Sleep Number (SNBR) 10-Q 29 Apr 22 2022 Q1 Quarterly report Financial data

Cover Page

Cover Page shares in Thousands	3 Months Ended
	Apr. 02, 2022shares
Cover [Abstract]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Apr. 2, 2022
Document Transition Report	false
Entity File Number	000-25121
Entity Registrant Name	SLEEP NUMBER CORPORATION
Entity Incorporation, State or Country Code	MN
Entity Tax Identification Number	41-1597886
Entity Address, Address Line One	1001 Third Avenue South
Entity Address, City or Town	Minneapolis,
Entity Address, State or Province	MN
Entity Address, Postal Zip Code	55404
City Area Code	763
Local Phone Number	551-7000
Title of 12(b) Security	Common Stock, par value $0.01 per share
Trading Symbol	SNBR
Security Exchange Name	NASDAQ
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Large Accelerated Filer
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding	22,232
Entity Central Index Key	0000827187
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2022
Document Fiscal Period Focus	Q1
Amendment Flag	false

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets - USD ($) $ in Thousands	Apr. 02, 2022	Jan. 01, 2022
Current assets:
Cash and cash equivalents	$ 1,556	$ 2,389
Accounts receivable, net of allowances of $1,047 and $924, respectively	24,502	25,718
Inventories	103,212	105,644
Prepaid expenses	22,001	18,953
Other current assets	40,624	54,917
Total current assets	191,895	207,621
Non-current assets:
Property and equipment, net	197,644	195,128
Operating lease right-of-use assets	374,650	371,133
Goodwill and intangible assets, net	69,867	70,468
Other non-current assets	78,529	75,190
Total assets	912,585	919,540
Current liabilities:
Borrowings under revolving credit facility	413,200	382,500
Accounts payable	177,025	162,547
Customer prepayments	142,005	129,499
Accrued sales returns	20,277	22,368
Compensation and benefits	25,702	51,240
Taxes and withholding	26,293	22,087
Operating lease liabilities	74,046	72,360
Other current liabilities	59,390	64,177
Total current liabilities	937,938	906,778
Non-current liabilities:
Deferred income taxes	312	688
Operating lease liabilities	338,528	336,192
Other non-current liabilities	105,020	100,835
Total liabilities	1,381,798	1,344,493
Shareholders’ deficit:
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding	0	0
Common stock, $0.01 par value; 142,500 shares authorized, 22,232 and 22,683 shares issued and outstanding, respectively	222	227
Additional paid-in capital	0	3,971
Accumulated deficit	(469,435)	(429,151)
Total shareholders’ deficit	(469,213)	(424,953)
Total liabilities and shareholders’ deficit	$ 912,585	$ 919,540

Condensed Consolidated Balanc_2

Condensed Consolidated Balance Sheets (Parenthetical) - USD ($) $ in Thousands	Apr. 02, 2022	Jan. 01, 2022
Current assets:
Allowances	$ 1,047	$ 924
Shareholders’ deficit:
Undesignated preferred stock, shares authorized (in shares)	5,000,000	5,000,000
Undesignated preferred stock, shares issued (in shares)	0	0
Undesignated preferred stock, shares outstanding (in shares)	0	0
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	142,500,000	142,500,000
Common stock, shares issued (in shares)	22,232,000	22,683,000
Common stock, shares outstanding (in shares)	22,232,000	22,683,000

Condensed Consolidated Statemen

Condensed Consolidated Statements of Operations - USD ($) $ in Thousands	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021
Income Statement [Abstract]
Net sales	$ 527,130	$ 568,256
Cost of sales	224,832	212,338
Gross profit	302,298	355,918
Operating expenses:
Sales and marketing	240,259	223,617
General and administrative	41,319	42,592
Research and development	16,305	13,286
Total operating expenses	297,883	279,495
Operating income	4,415	76,423
Interest expense, net	2,127	977
Income before income taxes	2,288	75,446
Income tax expense	214	8,812
Net income	$ 2,074	$ 66,634
Basic net income per share:
Net income per share – basic (in dollars per share)	$ 0.09	$ 2.63
Weighted-average shares – basic (in shares)	22,760,000	25,377,000
Diluted net income per share:
Net income per share – diluted (in dollars per share)	$ 0.09	$ 2.51
Weighted-average shares – diluted (in shares)	23,591,000	26,544,000

Condensed Consolidated Statem_2

Condensed Consolidated Statements of Shareholders' (Deficit) - USD ($) shares in Thousands, $ in Thousands	Total	Common Stock	Additional Paid-in Capital	Accumulated Deficit
Beginning balance (in shares) at Jan. 02, 2021		25,390
Beginning balance at Jan. 02, 2021	$ (223,978)	$ 254	$ 0	$ (224,232)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	66,634			66,634
Exercise of common stock options (in shares)		106
Exercise of common stock options	2,460	$ 1	2,459
Stock-based compensation (in shares)		314
Stock-based compensation	6,416	$ 3	6,413
Repurchases of common stock (in shares)		(1,346)
Repurchases of common stock	(184,182)	$ (13)	(8,872)	(175,297)
Ending balance (in shares) at Apr. 03, 2021		24,464
Ending balance at Apr. 03, 2021	$ (332,650)	$ 245	0	(332,895)
Beginning balance (in shares) at Jan. 01, 2022	22,683	22,683
Beginning balance at Jan. 01, 2022	$ (424,953)	$ 227	3,971	(429,151)
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	2,074			2,074
Exercise of common stock options (in shares)		21
Exercise of common stock options	531		531
Stock-based compensation (in shares)		341
Stock-based compensation	4,133	$ 3	4,130
Repurchases of common stock (in shares)		(813)
Repurchases of common stock	$ (50,998)	$ (8)	(8,632)	(42,358)
Ending balance (in shares) at Apr. 02, 2022	22,232	22,232
Ending balance at Apr. 02, 2022	$ (469,213)	$ 222	$ 0	$ (469,435)

Condensed Consolidated Statem_3

Condensed Consolidated Statement of Cash Flows - USD ($) $ in Thousands	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021
Cash flows from operating activities:
Net income	$ 2,074	$ 66,634
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	15,870	14,638
Stock-based compensation	4,133	6,416
Net loss on disposals and impairments of assets	93	78
Deferred income taxes	(376)	1,515
Changes in operating assets and liabilities:
Accounts receivable	1,216	5,948
Inventories	2,432	(946)
Income taxes	1,102	6,847
Prepaid expenses and other assets	10,877	(3,113)
Accounts payable	2,073	12,390
Customer prepayments	12,506	20,552
Accrued compensation and benefits	(25,348)	(34,605)
Other taxes and withholding	3,104	8,912
Other accruals and liabilities	(5,198)	6,332
Net cash provided by operating activities	24,558	111,598
Cash flows from investing activities:
Purchases of property and equipment	(19,604)	(11,546)
Proceeds from sales of property and equipment	10	12
Net cash used in investing activities	(19,594)	(11,534)
Cash flows from financing activities:
Repurchases of common stock	(50,998)	(178,613)
Net increase in short-term borrowings	44,712	74,087
Proceeds from issuance of common stock	531	2,460
Debt issuance costs	(42)	(3)
Net cash used in financing activities	(5,797)	(102,069)
Net decrease in cash and cash equivalents	(833)	(2,005)
Cash and cash equivalents, at beginning of period	2,389	4,243
Cash and cash equivalents, at end of period	$ 1,556	$ 2,238

Business and Summary of Signifi

Business and Summary of Significant Accounting Policies	3 Months Ended
	Apr. 02, 2022
Accounting Policies [Abstract]
Business and Summary of Significant Accounting Policies	Business and Summary of Significant Accounting Policies Business & Basis of Presentation We prepared the condensed consolidated financial statements as of and for the three months ended April 2, 2022 of Sleep Number Corporation and our 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 our financial position as of April 2, 2022 and January 1, 2022, and the consolidated results of operations and cash flows for the periods presented. Our 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 and other external factors, including but not limited to general economic conditions, inflation, consumer confidence, store restrictions mandated by federal, state or local authorities and global supply chain disruptions, 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 our most recent audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 1, 2022 and other recent filings with the SEC. The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us 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 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. Our 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 our 100%-owned subsidiaries. All significant intra-entity balances and transactions have been eliminated in consolidation.

Fair Value Measurements

Fair Value Measurements	3 Months Ended
	Apr. 02, 2022
Fair Value Disclosures [Abstract]
Fair Value Measurements	Fair Value MeasurementsAt April 2, 2022 and January 1, 2022, we had $18 million and $19 million, respectively, of debt and equity securities that fund our deferred compensation plan and are classified in other non-current assets. We also had corresponding deferred compensation plan liabilities of $18 million and $19 million at April 2, 2022 and January 1, 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 us 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.

Inventories

Inventories	3 Months Ended
	Apr. 02, 2022
Inventory Disclosure [Abstract]
Inventories	Inventories Inventories consisted of the following (in thousands): April 2, January 1, Raw materials $ 11,257 $ 11,752 Work in progress 68 83 Finished goods 91,887 93,809 $ 103,212 $ 105,644

Goodwill and Intangible Assets,

Goodwill and Intangible Assets, Net	3 Months Ended
	Apr. 02, 2022
Goodwill and Intangible Assets Disclosure [Abstract]
Goodwill and Intangible Assets, Net	Goodwill and Intangible Assets, Net Goodwill and Indefinite-lived Intangible Assets Goodwill was $64 million at April 2, 2022 and January 1, 2022. Indefinite-lived trade name/trademarks totaled $1.4 million at April 2, 2022 and January 1, 2022. Definite-lived Intangible Assets The gross carrying amount of our developed technologies was $19 million at April 2, 2022 and January 1, 2022. Accumulated amortization was $16 million at April 2, 2022 and January 1, 2022. Amortization expense for both the three months ended April 2, 2022 and April 3, 2021, was $0.5 million. The gross carrying amount of our patents was $2 million at April 2, 2022 and January 1, 2022. Accumulated amortization was $0.4 million and $0.3 million at April 2, 2022 and January 1, 2022, respectively. Amortization expense for both the three months ended April 2, 2022 and April 3, 2021, was $55 thousand. Annual amortization for definite-lived intangible assets for subsequent years are as follows (in thousands): 2022 (excluding the three months ended April 2, 2022) $ 1,802 2023 1,431 2024 222 2025 226 2026 222 2027 222 Thereafter 300 Total future amortization for definite-lived intangible assets $ 4,425

Credit Agreement

Credit Agreement	3 Months Ended
	Apr. 02, 2022
Debt Disclosure [Abstract]
Credit Agreement	Credit AgreementAs of April 2, 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 $1.2 billion, subject to lenders’ approval. The credit agreement provides the lenders with a collateral security interest in substantially all of our assets and those of our subsidiaries and requires us to comply with, among other things, a maximum leverage ratio (4.5x) and a minimum interest coverage ratio (3.0x). Under the terms of the credit agreement, we pay a variable rate of interest and a commitment fee based on our leverage ratio. The credit agreement matures in December 2026. We were in compliance with all financial covenants as of April 2, 2022. The following table summarizes our borrowings under the credit facility ($ in thousands): April 2, January 1, Outstanding borrowings $ 413,200 $ 382,500 Outstanding letters of credit $ 5,947 $ 3,997 Additional borrowing capacity $ 405,853 $ 438,503 Weighted-average interest rate 2.2 % 1.6 %

Leases

Leases	3 Months Ended
	Apr. 02, 2022
Leases [Abstract]
Leases	Leases We lease our 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 our local market development approach generally results in long-term participation in given markets, our retail store leases generally provide for an initial lease term of five three Our 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 April 2, 2022, our finance right-of-use assets and lease liabilities were not significant. Lease costs were as follows (in thousands): Three Months Ended April 2, April 3, Operating lease costs (1) $ 27,078 $ 23,638 Variable lease costs $ 330 $ 515 ___________________________ (1) Includes short-term lease costs which are not significant. The maturities of operating lease liabilities as of April 2, 2022, were as follows (1) (in thousands): 2022 (excluding the three months ended April 2, 2022) $ 72,962 2023 89,790 2024 77,978 2025 68,001 2026 56,694 2027 41,517 Thereafter 86,958 Total operating lease payments (2) 493,900 Less: Interest 81,326 Present value of operating lease liabilities $ 412,574 ___________________________ (1) Total operating lease payments exclude $102 million of legally binding minimum lease payments for leases signed but not yet commenced. (2) Includes the current portion of $74 million for operating lease liabilities. Other information related to operating leases was as follows: April 2, January 1, Weighted-average remaining lease term (years) 6.3 6.4 Weighted-average discount rate 6.0 % 6.1 % Three Months Ended (in thousands) April 2, April 3, Cash paid for amounts included in present value of operating lease liabilities $ 24,209 $ 21,386 Right-of-use assets obtained in exchange for operating lease liabilities $ 17,564 $ 29,454

Repurchases of Common Stock

Repurchases of Common Stock	3 Months Ended
	Apr. 02, 2022
Repurchases Of Common Stock [Abstract]
Repurchases of Common Stock	Repurchases of Common Stock Repurchases of our common stock were as follows (in thousands): Three Months Ended April 2, April 3, Amount repurchased under Board-approved share repurchase program $ 42,308 $ 167,418 Amount repurchased in connection with the vesting of employee restricted stock grants 8,690 16,764 Total amount repurchased (based on trade dates) $ 50,998 $ 184,182 As of April 2, 2022, the remaining authorization under the $600 million share repurchase program was $361 million.

Revenue Recognition

Revenue Recognition	3 Months Ended
	Apr. 02, 2022
Revenue from Contract with Customer [Abstract]
Revenue Recognition	Revenue Recognition Deferred contract assets and deferred contract liabilities are included in our condensed consolidated balance sheets as follows (in thousands): April 2, January 1, Deferred contract assets included in: Other current assets $ 26,926 $ 28,048 Other non-current assets 53,244 49,343 $ 80,170 $ 77,391 April 2, January 1, Deferred contract liabilities included in: Other current liabilities $ 34,999 $ 36,490 Other non-current liabilities 68,657 63,680 $ 103,656 $ 100,170 The deferred 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 our inputs are generally expended evenly throughout the performance period. During the three months ended April 2, 2022 and April 3, 2021, we recognized revenue of $9 million and $7 million, respectively, that were 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 the three months ended April 2, 2022 and 99% of our revenues for the three months ended April 3, 2021. Net sales were as follows (in thousands): Three Months Ended April 2, April 3, Retail stores $ 444,336 $ 489,188 Online, phone, chat and other 82,794 79,068 Total Company $ 527,130 $ 568,256 Obligation for Sales Returns The activity in the sales returns liability account was as follows (in thousands): Three Months Ended April 2, April 3, Balance at beginning of year $ 22,368 $ 24,765 Additions that reduce net sales 26,667 23,711 Deductions from reserves (28,758) (23,866) Balance at end of period $ 20,277 $ 24,610

Stock-based Compensation Expens

Stock-based Compensation Expense	3 Months Ended
	Apr. 02, 2022
Share-based Payment Arrangement [Abstract]
Stock-based Compensation Expense	Stock-based Compensation Expense Total stock-based compensation expense was as follows (in thousands): Three Months Ended April 2, April 3, Stock awards $ 3,274 $ 5,808 Stock options 859 608 Total stock-based compensation expense (1) 4,133 6,416 Income tax benefit 1,033 1,598 Total stock-based compensation expense, net of tax $ 3,100 $ 4,818 ___________________________ (1) Changes in stock-based compensation expense reflect the cumulative impact of the change in the expected achievements of certain performance targets.

Profit Sharing and 401(k) Plan

Profit Sharing and 401(k) Plan	3 Months Ended
	Apr. 02, 2022
Profit Sharing And 401 (k) Plan [Abstract]
Profit Sharing and 401(k) Plan	Profit Sharing and 401(k) PlanUnder 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 April 2, 2022 and April 3, 2021, our contributions, net of forfeitures, were $2.8 million and $1.9 million, respectively.

Net Income per Common Share

Net Income per Common Share	3 Months Ended
	Apr. 02, 2022
Earnings Per Share [Abstract]
Net Income per Common Share	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 April 2, April 3, Net income $ 2,074 $ 66,634 Reconciliation of weighted-average shares outstanding: Basic weighted-average shares outstanding 22,760 25,377 Dilutive effect of stock-based awards 831 1,167 Diluted weighted-average shares outstanding 23,591 26,544 Net income per share – basic $ 0.09 $ 2.63 Net income per share – diluted $ 0.09 $ 2.51

Commitments and Contingencies

Commitments and Contingencies	3 Months Ended
	Apr. 02, 2022
Commitments and Contingencies Disclosure [Abstract]
Commitments and Contingencies	Commitments and Contingencies Warranty Liabilities The activity in the accrued warranty liabilities account was as follows (in thousands): Three Months Ended April 2, April 3, Balance at beginning of year $ 10,069 $ 12,152 Additions charged to costs and expenses for current-year sales 4,447 4,330 Deductions from reserves (4,750) (4,717) Changes in liability for pre-existing warranties during the current year, including expirations (31) (156) Balance at end of period $ 9,735 $ 11,609 Legal Proceedings We are involved from time to time in various legal proceedings arising in the ordinary course of our business, including primarily commercial, product liability, employment and intellectual property claims. In accordance with U.S. generally accepted accounting principles, we record a liability in our 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 have not established an estimated range of reasonably possible material losses either because we believe that we have valid defenses to claims asserted against us, the proceeding has not advanced to a stage of discovery that would enable us to establish an estimate, or the potential loss is not material. We currently do not expect the outcome of pending legal proceedings to have a material effect on our 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 us could adversely impact our consolidated results of operations, financial position or cash flows. We expense legal costs as incurred. On December 14, 2021, Steamfitters Local 449 Pension & Retirement Security Funds filed a putative class action complaint in the United States District Court for 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. Plaintiff alleges material misstatements and omissions in certain of Sleep Number’s public disclosures during the purported class period, in violation of Section 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended. The complaint seeks, among other things, unspecified monetary damages, reasonable costs and expenses and equitable/injunctive or other relief as deemed appropriate by the Court. We believe these claims are without merit and intend to vigorously defend the matter.

COVID-19 Pandemic

COVID-19 Pandemic	3 Months Ended
	Apr. 02, 2022
Unusual or Infrequent Items, or Both [Abstract]
COVID-19 Pandemic	COVID-19 Pandemic The COVID-19 pandemic impacted our 2021 and 2022 financial performance. In the first quarter of 2021, even with the COVID-19 challenges, we generated strong demand and financial performance. In the first quarter 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 and suppressed consumer confidence; (ii) incremental costs from labor and material inflation, and expediting costs resulting from current-period global supply chain shortages; and (iii) increased investments in our long- and near-term innovations and demand drivers, partly offset by cost containment actions. 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 and Part II: Item 1A. Risk Factors for additional discussion on the COVID-19 pandemic and the impact on our business.

Business and Summary of Signi_2

Business and Summary of Significant Accounting Policies (Policies)	3 Months Ended
	Apr. 02, 2022
Accounting Policies [Abstract]
Business & Basis of Presentation	Business & Basis of Presentation We prepared the condensed consolidated financial statements as of and for the three months ended April 2, 2022 of Sleep Number Corporation and our 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 our financial position as of April 2, 2022 and January 1, 2022, and the consolidated results of operations and cash flows for the periods presented. Our 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 and other external factors, including but not limited to general economic conditions, inflation, consumer confidence, store restrictions mandated by federal, state or local authorities and global supply chain disruptions, 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 our most recent audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the fiscal year ended January 1, 2022 and other recent filings with the SEC.
Use of Estimates	The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires us 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 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. Our critical accounting policies consist of stock-based compensation, warranty liabilities and revenue recognition.
Consolidation	The condensed consolidated financial statements include the accounts of Sleep Number Corporation and our 100%-owned subsidiaries. All significant intra-entity balances and transactions have been eliminated in consolidation.
Leases	We lease our 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 our local market development approach generally results in long-term participation in given markets, our retail store leases generally provide for an initial lease term of five three Our 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.

Inventories (Tables)

Inventories (Tables)	3 Months Ended
	Apr. 02, 2022
Inventory Disclosure [Abstract]
Schedule of Inventories	Inventories consisted of the following (in thousands): April 2, January 1, Raw materials $ 11,257 $ 11,752 Work in progress 68 83 Finished goods 91,887 93,809 $ 103,212 $ 105,644

Goodwill and Intangible Asset_2

Goodwill and Intangible Assets, Net (Tables)	3 Months Ended
	Apr. 02, 2022
Goodwill and Intangible Assets Disclosure [Abstract]
Schedule of Annual Amortization of Definite-Lived Tangible Assets	Annual amortization for definite-lived intangible assets for subsequent years are as follows (in thousands): 2022 (excluding the three months ended April 2, 2022) $ 1,802 2023 1,431 2024 222 2025 226 2026 222 2027 222 Thereafter 300 Total future amortization for definite-lived intangible assets $ 4,425

Credit Agreement (Tables)

Credit Agreement (Tables)	3 Months Ended
	Apr. 02, 2022
Debt Disclosure [Abstract]
Schedule of Borrowings Under Credit Facility	The following table summarizes our borrowings under the credit facility ($ in thousands): April 2, January 1, Outstanding borrowings $ 413,200 $ 382,500 Outstanding letters of credit $ 5,947 $ 3,997 Additional borrowing capacity $ 405,853 $ 438,503 Weighted-average interest rate 2.2 % 1.6 %

Leases (Tables)

Leases (Tables)	3 Months Ended
	Apr. 02, 2022
Leases [Abstract]
Schedule of Operating Lease Costs	Lease costs were as follows (in thousands): Three Months Ended April 2, April 3, Operating lease costs (1) $ 27,078 $ 23,638 Variable lease costs $ 330 $ 515 ___________________________ (1) Includes short-term lease costs which are not significant.
Schedule of Maturities of Operating Lease Liabilities	The maturities of operating lease liabilities as of April 2, 2022, were as follows (1) (in thousands): 2022 (excluding the three months ended April 2, 2022) $ 72,962 2023 89,790 2024 77,978 2025 68,001 2026 56,694 2027 41,517 Thereafter 86,958 Total operating lease payments (2) 493,900 Less: Interest 81,326 Present value of operating lease liabilities $ 412,574 ___________________________ (1) Total operating lease payments exclude $102 million of legally binding minimum lease payments for leases signed but not yet commenced. (2) Includes the current portion of $74 million for operating lease liabilities.
Schedule of Other Information Related Operating Leases	Other information related to operating leases was as follows: April 2, January 1, Weighted-average remaining lease term (years) 6.3 6.4 Weighted-average discount rate 6.0 % 6.1 % Three Months Ended (in thousands) April 2, April 3, Cash paid for amounts included in present value of operating lease liabilities $ 24,209 $ 21,386 Right-of-use assets obtained in exchange for operating lease liabilities $ 17,564 $ 29,454

Repurchases of Common Stock (Ta

Repurchases of Common Stock (Tables)	3 Months Ended
	Apr. 02, 2022
Repurchases Of Common Stock [Abstract]
Schedule of Repurchases of Common Stock	Repurchases of our common stock were as follows (in thousands): Three Months Ended April 2, April 3, Amount repurchased under Board-approved share repurchase program $ 42,308 $ 167,418 Amount repurchased in connection with the vesting of employee restricted stock grants 8,690 16,764 Total amount repurchased (based on trade dates) $ 50,998 $ 184,182

Revenue Recognition (Tables)

Revenue Recognition (Tables)	3 Months Ended
	Apr. 02, 2022
Revenue from Contract with Customer [Abstract]
Schedule of Deferred Contract Liabilities and Deferred Contract Assets	Deferred contract assets and deferred contract liabilities are included in our condensed consolidated balance sheets as follows (in thousands): April 2, January 1, Deferred contract assets included in: Other current assets $ 26,926 $ 28,048 Other non-current assets 53,244 49,343 $ 80,170 $ 77,391 April 2, January 1, Deferred contract liabilities included in: Other current liabilities $ 34,999 $ 36,490 Other non-current liabilities 68,657 63,680 $ 103,656 $ 100,170
Disaggregation of Revenue	Net sales were as follows (in thousands): Three Months Ended April 2, April 3, Retail stores $ 444,336 $ 489,188 Online, phone, chat and other 82,794 79,068 Total Company $ 527,130 $ 568,256
Schedule of Sales Return Liability	The activity in the sales returns liability account was as follows (in thousands): Three Months Ended April 2, April 3, Balance at beginning of year $ 22,368 $ 24,765 Additions that reduce net sales 26,667 23,711 Deductions from reserves (28,758) (23,866) Balance at end of period $ 20,277 $ 24,610

Stock-based Compensation Expe_2

Stock-based Compensation Expense (Tables)	3 Months Ended
	Apr. 02, 2022
Share-based Payment Arrangement [Abstract]
Schedule of Stock-Based Compensation Expense	Total stock-based compensation expense was as follows (in thousands): Three Months Ended April 2, April 3, Stock awards $ 3,274 $ 5,808 Stock options 859 608 Total stock-based compensation expense (1) 4,133 6,416 Income tax benefit 1,033 1,598 Total stock-based compensation expense, net of tax $ 3,100 $ 4,818 ___________________________ (1) Changes in stock-based compensation expense reflect the cumulative impact of the change in the expected achievements of certain performance targets.

Net Income per Common Share (Ta

Net Income per Common Share (Tables)	3 Months Ended
	Apr. 02, 2022
Earnings Per Share [Abstract]
Components of Basic and Diluted Net (Loss) Income per Share	The components of basic and diluted net income per share were as follows (in thousands, except per share amounts): Three Months Ended April 2, April 3, Net income $ 2,074 $ 66,634 Reconciliation of weighted-average shares outstanding: Basic weighted-average shares outstanding 22,760 25,377 Dilutive effect of stock-based awards 831 1,167 Diluted weighted-average shares outstanding 23,591 26,544 Net income per share – basic $ 0.09 $ 2.63 Net income per share – diluted $ 0.09 $ 2.51

Commitments and Contingencies (

Commitments and Contingencies (Tables)	3 Months Ended
	Apr. 02, 2022
Commitments and Contingencies Disclosure [Abstract]
Warranty Liabilities	The activity in the accrued warranty liabilities account was as follows (in thousands): Three Months Ended April 2, April 3, Balance at beginning of year $ 10,069 $ 12,152 Additions charged to costs and expenses for current-year sales 4,447 4,330 Deductions from reserves (4,750) (4,717) Changes in liability for pre-existing warranties during the current year, including expirations (31) (156) Balance at end of period $ 9,735 $ 11,609

Fair Value Measurements (Detail

Fair Value Measurements (Details) - Level 1 - USD ($) $ in Millions	Apr. 02, 2022	Jan. 01, 2022
Other non-current assets | Available-for-sale securities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Marketable securities assets funding the deferred compensation plan	$ 18	$ 19
Other non-current liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Deferred compensation plan liability	$ 18	$ 19

Inventories (Details)

Inventories (Details) - USD ($) $ in Thousands	Apr. 02, 2022	Jan. 01, 2022
Inventory Disclosure [Abstract]
Raw materials	$ 11,257	$ 11,752
Work in progress	68	83
Finished goods	91,887	93,809
Inventories	$ 103,212	$ 105,644

Goodwill and Intangible Asset_3

Goodwill and Intangible Assets, Net - Additional Information (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021	Jan. 01, 2022
Goodwill And Intangible Assets [Line Items]
Goodwill	$ 64,000		$ 64,000
Developed Technologies
Goodwill And Intangible Assets [Line Items]
Gross carrying amount	19,000		19,000
Accumulated amortization	16,000		16,000
Amortization expense	500	$ 500
Patents
Goodwill And Intangible Assets [Line Items]
Gross carrying amount	2,000		2,000
Accumulated amortization	400		300
Amortization expense	55	$ 55
Trade Names
Goodwill And Intangible Assets [Line Items]
Indefinite-lived trade name/trademarks	$ 1,400		$ 1,400

Goodwill and Intangible Asset_4

Goodwill and Intangible Assets, Net - Annual Amortization for Definite-Lived Intangible (Details) $ in Thousands	Apr. 02, 2022USD ($)
Finite-Lived Intangible Assets, Net, Amortization Expense, Fiscal Year Maturity [Abstract]
2022 (excluding the three months ended April 2, 2022)	$ 1,802
2023	1,431
2024	222
2025	226
2026	222
2027	222
Thereafter	300
Total future amortization for definite-lived intangible assets	$ 4,425

Credit Agreement - Additional I

Credit Agreement - Additional Information (Details) $ in Millions	Apr. 02, 2022USD ($)
Debt Disclosure [Abstract]
Current borrowing capacity	$ 825
Total commitment amount	$ 1,200
Maximum leverage ratio	450.00%
Minimum interest coverage ratio	300.00%

Credit Agreement - Schedule of

Credit Agreement - Schedule of Borrowings Under Credit Facility (Details) - USD ($) $ in Thousands	Apr. 02, 2022	Jan. 01, 2022
Debt Disclosure [Abstract]
Outstanding borrowings	$ 413,200	$ 382,500
Outstanding letters of credit	5,947	3,997
Additional borrowing capacity	$ 405,853	$ 438,503
Weighted-average interest rate	2.20%	1.60%

Leases - Additional Information

Leases - Additional Information (Details)	Apr. 02, 2022
Minimum | Retail Store Leases
Lessee, Lease, Description [Line Items]
Lease term	5 years
Minimum | Lease Vehicles and Certain Equipment Under Operating Leases
Lessee, Lease, Description [Line Items]
Lease term	3 years
Maximum | Retail Store Leases
Lessee, Lease, Description [Line Items]
Lease term	10 years
Maximum | Office and Manufacturing Leases
Lessee, Lease, Description [Line Items]
Lease term	15 years
Maximum | Lease Vehicles and Certain Equipment Under Operating Leases
Lessee, Lease, Description [Line Items]
Lease term	5 years

Leases - Schedule of Operating

Leases - Schedule of Operating Lease Costs (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021
Leases [Abstract]
Operating lease costs	$ 27,078	$ 23,638
Variable lease costs	$ 330	$ 515

Leases - Schedule of Maturities

Leases - Schedule of Maturities of Operating Lease Liabilities (Details) - USD ($) $ in Thousands	Apr. 02, 2022	Jan. 01, 2022
Leases [Abstract]
2022 (excluding the three months ended April 2, 2022)	$ 72,962
2023	89,790
2024	77,978
2025	68,001
2026	56,694
2027	41,517
Thereafter	86,958
Total operating lease payments	493,900
Less: Interest	81,326
Present value of operating lease liabilities	412,574
Amount leases executed, not yet commenced, excluded from table.	102,000
Operating lease liabilities, current	$ 74,046	$ 72,360

Leases - Schedule of Other Info

Leases - Schedule of Other Information Related Operating Leases (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021	Jan. 01, 2022
Leases [Abstract]
Weighted-average remaining lease term (years)	6 years 3 months 18 days		6 years 4 months 24 days
Weighted-average discount rate	6.00%		6.10%
Cash paid for amounts included in present value of operating lease liabilities	$ 24,209	$ 21,386
Right-of-use assets obtained in exchange for operating lease liabilities	$ 17,564	$ 29,454

Repurchases of Common Stock - S

Repurchases of Common Stock - Schedule of Repurchase of Common Stock (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021
Repurchases Of Common Stock [Abstract]
Amount repurchased under Board-approved share repurchase program	$ 42,308	$ 167,418
Amount repurchased in connection with the vesting of employee restricted stock grants	8,690	16,764
Total amount repurchased (based on trade dates)	$ 50,998	$ 184,182

Repurchases of Common Stock - A

Repurchases of Common Stock - Additional Information (Details) $ in Millions	Apr. 02, 2022USD ($)
Repurchases Of Common Stock [Abstract]
Authorized share repurchase program	$ 600
Remaining authorized stock purchase plan	$ 361

Revenue Recognition - Schedule

Revenue Recognition - Schedule of Deferred Contract Assets and Deferred Contract Liabilities (Details) - USD ($) $ in Thousands	Apr. 02, 2022	Jan. 01, 2022
Deferred contract assets included in:
Deferred contract assets	$ 80,170	$ 77,391
Deferred contract liabilities included in:
Deferred contract liabilities	103,656	100,170
Other current assets
Deferred contract assets included in:
Other current assets	26,926	28,048
Other non-current assets
Deferred contract assets included in:
Other non-current assets	53,244	49,343
Other current liabilities
Deferred contract liabilities included in:
Other current liabilities	34,999	36,490
Other non-current liabilities
Deferred contract liabilities included in:
Other non-current liabilities	$ 68,657	$ 63,680

Revenue Recognition - Additiona

Revenue Recognition - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021
Disaggregation of Revenue [Line Items]
Revenue recognized, included in beginning deferred contract liability balance	$ 9	$ 7
Transferred at Point in Time | Revenue from Contract with Customer Benchmark | Timing of Transfer of Goods or Services Concentration Risk
Disaggregation of Revenue [Line Items]
Revenue recognized at a point in time	98.00%	99.00%
SleepIQ Technology | Minimum
Disaggregation of Revenue [Line Items]
Estimated product life	4 years 6 months
SleepIQ Technology | Maximum
Disaggregation of Revenue [Line Items]
Estimated product life	5 years

Revenue Recognition - Disaggreg

Revenue Recognition - Disaggregation of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021
Disaggregation of Revenue [Line Items]
Net sales	$ 527,130	$ 568,256
Retail stores
Disaggregation of Revenue [Line Items]
Net sales	444,336	489,188
Online, phone, chat and other
Disaggregation of Revenue [Line Items]
Net sales	$ 82,794	$ 79,068

Revenue Recognition - Schedul_2

Revenue Recognition - Schedule of Sales Return Liability (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021
Sales Return Liability [Roll Forward]
Balance at beginning of year	$ 22,368	$ 24,765
Additions that reduce net sales	26,667	23,711
Deductions from reserves	(28,758)	(23,866)
Balance at end of period	$ 20,277	$ 24,610

Stock-based Compensation Expe_3

Stock-based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock based compensation expense	$ 4,133	$ 6,416
Income tax benefit	1,033	1,598
Total stock-based compensation expense, net of tax	3,100	4,818
Stock awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock based compensation expense	3,274	5,808
Stock options
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock based compensation expense	$ 859	$ 608

Profit Sharing and 401(k) Plan

Profit Sharing and 401(k) Plan (Details) - USD ($) $ in Millions	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021
Profit Sharing And 401 (k) Plan [Abstract]
Employee compensation deferral (as a percent)	50.00%
Employer contributions	$ 2.8	$ 1.9

Net Income per Common Share (De

Net Income per Common Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021
Earnings Per Share [Abstract]
Net income	$ 2,074	$ 66,634
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding (in shares)	22,760,000	25,377,000
Dilutive effect of stock-based awards (in shares)	831,000	1,167,000
Diluted weighted-average shares outstanding (in shares)	23,591,000	26,544,000
Net income per share – basic (in dollars per share)	$ 0.09	$ 2.63
Net income per share – diluted (in dollars per share)	$ 0.09	$ 2.51

Commitments and Contingencies_2

Commitments and Contingencies (Details) - USD ($) $ in Thousands	3 Months Ended
	Apr. 02, 2022	Apr. 03, 2021
Warranty Liabilities [Roll Forward]
Balance at beginning of year	$ 10,069	$ 12,152
Additions charged to costs and expenses for current-year sales	4,447	4,330
Deductions from reserves	(4,750)	(4,717)
Changes in liability for pre-existing warranties during the current year, including expirations	(31)	(156)
Balance at end of period	$ 9,735	$ 11,609