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Press release content from Business Wire. The AP news staff was not involved in its creation.

Sleep Number Announces Record Third Quarter 2021 Results

October 27, 2021 GMT

MINNEAPOLIS--(BUSINESS WIRE)--Oct 27, 2021--

Sleep Number Corporation (Nasdaq: SNBR) today reported results for the quarter ended October 2, 2021.

“Our record third quarter financial results exceeded our expectations and demonstrate the power of our advantaged business model and our teams’ stellar execution. We are driving sustainable demand and market share gains with our life-changing 360 smart beds by advancing proven initiatives,” said Shelly Ibach, President and CEO. “Given our unique competitive leadership at the intersection of wellbeing and technology, the worldwide shortage of semiconductors and other electronic components are a major challenge, elongating the timing of some customer deliveries. I could not be prouder of how our teams are aggressively pursuing solutions for these shortages to ensure we fulfill our mission of improving lives by individualizing sleep experiences.”

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Financial Overview

  • Net sales for the third quarter grew 21% versus last year (+35% versus 2019) with a 16% comp gain; year-to-date net sales increased 31% versus last year (+35% versus 2019) including a 28% comp gain
  • Gross profit increased 17% to $390 million, or 61.0% of net sales, while offsetting significant input cost increases with pricing actions and efficiency gains
  • Operating income increased 4% to $73 million, or 11.4% of net sales; year-to-date operating income increased 62% versus last year and was up 200 basis points on a rate basis versus 2020
  • Earnings per diluted share increased 24% to $2.22; year-to-date EPS grew 106% to a record $5.63, significantly exceeding 2020 full-year EPS of $4.90 ($4.60 adjusted for 53 rd week) and 2019 EPS of $2.70

Cash Flows and Liquidity Review

  • Generated $293 million in net cash from operating activities for the first nine months of 2021 compared with $287 million for the same period last year and 54% greater than the first nine months of 2019
  • Invested $49 million in capital expenditures and repurchased $364 million in Sleep Number stock during the first nine months of 2021
  • Leverage ratio of 2.2x EBITDAR at the end of the third quarter, compared with 1.9x a year ago and our 2.5x-3.0x longer-term target
  • Increased return on invested capital (ROIC) to more than 34% for the ttm period, compared with nearly 21% for the prior-year comparable period

Financial Outlook

The company is targeting 2021 earnings per diluted share of $7.25, compared with $4.60 for 2020 (excluding the impact of the 53rd week), and nearly three times 2019 EPS. The timing of receiving electronic components could elongate some of our customer deliveries into the first quarter of 2022. The outlook assumes an estimated effective income tax rate of 25% for the balance of the year with full-year capital expenditures of approximately $70 million.

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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

Individuality is the foundation of Sleep Number. Our purpose driven company is comprised of over 5,000 passionate team members who are dedicated to our mission of improving lives by individualizing sleep experiences. We have improved over 13 million lives and are positively impacting society’s wellbeing through higher-quality sleep.

Our award-winning 360 ® smart beds are informed by science. They learn from over one billion sleep sessions of highly-accurate, real-world sleep data – the cumulation of nearly 12 billion hours’ worth - to automatically adjust to each sleeper and provide effortless comfort and proven quality sleep. Our 360 smart beds deliver individualized sleep health reports and insights, including a daily SleepIQ ® score, and are helping to advance meaningful sleep health solutions by applying sleep science and research.

For life-changing sleep, visit SleepNumber.com or one of our more than 625 Sleep Number ® stores. More information is available on our newsroom and investor relations sites.

Forward-looking Statements

Statements used in this news release relating to future plans, events, financial results or performance, such as the company’s expectations for generating certain operating cash flows in 2021, are forward-looking statements subject to certain risks and uncertainties including, among others, such factors as current and future general and industry economic trends and consumer confidence; risks inherent in outbreaks of pandemics or contagious disease, including the COVID-19 pandemic and related consequences such as supply shortages, labor disruptions, and recommendations and/or mandates from federal, state and local authorities to close certain businesses or limit occupancy or operating hours; the effectiveness of our marketing messages; the efficiency of our advertising and promotional efforts; our ability to execute our Total Retail distribution strategy; our ability to achieve and maintain acceptable levels of product and service quality, and acceptable product return and warranty claims rates; our ability to continue to improve and expand our product line, and consumer acceptance of our products, product quality, innovation and brand image; industry competition, the emergence of additional competitive products and the adequacy of our intellectual-property rights to protect our products and brand from competitive or infringing activities; claims that our products, processes, advertising, or trademarks infringe the intellectual-property rights of others or do not comply with laws or regulations; availability of attractive and cost-effective consumer credit options; our lean manufacturing processes with minimal levels of inventory, which may leave us vulnerable to shortages in supply; our dependence on significant suppliers and third parties and our ability to maintain relationships with key suppliers or third parties, including several sole-source suppliers or providers of services; rising commodity costs and other inflationary pressures; risks inherent in global-sourcing activities, including tariffs, outbreaks of pandemics or contagious diseases, such as the COVID-19 pandemic, strikes and the potential for shortages in supply; risks of disruption in the operation of any of our main manufacturing facilities or assembly and distribution facilities; increasing government regulation; pending or unforeseen litigation and the potential for adverse publicity associated with litigation; the adequacy of our and third-party information systems to meet the evolving needs of our business and existing and evolving risks and regulatory standards applicable to data privacy and cybersecurity; the costs and potential disruptions to our business related to enhancing, patching, upgrading our information systems; the vulnerability of our and third-party information systems to attacks by hackers or other cyber threats that could compromise the security or accessibility of our systems, result in a data breach or disrupt our business; and our ability to attract, retain and motivate qualified management, executive and other key team members, including qualified retail sales professionals and managers. 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

October 2,

 

% of

 

September 26,

 

% of

2021

 

Net Sales

 

2020

 

Net Sales

 
Net sales

$

640,393

100.0%

$

531,155

100.0%

Cost of sales

 

250,039

39.0%

 

196,195

36.9%

Gross profit

 

390,354

61.0%

 

334,960

63.1%

Operating expenses:
Sales and marketing

 

255,512

39.9%

 

211,574

39.8%

General and administrative

 

47,676

7.4%

 

44,127

8.3%

Research and development

 

14,431

2.3%

 

9,644

1.8%

Total operating expenses

 

317,619

49.6%

 

265,345

50.0%

Operating income

 

72,735

11.4%

 

69,615

13.1%

Interest expense, net

 

1,816

0.3%

 

1,827

0.3%

Income before income taxes

 

70,919

11.1%

 

67,788

12.8%

Income tax expense

 

17,198

2.7%

 

16,468

3.1%

Net income

$

53,721

8.4%

$

51,320

9.7%

 
Net income per share – basic

$

2.29

$

1.83

 
Net income per share – diluted

$

2.22

$

1.79

 
 
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding

 

23,464

 

27,973

Dilutive effect of stock-based awards

 

769

 

661

Diluted weighted-average shares outstanding

 

24,233

 

28,634

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
 
Nine Months Ended
October 2,% ofSeptember 26,% of

2021

Net Sales

2020

Net Sales
 
Net sales

$

1,692,965

100.0%

$

1,288,659

100.0%

Cost of sales

 

653,842

38.6%

 

488,558

37.9%

Gross profit

 

1,039,123

61.4%

 

800,101

62.1%

Operating expenses:
Sales and marketing

 

685,123

40.5%

 

549,483

42.6%

General and administrative

 

131,488

7.8%

 

111,915

8.7%

Research and development

 

43,633

2.6%

 

28,399

2.2%

Total operating expenses

 

860,244

50.8%

 

689,797

53.5%

Operating income

 

178,879

10.6%

 

110,304

8.6%

Interest expense, net

 

4,400

0.3%

 

8,111

0.6%

Income before income taxes

 

174,479

10.3%

 

102,193

7.9%

Income tax expense

 

31,874

1.9%

 

24,363

1.9%

Net income

$

142,605

8.4%

$

77,830

6.0%

 
Net income per share – basic

$

5.84

$

2.79

 
Net income per share – diluted

$

5.63

$

2.73

 
 
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding

 

24,404

 

27,918

Dilutive effect of stock-based awards

 

920

 

642

Diluted weighted-average shares outstanding

 

25,324

 

28,560

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited – in thousands, except per share amounts)
subject to reclassification
 

October 2,

 

January 2,

2021

 

2021

Assets
Current assets:
Cash and cash equivalents

$

1,830

 

$

4,243

 

Accounts receivable, net of allowances of $1,116 and $1,046, respectively

 

33,388

 

 

31,871

 

Inventories

 

86,129

 

 

81,362

 

Prepaid expenses

 

24,346

 

 

20,839

 

Other current assets

 

49,634

 

 

43,489

 

Total current assets

 

195,327

 

 

181,804

 

 
Non-current assets:
Property and equipment, net

 

184,697

 

 

175,223

 

Operating lease right-of-use assets

 

360,269

 

 

314,226

 

Goodwill and intangible assets, net

 

71,069

 

 

72,871

 

Other non-current assets

 

72,258

 

 

56,012

 

Total assets

$

883,620

 

$

800,136

 

 
Liabilities and Shareholders’ Deficit
Current liabilities:
Borrowings under revolving credit facility

$

359,100

 

$

244,200

 

Accounts payable

 

163,894

 

 

91,904

 

Customer prepayments

 

107,802

 

 

72,017

 

Accrued sales returns

 

28,518

 

 

24,765

 

Compensation and benefits

 

63,896

 

 

76,786

 

Taxes and withholding

 

36,590

 

 

23,339

 

Operating lease liabilities

 

69,316

 

 

62,077

 

Other current liabilities

 

61,767

 

 

60,856

 

Total current liabilities

 

890,883

 

 

655,944

 

 
Non-current liabilities:
Deferred income taxes

 

533

 

 

242

 

Operating lease liabilities

 

327,521

 

 

283,084

 

Other non-current liabilities

 

104,749

 

 

84,844

 

Total non-current liabilities

 

432,803

 

 

368,170

 

Total liabilities

 

1,323,686

 

 

1,024,114

 

 
Shareholders’ deficit:
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding

 

-

 

 

-

 

Common stock, $0.01 par value; 142,500 shares authorized, 22,647 and 25,390 shares issued and outstanding, respectively

 

226

 

 

254

 

Additional paid-in capital

 

-

 

 

-

 

Accumulated deficit

 

(440,292

)

 

(224,232

)

Total shareholders’ deficit

 

(440,066

)

 

(223,978

)

Total liabilities and shareholders’ deficit

$

883,620

 

$

800,136

 

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited - in thousands)
subject to reclassification
 
Nine Months Ended
October 2,September 26,

2021

2020

 
Cash flows from operating activities:
Net income

$

142,605

 

$

77,830

 

Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization

 

44,786

 

 

46,244

 

Stock-based compensation

 

19,701

 

 

15,554

 

Net (gain) loss on disposals and impairments of assets

 

(20

)

 

208

 

Deferred income taxes

 

291

 

 

3,229

 

Changes in operating assets and liabilities:
Accounts receivable

 

(1,517

)

 

(12,710

)

Inventories

 

(4,767

)

 

3,807

 

Income taxes

 

5,615

 

 

5,103

 

Prepaid expenses and other assets

 

(13,879

)

 

3,666

 

Accounts payable

 

51,543

 

 

58,547

 

Customer prepayments

 

35,785

 

 

40,795

 

Accrued compensation and benefits

 

(12,725

)

 

21,376

 

Other taxes and withholding

 

7,636

 

 

4,756

 

Other accruals and liabilities

 

17,630

 

 

18,877

 

Net cash provided by operating activities

 

292,684

 

 

287,282

 

 
Cash flows from investing activities:
Purchases of property and equipment

 

(49,370

)

 

(28,074

)

Proceeds from sales of property and equipment

 

257

 

 

53

 

Purchase of intangible assets

 

-

 

 

(945

)

Net cash used in investing activities

 

(49,113

)

 

(28,966

)

 
Cash flows from financing activities:
Net increase (decrease) in short-term borrowings

 

132,222

 

 

(220,968

)

Repurchases of common stock

 

(381,496

)

 

(41,923

)

Proceeds from issuance of common stock

 

3,847

 

 

4,650

 

Debt issuance costs

 

(557

)

 

(303

)

Net cash used in financing activities

 

(245,984

)

 

(258,544

)

 
Net decrease in cash and cash equivalents

 

(2,413

)

 

(228

)

Cash and cash equivalents, at beginning of period

 

4,243

 

 

1,593

 

Cash and cash equivalents, at end of period

$

1,830

 

$

1,365

 

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
 
 

Three Months Ended

 

Nine Months Ended

October 2,

 

September 26,

 

October 2,

 

September 26,

2021

 

2020

 

2021

 

2020

 
Percent of sales:
Retail stores

 

88.4%

 

86.0%

 

87.5%

 

85.2%

Online, phone, chat and other

 

11.6%

 

14.0%

 

12.5%

 

14.8%

Total Company

 

100.0%

 

100.0%

 

100.0%

 

100.0%

 
Sales change rates:
Retail comparable-store sales

 

19%

 

2%

 

32%

 

(8%)

Online, phone and chat

 

0%

 

111%

 

11%

 

109%

Total Retail comparable sales change

 

16%

 

11%

 

28%

 

1%

Net opened/closed stores and other

 

5%

 

1%

 

3%

 

2%

Total Company

 

21%

 

12%

 

31%

 

3%

 
Stores open:
Beginning of period

 

621

 

598

 

602

 

611

Opened

 

18

 

6

 

55

 

20

Closed

 

(7)

 

(8)

 

(25)

 

(35)

End of period

 

632

 

596

 

632

 

596

 
Other metrics:
Average sales per store ($ in 000's) 1, 4

$

3,689

$

2,920

Average sales per square foot 1, 4

$

1,249

$

1,012

Stores > $2 million net sales 2, 4

 

85%

 

64%

Stores > $3 million net sales 2, 4

 

50%

 

26%

Average revenue per mattress unit 3

$

5,021

$

4,802

$

5,045

$

4,824

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 mattress units.
 

4

Fiscal 2020 included 53 weeks, as compared to 52 weeks in fiscal 2021 and 2019. The additional week in 2020 was in the fiscal fourth quarter. Total Retail comparable sales have been adjusted to remove the estimated impact of the additional week on those metrics.
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:
 

 

 

 

 

Fifty-Three

 

Fifty-Two

Three Months Ended

 

Weeks Ended

 

Weeks Ended

October 2,

 

September 26,

 

October 2,

 

September 26,

2021

 

2020

 

2021

 

2020

 
Net income

$

53,721

$

51,320

$

203,964

$

101,923

Income tax expense

 

17,198

 

16,468

 

44,294

 

30,642

Interest expense

 

1,816

 

1,829

 

5,214

 

10,829

Depreciation and amortization

 

14,820

 

15,083

 

59,539

 

61,071

Stock-based compensation

 

7,317

 

8,470

 

25,961

 

20,177

Asset impairments

 

23

 

11

 

154

 

276

 
Adjusted EBITDA

$

94,895

$

93,181

$

339,126

$

224,918

 
Free Cash Flow
(in thousands)
 

 

 

 

 

Fifty-Three

 

Fifty-Two

Three Months Ended

 

Weeks Ended

 

Weeks Ended

October 2,

 

September 26,

 

October 2,

 

September 26,

2021

 

2020

 

2021

 

2020

 
Net cash provided by operating activities

$

131,264

$

200,281

$

285,063

$

286,610

Subtract: Purchases of property and equipment

 

17,358

 

6,379

 

58,396

 

40,556

 
Free cash flow

$

113,906

$

193,902

$

226,667

$

246,054

 
Calculation of Net Leverage Ratio under Revolving Credit Facility
(in thousands)
 

Fifty-Three

 

Fifty-Two

Weeks Ended

 

Weeks Ended

October 2,

 

September 26,

2021

 

2020

 
Borrowings under revolving credit facility

$

359,100

$

33,500

Outstanding letters of credit

 

3,997

 

3,997

Finance lease obligations

 

566

 

677

Consolidated funded indebtedness

$

363,663

$

38,174

Capitalized operating lease obligations 1

 

593,034

 

546,850

Total debt including capitalized operating lease obligations (a)

$

956,697

$

585,024

 
Adjusted EBITDA (see above)

$

339,126

$

224,918

Consolidated rent expense

 

98,839

 

91,142

Consolidated EBITDAR (b)

$

437,965

$

316,060

 
Net Leverage Ratio under revolving credit facility (a divided by b)2.2 to 1.01.9 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 (ROIC)
(in thousands)
 
ROIC is a financial measure we use to determine how efficiently we deploy our capital. It quantifies the return we earn on our invested capital. Management believes ROIC is also a useful metric for investors and financial analysts. We compute ROIC as outlined below. Our definition and calculation of ROIC may not be comparable to similarly titled definitions and calculations used by other companies. The tables below reconcile net operating profit after taxes (NOPAT) and total invested capital, which are non-GAAP financial measures, to the comparable GAAP financial measures:
 
Fifty-ThreeFifty-Two
Weeks EndedWeeks Ended
October 2,
2021
September 26,
2020
Net operating profit after taxes (NOPAT)
Operating income

$

253,472

 

$

143,295

 

Add: Rent expense 1

 

98,839

 

 

91,142

 

Add: Interest income

 

-

 

 

97

 

Less: Depreciation on capitalized operating leases 2

 

(25,030

)

 

(23,700

)

Less: Income taxes 3

 

(78,975

)

 

(50,584

)

NOPAT

$

248,306

 

$

160,250

 

 
Average invested capital
Total deficit

$

(440,066

)

$

(102,827

)

Add: Long-term debt 4

 

359,666

 

 

34,177

 

Add: Capitalized operating lease obligations 5

 

790,712

 

 

729,136

 

Total invested capital at end of period

$

710,312

 

$

660,486

 

 
Average invested capital 6

$

717,670

 

$

770,197

 

 
Return on invested capital (ROIC) 7

 

34.6

%

 

20.8

%

1

Rent expense is added back to operating income to show the impact of owning versus leasing the related assets.
 

2

Depreciation is based on the average of the last five fiscal quarters' ending capitalized operating lease obligations (see note 5) for the respective reporting periods with an assumed thirty-year useful life. This life assumption is based on our long-term participation in given markets though specific retail location lease commitments are generally 5 to 10 years at inception. This is subtracted from operating income to illustrate the impact of owning versus leasing the related assets.
 

3

Reflects annual effective income tax rates, before discrete adjustments, of 24.1% and 24.0% for 2021 and 2020, respectively.
 

4

Long-term debt includes existing finance lease liabilities.
 

5

A multiple of eight times annual rent expense is used as an estimate for capitalizing our operating lease obligations. The methodology utilized aligns with the methodology of a nationally recognized credit rating agency.
 

6

Average invested capital represents the average of the last five fiscal quarters' ending invested capital balances.
 

7

ROIC equals NOPAT divided by average invested capital.
 
Note - Our 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.
 
GAAP - generally accepted accounting principles in the U.S.

 

View source version on businesswire.com:https://www.businesswire.com/news/home/20211027005966/en/

CONTACT: Investor Contact:Dave Schwantes; (763) 551-7498;investorrelations@sleepnumber.com

Media Contact: Julie Elepano; (414) 732-9840;julie.elepano@sleepnumber.com

KEYWORD: UNITED STATES NORTH AMERICA MINNESOTA

INDUSTRY KEYWORD: HOME GOODS RETAIL SPECIALTY

SOURCE: Sleep Number Corporation

Copyright Business Wire 2021.

PUB: 10/27/2021 04:01 PM/DISC: 10/27/2021 04:02 PM

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