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Form 8-K Sleep Number Corp For: Apr 21

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April 21, 2021 4:22 PM EDT
Exhibit 99.1
snbrlogojpg1a.jpg
FOR IMMEDIATE RELEASE
SLEEP NUMBER ANNOUNCES RECORD FIRST QUARTER 2021 RESULTS
RAISES FULL-YEAR EARNINGS OUTLOOK

•Increased first-quarter net sales 20% and demand more than 30% year-over-year
•More than $50 million of deliveries (two weeks) shifted out of the quarter due to temporary foam supply constraints
•Operating income increased 45% to 13.4% of net sales, up 220 bp, with a 31% increase in operating cash flows
•Grew first-quarter diluted earnings per share 85% to a record $2.51
•Raised full-year 2021 EPS outlook to at least $6.50 versus prior EPS outlook of at least $6.00

MINNEAPOLIS – (April 21, 2021) – Sleep Number Corporation (Nasdaq: SNBR) today reported results for the quarter ended April 3, 2021.

“Guided by our purpose to improve the health and wellbeing of society through higher quality sleep, Sleep Number is broadening our brand relevance and driving significant performance acceleration,” said Shelly Ibach, President and CEO. “Our first-quarter demand growth of greater than 30% demonstrates consumers’ enthusiastic response to our sleep science-based innovations, digital solutions and authentic mission-driven culture. Sleep Number is improving millions of lives through better quality sleep, while delivering exceptional value for all stakeholders.”

First Quarter Overview
•Net sales increased 20% to $568 million with a 20% comparable store sales gain; more than $50 million of deliveries (two weeks) shifted out of the quarter due to temporary foam supply constraints
•Gross profit increased 18% to a record $356 million or 62.6% of net sales
•Operating income increased 45% to $76 million, or 13.4% of net sales, up 220 bp versus the prior-year’s first quarter
•Earnings per diluted share increased 85% to a record $2.51

Cash Flows and Liquidity Review
•Generated $112 million in net cash from operating activities in the first quarter, up 31% versus the prior year; invested $12 million in capital expenditures and $167 million in Sleep Number stock
•Leverage ratio of 2.3x EBITDAR at the end of the first quarter, compared with 2.6x a year ago
•Increased return on invested capital (ROIC) to 27.6% for the trailing twelve-month period, up 850 bp versus the prior-year comparable period
•Amended revolving credit facility to expand the aggregate availability from $450 million to $600 million

Share Repurchase Authorization
The company also replenished its outstanding share repurchase authorization to $600 million, effective at the beginning of the fiscal second quarter. The company remains committed to its capital deployment priorities focused on performance drivers.

Financial Outlook
The company raised its 2021 earnings per diluted share outlook to at least $6.50, which is more than 40%
greater than 2020 full-year results excluding the impact of the 53rd week. The outlook assumes an estimated effective income tax rate of 25% for the balance of the year. The company expects to generate approximately $300 million of operating cash flows in 2021 with capital expenditures of approximately $75 million.

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.


Sleep Number Announces First-quarter 2021 Results - Page 2 of 8
About Sleep Number Corporation
Individuality is our foundation at 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. 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.

# # #

Investor Contact: Dave Schwantes; (763) 551-7498; investorrelations@sleepnumber.com
Media Contact: Julie Elepano; (414) 732-9840; julie.elepano@sleepnumber.com


Sleep Number Announces First-quarter 2021 Results - Page 3 of 8

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
 
Three Months Ended
 April 3,
2021		% of
Net Sales		March 28,
2020		% of
Net Sales
Net sales$568,256 100.0 %$472,566 100.0 %
Cost of sales212,338 37.4 %170,435 36.1 %
Gross profit355,918 62.6 %302,131 63.9 %
Operating expenses:
Sales and marketing223,617 39.4 %207,744 44.0 %
General and administrative42,592 7.5 %31,072 6.6 %
Research and development13,286 2.3 %10,501 2.2 %
Total operating expenses279,495 49.2 %249,317 52.8 %
Operating income76,423 13.4 %52,814 11.2 %
Interest expense, net977 0.2 %2,344 0.5 %
Income before income taxes75,446 13.3 %50,470 10.7 %
Income tax expense8,812 1.6 %11,330 2.4 %
Net income$66,634 11.7 %$39,140 8.3 %
Net income per share – basic$2.63  $1.40  
Net income per share – diluted$2.51  $1.36  
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding25,377  27,858  
Dilutive effect of stock-based awards1,167  914  
Diluted weighted-average shares outstanding26,544  28,772  


 


Sleep Number Announces First-quarter 2021 Results - Page 4 of 8
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited - in thousands, except per share amounts)
subject to reclassification
  
 April 3,
2021		January 2,
2021
Assets  
Current assets:  
Cash and cash equivalents$2,238 $4,243 
Accounts receivable, net of allowances of $1,028 and $1,046, respectively
25,923 31,871 
Inventories82,308 81,362 
Prepaid expenses27,189 20,839 
Other current assets33,844 43,489 
Total current assets171,502 181,804 
Non-current assets:  
Property and equipment, net182,113 175,223 
Operating lease right-of-use assets329,714 314,226 
Goodwill and intangible assets, net72,270 72,871 
Other non-current assets66,610 56,012 
Total assets$822,209 $800,136 
Liabilities and Shareholders’ Deficit  
Current liabilities:  
Borrowings under revolving credit facility$314,900 $244,200 
Accounts payable122,098 91,904 
Customer prepayments92,569 72,017 
Accrued sales returns24,610 24,765 
Compensation and benefits42,185 76,786 
Taxes and withholding39,098 23,339 
Operating lease liabilities64,076 62,077 
Other current liabilities57,833 60,856 
Total current liabilities757,369 655,944 
Non-current liabilities:
Deferred income taxes1,757 242 
Operating lease liabilities298,475 283,084 
Other non-current liabilities97,258 84,844 
Total non-current liabilities397,490 368,170 
Total liabilities1,154,859 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, 24,464 and
    25,390 shares issued and outstanding, respectively
245 254 
Additional paid-in capital— — 
Accumulated deficit(332,895)(224,232)
Total shareholders’ deficit(332,650)(223,978)
Total liabilities and shareholders’ deficit$822,209 $800,136 


Sleep Number Announces First-quarter 2021 Results - Page 5 of 8
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited – in thousands)
subject to reclassification
 
 Three Months Ended
 April 3,
2021		March 28,
2020
Cash flows from operating activities:  
Net income$66,634 $39,140 
Adjustments to reconcile net income to net cash provided by
   operating activities:
Depreciation and amortization14,638 15,371 
Stock-based compensation6,416 2,051 
Net loss (gain) on disposals and impairments of assets78 (22)
Deferred income taxes1,515 5,334 
Changes in operating assets and liabilities:
Accounts receivable5,948 12,808 
Inventories(946)5,044 
Income taxes6,847 5,798 
Prepaid expenses and other assets(3,113)7,478 
Accounts payable12,390 11,282 
Customer prepayments20,552 (8,432)
Accrued compensation and benefits(34,605)(13,157)
Other taxes and withholding8,912 (479)
Other accruals and liabilities6,332 2,725 
Net cash provided by operating activities111,598 84,941 
Cash flows from investing activities:
Purchases of property and equipment(11,546)(10,351)
Proceeds from sales of property and equipment12 25 
Net cash used in investing activities(11,534)(10,326)
Cash flows from financing activities:
Net increase in short-term borrowings74,087 201,170 
Repurchases of common stock(178,613)(41,445)
Proceeds from issuance of common stock2,460 3,283 
Debt issuance costs(3)(3)
Net cash (used in) provided by financing activities(102,069)163,005 
Net (decrease) increase in cash and cash equivalents(2,005)237,620 
Cash and cash equivalents, at beginning of period4,243 1,593 
Cash and cash equivalents, at end of period$2,238 $239,213 


Sleep Number Announces First-quarter 2021 Results - Page 6 of 8
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
 
 Three Months Ended
 April 3,
2021		March 28,
2020
Percent of sales:  
Retail stores86.1 %92.1 %
Online, phone, chat and other13.9 %7.9 %
Total Company100.0 %100.0 %
Sales change rates:
Retail comparable-store sales12 %6 %
Online, phone and chat116 %21 %
Total Retail comparable sales change20 %7 %
Net opened/closed stores and other0 %4 %
Total Company20 %11 %
Stores open:
Beginning of period602 611 
Opened11 8 
Closed(6)(8)
End of period607 611 
Other metrics:
Average sales per store ($ in 000's) 1, 4
$3,196 $2,932 
Average sales per square foot 1, 4
$1,095 $1,040 
Stores > $2 million net sales 2, 4
71 %71 %
Stores > $3 million net sales 2, 4
33 %32 %
Average revenue per mattress unit 3
$5,030 $4,884 

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 Announces First-quarter 2021 Results - Page 7 of 8
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:
Three Months EndedFifty-Three
Weeks Ended		Fifty-Two
Weeks Ended
 April 3,
2021		March 28,
2020		April 3,
2021		March 28,
2020
Net income$66,634 $39,140 $166,683 $95,567 
Income tax expense8,812 11,330 34,265 25,313 
Interest expense978 2,357 7,642 11,338 
Depreciation and amortization14,519 15,253 60,049 61,026 
Stock-based compensation6,417 2,051 26,179 15,070 
Asset impairments89 3 388 49 
Adjusted EBITDA$97,449 $70,134 $295,206 $208,363 
 
Free Cash Flow
(in thousands)
Three Months EndedFifty-Three
Weeks Ended		Fifty-Two
Weeks Ended
 April 3,
2021		March 28,
2020		April 3,
2021		March 28,
2020
Net cash provided by operating activities$111,598 $84,941 $306,318 $205,965 
Subtract: Purchases of property and
   equipment		11,546 10,351 38,295 49,847 
Free cash flow$100,052 $74,590 $268,023 $156,118 
 
Calculation of Net Leverage Ratio under Revolving Credit Facility
(in thousands)
Fifty-Three
Weeks Ended		Fifty-Two
Weeks Ended
 April 3,
2021		March 28,
2020
Borrowings under revolving credit facility$314,900 $446,003 
Outstanding letters of credit3,997 3,997 
Finance lease obligations622 730 
Consolidated funded indebtedness$319,519 $450,730 
Capitalized operating lease obligations 1
555,903 535,425 
Aggregate unrestricted cash-on-hand and cash equivalents in excess of $40,000,000— (199,213)
Total debt including capitalized operating lease obligations (a)$875,422 $786,942 
Adjusted EBITDA (see above)$295,206 $208,363 
Consolidated rent expense92,650 89,237 
Consolidated EBITDAR (b)$387,856 $297,600 
Net Leverage Ratio under revolving credit facility (a divided by b)2.3 to 1.02.6 to 1.0
1A 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 Announces First-quarter 2021 Results - Page 8 of 8
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
Weeks Ended		Fifty-Two
Weeks Ended
 April 3,
2021		March 28,
2020
Net operating profit after taxes (NOPAT)  
Operating income$208,506 $132,203 
Add: Rent expense 1
92,650 89,237 
Add: Interest income
84 15 
Less: Depreciation on capitalized operating leases 2
(24,258)(22,883)
Less: Income taxes 3
(66,118)(47,453)
NOPAT$210,864 $151,119 
  
Average invested capital
Total deficit$(332,650)$(155,909)
Less: Cash greater than target 4
— (113,397)
Add: Long-term debt 5
315,522 446,733 
Add: Capitalized operating lease obligations 6
741,200 713,896 
Total invested capital at end of period$724,072 $891,323 
  
Average invested capital 7
$763,227 $790,420 
  
Return on invested capital (ROIC) 8
27.6 %19.1 %
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 6) 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 23.9% and 23.9% for 2021 and 2020, respectively.
4Cash greater than target is defined as cash, cash equivalents and marketable debt securities less customer prepayments in excess of $100 million.
5
Long-term debt includes existing finance lease liabilities.
6
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.
7
Average invested capital represents the average of the last five fiscal quarters' ending invested capital balances.
8
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.



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