Sleep Number Reports Second Quarter Financial Results

July 31, 2024  by Karen Parrish in Business Strategy, Industry   

“The implementation of our transformative initiatives is improving gross margin, operating expenses and free cash flow, as our teams continue to execute sustainable changes across the business. In the second quarter, we delivered gross margin rate expansion and adjusted EBITDA slightly ahead of expectations, despite facing a more challenging industry sales environment than anticipated,” said Shelly Ibach, chair, president and CEO.

“In this environment, we continue to prioritize paying down debt and reducing leverage. Our more durable operating model is enabling us to effectively navigate the persistent macroeconomic headwinds and prolonged industry recession, while positioning us for even greater profitability when the industry recovers.”

Second Quarter Overview

• Net sales of $408 million were down 11% versus the prior year, including approximately six percentage points of pressure from year-over-year order backlog changes
• Gross margin of 59.1% was up 150 basis points versus the prior year, driven by ongoing product cost reductions through value engineering and supplier negotiations, efficiency gains in our home delivery and logistics operations and improved product returns rates
• Operating expenses of $234 million (before restructuring charges) were down $19 million versus the prior year’s second quarter, including broad-based cost reductions across the business
• Adjusted EBITDA of $28 million compared to $35 million last year, with a higher gross margin rate and $19 million operating expense improvement, partially offsetting the year-over-year net sales decline

Cash Flows and Liquidity Review

• Net cash provided by operating activities of $24 million for the first six months of the year, a $5 million increase versus the same period last year
• Free cash flow of $9 million for the first six months of the year, up $21 million versus the same period last year
• Leverage ratio of 4.4x EBITDAR at the end of the second quarter versus covenant maximum of 5.5x for the quarter

Financial Outlook
The company reiterates its outlook for 2024 adjusted EBITDA of $125 million to $145 million. A mid-single digit net sales decline is expected for the year. For the second half of the year, demand and net sales are expected to be flat to down low-single digits versus the prior year, as there are easier comparisons from the prior year and benefit from demand driving initiatives.

The company expects at least 100 basis points of gross margin rate improvement and $14 million of restructuring charges for the year. The company now expects to generate $50 million to $70 million of free cash flow with capital expenditures of $30 million.

Conference Call Information
The webcast replay will remain available at https://ir.sleepnumber.com for approximately 60 days. We have also posted an updated investor presentation to the investor relations area of the Sleep Number website.