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Sleep Number Corp (SNBR) SEC Filing 8-K Material Event for the period ending Wednesday, October 27, 2021

Sleep Number Corp

CIK: 827187 Ticker: SNBR
Exhibit 99.1
snbrlogojpga.jpg
FOR IMMEDIATE RELEASE

SLEEP NUMBER ANNOUNCES RECORD THIRD QUARTER 2021 RESULTS

Third-quarter net sales grew 21% to a record $640 million (+35% versus 2019); generated double-digit demand growth for fourth consecutive third quarter
Third-quarter operating income increased 4% to a record $73 million (+86% versus 2019), while absorbing significant input cost increases; year-to-date operating income increased 62% versus prior year
Third-quarter diluted EPS grew 24% to $2.22; year-to-date EPS of $5.63 increased 106% versus last year (+199% versus 2019)
Generated $293 million in year-to-date operating cash flows and a trailing twelve-month (ttm) ROIC greater than 34%

MINNEAPOLIS – (October 27, 2021) – Sleep Number Corporation (Nasdaq: SNBR) today reported results for the quarter ended October 2, 2021.

“Our record third quarter financial results exceeded our expectations and demonstrate the power of our advantaged business model and our teams’ stellar execution. We are driving sustainable demand and market share gains with our life-changing 360 smart beds by advancing proven initiatives,” said Shelly Ibach, President and CEO. “Given our unique competitive leadership at the intersection of wellbeing and technology, the worldwide shortage of semiconductors and other electronic components are a major challenge, elongating the timing of some customer deliveries. I could not be prouder of how our teams are aggressively pursuing solutions for these shortages to ensure we fulfill our mission of improving lives by individualizing sleep experiences.”

Financial Overview
Net sales for the third quarter grew 21% versus last year (+35% versus 2019) with a 16% comp gain; year-to-date net sales increased 31% versus last year (+35% versus 2019) including a 28% comp gain
Gross profit increased 17% to $390 million, or 61.0% of net sales, while offsetting significant input cost increases with pricing actions and efficiency gains
Operating income increased 4% to $73 million, or 11.4% of net sales; year-to-date operating income increased 62% versus last year and was up 200 basis points on a rate basis versus 2020
Earnings per diluted share increased 24% to $2.22; year-to-date EPS grew 106% to a record $5.63, significantly exceeding 2020 full-year EPS of $4.90 ($4.60 adjusted for 53rd week) and 2019 EPS of $2.70

Cash Flows and Liquidity Review
Generated $293 million in net cash from operating activities for the first nine months of 2021 compared with $287 million for the same period last year and 54% greater than the first nine months of 2019
Invested $49 million in capital expenditures and repurchased $364 million in Sleep Number stock during the first nine months of 2021
Leverage ratio of 2.2x EBITDAR at the end of the third quarter, compared with 1.9x a year ago and our 2.5x-3.0x longer-term target
Increased return on invested capital (ROIC) to more than 34% for the ttm period, compared with nearly 21% for the prior-year comparable period

Financial Outlook
The company is targeting 2021 earnings per diluted share of $7.25, compared with $4.60 for 2020 (excluding the impact of the 53rd week), and nearly three times 2019 EPS. The timing of receiving electronic components could elongate some of our customer deliveries into the first quarter of 2022. The outlook assumes an estimated effective income tax rate of 25% for the balance of the year with full-year 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.


Sleep Number Announces Third-quarter 2021 Results - Page 2 of 9
About Sleep Number Corporation
Individuality is the foundation of Sleep Number. Our purpose driven company is comprised of over 5,000 passionate team members who are dedicated to our mission of improving lives by individualizing sleep experiences. We have improved over 13 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 nearly 12 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 625 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 generating certain operating cash flows in 2021, 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 and related consequences such as supply shortages, labor disruptions, and recommendations and/or mandates from federal, state and local authorities to close certain businesses or limit occupancy or operating hours; 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 or do not comply with laws or regulations; availability of attractive and cost-effective consumer credit options; our lean 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 providers of services; rising commodity costs and other inflationary pressures; 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; risks of disruption in the operation of any of our main manufacturing facilities or assembly and distribution facilities; 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 enhancing, patching, upgrading 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 or accessibility of our systems, result in a data breach or disrupt our business; 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.

# # #
Investor Contact: Dave Schwantes; (763) 551-7498; investorrelations@sleepnumber.com
Media Contact: Julie Elepano; (414) 732-9840; julie.elepano@sleepnumber.com


Sleep Number Announces Third-quarter 2021 Results - Page 3 of 9

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
 
Three Months Ended
 October 2,
2021
% of
Net Sales
September 26,
2020
% of
Net Sales
Net sales$640,393 100.0 %$531,155 100.0 %
Cost of sales250,039 39.0 %196,195 36.9 %
Gross profit390,354 61.0 %334,960 63.1 %
Operating expenses:
Sales and marketing255,512 39.9 %211,574 39.8 %
General and administrative47,676 7.4 %44,127 8.3 %
Research and development14,431 2.3 %9,644 1.8 %
Total operating expenses317,619 49.6 %265,345 50.0 %
Operating income72,735 11.4 %69,615 13.1 %
Interest expense, net1,816 0.3 %1,827 0.3 %
Income before income taxes70,919 11.1 %67,788 12.8 %
Income tax expense17,198 2.7 %16,468 3.1 %
Net income$53,721 8.4 %$51,320 9.7 %
Net income per share – basic$2.29  $1.83  
Net income per share – diluted$2.22  $1.79  
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding23,464  27,973  
Dilutive effect of stock-based awards769  661  
Diluted weighted-average shares outstanding24,233  28,634  






Sleep Number Announces Third-quarter 2021 Results - Page 4 of 9

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
 
 Nine Months Ended
October 2,
2021
% of
Net Sales
September 26,
2020
% of
Net Sales
Net sales$1,692,965 100.0 %$1,288,659 100.0 %
Cost of sales653,842 38.6 %488,558 37.9 %
Gross profit1,039,123 61.4 %800,101 62.1 %
Operating expenses:
Sales and marketing685,123 40.5 %549,483 42.6 %
General and administrative131,488 7.8 %111,915 8.7 %
Research and development43,633 2.6 %28,399 2.2 %
Total operating expenses860,244 50.8 %689,797 53.5 %
Operating income178,879 10.6 %110,304 8.6 %
Interest expense, net4,400 0.3 %8,111 0.6 %
Income before income taxes174,479 10.3 %102,193 7.9 %
Income tax expense31,874 1.9 %24,363 1.9 %
Net income$142,605 8.4 %$77,830 6.0 %
Net income per share – basic$5.84  $2.79  
Net income per share – diluted$5.63  $2.73  
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding24,404  27,918  
Dilutive effect of stock-based awards920  642  
Diluted weighted-average shares outstanding25,324  28,560  



Sleep Number Announces Third-quarter 2021 Results - Page 5 of 9
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited - in thousands, except per share amounts)
subject to reclassification
  
 October 2,
2021
January 2,
2021
Assets  
Current assets:  
Cash and cash equivalents$1,830 $4,243 
Accounts receivable, net of allowances of $1,116 and $1,046, respectively
33,388 31,871 
Inventories86,129 81,362 
Prepaid expenses24,346 20,839 
Other current assets49,634 43,489 
Total current assets195,327 181,804 
Non-current assets:  
Property and equipment, net184,697 175,223 
Operating lease right-of-use assets360,269 314,226 
Goodwill and intangible assets, net71,069 72,871 
Other non-current assets72,258 56,012 
Total assets$883,620 $800,136 
Liabilities and Shareholders’ Deficit  
Current liabilities:  
Borrowings under revolving credit facility$359,100 $244,200 
Accounts payable163,894 91,904 
Customer prepayments107,802 72,017 
Accrued sales returns28,518 24,765 
Compensation and benefits63,896 76,786 
Taxes and withholding36,590 23,339 
Operating lease liabilities69,316 62,077 
Other current liabilities61,767 60,856 
Total current liabilities890,883 655,944 
Non-current liabilities:
Deferred income taxes533 242 
Operating lease liabilities327,521 283,084 
Other non-current liabilities104,749 84,844 
Total non-current liabilities432,803 368,170 
Total liabilities1,323,686 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, 22,647 and
    25,390 shares issued and outstanding, respectively
226 254 
Additional paid-in capital— — 
Accumulated deficit(440,292)(224,232)
Total shareholders’ deficit(440,066)(223,978)
Total liabilities and shareholders’ deficit$883,620 $800,136 



Sleep Number Announces Third-quarter 2021 Results - Page 6 of 9
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited – in thousands)
subject to reclassification
 
 Nine Months Ended
 October 2,
2021
September 26,
2020
Cash flows from operating activities:  
Net income$142,605 $77,830 
Adjustments to reconcile net income to net cash provided by
   operating activities:
Depreciation and amortization44,786 46,244 
Stock-based compensation19,701 15,554 
Net (gain) loss on disposals and impairments of assets(20)208 
Deferred income taxes291 3,229 
Changes in operating assets and liabilities:
Accounts receivable(1,517)(12,710)
Inventories(4,767)3,807 
Income taxes5,615 5,103 
Prepaid expenses and other assets(13,879)3,666 
Accounts payable51,543 58,547 
Customer prepayments35,785 40,795 
Accrued compensation and benefits(12,725)21,376 
Other taxes and withholding7,636 4,756 
Other accruals and liabilities17,630 18,877 
Net cash provided by operating activities292,684 287,282 
Cash flows from investing activities:
Purchases of property and equipment(49,370)(28,074)
Proceeds from sales of property and equipment257 53 
Purchase of intangible assets— (945)
Net cash used in investing activities(49,113)(28,966)
Cash flows from financing activities:
Net increase (decrease) in short-term borrowings132,222 (220,968)
Repurchases of common stock(381,496)(41,923)
Proceeds from issuance of common stock3,847 4,650 
Debt issuance costs(557)(303)
Net cash used in financing activities(245,984)(258,544)
Net decrease in cash and cash equivalents(2,413)(228)
Cash and cash equivalents, at beginning of period4,243 1,593 
Cash and cash equivalents, at end of period$1,830 $1,365 



Sleep Number Announces Third-quarter 2021 Results - Page 7 of 9
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
 
 Three Months EndedNine Months Ended
 October 2,
2021
September 26,
2020
October 2,
2021
September 26,
2020
Percent of sales:    
Retail stores88.4 %86.0 %87.5 %85.2 %
Online, phone, chat and other11.6 %14.0 %12.5 %14.8 %
Total Company100.0 %100.0 %100.0 %100.0 %
Sales change rates:
Retail comparable-store sales19 %%32 %(8 %)
Online, phone and chat%111 %11 %109 %
Total Retail comparable sales change16 %11 %28 %%
Net opened/closed stores and other%%%%
Total Company21 %12 %31 %%
Stores open:
Beginning of period621 598 602 611 
Opened18 55 20 
Closed(7)(8)(25)(35)
End of period632 596 632 596 
Other metrics:
Average sales per store ($ in 000's) 1, 4
$3,689 $2,920 
Average sales per square foot 1, 4
$1,249 $1,012 
Stores > $2 million net sales 2, 4
85 %64 %
Stores > $3 million net sales 2, 4
50 %26 %
Average revenue per mattress unit 3
$5,021 $4,802 $5,045 $4,824 

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 mattress 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 Announces Third-quarter 2021 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 EndedFifty-Three
Weeks Ended
Fifty-Two
Weeks Ended
 October 2,
2021
September 26,
2020
October 2,
2021
September 26,
2020
Net income$53,721 $51,320 $203,964 $101,923 
Income tax expense17,198 16,468 44,294 30,642 
Interest expense1,816 1,829 5,214 10,829 
Depreciation and amortization14,820 15,083 59,539 61,071 
Stock-based compensation7,317 8,470 25,961 20,177 
Asset impairments23 11 154 276 
Adjusted EBITDA$94,895 $93,181 $339,126 $224,918 
 
Free Cash Flow
(in thousands)
Three Months EndedFifty-Three
Weeks Ended
Fifty-Two
Weeks Ended
 October 2,
2021
September 26,
2020
October 2,
2021
September 26,
2020
Net cash provided by operating activities$131,264 $200,281 $285,063 $286,610 
Subtract: Purchases of property and equipment17,358 6,379 58,396 40,556 
Free cash flow$113,906 $193,902 $226,667 $246,054 
 
Calculation of Net Leverage Ratio under Revolving Credit Facility
(in thousands)
Fifty-Three
Weeks Ended
Fifty-Two
Weeks Ended
 October 2,
2021
September 26,
2020
Borrowings under revolving credit facility$359,100 $33,500 
Outstanding letters of credit3,997 3,997 
Finance lease obligations566 677 
Consolidated funded indebtedness$363,663 $38,174 
Capitalized operating lease obligations 1
593,034 546,850 
Total debt including capitalized operating lease obligations (a)$956,697 $585,024 
Adjusted EBITDA (see above)$339,126 $224,918 
Consolidated rent expense98,839 91,142 
Consolidated EBITDAR (b)$437,965 $316,060 
Net Leverage Ratio under revolving credit facility (a divided by b)2.2 to 1.01.9 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.


Sleep Number Announces Third-quarter 2021 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:
Fifty-Three
Weeks Ended
Fifty-Two
Weeks Ended
 October 2,
2021
September 26,
2020
Net operating profit after taxes (NOPAT)  
Operating income$253,472 $143,295 
Add: Rent expense 1
98,839 91,142 
Add: Interest income
— 97 
Less: Depreciation on capitalized operating leases 2
(25,030)(23,700)
Less: Income taxes 3
(78,975)(50,584)
NOPAT$248,306 $160,250 
  
Average invested capital
Total deficit$(440,066)$(102,827)
Add: Long-term debt 4
359,666 34,177 
Add: Capitalized operating lease obligations 5
790,712 729,136 
Total invested capital at end of period$710,312 $660,486 
  
Average invested capital 6
$717,670 $770,197 
  
Return on invested capital (ROIC) 7
34.6 %20.8 %
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 24.1% and 24.0% 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.


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Ticker: SNBR
CIK: 827187
Form Type: 8-K Corporate News
Accession Number: 0000827187-21-000055
Submitted to the SEC: Wed Oct 27 2021 4:18:20 PM EST
Accepted by the SEC: Wed Oct 27 2021
Period: Wednesday, October 27, 2021
Industry: Household Furniture
Events:
  1. Earnings Release
  2. Financial Exhibit

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