, which we estimate added approximately $41 million in net sales, $11.2 million in operating income and $0.30 of diluted EPS

Full Year Overview

  • Net sales increased 18% (+20% adjusted) to $2.18 billion in 2021, including a 17% comparable sales gain; up 29% compared to 2019
  • Gross profit increased 14% (+17% adjusted) to $1.32 billion, or 60.4% of net sales, while offsetting significant input cost increases with pricing actions and efficiency gains; up 25% compared to 2019
  • Operating income increased 5% (+11% adjusted) to $194 million; up 73% compared to 2019
  • Diluted EPS increased 26% (+34% adjusted) to a record $6.16; up 128% compared to 2019

Cash Flows and Liquidity Review

  • Generated $300 million in net cash from operating activities, up 7% versus last year and 59% higher than 2019
  • Invested $67 million in capital expenditures and repurchased $364 million of Sleep Number stock during 2021
  • Leverage ratio of 2.6x EBITDAR at the end of 2021
  • Return on invested capital (ROIC) of 27.6% for the year, up 260 bp versus prior year and nearly four times our weighted-average cost of capital

Financial Outlook

The company expects full-year 2022 diluted EPS to increase 10 to 15% versus 2021. The outlook for 2022 assumes continued global electronics supply constraints with the greatest impact expected in the first quarter. Accordingly, the 2022 outlook assumes first quarter EPS of 30 to 40 cents with EPS growth of approximately 80% expected for the last nine months of the year. The company 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. EST (4 p.m. CST; 2 p.m. PST) 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 5,000 passionate team members who are dedicated to our mission of improving lives by individualizing sleep experiences. We have improved nearly 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 almost 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 and capital expenditures, 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, 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 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)

Thirteen

 

 

 

Fourteen

 

 

Weeks Ended

 

 

 

Weeks Ended

 

 

January 1,

 

% of

 

January 2,

 

% of

2022

 

Net Sales

 

2021

 

Net Sales

 
Net sales

$

491,984

 

100.0

%

$

567,896

 

100.0

%

Cost of sales

 

212,260

 

43.1

%

 

211,997

 

37.3

%

Gross profit

 

279,724

 

56.9

%

 

355,899

 

62.7

%

Operating expenses:
Sales and marketing

 

220,236

 

44.8

%

 

221,712

 

39.0

%

General and administrative

 

29,924

 

6.1

%

 

47,084

 

8.3

%

Research and development

 

14,907

 

3.0

%

 

12,511

 

2.2

%

Total operating expenses

 

265,067

 

53.9

%

 

281,307

 

49.5

%

Operating income

 

14,657

 

3.0

%

 

74,592

 

13.1

%

Interest expense, net

 

1,845

 

0.4

%

 

813

 

0.1

%

Income before income taxes

 

12,812

 

2.6

%

 

73,779

 

13.0

%

Income tax expense

 

1,671

 

0.3

%

 

12,420

 

2.2

%

Net income

$

11,141

 

2.3

%

$

61,359

 

10.8

%

 
Net income per share – basic

$

0.49

 

$

2.28

 

 
Net income per share – diluted

$

0.47

 

$

2.19

 

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

 

22,939

 

 

26,960

 

Dilutive effect of stock-based awards

 

877

 

 

1,100

 

Diluted weighted-average shares outstanding

 

23,816

 

 

28,060

 

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)

Fifty-Two

 

 

 

Fifty-Three

 

 

Weeks Ended

 

 

 

Weeks Ended

 

 

January 1,

 

% of

 

January 2,

 

% of

2022

 

Net Sales

 

2021

 

Net Sales

 
Net sales

$

2,184,949

 

100.0

%

$

1,856,555

 

100.0

%

Cost of sales

 

866,102

 

39.6

%

 

700,555

 

37.7

%

Gross profit

 

1,318,847

 

60.4

%

 

1,156,000

 

62.3

%

Operating expenses:
Sales and marketing

 

905,359

 

41.4

%

 

771,195

 

41.5

%

General and administrative

 

161,412

 

7.4

%

 

158,999

 

8.6

%

Research and development

 

58,540

 

2.7

%

 

40,910

 

2.2

%

Total operating expenses

 

1,125,311

 

51.5

%

 

971,104

 

52.3

%

Operating income

 

193,536

 

8.9

%

 

184,896

 

10.0

%

Interest expense, net

 

6,245

 

0.3

%

 

8,924

 

0.5

%

Income before income taxes

 

187,291

 

8.6

%

 

175,972

 

9.5

%

Income tax expense

 

33,545

 

1.5

%

 

36,783

 

2.0

%

Net income

$

153,746

 

7.0

%

$

139,189

 

7.5

%

 
Net income per share – basic

$

6.40

 

$

5.03

 

 
Net income per share – diluted

$

6.16

 

$

4.90

 

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

 

24,038

 

 

27,665

 

Dilutive effect of stock-based awards

 

909

 

 

763

 

Diluted weighted-average shares outstanding

 

24,947

 

 

28,428

 

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

January 1,

 

January 2,

2022

 

2021

Assets
Current assets:
Cash and cash equivalents

$

2,389

 

$

4,243

 

Accounts receivable, net of allowances
of $924 and $1,046, respectively

 

25,718

 

 

31,871

 

Inventories

 

105,644

 

 

81,362

 

Prepaid expenses

 

18,953

 

 

20,839

 

Other current assets

 

54,917

 

 

43,489

 

Total current assets

 

207,621

 

 

181,804

 

 
Non-current assets:
Property and equipment, net

 

195,128

 

 

175,223

 

Operating lease right-of-use assets

 

371,133

 

 

314,226

 

Goodwill and intangible assets, net

 

70,468

 

 

72,871

 

Other non-current assets

 

75,190

 

 

56,012

 

Total assets

$

919,540

 

$

800,136

 

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

$

382,500

 

$

244,200

 

Accounts payable

 

162,547

 

 

91,904

 

Customer prepayments

 

129,499

 

 

72,017

 

Accrued sales returns

 

22,368

 

 

24,765

 

Compensation and benefits

 

51,240

 

 

76,786

 

Taxes and withholding

 

22,087

 

 

23,339

 

Operating lease liabilities

 

72,360

 

 

62,077

 

Other current liabilities

 

64,177

 

 

60,856

 

Total current liabilities

 

906,778

 

 

655,944

 

 
Non-current liabilities:
Deferred income taxes

 

688

 

 

242

 

Operating lease liabilities

 

336,192

 

 

283,084

 

Other non-current liabilities

 

100,835

 

 

84,844

 

Total non-current liabilities

 

437,715

 

 

368,170

 

Total liabilities

 

1,344,493

 

 

1,024,114

 

 
Shareholders’ deficit:
Undesignated preferred stock; 5,000 shares authorized,
no shares issued and outstanding

 

-

 

 

-

 

Common stock, $0.01 par value; 142,500 shares authorized,
22,683 and 25,390 shares issued and outstanding, respectively

 

227

 

 

254

 

Additional paid-in capital

 

3,971

 

 

-

 

Accumulated deficit

 

(429,151

)

 

(224,232

)

Total shareholders’ deficit

 

(424,953

)

 

(223,978

)

Total liabilities and shareholders’ deficit

$

919,540

 

$

800,136

 

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited - in thousands)
subject to reclassification

Fifty-Two

 

Fifty-Three

Weeks Ended

 

Weeks Ended

January 1,

 

January 2,

2022

 

2021

 
Cash flows from operating activities:
Net income

$

153,746

 

$

139,189

 

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

 

60,394

 

 

61,563

 

Stock-based compensation

 

23,214

 

 

21,813

 

Net loss on disposals and impairments of assets

 

37

 

 

247

 

Deferred income taxes

 

446

 

 

(3,566

)

Changes in operating assets and liabilities:
Accounts receivable

 

6,153

 

 

(11,893

)

Inventories

 

(24,282

)

 

5,703

 

Income taxes

 

(3,066

)

 

1,057

 

Prepaid expenses and other assets

 

(13,836

)

 

(13,717

)

Accounts payable

 

54,405

 

 

(16,755

)

Customer prepayments

 

57,482

 

 

37,769

 

Accrued compensation and benefits

 

(24,790

)

 

36,825

 

Other taxes and withholding

 

1,814

 

 

111

 

Other accruals and liabilities

 

8,293

 

 

21,315

 

Net cash provided by operating activities

 

300,010

 

 

279,661

 

 
Cash flows from investing activities:
Purchases of property and equipment

 

(66,900

)

 

(37,100

)

Proceeds from sales of property and equipment

 

257

 

 

55

 

Purchase of intangible assets

 

-

 

 

(1,973

)

Net cash used in investing activities

 

(66,643

)

 

(39,018

)

 
Cash flows from financing activities:
Net increase (decrease) in short-term borrowings

 

145,473

 

 

(11,639

)

Repurchases of common stock

 

(382,376

)

 

(235,644

)

Proceeds from issuance of common stock

 

4,441

 

 

9,602

 

Debt issuance costs

 

(2,759

)

 

(312

)

Net cash used in financing activities

 

(235,221

)

 

(237,993

)

 
Net (decrease) increase in cash and cash equivalents

 

(1,854

)

 

2,650

 

Cash and cash equivalents, at beginning of period

 

4,243

 

 

1,593

 

Cash and cash equivalents, at end of period

$

2,389

 

$

4,243

 

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
 

Thirteen

 

Fourteen

 

Fifty-Two

 

Fifty-Three

Weeks Ended

 

Weeks Ended

 

Weeks Ended

 

Weeks Ended

January 1,

 

January 2,

 

January 1,

 

January 2,

2022

 

2021

 

2022

 

2021

 
Percent of sales:
Retail stores

 

85.8

%

 

85.3

%

 

87.1

%

 

85.2

%

Online, phone, chat and other

 

14.2

%

 

14.7

%

 

12.9

%

 

14.8

%

Total Company

 

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

 
Sales change rates:
Retail comparable-store sales 4

 

(11

%)

 

12

%

 

19

%

 

(3

%)

Online, phone and chat 4

 

(11

%)

 

93

%

 

4

%

 

104

%

Total Retail comparable sales change 4

 

(11

%)

 

19

%

 

17

%

 

6

%

Net opened/closed stores, other and 53rd week

 

(2

%)

 

10

%

 

1

%

 

3

%

Total Company

 

(13

%)

 

29

%

 

18

%

 

9

%

 
Stores open:
Beginning of period

 

632

 

 

596

 

 

602

 

 

611

 

Opened

 

22

 

 

10

 

 

77

 

 

30

 

Closed

 

(6

)

 

(4

)

 

(31

)

 

(39

)

End of period

 

648

 

 

602

 

 

648

 

 

602

 

 
Other metrics:
Average sales per store ($ in 000's) 1, 4

$

3,600

 

$

3,052

 

Average sales per square foot 1, 4

$

1,212

 

$

1,051

 

Stores > $2 million net sales 2, 4

 

84

%

 

67

%

Stores > $3 million net sales 2, 4

 

48

%

 

29

%

Average revenue per smart bed unit 3

$

5,309

 

$

4,931

 

$

5,102

 

$

4,856

 

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.

4

Fiscal 2020 included 53 weeks, as compared to 52 weeks in fiscal 2021 and 2019. The additional week in 2020 was in the fiscal fourth quarter. Total Retail comparable sales have been adjusted to remove the estimated impact of the additional week on those metrics.
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:

Thirteen

 

Fourteen

 

Fifty-Two

 

Fifty-Three

Weeks Ended

 

Weeks Ended

 

Weeks Ended

 

Weeks Ended

January 1,

 

January 2,

 

January 1,

 

January 2,

2022

 

2021

 

2022

 

2021

 
Net income

$

11,141

$

61,359

$

153,746

$

139,189

Income tax expense

 

1,671

 

12,420

 

33,545

 

36,783

Interest expense

 

1,844

 

813

 

6,245

 

9,021

Depreciation and amortization

 

15,434

 

15,194

 

59,779

 

60,783

Stock-based compensation

 

3,512

 

6,259

 

23,214

 

21,813

Asset impairments

 

60

 

42

 

172

 

302

 
Adjusted EBITDA

$

33,662

$

96,087

$

276,701

$

267,891

Free Cash Flow
(in thousands)

 

 

 

 

 

 

 

Thirteen

 

Fourteen

 

Fifty-Two

 

Fifty-Three

Weeks Ended

 

Weeks Ended

 

Weeks Ended

 

Weeks Ended

January 1,

 

January 2,

 

January 1,

 

January 2,

2022

 

2021

 

2022

 

2021

 
Net cash provided by (used in) operating activities

$

7,326

 

$

(7,621

)

$

300,010

$

279,661

Subtract: Purchases of property and equipment

 

17,530

 

 

9,026

 

 

66,900

 

37,100

 
Free cash flow

$

(10,204

)

$

(16,647

)

$

233,110

$

242,561

 
Calculation of Net Leverage Ratio under Revolving Credit Facility
(in thousands)
 

Fifty-Two

 

Fifty-Three

Weeks Ended

 

Weeks Ended

January 1,

 

January 2,

2022

 

2021

 
Borrowings under revolving credit facility

$

382,500

$

244,200

Outstanding letters of credit

 

3,997

 

3,997

Finance lease obligations

 

537

 

650

Consolidated funded indebtedness

$

387,034

$

248,847

Capitalized operating lease obligations1

 

610,072

 

548,749

Total debt including capitalized operating lease obligations (a)

$

997,106

$

797,596

 
Adjusted EBITDA (see above)

$

276,701

$

267,891

Consolidated rent expense

 

101,679

 

91,458

Consolidated EBITDAR (b)

$

378,380

$

359,349

 
Net Leverage Ratio under revolving credit facility (a divided by b) 2.6 to 1.0 2.2 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:

Fifty-Two

 

Fifty-Three

Weeks Ended

 

Weeks Ended

January 1,
2022

 

January 2,
2021

Net operating profit after taxes (NOPAT)
Operating income

$

193,536

 

$

184,896

 

Add: Rent expense 1

 

101,679

 

 

91,458

 

Add: Interest income

 

-

 

 

97

 

Less: Depreciation on capitalized operating leases 2

 

(25,592

)

 

(24,001

)

Less: Income taxes 3

 

(65,216

)

 

(59,387

)

NOPAT

$

204,407

 

$

193,063

 

 
Average invested capital
Total deficit

$

(424,953

)

$

(223,978

)

Add: Long-term debt 4

 

383,037

 

 

244,849

 

Add: Capitalized operating lease obligations 5

 

813,432

 

 

731,664

 

Total invested capital at end of period

$

771,516

 

$

752,535

 

 
Average invested capital 6

$

739,873

 

$

773,413

 

 
Return on invested capital (ROIC) 7

 

27.6

%

 

25.0

%

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 24.2% and 23.5% for 2021 and 2020, 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

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