Sleep Number Corp
SNBR 10-Q Quarter ended Sept. 28, 2024
SLEEP NUMBER CORP
10-Ks and 10-Qs
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-Q
(Mark One)
|
|
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
For the quarterly period ended
September 28, 2024
OR
|
|
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
|
Commission File Number:
000-25121
_______________________________________________________________________
(Exact name of registrant as specified in its charter)
|
|
|
|
|
(State or other jurisdiction of incorporation or
organization)
|
(I.R.S. Employer Identification No.)
|
|
|
||||
|
|
|
|
||
|
(Address of principal executive offices)
|
(Zip Code)
|
|||
Registrant’s telephone number, including area code:
(
763
)
551-7000
Securities registered pursuant to Section 12(b) of the Act:
|
Title of each class
|
Trading
Symbol(s)
|
Name of each exchange on which registered
|
||
|
|
|
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days.
Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer
|
☐
|
|
☒
|
|
|
Non-accelerated filer
|
☐
|
Smaller reporting company
|
|
|
|
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.
☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
☐
No
☒
As of
September 28, 2024
,
22,371,000
shares of the registrant’s Common Stock were outstanding.
|
i | 3Q 2023 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
INDEX
|
Page
|
||
|
1 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited - in thousands, except per share amounts)
|
September 28,
2024
|
December 30,
2023
|
||
|
Assets
|
|||
|
Current assets:
|
|||
|
Cash and cash equivalents
|
$
|
$
|
|
|
Accounts receivable, net of allowances of $
|
|
|
|
|
Inventories
|
|
|
|
|
Prepaid expenses
|
|
|
|
|
Other current assets
|
|
|
|
|
Total current assets
|
|
|
|
|
Non-current assets:
|
|||
|
Property and equipment, net
|
|
|
|
|
Operating lease right-of-use assets
|
|
|
|
|
Goodwill and intangible assets, net
|
|
|
|
|
Deferred income taxes
|
|
|
|
|
Other non-current assets
|
|
|
|
|
Total assets
|
$
|
$
|
|
|
Liabilities and Shareholders’ Deficit
|
|||
|
Current liabilities:
|
|||
|
Borrowings under revolving credit facility
|
$
|
$
|
|
|
Accounts payable
|
|
|
|
|
Customer prepayments
|
|
|
|
|
Accrued sales returns
|
|
|
|
|
Compensation and benefits
|
|
|
|
|
Taxes and withholding
|
|
|
|
|
Operating lease liabilities
|
|
|
|
|
Other current liabilities
|
|
|
|
|
Total current liabilities
|
|
|
|
|
Non-current liabilities:
|
|||
|
Operating lease liabilities
|
|
|
|
|
Other non-current liabilities
|
|
|
|
|
Total liabilities
|
|
|
|
|
Shareholders’ deficit:
|
|||
|
Undesignated preferred stock;
|
|
|
|
|
Common stock,
$
and outstanding, respectively
|
|
|
|
|
Additional paid-in capital
|
|
|
|
|
Accumulated deficit
|
(
|
(
|
|
|
Total shareholders’ deficit
|
(
|
(
|
|
|
Total liabilities and shareholders’ deficit
|
$
|
$
|
See accompanying notes to condensed consolidated financial statements.
|
2 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited - in thousands, except per share amounts)
|
Three Months Ended
|
Nine Months Ended
|
||||||
|
September 28,
2024
|
September 30,
2023
|
September 28,
2024
|
September 30,
2023
|
||||
|
Net sales
|
$
|
$
|
$
|
$
|
|||
|
Cost of sales
|
|
|
|
|
|||
|
Gross profit
|
|
|
|
|
|||
|
Operating expenses:
|
|||||||
|
Sales and marketing
|
|
|
|
|
|||
|
General and administrative
|
|
|
|
|
|||
|
Research and development
|
|
|
|
|
|||
|
Restructuring costs
|
|
|
|
|
|||
|
Total operating expenses
|
|
|
|
|
|||
|
Operating income
|
|
|
|
|
|||
|
Interest expense, net
|
|
|
|
|
|||
|
(Loss) income before income taxes
|
(
|
(
|
(
|
|
|||
|
Income tax (benefit) expense
|
(
|
(
|
(
|
|
|||
|
Net (loss) income
|
$
(
|
$
(
|
$
(
|
$
|
|||
|
Basic net (loss) income per share:
|
|||||||
|
Net (loss) income per share – basic
|
$
(
|
$
(
|
$
(
|
$
|
|||
|
Weighted-average shares – basic
|
|
|
|
|
|||
|
Diluted net (loss) income per share:
|
|||||||
|
Net (loss) income per share – diluted
|
$
(
|
$
(
|
$
(
|
$
|
|||
|
Weighted-average shares – diluted
|
|
|
|
|
|||
See accompanying notes to condensed consolidated financial statements.
|
3 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders’ Deficit
(unaudited - in thousands)
|
Common Stock
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Total
|
||||||
|
Shares
|
Amount
|
||||||||
|
Balance at December 30, 2023
|
|
$
|
$
|
$
(
|
$
(
|
||||
|
Net loss
|
—
|
—
|
—
|
(
|
(
|
||||
|
Stock-based compensation
|
|
|
|
—
|
|
||||
|
Repurchases of common stock
|
(
|
—
|
(
|
—
|
(
|
||||
|
Balance at March 30, 2024
|
|
$
|
$
|
$
(
|
$
(
|
||||
|
Net loss
|
—
|
—
|
—
|
(
|
(
|
||||
|
Stock-based compensation
|
|
|
|
—
|
|
||||
|
Repurchases of common stock
|
(
|
—
|
(
|
—
|
(
|
||||
|
Balance at June 29, 2024
|
|
$
|
$
|
$
(
|
$
(
|
||||
|
Net loss
|
—
|
—
|
—
|
(
|
(
|
||||
|
Stock-based compensation
|
|
—
|
|
—
|
|
||||
|
Repurchases of common stock
|
(
|
—
|
(
|
—
|
(
|
||||
|
Balance at September 28, 2024
|
|
$
|
$
|
$
(
|
$
(
|
||||
|
Common Stock
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Total
|
||||||
|
Shares
|
Amount
|
||||||||
|
Balance at December 31, 2022
|
|
$
|
$
|
$
(
|
$
(
|
||||
|
Net income
|
—
|
—
|
—
|
|
|
||||
|
Exercise of common stock options
|
|
—
|
|
—
|
|
||||
|
Stock-based compensation
|
|
|
|
—
|
|
||||
|
Repurchases of common stock
|
(
|
(
|
(
|
—
|
(
|
||||
|
Balance at April 1, 2023
|
|
$
|
$
|
$
(
|
$
(
|
||||
|
Net income
|
—
|
—
|
—
|
|
|
||||
|
Exercise of common stock options
|
|
—
|
|
—
|
|
||||
|
Stock-based compensation
|
|
—
|
|
—
|
|
||||
|
Repurchases of common stock
|
(
|
—
|
(
|
—
|
(
|
||||
|
Balance at July 1, 2023
|
|
$
|
$
|
$
(
|
$
(
|
||||
|
Net loss
|
—
|
—
|
—
|
(
|
(
|
||||
|
Stock-based compensation
|
|
—
|
|
—
|
|
||||
|
Repurchases of common stock
|
(
|
—
|
(
|
—
|
(
|
||||
|
Balance at September 30, 2023
|
|
$
|
$
|
$
(
|
$
(
|
||||
See accompanying notes to condensed consolidated financial statements.
|
4 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited - in thousands)
|
Nine Months Ended
|
|||
|
September 28,
2024
|
September 30,
2023
|
||
|
Cash flows from operating activities:
|
|||
|
Net (loss) income
|
$
(
|
$
|
|
|
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
|
|||
|
Depreciation and amortization
|
|
|
|
|
Stock-based compensation
|
|
|
|
|
Net loss on disposals and impairments of assets
|
|
|
|
|
Deferred income taxes
|
(
|
(
|
|
|
Changes in operating assets and liabilities:
|
|||
|
Accounts receivable
|
|
|
|
|
Inventories
|
|
(
|
|
|
Income taxes
|
|
|
|
|
Prepaid expenses and other assets
|
(
|
(
|
|
|
Accounts payable
|
|
|
|
|
Customer prepayments
|
(
|
(
|
|
|
Accrued compensation and benefits
|
|
(
|
|
|
Other taxes and withholding
|
(
|
|
|
|
Other accruals and liabilities
|
(
|
(
|
|
|
Net cash provided by operating activities
|
|
|
|
|
Cash flows from investing activities:
|
|||
|
Purchases of property and equipment
|
(
|
(
|
|
|
Issuance of note receivable
|
(
|
(
|
|
|
Proceeds from sales of property and equipment
|
|
|
|
|
Net cash used in investing activities
|
(
|
(
|
|
|
Cash flows from financing activities:
|
|||
|
Net (decrease) increase in short-term borrowings
|
(
|
|
|
|
Repurchases of common stock
|
(
|
(
|
|
|
Proceeds from issuance of common stock
|
|
|
|
|
Debt issuance costs
|
|
(
|
|
|
Net cash (used in) provided by financing activities
|
(
|
|
|
|
Net decrease in cash and cash equivalents
|
(
|
(
|
|
|
Cash and cash equivalents, at beginning of period
|
|
|
|
|
Cash and cash equivalents, at end of period
|
$
|
$
|
|
See accompanying notes to condensed consolidated financial statements.
|
5 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
1.
Business and Summary of Significant Accounting Policies
The Company
prepared the condensed consolidated financial statements as of and for the
three and nine
months ended
September 28, 2024
of Sleep Number Corporation and its 100%-owned subsidiaries (Sleep Number or the Company),
without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and they reflect, in
the opinion of management, all normal recurring adjustments, including the elimination of all significant intra-entity
balances and transactions, necessary to present fairly its financial position as of
September 28, 2024
and
December 30,
2023
, and the consolidated results of operations and cash flows for the periods presented. The historical and quarterly
consolidated results of operations may not be indicative of the results that may be achieved for the full year or any future
period.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S.
generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and
regulations. These condensed consolidated financial statements should be read in conjunction with the most recent
audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for
the fiscal year ended
December 30, 2023
and other recent filings with the SEC.
make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the
reported amounts of sales, expenses and income taxes during the reporting period. Predicting future events is inherently
an imprecise activity and, as such, requires the use of judgment. As future events and their effects cannot be determined
with precision, actual results could differ significantly from these estimates. Changes in these estimates will be reflected
in the consolidated financial statements in future periods and could be material. The Company’s critical accounting
policies consist of stock-based compensation, warranty liabilities and revenue recognition.
Income Taxes
Income tax benefit totaled
$
0.9
million
for the
nine
months ended
September 28, 2024
, compared with income tax
expense of
$
3
million
last year
. The change in income tax expense was primarily due to the change in (loss) income
before income taxes levels and the impact of discrete tax expenses. Discrete tax expense, primarily stock-based
compensation tax shortfalls, was
$
2.6
million
for the
nine
months ended
September 28, 2024
, compared to
$
1.1
million
for the same period last year.
Segment Reporting (Topic 280)
In November 2023, the
Financial Accounting Standards Board
issued guidance within Accounting Standards Update
(
ASU)
2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This ASU requires
that a public entity that has a single reportable segment provide all the disclosures required by the amendments in this
ASU and all existing disclosures in Topic 280. The Company has determined that its current business and operations
consist of a single business segment and a single reporting unit.
The
amendments in this ASU are intended to improve segment disclosure requirements, primarily through enhanced
disclosures about significant segment expenses.
The key amendments included in this ASU:
•
Require disclosure on an annual and interim basis, of significant segment expenses that are regularly provided to
the chief operating decision maker (CODM) and are included within each reported measure of segment profit
and loss.
•
Require disclosure on an annual and interim basis, an amount for other segment items (defined in this ASU) and
a description of its composition.
|
6 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
•
Clarify that if the CODM uses more than one measure of the segment’s profit or loss in assessing performance,
one or more of those additional measures may be reported.
•
Require disclosure of the title and position of the CODM and an explanation of how the CODM uses the
reported measure(s) of segment profit or loss in assessing performance.
This ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning
after December 15, 2024, with early adoption permitted. This guidance is required to be adopted by the Company
beginning with the annual period of 2024. The amendments should be applied retrospectively to all prior periods
presented in the consolidated financial statements. The Company is currently evaluating the impact of this ASU on the
Company’s consolidated financial
statements.
Currently, management does not believe that any other recently issued, but not yet effective accounting
pronouncements, if currently adopted, would have a material impact on the Company’s unaudited condensed
consolidated financial statements.
2.
Fair Value Measurements
At
September 28, 2024
and
December 30, 2023
,
the Company
had
$
20
million
and
$
19
million
, respectively, of debt
and equity securities that fund the deferred compensation plan and are classified in other non-current assets. The
Company also had corresponding deferred compensation plan liabilities of
$
20
million
and
$
19
million
at
September 28,
2024
and
December 30, 2023
, respectively, which are included in other non-current liabilities. The majority of the debt
and equity securities are Level 1 as they trade with sufficient frequency
and volume to enable the Company to obtain
pricing information on an ongoing basis. Unrealized gains/(losses) on the debt and equity securities offset those
associated with the corresponding deferred compensation plan liabilities.
3.
Inventories
|
September 28,
2024
|
December 30,
2023
|
||
|
Raw materials
|
$
|
$
|
|
|
Work in progress
|
|
|
|
|
Finished goods
|
|
|
|
|
$
|
$
|
4.
Goodwill and Intangible Assets, Net
Goodwill and Indefinite-lived Intangible Assets
Goodwill was
$
64
million
at
September 28, 2024
and
December 30, 2023
. Indefinite-lived trade name/trademarks
totaled
$
1.4
million
at both
September 28, 2024
and
December 30, 2023
.
Definite-lived Intangible Assets
Patents were
$
2.0
million
at both
September 28, 2024
and
December 30, 2023
. Accumulated amortization was
$
0.9
million
at
September 28, 2024
and
$
0.8
million
at
December 30, 2023
. Amortization expense for both the three months
ended
September 28, 2024
and
September 30, 2023
, was
$
55
thousand
, and for both the
nine
months ended
September 28, 2024
and
September 30, 2023
was
$
0.2
million
.
|
7 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
|
2024
(excluding the
nine months ended
September 28, 2024
)
|
$
|
|
|
2025
|
|
|
|
2026
|
|
|
|
2027
|
|
|
|
2028
|
|
|
|
2029
|
|
|
|
Thereafter
|
|
|
|
Total future amortization for definite-lived intangible assets
|
$
|
5.
Credit Agreement
As of
September 28, 2024
, the Company’s credit facility had a total commitment amount of
$
680
million
. The credit
facility is for general corporate purposes
and to meet sea
sonal working capital requirements.
The Amended and
Restated Credit and Security Agreement, dated February 14, 2018, among the Company, U.S. Bank National Association
and the several banks and other financial institutions from time to time party thereto (as amended, the Credit
Agreement),
includes an accordion feature which allows the Company to increase the amount of the credit facility from
$
680
million
to
$
1.0
billion
, subject to lenders’ approval. The Credit Agreement provides the lenders with a collateral
security interest in substantially all of the Company’s assets and those of its
subsidiaries
and requires the Company to
comply with, among other things, a maximum net leverage ratio and a minimum interest coverage ratio.
The maximum net leverage ratio permitted by the Credit Agreement is
5.00
to 1.00 for the quarterly period ended
September 28, 2024
;
4.80
to 1.00 for the quarterly reporting period ending
December 28,
2024
; and
4.00
to 1.00 for
each quarterly reporting period occurring thereafter until maturity.
The minimum interest coverage ratio permitted by the Credit Agreement is
1.50
to 1.00 for both quarterly reporting
periods ending
September 28, 2024
and
December 28,
2024
; and
3.00
to 1.00 for each quarterly reporting period
occurring thereafter until maturity.
The carrying amount of the outstanding borrowings under the Credit Agreement approximates fair value because
interest rates approximate the current rates available to the Company. Under the terms of the Credit Agreement, the
Company pays a variable rate of interest and a commitment fee based on its leverage ratio. The Credit Agreement
matures in
December 2026
. The Company was in compliance with all financial covenants as of
September 28, 2024
.
|
September 28,
2024
|
December 30,
2023
|
||
|
Outstanding borrowings
|
$
|
$
|
|
|
Outstanding letters of credit
|
$
|
$
|
|
|
Additional borrowing capacity
|
$
|
$
|
|
|
Weighted-average interest rate
|
|
|
6.
Leases
lease payments, may require payment of a proportionate share of the real estate taxes and certain building operating
expenses. While the Company’s local market development approach generally results in long-term participation in given
markets, the retail store leases generally provide for an initial lease term of
five
to
ten years
. The Company’s office and
manufacturing leases provide for an initial lease term of up to
fifteen years
. In addition, the Company’s mall-based retail
store leases may require payment of variable rent based on net sales in excess of certain thresholds. Certain leases may
|
8 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
contain options to extend the term of the original lease. The exercise of lease renewal options is at the Company’s sole
discretion. Lease options are included in the lease term only if exercise is reasonably certain at lease commencement.
The Company’s lease agreements do not contain any material residual value guarantees. The Company also leases
vehicles and certain equipment under operating leases with an initial lease term of
three
to
six years
.
The Company’s operating lease costs include facility, vehicle and equipment lease costs, but exclude variable lease
costs. Operating lease costs are recognized on a straight-line basis over the lease term, after consideration of rent
escalations and rent holidays. The lease term for purposes of the calculation begins on the earlier of the lease
commencement date or the date the Company takes possession of the property. During lease renewal negotiations that
extend beyond the original lease term, the Company estimates straight-line rent expense based on current market
conditions. Variable lease costs are recorded when it is probable the cost has been incurred and the amount can be
reasonably estimated.
At
September 28, 2024
, the Company’s finance right-of-use assets and lease liabilities were
not significant.
|
Three Months Ended
|
Nine Months Ended
|
||||||
|
September 28,
2024
|
September 30,
2023
|
September 28,
2024
|
September 30,
2023
|
||||
|
Operating lease costs
(1)
|
$
|
$
|
$
|
$
|
|||
|
Variable lease costs
(2)
|
$
|
$
|
$
|
$
|
|||
___________________________
(1)
Includes short
-term lease costs which are not significant.
|
2024
(excluding the
nine months ended
September 28, 2024
)
|
$
|
|
2025
|
|
|
2026
|
|
|
2027
|
|
|
2028
|
|
|
2029
|
|
|
Thereafter
|
|
|
Total operating lease payments
(2)
|
|
|
Less: Interest
|
|
|
Present value of operating lease liabilities
|
$
|
___________________________
(1)
F
uture payments for real estate taxes and certain building operating expenses for which the Company is obligated are not included in the operating
lease liabilities. T
otal operating lease payments exclude
$
17
million
of legally binding minimum lease payments for leases signed but not yet
commenced.
(2)
Includes the current portion of
$
82
million
for operating lease liabilities.
|
September 28,
2024
|
December 30,
2023
|
|||
|
Weighted-average remaining lease term (in years)
|
|
|
||
|
Weighted-average discount rate
|
|
|
|
9 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
|
Nine Months Ended
|
||||
|
(in thousands)
|
September 28,
2024
|
September 30,
2023
|
||
|
Cash paid for amounts included in present value of operating lease liabilities
|
$
|
$
|
||
|
Right-of-use assets obtained in exchange for operating lease liabilities
|
$
|
$
|
||
7.
Repurchases of Common Stock
For the three months ended
September 28, 2024
and
September 30, 2023
, we repurchased
$
0.1
million
and
$
0.2
million
, respectively, of common stock in connection with the vesting of restricted stock grants. For the
nine
months
ended
September 28, 2024
and
September 30, 2023
, we repurchased
$
0.7
million
and
$
3.7
million
, respectively, of
common stock in connection with the vesting of restricted stock grants. We made no purchases under the Board-
approved stock purchase plan in either period. As of
September 28, 2024
, the remaining authorization under the Board-
approved
$
600
million
share repurchase program was
$
348
million
.
8.
Revenue Recognition
follows (in thousands):
|
September 28,
2024
|
December 30,
2023
|
||
|
Deferred contract assets included in:
|
|||
|
Other current assets
|
$
|
$
|
|
|
Other non-current assets
|
|
|
|
|
$
|
$
|
|
September 28,
2024
|
December 30,
2023
|
||
|
Deferred contract liabilities included in:
|
|||
|
Other current liabilities
|
$
|
$
|
|
|
Other non-current liabilities
|
|
|
|
|
$
|
$
|
Deferred revenue and costs related to SleepIQ
®
technology are currently recognized on a straight-line basis over the
product's estimated life of
4.5
to
5.0
years
because the Company’s inputs are generally expended evenly throughout the
performance period. During both the three months ended
September 28, 2024
and
September 30, 2023
, the Company
recognized revenue of
$
10
million
, that was included in the deferred contract liability balances at the beginning of the
respective periods. During both the
nine
months ended
September 28, 2024
and
September 30, 2023
, the Company
recognized revenue of
$
28
million
, that was included in the deferred contract liability balances at the beginning of the
respective periods.
Revenue from goods and services transferred to customers at a point in time accounted for a
pproximate
ly
98
%
of
revenues for both the three and
nine
months ended
September 28, 2024
and
September 30, 2023
.
|
10 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
|
Three Months Ended
|
Nine Months Ended
|
||||||
|
September 28,
2024
|
September 30,
2023
|
September 28,
2024
|
September 30,
2023
|
||||
|
Retail stores
|
$
|
$
|
$
|
$
|
|||
|
Online, phone, chat and other
|
|
|
|
|
|||
|
Total Company
|
$
|
$
|
$
|
$
|
|||
Obligation for Sales Returns
|
Nine Months Ended
|
|||
|
September 28,
2024
|
September 30,
2023
|
||
|
Balance at beginning of year
|
$
|
$
|
|
|
Additions that reduce net sales
|
|
|
|
|
Deductions from reserves
|
(
|
(
|
|
|
Balance at end of period
|
$
|
$
|
|
9.
Stock-based Compensation Expense
|
Three Months Ended
|
Nine Months Ended
|
||||||
|
September 28,
2024
|
September 30,
2023
|
September 28,
2024
|
September 30,
2023
|
||||
|
Stock awards
(1)
|
$
|
$
(
|
|
$
|
|||
|
Stock options
|
|
|
|
|
|||
|
Total stock-based compensation expense
(1)
|
|
|
|
|
|||
|
Income tax benefit
|
|
|
|
|
|||
|
Total stock-based compensation expense,
net of tax
|
$
|
$
|
$
|
$
|
|||
___________________________
(1)
Changes in stock-based compensation expense include the cumulative impact of the change in the expected achievements of certain performance
targets.
10.
Profit Sharing and 401(k) Plan
Under the Company’s profit sharing and 401(k) plan, eligible employees may defer up to
50
%
of their compensation on a
pre-tax basis, subject to Internal Revenue Service limitations. Each pay period, the Company makes a contribution equal
to a percentage of the employee’s contribution. During the three months ended
September 28, 2024
and
September 30, 2023
, the Company’s contributions, net of forfeitures, were
$
1.9
million
and
$
2.3
million
, respectively and
during the
nine
months ended
September 28, 2024
and
September 30, 2023
, were
$
5.1
million
and
$
7.5
million
,
respectively.
|
11 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
11.
Net (Loss) Income per Common Share
amounts):
|
Three Months Ended
|
Nine Months Ended
|
||||||
|
September 28,
2024
|
September 30,
2023
|
September 28,
2024
|
September 30,
2023
|
||||
|
Net (loss) income
|
$
(
|
$
(
|
$
(
|
$
|
|||
|
Reconciliation of weighted-average shares outstanding:
|
|||||||
|
Basic weighted-average shares outstanding
|
|
|
|
|
|||
|
Dilutive effect of stock-based awards
|
|
|
|
|
|||
|
Diluted weighted-average shares outstanding
|
|
|
|
|
|||
|
Net (loss) income per share – basic
|
$
(
|
$
(
|
$
(
|
$
|
|||
|
Net (loss) income per share – diluted
|
$
(
|
$
(
|
$
(
|
$
|
|||
For
the
three months ende
d
September 28, 2024
and
September 30, 2023
, and for the nine months ended
September 28, 2024
, otherwise dilutive stock-based awards have been excluded from the calculation of diluted
weighted-average shares outstanding, as their inclusion would have had an anti-dilutive effect on our net loss per diluted
share.
Additional potential dilutive stock-based awards totaling
1.2
million
and
1.1
million
for the three months ended
September 28, 2024
and
September 30, 2023
, respectively, and
1.3
million
and
1.2
million
for the
nine
months ended
September 28, 2024
and
September 30, 2023
, respectively, have been excluded from the diluted net (loss)/income per
share calculations because these stock-based awards were anti-dilutive.
12.
Restructuring Costs
In the fourth quarter of 2023, the Company initiated cost reduction actions to reduce operating expenses and accelerate
gross margin initiatives, and recognized
$
15.7
million
of restructuring costs in that quarter. In addition to the costs
incurred in 2023, the Company incurred an additional
$
2.0
million
and
$
14.4
million
of restructuring costs during the
three and nine
months ended
September 28, 2024
, respectively. Charges incurred related to this initiative were
comprised of contract termination costs, severance and employee-related benefits, professional fees and other, and
asset impairment charges and are included in the restructuring costs line in the Company’s condensed consolidated
statement of operations. The Company expects an additional
$
2
million
to
$
3
million
of restructuring costs to be i
ncurred
through the remainde
r of 2024, primarily due to lease contract termination costs.
The following table provides a
summary of the Company’s restructuring costs during the during the
three and nine
months ended
September 28, 2024
:
|
Three Months Ended
|
Nine Months Ended
|
||
|
September 28,
2024
|
September 28,
2024
|
||
|
Cash restructuring costs:
|
|||
|
Contract termination costs
(1)
|
$
|
$
|
|
|
Severance and employee-related benefits
|
|
|
|
|
Professional fees and other
|
|
|
|
|
Total cash restructuring costs
|
|
|
|
|
Non-cash restructuring costs:
|
|||
|
Asset impairments
(2)
|
|
|
|
|
Total restructuring costs
|
$
|
$
|
____________________
(1)
Primarily comprised of lease termination costs.
(2)
Primarily comprised of impairments of property and equipment.
|
12 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
accounts payable, compensation and benefits and other current liabilities on the condensed consolidated balance sheet
(in thousands):
|
Nine Months Ended
|
|||
|
September 28,
2024
|
|||
|
Balance at the beginning of year
|
$
|
||
|
Expenses
|
|
||
|
Cash payments
|
(
|
||
|
Balance at the end of the period
|
$
|
$
30.1
million
of restructuring costs, as follows (in thousands):
|
Cumulative
|
||
|
September 28,
2024
|
||
|
Cash restructuring costs:
|
||
|
Contract termination costs
(1)
|
$
|
|
|
Severance and employee-related benefits
|
|
|
|
Professional fees and other
|
|
|
|
Total cash restructuring costs
|
|
|
|
Non-cash restructuring costs:
|
||
|
Asset impairments
(2)
|
|
|
|
Total restructuring costs
|
$
|
____________________
(1)
Primarily comprised of lease termination costs.
(2)
Includes impairments of both lease right-of-use assets and property and equipment.
13.
Commitments and Contingencies
Warranty Liabilities
|
Nine Months Ended
|
|||
|
September 28,
2024
|
September 30,
2023
|
||
|
Balance at beginning of period
|
$
|
$
|
|
|
Additions charged to costs and expenses for current-year sales
|
|
|
|
|
Deductions from reserves
|
(
|
(
|
|
|
Changes in liability for pre-existing warranties during the current year, including
expirations
|
|
|
|
|
Balance at end of period
|
$
|
$
|
|
|
13 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Legal Proceedings
The Company is involved from time to time in various legal proceedings arising in the ordinary course of its business,
including primarily commercial, product liability, employment and intellectual property claims. In accordance with U.S.
generally accepted accounting principles, the Company records a liability in its
condensed
consolidated financial
statements with respect to any of these matters when it is both probable that a liability has been incurred and the
amount of the liability can be reasonably estimated. If a material loss is reasonably possible but not known or probable,
and may be reasonably estimated, the estimated loss or range of loss is disclosed. With respect to currently pending
legal proceedings, the Company has not established an estimated range of reasonably possible material losses either
because it believes that is has valid defenses to claims asserted against it, the proceeding has not advanced to a stage of
discovery that would enable it to establish an estimate, or the potential loss is not material. The Company currently does
not expect the outcome of pending legal proceedings to have a material effect on its condensed consolidated results of
operations, financial position or cash flows. Litigation, however, is inherently unpredictable, and it is possible that the
ultimate outcome of one or more claims asserted against the Company could adversely impact its condensed
consolidated results of operations, financial position or cash flows. The Company expenses legal costs as incurred.
Purported Class Action Complaint
On
September 27, 2024, a purported customer served a putative class action complaint on behalf of themself and a
putative class of California consumers against Sleep Number in the United States District Court for the Eastern District of
California alleging that Sleep Number’s beds are perpetually on sale in
violation of California law
.
The Plaintiff seeks
injunctive relief, damages, and attorneys fees.
Sleep Number does not believe the Plaintiff’s claims have merit and
intends to vigorously defend this matter.
Purported Class Action Complaint
On December 15, 2023, a former Field Services team member filed a purported class action Complaint in the Superior
Court of California, County of Santa Clara, alleging violations of California’s meal and rest break law and additional wage
and hour derivative claims under the California Labor Code. While the representative plaintiff was in the Field Services
workforce, the Complaint does not limit the purported plaintiff class to that group, but rather extends to all non-exempt
Sleep Number employees in the state. The plaintiff alleges that Sleep Number failed to provide compliant meal or rest
breaks, failed to pay wages owed due to alleged off the clock work, failed to pay overtime, minimum wage and wages
due at termination, thus resulting in inaccurate wage statements, all in violation of California law. The Complaint seeks
damages in the form of unpaid regular and premium wages, statutory penalties, pre-judgment and post-judgment
interest, plaintiffs’ attorneys’ fees and costs. On February 22, 2024, the plaintiff filed a related lawsuit in the same county
alleging violations of a broad range of California Labor Code wage and hour violations under the state’s Private Attorney
General Act (PAGA), including the same meal and rest break, and wage and hour, violations as appear in the purported
class action.
The Court dismissed the class action complaint with prejudice. The
Court sua sponte
stayed the PAGA collective action
and the individual plaintiff must prove his claims in arbitration before the stay is lifted.
Given the developments in these
proceedings, the matter no longer rises to the level of disclosure in Sleep Number’s periodic reports.
Shareholder Class Action Complaints
On December 14, 2021, purported Sleep Number shareholder, Steamfitters Local 449 Pension & Retirement Security
Funds (Steamfitters), filed a putative class action complaint in the United States District Court for the District of
Minnesota (the District of Minnesota) on behalf of all purchasers of Sleep Number common stock between February 18,
2021 and July 20, 2021, inclusive, against Sleep Number, Shelly Ibach and David Callen, the Company’s former
Executive Vice President and Chief Financial Officer. Steamfitters alleges material misstatements and omissions in certain
of Sleep Number’s public disclosures during the purported class period, in violation of Sections 10(b) and 20(a) of the
Securities Exchange Act of 1934, as amended (the Exchange Act). The complaint seeks, among other things, unspecified
monetary damages, reasonable costs and expenses and equitable/injunctive or other relief as deemed appropriate by
the District of Minnesota.
|
14 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
On February 14, 2022, a second purported Sleep Number shareholder, Ricardo Dario Schammas, moved for
appointment as lead plaintiff in the action. On March 24, 2022, the District of Minnesota heard argument on Schammas’s
motion, and subsequently appointed Steamfitters and Schammas as Co-Lead Plaintiffs (together, Co-Lead Plaintiffs). On
July 19, 2022, Co-Lead Plaintiffs filed a consolidated amended complaint, which, like the predecessor complaint, asserts
claims against Sleep Number, Shelly Ibach, and David Callen under Sections 10(b) and 20(a) of the Exchange Act. Co-
Lead Plaintiffs purport to assert these claims on behalf of all purchasers of Sleep Number common stock between
February 18, 2021 and July 20, 2021. On September 19, 2022, Defendants moved to dismiss the consolidated amended
complaint, which motion was heard by the Court on January 17, 2023. On July 10, 2023, the Court issued an order
dismissing the Plaintiffs’ consolidated amended complaint
with prejudice
.
Shareholder Derivative Complaint
On May 12, 2022, Gwendolyn Calla Moore, as the appointed representative of purported Sleep Number shareholder
Matthew Gelb, filed a derivative action (the Derivative Action) in the District of Minnesota against Jean-Michel Valette,
Shelly Ibach, Barbara Matas, Brenda Lauderback, Daniel Alegre, Deborah Kilpatrick, Julie Howard, Kathleen Nedorostek,
Michael Harrison, Stephen Gulis, Jr., David Callen, and Kevin Brown. Moore purports to assert claims on behalf of Sleep
Number for breaches of fiduciary duty, waste, and contribution under Sections 10(b) and 21(d) of the Exchange Act.
Moore’s allegations generally mirror those asserted in the securities complaint described above. The Moore complaint
seeks damages in an unspecified amount, disgorgement, interest, and costs and expenses, including attorneys’ and
experts’ fees.
On September 13, 2022, the District of Minnesota entered a joint stipulation staying all proceedings in the Derivative
Action pending the outcome of any motion to dismiss the Steamfitters consolidated amended complaint. On July 10,
2023, the District of Minnesota in the Steamfitters case dismissed the consolidated amended complaint with prejudice,
as noted above. The Plaintiff in the Derivative Action subsequently moved the Court to voluntarily dismiss its Complaint
and on January 22, 2024, the District of Minnesota dismissed the Derivative Action without prejudice.
Stockholder Demand
On March 25, 2022, Sleep Number received a shareholder litigation demand (the “Demand”), requesting that the Board
investigate the allegations in the Steamfitters complaint and pursue claims on Sleep Number’s behalf based on those
allegations. On May 12, 2022, the Board established a special litigation committee to investigate the demand.
On October 5 and October 12, 2022, Sleep Number received
two
additional shareholder litigation demands, which
adopted and incorporated the allegations and requests in the Demand. Both of these additional litigation demands were
referred to the special litigation committee.
Subsequently, the special litigation committee determined that it would not be in the best interests of the Company and
its shareholders to take the actions requested in the demands and, thus, rejected the demands in their entirety.
|
15 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide
a reader of the Company’s condensed consolidated financial statements with a narrative from the perspective of
management on its financial condition, results of operations, liquidity and certain other factors that may affect the
Company’s future results. MD&A is presented in seven sections:
•
Forward-Looking Statements and Risk Factors
•
Business Overview
•
Results of Operations
•
Liquidity and Capital Resources
•
Non-GAAP Data Reconciliations
•
Off-Balance-Sheet Arrangements and Contractual Obligations
•
Critical Accounting Policies
Forward-looking Statements and Risk Factors
The discussion in this Quarterly
Report on Form 10-Q
contains
certain forward-looking statements that relate to
future plans, events, financial results or performance. You can identify forward-looking statements by those that
are not historical in nature, particularly those that use terminology such as “may,” “will,” “should,” “could,”
“expect,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “predict,” “intend,” “potential,” “continue” or
the negative of these or similar terms. These statements are subject to certain risks and uncertainties that could
cause actual results to differ materially from the Company’s historical experience and its present expectations or
projections. These risks and uncertainties include, among others:
•
Changes in economic conditions and consumer sentiment and related impacts on discretionary consumer spending;
•
Increases in interest rates, which have increased the cost of servicing the Company’s indebtedness;
•
Availability of attractive and cost-effective consumer credit options;
•
Ability to achieve savings and efficiencies from cost savings plans related to business restructuring actions and to
avoid unexpected adverse effects;
•
Dependence on, and ability to maintain working relationships and favorable contractual terms with key suppliers and
third parties;
•
Fluctuations in commodity costs or third-party delivery or logistics costs and other inflationary pressures;
•
Risks inherent in global-sourcing activities, including tariffs, foreign regulation, geo-political turmoil, war, pandemics,
labor challenges, foreign currency fluctuations, inflation, and climate or other disasters, and resulting supply
shortages and production and delivery delays and disruptions;
•
Operating with minimal levels of inventory, which may leave the Company vulnerable to supply shortages, as well as
carrying excess levels of inventory for various products from time to time, which may leave the Company vulnerable
to inventory obsolescence and write-downs;
•
The effectiveness of the Company’s marketing strategy and promotional efforts;
•
The execution of the Company’s Total Retail distribution strategy;
•
Ability to achieve and maintain high levels of product quality and to improve and expand the product line;
•
Ability to protect the Company’s technology, trademarks, and brand and the adequacy of its intellectual property
rights;
•
Ability to effectively compete;
•
Risks of disruption in the operation of any of the Company’s facilities and operations, including manufacturing,
assembly, distribution, logistics, field services, home delivery, headquarters, product development, retail or customer
service operations;
•
Ability to comply with existing and changing government regulations and laws;
•
Pending or unforeseen litigation and the potential for associated adverse publicity;
•
The adequacy of the Company’s and third-party information systems and costs and disruptions related to upgrading
or maintaining these systems;
|
16 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
•
The Company’s ability to identify and withstand cyber threats that could compromise the security of its systems,
result in a data breach or business disruption;
•
Risks associated with advancements in or adoption of artificial intelligence technologies;
•
The Company’s ability, and the ability of its suppliers and vendors, to attract, retain and motivate qualified and
effective personnel;
•
The volatility of the Company’s stock, its removal from various stock indices, and the potential negative effects of
shareholder activism or of changes in coverage by securities analysts;
•
Environmental, social and governance risks, including increasing regulation and stakeholder expectations; and
•
The Company’s ability to adapt to climate change and readiness for legal or regulatory responses thereto.
Additional information concerning these, and other risks and uncertainties is contained under the caption “Risk
Factors” in Part I, Item 1A. in the Company’s Annual Report on Form 10-K and in Part II. Item 1A. in subsequent
Quarterly Reports on Form 10-Q.
The Company has no obligation to publicly update or revise any of the forward-looking statements contained in this
Quarterly Report on Form 10-Q.
Business Overview
Sleep Number is a wellness technology company and market leader in the design, manufacturing, marketing and
distribution of innovative sleep solutions. The Company’s purpose is to improve the health and wellbeing of society
through higher quality sleep; to date, it has improved the lives of nearly
16 million
people. Sleep Number’s Smart
Sleepers benefit from individualized sleep experiences, night after night, and are experiencing the physical, mental and
emotional benefits of life-changing sleep.
Sleep Number’s life-changing, differentiated smart beds combine physical and digital innovations, integrating
unparalleled physical comfort with a proprietary technology platform. The smart beds offer the Company’s signature
firmness adjustability, enabling each sleeper adjustable comfort. Embedded digital sensors learn the sleep needs of each
individual; “sense and do” technology uses the sensed data to automatically adjust the smart bed to keep the sleeper
comfortable throughout the night. Active temperature balancing technology supports the ideal climate for both sleepers
and solves a prevalent sleep challenge. Additionally, the smart beds are an exceptional value, with personalized sleep
insights delivered daily, new features regularly added to all smart beds through over-the-air updates, at a range of good,
better and best price points. Sleep Number
®
smart beds provide unique features, benefits and comfort designed for
improved sleep health and wellness for both sleepers.
The Company’s advantaged business model is supported by its consumer innovation strategy: an individualized sleep
wellness platform, an ecosystem of almost
3 mil
lion
highly engaged Smart Sleepers, a vertically integrated operating
model, and a culture of individuality, with an ambitious vision to become one of the world’s most beloved brands. Sleep
Number’s exclusive distribution supports lifelong customer relationships – through digital and in-store touchpoints – to
provide an exceptional brand experience. The Company’s more than
29 billion
hours of longitudinal sleep data enables
strategic collaborations with world-leading health and research institutions, including Mayo Clinic and American Cancer
Society. And Sleep Number’s
3,700
purpose-driven team members are dedicated to the Company’s mission of
improving lives by individualizing sleep experiences.
In the fourth quarter of 2023, Sleep Number began transforming its operating model for greater financial resilience
across a range of economic environments. These cost improvement actions are broad-based. The Company’s
transformation progress, combined with rigorous execution of their differentiated strategy, positions it - when market
growth returns - to capitalize on their innovation leadership, accelerate profitable growth, generate strong cash flow, and
deliver increased value for shareholders. The Company generates revenue by marketing and selling its innovative smart
beds directly to new and existing customers through its vertically integrated, exclusive, direct-to-consumer
retail touch
points including Stores, Online, Phone, and Chat (Total Retail).
|
17 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
Results of Operations
Quarterly and Year-to-Date Results
Quarterly and year-to-date operating results may fluctuate significantly as a result of a variety of factors, including
increases or decreases in sales, timing, amount and effectiveness of advertising expenditures, changes in sales return
rates or warranty experience, timing of investments in growth initiatives and infrastructure, timing of store openings/
closings and related expenses, changes in net sales resulting from changes in the Company’s store base, timing of new
product introductions and related expenses, timing of promotional offerings, competitive factors, changes in commodity
costs, disruptions in global supplies or third-party service providers, seasonality of retail and bedding industry sales,
consumer sentiment and general economic conditions. The extent to which these external factors will impact the
Company’s business and its consolidated financial results will depend on future developments, which are highly
uncertain and cannot be predicted. Therefore, the historical results of operations may not be indicative of the results that
may be achieved for any future period.
Highlights
Financial highlights for the three months ended
September 28, 2024
were as follow
s:
•
Net sales for the three months ended
September 28, 2024
of
$427 million
decreased
10%
from
$473 million
for the
same period one year ago due to
t
he ongoing weakness in the mattress industry and consumers continuing to
scrutinize their spending.
•
The net sales change resulted from
a
9%
comparable sales decrease in Total Retail. For additional details, see the
•
Average sales per store
(sales for stores open at least one year, Total Retail, including online, phone and chat)
on a
trailing twelve-month basis for the period ended
September 28, 2024
totaled
$2.7 million
, compared with
$3.0
million
for the same period last year.
•
Operating income for the three months ended
September 28, 2024
was
$8 million
, compared with
$5 million
in the
prior-year period. The
$3 million
in
crease
in
operating income was driven by a
$15 million
reduction in operating
expenses and a
3.4
ppt. increase in the gross profit rate, offset by lower net sales. Operating expenses for the three
months ended
September 28, 2024
included
$2 million
of restructuring costs.
•
Adjusted EBITDA for the three months ended
September 28, 2024
was
$28 million
, compared to
$25 million
in the
prior-year period as ongoing gross margin improvements and cost reduction actions partially offset the year-over-
year net sales decline.
•
Gross profit rate of 60.8% was
3.4
ppt. higher than the prior-year period. The increase was primarily due to
year-
over-year product cost reductions through value engineering and ongoing supplier negotiations and favorable
•
The
$15 million
year-over-year reduction in the Company’s operating expenses was due to lower sales and
marketing and research and development expenses, partly offset by
$2 million
of restructuring costs.
•
Net loss for the three months ended
September 28, 2024
was
$3 million
, compared with a net loss of
$2 million
for
the same period one year ago. Net loss per diluted share was
$0.14
, compared with a net loss per diluted share of
$0.10
for the comparable period one year ago.
•
The Company’s adjusted return on invested capital (Adjusted ROIC) was
4.5%
on a trailing twelve-month basis for
the period ended
September 28, 2024
, compared with
14.9%
for the comparable period one year ago.
•
The Company generated
$51 million
in cash from operating activities for the
nine
months ended
September 28,
2024
, compared with
$32 million
for the same period one year ago.
•
Free cash flow provided
$34 million
for the
nine
months ended
September 28, 2024
, compared with using
$16
million
for the same period one year ago.
•
As of
September 28, 2024
, the Company had
$517 million
of borrowings under its revolving credit facility.
|
18 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
The following table sets forth the Company’s results of operations expressed as dollars and percentages of net sales.
Figures are in millions, except percentages and per share amounts. Amounts may not add due to rounding differences.
|
Three Months Ended
|
Nine Months Ended
|
||||||||||||||
|
September 28,
2024
|
September 30,
2023
|
September 28,
2024
|
September 30,
2023
|
||||||||||||
|
Net sales
|
$
426.6
|
100.0%
|
$
472.6
|
100.0%
|
$
1,305.5
|
100.0%
|
$
1,458.0
|
100.0%
|
|||||||
|
Cost of sales
|
167.1
|
39.2%
|
201.5
|
42.6%
|
528.3
|
40.5%
|
612.3
|
42.0%
|
|||||||
|
Gross profit
|
259.5
|
60.8%
|
271.1
|
57.4%
|
777.2
|
59.5%
|
845.6
|
58.0%
|
|||||||
|
Operating expenses:
|
|||||||||||||||
|
Sales and marketing
|
205.5
|
48.2%
|
221.1
|
46.8%
|
596.4
|
45.7%
|
649.4
|
44.5%
|
|||||||
|
General and administrative
|
33.1
|
7.8%
|
31.9
|
6.8%
|
111.7
|
8.6%
|
111.1
|
7.6%
|
|||||||
|
Research and development
|
10.6
|
2.5%
|
12.6
|
2.7%
|
34.6
|
2.7%
|
42.5
|
2.9%
|
|||||||
|
Restructuring costs
|
2.0
|
0.5%
|
—
|
0.0%
|
14.4
|
1.1%
|
—
|
0.0%
|
|||||||
|
Total operating expenses
|
251.1
|
58.9%
|
265.7
|
56.2%
|
757.1
|
58.0%
|
803.1
|
55.1%
|
|||||||
|
Operating income
|
8.4
|
2.0%
|
5.4
|
1.1%
|
20.1
|
1.5%
|
42.5
|
2.9%
|
|||||||
|
Interest expense, net
|
12.1
|
2.8%
|
11.0
|
2.3%
|
36.6
|
2.8%
|
30.0
|
2.1%
|
|||||||
|
(Loss) income before income
taxes
|
(3.6)
|
(0.8%)
|
(5.6)
|
(1.2%)
|
(16.5)
|
(1.3%)
|
12.5
|
0.9%
|
|||||||
|
Income tax (benefit) expense
|
(0.5)
|
(0.1%)
|
(3.3)
|
(0.7%)
|
(0.9)
|
(0.1%)
|
2.6
|
0.2%
|
|||||||
|
Net (loss) income
|
$
(3.1)
|
(0.7%)
|
$
(2.3)
|
(0.5%)
|
$
(15.7)
|
(1.2%)
|
$
9.9
|
0.7%
|
|||||||
|
Net (loss) income per share:
|
|||||||||||||||
|
Basic
|
$
(0.14)
|
$
(0.10)
|
$
(0.69)
|
$
0.44
|
|||||||||||
|
Diluted
|
$
(0.14)
|
$
(0.10)
|
$
(0.69)
|
$
0.44
|
|||||||||||
|
Weighted-average number of common shares:
|
|||||||||||||||
|
Basic
|
22.6
|
22.5
|
22.6
|
22.4
|
|||||||||||
|
Diluted
|
22.6
|
22.5
|
22.6
|
22.6
|
|||||||||||
The percentage of total net sales, by dollar volume, was as follows:
|
Three Months Ended
|
Nine Months Ended
|
||||||
|
September 28,
2024
|
September 30,
2023
|
September 28,
2024
|
September 30,
2023
|
||||
|
Retail stores
|
87.8%
|
86.6%
|
87.9%
|
87.1%
|
|||
|
Online, phone, chat and other
|
12.2%
|
13.4%
|
12.1%
|
12.9%
|
|||
|
Total Company
|
100.0%
|
100.0%
|
100.0%
|
100.0%
|
|||
|
19 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
The components of total net sales change, including comparable net sales changes, were as follows:
|
Three Months Ended
|
Nine Months Ended
|
||||||
|
September 28,
2024
|
September 30,
2023
|
September 28,
2024
|
September 30,
2023
|
||||
|
Sales change rates:
|
|||||||
|
Retail comparable-store sales
(1)
|
(7%)
|
(14%)
|
(9%)
|
(11%)
|
|||
|
Online, phone and chat
|
(18%)
|
(14%)
|
(17%)
|
(13%)
|
|||
|
Total Retail comparable sales change
(1)
|
(9%)
|
(14%)
|
(10%)
|
(11%)
|
|||
|
Net opened/closed stores and other
|
(1%)
|
1%
|
0%
|
1%
|
|||
|
Total Company
|
(10%)
|
(13%)
|
(10%)
|
(10%)
|
|||
___________________________
(1)
Stores are included in the comparable-store calculations in the 13th full month of operations. Stores that have been remodeled or repositioned
within the same shopping center remain in the comparable-store base.
Other sales metrics were as follows:
|
Three Months Ended
|
Nine Months Ended
|
||||||
|
September 28,
2024
|
September 30,
2023
|
September 28,
2024
|
September 30,
2023
|
||||
|
Average sales per store
(1)
(in thousands)
|
$
2,670
|
$
2,952
|
|||||
|
Average sales per square foot
(1)
|
$
863
|
$
963
|
|||||
|
Stores > $2 million in net sales
(2)
|
60%
|
67%
|
|||||
|
Stores > $3 million in net sales
(2)
|
20%
|
27%
|
|||||
|
Average revenue per smart bed unit
(3)
|
$
5,771
|
$
5,640
|
$
5,778
|
$
5,822
|
|||
___________________________
(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 net sales divided by Total Retail smart bed units.
The number of retail stores operating was as follows:
|
Three Months Ended
|
Nine Months Ended
|
||||||
|
September 28,
2024
|
September 30,
2023
|
September 28,
2024
|
September 30,
2023
|
||||
|
Beginning of period
|
646
|
672
|
672
|
670
|
|||
|
Opened
|
1
|
8
|
11
|
27
|
|||
|
Closed
|
(4)
|
(2)
|
(40)
|
(19)
|
|||
|
End of period
|
643
|
678
|
643
|
678
|
|||
|
20 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
Comparison of Three Months Ended
September 28, 2024
with Three Months Ended
September 30, 2023
Net sales
Net sales for the three months ended
September 28, 2024
of
$427 million
decreased
10%
from
$473 million
for the
same period one year ago due to
t
he ongoing weakness in the mattress industry and consumers continuing to scrutinize
their spending.
The net sales change consisted primarily of an
9%
comparable sales decrease in Total Retail.
The
$46 million
net sales decrease compared with the same period one year ago was comprised of the following:
(i) a
$27
million decrease in Retail comparable net sales; (ii)
a
$12
million
decrease from online, phone and chat; and (iii) a $7
million decrease from net store closings and other.
Total Retail smart bed unit sales decreased
12%
compared with the
prior year. Total Retail average revenue per smart bed unit increased by
2%
to
$5,771
, compared with
$5,640
in the
prior-year period.
Gross profit
Gross profit of
$260 million
for the three months ended
September 28, 2024
decreased by
$12 million
, or
4%
, compared
with
$271 million
for the same period one year ago. The gross profit rate increased to
60.8%
of net sales for the three
months ended
September 28, 2024
, compared with
57.4%
for the prior-year comparable period.
The current-year gross profit rate increase of
3.4
ppt. was mainly due to:
(i)
year-over-year product cost reductions
through value engineering and ongoing supplier negotiations, increased the rate by 1.7 ppt; (ii) a favorable product mix,
increased the rate by 1.0 ppt; (iii) and efficiency gains in our home delivery and logistics operations, increased the rate by
0.7 pp
t.
In addition, the gross profit rate may fluctuate from quarter to quarter due to a variety of other factors, including
changes in warranty expenses, return and exchange costs, manufacturing and supply chain operations and performance-
based incentive compensation.
Sales and marketing expenses
Sales and marketing expenses for the three months ended
September 28, 2024
were
$205 million
, or
48.2%
of net sales,
compared with
$221 million
, or
46.8%
of net sales, for the same period one year ago. The current-year sales and
marketing expenses rate increase of
1.4
ppt. was primarily due to the deleveraging impact of an
10%
net sales decline
offset by
a
7
%
decrease in expenses including a
4%
lower media spend.
General and administrative expenses
General and administrative (G&A) expenses totaled
$33 million
, or
7.8%
of net sales, for the three months ended
September 28, 2024
, compared with
$32 million
, or
6.8%
of net sales, in the prior-year period. The
$1 million
increase in
G&A expenses consisted mainly of: (i)
a $1.9 million year-over-year increase in company-wide, performance-based
incentive compensation; offset by (ii) a $0.6 million decrease in employee compensation on lower headcount; and (iii) a
$0.2 million decrease in other miscellaneous expenses.
The G&A expenses rate increased by
1.0
ppt. in the current-year
period, compared with the same period one year ago due to the items discussed above offset by the deleveraging
impact of lower net sales.
Research and development expenses
Research and development (R&D) expenses decreased to
$11 million
for the three months ended
September 28, 2024
,
compared with
$13 million
with the same period last year primarily due to lower headcount
and outside services
.
While
the Company’s consumer innovation pipeline remains robust,
it is re-prioritizing R&D resources in this highly constrained
environment.
Interest expense, net
Interest expense, net increased to
$12 million
for the three months ended
September 28, 2024
, compared with
$11
million
for the same period one year ago. The
$1 million
increase was mainly driven by a higher weighted-average
interest rate compared with the same period one year ago.
|
21 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
Restructuring Costs
In the fourth quarter of 2023, the Company initiated cost reduction actions to reduce operating expenses and accelerate
gross margin initiatives, and recognized
$15.7 million
of restructuring costs in that quarter. In addition to the costs
incurred in 2023, the Company incurred an additional
$2.0 million
and
$14.4 million
of restructuring costs during the
three and nine
months ended
September 28, 2024
, respectively. Charges incurred related to this initiative were
comprised of contract termination costs, severance and employee-related benefits, professional fees and other, and
asset impairment charges and are included in the restructuring costs line in the Company’s consolidated statement of
operations. The Company expects an additional
$2 million
to
$3 million
of restructuring costs to be incurred through the
remainder of 2024, primarily due to lease contract termination costs.
Income tax (benefit) expense
Income tax benef
it totaled
$0.5 million
for the three months ended
September 28, 2024
, compared with income tax
benefit of
$3 million
for the same period last year. The change in income tax benefit was primarily due to the impact of
the loss before income tax levels.
Comparison of
Nine Months Ended
September 28, 2024
with
Nine Months Ended
September 30, 2023
Net sales
Net sales for the
nine
months ended
September 28, 2024
decreased by
$152 million
, or
10%
, to
$1.3 billion
, compared
with
$1.5 billion
for the same period one year ago due to
t
he ongoing weakness in the mattress industry and consumers
continuing to scrutinize their spending.
The net sales decrease consisted primarily of an
10%
comparable sales decrease in Total Retail. For additional details,
The
$152 million
net sales decrease compared with the same period one year ago was comprised of the following:
(i) an
$112 million decrease in
Retail
comparable net sales; (ii) a
$31 million
decrease in online, phone and other sales; and (iii)
a $9 million decrease resulting from net store closings.
Total smart bed unit sales
declined
10%
compared with the same
period one year ago. Average revenue per smart bed unit in Total Retail decreased by
1%
to
$5,778
, compared with
$5,822
in the prior-year period.
Gross profit
Gross profit of
$777 million
for the
nine
months ended
September 28, 2024
decreased by
$68 million
, or
8%
, compared
with
$846 million
for the same period one year ago. The gross profit rate increased to
59.5%
of net sales for the
nine
months ended
September 28, 2024
, compared to
58.0%
in the prior-year comparable period.
The current-year gross profit rate increase of
1.5
ppt. was impacted by:
(i) year-over-year product cost reductions
through value engineering and ongoing supplier negotiations, increased the rate by 1.1 ppt (ii)
favorable pricing actions
taken over the last twelve months increased the rate by 1.0 ppt;
(iii) efficiency gains in home delivery and logistics
operations, increased the rate by 0.7 ppt; partially offset by (iv) p
roduct mix of FlexFit smart adjustable bases, which
pressured the rate by 1.0 ppt; and
(v) l
ower delivered smart bed volume deleveraged the rate by 0.2 ppt
.
In addition, the
gross profit rate may fluctuate from quarter to quarter due to a variety of other factors, including changes in warranty
expenses, manufacturing and supply chain operations and performance-based incentive compensation.
Sales and marketing expenses
Sales and marketing expenses for the
nine
months ended
September 28, 2024
were
$596 million
, or
45.7%
of net sales,
compared with
$649 million
, or
44.5%
of net sales, for the same period one year ago. The current-year sales and
marketing expenses rate increase of
1.2
ppt. was primarily due to deleveraging impact of a
10%
net sales decline offset
by a
8%
decrease in expenses including
6%
lower media spend.
|
22 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
General and administrative expenses
General and administrative (G&A) expenses totaled
$112 million
, or
8.6%
of net sales, for the
nine
months
ended
September 28, 2024
, compared with
$111 million
, or
7.6%
of net sales, in the prior-year period. The
$1
million
increase in G&A expenses consisted of:
(i) a $2.6 million year-over-year increase in company-wide, performance-
based incentive compensation; (ii) a $0.8 million increase in technology investments; (iii) an increase in miscellaneous
other expenses of $3.1 million, which benefited during the same period one year ago from legal and insurance
settlements of
$1.8 million
; largely offset by (iv) a $4.4 million reduction in employee compensation on lower headcount;
and (v) a $1.1 million decrease in other occupancy expenses.
The G&A expenses rate increased by
1.0
ppt. in the
current-year period, compared with the same period one year ago due to the deleveraging impact of the
10%
net sales
decrease.
Research and development expenses
Research and development (R&D) expenses decreased by
19%
to
$35 million
for the
nine
months ended
September 28,
2024
, compared with
$43 million
for the same period one year ago on lower outside services and headcount. While the
Company’s consumer innovation pipeline remains robust,
it is
re-prioritizing R&D resources
in this highly constrained
environment.
Interest expense, net
Interest expense, net increased to
$37 million
for the
nine
months ended
September 28, 2024
, compared with
$30
million
for the same period one year ago. The
$7 million
increase was mainly driven by a higher weighted-average
interest rate compared with the same period one year ago.
Restructuring Costs
In the fourth quarter of 2023, the Company initiated cost reduction actions to reduce operating expenses and accelerate
gross margin initiatives, and recognized
$15.7 million
of restructuring costs in that quarter. In addition to the costs
incurred in 2023, the Company incurred
$14.4 million
of restructuring costs in the first nine months of 2024. Charges
incurred related to this initiative were comprised of contract termination costs, severance and employee-related benefits,
professional fees and other, and asset impairment charges and are included in the restructuring costs line in the
Company’s consolidated statement of operations. The Company expects an additional
$2 million
to
$3 million
of
restructuring costs to be incurred through the remainder of 2024, primarily due to lease contract termination costs.
Income tax (benefit) expense
Income tax benefit totaled
$0.9 million
for the
nine
months ended
September 28, 2024
, compared with income tax
expense of
$3 million
last year. The change in income tax expense was primarily due to the change in (loss) income
before income taxes levels and the impact of discrete tax expenses. Discrete tax expense, primarily stock-based
compensation tax shortfalls, was
$2.6 million f
or the
nine
months ended
September 28, 2024
, compared to $1.1 million
for the same period last year.
Liquidity and Capital Resources
Managing liquidity and capital resources is an important part of the Company’s commitment to deliver superior
shareholder value over time.
The Company’s primary sources of liquidity are cash flows provided by operating activities and cash available under its
$680 million
revolving credit facility, as amended. As of
September 28, 2024
, the
Company does not have any off-
balance sheet financing other than its
$7 million
in outstanding letters of credit.
The cash generated from ongoing
operations and cash available under the revolving credit facility are expected to be adequate to maintain operations,
and fund anticipated expansion, strategic initiatives and contractual obligations such as lease payments and capital
commitments for new retail stores for the foreseeable future.
Cash and cash equivalents totaled
$1.6 million
and
$2.5 million
at
September 28, 2024
and
December 30, 2023
,
respectively. Significant changes in cash and cash equivalents during the
nine
months ended
September 28, 2024
primarily consisted of
$51 million
of cash provided by operating activities, offset by a
$31 million
decrease in short-term
|
23 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
borrowings,
$17 million
of cash used to purchase property and equipment, and
$3 million
of cash used to issue notes
receivable.
The following table summarizes cash flows (in millions). Amounts may not add due to rounding differences:
|
Nine Months Ended
|
|||
|
September 28,
2024
|
September 30,
2023
|
||
|
Total cash provided by (used in):
|
|||
|
Operating activities
|
$
50.8
|
$
31.8
|
|
|
Investing activities
|
(20.0)
|
(49.3)
|
|
|
Financing activities
|
(31.8)
|
16.6
|
|
|
Net decrease in cash and cash equivalents
|
$
(0.9)
|
$
(0.9)
|
|
Net cash provided by operating activities for the
nine
months ended
September 28, 2024
was
$51 million
, compared
with
$32 million
for the
nine
months ended
September 30, 2023
. Significant components of the year-over-year change in
cash provided by operating activities included: (i) a
$25 million
fluctuation in inventory due to lower sales volumes and
operational improvements; (ii) a
$22 million
fluctuation in customer prepayments; and (iii) a
$8 million
fluctuation in
accrued compensation and benefits; partially offset by (iii) a
$26 million
decrease in net income for the
nine
months
ended
September 28, 2024
compared with the
nine
months ended
September 30, 2023
; and (iv) a
$9 million
fluctuation
in other accruals and liabilities.
Net cash used in investing activities for the
nine
months ended
September 28, 2024
was
$20 million
, compared with
$49
million
for the
nine
months ended
September 30, 2023
. Cash used to purchase property and equipment was
$17 million
for the
nine
months ended
September 28, 2024
, compared with
$48 million
for the same period one year ago. In
addition, the Company issued
$3 million
of notes receivable during the
nine
months ended
September 28, 2024
.
Net cash used in financing activities was
$32 million
for the
nine
months ended
September 28, 2024
, compared with net
cash provided by financing activities of
$17 million
for the same period last year. Short-term borrowings decreased by
$31 million
during the current-year period due to a
$23 million
decrease in borrowings under the revolving credit facility
to
$517 million
and a
$8 million
decrease in book overdrafts, which are included in the net change in short-term
borrowings. During the
nine
months ended
September 28, 2024
, the Company repurchased
$1 million
of its stock
compared with
$4 million
(based on settlement dates, in connection with the vesting of employee restricted stock
awards) during the same period one year ago. The Company made no share repurchases under its Board-approved
share repurchase program in either period.
In the second quarter of fiscal 2022, the Company suspended share repurchases under its Board-approved share
repurchase program. At
September 28, 2024
, there was
$348 million
remaining authorization under the Board-approved
$600 million
share repurchase program. There is no expiration date governing the period over which the Company can
repurchase shares.
At
September 28, 2024
, the Company had
$517 million
of borrowings under its revolving credit facility,
$7 million
in
outstanding letters of credit and net liquidity available under the credit facility of
$156 million
. Total availability under its
revolving credit facility was
$680 million
,
which amortizes by
$2.5 million
per quarter through December 2026. A
t
September 28, 2024
, the Company’s leverage ratio as defined in the credit agreement was
4.2
x
versus the permissible
net leverage ratio of
5.0x
, the weighted-average interest rate on borrowings under the credit facility was
8.2%
and the
Company was in compliance with all financial covenants.
|
24 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
Non-GAAP Data Reconciliations
Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)
The Company defines earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) as net income
plus: income tax expense, interest expense, depreciation and amortization, stock-based compensation, restructuring
costs and asset impairments. Management believes Adjusted EBITDA is a useful indicator of its financial performance
and its ability to generate cash from operating activities. The Company’s 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.
Adjusted EBITDA calculations are as follows (in thousands):
|
Three Months Ended
|
Trailing-Twelve
Months Ended
|
||||||
|
September 28,
2024
|
September 30,
2023
|
September 28,
2024
|
September 30,
2023
|
||||
|
Net (loss) income
|
$
(3,136)
|
$
(2,318)
|
$
(40,857)
|
$
4,471
|
|||
|
Income tax (benefit) expense
|
(489)
|
(3,253)
|
(7,966)
|
1,346
|
|||
|
Interest expense
|
12,057
|
10,958
|
49,313
|
37,641
|
|||
|
Depreciation and amortization
|
15,859
|
18,200
|
67,335
|
72,338
|
|||
|
Stock-based compensation
|
1,432
|
982
|
13,523
|
15,511
|
|||
|
Restructuring costs
|
1,963
|
—
|
30,110
|
—
|
|||
|
Asset impairments
|
—
|
292
|
198
|
491
|
|||
|
Adjusted EBITDA
|
$
27,686
|
$
24,861
|
$
111,656
|
$
131,798
|
|||
Free Cash Flow
The Company’s “free cash flow” data is considered a non-GAAP financial measure and is not in accordance with, or
preferable to, “net cash provided by operating activities,” or GAAP financial data. However, the Company is providing
this information as it believes it facilitates analysis for investors and financial analysts.
The following table summarizes free cash flow calculations (in thousands):
|
Nine Months Ended
|
Trailing-Twelve
Months Ended
|
||||||
|
September 28,
2024
|
September 30,
2023
|
September 28,
2024
|
September 30,
2023
|
||||
|
Net cash provided by (used in) operating
activities
|
$
50,824
|
$
31,816
|
$
9,980
|
$
(12,168)
|
|||
|
Subtract: Purchases of property and
equipment
|
17,218
|
48,022
|
26,252
|
64,668
|
|||
|
Free cash flow
|
$
33,606
|
$
(16,206)
|
$
(16,272)
|
$
(76,836)
|
|||
|
25 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
Non-GAAP Data Reconciliations (continued)
Return on Invested Capital (Adjusted ROIC)
Adjusted ROIC is a financial measure the Company uses to determine how efficiently it deploys its capital. It quantifies
the return the Company earns on its adjusted invested capital. Management believes Adjusted ROIC is also a useful
metric for investors and financial analysts. The Company computes Adjusted ROIC as outlined below. Its definition and
calculation of Adjusted ROIC may not be comparable to similarly titled definitions and calculations used by other
companies.
The tables below reconcile adjusted net operating profit after taxes (Adjusted NOPAT) and total adjusted invested
capital, which are non-GAAP financial measures, to the comparable GAAP financial measures (in thousands):
|
Trailing-Twelve Months Ended
|
|||
|
September 28,
2024
|
September 30,
2023
|
||
|
Adjusted net operating profit after taxes (Adjusted NOPAT)
|
|||
|
Operating income
|
$
490
|
$
43,458
|
|
|
Add: Operating lease expense
(1)
|
27,371
|
27,497
|
|
|
Less: Income taxes
(2)
|
(5,474)
|
(1,168)
|
|
|
Adjusted NOPAT
|
$
22,387
|
$
69,787
|
|
|
Average adjusted invested capital
|
|||
|
Total deficit
|
$
(448,784)
|
$
(420,687)
|
|
|
Add: Long-term debt
(3)
|
516,761
|
488,338
|
|
|
Add: Operating lease obligations
(4)
|
401,153
|
439,722
|
|
|
Total adjusted invested capital at end of period
|
$
469,130
|
$
507,373
|
|
|
Average adjusted invested capital
(5)
|
$
502,494
|
$
469,782
|
|
|
Adjusted return on invested capital (Adjusted ROIC)
(6)
|
4.5%
|
14.9%
|
|
___________________________
(1)
Represents the interest expense component of lease expense included in the Company’s financial statements under ASC 842,
Leases
.
(2)
Reflects annual effective income tax rates, before discrete adjustments, of
19.6%
and
1.6%
for
September 28, 2024
and
September 30, 2023
,
respectively.
(3)
Long-term debt includes existing finance lease liabilities.
(4)
Reflects operating lease liabilities included in the Company’s financial statements under ASC 842.
(5)
Average adjusted invested capital represents the average of the last five fiscal quarters’ ending adjusted invested capital balances.
(6)
Adjusted ROIC equals Adjusted NOPAT divided by average adjusted invested capital.
Note - the Company’s adjusted ROIC calculation and data are considered non-GAAP financial measures and are not in accordance with, or preferable
to, GAAP financial data. However, the Company is providing this information as it believe it facilitates analysis of the Company's financial performance
by investors and financial analysts.
GAAP - generally accepted accounting principles in the U.S.
Critical Accounting Policies
The Company discusses its critical accounting policies and estimates in
Management’s Discussion and Analysis of
Financial Condition and Results of Operations
in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 30, 2023
. There were no significant changes in the Company’s critical accounting policies since the end of
fiscal
2023
.
|
26 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to changes in market-based short-term interest rates that will impact net interest expense. If
overall interest rates were one percentage point higher than current rates, annual net income would decrease by
$4.2 million
based on the
$517 million
of borrowings under the credit facility at
September 28, 2024
. The Company does
not manage the interest-rate volatility risk of borrowings under the credit facility through the use of derivative
instruments.
ITEM 4. CONTROLS AND PROCEDURES
Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures
The Company maintains disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), that are
designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under
the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is
accumulated and communicated to the Company’s management, including its principal executive officer and principal
financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required
disclosure. The Company’s management, with the participation of its principal executive officer and principal financial
officer, evaluated the effectiveness of the design and operation of the Company’s disclosure controls and procedures as
of the end of the period covered by this quarterly report. Based on this evaluation, its principal executive officer and
principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of the end
of the period covered by this quarterly report.
Changes in Internal Control
There were no changes in the Company’s internal control over financial reporting during the fiscal quarter ended
September 28, 2024
, that have materially affected, or are reasonably likely to materially affect, the Company’s internal
control over financial reporting.
|
27 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company’s legal proceedings are discussed in
Note 13 – Commitments and Contingencies
,
Legal Proceedings
, in
the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
The Company’s business, financial condition and operating results are subject to a number of risks and uncertainties,
including both those that are specific to the Company’s business and others that affect all businesses operating in a
global environment. Investors should carefully consider the information in this report under the heading,
Management’s
Discussion and Analysis of Financial Condition and Results of Operations
, and also the information under the heading,
Risk Factors
, in the Company’s most recent Annual Report on Form 10-K and in subsequent Quarterly Reports on Form
10-Q. The risk factors discussed in the Annual Report on Form 10-K and in subsequent Quarterly Reports on Form 10-Q
including this Quarterly Report on Form 10-Q do not identify all risks that the Company faces because its business
operations could also be affected by additional risk factors that are not presently known to the Company or that it
currently considers to be immaterial to its operations.
|
28 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS, AND ISSUER PURCHASES OF
EQUITY SECURITIES
(a) – (b) Not applicable.
(c) Issuer Purchases of Equity Securities
|
Period
|
Total
Number
of Shares
Purchased
(1)(2)
|
Average
Price
Paid per
Share
|
Total Number
of
Shares
Purchased
as Part of
Publicly
Announced
Plans
or Programs
(1)
|
Approximate
Dollar Value of
Shares that May
Yet Be Purchased
Under the Plans
or Programs
(3)
|
||||
|
June 30, 2024 through July 27, 2024
|
67
|
$
8.63
|
—
|
$
348,071,000
|
||||
|
July 28, 2024 through August 24, 2024
|
3,687
|
$
12.13
|
—
|
$
348,071,000
|
||||
|
August 25, 2024 through September 28, 2024
|
4,232
|
$
16.71
|
—
|
$
348,071,000
|
||||
|
Total
|
7,986
|
$
14.53
|
—
|
$
348,071,000
|
___________________________
(1)
The Company did not purchase any shares under its Board-approved
$600 million
share repurchase program (effective
April 4, 2021
), during the
three months ended
September 28, 2024
.
(2)
In connection with the vesting of employee restricted stock grants, the Company repurchased
7,986
shares of its common stock at a cost of
$116 thousand
during the three months ended
September 28, 2024
.
(3)
There is no expiration date governing the period over which the Company can repurchase shares under its Board-approved share repurchase
program. Any repurchased shares are constructively retired and returned to an unissued status.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Rule 10b5-1 Trading Plan and Non-r
ule 10b5-1
Trading Arrangement Adoptions, Modifications and Terminations
of the Company’s common stock (a Rule 10b5-1 Trading Plan) that satisfied the affirmative defense conditions of
Securities Exchange Act Rule 10b5-1(c). Ms. Kilpatrick’s Rule 10b5-1 Trading Plan was adopted on
August 2, 2024,
provides for the sale of up to
4,500
shares of common stock pursuant to the terms of the plan, and expires on
December
the quarter ended
September 28, 2024
.
|
29 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
ITEM 6. EXHIBITS
|
Exhibit
Number
|
Description
|
|
|
10.1
†
|
||
|
31.1*
|
||
|
31.2*
|
||
|
32.1*
|
||
|
32.2*
|
||
|
101.INS*
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline XBRL document
|
|
|
101.SCH*
|
Inline XBRL Taxonomy Extension Schema Document
|
|
|
101.CAL*
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
101.DEF*
|
Inline XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
101.LAB*
|
Inline XBRL Taxonomy Extension Label Linkbase Document
|
|
|
101.PRE*
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document
|
|
|
104*
|
Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)
|
*
Filed Herein.
†
Management contract or compensatory plan or arrangement.
|
30 | 3Q 2024 FORM 10-Q
|
SLEEP NUMBER CORPORATION
|
|
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly authorized.
|
SLEEP NUMBER CORPORATION
|
|||
|
(Registrant)
|
|||
|
Dated:
|
November 5, 2024
|
By:
|
/s/ Shelly R. Ibach
|
|
Shelly R. Ibach
|
|||
|
Chief Executive Officer
|
|||
|
(principal executive officer)
|
|||
|
By:
|
/s/ Joel J. Laing
|
||
|
Joel J. Laing
|
|||
|
Chief Accounting Officer
|
|||
|
(principal accounting officer)
|
|||
TABLE OF CONTENTS
Part I: Financial InformationItem 1. Financial StatementsItem 2. Management S Discussion and Analysis Of Financial Condition and Results OfItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPart Ii: Other InformationItem 1. Legal ProceedingsNote 13 Commitments and ContingenciesItem 1A. Risk FactorsItem 2. Unregistered Sales Of Equity Securities and Use Of Proceeds, and Issuer Purchases OfItem 3. Defaults Upon Senior SecuritiesItem 4. Mine Safety DisclosuresItem 5. Other InformationItem 6. Exhibits