UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One) | | | | | |
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended OctoberJuly 1, 20222023
OR
| | | | | |
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 000-25121
SLEEP NUMBER CORPORATION
(Exact name of registrant as specified in its charter) | | | | | | | | |
Minnesota | | 41-1597886 |
(State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| | | | | | | | | | | | | | |
1001 Third Avenue South | | |
Minneapolis, | | Minnesota | | 55404 |
(Address of principal executive offices) | | (Zip Code) |
Registrant’s telephone number, including area code: (763) 551-7000
Securities registered pursuant to Section 12(b) of the Act: | | | | | | | | | | | | | | |
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, par value $0.01 per share | | SNBR | | Nasdaq Global Select Market |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. | | | | | | | | | | | | | | |
Large accelerated filer | ☒☐ | | Accelerated filer | ☐☒ |
Non-accelerated filer | ☐ | | Smaller reporting company | ☐ |
| | | Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of OctoberJuly 1, 2022, 22,001,0002023, 22,214,000 shares of the registrant’s Common Stock were outstanding.
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
INDEX
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i | 2Q 2022 FORM 10-Q | SLEEP NUMBER CORPORATION |
PART I: FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Balance Sheets
(unaudited - in thousands, except per share amounts)
| | | October 1, 2022 | | January 1, 2022 | | July 1, 2023 | | December 31, 2022 |
Assets | Assets | | Assets | |
Current assets: | Current assets: | | Current assets: | |
Cash and cash equivalents | Cash and cash equivalents | $ | 1,348 | | | $ | 2,389 | | Cash and cash equivalents | $ | 1,798 | | | $ | 1,792 | |
Accounts receivable, net of allowances of $1,508 and $924, respectively | 26,747 | | | 25,718 | | |
Accounts receivable, net of allowances of $1,475 and $1,267, respectively | | Accounts receivable, net of allowances of $1,475 and $1,267, respectively | 24,102 | | | 26,005 | |
Inventories | Inventories | 113,554 | | | 105,644 | | Inventories | 121,446 | | | 114,034 | |
| Prepaid expenses | Prepaid expenses | 21,214 | | | 18,953 | | Prepaid expenses | 21,029 | | | 16,006 | |
Other current assets | Other current assets | 34,803 | | | 54,917 | | Other current assets | 40,142 | | | 39,921 | |
Total current assets | Total current assets | 197,666 | | | 207,621 | | Total current assets | 208,517 | | | 197,758 | |
| Non-current assets: | Non-current assets: | | Non-current assets: | |
Property and equipment, net | Property and equipment, net | 199,917 | | | 195,128 | | Property and equipment, net | 191,067 | | | 200,605 | |
Operating lease right-of-use assets | Operating lease right-of-use assets | 389,524 | | | 371,133 | | Operating lease right-of-use assets | 399,989 | | | 397,755 | |
Goodwill and intangible assets, net | Goodwill and intangible assets, net | 68,666 | | | 70,468 | | Goodwill and intangible assets, net | 67,086 | | | 68,065 | |
Deferred income taxes | Deferred income taxes | 6,267 | | | — | | Deferred income taxes | 16,230 | | | 7,958 | |
Other non-current assets | Other non-current assets | 78,741 | | | 75,190 | | Other non-current assets | 82,266 | | | 81,795 | |
Total assets | Total assets | $ | 940,781 | | | $ | 919,540 | | Total assets | $ | 965,155 | | | $ | 953,936 | |
| Liabilities and Shareholders’ Deficit | Liabilities and Shareholders’ Deficit | | Liabilities and Shareholders’ Deficit | |
Current liabilities: | Current liabilities: | | Current liabilities: | |
Borrowings under revolving credit facility | Borrowings under revolving credit facility | $ | 406,300 | | | $ | 382,500 | | Borrowings under revolving credit facility | $ | 483,800 | | | $ | 459,600 | |
Accounts payable | Accounts payable | 199,154 | | | 162,547 | | Accounts payable | 152,205 | | | 176,207 | |
Customer prepayments | Customer prepayments | 95,274 | | | 129,499 | | Customer prepayments | 58,498 | | | 73,181 | |
Accrued sales returns | Accrued sales returns | 25,651 | | | 22,368 | | Accrued sales returns | 25,476 | | | 25,594 | |
Compensation and benefits | Compensation and benefits | 27,339 | | | 51,240 | | Compensation and benefits | 38,934 | | | 31,291 | |
Taxes and withholding | Taxes and withholding | 31,361 | | | 22,087 | | Taxes and withholding | 23,356 | | | 23,622 | |
Operating lease liabilities | Operating lease liabilities | 77,243 | | | 72,360 | | Operating lease liabilities | 82,439 | | | 79,533 | |
Other current liabilities | Other current liabilities | 60,949 | | | 64,177 | | Other current liabilities | 57,054 | | | 60,785 | |
Total current liabilities | Total current liabilities | 923,271 | | | 906,778 | | Total current liabilities | 921,762 | | | 929,813 | |
| Non-current liabilities: | Non-current liabilities: | | Non-current liabilities: | |
Deferred income taxes | — | | | 688 | | |
| Operating lease liabilities | Operating lease liabilities | 350,370 | | | 336,192 | | Operating lease liabilities | 356,044 | | | 356,879 | |
Other non-current liabilities | Other non-current liabilities | 104,611 | | | 100,835 | | Other non-current liabilities | 106,490 | | | 105,421 | |
Total liabilities | Total liabilities | 1,378,252 | | | 1,344,493 | | Total liabilities | 1,384,296 | | | 1,392,113 | |
| Shareholders’ deficit: | Shareholders’ deficit: | | Shareholders’ deficit: | |
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding | Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding | — | | | — | | Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding | |
Common stock, $0.01 par value; 142,500 shares authorized, 22,001 and 22,683 shares issued and outstanding, respectively | 220 | | | 227 | | |
Common stock, $0.01 par value; 142,500 shares authorized, 22,214 and 22,014 shares issued and outstanding, respectively | | Common stock, $0.01 par value; 142,500 shares authorized, 22,214 and 22,014 shares issued and outstanding, respectively | 222 | | | 220 | |
Additional paid-in capital | Additional paid-in capital | 458 | | | 3,971 | | Additional paid-in capital | 11,997 | | | 5,182 | |
Accumulated deficit | Accumulated deficit | (438,149) | | | (429,151) | | Accumulated deficit | (431,360) | | | (443,579) | |
Total shareholders’ deficit | Total shareholders’ deficit | (437,471) | | | (424,953) | | Total shareholders’ deficit | (419,141) | | | (438,177) | |
Total liabilities and shareholders’ deficit | Total liabilities and shareholders’ deficit | $ | 940,781 | | | $ | 919,540 | | Total liabilities and shareholders’ deficit | $ | 965,155 | | | $ | 953,936 | |
See accompanying notes to condensed consolidated financial statements.
| | | | | | | | |
1 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Operations
(unaudited - in thousands, except per share amounts)
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Net sales | Net sales | $ | 540,566 | | | $ | 640,393 | | | $ | 1,616,769 | | | $ | 1,692,965 | | Net sales | $ | 458,789 | | | $ | 549,073 | | | $ | 985,316 | | | $ | 1,076,203 | |
Cost of sales | Cost of sales | 237,479 | | | 250,039 | | | 686,439 | | | 653,842 | | Cost of sales | 194,544 | | | 224,128 | | | 410,806 | | | 448,960 | |
Gross profit | Gross profit | 303,087 | | | 390,354 | | | 930,330 | | | 1,039,123 | | Gross profit | 264,245 | | | 324,945 | | | 574,510 | | | 627,243 | |
| Operating expenses: | Operating expenses: | | Operating expenses: | |
Sales and marketing | Sales and marketing | 239,656 | | | 255,512 | | | 700,405 | | | 685,123 | | Sales and marketing | 197,779 | | | 220,490 | | | 428,267 | | | 460,749 | |
General and administrative | General and administrative | 36,003 | | | 47,676 | | | 116,049 | | | 131,488 | | General and administrative | 39,795 | | | 38,727 | | | 79,196 | | | 80,046 | |
Research and development | Research and development | 14,786 | | | 14,431 | | | 46,908 | | | 43,633 | | Research and development | 15,445 | | | 15,817 | | | 29,888 | | | 32,122 | |
Total operating expenses | Total operating expenses | 290,445 | | | 317,619 | | | 863,362 | | | 860,244 | | Total operating expenses | 253,019 | | | 275,034 | | | 537,351 | | | 572,917 | |
Operating income | Operating income | 12,642 | | | 72,735 | | | 66,968 | | | 178,879 | | Operating income | 11,226 | | | 49,911 | | | 37,159 | | | 54,326 | |
Interest expense, net | Interest expense, net | 5,606 | | | 1,816 | | | 11,352 | | | 4,400 | | Interest expense, net | 9,948 | | | 3,619 | | | 19,050 | | | 5,746 | |
Income before income taxes | Income before income taxes | 7,036 | | | 70,919 | | | 55,616 | | | 174,479 | | Income before income taxes | 1,278 | | | 46,292 | | | 18,109 | | | 48,580 | |
Income tax expense | Income tax expense | 2,003 | | | 17,198 | | | 13,576 | | | 31,874 | | Income tax expense | 524 | | | 11,359 | | | 5,890 | | | 11,573 | |
Net income | Net income | $ | 5,033 | | | $ | 53,721 | | | $ | 42,040 | | | $ | 142,605 | | Net income | $ | 754 | | | $ | 34,933 | | | $ | 12,219 | | | $ | 37,007 | |
| Basic net income per share: | Basic net income per share: | | Basic net income per share: | |
Net income per share – basic | Net income per share – basic | $ | 0.23 | | | $ | 2.29 | | | $ | 1.87 | | | $ | 5.84 | | Net income per share – basic | $ | 0.03 | | | $ | 1.56 | | | $ | 0.55 | | | $ | 1.64 | |
Weighted-average shares – basic | Weighted-average shares – basic | 22,218 | | | 23,464 | | | 22,444 | | | 24,404 | | Weighted-average shares – basic | 22,460 | | | 22,355 | | | 22,378 | | | 22,558 | |
| Diluted net income per share: | Diluted net income per share: | | Diluted net income per share: | |
Net income per share – diluted | Net income per share – diluted | $ | 0.22 | | | $ | 2.22 | | | $ | 1.83 | | | $ | 5.63 | | Net income per share – diluted | $ | 0.03 | | | $ | 1.54 | | | $ | 0.54 | | | $ | 1.60 | |
Weighted-average shares – diluted | Weighted-average shares – diluted | 22,573 | | | 24,233 | | | 22,959 | | | 25,324 | | Weighted-average shares – diluted | 22,502 | | | 22,713 | | | 22,543 | | | 23,152 | |
See accompanying notes to condensed consolidated financial statements.
| | | | | | | | |
2 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Shareholders’ Deficit
(unaudited - in thousands)
| | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total | | Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total |
| | Shares | | Amount | | | Shares | | Amount | |
Balance at January 1, 2022 | 22,683 | | | $ | 227 | | | $ | 3,971 | | | $ | (429,151) | | | $ | (424,953) | | |
Balance at December 31, 2022 | | Balance at December 31, 2022 | 22,014 | | | $ | 220 | | | $ | 5,182 | | | $ | (443,579) | | | $ | (438,177) | |
Net income | Net income | — | | | — | | | — | | | 2,074 | | | 2,074 | | Net income | — | | | — | | | — | | | 11,465 | | | 11,465 | |
Exercise of common stock options | Exercise of common stock options | 21 | | | — | | | 531 | | | — | | | 531 | | Exercise of common stock options | 17 | | | — | | | 389 | | | — | | | 389 | |
Stock-based compensation | Stock-based compensation | 341 | | | 3 | | | 4,130 | | | — | | | 4,133 | | Stock-based compensation | 271 | | | 3 | | | 4,636 | | | — | | | 4,639 | |
Repurchases of common stock | Repurchases of common stock | (813) | | | (8) | | | (8,632) | | | (42,358) | | | (50,998) | | Repurchases of common stock | (118) | | | (1) | | | (3,362) | | | — | | | (3,363) | |
Balance at April 2, 2022 | 22,232 | | | $ | 222 | | | $ | — | | | $ | (469,435) | | | $ | (469,213) | | |
Balance at April 1, 2023 | | Balance at April 1, 2023 | 22,184 | | | $ | 222 | | | $ | 6,845 | | | $ | (432,114) | | | $ | (425,047) | |
Net income | Net income | — | | | — | | | — | | | 34,933 | | | 34,933 | | Net income | — | | | — | | | — | | | 754 | | | 754 | |
Exercise of common stock options | Exercise of common stock options | 2 | | | — | | | 54 | | | — | | | 54 | | Exercise of common stock options | 3 | | | — | | | 39 | | | — | | | 39 | |
Stock-based compensation | Stock-based compensation | 26 | | | 1 | | | 3,909 | | | — | | | 3,910 | | Stock-based compensation | 33 | | | — | | | 5,251 | | | — | | | 5,251 | |
Repurchases of common stock | Repurchases of common stock | (296) | | | (3) | | | (3,963) | | | (8,680) | | | (12,646) | | Repurchases of common stock | (6) | | | — | | | (138) | | | — | | | (138) | |
Balance at July 2, 2022 | 21,964 | | | $ | 220 | | | $ | — | | | $ | (443,182) | | | $ | (442,962) | | |
Net income | — | | | — | | | — | | | 5,033 | | | 5,033 | | |
Exercise of common stock options | 19 | | | — | | | 413 | | | — | | | 413 | | |
Stock-based compensation | 30 | | | — | | | 542 | | | — | | | 542 | | |
Repurchases of common stock | (12) | | | — | | | (497) | | | — | | | (497) | | |
Balance at October 1, 2022 | 22,001 | | | $ | 220 | | | $ | 458 | | | $ | (438,149) | | | $ | (437,471) | | |
Balance at July 1, 2023 | | Balance at July 1, 2023 | 22,214 | | | $ | 222 | | | $ | 11,997 | | | $ | (431,360) | | | $ | (419,141) | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total |
| Shares | | Amount | | | |
Balance at January 2, 2021 | 25,390 | | | $ | 254 | | | $ | — | | | $ | (224,232) | | | $ | (223,978) | |
Net income | — | | | — | | | — | | | 66,634 | | | 66,634 | |
Exercise of common stock options | 106 | | | 1 | | | 2,459 | | | — | | | 2,460 | |
Stock-based compensation | 314 | | | 3 | | | 6,413 | | | — | | | 6,416 | |
Repurchases of common stock | (1,346) | | | (13) | | | (8,872) | | | (175,297) | | | (184,182) | |
Balance at April 3, 2021 | 24,464 | | | $ | 245 | | | $ | — | | | $ | (332,895) | | | $ | (332,650) | |
Net income | — | | | — | | | — | | | 22,250 | | | 22,250 | |
Exercise of common stock options | 35 | | | — | | | 1,075 | | | — | | | 1,075 | |
Stock-based compensation | 22 | | | — | | | 5,969 | | | — | | | 5,969 | |
Repurchases of common stock | (899) | | | (9) | | | (7,044) | | | (93,249) | | | (100,302) | |
Balance at July 3, 2021 | 23,622 | | | $ | 236 | | | $ | — | | | $ | (403,894) | | | $ | (403,658) | |
Net income | — | | | — | | | — | | | 53,721 | | | 53,721 | |
Exercise of common stock options | 10 | | | — | | | 312 | | | — | | | 312 | |
Stock-based compensation | 19 | | | — | | | 7,316 | | | — | | | 7,316 | |
Repurchases of common stock | (1,004) | | | (10) | | | (7,628) | | | (90,119) | | | (97,757) | |
Balance at October 2, 2021 | 22,647 | | | $ | 226 | | | $ | — | | | $ | (440,292) | | | $ | (440,066) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Common Stock | | Additional Paid-in Capital | | Accumulated Deficit | | Total |
| Shares | | Amount | | | |
Balance at January 1, 2022 | 22,683 | | | $ | 227 | | | $ | 3,971 | | | $ | (429,151) | | | $ | (424,953) | |
Net income | — | | | — | | | — | | | 2,074 | | | 2,074 | |
Exercise of common stock options | 21 | | | — | | | 531 | | | — | | | 531 | |
Stock-based compensation | 341 | | | 3 | | | 4,130 | | | — | | | 4,133 | |
Repurchases of common stock | (813) | | | (8) | | | (8,632) | | | (42,358) | | | (50,998) | |
Balance at April 2, 2022 | 22,232 | | | $ | 222 | | | $ | — | | | $ | (469,435) | | | $ | (469,213) | |
Net income | — | | | — | | | — | | | 34,933 | | | 34,933 | |
Exercise of common stock options | 2 | | | — | | | 54 | | | — | | | 54 | |
Stock-based compensation | 26 | | | 1 | | | 3,909 | | | — | | | 3,910 | |
Repurchases of common stock | (296) | | | (3) | | | (3,963) | | | (8,680) | | | (12,646) | |
Balance at July 2, 2022 | 21,964 | | | $ | 220 | | | $ | — | | | $ | (443,182) | | | $ | (442,962) | |
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See accompanying notes to condensed consolidated financial statements.
| | | | | | | | |
3 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Condensed Consolidated Statements of Cash Flows
(unaudited - in thousands)
| | | | | | | | | | | |
| Nine Months Ended |
| October 1, 2022 | | October 2, 2021 |
Cash flows from operating activities: | | | |
Net income | $ | 42,040 | | | $ | 142,605 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 49,342 | | | 44,786 | |
Stock-based compensation | 8,585 | | | 19,701 | |
Net loss (gain) on disposals and impairments of assets | 274 | | | (20) | |
Deferred income taxes | (6,955) | | | 291 | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | (1,029) | | | (1,517) | |
Inventories | (11,080) | | | (4,767) | |
Income taxes | 4,530 | | | 5,615 | |
Prepaid expenses and other assets | 20,082 | | | (13,879) | |
Accounts payable | 28,889 | | | 51,543 | |
Customer prepayments | (34,225) | | | 35,785 | |
Accrued compensation and benefits | (23,735) | | | (12,725) | |
Other taxes and withholding | 4,744 | | | 7,636 | |
Other accruals and liabilities | (1,340) | | | 17,630 | |
Net cash provided by operating activities | 80,122 | | | 292,684 | |
| | | |
Cash flows from investing activities: | | | |
Purchases of property and equipment | (52,808) | | | (49,370) | |
Proceeds from sales of property and equipment | 49 | | | 257 | |
| | | |
Net cash used in investing activities | (52,759) | | | (49,113) | |
| | | |
Cash flows from financing activities: | | | |
Repurchases of common stock | (64,141) | | | (381,496) | |
Net increase in short-term borrowings | 34,781 | | | 132,222 | |
Proceeds from issuance of common stock | 998 | | | 3,847 | |
Debt issuance costs | (42) | | | (557) | |
Net cash used in financing activities | (28,404) | | | (245,984) | |
| | | |
Net decrease in cash and cash equivalents | (1,041) | | | (2,413) | |
Cash and cash equivalents, at beginning of period | 2,389 | | | 4,243 | |
Cash and cash equivalents, at end of period | $ | 1,348 | | | $ | 1,830 | |
| | | | | | | | | | | |
| Six Months Ended |
| July 1, 2023 | | July 2, 2022 |
Cash flows from operating activities: | | | |
Net income | $ | 12,219 | | | $ | 37,007 | |
Adjustments to reconcile net income to net cash provided by operating activities: | | | |
Depreciation and amortization | 36,749 | | | 31,975 | |
Stock-based compensation | 9,890 | | | 8,043 | |
Net loss on disposals and impairments of assets | 181 | | | 179 | |
Deferred income taxes | (8,272) | | | (3,794) | |
Changes in operating assets and liabilities: | | | |
Accounts receivable | 1,903 | | | (2,898) | |
Inventories | (7,412) | | | (15,674) | |
Income taxes | 1,808 | | | 4,368 | |
Prepaid expenses and other assets | (5,824) | | | 6,266 | |
Accounts payable | (10,244) | | | (1,713) | |
Customer prepayments | (14,683) | | | (14,754) | |
Accrued compensation and benefits | 7,594 | | | (17,789) | |
Other taxes and withholding | (2,074) | | | 971 | |
Other accruals and liabilities | (3,115) | | | (3,496) | |
Net cash provided by operating activities | 18,720 | | | 28,691 | |
| | | |
Cash flows from investing activities: | | | |
Purchases of property and equipment | (29,899) | | | (36,559) | |
Issuance of note receivable | (435) | | | — | |
Proceeds from sales of property and equipment | — | | | 23 | |
| | | |
Net cash used in investing activities | (30,334) | | | (36,536) | |
| | | |
Cash flows from financing activities: | | | |
Net increase in short-term borrowings | 14,693 | | | 70,836 | |
Repurchases of common stock | (3,501) | | | (63,644) | |
Proceeds from issuance of common stock | 428 | | | 585 | |
Debt issuance costs | — | | | (42) | |
Net cash provided by financing activities | 11,620 | | | 7,735 | |
| | | |
Net increase (decrease) in cash and cash equivalents | 6 | | | (110) | |
Cash and cash equivalents, at beginning of period | 1,792 | | | 2,389 | |
Cash and cash equivalents, at end of period | $ | 1,798 | | | $ | 2,279 | |
See accompanying notes to condensed consolidated financial statements.
| | | | | | | | |
4 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
1. Business and Summary of Significant Accounting Policies
Business & Basis of Presentation
WeThe Company prepared the condensed consolidated financial statements as of and for the three and ninesix months ended OctoberJuly 1, 20222023 of Sleep Number Corporation and ourits 100%-owned subsidiaries (Sleep Number or the Company), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and they reflect, in the opinion of management, all normal recurring adjustments necessary to present fairly ourits financial position as of OctoberJuly 1, 20222023 and January 1,December 31, 2022, and the consolidated results of operations and cash flows for the periods presented. OurThe historical and quarterly consolidated results of operations may not be indicative of the results that may be achieved for the full year or any future period. In addition, based on the duration and severity of the current global situation involving the COVID-19 pandemic, the war in Ukraine, historic low consumer sentiment and other external factors, including but not limited to general economic conditions, inflation, consumer sentiment, store restrictions mandated by federal, state or local authorities and global supply chain disruptions (especially disruptive supply and flow of semiconductor chips and other electronic components), the extent to which these external factors will impact our business and our consolidated financial results will depend on future developments, which are highly uncertain and cannot be predicted.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles (GAAP) have been condensed or omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with ourthe most recent audited consolidated financial statements and related notes included in ourthe Company’s Annual Report on Form 10-K for the fiscal year ended January 1,December 31, 2022 and other recent filings with the SEC.
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires usthe Company to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the reported amounts of sales, expenses and income taxes during the reporting period. Predicting future events is inherently an imprecise activity and, as such, requires the use of judgment. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. In addition, during the current environment involving external factors such as COVID-19, historic low consumer sentiment and the war in Ukraine, predicting future events will be especially challenging for management. Changes in these estimates will be reflected in the consolidated financial statements in future periods and could be material. OurThe Company’s critical accounting policies consist of stock-based compensation, warranty liabilities and revenue recognition.
The condensed consolidated financial statements include the accounts of Sleep Number Corporation and ourits 100%-owned subsidiaries. All significant intra-entity balances and transactions have been eliminated in consolidation.
2. Fair Value Measurements
At OctoberJuly 1, 2023 and December 31, 2022, and January 1, 2022, wethe Company had $16$18 million and $19$17 million, respectively, of debt and equity securities that fund ourthe deferred compensation plan and are classified in other non-current assets. WeThe Company also had corresponding deferred compensation plan liabilities of $16$18 million and $19$17 million at OctoberJuly 1, 20222023 and January 1,December 31, 2022, respectively, which are included in other non-current liabilities. The majority of the debt and equity securities are Level 1 as they trade with sufficient frequency and volume to enable usthe Company to obtain pricing information on an ongoing basis. Unrealized gains/(losses) on the debt and equity securities offset those associated with the corresponding deferred compensation plan liabilities.
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5 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
3. Inventories
Inventories consisted of the following (in thousands): | | | October 1, 2022 | | January 1, 2022 | | July 1, 2023 | | December 31, 2022 |
Raw materials | Raw materials | $ | 6,763 | | | $ | 11,752 | | Raw materials | $ | 9,260 | | | $ | 7,785 | |
Work in progress | Work in progress | 92 | | | 83 | | Work in progress | 109 | | | 102 | |
Finished goods | Finished goods | 106,699 | | | 93,809 | | Finished goods | 112,077 | | | 106,147 | |
| | $ | 113,554 | | | $ | 105,644 | | | $ | 121,446 | | | $ | 114,034 | |
4. Goodwill and Intangible Assets, Net
Goodwill and Indefinite-lived Intangible Assets
Goodwill was $64 million at OctoberJuly 1, 20222023 and January 1,December 31, 2022. Indefinite-lived trade name/trademarks totaled $1.4 million at OctoberJuly 1, 20222023 and January 1,December 31, 2022.
Definite-lived Intangible Assets
The gross carrying amount of our developed | | | | | | | | | | | | | | | | | | | | | | | |
| July 1, 2023 | | December 31, 2022 |
| Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
Developed technologies | $ | 18,851 | | | $ | 18,564 | | | $ | 18,851 | | | $ | 17,641 | |
Patents | 1,972 | | | 670 | | | 1,972 | | | 559 | |
| $ | 20,823 | | | $ | 19,234 | | | $ | 20,823 | | | $ | 18,200 | |
Developed technologies - amortization expense for the three months ended July 1, 2023 and July 2, 2022, was $18.4 million at October 1, 2022 and January 1, 2022. Accumulated amortization was $16.7$0.4 million and $15.5$0.5 million, at Octoberrespectively, and for the six months ended July 1, 2023 and July 2, 2022 was $0.9 million and January 1, 2022. Amortization$1.1 million, respectively.
Patents - amortization expense for both the three months ended OctoberJuly 1, 2023 and July 2, 2022, and October 2, 2021, was $0.5 million. Amortization expense$55 thousand, and for both the ninesix months ended OctoberJuly 1, 2023 and July 2, 2022, and October 2, 2021, was $1.6 million.
The gross carrying amount of our patents was $2.0 million at October 1, 2022 and January 1, 2022. Accumulated amortization was $0.5 million and $0.3 million at October 1, 2022 and January 1, 2022, respectively. Amortization expense for both the three months ended October 1, 2022 and October 2, 2021, was $55 thousand. Amortization expense for both the nine months ended October 1, 2022 and October 2, 2021, was $0.2$0.1 million.
Annual amortization for definite-lived intangible assets for subsequent years are as follows (in thousands): | 2022 (excluding the nine months ended October 1, 2022) | | $ | 601 | | |
2023 | | 1,431 | | |
2023 (excluding the six months ended July 1, 2023) | | 2023 (excluding the six months ended July 1, 2023) | | $ | 451 | |
2024 | 2024 | | 222 | | 2024 | | 222 | |
2025 | 2025 | | 226 | | 2025 | | 226 | |
2026 | 2026 | | 222 | | 2026 | | 222 | |
2027 | 2027 | | 222 | | 2027 | | 222 | |
2028 | | 2028 | | 156 | |
Thereafter | Thereafter | | 300 | | Thereafter | | 145 | |
Total future amortization for definite-lived intangible assets | Total future amortization for definite-lived intangible assets | | $ | 3,224 | | Total future amortization for definite-lived intangible assets | | $ | 1,644 | |
5. Credit Agreement
As of October 1, 2022, our credit facility had a total commitment amount of $825 million. The credit facility is for general corporate purposes, to meet our seasonal working capital requirements and to repurchase our stock. The credit agreement includes an accordion feature which allows us to increase the amount of the credit facility from $825 million to $1.2 billion, subject to lenders’ approval. The credit agreement provides the lenders with a collateral security interest in substantially all of our assets and those of our subsidiaries and requires us to comply with, among other things, a maximum net leverage ratio (4.5x) and a minimum interest coverage ratio (3.0x). Under the terms of the credit agreement, we pay a variable rate of interest and a commitment fee based on our leverage ratio. The credit agreement matures in December 2026. We were in compliance with all financial covenants as of October 1, 2022.
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6 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
We5. Credit Agreement
As of July 1, 2023, the Company’s credit facility had a total commitment amount of $825 million. The credit facility is for general corporate purposes, to meet seasonal working capital requirements and to repurchase its stock. The Credit Agreement includes an accordion feature which allows the Company to increase the amount of the credit facility from $825 million to $1.2 billion, subject to lenders’ approval. The Credit Agreement provides the lenders with a collateral security interest in substantially all of the Company’s assets and those of its subsidiaries and requires the Company to comply with, among other things, a maximum net leverage ratio (5.0x) and a minimum interest coverage ratio (3.0x).
The Company amended the credit agreementCredit Agreement on October 26, 2022. The amendment, among other things, (a) provides relief from the requirement that the net leverage ratio not exceed 3.75x for certain corporate actions including Permitted Capital Distributions for Performance or Taxes (as defined in the Credit Agreement) and certain acquisition activity; (b) increases the permissible net leverage ratio to 5.0x for the three consecutive quarterly reporting periods ending July 1, 2023; (c) increases the commitment fee rate to 50 basis points and the margin applicable to interest rates for all borrowings by an additional 50 basis points, in each case if the net leverage ratio is greater than or equal to 4.5x; and (d) replaces the option to borrow at an interest rate based on London Interbank Offered Rate (LIBOR) to one based on a Term SOFR Rate. The Term SOFR Rate equals the sum of (x) the Term SOFR Screen Rate (as defined in the Credit Agreement) for the applicable interest period (but in no event less than zero), plus (y) 0.10%, plus (z) the margin based on Sleep Number’s net leverage ratio. A fee for
The Company amended the Credit Agreement on July 24, 2023. The amendment, is payableamong other things, extends the increased permissible net leverage ratio to 5.0x to include the lenders in an amount equal to 7.5 basis points multiplied byquarterly reporting period ending September 30, 2023. For the sumquarterly reporting period ending December 30, 2023, and subsequent quarterly reporting periods, the maximum leverage ratio will be 4.5x.
Under the terms of the Revolving Credit CommitmentAgreement, the Company pays a variable rate of interest and the outstanding amounta commitment fee based on its leverage ratio. The Credit Agreement matures in December 2026. The Company was in compliance with all financial covenants as of Term Loans (as each is defined in the Credit Agreement).July 1, 2023.
The following table summarizes ourthe Company’s borrowings under the credit facility ($ in thousands): | | | | | | | | | | | |
| October 1, 2022 | | January 1, 2022 |
Outstanding borrowings | $ | 406,300 | | | $ | 382,500 | |
Outstanding letters of credit | $ | 5,947 | | | $ | 3,997 | |
Additional borrowing capacity | $ | 412,753 | | | $ | 438,503 | |
Weighted-average interest rate | 5.1 | % | | 1.6 | % |
| | | | | | | | | | | |
| July 1, 2023 | | December 31, 2022 |
Outstanding borrowings | $ | 483,800 | | | $ | 459,600 | |
Outstanding letters of credit | $ | 7,147 | | | $ | 5,947 | |
Additional borrowing capacity | $ | 334,053 | | | $ | 359,453 | |
Weighted-average interest rate | 7.5 | % | | 6.7 | % |
6. Leases
We lease ourThe Company leases its retail, office and manufacturing space 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. While ourthe Company’s local market development approach generally results in long-term participation in given markets, ourthe retail store leases generally provide for an initial lease term of five to 10 years. OurThe Company’s office and manufacturing leases provide for an initial lease term of up to 15 years. In addition, ourthe Company’s mall-based retail store leases may require payment of variable rent based on net sales in excess of certain thresholds. Certain leases may contain options to extend the term of the original lease. The exercise of lease renewal options is at ourthe Company’s sole discretion. Lease options are included in the lease term only if exercise is reasonably certain at lease commencement. OurThe Company’s lease agreements do not contain any material residual value guarantees. WeThe Company also leaseleases vehicles and certain equipment under operating leases with an initial lease term of three to fivesix years.
OurThe Company’s operating lease costs include facility, vehicle and equipment lease costs, but exclude variable lease costs. Operating lease costs are recognized on a straight-line basis over the lease term, after consideration of rent escalations and rent holidays. The lease term for purposes of the calculation begins on the earlier of the lease commencement date or the date we take possession of the property. During lease renewal negotiations that extend beyond the original lease term, we estimate straight-line rent expense based on current market conditions. Variable lease costs are recorded when it is probable the cost has been incurred and the amount can be reasonably estimated. Future payments for real estate taxes and certain building operating expenses for which we are obligated are not included in operating lease costs.
At October 1, 2022, our finance right-of-use assets and lease liabilities were not significant.
Lease costs were as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 |
Operating lease costs(1) | $ | 27,821 | | | $ | 24,352 | | | $ | 81,925 | | | $ | 73,623 | |
Variable lease costs | $ | 54 | | | $ | 840 | | | $ | 647 | | | $ | 2,181 | |
___________________________
(1)Includes short-term lease costs which are not significant.
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7 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
commencement date or the date the Company takes possession of the property. During lease renewal negotiations that extend beyond the original lease term, the Company estimates straight-line rent expense based on current market conditions. Variable lease costs are recorded when it is probable the cost has been incurred and the amount can be reasonably estimated.
At July 1, 2023, the Company’s finance right-of-use assets and lease liabilities were not significant.
Lease costs were as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Operating lease costs(1) | $ | 28,083 | | | $ | 27,025 | | | $ | 56,372 | | | $ | 54,103 | |
Variable lease costs | $ | 129 | | | $ | 262 | | | $ | 182 | | | $ | 593 | |
___________________________
(1)Includes short-term lease costs which are not significant.
The maturities of operating lease liabilities as of OctoberJuly 1, 2022,2023, were as follows(1) (in thousands): | 2022 (excluding the nine months ended October 1, 2022) | $ | 25,605 | | |
2023 | 99,133 | | |
2023 (excluding the six months ended July 1, 2023) | | 2023 (excluding the six months ended July 1, 2023) | $ | 54,392 | |
2024 | 2024 | 87,684 | | 2024 | 102,112 | |
2025 | 2025 | 77,399 | | 2025 | 90,594 | |
2026 | 2026 | 65,885 | | 2026 | 78,095 | |
2027 | 2027 | 50,511 | | 2027 | 62,664 | |
2028 | | 2028 | 50,787 | |
Thereafter | Thereafter | 105,869 | | Thereafter | 86,696 | |
Total operating lease payments(2) | Total operating lease payments(2) | 512,086 | | Total operating lease payments(2) | 525,340 | |
Less: Interest | Less: Interest | 84,473 | | Less: Interest | 86,857 | |
Present value of operating lease liabilities | Present value of operating lease liabilities | $ | 427,613 | | Present value of operating lease liabilities | $ | 438,483 | |
___________________________
(1)Future payments for real estate taxes and certain building operating expenses for which the Company is obligated are not included in the operating lease liabilities. Total operating lease payments exclude $89$53 million of legally binding minimum lease payments for leases signed but not yet commenced.
(2)Includes the current portion of $77$82 million for operating lease liabilities.
Other information related to operating leases was as follows: | | | October 1, 2022 | | January 1, 2022 | | July 1, 2023 | | December 31, 2022 |
Weighted-average remaining lease term (in years) | Weighted-average remaining lease term (in years) | | 6.2 | | 6.4 | Weighted-average remaining lease term (in years) | | 6.0 | | 6.2 |
Weighted-average discount rate | Weighted-average discount rate | | 6.1 | % | | 6.1 | % | Weighted-average discount rate | | 6.4 | % | | 6.2 | % |
| | | | | | | | | | | | | | |
| | Nine Months Ended |
(in thousands) | | October 1, 2022 | | October 2, 2021 |
Cash paid for amounts included in present value of operating lease liabilities | | $ | 74,189 | | | $ | 66,561 | |
Right-of-use assets obtained in exchange for operating lease liabilities | | $ | 56,048 | | | $ | 78,192 | |
7. Repurchases of Common Stock
Repurchases of our common stock were as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 |
Amount repurchased under Board-approved share repurchase program | $ | — | | | $ | 97,046 | | | $ | 54,868 | | | $ | 364,478 | |
Amount repurchased in connection with the vesting of employee restricted stock grants | 497 | | | 711 | | | 9,273 | | | 17,763 | |
Total amount repurchased (based on trade dates) | $ | 497 | | | $ | 97,757 | | | $ | 64,141 | | | $ | 382,241 | |
As of October 1, 2022, the remaining authorization under the $600 million share repurchase program was $348 million. | | | | | | | | | | | | | | |
| | Six Months Ended |
(in thousands) | | July 1, 2023 | | July 2, 2022 |
Cash paid for amounts included in present value of operating lease liabilities | | $ | 53,476 | | | $ | 48,964 | |
Right-of-use assets obtained in exchange for operating lease liabilities | | $ | 32,831 | | | $ | 36,180 | |
| | | | | | | | |
8 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
7. Repurchases of Common Stock
Repurchases of the Company’s common stock were as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Amount repurchased under Board-approved share repurchase program | $ | — | | | $ | 12,561 | | | $ | — | | | $ | 54,868 | |
Amount repurchased in connection with the vesting of employee restricted stock grants | 138 | | | 85 | | | 3,501 | | | 8,776 | |
Total amount repurchased (based on trade dates) | $ | 138 | | | $ | 12,646 | | | $ | 3,501 | | | $ | 63,644 | |
As of July 1, 2023, the remaining authorization under the Board-approved $600 million share repurchase program was $348 million.
8. Revenue Recognition
Deferred contract assets and deferred contract liabilities are included in ourthe condensed consolidated balance sheets as follows (in thousands): | | | October 1, 2022 | | January 1, 2022 | | July 1, 2023 | | December 31, 2022 |
Deferred contract assets included in: | Deferred contract assets included in: | | Deferred contract assets included in: | |
Other current assets | Other current assets | $ | 27,894 | | | $ | 28,048 | | Other current assets | $ | 28,118 | | | $ | 28,121 | |
Other non-current assets | Other non-current assets | 55,095 | | | 49,343 | | Other non-current assets | 55,782 | | | 55,564 | |
| | $ | 82,989 | | | $ | 77,391 | | | $ | 83,900 | | | $ | 83,685 | |
| | | October 1, 2022 | | January 1, 2022 | | July 1, 2023 | | December 31, 2022 |
Deferred contract liabilities included in: | Deferred contract liabilities included in: | | Deferred contract liabilities included in: | |
Other current liabilities | Other current liabilities | $ | 36,160 | | | $ | 36,490 | | Other current liabilities | $ | 36,132 | | | $ | 36,335 | |
Other non-current liabilities | Other non-current liabilities | 70,676 | | | 63,680 | | Other non-current liabilities | 71,004 | | | 70,999 | |
| | $ | 106,836 | | | $ | 100,170 | | | $ | 107,136 | | | $ | 107,334 | |
The deferredDeferred revenue and costs related to SleepIQ® technology are currently recognized on a straight-line basis over the product's estimated life of 4.5 to 5.0 years because ourthe Company’s inputs are generally expended evenly throughout the performance period. During the three months ended OctoberJuly 1, 2023 and July 2, 2022, and October 2, 2021, wethe Company recognized revenue of $9$10 million and $8$9 million, respectively, that werewas included in the deferred contract liability balances at the beginning of the respective periods. During the ninesix months ended OctoberJuly 1, 2023 and July 2, 2022, and October 2, 2021, wethe Company recognized revenue of $26$19 million and $22$18 million, respectively, that werewas included in the deferred contract liability balances at the beginning of the respective periods.
Revenue from goods and services transferred to customers at a point in time accounted for approximately 98% of our revenues for both the three and ninesix months ended OctoberJuly 1, 20222023 and 99% and 98% for the three and nine months ended OctoberJuly 2, 2021, respectively.2022.
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9 | 2Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Net sales were as follows (in thousands): | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Retail stores | Retail stores | $ | 466,632 | | | $ | 565,939 | | | $ | 1,401,789 | | | $ | 1,481,780 | | Retail stores | $ | 402,145 | | | $ | 490,820 | | | $ | 860,808 | | | $ | 935,157 | |
Online, phone, chat and other | Online, phone, chat and other | 73,934 | | | 74,454 | | | 214,980 | | | 211,185 | | Online, phone, chat and other | 56,644 | | | 58,253 | | | 124,508 | | | 141,046 | |
Total Company | Total Company | $ | 540,566 | | | $ | 640,393 | | | $ | 1,616,769 | | | $ | 1,692,965 | | Total Company | $ | 458,789 | | | $ | 549,073 | | | $ | 985,316 | | | $ | 1,076,203 | |
Obligation for Sales Returns
The activity in the sales returns liability account was as follows (in thousands): | | | Nine Months Ended | | Six Months Ended |
| | October 1, 2022 | | October 2, 2021 | | July 1, 2023 | | July 2, 2022 |
Balance at beginning of year | Balance at beginning of year | $ | 22,368 | | | $ | 24,765 | | Balance at beginning of year | $ | 25,594 | | | $ | 22,368 | |
Additions that reduce net sales | Additions that reduce net sales | 79,353 | | | 69,877 | | Additions that reduce net sales | 57,849 | | | 53,964 | |
Deductions from reserves | Deductions from reserves | (76,070) | | | (66,124) | | Deductions from reserves | (57,967) | | | (51,676) | |
Balance at end of period | Balance at end of period | $ | 25,651 | | | $ | 28,518 | | Balance at end of period | $ | 25,476 | | | $ | 24,656 | |
9. Stock-based Compensation Expense
Total stock-based compensation expense (benefit) was as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Six Months Ended |
| July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Stock awards (1) | $ | 4,258 | | | $ | 2,940 | | | 8,113 | | | $ | 6,214 | |
Stock options | 994 | | | 970 | | | 1,777 | | | 1,829 | |
Total stock-based compensation expense (1) | 5,252 | | | 3,910 | | | 9,890 | | | 8,043 | |
Income tax benefit | 1,417 | | | 946 | | | 2,670 | | | 1,979 | |
Total stock-based compensation expense, net of tax | $ | 3,835 | | | $ | 2,964 | | | $ | 7,220 | | | $ | 6,064 | |
___________________________
(1) Changes in stock-based compensation expense include the cumulative impact of the change in the expected achievements of certain performance targets.
10. Profit Sharing and 401(k) Plan
Under the Company’s profit sharing and 401(k) plan, eligible employees may defer up to 50% of their compensation on a pre-tax basis, subject to Internal Revenue Service limitations. Each pay period, the Company makes a contribution equal to a percentage of the employee’s contribution. During the three months ended July 1, 2023 and July 2, 2022, the Company’s contributions, net of forfeitures, were $2.8 million and $2.5 million, respectively and during the six months ended July 1, 2023 and July 2, 2022, were $5.2 million and $5.3 million, respectively.
| | | | | | | | |
910 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
9. Stock-based Compensation Expense
Total stock-based compensation expense (benefit) was as follows (in thousands): | | | | | | | | | | | | | | | | | | | | | | | |
| Three Months Ended | | Nine Months Ended |
| October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 |
Stock awards (1) | $ | (435) | | | $ | 6,506 | | | 5,778 | | | $ | 17,533 | |
Stock options | 977 | | | 810 | | | 2,807 | | | 2,168 | |
Total stock-based compensation expense (1) | 542 | | | 7,316 | | | 8,585 | | | 19,701 | |
Income tax benefit | 133 | | | 1,835 | | | 2,112 | | | 4,906 | |
Total stock-based compensation expense, net of tax | $ | 409 | | | $ | 5,481 | | | $ | 6,473 | | | $ | 14,795 | |
___________________________
(1) Changes in stock-based compensation expense reflect the cumulative impact of the change in the expected achievements of certain performance targets.
10. Profit Sharing and 401(k) Plan
Under our profit sharing and 401(k) plan, eligible employees may defer up to 50% of their compensation on a pre-tax basis, subject to Internal Revenue Service limitations. Each pay period, we may make a discretionary contribution equal to a percentage of the employee’s contribution. During the three months ended October 1, 2022 and October 2, 2021, our contributions, net of forfeitures, were $2.3 million and $2.0 million, respectively. During the nine months ended October 1, 2022 and October 2, 2021, our contributions, net of forfeitures, were $7.6 million and $5.7 million, respectively.
11. Net Income per Common Share
The components of basic and diluted net income per share were as follows (in thousands, except per share amounts): | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Net income | Net income | $ | 5,033 | | | $ | 53,721 | | | $ | 42,040 | | | $ | 142,605 | | Net income | $ | 754 | | | $ | 34,933 | | | $ | 12,219 | | | $ | 37,007 | |
Reconciliation of weighted-average shares outstanding: | Reconciliation of weighted-average shares outstanding: | | Reconciliation of weighted-average shares outstanding: | |
Basic weighted-average shares outstanding | Basic weighted-average shares outstanding | 22,218 | | | 23,464 | | | 22,444 | | | 24,404 | | Basic weighted-average shares outstanding | 22,460 | | | 22,355 | | | 22,378 | | | 22,558 | |
Dilutive effect of stock-based awards | Dilutive effect of stock-based awards | 355 | | | 769 | | | 515 | | | 920 | | Dilutive effect of stock-based awards | 42 | | | 358 | | | 165 | | | 594 | |
Diluted weighted-average shares outstanding | Diluted weighted-average shares outstanding | 22,573 | | | 24,233 | | | 22,959 | | | 25,324 | | Diluted weighted-average shares outstanding | 22,502 | | | 22,713 | | | 22,543 | | | 23,152 | |
Net income per share – basic | Net income per share – basic | $ | 0.23 | | | $ | 2.29 | | | $ | 1.87 | | | $ | 5.84 | | Net income per share – basic | $ | 0.03 | | | $ | 1.56 | | | $ | 0.55 | | | $ | 1.64 | |
Net income per share – diluted | Net income per share – diluted | $ | 0.22 | | | $ | 2.22 | | | $ | 1.83 | | | $ | 5.63 | | Net income per share – diluted | $ | 0.03 | | | $ | 1.54 | | | $ | 0.54 | | | $ | 1.60 | |
For
Additional potential dilutive stock-based awards totaling 1.3 million and 0.6 million for the three and nine months ended OctoberJuly 1, 2023 and July 2, 2022, respectively, and October1.2 million and 0.5 million for the six months ended July 1, 2023 and July 2, 2021, anti-dilutive stock-based awards2022, respectively, have been excluded from the diluted net income per share calculations because these stock-based awards were 0.5 million and 0.1 million for the three months ended October 1, 2022 and October 2, 2021, respectively, and 0.5 million and 0.1 million for the nine months ended October 1, 2022 and October 2, 2021, respectively.anti-dilutive.
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10 | 3Q 2022 FORM 10-Q | SLEEP NUMBER CORPORATION |
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
12. Commitments and Contingencies
Warranty Liabilities
The activity in the accrued warranty liabilities account was as follows (in thousands): | | | Nine Months Ended | | Six Months Ended |
| | October 1, 2022 | | October 2, 2021 | | July 1, 2023 | | July 2, 2022 |
Balance at beginning of year | Balance at beginning of year | $ | 10,069 | | | $ | 12,152 | | Balance at beginning of year | $ | 8,997 | | | $ | 10,069 | |
Additions charged to costs and expenses for current-year sales | Additions charged to costs and expenses for current-year sales | 13,093 | | | 12,780 | | Additions charged to costs and expenses for current-year sales | 8,194 | | | 7,930 | |
Deductions from reserves | Deductions from reserves | (13,210) | | | (13,489) | | Deductions from reserves | (8,315) | | | (8,995) | |
Changes in liability for pre-existing warranties during the current year, including expirations | Changes in liability for pre-existing warranties during the current year, including expirations | (546) | | | (380) | | Changes in liability for pre-existing warranties during the current year, including expirations | 111 | | | (240) | |
Balance at end of period | Balance at end of period | $ | 9,406 | | | $ | 11,063 | | Balance at end of period | $ | 8,987 | | | $ | 8,764 | |
Legal Proceedings
We areThe Company is involved from time to time in various legal proceedings arising in the ordinary course of ourits business, including primarily commercial, product liability, employment and intellectual property claims. In accordance with U.S. generally accepted accounting principles, we recordthe Company records a liability in ourits consolidated financial statements with respect to any of these matters when it is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. If a material loss is reasonably possible but not known or probable, and may be reasonably estimated, the estimated loss or range of loss is disclosed. With respect to currently pending legal proceedings, we havethe Company has not established an estimated range of reasonably possible material losses either because we believeit believes that we haveis has valid defenses to claims asserted against us,it, the proceeding has not advanced to a stage of discovery that would enable usit to establish an estimate, or the potential loss is not material. WeThe Company currently dodoes not expect the outcome of pending legal proceedings to have a material effect on ourits 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 claims asserted against usthe Company could adversely impact ourits consolidated results of operations, financial position or cash flows. We expenseThe Company expenses legal costs as incurred.
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11 | 2Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)
Shareholder Class Action Complaints
On December 14, 2021, purported Sleep Number shareholder, Steamfitters Local 449 Pension & Retirement Security Funds (Steamfitters), filed a putative class action complaint in the United States District Court for the District of Minnesota (the District of Minnesota) on behalf of all purchasers of Sleep Number common stock between February 18, 2021 and July 20, 2021, inclusive, against Sleep Number, Shelly Ibach and David Callen.Callen, the Company’s former Executive Vice President and Chief Financial Officer. Steamfitters alleges material misstatements and omissions in certain of Sleep Number’s public disclosures during the purported class period, in violation of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the Exchange Act). The complaint seeks, among other things, unspecified monetary damages, reasonable costs and expenses and equitable/injunctive or other relief as deemed appropriate by the District of Minnesota.
On February 14, 2022, a second purported Sleep Number shareholder, Ricardo Dario Schammas, moved for appointment as lead plaintiff in the action. On March 24, 2022, the District of Minnesota heard argument on Schammas’s motion, and subsequently appointed Steamfitters and Schammas as Co-Lead Plaintiffs (together, Co-Lead Plaintiffs). On July 19, 2022, Co-Lead Plaintiffs filed a consolidated amended complaint, which, like the predecessor complaint, asserts claims against Sleep Number, Shelly Ibach, and David Callen under Sections 10(b) and 20(a) of the Exchange Act. Co-LeadCo- Lead Plaintiffs purport to assert these claims on behalf of all purchasers of Sleep Number common stock between February 18, 2021 and July 20, 2021. Defendants moved to dismiss the consolidated amended complaint on September 19, 2022, which motion remains pending.
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11 | 3Q 2022 FORM 10-Q | SLEEP NUMBER CORPORATION |
SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(unaudited)was heard by the Court on January 17, 2023. On July 10, 2023, the Court issued an order dismissing the Plaintiffs’ consolidated amended complaint with prejudice.
Shareholder Derivative Complaint
On May 12, 2022, Gwendolyn Calla Moore, as the appointed representative of purported Sleep Number shareholder Matthew Gelb, filed a derivative action (the Derivative Action) in the District of Minnesota against Jean-Michel Valette, Shelly Ibach, Barbara Matas, Brenda Lauderback, Daniel Alegre, Deborah Kilpatrick, Julie Howard, Kathleen Nedorostek, Michael Harrison, Stephen Gulis, Jr., David Callen, and Kevin Brown. Moore purports to assert claims on behalf of Sleep Number for breaches of fiduciary duty, waste, and contribution under Sections 10(b) and 21(d) of the Exchange Act. Moore’s allegations generally mirror those asserted in the securities complaint described above. The Moore complaint seeks damages in an unspecified amount, disgorgement, interest, and costs and expenses, including attorneys’ and experts’ fees.
On September 13, 2022, the District of Minnesota entered a joint stipulation staying all proceedings in the Derivative Action pending the outcome of any motion to dismiss the Steamfitters consolidated amended complaint.
Stockholder Demand
On March 25, 2022, Sleep Number received a shareholder litigation demand (the “Demand”), requesting that the Board investigate the allegations in the securities class action complaint and pursue claims on Sleep Number’s behalf based on those allegations. On May 12, 2022, the Board established a special litigation committee to investigate the demand.
On October 5 and October 12, 2022, Sleep Number received two additional shareholder litigation demands, which adopted and incorporated the allegations and requests in the Demand. Both of these additional litigation demands were referred to the special litigation committee.
The special litigation committee has concluded that it would not be in the best interests of Sleep Number and its shareholders to take any of the actions requested in the demands at this time.
13. COVID-19 Pandemic
The COVID-19 pandemic impacted our 2021 and 2022 financial performance. In the first nine months of 2021, even with the COVID-19 challenges, we generated strong demand and financial performance. In the first nine months of 2022, our financial performance was impacted by: (i) the disruptive flow of semiconductor chips which affected our ability to deliver products to our customers; (ii) incremental costs from labor and material inflation, and expediting costs resulting from current-period global supply chain shortages; and (iii) record low consumer sentiment. The pandemic's future effects on our global supply chain and the potential for supply disruption (e.g., the lack or slowing of critical components caused by labor shortages or government-mandated work closures), effects on consumer demand and effects on our ongoing financial performance remains uncertain. See Part II, Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations for additional discussion on the COVID-19 pandemic and the impact on our business.
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12 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide a reader of ourthe Company’s condensed consolidated financial statements with a narrative from the perspective of management on ourits financial condition, results of operations, liquidity and certain other factors that may affect ourthe Company’s future results. Our MD&A is presented in eight sections:
•Forward-Looking Statements and Risk Factors
•Business Overview
•COVID-19 Pandemic - Impact on our Business
•Results of Operations
•Liquidity and Capital Resources
•Non-GAAP Data Reconciliations
•Off-Balance-Sheet Arrangements and Contractual Obligations
•Critical Accounting Policies
Forward-looking Statements and Risk Factors
The discussion in this Quarterly Report contains certain forward-looking statements that relate to future plans, events, financial results or performance. You can identify forward-looking statements by those that are not historical in nature, particularly those that use terminology such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “predict,” “intend,” “potential,” “continue” or the negative of these or similar terms. These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from ourthe Company’s historical experience and ourits present expectations or projections. These risks and uncertainties include, among others:
•Current and future general and industry economic trendsconditions and consumer sentiment;
•Risks inherent in outbreaks of pandemicsBank failures or contagious disease, including the COVID-19 pandemic;other events affecting financial institutions;
•Risks inherentIncreases in global-sourcing activities, including tariffs, outbreaksinterest rates, which have increased the cost of pandemics or contagious diseases, such asservicing the COVID-19 pandemic, geo-political turmoil, acts of terrorism, global conflicts or war (such as the current war in Ukraine), strikes, labor shortages, government-mandated work closures, and the potential for shortages in supply or disruption or delay of production and delivery of materials and products in our global supply chain;
•Risks of disruption in the operation of any of our main manufacturing, distribution, logistics, home delivery, product development, or customer service facilities or operations;
•Our manufacturing processes operate 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 service providers;
•Rising commodity costs and other inflationary pressures;
•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;Company’s indebtedness;
•Availability of attractive and cost-effective consumer credit options;
•IncreasingOperating with minimal levels of inventory, which may leave the Company vulnerable to supply shortages;
•Sleep Number’s dependence on, and ability to maintain strong working relationships with, key suppliers and third parties;
•Rising commodity costs or third-party logistics costs and other inflationary pressures;
•Risks inherent in global-sourcing activities, including tariffs, geo-political turmoil, war, strikes, labor challenges, government-mandated work closures, outbreaks of pandemics or contagious diseases, and resulting supply shortages and production and delivery delays and disruptions;
•Risks of disruption due to health epidemics or pandemics or COVID-19 variants;
•Regional risks related to having global operations and suppliers, including climate and other disasters;
•The effectiveness of the Company’s marketing strategy and promotional efforts;
•The execution of Sleep Number’s Total Retail distribution strategy;
•Ability to achieve and maintain high levels of product quality;
•Ability to improve and expand Sleep Number’s product line and execute successful new product introductions;
•Ability to prevent third parties from using the Company’s technology or trademarks, and the adequacy of its intellectual property rights to protect its products and brand;
•Ability to compete;
•Risks of disruption in the operation of any of the Company’s main manufacturing, distribution, logistics, home delivery, product development or customer service operations;
•The Company’s ability to comply with existing and changing government regulation;
•Pending or unforeseen litigation and the potential for associated adverse publicity associated with litigation;publicity;
•The adequacy of the Company’s and third-party information systems and costs and disruptions related to upgrading or maintaining these systems;
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13 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
•The adequacy of our and third-party information systemsCompany’s ability 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 upgrading or maintaining our information systems;
•The vulnerability of our and third-party information systems to attacks by hackers or otherwithstand cyber threats that could compromise the security of ourits systems, result in a data breach or disrupt our business;business disruption;
•Environmental risks, including increasing environmental regulation and the broader impacts of climate change such as from weather-related events; and
•OurSleep Number’s ability, and the ability of ourits suppliers and vendors, to attract, retain and motivate qualified management, executivepersonnel;
•The volatility of Sleep Number stock;
•Environmental, social and other key team members,governance (ESG) risks, including qualified retail sales professionalsincreasing regulation and managers.stakeholder expectations; and
•The Company’s ability to adapt to climate change and readiness for legal or regulatory responses thereto.
Additional information concerning these, and other risks and uncertainties is contained under the caption “Risk Factors” in Part I, Item 1A. in ourthe Company’s Annual Report on Form 10-K.
We haveThe Company has no obligation to publicly update or revise any of the forward-looking statements contained in this Quarterly Report on Form 10-Q.
Business Overview
Sleep Number is a company withwellness technology company. It is guided by its purpose with over 5,300 mission-driven team members who are dedicated to improvingimprove the health and wellbeing of society through higher quality sleep. Wesleep; to date, Sleep Number’s innovations have improved more than 14over 14.5 million lives and are dedicated to lifelong relationships with our smart sleepers.
Sleep Number is a leader inlives. Its wellness technology platform helps solve sleep and wellness technology. Our 360problems, whether it’s providing individualized temperature control for each sleeper through its Climate360® smart bed platform connects the physical and digital worlds, creating an immersive, adaptive, and individualized sleep health experience. Quality sleep is vital for physical, mental, and emotional wellbeing; our smart beds deliver exceptional sleep by automatically sensing and effortlessly adjusting to the needs of each sleeper. Through partnerships with the world’s leading health and research institutions, we are advancing sleep science with our 17or applying its 21 billion hours of highly accurate, longitudinal sleep data from millions of sleepers in our Smart SleeperSM community.and expertise to research with global institutions.
We continue to advance our differentiated, consumer-focused strategySleep Number’s smart bed ecosystem drives best-in-class engagement through enterprise-wide initiatives that strengthen our competitive advantages. This has resulted in Sleep Number being a beloved branddynamic, adjustable, and effortless sleep with ongoing connectivitypersonalized digital sleep and advocacy ofhealth insights; its millions of smart sleepers. We generatesleepers are loyal brand advocates. And Sleep Number’s nearly 5,000 mission-driven team members passionately innovate to drive value creation through its vertically integrated business model, including its exclusive direct-to-consumer selling in 670 stores and online.
Sleep Number generates revenue by marketing and selling ourits innovations directly to new and existing customers through our vertically integrated, exclusive, direct-to-consumer retail touch points including Stores, Online, Phone, and Chat (Total Retail). We areSleep Number is committed to creating long-term superior value for all stakeholders as we focusit focuses on ourthe Company’s three performance drivers: (1) increasing consumer demand; (2) leveraging ourits vertically integrated business model; and (3) deploying capital efficiently.
COVID-19 Pandemic - Impact on our Business
The COVID-19 pandemic impacted our 2021 and 2022 financial performance. In the first nine months of 2021, even with the COVID-19 challenges, we generated strong demand and financial performance. In the first nine months of 2022, our financial performance was impacted by: (i) the disruptive flow of semiconductor chips which affected our ability to deliver products to our customers; (ii) incremental costs from labor and material inflation, and expediting costs resulting from current-period global supply chain shortages; and (iii) record low consumer sentiment. The pandemic's future effects on our global supply chain and the potential for supply disruption (e.g., the lack or slowing of critical components caused by labor shortages or government-mandated work closures), effects on consumer demand and effects on our ongoing financial performance remains uncertain.
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14 | 3Q 2022 FORM 10-Q | SLEEP NUMBER CORPORATION |
Results of Operations
Quarterly and Year-to-Date Results
Quarterly and year-to-date operating results may fluctuate significantly as a result of a variety of factors, including increases or decreases in sales, timing, amount and effectiveness of advertising expenditures, changes in sales return rates or warranty experience, timing of investments in growth initiatives and infrastructure, timing of store openings/closings and related expenses, changes in net sales resulting from changes in ourthe Company’s store base, timing of new product introductions and related expenses, timing of promotional offerings, competitive factors, changes in commodity costs, disruptions in global supplies or third-party service providers, seasonality of retail and bedding industry sales, consumer sentiment and general economic conditions. In addition, based on the duration and severity of the current global situation involving the COVID-19 pandemic, the war in Ukraine and other external factors, including but not limited to general economic conditions, inflation, consumer sentiment, store restrictions mandated by federal, state or local authorities and global supply chain disruptions, theThe extent to which these external factors will impact ourthe Company’s business and ourits consolidated financial results will depend on future developments, which are highly uncertain and cannot be predicted. Therefore, ourthe historical results of operations may not be indicative of the results that may be achieved for any future period.
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14 | 2Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
Highlights
Financial highlights for the three months ended OctoberJuly 1, 20222023 were as follows:
•Net sales for the three months ended OctoberJuly 1, 20222023 of $459 million decreased 16% to $541 million, compared with $640from $549 million for the three months ended October 2, 2021. Net sales were affected by semiconductor chip supply constraints.same period one year ago. Demand was negatively impacted by recordhistorically low consumer sentiment and constrained chipsentiment. Prior-year net sales benefited from the delivery of high-revenue smart beds from backlog due to delayed supply that limited our product offering and drove longer-than-normal lead times.of semiconductor chips.
•The 16% net sales decreasechange consisted of a 18% comparable sales decrease in Total Retail offset by additional sales from 3013 net new stores opened in the past 12 months that added 2 percentage points (ppt.) of growth. For additional details, see the components of total net sales change on page 16. •Sales per store (sales for stores open at least one year, Total Retail, including online, phone and chat) on a trailing twelve-month basis for the period ended OctoberJuly 1, 20222023 totaled $3.3$3.1 million, compared with $3.7$3.5 million withfor the same period last year.
•Operating income for the three months ended OctoberJuly 1, 20222023 was $13$11 million, compared with $73$50 million in the prior-year period. The $60$39 million decrease in operating income was driven by the 16% decrease inlower net sales and a 4.91.6 ppt. decrease in ourthe gross profit rate andoffset by a 4.1 ppt. increase$22 million reduction in our operating expenses rate.expenses.
•The 4.91.6 ppt. gross profit rate decrease was primarily due to 17% lower deliveredprior year’s delivery of high-revenue smart bed volume, operating inefficiencies resulting from constrainedbeds and uneven flow of semiconductor chip supply, brokerage premiums for parts needed to close supply gaps, incremental costs from labor and material inflation, and an unfavorable sales mix of our smart beds.bases, partially offset by pricing actions taken over the past twelve months. See the Gross profit discussion on page 18 for additional details. •The 4.1 ppt. increase$22 million reduction in ourthe Company’s operating expenses rate was mainly due to the deleveraging impact of the 16% net sales decrease. In addition, we continued to prioritize investments in near- and long-term growth drivers, including $15 million of R&D expenses during the three months ended October 1, 2022.lower marketing expenses.
•Net income for the three months ended OctoberJuly 1, 20222023 decreased to $5$1 million, compared with $54$35 million for the same period one year ago. Net income per diluted share was $0.22,$0.03, compared with $2.22$1.54 last year.
•WeThe Company achieved aan adjusted return on invested capital (ROIC)(Adjusted ROIC) of 15.8%12.3% on a trailing twelve-month basis for the period ended OctoberJuly 1, 2022,2023, compared with 34.6%34.9% for the comparable period one year ago.
•Cash provided byThe Company generated $19 million in cash from operating activities was pressured by year-over-year changes in working capital and lower net income for the ninesix months ended OctoberJuly 1, 2022 and decreased to $80 million,2023, compared with $293$29 million for the same period one year ago.
•As of OctoberJuly 1, 2022, we2023, the Company had $406$484 million of borrowings under ourits revolving credit facility and available net liquidity of $413$334 million.
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15 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
The following table sets forth ourthe Company’s results of operations expressed as dollars and percentages of net sales. Figures are in millions, except percentages and per share amounts. Amounts may not add due to rounding differences.
| | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Net sales | Net sales | $ | 540.6 | | | 100.0 | % | | $ | 640.4 | | | 100.0 | % | | $ | 1,616.8 | | | 100.0 | % | | $ | 1,693.0 | | | 100.0 | % | Net sales | $ | 458.8 | | | 100.0 | % | | $ | 549.1 | | | 100.0 | % | | $ | 985.3 | | | 100.0 | % | | $ | 1,076.2 | | | 100.0 | % |
Cost of sales | Cost of sales | 237.5 | | | 43.9 | % | | 250.0 | | | 39.0 | % | | 686.4 | | | 42.5 | % | | 653.8 | | | 38.6 | % | Cost of sales | 194.5 | | | 42.4 | % | | 224.1 | | | 40.8 | % | | 410.8 | | | 41.7 | % | | 449.0 | | | 41.7 | % |
Gross profit | Gross profit | 303.1 | | | 56.1 | % | | 390.4 | | | 61.0 | % | | 930.3 | | | 57.5 | % | | 1,039.1 | | | 61.4 | % | Gross profit | 264.2 | | | 57.6 | % | | 324.9 | | | 59.2 | % | | 574.5 | | | 58.3 | % | | 627.2 | | | 58.3 | % |
Operating expenses: | Operating expenses: | | Operating expenses: | |
Sales and marketing | Sales and marketing | 239.7 | | | 44.3 | % | | 255.5 | | | 39.9 | % | | 700.4 | | | 43.3 | % | | 685.1 | | | 40.5 | % | Sales and marketing | 197.8 | | | 43.1 | % | | 220.5 | | | 40.2 | % | | 428.3 | | | 43.5 | % | | 460.7 | | | 42.8 | % |
General and administrative | General and administrative | 36.0 | | | 6.7 | % | | 47.7 | | | 7.4 | % | | 116.0 | | | 7.2 | % | | 131.5 | | | 7.8 | % | General and administrative | 39.8 | | | 8.7 | % | | 38.7 | | | 7.1 | % | | 79.2 | | | 8.0 | % | | 80.0 | | | 7.4 | % |
Research and development | Research and development | 14.8 | | | 2.7 | % | | 14.4 | | | 2.3 | % | | 46.9 | | | 2.9 | % | | 43.6 | | | 2.6 | % | Research and development | 15.4 | | | 3.4 | % | | 15.8 | | | 2.9 | % | | 29.9 | | | 3.0 | % | | 32.1 | | | 3.0 | % |
Total operating expenses | Total operating expenses | 290.4 | | | 53.7 | % | | 317.6 | | | 49.6 | % | | 863.4 | | | 53.4 | % | | 860.2 | | | 50.8 | % | Total operating expenses | 253.0 | | | 55.1 | % | | 275.0 | | | 50.1 | % | | 537.4 | | | 54.5 | % | | 572.9 | | | 53.2 | % |
Operating income | Operating income | 12.6 | | | 2.3 | % | | 72.7 | | | 11.4 | % | | 67.0 | | | 4.1 | % | | 178.9 | | | 10.6 | % | Operating income | 11.2 | | | 2.4 | % | | 49.9 | | | 9.1 | % | | 37.2 | | | 3.8 | % | | 54.3 | | | 5.0 | % |
Interest expense, net | Interest expense, net | 5.6 | | | 1.0 | % | | 1.8 | | | 0.3 | % | | 11.4 | | | 0.7 | % | | 4.4 | | | 0.3 | % | Interest expense, net | 9.9 | | | 2.2 | % | | 3.6 | | | 0.7 | % | | 19.1 | | | 1.9 | % | | 5.7 | | | 0.5 | % |
Income before income taxes | Income before income taxes | 7.0 | | | 1.3 | % | | 70.9 | | | 11.1 | % | | 55.6 | | | 3.4 | % | | 174.5 | | | 10.3 | % | Income before income taxes | 1.3 | | | 0.3 | % | | 46.3 | | | 8.4 | % | | 18.1 | | | 1.8 | % | | 48.6 | | | 4.5 | % |
Income tax expense | Income tax expense | 2.0 | | | 0.4 | % | | 17.2 | | | 2.7 | % | | 13.6 | | | 0.8 | % | | 31.9 | | | 1.9 | % | Income tax expense | 0.5 | | | 0.1 | % | | 11.4 | | | 2.1 | % | | 5.9 | | | 0.6 | % | | 11.6 | | | 1.1 | % |
Net income | Net income | $ | 5.0 | | | 0.9 | % | | $ | 53.7 | | | 8.4 | % | | $ | 42.0 | | | 2.6 | % | | $ | 142.6 | | | 8.4 | % | Net income | $ | 0.8 | | | 0.2 | % | | $ | 34.9 | | | 6.4 | % | | $ | 12.2 | | | 1.2 | % | | $ | 37.0 | | | 3.4 | % |
| Net income per share: | Net income per share: | | Net income per share: | |
Basic | Basic | $ | 0.23 | | | $ | 2.29 | | | $ | 1.87 | | | $ | 5.84 | | | Basic | $ | 0.03 | | | $ | 1.56 | | | $ | 0.55 | | | $ | 1.64 | | |
Diluted | Diluted | $ | 0.22 | | | $ | 2.22 | | | $ | 1.83 | | | $ | 5.63 | | | Diluted | $ | 0.03 | | | $ | 1.54 | | | $ | 0.54 | | | $ | 1.60 | | |
| Weighted-average number of common shares: | Weighted-average number of common shares: | | Weighted-average number of common shares: | |
Basic | Basic | 22.2 | | | 23.5 | | | 22.4 | | | 24.4 | | | Basic | 22.5 | | | 22.4 | | | 22.4 | | | 22.6 | | |
Diluted | Diluted | 22.6 | | | 24.2 | | | 23.0 | | | 25.3 | | | Diluted | 22.5 | | | 22.7 | | | 22.5 | | | 23.2 | | |
The percentage of our total net sales, by dollar volume, was as follows: | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Retail stores | Retail stores | 86.3 | % | | 88.4 | % | | 86.7 | % | | 87.5 | % | Retail stores | 87.7 | % | | 89.4 | % | | 87.4 | % | | 86.9 | % |
Online, phone, chat and other | Online, phone, chat and other | 13.7 | % | | 11.6 | % | | 13.3 | % | | 12.5 | % | Online, phone, chat and other | 12.3 | % | | 10.6 | % | | 12.6 | % | | 13.1 | % |
Total Company | Total Company | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % | Total Company | 100.0 | % | | 100.0 | % | | 100.0 | % | | 100.0 | % |
The components of total net sales change, including comparable net sales changes, were as follows: | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Sales change rates: | Sales change rates: | | Sales change rates: | |
Retail comparable-store sales (1) | Retail comparable-store sales (1) | (21 | %) | | 19 | % | | (10 | %) | | 32 | % | Retail comparable-store sales (1) | (20 | %) | | 10 | % | | (10 | %) | | (3 | %) |
Online, phone and chat | Online, phone and chat | 0 | % | | 0 | % | | 3 | % | | 11 | % | Online, phone and chat | (3 | %) | | 2 | % | | (12 | %) | | 4 | % |
Total Retail comparable sales change (1) | Total Retail comparable sales change (1) | (18 | %) | | 16 | % | | (8 | %) | | 28 | % | Total Retail comparable sales change (1) | (18 | %) | | 9 | % | | (10 | %) | | (2 | %) |
Net opened/closed stores and other | Net opened/closed stores and other | 2 | % | | 5 | % | | 3 | % | | 3 | % | Net opened/closed stores and other | 2 | % | | 4 | % | | 2 | % | | 4 | % |
Total Company | Total Company | (16 | %) | | 21 | % | | (5 | %) | | 31 | % | Total Company | (16 | %) | | 13 | % | | (8 | %) | | 2 | % |
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(1)Stores are included in the comparable-store calculations in the 13th full month of operations. Stores that have been remodeled or repositioned within the same shopping center remain in the comparable-store base.
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16 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
Other sales metrics were as follows: | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Average sales per store (1) (in thousands) | Average sales per store (1) (in thousands) | $ | 3,302 | | | $ | 3,689 | | | Average sales per store (1) (in thousands) | $ | 3,089 | | | $ | 3,526 | | |
Average sales per square foot (1) | Average sales per square foot (1) | $ | 1,093 | | | $ | 1,249 | | | Average sales per square foot (1) | $ | 1,007 | | | $ | 1,172 | | |
Stores > $2 million in net sales (2) | Stores > $2 million in net sales (2) | 77 | % | | 85 | % | | Stores > $2 million in net sales (2) | 71 | % | | 82 | % | |
Stores > $3 million in net sales (2) | Stores > $3 million in net sales (2) | 38 | % | | 50 | % | | Stores > $3 million in net sales (2) | 31 | % | | 45 | % | |
Average revenue per smart bed unit (3) | Average revenue per smart bed unit (3) | $ | 5,083 | | | $ | 5,021 | | | $ | 5,416 | | | $ | 5,045 | | Average revenue per smart bed unit (3) | $ | 5,990 | | | $ | 6,485 | | | $ | 5,913 | | | $ | 5,601 | |
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(1)Trailing-twelve months Total Retail comparable sales per store open at least one year.
(2)Trailing-twelve months for stores open at least one year (excludes online, phone and chat sales).`
(3)Represents Total Retail net sales divided by Total Retail smart bed units.
The number of retail stores operating was as follows: | | | Three Months Ended | | Nine Months Ended | | Three Months Ended | | Six Months Ended |
| | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Beginning of period | Beginning of period | 659 | | | 621 | | | 648 | | | 602 | | Beginning of period | 671 | | | 653 | | | 670 | | | 648 | |
Opened | Opened | 12 | | | 18 | | | 35 | | | 55 | | Opened | 7 | | | 10 | | | 19 | | | 23 | |
Closed | Closed | (9) | | | (7) | | | (21) | | | (25) | | Closed | (6) | | | (4) | | | (17) | | | (12) | |
End of period | End of period | 662 | | | 632 | | | 662 | | | 632 | | End of period | 672 | | | 659 | | | 672 | | | 659 | |
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17 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
Comparison of Three Months Ended OctoberJuly 1, 20222023 with Three Months Ended OctoberJuly 2, 20212022
Net sales
Net sales for the three months ended OctoberJuly 1, 20222023 of $459 million decreased by $100 million, or 16%, to $541 million, compared with $640from $549 million for the same period one year ago. Net sales were affected by semiconductor chip supply constraints. Demand was negatively impacted by recordhistorically low consumer sentiment and constrained chipsentiment. Prior-year net sales benefited from the delivery of high-revenue smart beds from backlog due to delayed supply that limited our product offering and drove longer-than-normal lead times.of semiconductor chips.
The 16% net sales decreasechange consisted primarily of a 18% comparable sales decrease in Total Retail offset by additional sales from 3013 net new stores opened in the past 12 months that added 2 percentage points (ppt.) of growth. For additional details, see the components of total net sales change on page 16.
The $100$90.3 million net sales decrease compared with the same period one year ago was comprised of the following: (i) a $112$92.8 million decrease in our Total Retail comparable net sales; (ii) a $1.6 million decrease from phone, online and other sales; offset by (ii)(iii) a $12$4.1 million increase from net store openings. Total Retail smart bed unit sales decreased 17%10% compared with the prior year due to disruptive electronics supply and softer demand.year. Total Retail average revenue per smart bed unit increaseddecreased by 1%8% to $5,083,$5,990, compared with $5,021$6,485 in the prior-year period. Prior year average revenue per smart bed unit benefited from the delivery of high-revenue smart beds from backlog due to delayed supply of semiconductor chips.
Gross profit
Gross profit of $303$264 million for the three months ended OctoberJuly 1, 20222023 decreased by $87$61 million, or 22%19%, compared with $390$325 million for the same period one year ago. The gross profit rate declineddecreased to 56.1%57.6% of net sales for the three months ended OctoberJuly 1, 2022,2023, compared with 61.0%59.2% for the prior-year comparable period.
The current-year gross profit rate decrease of 4.91.6 ppt. was mainly due to: (i) 17%prior year’s delivery of high-revenue smart beds and bases pressured the rate by 2.4 ppt.; (ii) higher returns and warranty costs, primarily related to the returnability of the integrated adjustable base as part of the Climate360 smart bed, impacted the rate by 0.6 ppt.; (iii) increased company-wide performance-based incentive compensation impacted the rate by 0.3 ppt.; (iv) lower delivered smart bed volume; (ii) year-over-year unfavorable product mix changes; (iii) operating inefficiencies resulting fromvolume deleveraged the uneven flow of electronics supply; (iv) incremental costs from labor and material inflation including brokerage premiums to close supply gaps and expedited freight;rate by 0.2 ppt.; partially offset by;by (v) favorable pricing actions taken over the past twelve months.months, increased the rate by 1.6 ppt.; and (vi) improvement in commodity prices and operating efficiencies improved the rate by 0.2 ppt. In addition, ourthe gross profit rate willmay fluctuate from quarter to quarter due to a variety of other factors, including returnchanges in manufacturing and exchange costs,supply chain operations and changes in performance-based incentive compensation.
Sales and marketing expenses
Sales and marketing expenses for the three months ended OctoberJuly 1, 20222023 were $240$198 million, or 44.3%43.1% of net sales, compared with $256$220 million, or 39.9%40.2% of net sales, for the same period one year ago. The current-year sales and marketing expenses rate increase of 4.42.9 ppt. was primarily due to: (i)to the deleveraging impact of the 16% lower net sales decline; (ii)partially offset by a 25% decrease in consumer financing costs as the additionalCompany adjusted promotional offers to mitigate increased costs associated with operating 30 net new stores; (iii)the higher fees associated with our customer credit-based promotional offers; and (iv) less efficient media expense althoughinterest rate environment. Media spend was down 10%12% lower year-over-year.
General and administrative expenses
General and administrative (G&A) expenses totaled $36$40 million, or 6.7%8.7% of net sales, for the three months ended OctoberJuly 1, 2022,2023, compared with $48$39 million, or 7.4%7.1% of net sales, in the prior-year period. The $11.7$1.1 million decreaseincrease in G&A expenses consisted mainly of: (i) a $15.2$3.6 million decreaseincrease in employee compensation primarily resulting from a year-over-year reduction in Company-widecompany-wide performance-based incentive compensation; partially offset by (ii) $1.1a $0.8 million increase in technology investments; andexpenses; offset by (iii) a $2.4$3.5 million increasereduction in other miscellaneous expenses, including professional and consulting fees.employee compensation on lower headcount. The G&A expenses rate decreasedincreased by 0.71.6 ppt. in the current-year period, compared with the same period one year ago due to the items discussed above offset byand the deleveraging impact of the 16%lower net sales decrease.sales.
Research and development expenses
Research and development (R&D) expenses weredecreased to $15 million for the three months ended OctoberJuly 1, 2022, consistent2023, compared with $16 million with the same period last year on lower headcount. The Company continues to maintain a flexible mindset, to capitalize on profitable opportunities as we continued to prioritize our long-termthe environment improves, and deliver tangible life-changing sleep innovation initiatives.health benefits for Smart Sleepers.
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18 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
Interest expense, net
Interest expense, net increased to $6$10 million for the three months ended OctoberJuly 1, 2022,2023, compared with $2$4 million for the same period one year ago. The $4$6 million increase was mainly driven by a higher weighted-average interest rate compared with the same period one year ago, and a higher level of outstanding borrowings during the three months ended October 1, 2022 compared with the same period in 2021.ago.
Income tax expense
Income tax expense totaled $2.0$0.5 million for the three months ended OctoberJuly 1, 2022,2023, compared with $17.2$11.4 million last year. The effective income tax rate for the three months ended OctoberJuly 1, 20222023 was 28.5%41.0%, compared with 24.3%24.5% for the comparable period last year. Discrete tax expenses, primarily stock-based compensation excess tax expense, was $0.3$0.1 million for the three months ended OctoberJuly 1, 2022,2023, compared with discrete tax benefits of $0.6$0.1 million in last year’s thirdsecond quarter.
Comparison of NineSix Months Ended OctoberJuly 1, 20222023 with NineSix Months Ended OctoberJuly 2, 20212022
Net sales
Net sales for the ninesix months ended OctoberJuly 1, 20222023 decreased by $76$91 million, or 5%8%, to $1.62 billion,$985 million, compared with $1.69$1.08 billion for the same period one year ago. Net sales were affected by semiconductor chip supply constraints. Demand was negatively impacted by recordhistorically low consumer sentiment and constrained chip supply that limited our product offering and drove longer-than-normal lead times.sentiment.
The 5%8% net sales decrease consisted of an 8%a 10% comparable sales decrease in Total Retail, partially offset by 32 percentage points (ppt.) of sales growth from net new stores opened in the past 12 months. For additional details, see the components of total net sales change on page 16.
The $76$91 million net sales decrease compared with the same period one year ago was comprised of the following: (i) a $130$89 million decrease in our Total Retail comparable net sales; (ii) a $16 million decrease in online, phone and other sales; partially offset by (ii)(iii) a $54$14 million increase resulting from net store openings. Total smart bed unit sales declined 11%13% compared with the prior year. Average revenue per smart bed unit in Total Retail increased by 7%6% to $5,416,$5,913, compared with $5,045$5,601 in the prior-year period.
Gross profit
Gross profit of $930$575 million decreased by $109$53 million, or 10%8%, compared with $1.04 billion$627 million for the same period one year ago. The gross profit rate decreased to 57.5%was 58.3% of net sales for the ninesix months ended OctoberJuly 1, 2022, compared2023, consistent with 61.4% for the prior-year comparable period.
The current-year gross profit rate decrease of 3.9 ppt. was mainly due to:58.3% remained consistent with the same period one year ago: (i) 11% lower delivered smart bed volume; (ii) incremental costs from labor and material inflation; (iii) operating inefficiencies resulting from the uneven flow of electronics supply and constrained deliveries; (iv) year-over-year unfavorable product mix changes; partially offset by (v)favorable pricing actions taken over the past twelve months. Ourmonths increased the rate by 1.6 ppt.; (ii) improvement in commodity prices and operating efficiencies increased the rate by 0.4 ppt.; offset by (iii) higher mix of high-end adjustable bases last year due to semiconductor chip supply constraints limiting the Company’s product availability pressured the rate by 0.7 ppt.; (iv) higher returns and warranty costs, primarily related to the returnability of the integrated adjustable base as part of the Climate360 smart bed, decreased the rate by 0.6 ppt.; (v) increased company-wide performance-based incentive compensation decreased the rate by 0.3 ppt.; (vi) lower delivered smart bed volume deleveraged the rate by 0.3 ppt.; and (vii) incremental logistics and delivery costs, including labor inflation and investments in our distribution network, decreased the rate by 0.2 ppt. The gross profit rate willmay fluctuate from quarter to quarter due to a variety of other factors, including returnchanges in manufacturing and exchange costssupply chain operations and changes in performance-based incentive compensation.
Sales and marketing expenses
Sales and marketing expenses for the ninesix months ended OctoberJuly 1, 20222023 were $700$428 million, or 43.3%43.5% of net sales, compared with $685$461 million, or 40.5%42.8% of net sales, for the same period one year ago. The current-year sales and marketing expenses rate increase of 2.80.7 ppt. was primarily due to: (i) deleveraging impact of a 5%8% sales decline; (ii) higher fees associated with our customer credit-based promotional offers; (iii) the additional costs associated with operating 3013 net new stores; partially offset by (iv) lower variable compensation due to the negatively impacted demand.
General and administrative expenses
General and administrative (G&A) expenses totaled $116 million, or 7.2% of net sales, for the nine months ended October 1, 2022, compared with $131 million, or 7.8% of net sales, in the prior-year period. The $15 milliona 12% decrease in G&A expenses consisted of: (i) an $26 million decreasemedia spend year-over-year resulting in employee compensation primarily resulting from a year-over-year decrease in Company-wide performance-based incentive compensation; partially offset by (ii) a $5 million increase in technology investments; and (iv) a $6 million increase in other miscellaneous expenses including0.5 ppt. of leverage.
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19 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
General and administrative expenses
General and administrative (G&A) expenses totaled $79 million, or 8.0% of net sales, for the six months ended July 1, 2023, compared with $80 million, or 7.4% of net sales, in the prior-year period. The $1 million decrease in G&A expenses consisted of: (i) a $5.9 million reduction in employee compensation on lower headcount; (ii) a $1.7 million decrease in professional fees and travel.consulting fees; (iii) a $0.5 million decrease in travel and training expenses; and (iv) a $1.4 million decrease in other miscellaneous expenses; partially offset by (v) a $7.0 million increase in company-wide, performance-based incentive compensation; and (vi) a $1.7 million increase in technology investments. The G&A expenses rate decreasedincreased by 0.6 ppt. in the current-year period, compared with the same period one year ago due to the deleveraging impact of the 8% net sales decrease partially offset by the net expense reductions discussed above partially offset by the deleveraging impact of the 5% net sales decrease.above.
Research and development expenses
Research and development (R&D) expenses increaseddecreased by 8%7% to $47$30 million for the ninesix months ended OctoberJuly 1, 2022,2023, compared with $44$32 million for the same period one year ago. The R&D expense rateCompany continues to maintain a flexible mindset, to capitalize on profitable opportunities as the environment improves, and deliver tangible life-changing health benefits for the nine months ended October 1, 2022 increased to 2.9% of net sales, compared with 2.6% of net sales for the prior year. The spending level increase supports our continued prioritization in our long-term life-changing sleep innovation initiatives.Smart Sleepers.
Interest expense, net
Interest expense, net increased to $11$19 million for the ninesix months ended OctoberJuly 1, 2022,2023, compared with $4$6 million for the same period one year ago. The $7$13 million increase was mainly driven by a higher level of outstanding borrowings during the nine months ended October 1, 2022, compared with the same period one year ago, and a higher weighted-average interest rate compared with the same period one year ago.
Income tax expense
Income tax expense totaled $14$6 million for the ninesix months ended OctoberJuly 1, 2022,2023, compared with $32$12 million last year. The effective income tax rate for the ninesix months ended OctoberJuly 1, 20222023 increased to 24.4%32.5%, compared with 18.3%23.8% for the comparable period last year, reflecting lowerhigher discrete tax expenses, primarily stock-based compensation excess tax benefitsexpense in the current-year nine-month period.six-month period of $1.1 million versus the prior-year, six-month period of $0.6 million.
Liquidity and Capital Resources
Managing our liquidity and capital resources is an important part of ourthe Company’s commitment to deliver superior shareholder value over time. OurThe Company’s primary sources of liquidity are cash flows provided by operating activities and cash available under ourits $825 million revolving credit facility. As of OctoberJuly 1, 2022, we do2023, the Company does not have any off-balance sheet financing other than our $6its $7 million in outstanding letters of credit. The cash generated from ongoing operations and cash available under ourthe revolving credit facility are expected to be adequate to maintain operations, and fund anticipated expansion, strategic initiatives and contractual obligations such as lease payments and capital commitments for new retail stores for the foreseeable future.
Changes in cash and cash equivalents during the ninesix months ended OctoberJuly 1, 20222023 primarily consisted of $80$19 million of cash provided by operating activities and a $35an $15 million net increase in short-term borrowings, offset by $53$30 million of cash used to purchase property and equipment and $64$4 million of cash used to repurchase ourits common stock (based on settlement, $55 million under our Board-approved share repurchase program and $9 million in connection with the vesting of employee restricted stock grants).
The following table summarizes our cash flows (in millions). Amounts may not add due to rounding differences: | | | Nine Months Ended | | Six Months Ended |
| | October 1, 2022 | | October 2, 2021 | | July 1, 2023 | | July 2, 2022 |
Total cash provided by (used in): | Total cash provided by (used in): | | Total cash provided by (used in): | |
Operating activities | Operating activities | $ | 80.1 | | | $ | 292.7 | | Operating activities | $ | 18.7 | | | $ | 28.7 | |
Investing activities | Investing activities | (52.8) | | | (49.1) | | Investing activities | (30.3) | | | (36.5) | |
Financing activities | Financing activities | (28.4) | | | (246.0) | | Financing activities | 11.6 | | | 7.7 | |
Net decrease in cash and cash equivalents | $ | (1.0) | | | $ | (2.4) | | |
Net increase (decrease) in cash and cash equivalents | | Net increase (decrease) in cash and cash equivalents | $ | 0.0 | | | $ | (0.1) | |
Cash provided by operating activities for the nine months ended October 1, 2022 was $80 million, compared with $293 million for the nine months ended October 2, 2021. Significant components of the year-over-year change in cash provided by operating activities included: (i) a $101 million decrease in net income for the nine months ended October 1, 2022, compared with the same period one year ago; (ii) a $70 million fluctuation in customer prepayments due to timing of deliveries; (iii) a $34 million fluctuation in prepaid expenses and other assets due to the amount and timing of rebate payments and changes in the balance of our deferred compensation plan due to investment
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20 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
performance;Cash provided by operating activities for the six months ended July 1, 2023 was $19 million, compared with $29 million for the six months ended July 2, 2022. Significant components of the year-over-year change in cash provided by operating activities included: (i) a $25 million decrease in net income for the six months ended July 1, 2023, compared with the same period one year ago; (ii) a $25 million fluctuation in accrued compensation and benefits primarily related to year-over-year changes in company-wide performance-based compensation that was earned in 2021 and paid in the first quarter of 2022, compared with no company-wide performance-based compensation earned in 2022 and paid in the first quarter of 2023; and (iv) a $23$12 million changefluctuation in accounts payable with both periods impacted by business changesprepaid expenses and other assets primarily due to the amount and timing of payments; and (v) a $19 million fluctuation in other accruals and liabilities driven by changes in the balance of our deferred compensation plan due to investment performance and changes in other miscellaneous accruals.rebate payments.
Net cash used in investing activities to purchase property and equipment was $53$30 million for the ninesix months ended OctoberJuly 1, 2022,2023, compared with $49$37 million for the same period one year ago. The year-over-year increasedecrease was primarily due to the timing of cash flows associated with investments in information technology.
Net cash used inprovided by financing activities was $28$12 million for the ninesix months ended OctoberJuly 1, 2022,2023, compared with $246$8 million for the same period last year. During the ninesix months ended OctoberJuly 1, 2022, we2023, the Company repurchased $64$4 million of ourits stock (based on settlement dates, in connection with the vesting of employee restricted stock awards), compared with $64 million (based on settlement dates, $55 million under ourthe Board-approved share repurchase program and $9 million in connection with the vesting of employee restricted stock awards), compared with $381 million during the same period one year ago. Short-term borrowings increased by $35$15 million during the current-year period due to a $24 million increase in borrowings under ourthe revolving credit facility to $406$484 million andoffset by a $11$9 million increasedecrease in book overdrafts which are included in the net change in short-term borrowings. Short-term borrowings increased by $132$71 million during the prior-year period due to a $115$61 million increase in borrowings under ourthe credit facility to $359$443 million and an $17a $10 million increase in book overdrafts.
WeIn the second quarter of fiscal 2022, the Company suspended share repurchases under ourits Board-approved share repurchase program inprogram. At July 1, 2023, there was $348 million remaining authorization under the second quarter until macro economic conditions improve. We repurchased 1.0Board-approved $600 million shares at a cost of $55 million (based on trade dates, an average of $57.46 per share) during the nine months ended October 1, 2022. During the nine months ended October 2, 2021, we repurchased 3.1 million shares at a cost of $364 million (based on trade dates, an average of $116.79 per share).share repurchase program. There is no expiration date governing the period over which wethe Company can repurchase shares. At October 1, 2022, there was $348 million remaining authorization under our Board-approved $600 million share repurchase program.
As of October 1, 2022, we had $406 million of borrowings under our revolving credit facility. We also had $6 million in outstanding letters of credit. Net liquidity available under ourThe Company has a credit facility was $413 million at October 1, 2022. The credit agreement provides the lenders with a collateral security interest in substantially all of our assets and those of our subsidiaries and requires us to comply with, among other things, a maximum leverage ratio (4.5x) and a minimum interest coverage ratio (3.0x). Our leverage ratio as defined in our credit agreement was 4.0x as of October 1, 2022. Under the terms of the credit agreement, we pay a variable rate of interest and a commitment fee based on our leverage ratio. The credit agreement(Credit Agreement) which is for general corporate purposes, to meet ourits seasonal working capital requirements and to repurchase ourits stock. As of October 1, 2022, the weighted-average interest rate on borrowings under the credit facility was 5.1% and we were in compliance with all financial covenants.
WeThe Company amended the credit agreementCredit Agreement on October 26, 2022. The amendment, among other things, (a) provides relief from the requirement that the net leverage ratio not exceed 3.75x for certain corporate actions including Permitted Capital Distributions for Performance or Taxes (as defined in the credit agreement)Credit Agreement) and certain acquisition activity; (b) increases the permissible net leverage ratio to 5.0x for the three consecutive quarterly reporting periods ending July 1, 2023; (c) increases the commitment fee rate to 50 basis points and the margin applicable to interest rates for all borrowings by an additional 50 basis points, in each case if the net leverage ratio is greater than or equal to 4.5x; and (d) replaces the option to borrow at an interest rate based on London Interbank Offered Rate (LIBOR) to one based on a Term SOFR Rate. The Term SOFR Rate equals the sum of (x) the Term SOFR Screen Rate (as defined in the credit agreement)Credit Agreement) for the applicable interest period (but in no event less than zero), plus (y) 0.10%, plus (z) the margin based on Sleep Number’s net leverage ratio. A fee forUnder the amendment is payable to the lenders in an amount equal to 7.5 basis points multiplied by the sumterms of the Revolving Credit Commitmentagreement, the Company pays a variable rate of interest and a commitment fee based on its leverage ratio.
The Company amended the Credit Agreement on July 24, 2023. The amendment, among other things, extends the increased permissible net leverage ratio to 5.0x to include the quarterly reporting period ending September 30, 2023.
At July 1, 2023, the Company had $484 million of borrowings under its revolving credit facility, $7 million in outstanding amountletters of Term Loans (as each iscredit and net liquidity available under the credit facility of $334 million. At July 1, 2023, the Company’s leverage ratio as defined in the credit agreement).agreement was 4.7x, the weighted-average interest rate on borrowings under the credit facility was 7.5% and the Company was in compliance with all financial covenants.
We haveSleep Number has an agreement with Synchrony Bank to offer qualified customers revolving credit arrangements to finance their purchases from usthe Company (Synchrony Agreement). The Synchrony Agreement contains financial covenants consistent with ourthe credit facility, as of October 1, 2022, includingincluding a maximum net leverage ratio and a minimum interest coverage ratio. As of OctoberJuly 1, 2022, we were2023, the Company was in compliance with all financial covenants.
On July 15, 2022, we executed a fifth amendment to the Synchrony Agreement that extended the term from December 31, 2023 to December 31, 2028, subject to earlier termination upon certain events. Under the terms of the Synchrony Agreement, Synchrony Bank sets the minimum acceptable credit ratings, the interest rates, fees and all other terms and conditions of the customer accounts, including collection policies and procedures, and is the owner of the accounts. As
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21 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
the accounts are owned by Synchrony Bank, at no time are the accounts purchased or acquired from us. We are not liable to Synchrony Bank for our customers’ credit defaults.
Non-GAAP Data Reconciliations
Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)
We defineThe Company defines 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 ourits financial performance and ourits ability to generate cash from operating activities. OurThe 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.
Our Adjusted EBITDA calculations are as follows (in thousands): | | | Three Months Ended | | Trailing-Twelve Months Ended | | Three Months Ended | | Trailing-Twelve Months Ended |
| | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Net income | Net income | $ | 5,033 | | | $ | 53,721 | | | $ | 53,181 | | | $ | 203,964 | | Net income | $ | 754 | | | $ | 34,933 | | | $ | 11,822 | | | $ | 101,869 | |
Income tax expense | Income tax expense | 2,003 | | | 17,198 | | | 15,247 | | | 44,294 | | Income tax expense | 524 | | | 11,359 | | | 6,602 | | | 30,442 | |
Interest expense | Interest expense | 5,606 | | | 1,816 | | | 13,196 | | | 5,214 | | Interest expense | 9,948 | | | 3,619 | | | 32,289 | | | 9,406 | |
Depreciation and amortization | Depreciation and amortization | 17,180 | | | 14,820 | | | 64,217 | | | 59,539 | | Depreciation and amortization | 18,304 | | | 15,920 | | | 71,318 | | | 61,857 | |
Stock-based compensation | Stock-based compensation | 542 | | | 7,317 | | | 12,097 | | | 25,961 | | Stock-based compensation | 5,252 | | | 3,910 | | | 15,071 | | | 18,872 | |
Asset impairments | Asset impairments | 95 | | | 23 | | | 338 | | | 154 | | Asset impairments | 170 | | | 80 | | | 294 | | | 266 | |
Adjusted EBITDA | Adjusted EBITDA | $ | 30,459 | | | $ | 94,895 | | | $ | 158,276 | | | $ | 339,126 | | Adjusted EBITDA | $ | 34,952 | | | $ | 69,821 | | | $ | 137,396 | | | $ | 222,712 | |
Free Cash Flow
OurThe 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 operating activities,” or GAAP financial data. However, we arethe Company is providing this information as we believeit believes it facilitates analysis for investors and financial analysts.
The following table summarizes our free cash flow calculations (in thousands): | | | Nine Months Ended | | Trailing-Twelve Months Ended | | Six Months Ended | | Trailing-Twelve Months Ended |
| | October 1, 2022 | | October 2, 2021 | | October 1, 2022 | | October 2, 2021 | | July 1, 2023 | | July 2, 2022 | | July 1, 2023 | | July 2, 2022 |
Net cash provided by operating activities | Net cash provided by operating activities | $ | 80,122 | | | $ | 292,684 | | | $ | 87,448 | | | $ | 285,063 | | Net cash provided by operating activities | $ | 18,720 | | | $ | 28,691 | | | $ | 26,167 | | | $ | 167,281 | |
Subtract: Purchases of property and equipment | Subtract: Purchases of property and equipment | 52,808 | | | 49,370 | | | 70,338 | | | 58,396 | | Subtract: Purchases of property and equipment | 29,899 | | | 36,559 | | | 62,794 | | | 71,447 | |
Free cash flow | Free cash flow | $ | 27,314 | | | $ | 243,314 | | | $ | 17,110 | | | $ | 226,667 | | Free cash flow | $ | (11,179) | | | $ | (7,868) | | | $ | (36,627) | | | $ | 95,834 | |
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22 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
Non-GAAP Data Reconciliations (continued)
Return on Invested Capital (ROIC)(Adjusted ROIC)
(dollars in thousands)
Adjusted ROIC is a financial measure we usethe Company uses to determine how efficiently we deploy ourit deploys its capital. It quantifies the return we earnthe Company earns on ourits adjusted invested capital. Management believes Adjusted ROIC is also a useful metric for investors and financial analysts. We computeThe Company computes Adjusted ROIC as outlined below. OurIts definition and calculation of Adjusted ROIC may not be comparable to similarly titled definitions and calculations used by other companies.
The tables below reconcile adjusted net operating profit after taxes (NOPAT)(Adjusted NOPAT) and total adjusted invested capital, which are non-GAAP financial measures, to the comparable GAAP financial measures:measures (in thousands): | | | | | | | | | | | |
| Trailing-Twelve Months Ended |
| October 1, 2022 | | October 2, 2021 |
Net operating profit after taxes (NOPAT) | | | |
Operating income | $ | 81,625 | | | $ | 253,472 | |
Add: Rent expense (1) | 108,457 | | | 98,839 | |
| | | |
Less: Depreciation on capitalized operating leases (2) | (27,784) | | | (25,030) | |
Less: Income taxes (3) | (36,853) | | | (78,975) | |
NOPAT | $ | 125,445 | | | $ | 248,306 | |
| | | |
Average invested capital | | | |
Total deficit | $ | (437,471) | | | $ | (440,066) | |
| | | |
Add: Long-term debt (4) | 406,750 | | | 359,666 | |
Add: Capitalized operating lease obligations (5) | 867,656 | | | 790,712 | |
Total invested capital at end of period | $ | 836,935 | | | $ | 710,312 | |
| | | |
Average invested capital (6) | $ | 791,970 | | | $ | 717,670 | |
| | | |
Return on invested capital (ROIC) (7) | 15.8 | % | | 34.6 | % |
| | | | | | | | | | | |
| Trailing-Twelve Months Ended |
| July 1, 2023 | | July 2, 2022 |
Adjusted net operating profit after taxes (Adjusted NOPAT) | | | |
Operating income | $ | 50,713 | | | $ | 141,718 | |
Add: Operating lease expense (1) | 27,040 | | | 25,079 | |
| | | |
| | | |
Less: Income taxes (2) | (21,993) | | | (39,798) | |
Adjusted NOPAT | $ | 55,760 | | | $ | 126,999 | |
| | | |
Average adjusted invested capital | | | |
Total deficit | $ | (419,141) | | | $ | (442,962) | |
Add: Long-term debt (3) | 484,161 | | | 443,779 | |
Add: Operating lease obligations (4) | 438,483 | | | 420,516 | |
Total adjusted invested capital at end of period | $ | 503,503 | | | $ | 421,333 | |
| | | |
Average adjusted invested capital (5) | $ | 452,573 | | | $ | 363,986 | |
| | | |
Adjusted return on invested capital (Adjusted ROIC) (6) | 12.3 | % | | 34.9 | % |
___________________________
(1)Rent Represents the interest expense is added back to operating income to showcomponent of lease expense included in the impact of owning versus leasing the related assets.Company’s financial statements under ASC 842, Leases.
(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 22.7%28.3% and 24.1%23.9% for OctoberJuly 1, 20222023 and OctoberJuly 2, 2021,2022, respectively.
(4)(3)Long-term debt includes existing finance lease liabilities.
(5)(4)A multiple of eight times annual rent expense is used as an estimate for capitalizing our Reflects operating lease obligations. The methodology utilized aligns withliabilities included in the methodology of a nationally recognized credit rating agency.Company’s financial statements under ASC 842.
(6)(5)Average adjusted invested capital represents the average of the last five fiscal quarters'quarters’ ending adjusted invested capital balances.
(7)(6) Adjusted ROIC equals Adjusted NOPAT divided by average adjusted invested capital.
Note - Ourthe Company’s ROIC calculation and data are considered non-GAAP financial measures and are not in accordance with, or preferable to, GAAP financial data. However, we arethe Company is providing this information as weit believe it facilitates analysis of the Company's financial performance by investors and financial analysts. The Company updated its Adjusted ROIC calculation effective beginning with the reporting period ended December 31, 2022, to reflect adjustments consistent with ASC 842. The prior period has been updated to reflect this calculation.
GAAP - generally accepted accounting principles in the U.S.
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23 | 3Q 2022 FORM 10-Q | SLEEP NUMBER CORPORATION |
Off-Balance-Sheet Arrangements
As of October 1, 2022, we were not involved in any unconsolidated special purpose entity transactions. Other than our $6 million in outstanding letters of credit, we do not have any off-balance-sheet financing.
There have been no material changes in our contractual obligations since the end of fiscal 2021. See Note 5, Credit Agreement, of the Notes to our Condensed Consolidated Financial Statements for information regarding our credit agreement. See our Annual Report on Form 10-K for the fiscal year ended January 1, 2022 for additional information regarding our other contractual obligations.
Critical Accounting Policies
We discuss ourThe Company discusses its critical accounting policies and estimates in Management’s Discussion and Analysis of Financial Condition and Results of Operations in ourthe Company’s Annual Report on Form 10-K for the fiscal year ended January 1,December 31, 2022. There were no significant changes in ourthe Company’s critical accounting policies since the end of fiscal 2021.2022.
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23 | 2Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We areThe Company is exposed to changes in market-based short-term interest rates that will impact our net interest expense. If overall interest rates were one percentage point higher than current rates, our annual net income would decrease by $3.1$3.5 million based on the $406$484 million of borrowings under ourthe credit facility at OctoberJuly 1, 2022. We do2023. The Company does not manage the interest-rate volatility risk of borrowings under ourthe credit facility through the use of derivative instruments.
ITEM 4. CONTROLS AND PROCEDURES
Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures
We maintainThe Company maintains disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. OurThe Company’s management, with the participation of ourits principal executive officer and principal financial officer, evaluated the effectiveness of the design and operation of ourthe Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on this evaluation, ourits principal executive officer and principal financial officer concluded that ourthe Company’s disclosure controls and procedures were effective as of the end of the period covered by this quarterly report.
Changes in Internal Control
There were no changes in ourthe Company’s internal control over financial reporting during the fiscal quarter ended OctoberJuly 1, 2022,2023, that have materially affected, or are reasonably likely to materially affect, ourthe Company’s internal control over financial reporting.
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24 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
OurThe Company’s legal proceedings are discussed in Note 12, Commitments and Contingencies, Legal Proceedings, in the Notes to Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q.
ITEM 1A. RISK FACTORS
OurIn addition to the risks discussed below and other information set forth in this Quarterly Report on Form 10-Q, the Company’s business, financial condition and operating results are subject to a number of risks and uncertainties, including both those that are specific to ourthe Company’s business and others that affect all businesses operating in a global environment. Investors should carefully consider the information in this report under the heading, Management’s Discussion and Analysis of Financial Condition and Results of Operations, and also the information under the heading, Risk Factors, in ourthe Company’s most recent Annual Report on Form 10-K. The risk factors discussed in the Annual Report on Form 10-K and in this Quarterly Report on Form 10-Q do not identify all risks that we facethe Company faces because ourits business operations could also be affected by additional risk factors that are not presently known to usthe Company or that weit currently considerconsiders to be immaterial to ourits operations.
Bank failures or other events affecting financial institutions could adversely affect our liquidity and financial performance.
The recent and potential future disruptions in access to bank deposits or lending commitments due to bank failures and banking industry instability could materially and adversely affect the Company’s liquidity, access to cash and credit, and the Company’s business, financial condition and results of operations, as well those of the Company’s third-party suppliers or vendors. The recent closures of Silicon Valley Bank (SVB) and Signature Bank and their placement into receivership with the Federal Deposit Insurance Company (FDIC) along with the FDIC’s seizure and sale of First Republic Bank created market disruption and uncertainty with respect to the financial condition of a number of other banking institutions in the United States. While the Company does not have any direct exposure to SVB, Signature Bank, or First Republic Bank, the Company does maintain its cash at financial institutions, occasionally in balances that exceed the current FDIC insurance limits.
If other banks and financial institutions enter receivership or become insolvent in the future due to financial conditions affecting the banking system and financial markets, the Company’s ability to access its cash and cash equivalents, including transferring funds, making payments or receiving funds, and the Company’s access to credit, as well as those of its third-party suppliers or vendors, may be threatened and could have a material adverse effect on the Company’s business and financial condition.
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25 | 2Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) – (b) Not applicable.
(c) Issuer Purchases of Equity Securities
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased(1)(2) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(3) |
July 3, 2022 through July 30, 2022 | | 350 | | | $ | 32.86 | | | — | | | $ | 348,071,000 | |
July 31, 2022 through August 27, 2022 | | 400 | | | $ | 47.92 | | | — | | | $ | 348,071,000 | |
August 28, 2022 through October 1, 2022 | | 11,403 | | | $ | 40.89 | | | — | | | $ | 348,071,000 | |
Total | | 12,153 | | | $ | 40.89 | | | — | | | $ | 348,071,000 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | |
Period | | Total Number of Shares Purchased(1)(2) | | Average Price Paid per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs(1) | | Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs(3) |
April 2, 2023 through April 29, 2023 | | 3,205 | | | $ | 26.37 | | | — | | | $ | 348,071,000 | |
April 30, 2023 through May 27, 2023 | | 735 | | | $ | 21.23 | | | — | | | $ | 348,071,000 | |
May 29, 2023 through July 1, 2023 | | 1,587 | | | $ | 23.63 | | | — | | | $ | 348,071,000 | |
Total | | 5,527 | | | $ | 24.90 | | | — | | | $ | 348,071,000 | |
___________________________
(1)WeThe Company did not purchase any shares under ourits Board-approved $600 million share repurchase program (effective April 4, 2021), during the three months ended OctoberJuly 1, 2022.2023.
(2)In connection with the vesting of employee restricted stock grants, wethe Company repurchased 12,1535,527 shares of ourits common stock at a cost of $497 thousand$0.1 million during the three months ended OctoberJuly 1, 2022.2023.
(3)There is no expiration date governing the period over which wethe Company can repurchase shares under ourit’s Board-approved share repurchase program. Any repurchased shares are constructively retired and returned to an unissued status.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
Not applicable.During the quarter ended July 1, 2023, none of the Company’s directors or officers adopted, modified or terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement.”
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2526 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
ITEM 6. EXHIBITS
| | | | | | | | |
Exhibit Number | | Description |
10.1*10.1†
| | |
10.2† | | |
10.3† | | |
10.4† | | |
10.5*† | | |
10.6* | | |
10.7* | | |
31.1* | | |
31.2* | | |
32.1* | | |
32.2* | | |
101.INS* | | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document |
101.SCH* | | Inline XBRL Taxonomy Extension Schema Document |
101.CAL* | | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* | | Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* | | Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* | | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104* | | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* Filed HerewithHerein.
(1)† Portions of this exhibit have been redacted in compliance with Regulation S-K Item 601(b)(10).Management contract or compensatory plan or arrangement.
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2627 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| | | | | | | | | | | |
| | SLEEP NUMBER CORPORATION |
| | (Registrant) |
| | | |
Dated: | NovemberAugust 8, 20222023 | By: | /s/ Shelly R. Ibach |
| | | Shelly R. Ibach |
| | | Chief Executive Officer |
| | | (principal executive officer) |
| | | |
| | By: | /s/ Joel J. Laing |
| | | Joel J. Laing |
| | | Chief Accounting Officer |
| | | (principal accounting officer) |
| | | | | | | | |
2728 | 3Q 20222Q 2023 FORM 10-Q | SLEEP NUMBER CORPORATION |