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

Sleep Number Announces Record Second Quarter 2021 Results

July 20, 2021 GMT

MINNEAPOLIS--(BUSINESS WIRE)--Jul 20, 2021--

Sleep Number Corporation (Nasdaq: SNBR) today reported results for the quarter ended July 3, 2021.

“Our differentiated sleep solutions have driven 18% average demand growth over the last twelve quarters including further acceleration in the second quarter,” said Shelly Ibach, President and CEO. “Robust consumer demand for Sleep Number 360 ® smart beds exceeded our expectations, while near-term supply constraints limited delivered net sales in June and July. We have made substantial progress in addressing temporary component shortages and expect strong delivery volumes the balance of the year. Sleep Number teams are driving higher than expected operational efficiencies, including operating profit margin expansion of 500 basis points versus the first half of 2019. We are raising our guidance for 2021 EPS to at least $7.25.”

Financial Overview

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  • Net sales year to date increased 39% compared with last year to $1.05 billion and were up 35% versus the first half of 2019; average trailing twelve-months (ttm) sales per store were more than $3.5 million; supply constraints limited second-quarter deliveries
  • Gross profit year to date increased 39% to $649 million, or 61.6% of net sales, compared with 61.4% in 2020, and 61.3% in 2019 comparable periods
  • Operating income year to date increased 161% to $106 million, or 10.1% of net sales, compared with 5.4% in 2020, and 5.1% in 2019 comparable periods
  • Earnings per diluted share year to date increased 270% to a record $3.44 compared with $0.93 in 2020, and $0.95 in 2019 comparable periods

Cash Flows and Liquidity Review

  • Generated $161 million in net cash from operating activities for the first six months of 2021, up 86% versus last year and 129% greater than the first six months of 2019
  • Invested $32 million in capital expenditures and $267 million in Sleep Number stock during the first six months of 2021
  • Leverage ratio of 2.2x EBITDAR at the end of the second quarter, compared with 2.8x a year ago and our 2.5x-3.0x longer-term target
  • Increased return on invested capital (ROIC) to more than 33% for the ttm period, compared with 17.2% for the prior-year comparable period

Financial Outlook
The company raised its 2021 earnings per diluted share outlook to at least $7.25, which is at least 58% greater than 2020 full-year results excluding the impact of the 53rd week and nearly three times 2019 EPS. The outlook assumes an estimated effective income tax rate of 25% for the balance of the year. The company expects to generate more than $300 million of operating cash flows in 2021 with capital expenditures of approximately $75 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 11 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 approximately 620 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
July 3, % of June 27, % of

2021

Net Sales

2020

Net Sales
 
Net sales

$

484,316

100.0

%

$

284,938

 

100.0

%

Cost of sales

 

191,465

39.5

%

 

121,928

 

42.8

%

Gross profit

 

292,851

60.5

%

 

163,010

 

57.2

%

Operating expenses:
Sales and marketing

 

205,994

42.5

%

 

130,165

 

45.7

%

General and administrative

 

41,220

8.5

%

 

36,716

 

12.9

%

Research and development

 

15,916

3.3

%

 

8,254

 

2.9

%

Total operating expenses

 

263,130

54.3

%

 

175,135

 

61.5

%

Operating income (loss)

 

29,721

6.1

%

 

(12,125

)

(4.3

%)

Interest expense, net

 

1,607

0.3

%

 

3,940

 

1.4

%

Income (loss) before income taxes

 

28,114

5.8

%

 

(16,065

)

(5.6

%)

Income tax expense (benefit)

 

5,864

1.2

%

 

(3,435

)

(1.2

%)

Net income (loss)

$

22,250

4.6

%

$

(12,630

)

(4.4

%)

 
Net income (loss) per share – basic

$

0.91

$

(0.45

)

 
Net income (loss) per share – diluted

$

0.88

$

(0.45

)

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

 

24,371

 

27,923

 

Dilutive effect of stock-based awards 1

 

823

 

-

 

Diluted weighted-average shares outstanding 1

 

25,194

 

27,923

 

 

1

For the three months ended June 27, 2020, potentially dilutive stock-based awards have been excluded from the calculation of diluted weighted-average shares outstanding, as their inclusion would have had an anti-dilutive effect on our net loss per diluted share.

 
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
 
Six Months Ended
July 3, % of June 27, % of

2021

Net Sales

2020

Net Sales
 
Net sales

$

1,052,572

100.0

%

$

757,504

100.0

%

Cost of sales

 

403,803

38.4

%

 

292,363

38.6

%

Gross profit

 

648,769

61.6

%

 

465,141

61.4

%

Operating expenses:
Sales and marketing

 

429,611

40.8

%

 

337,909

44.6

%

General and administrative

 

83,812

8.0

%

 

67,788

8.9

%

Research and development

 

29,202

2.8

%

 

18,755

2.5

%

Total operating expenses

 

542,625

51.6

%

 

424,452

56.0

%

Operating income

 

106,144

10.1

%

 

40,689

5.4

%

Interest expense, net

 

2,584

0.2

%

 

6,284

0.8

%

Income before income taxes

 

103,560

9.8

%

 

34,405

4.5

%

Income tax expense

 

14,676

1.4

%

 

7,895

1.0

%

Net income

$

88,884

8.4

%

$

26,510

3.5

%

 
Net income per share – basic

$

3.57

$

0.95

 
Net income per share – diluted

$

3.44

$

0.93

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

 

24,874

 

27,890

Dilutive effect of stock-based awards

 

995

 

633

Diluted weighted-average shares outstanding

 

25,869

 

28,523

 
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited – in thousands, except per share amounts)
subject to reclassification
 
July 3, January 2,

2021

2021

Assets
Current assets:
Cash and cash equivalents

$

2,173

 

$

4,243

 

Accounts receivable, net of allowances of $1,098 and $1,046, respectively

 

23,205

 

 

31,871

 

Inventories

 

88,577

 

 

81,362

 

Income taxes receivable

 

1,578

 

 

-

 

Prepaid expenses

 

28,900

 

 

20,839

 

Other current assets

 

42,564

 

 

43,489

 

Total current assets

 

186,997

 

 

181,804

 

 
Non-current assets:
Property and equipment, net

 

182,398

 

 

175,223

 

Operating lease right-of-use assets

 

344,423

 

 

314,226

 

Goodwill and intangible assets, net

 

71,669

 

 

72,871

 

Other non-current assets

 

69,009

 

 

56,012

 

Total assets

$

854,496

 

$

800,136

 

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

$

382,200

 

$

244,200

 

Accounts payable

 

129,922

 

 

91,904

 

Customer prepayments

 

119,435

 

 

72,017

 

Accrued sales returns

 

21,217

 

 

24,765

 

Compensation and benefits

 

54,219

 

 

76,786

 

Taxes and withholding

 

13,779

 

 

23,339

 

Operating lease liabilities

 

67,648

 

 

62,077

 

Other current liabilities

 

57,708

 

 

60,856

 

Total current liabilities

 

846,128

 

 

655,944

 

 
Non-current liabilities:
Deferred income taxes

 

663

 

 

242

 

Operating lease liabilities

 

311,672

 

 

283,084

 

Other non-current liabilities

 

99,691

 

 

84,844

 

Total non-current liabilities

 

412,026

 

 

368,170

 

Total liabilities

 

1,258,154

 

 

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, 23,622 and 25,390 shares issued and outstanding, respectively

 

236

 

 

254

 

Additional paid-in capital

 

-

 

 

-

 

Accumulated deficit

 

(403,894

)

 

(224,232

)

Total shareholders’ deficit

 

(403,658

)

 

(223,978

)

Total liabilities and shareholders’ deficit

$

854,496

 

$

800,136

 

 
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited - in thousands)
subject to reclassification
 
Six Months Ended
July 3, June 27,

2021

2020

 
Cash flows from operating activities:
Net income

$

88,884

 

$

26,510

 

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

 

29,800

 

 

30,811

 

Stock-based compensation

 

12,385

 

 

7,084

 

Net loss on disposals and impairments of assets

 

78

 

 

224

 

Deferred income taxes

 

421

 

 

4,383

 

Changes in operating assets and liabilities:
Accounts receivable

 

8,666

 

 

4,224

 

Inventories

 

(7,215

)

 

5,391

 

Income taxes

 

(11,625

)

 

2,508

 

Prepaid expenses and other assets

 

(13,407

)

 

7,018

 

Accounts payable

 

23,232

 

 

(14,804

)

Customer prepayments

 

47,418

 

 

16,987

 

Accrued compensation and benefits

 

(22,387

)

 

(7,405

)

Other taxes and withholding

 

487

 

 

(3,594

)

Other accruals and liabilities

 

4,683

 

 

7,664

 

Net cash provided by operating activities

 

161,420

 

 

87,001

 

 
Cash flows from investing activities:
Purchases of property and equipment

 

(32,012

)

 

(21,695

)

Proceeds from sales of property and equipment

 

12

 

 

25

 

Purchase of intangible assets

 

-

 

 

(945

)

Net cash used in investing activities

 

(32,000

)

 

(22,615

)

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

 

146,447

 

 

(26,364

)

Repurchases of common stock

 

(280,915

)

 

(41,774

)

Proceeds from issuance of common stock

 

3,535

 

 

4,100

 

Debt issuance costs

 

(557

)

 

(290

)

Net cash used in financing activities

 

(131,490

)

 

(64,328

)

 
Net (decrease) increase in cash and cash equivalents

 

(2,070

)

 

58

 

Cash and cash equivalents, at beginning of period

 

4,243

 

 

1,593

 

Cash and cash equivalents, at end of period

$

2,173

 

$

1,651

 

 
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
 
 
Three Months Ended Six Months Ended
July 3, June 27, July 3, June 27,

2021

2020

2021

2020

 
Percent of sales:
Retail stores

 

88.1

%

 

72.2

%

 

87.0

%

 

84.6

%

Online, phone, chat and other

 

11.9

%

 

27.8

%

 

13.0

%

 

15.4

%

Total Company

 

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

 
Sales change rates:
Retail comparable-store sales

 

102

%

 

(40

%)

 

41

%

 

(14

%)

Online, phone and chat

 

(28

%)

 

209

%

 

17

%

 

107

%

Total Retail comparable sales change

 

65

%

 

(21

%)

 

37

%

 

(5

%)

Net opened/closed stores and other

 

5

%

 

1

%

 

2

%

 

2

%

Total Company

 

70

%

 

(20

%)

 

39

%

 

(3

%)

 
Stores open:
Beginning of period

 

607

 

 

611

 

 

602

 

 

611

 

Opened

 

26

 

 

6

 

 

37

 

 

14

 

Closed

 

(12

)

 

(19

)

 

(18

)

 

(27

)

End of period

 

621

 

 

598

 

 

621

 

 

598

 

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

$

3,542

 

$

2,830

 

Average sales per square foot 1, 4

$

1,203

 

$

988

 

Stores > $2 million net sales 2, 4

 

82

%

 

63

%

Stores > $3 million net sales 2, 4

 

47

%

 

25

%

Average revenue per mattress unit 3

$

5,094

 

$

4,767

 

$

5,059

 

$

4,839

 

 

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
July 3, June 27, July 3, June 27,

2021

2020

2021

2020

 
Net income (loss)

$

22,250

$

(12,630

)

$

201,563

$

78,657

Income tax expense (benefit)

 

5,864

 

(3,435

)

 

43,564

 

22,141

Interest expense

 

1,607

 

4,022

 

 

5,227

 

12,131

Depreciation and amortization

 

15,006

 

15,253

 

 

59,802

 

60,951

Stock-based compensation

 

5,968

 

5,033

 

 

27,114

 

15,853

Asset impairments

 

-

 

246

 

 

142

 

294

 
Adjusted EBITDA

$

50,695

$

8,489

 

$

337,412

$

190,027

 
Free Cash Flow
(in thousands)
 
Fifty-Three Fifty-Two
Three Months Ended Weeks Ended Weeks Ended
July 3, June 27, July 3, June 27,

2021

2020

2021

2020

 
Net cash provided by operating activities

$

49,822

$

2,060

 

$

354,080

$

205,814

Subtract: Purchases of property and equipment

 

20,466

 

11,344

 

 

47,417

 

47,038

 
Free cash flow

$

29,356

$

(9,284

)

$

306,663

$

158,776

 
Calculation of Net Leverage Ratio under Revolving Credit Facility
(in thousands)
 
Fifty-Three Fifty-Two
Weeks Ended Weeks Ended
July 3, June 27,

2021

2020

 
Borrowings under revolving credit facility

$

382,200

$

227,240

Outstanding letters of credit

 

3,997

 

3,997

Finance lease obligations

 

594

 

704

Consolidated funded indebtedness

$

386,791

$

231,941

Capitalized operating lease obligations 1

 

571,358

 

542,095

Total debt including capitalized operating lease obligations (a)

$

958,149

$

774,036

 
Adjusted EBITDA (see above)

$

337,412

$

190,027

Consolidated rent expense

 

95,226

 

90,349

Consolidated EBITDAR (b)

$

432,638

$

280,376

 
Net Leverage Ratio under revolving credit facility (a divided by b) 2.2 to 1.0 2.8 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-Three Fifty-Two
Weeks Ended Weeks Ended
July 3,
2021
June 27,
2020
Net operating profit after taxes (NOPAT)
Operating income

$

250,352

 

$

112,831

 

Add: Rent expense 1

 

95,226

 

 

90,349

 

Add: Interest income

 

2

 

 

97

 

Less: Depreciation on capitalized operating leases 2

 

(24,577

)

 

(23,331

)

Less: Income taxes 3

 

(76,939

)

 

(42,735

)

NOPAT

$

244,064

 

$

137,211

 

 
Average invested capital
Total deficit

$

(403,658

)

$

(163,018

)

Add: Long-term debt 4

 

382,794

 

 

227,944

 

Add: Capitalized operating lease obligations 5

 

761,808

 

 

722,792

 

Total invested capital at end of period

$

740,944

 

$

787,718

 

 
Average invested capital 6

$

733,151

 

$

797,862

 

 
Return on invested capital (ROIC) 7

 

33.3

%

 

17.2

%

 

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 24.0% and 23.7% 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/20210720006022/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: RETAIL CONSUMER ELECTRONICS TECHNOLOGY OTHER RETAIL HOME GOODS SPECIALTY

SOURCE: Sleep Number Corporation

Copyright Business Wire 2021.

PUB: 07/20/2021 04:01 PM/DISC: 07/20/2021 04:01 PM

http://www.businesswire.com/news/home/20210720006022/en