Sleep Number Announces Record Fourth-Quarter and Full-Year 2020 Results

February 17, 2021 4:01 PM EST

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  • Fourth-quarter net sales growth accelerated to 29% versus last year; full-year net sales increased 9% to $1.86 billion
  • Full-year diluted EPS increased 81% versus the prior year to $4.90
  • Generated a 48% increase in operating cash flows, and a trailing twelve-month ROIC of 25%
  • Provides 2021 earnings outlook of at least $6.00 per diluted share, more than doubling EPS in two years

MINNEAPOLIS--(BUSINESS WIRE)-- Sleep Number Corporation (Nasdaq: SNBR) today reported results for the year ended January 2, 2021.

“In a year of challenge and change, our mission-driven team delivered exceptional results by leveraging the power of vertical integration, digitization and focusing on what matters most to our stakeholders,” said Shelly Ibach, President and Chief Executive Officer. “We broadened our sleep leadership and brand relevance with our revolutionary 360® smart beds as consumers’ increased their understanding of the link between proven quality sleep and wellbeing. With strong momentum in the first quarter and ongoing investments in sleep science-based innovations and digital technologies, we are well-positioned to generate sustainable profitable growth for years to come.”

Full Year Overview

  • Net sales increased 9% to $1.86 billion in 2020, including a 6% comparable sales gain, 1.5 percentage points (ppt.) of growth from new stores and 2.5 ppt. of growth from the extra week
  • Gross profit rate increased 40 basis points (bp) to 62.3% of net sales, despite significant disruption from COVID-19 in the second quarter
  • Operating income increased 65% to $185 million, or 10.0% of net sales; increased 55% excluding the 53rd week
  • Earnings per diluted share increased 81% to $4.90; increased 70% excluding the 53rd week
  • Fiscal 2020 included a 53rd week, which we estimate added approximately $41 million in sales, $11.2 million in operating income and $0.30 of diluted earnings per share

Fourth Quarter Overview

  • Net sales increased 29% to $568 million, including a 19% comparable sales gain, one ppt. of growth from new stores and 9 ppt. of growth from the additional week in the fourth quarter
  • Operating income increased 126% to $75 million; increased 92% excluding the 53rd week
  • Earnings per diluted share increased 167% to $2.19; increased 129% excluding the 53rd week

Cash Flows and Liquidity Review

  • Generated a record $280 million in net cash from operating activities, up 48% versus last year, with operating free cash flows of $243 million, up 87% versus prior year
  • Invested $37 million in capital expenditures and $228 million in SNBR share repurchases in 2020, including $190 million in the fourth quarter; more than $1 billion cash returned to shareholders over the past six years; $247 million remains under our share repurchase authorization
  • Return on invested capital (ROIC) of 25% for the year, up 720 bp versus 2019 and more than three times our weighted average cost of capital
  • Leverage ratio of 2.2x EBITDAR at the end of 2020, compared with 2.7x at the end of 2019; continue to operate with a targeted range of 2.5x to 3.0x EBITDAR

Financial Outlook

The company expects to generate full-year 2021 earnings per diluted share of at least $6.00, which is 30% higher than 2020 full-year results excluding the impact of the 53rd week. The outlook assumes an estimated effective income tax rate of approximately 23% (including an estimated $5 million of excess tax benefits related to stock-based compensation largely in Q1), compared to an effective tax rate of 20.9% for 2020. The company anticipates 2021 capital expenditures of $70 million to $75 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.

About Sleep Number Corporation

Individuality is our foundation at Sleep Number. Our purpose driven company is comprised of over 4,800 passionate team members who are dedicated to our mission of improving lives by individualizing sleep experiences. Our 360® smart beds provide each sleeper with adjustable, personalized comfort for proven quality sleep. We have improved over 13 million lives as we strive to improve society’s wellbeing through higher quality sleep.

Sleep science and data are the core of our innovations. Our award-winning 360 smart beds benefit from our proprietary SleepIQ® technology - learning from over 9 billion hours of highly accurate sleep data - to provide effortless comfort and individualized sleep health insights, including your daily SleepIQ® score.

For life-changing sleep, visit SleepNumber.com or one of our more than 600 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 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)

Fourteen

 

 

 

Thirteen

 

 

Weeks Ended

 

 

 

Weeks Ended

 

 

January 2,

 

% of

 

December 28,

 

% of

2021

 

Net Sales

 

2019

 

Net Sales

 
Net sales

$

567,896

100.0

%

$

441,166

100.0

%

Cost of sales

 

211,997

37.3

%

 

165,052

37.4

%

Gross profit

 

355,899

62.7

%

 

276,114

62.6

%

Operating expenses:
Sales and marketing

 

221,712

39.0

%

 

198,123

44.9

%

General and administrative

 

47,084

8.3

%

 

35,490

8.0

%

Research and development

 

12,511

2.2

%

 

9,510

2.2

%

Total operating expenses

 

281,307

49.5

%

 

243,123

55.1

%

Operating income

 

74,592

13.1

%

 

32,991

7.5

%

Interest expense, net

 

813

0.1

%

 

2,619

0.6

%

Income before income taxes

 

73,779

13.0

%

 

30,372

6.9

%

Income tax expense

 

12,420

2.2

%

 

6,279

1.4

%

Net income

$

61,359

10.8

%

$

24,093

5.5

%

 
Net income per share – basic

$

2.28

$

0.85

 
Net income per share – diluted

$

2.19

$

0.82

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

 

26,960

 

28,309

Dilutive effect of stock-based awards

 

1,100

 

1,047

Diluted weighted-average shares outstanding

 

28,060

 

29,356

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)

Fifty-Three

 

 

 

Fifty-Two

 

 

Weeks Ended

 

 

 

Weeks Ended

 

 

January 2,

 

% of

 

December 28,

 

% of

2021

 

Net Sales

 

2019

 

Net Sales

 
Net sales

$

1,856,555

100.0

%

$

1,698,352

100.0

%

Cost of sales

 

700,555

37.7

%

 

646,429

38.1

%

Gross profit

 

1,156,000

62.3

%

 

1,051,923

61.9

%

Operating expenses:
Sales and marketing

 

771,195

41.5

%

 

766,922

45.2

%

General and administrative

 

158,999

8.6

%

 

137,956

8.1

%

Research and development

 

40,910

2.2

%

 

34,950

2.1

%

Total operating expenses

 

971,104

52.3

%

 

939,828

55.3

%

Operating income

 

184,896

10.0

%

 

112,095

6.6

%

Interest expense, net

 

8,924

0.5

%

 

11,587

0.7

%

Income before income taxes

 

175,972

9.5

%

 

100,508

5.9

%

Income tax expense

 

36,783

2.0

%

 

18,663

1.1

%

Net income

$

139,189

7.5

%

$

81,845

4.8

%

 
Net income per share – basic

$

5.03

$

2.78

 
Net income per share – diluted

$

4.90

$

2.70

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

 

27,665

 

29,472

Dilutive effect of stock-based awards

 

763

 

883

Diluted weighted-average shares outstanding

 

28,428

 

30,355

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

January 2,

 

December 28,

2021

 

2019

Assets
Current assets:
Cash and cash equivalents

$

4,243

 

$

1,593

 

Accounts receivable, net of allowance for doubtful accounts
of $1,046 and $898, respectively

 

31,871

 

 

19,978

 

Inventories

 

81,362

 

 

87,065

 

Prepaid expenses

 

20,839

 

 

15,335

 

Other current assets

 

43,489

 

 

36,397

 

Total current assets

 

181,804

 

 

160,368

 

 
Non-current assets:
Property and equipment, net

 

175,223

 

 

197,421

 

Operating lease right-of-use assets

 

314,226

 

 

327,017

 

Goodwill and intangible assets, net

 

72,871

 

 

73,226

 

Other non-current assets

 

56,012

 

 

48,011

 

Total assets

$

800,136

 

$

806,043

 

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

$

244,200

 

$

231,000

 

Accounts payable

 

91,904

 

 

134,594

 

Customer prepayments

 

72,017

 

 

34,248

 

Accrued sales returns

 

24,765

 

 

19,809

 

Compensation and benefits

 

76,786

 

 

40,321

 

Taxes and withholding

 

23,339

 

 

22,171

 

Operating lease liabilities

 

62,077

 

 

59,561

 

Other current liabilities

 

60,856

 

 

53,070

 

Total current liabilities

 

655,944

 

 

594,774

 

 
Non-current liabilities:
Deferred income taxes

 

242

 

 

3,808

 

Operating lease liabilities

 

283,084

 

 

298,090

 

Other non-current liabilities

 

84,844

 

 

68,802

 

Total non-current liabilities

 

368,170

 

 

370,700

 

Total liabilities

 

1,024,114

 

 

965,474

 

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

 

-

 

 

-

 

Common stock, $0.01 par value; 142,500 shares authorized,
25,390 and 27,961 shares issued and outstanding, respectively

 

254

 

 

280

 

Additional paid-in capital

 

-

 

 

-

 

Accumulated deficit

 

(224,232

)

 

(159,711

)

Total shareholders’ deficit

 

(223,978

)

 

(159,431

)

Total liabilities and shareholders’ deficit

$

800,136

 

$

806,043

 

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited - in thousands)
subject to reclassification

Fifty-Three

 

Fifty-Two

Weeks Ended

 

Weeks Ended

January 2,

 

December 28,

2021

 

2019

 
Cash flows from operating activities:
Net income

$

139,189

 

$

81,845

 

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

 

61,563

 

 

61,866

 

Stock-based compensation

 

21,813

 

 

16,657

 

Net loss (gain) on disposals and impairments of assets

 

247

 

 

(430

)

Deferred income taxes

 

(3,566

)

 

(1,014

)

Changes in operating assets and liabilities:
Accounts receivable

 

(11,893

)

 

4,817

 

Inventories

 

5,703

 

 

(2,183

)

Income taxes

 

1,057

 

 

3,066

 

Prepaid expenses and other assets

 

(13,717

)

 

(13,959

)

Accounts payable

 

(16,755

)

 

10,661

 

Customer prepayments

 

37,769

 

 

7,182

 

Accrued compensation and benefits

 

36,825

 

 

12,920

 

Other taxes and withholding

 

111

 

 

725

 

Other accruals and liabilities

 

21,315

 

 

7,007

 

Net cash provided by operating activities

 

279,661

 

 

189,160

 

 
Cash flows from investing activities:
Purchases of property and equipment

 

(37,100

)

 

(59,239

)

Proceeds from sales of property and equipment

 

55

 

 

2,615

 

Purchase of intangible assets

 

(1,973

)

 

-

 

Net cash used in investing activities

 

(39,018

)

 

(56,624

)

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

 

(11,639

)

 

26,357

 

Repurchases of common stock

 

(235,644

)

 

(165,079

)

Proceeds from issuance of common stock

 

9,602

 

 

7,190

 

Debt issuance costs

 

(312

)

 

(1,023

)

Net cash used in financing activities

 

(237,993

)

 

(132,555

)

 
Net increase (decrease) in cash and cash equivalents

 

2,650

 

 

(19

)

Cash and cash equivalents, at beginning of period

 

1,593

 

 

1,612

 

Cash and cash equivalents, at end of period

$

4,243

 

$

1,593

 

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
 

Fourteen

 

Thirteen

 

Fifty-Three

 

Fifty-Two

Weeks Ended

 

Weeks Ended

 

Weeks Ended

 

Weeks Ended

January 2,

 

December 28,

 

January 2,

 

December 28,

2021

 

2019

 

2021

 

2019

 
Percent of sales:
Retail

 

85.3

%

 

90.8

%

 

85.2

%

 

91.8

%

Online and phone

 

14.5

%

 

9.0

%

 

14.5

%

 

7.6

%

Wholesale/other

 

0.2

%

 

0.2

%

 

0.3

%

 

0.6

%

Total Company

 

100.0

%

 

100.0

%

 

100.0

%

 

100.0

%

 
Sales change rates:
Retail comparable-store sales 4

 

12

%

 

1

%

 

(3

%)

 

6

%

Online and phone 4

 

93

%

 

16

%

 

104

%

 

12

%

Total Retail comparable sales change 4

 

19

%

 

2

%

 

6

%

 

6

%

Net opened/closed stores and 53rd week

 

10

%

 

5

%

 

4

%

 

5

%

Total Retail

 

29

%

 

7

%

 

10

%

 

11

%

Wholesale/other

 

25

%

 

(56

%)

 

(52

%)

 

(24

%)

Total Company

 

29

%

 

7

%

 

9

%

 

11

%

 
Stores open:
Beginning of period

 

596

 

 

602

 

 

611

 

 

579

 

Opened

 

10

 

 

12

 

 

30

 

 

59

 

Closed

 

(4

)

 

(3

)

 

(39

)

 

(27

)

End of period

 

602

 

 

611

 

 

602

 

 

611

 

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

$

3,052

 

$

2,877

 

Average sales per square foot 1, 4

$

1,051

 

$

1,034

 

Stores > $2 million net sales 2, 4

 

67

%

 

70

%

Stores > $3 million net sales 2, 4

 

29

%

 

30

%

Average revenue per mattress unit 3

$

4,931

 

$

4,945

 

$

4,856

 

$

4,865

 

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 and phone sales).

3

Represents Total Retail net sales divided by Total Retail mattress units.

4

Fiscal 2020 included 53 weeks, as compared to 52 weeks in fiscal 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 the three and twelve months ended January 2, 2021.
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:

Fourteen

 

Thirteen

 

Fifty-Three

 

Fifty-Two

Weeks Ended

 

Weeks Ended

 

Weeks Ended

 

Weeks Ended

January 2,

 

December 28,

 

January 2,

 

December 28,

2021

 

2019

 

2021

 

2019

 
Net income

$

61,359

 

$

24,093

 

$

139,189

$

81,845

Income tax expense

 

12,420

 

 

6,279

 

 

36,783

 

18,663

Interest expense

 

813

 

 

2,621

 

 

9,021

 

11,591

Depreciation and amortization

 

15,194

 

 

15,482

 

 

60,783

 

61,410

Stock-based compensation

 

6,259

 

 

4,623

 

 

21,813

 

16,657

Asset impairments

 

42

 

 

16

 

 

302

 

185

 
Adjusted EBITDA

$

96,087

 

$

53,114

 

$

267,891

$

190,351

 
Free Cash Flow
(in thousands)
 

Fourteen

 

Thirteen

 

Fifty-Three

 

Fifty-Two

Weeks Ended

 

Weeks Ended

 

Weeks Ended

 

Weeks Ended

January 2,

 

December 28,

 

January 2,

 

December 28,

2021

 

2019

 

2021

 

2019

 
Net cash (used in) provided by operating activities

$

(7,621

)

$

(672

)

$

279,661

$

189,160

Subtract: Purchases of property and equipment

 

9,026

 

 

12,482

 

 

37,100

 

59,239

 
Free cash flow

$

(16,647

)

$

(13,154

)

$

242,561

$

129,921

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

Fifty-Three

 

Fifty-Two

Weeks Ended

 

Weeks Ended

January 2,

 

December 28,

2021

 

2019

 
Borrowings under credit facility

$

244,200

$

231,000

Outstanding letters of credit

 

3,997

 

3,497

Finance lease obligations

 

650

 

756

Consolidated funded indebtedness

$

248,847

$

235,253

Capitalized operating lease obligations1

 

548,749

 

527,008

Total debt including capitalized operating lease obligations (a)

$

797,596

$

762,261

 
Adjusted EBITDA (see above)

$

267,891

$

190,351

Consolidated rent expense

 

91,458

 

87,835

Consolidated EBITDAR (b)

$

359,349

$

278,186

 
Net Leverage Ratio under credit facility (a divided by b) 2.2 to 1.0 2.7 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 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
January 2,
2021
December 28,
2019
Net operating profit after taxes (NOPAT)
Operating income

$

184,896

 

$

112,095

 

Add: Rent expense 1

 

91,458

 

 

87,835

 

Add: Interest income

 

97

 

 

3

 

Less: Depreciation on capitalized operating leases 2

 

(24,001

)

 

(22,358

)

Less: Income taxes 3

 

(59,387

)

 

(42,592

)

NOPAT

$

193,063

 

$

134,983

 

 
Average invested capital
Total deficit

$

(223,978

)

$

(159,431

)

Add: Long-term debt 4

 

244,849

 

 

231,756

 

Add: Capitalized operating lease obligations 5

 

731,664

 

 

702,680

 

Total invested capital at end of period

$

752,535

 

$

775,005

 

 
Average invested capital 6

$

773,413

 

$

757,361

 

 
Return on invested capital (ROIC) 7

 

25.0

%

 

17.8

%

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 23.5% and 24.0% for 2020 and 2019, 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.

 

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

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

Source: Sleep Number Corporation



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