The Company’s fiscal year ends on the Saturday closest to December 31, and, unless the context otherwise requires, all references to years in this Form 10-K refer to its fiscal years. The Company’s fiscal year is based on a 52- or 53-week year. All years presented in this Form 10-K are 52 weeks, except for the 2020 fiscal year ended January 2, 2021, which was a 53-week year.

This Annual Report on Form 10-K contains or incorporates by reference certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in or incorporated by reference into this Annual Report on Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements, including but not limited to projections of revenues, results of operations, financial condition or other financial items; any statements of plans, strategies and objectives of management for future operations; any statements regarding proposed new products, services or developments, including potential features of Sleep Number’s products that may be developed in the future; any statements regarding future economic conditions, prospects or performance; statements of belief and any statement or assumptions underlying any of the foregoing. In addition, the Company or others on its behalf may make forward-looking statements from time to time in oral presentations, including telephone conferences and/or Webcasts open to the public, in press releases or reports, on the Company’s website or otherwise. The Company tries to identify forward-looking statements in this report and elsewhere by using words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “predict,” “intend,” “potential,” “continue” or the negative of these or similar terms.

The forward-looking statements speak only as of the date made and by their nature involve substantial risks and uncertainties. The Company’s actual results may differ materially depending on a variety of factors, including the items discussed in greater detail below under the caption “Risk Factors.” These risks and uncertainties are not exclusive and further information concerning the Company and its business, including factors that potentially could materially affect its financial results or condition, may emerge from time to time, including factors that it may consider immaterial or do not anticipate at this time.

The Company wishes to caution readers not to place undue reliance on any forward-looking statement and to recognize that forward-looking statements are predictions of future results, which may not occur as anticipated. Sleep Number assumes no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. The Company advises you, however, to review and consider any further disclosures it makes on related subjects in its quarterly reports on Form 10-Q and current reports on Form 8-K that it files with or furnishes to the Securities and Exchange Commission.

Sleep Number is a wellness technology company. With acompany and market leader in the design, manufacturing, marketing and distribution of highly innovative sleep solutions. The Company’s purpose is to improve the health and wellbeing of society through higher quality sleep; to date, it has improved the lives of over 15 million people. Sleep Number’s Smart Sleepers benefit from individualized sleep the Company — along with its more than 5,000 passionate team members — is dedicated to improving lives and committed to lifelong relationships with Smart Sleepers. Over 14 million people have had their lives improved by Sleep Number‘s award-winning sleep innovationsexperiences, night after night, and are experiencing the physical, mental and emotional benefits of life-changing sleep performance. The Company’s proprietarysleep.

The Company’s differentiatedadvantaged business model is guidedsupported by our purpose.its consumer innovation strategy: an individualized sleep wellness platform, a network of highly engaged Smart Sleepers, a vertically integrated operating model, and a culture of individuality, with an ambitious vision to become one of the world’s most beloved brands. Sleep NumberNumber’s exclusive distribution meets its customers whenever and wherever they choose – through digital and in-store touchpoints – to provide an exceptional experience and a lifelong relationship. The Company partners with world-leading sleep and health institutions to bring the power of 1824 billion hours of longitudinal sleep data to sleep science and research. The Company’s retail experience meets its consumers whenever and wherever they choose — through online and in-store touchpoints. And Sleep Number’s 5,000 mission-driven4,100 purpose-driven team members passionately deliver individualizedare dedicated to the Company’s mission of improving lives by individualizing sleep experiences for everyone.experiences.

Through investments in its consumer innovation strategy and vertically integrated business model, Sleep Number strengthens its competitive advantagesis focused on cost improvement through broad-based restructuring actions to become a stronger, more durable company, poised for accelerating growth and creates a digital flywheel for sustainable growth, driving consumersuperior shareholder returns as the bedding industry demand and performance. The Company is committed to delivering superior stakeholder value over time.environment improves.

Sleep Number’s financial performance in 2022,2023 reflects the sustained impactsecond consecutive year with recessionary mattress industry demand levels. The industry is in a historic recession and was forecasted to have returned to 2015 levels of external businessmattress units in 2023. High interest rates, persistent inflation and economic disruptions that began earlya slowing housing market resulted in the year. Globally constrained semiconductor chips, Omicron, the war in Ukraine and rapid inflation droveconsumer purchasing power reaching a record low in August of 2023. As a result, consumer sentiment, which significantly reduced demandbehavior shifted from spending selectively to scrutinizing spending, and pressured profits. Yet, even asconsiderations like price and value were driving purchasing decisions. After being on plan for the first seven months of the year, the Company navigatedexperienced an abrupt change in demand trends starting in August. With this midyear shift, the Company began executing a steady streambroad-based restructuring plan to streamline its cost structure and fortify the balance sheet to become a stronger, more durable company in a broad range of macro challenges, itsenvironments. Its mission-driven team members achievedmade significant strategic priorities suchprogress to strengthen and reposition the Company’s operating model for efficient growth, increased profitability and cash flow generation. The Company is poised for accelerating growth and superior returns as the introduction of the greatest innovation in the Company’s history — the Climate360™ smart bed — with a new technology platform and the transition to a fully integrated supply chain network. These strategic advancements are important milestones in strengthening the Company’s sleepbedding industry demand environment improves. With its health and wellness technology leadership forstrategic advancements and improved financial resilience, the future.Company’s long-term opportunity remains intact.

Sleep Number’s product innovation roadmap is driven by proprietary data and research from its millions of Smart Sleepers with a purposeand sleep science. This allows the Company to improve the health and wellbeingaddress some of society through higher quality sleep, addressing the most pressing sleep health needs. needs and differentiate itself among mattress brands as one that consumers perceive to improve their health and wellbeing.

Sleep Number’s smart bed ecosystem includes a full line of exclusive FlexFit™ smart adjustable bases that seamlessly integrate with Sleep Number smart bed,beds, for an individualized sleep experience that is proven to deliver more restful sleep per night. Industry-leadingThe Company’s industry-leading smart bases offer endless adjustability by raising the head and feet for the ultimate relaxation. Additional meaningful features include Partner Snore™ technology, which allows a sleeping partner to temporarily relieve mild snoring by raising the companion’s head at the touch of a button,button; Foot Warming, which is designed to help an individual fall asleep fasterfaster; and underbed lighting.under-bed lighting, for nighttime visibility.

The Company leverages a sophisticated media mix to drive its performance marketing and advertising, with emphasis on digital and aligned with consumer consumption, contributing to improved media return on investment. High-profile video, including television and online streaming, is its most efficient media, followed by digital and social platforms. Sleep Number’s in-house digital capabilities, content marketing, online user experience and data-driven tools give it the flexibility to pivot quickly and optimize media investment, messages and audience by platform in real-time. The Company’s promotional strategy focuses on simplicity and relevance, driving consumers to the brand at the time when they are seeking a sleep solution.

The Company’s individualized messaging and brand marketing strategies are designed to emotionally connect with consumers. In 2022, Sleep Number demonstrated that its Smart Sleepers can get 28 minutes more restful sleep each night*. The success of the Climate360 smart bed also reinforces the value and relevancy of Sleep Number’s innovations to help solve consumers’ most pressing sleep challenges. Consumers recognize their own needs and find answers in Sleep Number’s sleep innovations. Sleep Number is delivering the improved sleep performance customers have been seeking.

Sleep Number’s exclusive, direct-to-consumer distribution model supports lifelong relationships with its customers. Across its customer touchpoints, which include Stores,defined as Total Retail (Stores, Online, Phone and Chat,Chat), it delivers a value-added retail experience that seamlessly integrates Sleep Number’s digital and physical experiences to meet customer needs. The Company offers an engaging and dynamic online experience to educate consumers and advance their purchase path, driving highly-qualified traffic to all of its retail touchpoints. Sleep Number’s mission-driven highly-trained sleep experts use digital technology and itsa best-in-class, relationship-based selling process, which is continually tested and refined, to findmeet the changing consumer priorities. Processes are designed to match the right sleep solutions and right price point for its customers – wherever and whenever they want to shop. This “sell-from-anywhere” model supports customers’ shopping preferences and results in new customer acquisition, sustained repeat and referral, high conversion and strong revenue per smart bed unit —– all of which drive continued sales and profitable growth.

The Company’s Stores accounted for 86%87% of net sales in 2022.2023. Average annual net sales per store in 2022,2023 based on Total Retail, (which includes Stores, Online, Phone and Chat), was $3.3$2.9 million. In 2021, 76%2023, 65% of Stores open for a full year generated net sales of greater than $2 million, and 36%24% of Stores open for a full year generated more than $3 million in net sales. In 2022,2023, Online, Phone, Chat and Other sales accounted for 14%13% of net sales.

By the end of 2022, theThe Company completed a multi-year evolution of its supply chain network.network in 2022. Now, 100% of its smart beds are pre-assembled in its assembly distribution centers prior to delivery versus being assembled in customers’ homes by Sleep Number delivery technicians. Additionally in 2022,Bedding fulfillment is centralized to leverage improved logistics costs and to serve the Company moved its bedding fulfillment centerentire United States from Minnesota to Ohio for improved fulfillment logistics.Ohio. Sleep Number is advancingcontinues to advance its outbound logistics network by adding fullevolving its mix of truckload carriers and dedicated cross docks to reduce product handling, hand-offs, damage and costs while in transit to customers’ homes. This new network design enables scale and provides a superior and reliable experience for customers.

In addition to a network of global suppliers, Sleep Number currently operates two component manufacturing plants (Irmo,a dedicated cut and sew facility for cover production in Irmo, SC and an advanced engineering and prototyping facility in Salt Lake City, UT), eachUT. Each of which isthese facilities are combined with an assembly distribution center and sixcenter. There are five additional assembly distribution centers (Ontario, CA; Baltimore, MD; Tampa, FL; Dallas, TX; Cincinnati, OH; and Minneapolis, MN) and one former assembly distribution center now used as a distribution center (Baltimore, MD). Primary operations at the manufacturing sites include cutting and sewing of the fabric covers for its beds. In the Utah plant, the Company also assembles its Firmness Control™ systems. Teams at theThe assembly distribution centers fulfill customer orders that are made-to-order daily and assemble final mattress and order kitting with bases and accessories for shipment. The Company also operates a bedding fulfillment center at the same location as its Cincinnati, OH assembly distribution center.

The Company sources the raw materials and components used in its products from third parties. Throughout 2022, the Company encountered disruptions in its supply of various materials such as semiconductor chips and components due to shortages and constraints in the global supply chain. The Company has taken, and continues to take, various measures to mitigate the potential impact of supply disruptions, including strengthening relationships with primary suppliers, identifying new alternate suppliers, redesigning products, exploring alternative components and maintaining safety stocks. The Company expects supply constraints to ease in 2023 but the general supply environment to remain volatile.challenged through 2024 as the global environment remains uncertain. Sleep Number is leveraging the flexibility, visibility and resilience of its vertically-integrated model to respond nimbly as conditions change and to communicate clearly with customers regarding their delivery experience.change.

Sleep Number’s home delivery teams are another direct touchpoint with its customers. Since 2018, 100% of its Sleep Number smart beds sold have beenare delivered and installed by Sleep Number delivery technicians or by trained third-party service providers. This blended model enables the Company to efficiently deliver a strong customer experience.

Through its U.S.-based, in-house customer service team, Sleep Number provides directcomprehensive post-purchase support that improves Smart Sleepers’ experience and supports its business. Through ongoing interactions with customers via phone, email, chat and social media, the customer service team members also provideprovides a unique opportunity to benefit from insights that help the Company continuously improve its products and strengthen its service quality and innovation. This integration enables operational synergies and organizational efficiencies.

The Company’s business is modestly impacted by seasonal influences inherent in the U.S. bedding industry and general retail shopping patterns. The U.S. bedding industry generally experiences lower sales demand in the second quarter of the calendar year and increased sales demand during selected holiday or promotional periods.

The Company is able to operate with minimal working capital requirements because it sells directly to customers, utilizes both “make-to-order” and “make-to-stock” production processes and operates retail stores that serve mainly as showrooms. Sleep Number has historically generated sufficient cash flows to self-fund operations through an accelerated cash-conversion cycle. The Company’s Credit Agreement provides a revolving credit facility for general corporate purposes with net aggregate availability of $825$685 million. The Credit Agreement contains an accordion feature that allows the Company to increase the amount of the credit facility from $825$685 million up to $1.2$1.0 billion in total availability, subject to Lenders’ approval. The Credit Agreement matures in December 2026.

Qualified customers are offered revolving credit to finance purchases through a private-label consumer credit facility provided by Synchrony Bank. Approximately 53%48% of net sales in 20222023 were financed by Synchrony Bank. The Company’s current agreement with Synchrony Bank expires December 31, 2028, subject to earlier termination upon certain events. The Company pays Synchrony Bank a fee for extended credit promotional financing offers. Under the terms of the agreement, Synchrony Bank sets the minimum acceptable credit ratings, interest rates, fees and all other terms and conditions of the customers’ accounts, including collection policies and procedures. As the receivables are owned by Synchrony Bank, at no time are the receivables purchased or acquired from the Company. Sleep Number is not liable to Synchrony Bank for its customers’ credit defaults. In connection with all purchases financed under these arrangements, Synchrony Bank pays the Company an amount equal to the total amount of such purchases, net of promotional related discounts, upon delivery to the customer.

The Company uses information technology systems to operate, analyze and manage its business, to reduce operating costs and to enhance its customers’ experience. The Company’s major systems include an order entry system, a customer relationship management system, a payment processing system, inbound and outbound telecommunications systems for direct marketing, delivery scheduling and customer service systems, e-commerce systems, a data warehouse system and an enterprise resource planning system. These systems are primarily comprised of packaged applications licensed from various software vendors plus a limited number of internally developed programs and digital solutions.

As a vertically integrated manufacturer and retailer, the Company is subject to extensive federal, state and local laws and regulations affecting all aspects of its business.

As a manufacturer, Sleep Number is committed to product quality and safety, including adherence to all applicable laws and regulations affecting the Company’s products and services. Compliance with health, safety and environmental laws and regulations, including the federal fire retardant standards developed by the U.S. Consumer Product Safety Commission, which requires rigorous and costly testing, has increased the cost and complexity of manufacturing the Company’s products and may adversely impact the speed and cost of product development efforts. Further, the Company’s manufacturing, distribution, delivery and other business operations and facilities are subject to additional federal, state or local laws or regulations including supply chain transparency, conflict minerals sourcing and disclosure, end-of-life disposal, recycling and recyclingpackaging requirements, transportation, electrification of the Company’s vehicle fleet and other laws or regulations relating to environmental protection and health and safety requirements.

As a retailer, the Company is subject to additional laws and regulations that apply to retailers generally and govern the marketing and sale of the Company’s products and the operation of both Sleep Number retail stores and e-commerce activities. Many of the statutory and regulatory requirements that impact the Company’s retail and e-commerce operations are consumer-focused and pertain to activities such as the Company’s promotions, advertising claims, marketing practices, pricing, credit-based promotional offers,consumer credit offerings, truth-in-advertising, consumer privacy, “do not call/mail” requirements, text messaging requirements, warranty disclosure, delivery timing requirements, accessibility and similar requirements.

The Company’s operations are subject to federal, state and local labor laws including, but not limited to, those relating to occupational health and safety, employee privacy, wage and hour, overtime pay, pay transparency, harassment and

discrimination, equal opportunity and employee leaves and benefits. The Company is also subject to existing and emerging federal and state laws relating to insider trading, data security, privacy, cybersecurity disclosure, clawback policy disclosures and greenhouse gas measurement and climate impact disclosure.

It is Sleep Number’s policy and practice to comply with all legal and regulatory requirements. The Company’s procedures and internal controls are designed to promote such compliance.

Grounded in Sleep Number’s shared values of passion, integrity, innovation, courage and teamwork, and guided by its purpose to improve society’s health and wellbeing through higher quality sleep, the Company’s team members are highly engaged and make a difference in the world every day. With sleep at the center, Sleep Number’s culture supports the wellbeing of its team members across the pillars of physical, emotional, financial, career and community, and connects their work to the Sleep Number mission and goals. Founded on the premise that “one size doesn’t fit all,” Sleep Number celebrates individuality in its team members’ and customers’ lives. Sleep Number embraces every individual’s unique talents, perspectives and experiences, and strives to create an environment where weteam members can each be ourtheir best self. Valuing diversity, equity and inclusion makes Sleep Number stronger and smarter, and fuels its innovation and teamwork.

At December 31, 2022,30, 2023, Sleep Number employed a total of 5,1154,145 team members, of which 9277 were classified as part-time and 7514 were employed on a temporary basis. The breakdown of team members by area was as follows: 2,3432,125 in retail sales and support, 911490 in field services, 396372 in customer service, 575423 in manufacturing and logistics, and 890735 in technology, corporate, management and administrative positions. Forty-two percent of team members are racially diverse and 40% are women.

Sleep Number’s holistic approach to talent management, designed to attract, motivate, develop, reward and retain the right talent, is critical to the execution of the Company’s consumer innovation strategy. The Company sustains its

Sleep Number’s social impact extends beyond philanthropic partnerships. At the beginning of 2022, Sleep Number began a multiyear partnership with the American Cancer Society (ACS) to meaningfully support the fight against cancer. Over the next six years, ACS will conduct research with data and expertise from Sleep Number’s proprietary smart beds to identify the impact of quality sleep on cancer prevention and recovery. Leveraging Sleep Number's 18 billion hours of highly accurate sleep data in conjunction with historical and ongoing cancer prevention studies, ACS will study the effects of cancer on patients’ and survivors’ nighttime sleep and biometric patterns. Informed by this research, the goal is to develop the first-ever sleep guidelines for cancer prevention and treatment and improve sleep outcomes for cancer patients and survivors. Sleep Number was recently honored with the American Cancer Society’s 2022 Corporate Partner of the Year award in recognition of its support in the fight against cancer and its meaningful impact to ACS’s mission.

Sleep Number’sNumber has a longstanding record of strong corporate governance, grounded in the values, culture, policies and training that guide its business decisions. Building on this record, the Company is proactively taking steps to strengthen oversight, controls and practices that reinforce its commitment to the highest standards of integrity and accountability and continue to earn stakeholder trust, including:

Additional information is available in the Company’s Corporate Sustainability Report, posted within the Investor Relations section of the Company’s website, provides additional information about its commitment to talent management and human rights at Sleep Number including strategy details, performance metrics and its engagement. The report highlights the Company’s priorities and progress related to environmental, social and governance (ESG) initiatives and its integration with consumer innovation strategy and pursuit of profitable growth. 2022 milestones include:

Sleep Number is subject to the reporting requirements of the the Securities Exchange Act of 1934, as amended (Exchange Act) and its rules and regulations. The Exchange Act requires the Company to file reports, proxy statements and other information with the Securities and Exchange Commission (SEC).

Sleep Number’s corporate website is www.sleepnumber.com. Through a link to a third-party content provider, the corporate website provides free access to its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC. These documents are posted on the corporate website at www.sleepnumber.com: select the “Investors” link, the “Financials” link, and then the “SEC Filings” link. The information contained on the Company’s website or connected to its website is not incorporated by reference into this Form 10-K and should not be considered part of this report.

The Company also makes available, free of charge on its website, the charters of the Audit Committee, Management Development and Compensation Committee and Corporate Governance and Nominating Committee, as well as its Code of Business Conduct (including any amendment to, or waiver from, a provision of its Code of Business Conduct) adopted by the Company’s Board. These documents are posted on the Company’s website: select the “Investors” link, the “Governance” link and then the “Governance Documents” link. The information contained on the Company’s website or connected to itits website is not incorporated by reference into this Form 10-K and should not be considered part of this report.

Copies of any of the above-referenced information will also be made available, free of charge, upon written request to:

Investor Relations Department

1001 Third Avenue South

Minneapolis, MN 55404

The Company’s success depends significantly upon discretionary consumer spending, which is influenced by a number of general economic factors, including without limitation economic growth, consumer confidence and sentiment, consumer disposable income, the housing market, employment, fuel prices, income and debt levels, interest rates, inflation, taxation, consumer shopping trends and the level of customer traffic in malls and shopping centers, political conditions and election uncertainty, inclement weather, natural disasters, recession and fears of recession, civil unrest and disturbances, terrorist activities, war and fears of war, including the war inbetween Russia and Ukraine and the war between Israel and Hamas, as well as perceptions of personal wellbeing and security, health epidemics or pandemics, such as the COVID-19 pandemic.pandemics. Adverse trends in these general economic factors and reduced consumer spending have and may continue to adversely affect the Company’s sales, profitability, cash flows, financial condition, availability of credit, including with respect to the Company’s current credit facility, its ability to service and pay down debt, and any potential new or replacement sources of credit, or cause the Company to breach covenants or other terms contained in its Credit Agreement, which could materially adversely affect the Company’s business, financial condition.condition and results of operations.

Inflation, which increased significantly during 2021During 2022 and remained at historically2023, high rates throughout 2022inflation due to supply chain disruptions, increased demand or othervarious economic factors, has adversely affected the Company’s business operations and financial results by increasing the costs of fuel, shipping, raw materials, labor, commodity, and other costs.costs and may continue to do so going forward. While the Company has historically been able to pass along some cost increases to its customers, it has not and may not be able to fully offset such higher costs through price increases in a persistent inflationary environment,or other means, and its margins, profitability, cash flows, availability of credit, and financial condition have been and could continue to decrease.be adversely impacted.

In order to combat recent high rates of inflation, theThe Federal Reserve significantly increased the federal funds rate beginning in 2022 and 2023 and has indicated that furthernot reduced the rate to date. Such rate increases, may be announcedas well as decisions and timing on whether or not to combat rising inflation inreduce the United States. Such rate, increases have and may continue to negatively affect customer purchasing behavior, which has and may continue to adversely affect the Company’s sales.sales, profitability, cash flows, credit availability, and financial condition. It is uncertain whether the Federal Reserve will hold, reduce, or increase the rate going forward and such uncertainty, as well as any Federal Reserve action or non-action with respect to the rate, has and may continue to negatively affect customer purchasing behavior, which has and may continue to adversely affect the Company’s sales profitability, cash flows, credit availability, and financial condition.

Additionally, on January 19, 2023, the U.S. reached itsThe United States debt ceiling requiringand budget deficit concerns have increased the U.S. Treasurypossibility of credit-rating downgrades, economic slowdowns, or a recession in the United States. There remain increased risks of a government shutdown or sovereign default if the spending bills necessary to take extraordinary measures to avoid default. However,fund the U.S. Treasury expects to exhaust these measuresgovernment through 2024 are not passed by early June 2023, and if U.S. lawmakers do not pass legislation to raise the federal debt ceiling by such time, it is possible that the U.S. could default on its debt obligations.Congress. Whether or not a U.S. sovereign default occurs,these concerns materialize, growing uncertainty due to the unprecedented nature of such a default may trigger recessionary conditions, further reduce consumer confidence and increase levels of unemployment, all of which may reduce demand for the Company’s products, causing harm to itits sales, profitability, cash flows, availability of credit, and financial condition.

The Company’s credit facility currently bears interest at a variable rate based on its leverage ratio. Sleep NumberThe Company bears the risk that the rates charged by the Company’s lenders will increase faster thanoutpace expectations and the earnings and cash flow of its business, whichbusiness. This has reduced the Company’s profitability and is expectedhas potential to continue to reduce profitability in addition to the potential to adversely affect itsthe Company’s ability to service its debt, or cause the Company to breach covenants or other terms contained in its Credit Agreement, which could materially adversely affect the Company’s business, financial condition and results of operations.

In 2022,2023, the average interest rate with respect to the Company’s credit facility significantly increased year-over-year, which has and continues to adversely affectingaffect the Company’s profitability, operations and reported earnings-per-share.

A significant percentage of the Company’s sales are made under consumer credit programs through third parties. The amount and cost of credit available to consumers may be adversely impacted by macroeconomic factors, including general economic conditions, consumer confidence and sentiment, consumer disposable income, the housing market, employment, fuel prices, income and debt levels, interest rates, inflation, taxation, political conditions and election uncertainty, inclement weather, natural disasters, recession and fears of recession, unemployment,civil unrest and disturbances, terrorist activities, war and fears of war, inclement weather, consumer debt levels, conditions inincluding the housing market, increased interest rates, sales tax rateswar between Russia and rate increases, inflation, civil disturbancesUkraine and terrorist activities, consumer confidence in future economicthe war between Israel and political conditions, natural disasters, andHamas, as well as consumer perceptions of personal wellbeing and security, health epidemics or pandemics, such as the COVID-19 pandemic, which could cause suppliers of credit to adjust their lending criteria and costs. These macroeconomic factors have, and may continue to, adversely impact the cost of credit which, in turn, has and may continue to negatively impact the Company’s sales, profitability, cash flows and financial condition.

Synchrony Bank provides credit to the Company’s customers through a private label credit card agreement that is currently scheduled to expire on December 31, 2028, subject to earlier termination upon certain events. Synchrony Bank has discretion to control the content of financing offers to the Company’s customers and to set minimum credit standards under which credit is extended to customers.

Reduction of credit availability due to changing economic conditions, including rising inflation, increased interest rates, changes in credit standards under the Company’s private label credit card program or changes in regulatory requirements, or the termination of its agreement with Synchrony Bank, could harm the Company’s sales, profitability, cash flows and financial condition.

The Company’s strategy includes identifying and executing cost savings and operating efficiencies to increase financial resilience by expanding profit margins and cash flows to pay down debt as part of its operating transformation to a more durable business model. The Company may not be successful in fully implementing its cost savings plans or realizing anticipated savings and efficiencies, including potentially as a result of factors outside the Company’s control. A failure or delay in implementing or realizing the anticipated savings and efficiencies of its cost savings plans and related strategic initiatives could materially and adversely impact the Company’s business, results, profitability, cash flows, availability of credit, and financial condition. Charges and costs incurred in connection with implementing the cost savings plan and business restructuring actions may be significant and have and may continue to have, an adverse effect onbe higher than expected. In addition, implementing the cost savings plans could unexpectedly and negatively impact the Company’s businessworkforce, partnerships, initiatives, innovation, and development plans or otherwise interfere with the Company’s financial results.

Sleep Number currently obtains all the materials and components used to produce its smart beds from outside sources including some that are located outside the United States. In several cases, including its air chambers, integrated non-adjustable foundations, adjustable foundations, various components for its Firmness Control and Smart Control systems, certain electronic componentry, certain foam formulations, as well as its fabrics and zippers, the Company obtains these materials, components and products from suppliers who serve as the only source of supply, or who supply the vast majority of the Company’s needs of the particular material, component or product. While the Company believes that some of these materials, components and products, or suitable replacements, could be obtained from other sources in the event of a disruption or loss of supply, it has not been able to, and in the future may not be able to, find alternative sources of supply or alternative sources of supply on comparable terms, quantities and timelines. If the Company’s relationship with these suppliers or the primary supplier of its air chambers, adjustable foundations, or electronic components issuppliers’ services are disrupted, terminated or significantly disrupted,otherwise negatively impacted, the Company could have difficulty in replacing these sources since there are relatively few other suppliers presently capable of manufacturing these components and products. Constraints on the ability of certain of its suppliers to timely meet commitments, including in an environment of increased demand for consumer products and labor challenges, has, and may continue to, adversely impact the Company’s ability to meet its product demand, result in additional costs, or otherwise adversely impact the Company’s business, operations and financial results.

Similarly,The Company also relies on several suppliers for information technology systems and services as well as on Synchrony Financial for the majority of its consumer financing services. If the Company’s relationship with these suppliers or the suppliers’ services are disrupted, terminated or otherwise negatively impacted, the Company relies on third parties to deliver some of its products to its facilities and customers oncould have difficulty in replacing these services in a timely and cost-effective basis. These third-party providers could be vulnerable to labor challenges, liquidity concerns, the impacts of global health conditions, or other factors that may result in delays in deliveries or increased costs of deliveries. Any significant delay in deliveries to its customers could lead to increased cancellations or returns and cause the Company to lose sales or incur increased costs. Delays in deliveries and increases in freight charges or other costs of deliveries has and could continue to harmmanner, adversely impacting the Company’s sales, profitability, cash flows, availability of credit, and financial condition.

In addition, third parties on which the Company relies may, for various reasons have demanded or required or may demand or require changes to their payment terms and frequency, credit limits and exposures, or other contractual terms with the Company. If the Company is unable to accommodate or otherwise resolve such demands or changes, the Company’s supply of goods, products and services from these third parties could be disrupted, terminated or otherwise negatively impacted and the Company may not be able to or could have difficulty in replacing the supply of such goods, products and services in a timely and cost-effective manner, adversely impacting the Company’s sales, profitability, cash flows, availability of credit, and financial condition.

The Company’s business is subject to significant increases or volatility in the prices of certain commodities, including but not limited to electronic componentry, fuel, oil, natural gas, rubber, cotton, plastic resin, corrugate, steel and chemical ingredients used to produce foam, as well as third-party logistic costs. Increases in prices of these commodities or logistics costs or other inflationary pressures have resulted, and may continue to result, in significant cost increases for the Company’s raw materials and product components, as well as increases in the cost of delivering its products to

Sleep Number’s air chambers, certain electronic components, and some of its other components are manufactured outside the United States, and therefore are subject to risks associated with foreign sourcing of materials, including but not limited to:

The Company cannot predict whether the countries in which some of its components are manufactured, or may be manufactured in the future, or where the Company contracts for labor will be subject to new or additional trade restrictions imposed by the United States or other foreign governments, including the likelihood, type, or effect of any such restrictions. The United States government has implemented certain trade policies, including imposing tariffs on certain goods imported from China and other countries and imposing sanctions against Russia as a result of the war in Ukraine, and may take further actions with respect to these policies in the future. Additionally, although the Company does not have operations in Russia, Belarus, or Ukraine have not had a material amount of sales into these countries, and havehas not been directly impacted by the war in Ukraine, some of the Company’s third-party suppliers have disclosed that they may source, directly or indirectly, a portion of their supply chain requirements of gold, tantalum, tin, and tungsten and(collectively the “3TGs”), as well as birch plywood from Russia. Similarly, some of the Company’s third-party suppliers have disclosed that they may source, directly or indirectly, a portion of their supply chain requirements of 3TGs or fabrics from China, which materials have generally been under scrutiny for potential ties to Uyghur forced labor camps. These factors have, and could continue to, increase the costs of doing business with foreign suppliers, lead to inadequate inventory levels or delays in shipping products to customers, or the need to find new sources for certain materials on short notice, which could harm the Company’s sales, customer satisfaction, profitability, cash flows and financial condition.

The locations where Sleep Number and its suppliers and global contractors operate have experienced, and may experience in the future, adverse regional events such as extreme weather conditions, climate change and other natural and man-made disasters, which could have a significant adverse effect on the Company, its ability to source necessary materials, components and products, and its ability to develop, launch, sell and deliver its products to customers. Climate change may increase the frequency and severity of adverse weather conditions and other natural disasters. All regions of the U.S. and warmer climates globally may be particularly impacted by extreme weather, such as hurricanes, natural disasters, droughts, wildfires and rising sea levels. These events have disrupted, and may continue to, disrupt the Company’s operations and ability to source components and products.

The Company is highly dependent on the effectiveness of its marketing messages and the efficiency of its advertising expenditures in generating consumer awareness, consideration and conversation leading to sales of its products. Sleep Number continues to evolve its marketing strategies, adjust its messages, and review the amount it spends on advertising and where it is spent. The Company may not always be successful in developing effective messages, as the consumer and competition change, or in achieving efficiency in its advertising expenditures.

The Company relies in part upon third parties, such as social media influencers and athletes, to market its brand, and are unable to fully control their efforts. Influencers and athletes with whom the Company maintains a relationship could engage in behavior or use their platforms to communicate directly with Sleep Number’s customers in a manner that reflects poorly on its brand, and these communications may be attributed to the Company or otherwise adversely affect the Company. It is not possible to prevent such behavior, and the precautions the Company takes to prevent or detect this activity may not be effective.

Consumers are increasingly having digital experiences and interactions as a part of their shopping experience. As a result, the Company’s future growth and profitability will depend in part on (i) the effectiveness and efficiency of the Company’s online experience, including without limitation advertising and search marketing and optimization programs, in generating consumer awareness and sales of its products; (ii) the Company’s ability to prevent confusion among consumers that can result from search engines that allow competitors to use its trademarks to direct consumers to competitors’ websites through confusing or misleading advertisements; (iii) its ability to prevent Internet publication of false or misleading information regarding its products or the Company’s competitors’ products; (iv) reviews of Sleep Number’s products; (v) the nature and tone of consumer sentiment, including those published online or elsewhere; and (vi) the stability of the Company’s website. Competitor spending on digital marketing programs has and may continue to increase, including without limitation from a number of direct-to-consumer, digital and omnichannel retailers, which, in turn, has and may continue to increase the cost of the Company’s digital marketing programs and online search terms.

If the Company’s marketing messages are ineffective or its advertising expenditures and other marketing programs, including digital programs, are inefficient in creating awareness and consideration of its products and brand name, and in driving consumer traffic to the Company’s website, call centers, or stores, the Company’s sales, profitability, cash flows, availability of credit, and financial condition may be adversely impacted. In addition, if the Company is not effective in preventing the publication of confusing, false or misleading information regarding its brand or its products, or if there is publication online or elsewhere of significant negative consumer sentiment regarding the Company, brand or products, sales, profitability, cash flows, availability of credit, and financial condition may be adversely impacted.

The vast majority of the Company’s sales occur through Total Retail, including its retail stores and website. Total Retail represents the Company’s largest opportunity for growth in sales and improvement in profitability. The Company’s retail stores carry significant fixed costs. Sleep Number also makes significant capital expenditures as it open new stores and remodel or reposition existing stores. The Company is highly dependent on its ability to maintain and increase sales per store to cover these fixed expenses, provide a return on its capital investments and improve the Company operating

margins. As a part of the Company’s cost savings plan and business restructuring actions, select stores have been closed and additional stores are expected to be closed. These closures may result in higher than expected costs, charges, lost sales, lower brand awareness, or otherwise negatively impact the Company’s sales, profitability, cash flows, availability of credit, and financial condition.

Some of the Company’s stores are mall-based. The Company depends on the continued popularity of malls as shopping destinations and the ability of mall anchor tenants and other attractions to generate customer traffic for its mall-based retail stores. Any decrease in mall traffic, including due to increased online shopping, could adversely affect the Company’s sales, profitability, cash flows, availability of credit, and financial condition.

The Company’s Total Retail distribution strategy results in relatively few points of distribution, including 670672 retail stores in 50 U.S. states as of the end of 2022,2023, Online, Phone and Chat. Several of the mattress manufacturers and retailers with which the Company competes have significantly more brick-and-mortar points of distribution than it does, which makes the Company highly dependent on its ability to drive consumers to its points of distribution to gain market share.

The Company’s longer-term Total Retail distribution strategy is also dependent on its ability to effectively select stores to close, renew existing store leases and to secure suitable locations for new store openings, in each case on a cost-effective basis. The Company may encounter higher than anticipated rents and other costs in connection with managing its retail store base. The Company may also be unable to find or obtain suitable new locations or renew existing locations.

The Company’s products are highly differentiated from traditional innerspring mattresses and from viscoelastic and other foam mattresses, which have little or no technology and do not rely on electronics and air control systems. As a result, its

As a consumer innovation Company with differentiated products, the Company faces an inherent risk of exposure to product liability claims or regulatory actions if the use of its products is alleged to have resulted in personal injury or property damage. If any of the Company’s products proves to be defective or non-compliant with applicable regulations such as the federal Consumer Product Safety Commission flammability standards, the Company may be required to recall or redesign such products. The Company has at times experienced increased returns and adverse impacts on sales, as well as product liability litigation, as a result of media reports related to the alleged propensity of it products to develop mold. The Company may experience additional adverse impacts on sales and additional litigation if any similar media reports were to occur in the future. The Company maintains insurance against some forms of product liability claims, but such coverage may not be applicable to, or adequate for, liabilities actually incurred. A successful claim brought against the Company outside of, or in excess of, available insurance coverage, or any claim or product recall that results in significant adverse publicity about the Company, may have a material adverse effect on the Company’s sales, profitability, cash flows and financial condition.

As described in greater detail below, the bedding industry, as well as the market for sleep monitoring products, are both highly competitive, and the Company’s ability to compete effectively and to profitably grow its market share depend in part on its ability to continue to improve and expand the Company’s product line of adjustable firmness air beds, SleepIQ technology and related accessory products. The Company incurs significant research and development and other expenditures in the pursuit of improvements and additions to its product line.line and is re-prioritizing research and development resources in this highly constrained environment. If these efforts do not result in meaningful product improvements or new product introductions, if the Company is not able to gain widespread consumer acceptance of product improvements or new product introductions, or there are delays or production limitations with respect to its

product improvements or new product introductions, the Company’s sales, profitability, cash flows and financial condition may be adversely affected. If the Company offers products or services in other countries, the Company’s business may be exposed to additional risks, such as additional and varied legal/regulatory requirements, complexity and cost to maintain operations in multiple countries, adapting and localizing products for enhanced market acceptance, ability to enforce intellectual property rights, tariffs and non-tariff barriers, fluctuation in and barriers to currency exchange, and political or social unrest, and economic instability. In addition, if any significant product improvements or new product introductions are not successful, delayed, or constrained the Company’s reputation and brand image may be adversely affected.

The Company owns various U.S. and foreign patents and patent applications related to certain elements of the design and function of the Company’s beds, biosignal monitoring and related products. The Company owns numerous registered and unregistered trademarks and trademark applications, including in particular the Sleep Number, Sleep Number 360, 360, Climate360 and SleepIQ trademarks, as well as other intellectual property rights, including trade secrets, trade dress and copyrights, which it believes has significant value and is important to the development, function, and marketing of its products. These intellectual property rights may not provide adequate protection against infringement or piracy, may not prevent competitors from developing and marketing products that are similar to or competitive with Sleep Number beds, biosignal monitoring or other products, and may be costly and time-consuming to protect and enforce. The Company’s patents are also subject to varying expiration dates. In addition, the laws of some foreign countries may not protect its intellectual property rights and confidential information to the same extent as the laws of the United States. If the Company is unable to protect and enforce its intellectual property, the Company may be unable to prevent other companies from using the Company’s technology or trademarks in connection with competitive products, which could adversely affect the Company’s sales, profitability, cash flows and financial condition.

The Company is from time to time subject to claims that its products, processes, advertising, or trademarks infringe the intellectual property rights of others. The defense of these claims, even if ultimately successful, may result in costly litigation, and if the Company is not successful in its defense, it could be subject to injunctions and liability for damages or royalty obligations, and the Company’s sales, profitability, cash flows and financial condition could be adversely affected.

Because of the vertical integration of the Company’s business model, its products and distribution face significant competition from both manufacturers of different types of mattresses and a variety of retailers. The Company’s SleepIQ technology also faces significant competition from various manufacturers and retailers of sleep tracking and monitoring products.

The mattress industry is characterized by a high degree of concentration among the largest manufacturers of innerspring mattresses and foam mattresses and one dominant national mattress retailer.retailer, including further consolidation pending a publicly announced merger or other business combination of one such mattress manufacturer and a national mattress retailer set to close in the second half of 2024. In recent years, numerous direct-to-consumer companies and low-cost importers have entered the market, offering “bed-in-a-box” or similar products primarily through online distribution directly to consumers though many now also partner with traditional mattress retailers. A variety of sleep tracking and monitoring products that compete with the Company’s SleepIQ technology have been introduced by various manufacturers and retailers, both within and outside of the traditional mattress industry. A variety of mattress and base manufacturers have also come to market with copycat smart beds, some featuring a version of what they market as “adjustable firmness.” This competition has and may continue to increase the costs of search terms and digital advertising and otherwise adversely affect the Company’s business.

Some of the Company’s competitors have substantially greater financial, marketing and manufacturing resources and greater brand name recognition than the Company does and sell products through broader and more established distribution touchpoints. Proposed consolidation in the mattress industry will amplify this disparity. The Company’s

national, exclusive distribution competes with other retailers who generally provide a wider selection of mattress alternatives than the Company offers. A number of these retailers also have more points of distribution, greater marketing resources, and greater brand name recognition than the Company does.

These manufacturing and retailing competitors, or a combination of these competitors, or new entrants into the market, may compete aggressively and gain market share with existing or new products, and may pursue or expand their presence in the adjustable firmness air bed segment of the market as well as in the market for sleep tracking and monitoring products. The Company has limited ability to anticipate the timing and scale of new product introductions, advertising campaigns or new pricing strategies by its competitors, which could inhibit its ability to retain or increase market share, or to maintain the Company’s profit margins.

If the Company is unable to effectively compete with other manufacturers and retailers of mattress and sleep tracking and monitoring products, the Company’s sales, profitability, cash flows and financial condition may be adversely impacted.

As a vertically integrated business, the Company has various facilities and operations including manufacturing, assembly, distribution, logistics, field services, home delivery, headquarter, product development, retail and customer service. Sleep Number has manufacturing plants locatedoperates a dedicated cut and sew facility for cover production in Irmo, South CarolinaSC and an advanced engineering and prototyping facility in Salt Lake City, Utah, eachUT. Each of which isthese facilities are combined with an assembly distribution center (ADC). The Company has sixThere are five additional ADCs across the country.(Ontario, CA; Tampa, FL; Dallas, TX; Cincinnati, OH; and Minneapolis, MN) and one former assembly distribution center now used as a distribution center (Baltimore, MD). The eightseven ADCs leverage component inventory to pre-assemble 100% of ourits smart mattresses to order rather than stocking finished goods. The Company has field service and home delivery operations and contractors that deliver and service its products to customers across the country as well as a bedding fulfillment center that ships bedding products to consumers via third-party services. The product development and testing operations primarily occur in the Company’s corporate headquarters in Minneapolis, Minnesota and Sleep Number Labs facility in San Jose, California. Sleep Number’s customer service operations are largely remote positions with team members located in New Orleans, Louisiana and Minneapolis, Minnesotaacross the country, and the Company has retail stores across the country. While we can shift demand among our eight ADCs, disruptionDisruption to any of the ADCs or otherCompany’s operations, facilities, workforce, or the Company’s nationwide logistics network could harm or delay its ability to satisfy customer demand, develop, test and launch new products, service its products and customers, and increase its costs. Such impacts and delays could adversely affect the Company’s sales, customer satisfaction, profitability, cash flows, availability of credit, and financial results.

The Company is subject to a wide variety of laws and regulations relating to the bedding industry or to various aspects of its business. Laws and regulations at the federal, state and local levels frequently change and the Company cannot always reasonably predict the impact from, or the ultimate cost of compliance with, future regulatory or administrative changes. Changes in law, the imposition of new or additional regulations or the enactment of any new or more stringent legislation that impacts employment and labor, trade, advertising andclaims, marketing practices, pricing, consumer credit offerings, “do not call/mail” requirements, text messaging requirements, product testing and safety, health and wellness product requirements, use of artificial intelligence, transportation and logistics, health care, tax, accounting, privacy and data security, health and safety or environmental issues, warranty disclosures, delivery timing requirements, accessibility requirements, among others, could require the Company to change the way it does business and could have a material adverse impact on the Company’s sales, profitability, cash flows and financial condition. New or different laws or regulations could increase direct compliance costs for the Company or may cause its vendors to raise the prices they charge the Company because of increased compliance costs. Further, the adoption of a multi-layered regulatory approach to any one of the state or federal laws or regulations to which the Company is currently subject, particularly

where the layers are in conflict, could require alteration of its manufacturing processes or operational parameters which may adversely impact the Company’s business.

Legislative or regulatory changes that impact the Company’s relationship with its workforce, such as minimum wage requirements or health insurance or other employee benefits mandates, could increase the Company’s expenses and adversely affect its operations. While it is Sleep Number’s policy and practice to comply with legal and regulatory requirements and its procedures and internal controls are designed to promote such compliance, the Company cannot assure that all of its operations will comply with all such legal and regulatory requirements. Further, laws and regulations change over time and the Company may be required to incur significant expenses and/or to modify its operations in order to ensure compliance. This could harm the Company’s profitability or financial condition. If Sleep Number is found to be in violation of any laws or regulations, it could become subject to fines, penalties, damages or other sanctions as well as potential adverse publicity or litigation exposure. This could adversely impact the Company’s business, reputation, sales, profitability, cash flows or financial condition.

As the Company works to develop innovations with enhanced health capabilities, including possible capabilities of providing advanced monitoring and health risk evaluations, depending on the features that ultimately become commercially available, some features may require regulatory requirements or approvals beyond those that apply to Sleep Number’s current products or features. These additional regulatory requirements or approvals may be prohibitively expensive or otherwise delay or prevent certain features, innovations, or product from being commercialized.

The Company is involved from time to time in various legal proceedings arising in the ordinary course of its business, including primarily commercial, product liability, employment and intellectual property claims. The Company currently does not expect the outcome of any pending matters to have a material effect on the Company’s consolidated results of operations, financial position or cash flows. Litigation, however, is inherently unpredictable, and it is possible that the ultimate outcome of one or more pending claims asserted against the Company, or claims that may be asserted in the future that the Company is currently not aware of, or adverse publicity resulting from any such litigation, could adversely impact the Company’s business, reputation, sales, profitability, cash flows and financial condition.

exposure, theft or loss could adversely impact the Company’s business, reputation, sales, profitability, cash flows and financial condition.

The Company depends on its information systems and services for many aspects of its business.business including those provided by suppliers and third parties. Sleep Number has and may continue to have disruptions or outages to itsthese information systems and services that negatively impact its business and systems. If the Company’s information systems and services are disrupted in any material way, or maintenance, improvements or upgrades are required to meet the ongoing or evolving needs of its business, cybersecurity needs, and existing and emerging regulatory requirements, then the Company may be required to incur significant capital expenditures in the pursuit of continuity, improvements or upgrades to its information systems.systems and services. These efforts may take longer and may require greater financial and other resources than anticipated, may cause distraction of key personnel, and may cause short-term disruptions, orfines, security vulnerabilities to, or otherwise negatively impact the Company’s existing systems and business. Any of these outcomes could impair the Company’s ability to achieve critical strategic initiatives and could adversely impact the Company’s sales, profitability, cash flows and financial condition.

As a vertically integrated manufacturer and retailer, the Company’s future growth and profitability will depend upon its ability to attract, retain and motivate qualified personnel in a wide variety of areas to execute its growth strategy, including qualified management and executive personnel, retail sales professionals and managers, and manufacturing, home delivery and technical personnel. In addition, the Company’s success will depend upon the effectiveness of its organizational leadership and managers as well as the capabilities of its team members. The current labor challenges the world-wide trends of corporate resignations, or other economic factors may prevent the Company, and its suppliers and vendors, from successfully hiring and retaining

There has been an increased focus on the Company’s ESG practices within the general markets. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, climate change, health and safety, supply chain management, diversity, equity and inclusion, labor conditions and human rights, both in itstheir own operations and in the Company’s operations and supply chain. Sleep Number has established and plans to further establish priorities related tocurrent ESG matters. These priorities reflect the Company’s strategic plans and aspirations and are not guarantees that it will be able to achieve them. The Company’s efforts to accomplish and accurately report its progress present numerous operational, reputational, financial, legal, and other risks, any of which could have a material adverse impact, including on the Company’s reputation, stock price, and results of operation. Sleep Number could also incur additional costs and require additional resources to implement various ESG practices to makeprojects that impact the progress made against its priorities and hurt its ability to monitor and track its performance with respect to such priorities.

The standards for tracking and reporting on ESG matters are relatively new, have not been formalized and continue to evolve. Collecting, measuring, and reporting ESG information and metrics can be difficult and time consuming. While Sleep Number has taken steps to evolve its ESG priorities and related disclosures, including through implementing enhanced data collection methods and reporting certain data under recognized ESG reporting frameworks and standards, the Company’s ESG practices may not meet the standards of all of its stakeholders and advocacy groups may campaign for further changes. Additionally, the Company’s selected disclosure framework or standards may need to be changed from time to time, which may result in a lack of consistent or meaningful comparative data from period to period. In addition,Further, the Company’s interpretation of reporting frameworks or standards may differ from those of others and such frameworks or standards may change over time, any of which could result in significant revisions to the Company’s ESG priorities or reported progress.

Climate change presents various near and long-term risks that may adversely impact the Company’s business. The enactment of new laws and regulations to address or limit the effects of climate change, or changes to existing laws and regulations, could mandate more restrictive standards or require such changes on a more accelerated time frame. The consequences of climate change and the ensuing governmental regulations could disrupt the Company’s operations or harm its ability to source necessary materials and components and manufacture its products, which may adversely affect the Company’s financial condition. If public perception of Sleep Number’s compliance with laws and regulations related to climate change is negative, it could adversely affect the Company’s business, reputation and shareholder perception. Adverse publicity or climate-related litigation that impacts the Company could also have a negative impact on its business.

Extreme weather, natural disasters, power outages, or other unexpected climate-related events could result in physical damage to and complete or partial closure of one or more of the Company’s manufacturing, distribution centers or other facilities or those of its suppliers, temporary or long-term disruption in its supply chain or logistics, disruption of or harm to the Company’s workforce and/or disruption of its ability to deliver products to customers. Current or future insurance arrangements may not provide protection for costs that may arise from such events, particularly if such events are catastrophic in nature or if multiple such events occur. Climate change may also subject the Company’s business to significant increases or volatility in the prices of certain commodities, including but not limited to electronic componentry, fuel, oil, natural gas, rubber, cotton, plastic resin, corrugate, plywood, steel and chemical ingredients used to produce foam, as well as third-party logistic costs. Further, the long-term effects of climate change on general economic conditions and the Company’s industry in particular are unclear, and changes in the supply, demand, or available sources of energy and the regulatory and other costs associated with energy production and delivery may affect the availability or cost of goods and services, including natural resources, necessary to run its business. Any long-term disruption in the Company’s ability to service its customers from one or more manufacturing, distribution centers or other facilities could have an adverse effect on the Company’s operations.

During fiscal 2022, the SEC proposed new climate disclosure rules, which if adopted, would require new climate-related disclosures in SEC filings, including certain climate-related metrics and greenhouse gas emissions data, information about climate-related targets and goals, transition plans, if any, and extensive attestation requirements. During fiscal 2023, California passed new climate disclosure rules similar to those proposed by the SEC and that currently would require the Company to begin reporting on such climate-related data for its fiscal year 2025. In addition to requiring filers to quantify and disclose direct emissions data, the new California rules and the proposed SEC rules also would require disclosure of climate impact arising from the operations and uses by the filer’s business partners and contractors and end-users of the filer’s products and/or services. The Company is currently assessing the impact of the new California rules if adopted as well as the proposed SEC rules, but at this time, it cannot predict the costs of implementation or any specific potential adverse impacts resulting from the new rules. However, Sleep Number maywill incur increased costs relating to the assessmentcollection, review and disclosureassurance for new required disclosures of climate metrics and climate-related risks and may experience increased litigation, regulatory, business, reputation, or other risks related to disclosures made pursuant to the new rules. Either the increased cost to comply with the new rules either of whichor the potential for increased litigation and other risks could materially and adversely affect the Company’s future results of operations and financial condition.

None.

Sleep Number currently leases all of its existing retail store locations and expects that its policy of leasing stores, rather than owning stores, will continue. The Company leases its retail stores under operating leases which, in addition to the minimum lease payments, may require payment of a proportionate share of the real estate taxes and certain building operating expenses. The Company retail store leases generally provide for an initial lease term of five to 10 years. In addition, the mall-based retail store leases may require payment of contingent rent based on net sales in excess of certain thresholds. Certain retail store leases may contain options to extend the term of the original lease.

The following table summarizes the geographic locations of Sleep Number’s 670672 retail stores as of December 31, 2022:30, 2023:

The Company leases its 238,000 square-foot corporate headquarters in Minneapolis, MN. The lease term commenced in November 2017 and runs through October 2032. The lease includes three five-year renewal options.

The Company leases two manufacturing facilities, each of which is combined with an assembly distribution center, (Irmo, SC and Salt Lake City, UT) of approximately 151,000 square feet and approximately 101,000158,000 square feet, respectively. The Irmo facility lease runs through June 2026, with two five-year renewal options. The Salt Lake City facility lease runsleases run through July 2025, with one five-year renewal option.

The Company has sixfive additional assembly distribution centers (Ontario, CA; Tampa, FL; Baltimore, MD; Minneapolis, MN; Cincinnati, OH; and Dallas, TX) and one former assembly distribution center now used as a distribution center (Baltimore, MD), with a combined total square footage of approximately 700,000 square feet and lease terms ending in October 2025 through May 2032. The leases include one or two, three- to five-year option renewals. The Company also operates a bedding fulfillment center at the same location as its Cincinnati, OH assembleassembly distribution center.

Not applicable.

Sleep Number’s common stock trades on The Nasdaq Stock Market LLC (Nasdaq Global Select Market) under the symbol “SNBR.” As of January 28, 2023,27, 2024, there were approximately 187188 holders of record of Sleep Number common stock.

The Company is not restricted from paying cash dividends under the Credit Agreement so long as it is not in default under the Credit Agreement, its leverage ratio (as defined in the Credit Agreement) after giving effect to such restricted payments (as defined in the Credit Agreement) would not exceed 3.75:3.00:1.00 and no default or event of default (as defined in the Credit Agreement) would result therefrom. At December 31, 2022,30, 2023, the Company exceeded the 3.75:3.00:1:00 leverage ratio. Sleep Number has not historically paid, and has no current plans to pay, cash dividends on the Company’s common stock.

Information concerning share repurchases completed during the fourth quarter of fiscal 20222023 is set forth below:

The graph below compares the total cumulative shareholder return on Sleep Number’s common stock over the last five years to the total cumulative return on the Standard and Poor’s (S&P) 400 Specialty Stores Index and The Nasdaq Stock Market (U.S.) Index assuming a $100 investment made on December 30, 2017.29, 2018. Each of the three measures of cumulative total return assumes reinvestment of dividends. The stock performance shown on the graph below is not necessarily indicative of future price performance. The information contained in this “Comparative Stock Performance” section shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically requests that it be treated as soliciting material or incorporate it by reference into a document filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

The Company defines earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) as net (loss) income plus: income tax expense, interest expense, depreciation and amortization, stock-based compensation, restructuring costs and asset impairments. Management believes Adjusted EBITDA is a useful indicator of the Company’s financial performance and its ability to generate cash from operating activities. The Company’s 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.

The Company’s “free cash flow” data is considered a non-GAAP financial measure and is not in accordance with, or preferable to, “net cash provided by operations,” or GAAP financial data. However, the Company is providing this information as it believe it facilitates analysis for investors and financial analysts.