Sleep Number Announces First Quarter 2023 Results By: Sleep Number Corporation via Business Wire April 26, 2023 at 16:01 PM EDT Net sales of $527 million were consistent with the prior year Net operating profit increased to $26 million, up $22 million versus the prior year, including a 160 basis point (bp) gross profit rate improvement year-over-year Diluted EPS of $0.51 versus $0.09 last year Reiterates full-year 2023 earnings outlook of $1.25 to $2.00 per diluted share Sleep Number Corporation (Nasdaq: SNBR) today reported results for the quarter ended April 1, 2023. “First quarter performance was consistent with our expectations, reflecting our team’s strong execution in a challenged macro environment with historically low consumer sentiment pressuring demand. After nearly two years of supply disruption, the consistent flow of microchips has enabled us to return to more efficient operations,” said Shelly Ibach, Chair, President and CEO. “Beginning in the second quarter we are executing a sequence of new integrated demand drivers, including our next generation Sleep Number smart beds, lifestyle furniture, and “Sleep Next Level” brand campaign. These ads inspire consumers to unlock their full potential through our smart bed’s life-changing, individualized sleep benefits.” First Quarter Overview Net sales of $527 million were consistent with the prior year, including a 2% comparable sales decline, offset by two percentage points of growth from new stores Gross margin increased 160 bp to 58.9% of net sales, including the benefit of pricing actions, improvement in commodity prices and operating efficiencies resulting from a steady flow of microchips Operating income of $26 million represented a $22 million increase versus the prior year, including an $8 million gross profit increase and a $14 million reduction in operating expenses year-over-year Diluted EPS of $0.51 compared with $0.09 last year Cash Flows Review Generated $19 million in net cash from operating activities in the first quarter, compared with $25 million for the same period last year Leverage ratio of 4.0x EBITDAR at the end of the first quarter versus covenant maximum of 5.0x Adjusted Return on Invested Capital (ROIC) of 20.4% for the trailing twelve months Financial Outlook The company reiterates its outlook for 2023 diluted EPS of $1.25 to $2.00. The 2023 outlook assumes net sales are flat to down mid-single digits versus the prior year and gross margin improves by more than 150 basis points versus 2022. The company expects to generate more than $100 million of operating cash flow for the year and positive free cash flows. The company anticipates 2023 capital expenditures of $50 million to $60 million and is planning no share repurchases under our Board-approved share repurchase program during the year. Conference Call Information Management will host its regularly scheduled conference call to discuss the company’s results at 5 p.m. EDT (4 p.m. CDT; 2 p.m. PDT) today. To access the webcast, please visit the investor relations area of the Sleep Number website at https://ir.sleepnumber.com. The webcast replay will remain available for approximately 60 days. About Sleep Number Corporation Sleep Number is a wellness technology company. Over 14.5 million people have had their lives improved by our award-winning sleep innovations and are experiencing the physical, mental and emotional benefits of life-changing sleep performance. Our proprietary smart beds combine the physical and digital worlds, integrating exceptional sleep with a highly advanced digital technology platform. This means only Sleep Number can provide a dynamic, adjustable and adaptive sleep experience that effortlessly responds to the needs of each sleeper. Our millions of Smart SleepersSM benefit from their smart bed changing with them, over time; it is unique, like they are. Our differentiated business model is guided by our purpose to improve the health and wellbeing of society through higher quality sleep. We partner with world-leading sleep and health institutions to bring the power of 19 billion hours of longitudinal sleep data to sleep science and research. Our retail experience meets our consumers whenever and wherever they choose – through online and in-store touchpoints. And our 5,000 mission-driven team members passionately deliver individualized sleep experiences for everyone. For life-changing sleep, visit one of our 670 stores, our newsroom and investor relations sites, or SleepNumber.com Forward-looking Statements Statements used in this news release relating to future plans, events, financial results or performance, such as the company’s financial outlook for full-year 2023, including diluted EPS, are forward-looking statements subject to certain risks and uncertainties including, among others, such factors as current and future economic conditions and consumer sentiment; increases in interest rates, which have increased the cost of servicing the company’s indebtedness; availability of attractive and cost-effective consumer credit options; operating with minimal levels of inventory, which may leave the company vulnerable to supply shortages; Sleep Number’s dependence on, and ability to maintain strong working relationships with key suppliers and third parties; rising commodity costs or third-party logistics costs and other inflationary pressures; risks inherent in global-sourcing activities, including tariffs, geo-political turmoil, war, strikes, labor challenges, government-mandated work closures, outbreaks of pandemics or contagious diseases, and resulting supply shortages and production and delivery delays and disruptions; risks of disruption due to health epidemics or pandemics, such as the COVID-19 pandemic; regional risks related to having global operations and suppliers, including climate and other disasters; the effectiveness of the company’s marketing strategy and promotional efforts; the execution of Sleep Number’s Total Retail distribution strategy; ability to achieve and maintain high levels of product quality; ability to improve and expand Sleep Number’s product line and execute successful new product introductions; ability to prevent third parties from using the company’s technology or trademarks, and the adequacy of its intellectual property rights to protect its products and brand; ability to compete; risks of disruption in the operation of any of the company’s main manufacturing, distribution, logistics, home delivery, product development or customer service operations; the company’s ability to comply with existing and changing government regulation; 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; the company’s ability to withstand cyber threats that could compromise the security of its systems, result in a data breach or business disruption; Sleep Number’s ability, and the ability of its suppliers and vendors, to attract, retain and motivate qualified personnel; the volatility of Sleep Number stock; environmental, social and governance (ESG) 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 in the company’s filings with the Securities and Exchange Commission (SEC), including the Annual Report on Form 10-K, and other periodic reports filed with the SEC. The company has no obligation to publicly update or revise any of the forward-looking statements in this news release. SLEEP NUMBER CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (unaudited – in thousands, except per share amounts) Three Months Ended April 1, 2023 % of Net Sales April 2, 2022 % of Net Sales Net sales $ 526,527 100.0 % $ 527,130 100.0 % Cost of sales 216,262 41.1 % 224,832 42.7 % Gross profit 310,265 58.9 % 302,298 57.3 % Operating expenses: Sales and marketing 230,488 43.8 % 240,259 45.6 % General and administrative 39,401 7.5 % 41,319 7.8 % Research and development 14,443 2.7 % 16,305 3.1 % Total operating expenses 284,332 54.0 % 297,883 56.5 % Operating income 25,933 4.9 % 4,415 0.8 % Interest expense, net 9,102 1.7 % 2,127 0.4 % Income before income taxes 16,831 3.2 % 2,288 0.4 % Income tax expense 5,366 1.0 % 214 0.0 % Net income $ 11,465 2.2 % $ 2,074 0.4 % Net income per share – basic $ 0.51 $ 0.09 Net income per share – diluted $ 0.51 $ 0.09 Reconciliation of weighted-average shares outstanding: Basic weighted-average shares outstanding 22,296 22,760 Dilutive effect of stock-based awards 287 831 Diluted weighted-average shares outstanding 22,583 23,591 SLEEP NUMBER CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (unaudited – in thousands, except per share amounts) subject to reclassification April 1, 2023 December 31, 2022 Assets Current assets: Cash and cash equivalents $ 1,459 $ 1,792 Accounts receivable, net of allowances of $1,474 and $1,267, respectively 23,288 26,005 Inventories 116,781 114,034 Prepaid expenses 26,986 16,006 Other current assets 39,902 39,921 Total current assets 208,416 197,758 Non-current assets: Property and equipment, net 194,802 200,605 Operating lease right-of-use assets 398,339 397,755 Goodwill and intangible assets, net 67,565 68,065 Deferred income taxes 11,210 7,958 Other non-current assets 82,477 81,795 Total assets $ 962,809 $ 953,936 Liabilities and Shareholders’ Deficit Current liabilities: Borrowings under revolving credit facility $ 470,600 $ 459,600 Accounts payable 160,304 176,207 Customer prepayments 68,542 73,181 Accrued sales returns 24,071 25,594 Compensation and benefits 30,706 31,291 Taxes and withholding 31,647 23,622 Operating lease liabilities 81,383 79,533 Other current liabilities 58,441 60,785 Total current liabilities 925,694 929,813 Non-current liabilities: Operating lease liabilities 355,556 356,879 Other non-current liabilities 106,606 105,421 Total non-current liabilities 462,162 462,300 Total liabilities 1,387,856 1,392,113 Shareholders’ deficit: Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding — — Common stock, $0.01 par value; 142,500 shares authorized, 22,184 and 22,014 shares issued and outstanding, respectively 222 220 Additional paid-in capital 6,845 5,182 Accumulated deficit (432,114 ) (443,579 ) Total shareholders’ deficit (425,047 ) (438,177 ) Total liabilities and shareholders’ deficit $ 962,809 $ 953,936 SLEEP NUMBER CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited – in thousands) subject to reclassification Three Months Ended April 1, 2023 April 2, 2022 Cash flows from operating activities: Net income $ 11,465 $ 2,074 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 18,218 15,870 Stock-based compensation 4,639 4,133 Net loss on disposals and impairments of assets 12 93 Deferred income taxes (3,252 ) (376 ) Changes in operating assets and liabilities: Accounts receivable 2,717 1,216 Inventories (2,747 ) 2,432 Income taxes 8,736 1,102 Prepaid expenses and other assets (11,056 ) 10,877 Accounts payable (574 ) 2,073 Customer prepayments (4,639 ) 12,506 Accrued compensation and benefits (593 ) (25,348 ) Other taxes and withholding (711 ) 3,104 Other accruals and liabilities (3,634 ) (5,198 ) Net cash provided by operating activities 18,581 24,558 Cash flows from investing activities: Purchases of property and equipment (15,556 ) (19,604 ) Proceeds from sales of property and equipment — 10 Net cash used in investing activities (15,556 ) (19,594 ) Cash flows from financing activities: Net (decrease) increase in short-term borrowings (384 ) 44,712 Repurchases of common stock (3,363 ) (50,998 ) Proceeds from issuance of common stock 389 531 Debt issuance costs — (42 ) Net cash used in financing activities (3,358 ) (5,797 ) Net decrease in cash and cash equivalents (333 ) (833 ) Cash and cash equivalents, at beginning of period 1,792 2,389 Cash and cash equivalents, at end of period $ 1,459 $ 1,556 SLEEP NUMBER CORPORATION AND SUBSIDIARIES Supplemental Financial Information (unaudited) Three Months Ended April 1, 2023 April 2, 2022 Percent of sales: Retail stores 87.1 % 84.3 % Online, phone, chat and other 12.9 % 15.7 % Total Company 100.0 % 100.0 % Sales change rates: Retail comparable-store sales 1 % (14 %) Online, phone and chat (18 %) 5 % Total Retail comparable sales change (2 %) (11 %) Net opened/closed stores and other 2 % 4 % Total Company 0 % (7 %) Stores open: Beginning of period 670 648 Opened 12 13 Closed (11 ) (8 ) End of period 671 653 Other metrics: Average sales per store ($ in 000's) 1 $ 3,239 $ 3,487 Average sales per square foot 1 $ 1,060 $ 1,167 Stores > $2 million net sales 2 75 % 82 % Stores > $3 million net sales 2 36 % 46 % Average revenue per smart bed unit 3 $ 5,848 $ 4,905 1 Trailing twelve months Total Retail comparable sales per store open at least one year. 2 Trailing twelve months for stores open at least one year (excludes online, phone and chat sales). 3 Represents Total Retail (stores, online, phone and chat) net sales divided by Total Retail smart bed units. SLEEP NUMBER CORPORATION AND SUBSIDIARIES Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) (in thousands) We define earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) as net income plus: income tax expense, interest expense, depreciation and amortization, stock-based compensation and asset impairments. Management believes Adjusted EBITDA is a useful indicator of our financial performance and our ability to generate cash from operating activities. Our definition of Adjusted EBITDA may not be comparable to similarly titled definitions used by other companies. The table below reconciles Adjusted EBITDA, which is a non-GAAP financial measure, to the comparable GAAP financial measure: Three Months Ended Trailing Twelve Months Ended April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022 Net income $ 11,465 $ 2,074 $ 46,001 $ 89,186 Income tax expense 5,366 214 17,437 24,947 Interest expense 9,102 2,127 25,960 7,394 Depreciation and amortization 17,991 15,683 68,934 60,943 Stock-based compensation 4,639 4,133 13,729 20,930 Asset impairments 12 103 204 186 Adjusted EBITDA $ 48,575 $ 24,334 $ 172,265 $ 203,586 Free Cash Flow (in thousands) Three Months Ended Trailing Twelve Months Ended April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022 Net cash provided by operating activities $ 18,581 $ 24,558 $ 30,161 $ 212,970 Subtract: Purchases of property and equipment 15,556 19,604 65,406 74,958 Free cash flow $ 3,025 $ 4,954 $ (35,245 ) $ 138,012 Calculation of Net Leverage Ratio under Revolving Credit Facility (in thousands) Trailing Twelve Months Ended April 1, 2023 April 2, 2022 Borrowings under revolving credit facility $ 470,600 $ 413,200 Outstanding letters of credit 7,147 5,947 Finance lease obligations 392 509 Consolidated funded indebtedness $ 478,139 $ 419,656 Capitalized operating lease obligations 1 669,559 629,624 Total debt including capitalized operating lease obligations (a) $ 1,147,698 $ 1,049,280 Adjusted EBITDA (see above) $ 172,265 $ 203,586 Consolidated rent expense 111,593 104,937 Consolidated EBITDAR (b) $ 283,858 $ 308,523 Net Leverage Ratio under revolving credit facility (a divided by b) 4.0 to 1.0 3.4 to 1.0 1 A multiple of six times annual rent expense is used as an estimate for capitalizing our operating lease obligations in accordance with our credit facility. Note - Our Adjusted EBITDA and EBITDAR calculations, Free Cash Flow data and Calculation of Net Leverage Ratio under Revolving Credit Facility are considered non-GAAP financial measures and are not in accordance with, or preferable to, "as reported," or GAAP financial data. However, we are providing this information as we believe it facilitates analysis of the Company's financial performance by investors and financial analysts. GAAP - generally accepted accounting principles in the U.S. SLEEP NUMBER CORPORATION AND SUBSIDIARIES Calculation of Return on Invested Capital (Adjusted ROIC) (in thousands) Adjusted ROIC is a financial measure we use to determine how efficiently we deploy our capital. It quantifies the return we earn on our adjusted invested capital. Management believes Adjusted ROIC is also a useful metric for investors and financial analysts. We compute Adjusted ROIC as outlined below. Our 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: Trailing Twelve Months Ended April 1, 2023 April 2, 2022 Adjusted net operating profit after taxes (Adjusted NOPAT) Operating income $ 89,398 $ 121,527 Add: Operating lease interest 1 26,487 24,907 Less: Income taxes 2 (29,674 ) (34,753 ) Adjusted NOPAT $ 86,211 $ 111,681 Average adjusted invested capital Total deficit $ (425,047 ) $ (469,213 ) Add: Long-term debt 3 470,991 413,709 Add: Operating lease obligations 4 436,939 412,574 Total adjusted invested capital at end of period $ 482,883 $ 357,070 Average adjusted invested capital 5 $ 423,287 $ 348,804 Adjusted ROIC 6 20.4 % 32.0 % 1 Represents the interest expense component of lease expense included in our financial statements under ASC 842, Leases. 2 Reflects annual effective income tax rates, before discrete adjustments, of 25.6% and 23.7% for April 1, 2023 and April 2, 2022, respectively. 3 Long-term debt includes existing finance lease liabilities. 4 Reflects operating lease liabilities included in our 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, we are providing this information as we believe it facilitates analysis of the Company's financial performance by investors and financial analysts. The Company updated its Adjusted ROIC calculation effective beginning with the reporting period ended December 31, 2022, to reflect adjustments consistent with ASC 842. The prior period has been updated to reflect this calculation. GAAP - generally accepted accounting principles in the U.S. View source version on businesswire.com: https://www.businesswire.com/news/home/20230426005106/en/Contacts Investor Contact: Dave Schwantes; (763) 551-7498; investorrelations@sleepnumber.com Media Contact: Julie Elepano; (414) 732-9840; julie.elepano@sleepnumber.com
Net sales of $527 million were consistent with the prior year Net operating profit increased to $26 million, up $22 million versus the prior year, including a 160 basis point (bp) gross profit rate improvement year-over-year Diluted EPS of $0.51 versus $0.09 last year Reiterates full-year 2023 earnings outlook of $1.25 to $2.00 per diluted share
Sleep Number Corporation (Nasdaq: SNBR) today reported results for the quarter ended April 1, 2023. “First quarter performance was consistent with our expectations, reflecting our team’s strong execution in a challenged macro environment with historically low consumer sentiment pressuring demand. After nearly two years of supply disruption, the consistent flow of microchips has enabled us to return to more efficient operations,” said Shelly Ibach, Chair, President and CEO. “Beginning in the second quarter we are executing a sequence of new integrated demand drivers, including our next generation Sleep Number smart beds, lifestyle furniture, and “Sleep Next Level” brand campaign. These ads inspire consumers to unlock their full potential through our smart bed’s life-changing, individualized sleep benefits.” First Quarter Overview Net sales of $527 million were consistent with the prior year, including a 2% comparable sales decline, offset by two percentage points of growth from new stores Gross margin increased 160 bp to 58.9% of net sales, including the benefit of pricing actions, improvement in commodity prices and operating efficiencies resulting from a steady flow of microchips Operating income of $26 million represented a $22 million increase versus the prior year, including an $8 million gross profit increase and a $14 million reduction in operating expenses year-over-year Diluted EPS of $0.51 compared with $0.09 last year Cash Flows Review Generated $19 million in net cash from operating activities in the first quarter, compared with $25 million for the same period last year Leverage ratio of 4.0x EBITDAR at the end of the first quarter versus covenant maximum of 5.0x Adjusted Return on Invested Capital (ROIC) of 20.4% for the trailing twelve months Financial Outlook The company reiterates its outlook for 2023 diluted EPS of $1.25 to $2.00. The 2023 outlook assumes net sales are flat to down mid-single digits versus the prior year and gross margin improves by more than 150 basis points versus 2022. The company expects to generate more than $100 million of operating cash flow for the year and positive free cash flows. The company anticipates 2023 capital expenditures of $50 million to $60 million and is planning no share repurchases under our Board-approved share repurchase program during the year. Conference Call Information Management will host its regularly scheduled conference call to discuss the company’s results at 5 p.m. EDT (4 p.m. CDT; 2 p.m. PDT) today. To access the webcast, please visit the investor relations area of the Sleep Number website at https://ir.sleepnumber.com. The webcast replay will remain available for approximately 60 days. About Sleep Number Corporation Sleep Number is a wellness technology company. Over 14.5 million people have had their lives improved by our award-winning sleep innovations and are experiencing the physical, mental and emotional benefits of life-changing sleep performance. Our proprietary smart beds combine the physical and digital worlds, integrating exceptional sleep with a highly advanced digital technology platform. This means only Sleep Number can provide a dynamic, adjustable and adaptive sleep experience that effortlessly responds to the needs of each sleeper. Our millions of Smart SleepersSM benefit from their smart bed changing with them, over time; it is unique, like they are. Our differentiated business model is guided by our purpose to improve the health and wellbeing of society through higher quality sleep. We partner with world-leading sleep and health institutions to bring the power of 19 billion hours of longitudinal sleep data to sleep science and research. Our retail experience meets our consumers whenever and wherever they choose – through online and in-store touchpoints. And our 5,000 mission-driven team members passionately deliver individualized sleep experiences for everyone. For life-changing sleep, visit one of our 670 stores, our newsroom and investor relations sites, or SleepNumber.com Forward-looking Statements Statements used in this news release relating to future plans, events, financial results or performance, such as the company’s financial outlook for full-year 2023, including diluted EPS, are forward-looking statements subject to certain risks and uncertainties including, among others, such factors as current and future economic conditions and consumer sentiment; increases in interest rates, which have increased the cost of servicing the company’s indebtedness; availability of attractive and cost-effective consumer credit options; operating with minimal levels of inventory, which may leave the company vulnerable to supply shortages; Sleep Number’s dependence on, and ability to maintain strong working relationships with key suppliers and third parties; rising commodity costs or third-party logistics costs and other inflationary pressures; risks inherent in global-sourcing activities, including tariffs, geo-political turmoil, war, strikes, labor challenges, government-mandated work closures, outbreaks of pandemics or contagious diseases, and resulting supply shortages and production and delivery delays and disruptions; risks of disruption due to health epidemics or pandemics, such as the COVID-19 pandemic; regional risks related to having global operations and suppliers, including climate and other disasters; the effectiveness of the company’s marketing strategy and promotional efforts; the execution of Sleep Number’s Total Retail distribution strategy; ability to achieve and maintain high levels of product quality; ability to improve and expand Sleep Number’s product line and execute successful new product introductions; ability to prevent third parties from using the company’s technology or trademarks, and the adequacy of its intellectual property rights to protect its products and brand; ability to compete; risks of disruption in the operation of any of the company’s main manufacturing, distribution, logistics, home delivery, product development or customer service operations; the company’s ability to comply with existing and changing government regulation; 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; the company’s ability to withstand cyber threats that could compromise the security of its systems, result in a data breach or business disruption; Sleep Number’s ability, and the ability of its suppliers and vendors, to attract, retain and motivate qualified personnel; the volatility of Sleep Number stock; environmental, social and governance (ESG) 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 in the company’s filings with the Securities and Exchange Commission (SEC), including the Annual Report on Form 10-K, and other periodic reports filed with the SEC. The company has no obligation to publicly update or revise any of the forward-looking statements in this news release. SLEEP NUMBER CORPORATION AND SUBSIDIARIES Consolidated Statements of Operations (unaudited – in thousands, except per share amounts) Three Months Ended April 1, 2023 % of Net Sales April 2, 2022 % of Net Sales Net sales $ 526,527 100.0 % $ 527,130 100.0 % Cost of sales 216,262 41.1 % 224,832 42.7 % Gross profit 310,265 58.9 % 302,298 57.3 % Operating expenses: Sales and marketing 230,488 43.8 % 240,259 45.6 % General and administrative 39,401 7.5 % 41,319 7.8 % Research and development 14,443 2.7 % 16,305 3.1 % Total operating expenses 284,332 54.0 % 297,883 56.5 % Operating income 25,933 4.9 % 4,415 0.8 % Interest expense, net 9,102 1.7 % 2,127 0.4 % Income before income taxes 16,831 3.2 % 2,288 0.4 % Income tax expense 5,366 1.0 % 214 0.0 % Net income $ 11,465 2.2 % $ 2,074 0.4 % Net income per share – basic $ 0.51 $ 0.09 Net income per share – diluted $ 0.51 $ 0.09 Reconciliation of weighted-average shares outstanding: Basic weighted-average shares outstanding 22,296 22,760 Dilutive effect of stock-based awards 287 831 Diluted weighted-average shares outstanding 22,583 23,591 SLEEP NUMBER CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (unaudited – in thousands, except per share amounts) subject to reclassification April 1, 2023 December 31, 2022 Assets Current assets: Cash and cash equivalents $ 1,459 $ 1,792 Accounts receivable, net of allowances of $1,474 and $1,267, respectively 23,288 26,005 Inventories 116,781 114,034 Prepaid expenses 26,986 16,006 Other current assets 39,902 39,921 Total current assets 208,416 197,758 Non-current assets: Property and equipment, net 194,802 200,605 Operating lease right-of-use assets 398,339 397,755 Goodwill and intangible assets, net 67,565 68,065 Deferred income taxes 11,210 7,958 Other non-current assets 82,477 81,795 Total assets $ 962,809 $ 953,936 Liabilities and Shareholders’ Deficit Current liabilities: Borrowings under revolving credit facility $ 470,600 $ 459,600 Accounts payable 160,304 176,207 Customer prepayments 68,542 73,181 Accrued sales returns 24,071 25,594 Compensation and benefits 30,706 31,291 Taxes and withholding 31,647 23,622 Operating lease liabilities 81,383 79,533 Other current liabilities 58,441 60,785 Total current liabilities 925,694 929,813 Non-current liabilities: Operating lease liabilities 355,556 356,879 Other non-current liabilities 106,606 105,421 Total non-current liabilities 462,162 462,300 Total liabilities 1,387,856 1,392,113 Shareholders’ deficit: Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding — — Common stock, $0.01 par value; 142,500 shares authorized, 22,184 and 22,014 shares issued and outstanding, respectively 222 220 Additional paid-in capital 6,845 5,182 Accumulated deficit (432,114 ) (443,579 ) Total shareholders’ deficit (425,047 ) (438,177 ) Total liabilities and shareholders’ deficit $ 962,809 $ 953,936 SLEEP NUMBER CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (unaudited – in thousands) subject to reclassification Three Months Ended April 1, 2023 April 2, 2022 Cash flows from operating activities: Net income $ 11,465 $ 2,074 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 18,218 15,870 Stock-based compensation 4,639 4,133 Net loss on disposals and impairments of assets 12 93 Deferred income taxes (3,252 ) (376 ) Changes in operating assets and liabilities: Accounts receivable 2,717 1,216 Inventories (2,747 ) 2,432 Income taxes 8,736 1,102 Prepaid expenses and other assets (11,056 ) 10,877 Accounts payable (574 ) 2,073 Customer prepayments (4,639 ) 12,506 Accrued compensation and benefits (593 ) (25,348 ) Other taxes and withholding (711 ) 3,104 Other accruals and liabilities (3,634 ) (5,198 ) Net cash provided by operating activities 18,581 24,558 Cash flows from investing activities: Purchases of property and equipment (15,556 ) (19,604 ) Proceeds from sales of property and equipment — 10 Net cash used in investing activities (15,556 ) (19,594 ) Cash flows from financing activities: Net (decrease) increase in short-term borrowings (384 ) 44,712 Repurchases of common stock (3,363 ) (50,998 ) Proceeds from issuance of common stock 389 531 Debt issuance costs — (42 ) Net cash used in financing activities (3,358 ) (5,797 ) Net decrease in cash and cash equivalents (333 ) (833 ) Cash and cash equivalents, at beginning of period 1,792 2,389 Cash and cash equivalents, at end of period $ 1,459 $ 1,556 SLEEP NUMBER CORPORATION AND SUBSIDIARIES Supplemental Financial Information (unaudited) Three Months Ended April 1, 2023 April 2, 2022 Percent of sales: Retail stores 87.1 % 84.3 % Online, phone, chat and other 12.9 % 15.7 % Total Company 100.0 % 100.0 % Sales change rates: Retail comparable-store sales 1 % (14 %) Online, phone and chat (18 %) 5 % Total Retail comparable sales change (2 %) (11 %) Net opened/closed stores and other 2 % 4 % Total Company 0 % (7 %) Stores open: Beginning of period 670 648 Opened 12 13 Closed (11 ) (8 ) End of period 671 653 Other metrics: Average sales per store ($ in 000's) 1 $ 3,239 $ 3,487 Average sales per square foot 1 $ 1,060 $ 1,167 Stores > $2 million net sales 2 75 % 82 % Stores > $3 million net sales 2 36 % 46 % Average revenue per smart bed unit 3 $ 5,848 $ 4,905 1 Trailing twelve months Total Retail comparable sales per store open at least one year. 2 Trailing twelve months for stores open at least one year (excludes online, phone and chat sales). 3 Represents Total Retail (stores, online, phone and chat) net sales divided by Total Retail smart bed units. SLEEP NUMBER CORPORATION AND SUBSIDIARIES Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) (in thousands) We define earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) as net income plus: income tax expense, interest expense, depreciation and amortization, stock-based compensation and asset impairments. Management believes Adjusted EBITDA is a useful indicator of our financial performance and our ability to generate cash from operating activities. Our definition of Adjusted EBITDA may not be comparable to similarly titled definitions used by other companies. The table below reconciles Adjusted EBITDA, which is a non-GAAP financial measure, to the comparable GAAP financial measure: Three Months Ended Trailing Twelve Months Ended April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022 Net income $ 11,465 $ 2,074 $ 46,001 $ 89,186 Income tax expense 5,366 214 17,437 24,947 Interest expense 9,102 2,127 25,960 7,394 Depreciation and amortization 17,991 15,683 68,934 60,943 Stock-based compensation 4,639 4,133 13,729 20,930 Asset impairments 12 103 204 186 Adjusted EBITDA $ 48,575 $ 24,334 $ 172,265 $ 203,586 Free Cash Flow (in thousands) Three Months Ended Trailing Twelve Months Ended April 1, 2023 April 2, 2022 April 1, 2023 April 2, 2022 Net cash provided by operating activities $ 18,581 $ 24,558 $ 30,161 $ 212,970 Subtract: Purchases of property and equipment 15,556 19,604 65,406 74,958 Free cash flow $ 3,025 $ 4,954 $ (35,245 ) $ 138,012 Calculation of Net Leverage Ratio under Revolving Credit Facility (in thousands) Trailing Twelve Months Ended April 1, 2023 April 2, 2022 Borrowings under revolving credit facility $ 470,600 $ 413,200 Outstanding letters of credit 7,147 5,947 Finance lease obligations 392 509 Consolidated funded indebtedness $ 478,139 $ 419,656 Capitalized operating lease obligations 1 669,559 629,624 Total debt including capitalized operating lease obligations (a) $ 1,147,698 $ 1,049,280 Adjusted EBITDA (see above) $ 172,265 $ 203,586 Consolidated rent expense 111,593 104,937 Consolidated EBITDAR (b) $ 283,858 $ 308,523 Net Leverage Ratio under revolving credit facility (a divided by b) 4.0 to 1.0 3.4 to 1.0 1 A multiple of six times annual rent expense is used as an estimate for capitalizing our operating lease obligations in accordance with our credit facility. Note - Our Adjusted EBITDA and EBITDAR calculations, Free Cash Flow data and Calculation of Net Leverage Ratio under Revolving Credit Facility are considered non-GAAP financial measures and are not in accordance with, or preferable to, "as reported," or GAAP financial data. However, we are providing this information as we believe it facilitates analysis of the Company's financial performance by investors and financial analysts. GAAP - generally accepted accounting principles in the U.S. SLEEP NUMBER CORPORATION AND SUBSIDIARIES Calculation of Return on Invested Capital (Adjusted ROIC) (in thousands) Adjusted ROIC is a financial measure we use to determine how efficiently we deploy our capital. It quantifies the return we earn on our adjusted invested capital. Management believes Adjusted ROIC is also a useful metric for investors and financial analysts. We compute Adjusted ROIC as outlined below. Our 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: Trailing Twelve Months Ended April 1, 2023 April 2, 2022 Adjusted net operating profit after taxes (Adjusted NOPAT) Operating income $ 89,398 $ 121,527 Add: Operating lease interest 1 26,487 24,907 Less: Income taxes 2 (29,674 ) (34,753 ) Adjusted NOPAT $ 86,211 $ 111,681 Average adjusted invested capital Total deficit $ (425,047 ) $ (469,213 ) Add: Long-term debt 3 470,991 413,709 Add: Operating lease obligations 4 436,939 412,574 Total adjusted invested capital at end of period $ 482,883 $ 357,070 Average adjusted invested capital 5 $ 423,287 $ 348,804 Adjusted ROIC 6 20.4 % 32.0 % 1 Represents the interest expense component of lease expense included in our financial statements under ASC 842, Leases. 2 Reflects annual effective income tax rates, before discrete adjustments, of 25.6% and 23.7% for April 1, 2023 and April 2, 2022, respectively. 3 Long-term debt includes existing finance lease liabilities. 4 Reflects operating lease liabilities included in our 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, we are providing this information as we believe it facilitates analysis of the Company's financial performance by investors and financial analysts. The Company updated its Adjusted ROIC calculation effective beginning with the reporting period ended December 31, 2022, to reflect adjustments consistent with ASC 842. The prior period has been updated to reflect this calculation. GAAP - generally accepted accounting principles in the U.S. View source version on businesswire.com: https://www.businesswire.com/news/home/20230426005106/en/
Investor Contact: Dave Schwantes; (763) 551-7498; investorrelations@sleepnumber.com Media Contact: Julie Elepano; (414) 732-9840; julie.elepano@sleepnumber.com