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Sleep Number Reports Year End Results and 4th Quarter Review

February 25, 2024  by HFBusiness Staff in Business Strategy, Industry   

"While the consumer environment remains challenging for the mattress industry, our swift actions to improve demand and reduce costs allowed us to make better progress in the fourth quarter than we expected," said Shelly Ibach, Chair, resident and CEO.

"Through broad-based restructuring actions to streamline our cost structure, restore margins and strengthen our balance sheet, we are transforming our operating model to improve our financial resilience and position our business for accelerating growth as the mattress industry demand environment improves. Importantly, our long-term opportunity remains intact as we lead through this transformation."

Fourth Quarter Overview
Net sales decreased 14% to $430 million, with demand down low-single digits year-over-year

Gross margin of 56.6% was up 190 bp versus the prior year, primarily benefiting from pricing actions, easing commodity prices and operating cost reductions, partially offset by increased promotions

Operating expenses were reduced by $24 million to $247 million (before restructuring charges) compared with $271 million last year

Loss per diluted share of $1.12; "as adjusted" diluted loss per share of $0.58, excluding $16 million of restructuring costs recorded in the fourth quarter

Full Year Overview

Net sales decreased 11% to $1.89 billion in 2023

Gross margin increased to 57.7% of net sales, compared with 56.9% for the prior year, including the benefit of pricing actions, easing commodity prices and other cost reduction initiatives

Loss per diluted share of $0.68; "as adjusted" diluted loss per share of $0.14, excluding $16 million of restructuring costs recorded in the fourth quarter

Cash Flows and Liquidity Review

Net cash used in operating activities of $9 million, compared with $36 million of cash provided by operating activities last year

Leverage ratio of 4.1x EBITDAR at the end of the fourth quarter versus covenant maximum of 5.0x

Adjusted ROIC of 7.8% for the trailing twelve months

Business Restructuring Update

The company’s broad-based cost management initiatives are progressing as planned. Operating expenses were reduced by $85 million in 2023, with $40 million to $45 million of additional operating expense reductions planned for 2024

Reduced workforce to approximately 4,100 team members at end of 2023, 7% lower than 2019

Expect specific ongoing workstreams including product value engineering, service simplification, streamlining suppliers and reprioritizing spend to accelerate near-term growth and efficiency

Financial Outlook

The company expects mattress industry demand to remain pressured in 2024. Against this backdrop, the company expects adjusted EBITDA of $125 million to $145 million in 2024, with net sales down mid-single digits versus prior year on a low-single digit demand decline.

The company expects approximately 100 basis points of gross margin rate improvement and $12 million of restructuring charges for the year. The company expects to generate $60 million to $80 million of free cash flow with capital expenditures of $30 million.

Conference Call Information

Management will host its regularly scheduled conference call to discuss the company’s results at 5 p.m. EST (4 p.m. CST; 2 p.m. PST) today. To access the webcast, please visit the investor relations area of the Sleep Number website at https://ir.sleepnumber.com. The webcast replay will remain available for approximately 60 days.