Sleep Number Corp. Reports Fourth Quarter and Year End Results

March 12, 2026  by Karen Parrish in Business Strategy, Industry   

Linda Findley, president and CEO, commented, "Sleep Number exceeded 2025 guidance provided on our last earnings call. We are still in full turnaround mode and made significant progress against our new product and marketing strategies while continuing to reduce costs. For the full year 2025, pro-forma adjusted EBITDA margin was approximately 9% and anticipate double-digit adjusted EBITDA growth in 2026 as we continue to execute on our strategy.

"The launch of our ComfortMode bed in January exceeded our expectations and is outselling plan by 3.5 times, with stronger margins than the beds it replaces. The rest of the new product line, available this month, is all built on the same consumer research highlighting comfort and value, and we anticipate similar strength from the new beds, as the supporting marketing is also performing well.

"Even with the strength of our product and marketing strategies, the negative industry impact at the start of the year plus the clearance of our existing products had an outsized impact on our liquidity. We are implementing a plan to address our liquidity and capital strategy as we move towards topline growth in the second half of the year."

Fourth Quarter Overview (all comparisons year-over-year unless otherwise noted)

+ Net sales of $347 million, down 8%, driven by ongoing industry demand pressure and lower store traffic.

+ Gross profit of $193 million, a decrease of $32 million. Gross profit margin of 55.6% compared to 59.9% for the same period last year, primarily due to a $9.6 million inventory obsolescence charge associated with the introduction of the company's new product line. Excluding the charge, adjusted gross profit margin was 58.4%.

+ Operating expenses were $201 million. Adjusted operating expenses before restructuring and other non-recurring costs were $197 million, a decrease of $20 million, or 9%, driven by lower marketing and selling expenses, general and administrative expenses, and research and development expenses.

+ Restructuring and other non-recurring costs were $14 million, driven primarily by the $9.6 million inventory obsolescence charge and contract termination costs due to store closures.

+ Net loss of $59 million compared with a net loss of $5 million for the same period last year, driven primarily by lower net sales and recognition of a $47.9 million deferred tax valuation adjustment during the fourth quarter of 2025.

+ Adjusted EBITDA of $19 million, down 26%, driven by a year-over-year net sales decline, partially offset by lower operating expenses. Adjusted EBITDA margin of 5.6%, down 140 basis points ("bps").

Full Year Overview (all comparisons year-over-year unless otherwise noted)

+ Net sales of $1.4 billion, down 16%, driven by driven by ongoing industry pressure and lower store traffic.

+ Gross profit of $833 million, a decrease of $170 million. Gross profit margin of 59.0% of net sales, down 60 bps, driven by the $9.6 million inventory write-down charge and partially offset by the benefit of product cost reductions through value engineering and ongoing supplier negotiations and ongoing efficiencies in our home delivery and logistics operations.

+ Operating expenses were $880 million. Adjusted operating expenses before restructuring and other non-recurring costs were $824 million, a decrease of $136 million, or 14%, driven by lower marketing and selling expenses, general and administrative expenses, and research and development expenses.

+ Restructuring and other non-recurring costs were $65 million, driven primarily by severance and employee-related benefits, contract termination costs due to store closures, asset impairment charges, and inventory obsolescence.

+ Net loss of $132 million compared with a net loss of $20 million last year.

+ Adjusted EBITDA of $78 million, down 35%, driven by year-over year net sales decline, partially offset by lower operating expenses. Adjusted EBITDA margin of 5.5%, down 160 bps, exiting the year with an annualized pro forma adjusted EBITDA margin of approximately 9%, a 200-bps improvement versus the prior year.

Cash Flows and Liquidity Review (all comparisons year-over-year unless otherwise noted)

Net cash used in operating activities was $3 million, down $30 million.

Free cash flow was a use of $18 million, down $21 million.

The company's leverage ratio calculated under its credit agreement was 4.1x EBITDAR at the end of the year versus the amended covenant maximum of 4.5x.

Additional Business Highlights

Sleep Number is executing a turnaround strategy centered on product, marketing and distribution with ongoing cost savings and operating efficiencies to reignite growth and increase financial resilience. Recent highlights include:

+ Leadership and Organizational Realignment – After appointing a new CEO in April 2025, the company further strengthened the executive team with the appointment of a new Chief Marketing Officer in May 2025 and Chief Financial Officer in December 2025 while reorganizing reporting lines and responsibilities to improve accountability, accelerate decision-making, and enhance customer responsiveness.

+ Product Portfolio Transformation – The company announced a new product line, taking only ten months versus the historical two years to design and develop, aimed to meet customer demands and simplify the shopping experience to address a broader range of sleep needs. Sleep Number launched the ComfortMode™ bed in January and sales have exceeded expectations by more than three times. The remainder of the new product line was announced separately today and will be available for purchase on March 23.

+ Modernized Marketing Foundation – Under new leadership, Sleep Number has rebuilt its marketing foundation with refreshed creative and channel-specific media strategies aimed at strengthening brand awareness and funnel performance to drive purchase intent.

+ Cost Structure Reset – Implemented $185 million of annualized cost reductions through efficiencies in general and administrative, corporate structure, technology, and adapting Sleep Number’s existing real estate footprint. These changes created a more agile organization while preserving innovation. In 2026, Sleep Number is implementing another $50 million of annualized fixed costs savings.

+ Capital Structure Review – Engaged Guggenheim Securities to evaluate inbound interest and other opportunities to address the company's amended credit facility and improve Sleep Number’s liquidity, balance sheet and flexibility.

Conference Call Information

Management will host its regularly scheduled conference call to discuss the company’s results at 8:30 a.m. ET (7:30 a.m. CT; 5:30 a.m. PT) 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.