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Sleep Number Corp (SNBR) SEC Filing 8-K Material Event for the period ending Wednesday, July 27, 2022

Sleep Number Corp

CIK: 827187 Ticker: SNBR
Exhibit 99.1
snbrlogojpg.jpg
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.


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; investorrelations@sleepnumber.com
Media Contact: Julie Elepano; (414) 732-9840; julie.elepano@sleepnumber.com


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 sales224,128 40.8 %191,465 39.5 %
Gross profit324,945 59.2 %292,851 60.5 %
Operating expenses:
Sales and marketing220,490 40.2 %205,994 42.5 %
General and administrative38,727 7.1 %41,220 8.5 %
Research and development15,817 2.9 %15,916 3.3 %
Total operating expenses275,034 50.1 %263,130 54.3 %
Operating income49,911 9.1 %29,721 6.1 %
Interest expense, net3,619 0.7 %1,607 0.3 %
Income before income taxes46,292 8.4 %28,114 5.8 %
Income tax expense11,359 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 outstanding22,355  24,371  
Dilutive effect of stock-based awards358  823  
Diluted weighted-average shares outstanding22,713  25,194  






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 sales448,960 41.7 %403,803 38.4 %
Gross profit627,243 58.3 %648,769 61.6 %
Operating expenses:
Sales and marketing460,749 42.8 %429,611 40.8 %
General and administrative80,046 7.4 %83,812 8.0 %
Research and development32,122 3.0 %29,202 2.8 %
Total operating expenses572,917 53.2 %542,625 51.6 %
Operating income54,326 5.0 %106,144 10.1 %
Interest expense, net5,746 0.5 %2,584 0.2 %
Income before income taxes48,580 4.5 %103,560 9.8 %
Income tax expense11,573 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 outstanding22,558  24,874  
Dilutive effect of stock-based awards594  995  
Diluted weighted-average shares outstanding23,152  25,869  



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 
Inventories121,318 105,644 
Prepaid expenses24,575 18,953 
Other current assets45,077 54,917 
Total current assets221,865 207,621 
Non-current assets:  
Property and equipment, net196,888 195,128 
Operating lease right-of-use assets382,324 371,133 
Goodwill and intangible assets, net69,267 70,468 
Deferred income taxes3,106 — 
Other non-current assets76,637 75,190 
Total assets$950,087 $919,540 
Liabilities and Shareholders’ Deficit  
Current liabilities:  
Borrowings under revolving credit facility$443,300 $382,500 
Accounts payable167,213 162,547 
Customer prepayments114,745 129,499 
Accrued sales returns24,656 22,368 
Compensation and benefits33,274 51,240 
Taxes and withholding27,426 22,087 
Operating lease liabilities76,041 72,360 
Other current liabilities58,605 64,177 
Total current liabilities945,260 906,778 
Non-current liabilities:
Deferred income taxes— 688 
Operating lease liabilities344,475 336,192 
Other non-current liabilities103,314 100,835 
Total non-current liabilities447,789 437,715 
Total liabilities1,393,049 1,344,493 
Shareholders’ deficit:
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding
— — 
Common stock, $0.01 par value; 142,500 shares authorized, 21,964 and 22,683 shares issued and outstanding, respectively
220 227 
Additional paid-in capital— 3,971 
Accumulated deficit(443,182)(429,151)
Total shareholders’ deficit(442,962)(424,953)
Total liabilities and shareholders’ deficit$950,087 $919,540 



Sleep Number 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 amortization31,975 29,800 
Stock-based compensation8,043 12,385 
Net loss on disposals and impairments of assets179 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 taxes4,368 (11,625)
Prepaid expenses and other assets6,266 (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 withholding971 487 
Other accruals and liabilities(3,496)4,683 
Net cash provided by operating activities28,691 161,420 
Cash flows from investing activities:
Purchases of property and equipment(36,559)(32,012)
Proceeds from sales of property and equipment23 12 
Net cash used in investing activities(36,536)(32,000)
Cash flows from financing activities:
Net increase in short-term borrowings70,836 146,447 
Repurchases of common stock(63,644)(280,915)
Proceeds from issuance of common stock585 3,535 
Debt issuance costs(42)(557)
Net cash provided by (used in) financing activities7,735 (131,490)
Net decrease in cash and cash equivalents(110)(2,070)
Cash and cash equivalents, at beginning of period2,389 4,243 
Cash and cash equivalents, at end of period$2,279 $2,173 



Sleep Number Announces Second-quarter 2022 Results - Page 7 of 9
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
 
 Three Months EndedSix Months Ended
 July 2,
2022
July 3,
2021
July 2,
2022
July 3,
2021
Percent of sales:    
Retail stores89.4 %88.1 %86.9 %87.0 %
Online, phone, chat and other10.6 %11.9 %13.1 %13.0 %
Total Company100.0 %100.0 %100.0 %100.0 %
Sales change rates:
Retail comparable-store sales10 %102 %(3 %)41 %
Online, phone and chat%(28 %)%17 %
Total Retail comparable sales change%65 %(2 %)37 %
 Net opened/closed stores and other
%%%%
Total Company13 %70 %%39 %
Stores open:
Beginning of period653 607 648 602 
Opened10 26 23 37 
Closed(4)(12)(12)(18)
End of period659 621 659 621 
Other metrics:
Average sales per store ($ in 000's) 1
$3,526 $3,542 
Average sales per square foot 1
$1,172 $1,203 
Stores > $2 million net sales 2
82 %82 %
Stores > $3 million net sales 2
45 %47 %
Average revenue per smart bed unit 3
$6,485 $5,094 $5,601 $5,059 

1 Trailing twelve months Total Retail comparable sales per store open at least one year.
2 Trailing twelve months for stores open at least one year (excludes online, phone and chat sales).
3 Represents Total Retail (stores, online, phone and chat) net sales divided by Total Retail smart bed units.


Sleep Number 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 EndedTrailing 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 expense11,359 5,864 30,442 43,564 
Interest expense3,619 1,607 9,406 5,227 
Depreciation and amortization15,920 15,006 61,857 59,802 
Stock-based compensation3,910 5,968 18,872 27,114 
Asset impairments80 — 266 142 
Adjusted EBITDA$69,821 $50,695 $222,712 $337,412 
 
Free Cash Flow
(in thousands)
 Three Months EndedTrailing 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 $354,080 
Subtract: Purchases of property and equipment16,955 20,466 71,447 47,417 
Free cash flow$(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 credit5,947 3,997 
Finance lease obligations479 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 expense107,035 95,226 
Consolidated EBITDAR (b)$329,747 $432,638 
Net Leverage Ratio under revolving credit facility (a divided by b)3.3 to 1.02.2 to 1.0
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 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
— 
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.


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Ticker: SNBR
CIK: 827187
Form Type: 8-K Corporate News
Accession Number: 0000827187-22-000054
Submitted to the SEC: Wed Jul 27 2022 4:16:13 PM EST
Accepted by the SEC: Wed Jul 27 2022
Period: Wednesday, July 27, 2022
Industry: Household Furniture
Events:
  1. Earnings Release
  2. Financial Exhibit

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