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Form 8-K Sleep Number Corp For: Feb 17

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February 17, 2021 4:08 PM EST
Exhibit 99.1
snbrlogojpg1.jpg
FOR IMMEDIATE RELEASE

SLEEP NUMBER ANNOUNCES RECORD FOURTH-QUARTER AND FULL-YEAR 2020 RESULTS

•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 – (February 17, 2021) – 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.

Sleep Number Announces Fourth-quarter and Full-year 2020 Results - Page 2 of 9
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.

# # #

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

Sleep Number Announces Fourth-quarter and Full-year 2020 Results - Page 3 of 9

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
 
 Fourteen
Weeks Ended
January 2,
2021		% of
Net Sales		Thirteen
Weeks Ended
December 28, 2019		% of
Net Sales
Net sales$567,896 100.0 %$441,166 100.0 %
Cost of sales211,997 37.3 %165,052 37.4 %
Gross profit355,899 62.7 %276,114 62.6 %
Operating expenses:
Sales and marketing221,712 39.0 %198,123 44.9 %
General and administrative47,084 8.3 %35,490 8.0 %
Research and development12,511 2.2 %9,510 2.2 %
Total operating expenses281,307 49.5 %243,123 55.1 %
Operating income74,592 13.1 %32,991 7.5 %
Interest expense, net813 0.1 %2,619 0.6 %
Income before income taxes73,779 13.0 %30,372 6.9 %
Income tax expense12,420 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 outstanding26,960  28,309  
Dilutive effect of stock-based awards1,100  1,047  
Diluted weighted-average shares outstanding28,060  29,356  


 


Sleep Number Announces Fourth-quarter and Full-year 2020 Results - Page 4 of 9

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)
 
Fifty-Three
Weeks Ended
January 2,
2021		% of
Net Sales		Fifty-Two
Weeks Ended
December 28, 2019		% of
Net Sales
Net sales$1,856,555 100.0 %$1,698,352 100.0 %
Cost of sales700,555 37.7 %646,429 38.1 %
Gross profit1,156,000 62.3 %1,051,923 61.9 %
Operating expenses:
Sales and marketing771,195 41.5 %766,922 45.2 %
General and administrative158,999 8.6 %137,956 8.1 %
Research and development40,910 2.2 %34,950 2.1 %
Total operating expenses971,104 52.3 %939,828 55.3 %
Operating income184,896 10.0 %112,095 6.6 %
Interest expense, net8,924 0.5 %11,587 0.7 %
Income before income taxes175,972 9.5 %100,508 5.9 %
Income tax expense36,783 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 outstanding27,665  29,472  
Dilutive effect of stock-based awards763  883  
Diluted weighted-average shares outstanding28,428  30,355  


Sleep Number Announces Fourth-quarter and Full-year 2020 Results - Page 5 of 9
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited - in thousands, except per share amounts)
subject to reclassification
  
 January 2,
2021		December 28,
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 
Inventories81,362 87,065 
Prepaid expenses20,839 15,335 
Other current assets43,489 36,397 
Total current assets181,804 160,368 
Non-current assets:  
Property and equipment, net175,223 197,421 
Operating lease right-of-use assets314,226 327,017 
Goodwill and intangible assets, net72,871 73,226 
Other non-current assets56,012 48,011 
Total assets$800,136 $806,043 
Liabilities and Shareholders’ Deficit  
Current liabilities:  
Borrowings under credit facility$244,200 $231,000 
Accounts payable91,904 134,594 
Customer prepayments72,017 34,248 
Accrued sales returns24,765 19,809 
Compensation and benefits76,786 40,321 
Taxes and withholding23,339 22,171 
Operating lease liabilities62,077 59,561 
Other current liabilities60,856 53,070 
Total current liabilities655,944 594,774 
Non-current liabilities:
Deferred income taxes242 3,808 
Operating lease liabilities283,084 298,090 
Other non-current liabilities84,844 68,802 
Total non-current liabilities368,170 370,700 
Total liabilities1,024,114 965,474 
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 Announces Fourth-quarter and Full-year 2020 Results - Page 6 of 9
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited – in thousands)
subject to reclassification
 
 Fifty-Three
Weeks Ended
January 2,
2021		Fifty-Two
Weeks Ended
December 28,
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 amortization61,563 61,866 
Stock-based compensation21,813 16,657 
Net loss (gain) on disposals and impairments of assets247 (430)
Deferred income taxes(3,566)(1,014)
Changes in operating assets and liabilities:
Accounts receivable(11,893)4,817 
Inventories5,703 (2,183)
Income taxes1,057 3,066 
Prepaid expenses and other assets(13,717)(13,959)
Accounts payable(16,755)10,661 
Customer prepayments37,769 7,182 
Accrued compensation and benefits36,825 12,920 
Other taxes and withholding111 725 
Other accruals and liabilities21,315 7,007 
Net cash provided by operating activities279,661 189,160 
Cash flows from investing activities:
Purchases of property and equipment(37,100)(59,239)
Proceeds from sales of property and equipment55 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 stock9,602 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 equivalents2,650 (19)
Cash and cash equivalents, at beginning of period1,593 1,612 
Cash and cash equivalents, at end of period$4,243 $1,593 


Sleep Number Announces Fourth-quarter and Full-year 2020 Results - Page 7 of 9

SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)
 
 Fourteen
Weeks Ended
January 2,
2021		Thirteen
Weeks Ended
December 28,
2019		Fifty-Three
Weeks Ended
January 2,
2021		Fifty-Two
Weeks Ended
December 28,
2019
Percent of sales:    
Retail85.3 %90.8 %85.2 %91.8 %
Online and phone14.5 %9.0 %14.5 %7.6 %
Wholesale/other0.2 %0.2 %0.3 %0.6 %
Total Company100.0 %100.0 %100.0 %100.0 %
Sales change rates:
Retail comparable-store sales4
12 %1 %(3 %)6 %
Online and phone4
93 %16 %104 %12 %
Total Retail comparable sales change4
19 %2 %6 %6 %
Net opened/closed stores and 53rd week
10 %5 %4 %5 %
Total Retail29 %7 %10 %11 %
Wholesale/other25 %(56 %)(52 %)(24 %)
Total Company29 %7 %9 %11 %
Stores open:
Beginning of period596 602 611 579 
Opened10 12 30 59 
Closed(4)(3)(39)(27)
End of period602 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 Announces Fourth-quarter and Full-year 2020 Results - Page 8 of 9
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
Weeks Ended
January 2,
2021		Thirteen
Weeks Ended
December 28,
2019		Fifty-Three
Weeks Ended
January 2,
2021		Fifty-Two
Weeks Ended
December 28,
2019
Net income$61,359 $24,093 $139,189 $81,845 
Income tax expense12,420 6,279 36,783 18,663 
Interest expense813 2,621 9,021 11,591 
Depreciation and amortization15,194 15,482 60,783 61,410 
Stock-based compensation6,259 4,623 21,813 16,657 
Asset impairments42 16 302 185 
Adjusted EBITDA$96,087 $53,114 $267,891 $190,351 
 
Free Cash Flow
(in thousands)
 Fourteen
Weeks Ended
January 2,
2021		Thirteen
Weeks Ended
December 28,
2019		Fifty-Three
Weeks Ended
January 2,
2021		Fifty-Two
Weeks Ended
December 28,
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
Weeks Ended
January 2,
2021		Fifty-Two
Weeks Ended
December 28,
2019
Borrowings under credit facility$244,200 $231,000 
Outstanding letters of credit3,997 3,497 
Finance lease obligations650 756 
Consolidated funded indebtedness$248,847 $235,253 
Capitalized operating lease obligations 1
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 expense91,458 87,835 
Consolidated EBITDAR (b)$359,349 $278,186 
Net Leverage Ratio under credit facility (a divided by b)2.2 to 1.02.7 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 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 Fourth-quarter and Full-year 2020 Results - Page 9 of 9
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
January 2,
2021		Fifty-Two
Weeks Ended
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.




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