Sleep Number (SNBR) 10-Q 26 Apr 19 2019 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information	3 Months Ended
	Mar. 30, 2019shares
Document And Entity Information [Abstract]
Entity Registrant Name	SLEEP NUMBER CORP
Trading Symbol	SNBR
Entity Central Index Key	0000827187
Current Fiscal Year End Date	--12-28
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Mar. 30, 2019
Document Fiscal Year Focus	2019
Document Fiscal Period Focus	Q1
Amendment Flag	false
Entity Small Business	false
Entity Emerging Growth Company	false
Entity Common Stock, Shares Outstanding	30,213,000

Condensed Consolidated Balance

Condensed Consolidated Balance Sheets (Unaudited) - USD ($) $ in Thousands	Mar. 30, 2019	Dec. 29, 2018
Current assets:
Cash and cash equivalents	$ 1,696	$ 1,612
Accounts receivable, net of allowance for doubtful accounts of $720 and $699, respectively	18,613	24,795
Inventories	83,314	84,882
Prepaid expenses	10,043	8,009
Other current assets	31,987	31,559
Total current assets	145,653	150,857
Non-current assets:
Property and equipment, net	203,649	205,631
Operating lease right-of-use assets	303,820	0
Goodwill and intangible assets, net	74,862	75,407
Other non-current assets	42,716	38,243
Total assets	770,700	470,138
Current liabilities:
Borrowings under revolving credit facility	218,700	199,600
Accounts payable	121,146	144,781
Customer prepayments	30,518	27,066
Accrued sales returns	19,957	19,907
Compensation and benefits	29,349	27,700
Taxes and withholding	23,842	18,380
Operating lease liabilities	54,197	0
Other current liabilities	47,768	51,234
Total current liabilities	545,477	488,668
Non-current liabilities:
Deferred income taxes	5,646	4,822
Operating lease liabilities	278,446	0
Other non-current liabilities	65,771	86,198
Total liabilities	895,340	579,688
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, 30,213 and 30,868 shares issued and outstanding, respectively	302	309
Additional paid-in capital	0	0
Accumulated deficit	(124,942)	(109,859)
Total shareholders’ deficit	(124,640)	(109,550)
Total liabilities and shareholders’ deficit	$ 770,700	$ 470,138

Condensed Consolidated Balanc_2

Condensed Consolidated Balance Sheets (Parenthetical) (Unaudited) - USD ($) $ in Thousands	Mar. 30, 2019	Dec. 29, 2018
Current assets:
Allowance for doubtful accounts	$ 720	$ 699
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)	30,213,000	30,868,000
Common stock, shares outstanding (in shares)	30,213,000	30,868,000

Condensed Consolidated Statemen

Condensed Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 30, 2019	Mar. 31, 2018
Income Statement [Abstract]
Net sales	$ 426,445	$ 388,633
Cost of sales	164,212	151,156
Gross profit	262,233	237,477
Operating expenses:
Sales and marketing	186,827	171,917
General and administrative	34,323	31,734
Research and development	8,376	6,925
Total operating expenses	229,526	210,576
Operating income	32,707	26,901
Other expense, net	2,609	525
Income before income taxes	30,098	26,376
Income tax expense	4,680	5,828
Net income	$ 25,418	$ 20,548
Basic net income per share:
Net income per share – basic	$ 0.83	$ 0.54
Weighted-average shares – basic	30,620,000	38,244,000
Diluted net income per share:
Net income per share – diluted	$ 0.80	$ 0.52
Weighted-average shares – diluted	31,738,000	39,347,000

Condensed Consolidated Statem_2

Condensed Consolidated Statements of Shareholders' Equity (Deficit) (unaudited) - USD ($) $ in Thousands	Total	Common Stock	Additional Paid-In Capital	Accumulated Deficit (Retained Earnings)
Balance at Dec. 30, 2017	$ 89,156	$ 388	$ 0	$ 88,768
Balance (in shares) at Dec. 30, 2017		38,813,000
Net income	20,548	$ 0	0	20,548
Exercise of common stock options	857	$ 1	856	0
Exercise of common stock options (in shares)		68,000
Stock-based compensation	3,084	$ 2	3,082	0
Stock-based compensation (in shares)		211,000
Repurchases of common stock	(77,648)	$ (22)	(3,938)	(73,688)
Repurchases of common stock (in shares)		(2,149,000)
Balance at Mar. 31, 2018	35,997	$ 369	0	35,628
Balance (in shares) at Mar. 31, 2018		36,943,000
Balance at Dec. 29, 2018	$ (109,550)	$ 309	0	(109,859)
Balance (in shares) at Dec. 29, 2018	30,868,000	30,868,000
Net income	$ 25,418	$ 0	0	25,418
Exercise of common stock options	2,836	$ 2	2,834	0
Exercise of common stock options (in shares)		151,000
Stock-based compensation	3,638	$ 3	3,635	0
Stock-based compensation (in shares)		364,000
Repurchases of common stock	(46,982)	$ (12)	(6,469)	(40,501)
Repurchases of common stock (in shares)		(1,170,000)
Balance at Mar. 30, 2019	$ (124,640)	$ 302	$ 0	$ (124,942)
Balance (in shares) at Mar. 30, 2019	30,213,000	30,213,000

Condensed Consolidated Statem_3

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 30, 2019	Mar. 31, 2018
Cash flows from operating activities:
Net income	$ 25,418	$ 20,548
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	15,743	15,680
Stock-based compensation	3,638	3,084
Net gain on disposals and impairments of assets	(433)	(70)
Deferred income taxes	824	1,184
Changes in operating assets and liabilities:
Accounts receivable	6,182	(2,486)
Inventories	1,568	(2,485)
Income taxes	4,208	4,762
Prepaid expenses and other assets	(5,283)	13,894
Accounts payable	5,857	123
Customer prepayments	3,452	2,412
Accrued compensation and benefits	1,750	(7,567)
Other taxes and withholding	1,254	1,662
Other accruals and liabilities	3,958	(1,485)
Net cash provided by operating activities	68,136	49,256
Cash flows from investing activities:
Purchases of property and equipment	(19,743)	(8,805)
Proceeds from sales of property and equipment	2,571	70
Net cash used in investing activities	(17,172)	(8,735)
Cash flows from financing activities:
Repurchases of common stock	(55,656)	(77,648)
Net increase in short-term borrowings	2,955	35,963
Proceeds from issuance of common stock	2,836	857
Debt issuance costs	(1,015)	(1,009)
Net cash used in financing activities	(50,880)	(41,837)
Net increase (decrease) in cash and cash equivalents	84	(1,316)
Cash and cash equivalents, at beginning of period	1,612	3,651
Cash and cash equivalents, at end of period	$ 1,696	$ 2,335

Business and Summary of Signifi

Business and Summary of Significant Accounting Policies	3 Months Ended
	Mar. 30, 2019
Accounting Policies [Abstract]
Business and Summary of Significant Accounting Policies	1. 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 March 30, 2019 of Sleep Number Corporation and 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 March 30, 2019 and December 29, 2018, 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. 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 December 29, 2018 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. Changes in these estimates will be reflected in the consolidated financial statements in future periods. Our critical accounting policies consist of stock-based compensation, goodwill and indefinite-lived intangible assets, 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. New Accounting Pronouncements Recently Adopted Accounting Guidance Effective December 30, 2018 (beginning of fiscal 2019), we adopted ASC Topic 842, Leases The new guidance establishes a right-of-use (ROU) model that requires us to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. We have elected the following practical expedients and accounting policies related to the adoption of the new lease standard: • We did not reassess our prior conclusions about lease identification, lease classification and initial direct costs; • We did not elect the use of hindsight; • We adopted an accounting policy for short-term leases allowing us to not recognize ROU assets and lease liabilities for leases with a term of 12 months or less; and • We elected the option to not separate lease and non-lease components for all of our leases. In accordance with the new guidance on December 30, 2018, we recorded $299 million of net operating lease ROU assets and $327 million of operating lease liabilities ($52 million recorded in current operating lease liabilities and $275 million in non-current operating lease liabilities). Deferred rent and lease incentive liabilities associated with historical operating leases totaling $28 million were reclassified to the operating lease ROU assets as required by ASC Topic 842. The adoption of the new guidance had no impact on accumulated deficit, net income or net cash provided by operating activities. At December 30, 2018, our finance ROU assets and lease liabilities were not significant. See Note 6, Leases

Fair Value Measurements

Fair Value Measurements	3 Months Ended
	Mar. 30, 2019
Fair Value Disclosures [Abstract]
Fair Value Measurements	2. Fair Value Measurements At March 30, 2019 and December 29, 2018, we had $7 million and $6 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 $7 million and $6 million at March 30, 2019 and December 29, 2018, 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
	Mar. 30, 2019
Inventory Disclosure [Abstract]
Inventories	3. Inventories Inventories consisted of the following (in thousands): March 30, 2019 December 29, 2018 Raw materials $ 4,385 $ 4,549 Work in progress 104 3 Finished goods 78,825 80,330 $ 83,314 $ 84,882

Goodwill and Intangible Assets,

Goodwill and Intangible Assets, Net	3 Months Ended
	Mar. 30, 2019
Goodwill And Intangible Assets Disclosure [Abstract]
Goodwill and Intangible Assets, Net	4. Goodwill and Intangible Assets, Net Goodwill and Indefinite-Lived Intangible Assets Goodwill was $64 million at March 30, 2019 and December 29, 2018. Indefinite-lived trade name/trademarks totaled $1.4 million at March 30, 2019 and December 29, 2018. Definite-Lived Intangible Assets The gross carrying amount of our developed technologies was $19 million at March 30, 2019 and December 29, 2018, and accumulated amortization was $9 million for both periods. Amortization expense for both the three months ended March 30, 2019 and March 31, 2018, was $0.5 million.

Credit Agreement

Credit Agreement	3 Months Ended
	Mar. 30, 2019
Debt Disclosure [Abstract]
Debt	5. Credit Agreement Our $450 million credit facility is for general corporate purposes, to meet our seasonal working capital requirements and to repurchase our stock. 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 includes an accordion feature which allows us to increase the amount of the credit facility from $450 million to $600 million, subject to lenders' approval. The credit agreement matures in February 2024. We were in compliance with all financial covenants as of March 30, 2019. The following tables summarizes our borrowings under the credit facility ($ in thousands): March 30, 2019 December 29, 2018 Outstanding borrowings $ 218,700 $ 199,600 Outstanding letters of credit $ 3,497 $ 3,497 Additional borrowing capacity $ 227,803 $ 96,903 Weighted-average interest rate 4.2 % 4.2 %

Leases

Leases	3 Months Ended
	Mar. 30, 2019
Leases [Abstract]
Leases of Lessee Disclosure	6. 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. Our retail store leases generally provide for an initial lease term of five to 10 years. Our office and manufacturing leases provide for an initial lease term of up to 15 years. In addition, our 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 our sole discretion. Lease options are included in the lease term only if exercise is reasonably certain at lease commencement. Our lease agreements do not contain any material residual value guarantees. We also lease vehicles and certain equipment under operating leases with an initial lease term of three to five years. We determine if an arrangement is a lease at inception. Beginning in 2019 in conjunction with our adoption of ASC Topic 842, Leases ost of our leases do not provide an implicit interest rate nor is it available to us from our lessors. As an alternative, 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 is reasonably estimable. Future payments for real estate taxes and certain building operating expenses for which we are obligated are not included in operating lease costs. Leases with an initial term of 12 months or less are not recorded on the balance sheet as a ROU asset or operating lease liability. We recognize operating lease costs for these short-term leases, primarily small equipment leases, on a straight-line basis over the lease term. At March 30, 2019, our finance ROU assets and lease liabilities were not significant. Operating lease costs were as follows (in thousands): Three Months Ended March 30, 2019 Operating lease costs (1) $ 21,056 Variable lease cost $ 499 (1) Includes short-term lease costs which are not significant. The maturities of operating lease liabilities as of March 30, 2019, are as follows (in thousands): 2019 (excluding the three months ended March 30, 2019) $ 58,730 2020 71,142 2021 63,969 2022 56,501 2023 48,089 2024 37,133 Thereafter 92,942 Total lease payments (1) 428,506 Less: Interest 95,863 Present value of operating lease liabilities (2) $ 332,643 (1) Total lease payments exclude $53 million of legally binding minimum lease payments for leases signed but not yet commenced. (2) Includes the current portion of $54 million for operating lease liabilities. The aggregate future commitments under operating leases as of December 30, 2018, were expected to be as follows (in thousands): 2019 $ 78,337 2020 73,331 2021 66,491 2022 59,515 2023 51,076 Thereafter 149,318 Total lease payments (1) 478,068 (1) Total lease payments include $62 million of legally binding minimum lease payments for leases signed but not yet commenced. Other information related to operating leases was as follows: March 30, 2019 Weighted-average remaining lease term (years) 6.8 Weighted-average discount rate 7.5 % Three Months Ended (in thousands) March 30, 2019 Cash paid for amounts included in present value of operating lease liabilities $ 19,757 Right-of-use assets obtained in exchange for operating lease liabilities (1) $ 16,153 (1) See Note 1, Recently Adopted Accounting Guidance

Repurchase of Common Stock

Repurchase of Common Stock	3 Months Ended
	Mar. 30, 2019
Repurchase Of Common Stock [Abstract]
Repurchase of Common Stock	7. Repurchase of Common Stock Repurchases of our common stock were as follows (in thousands): Three Months Ended March 30, 2019 March 31, 2018 Amount repurchased under Board-approved share repurchase program $ 40,900 $ 75,000 Amount repurchased in connection with the vesting of employee restricted stock grants 6,082 2,648 Total amount repurchased $ 46,982 $ 77,648 As of March 30, 2019, the remaining authorization under our Board-approved share repurchase program was $145 million.

Revenue Recognition

Revenue Recognition	3 Months Ended
	Mar. 30, 2019
Revenue Recognition [Abstract]
Revenue Recognition	8. Revenue Recognition Deferred contract assets and deferred contract liabilities are included in our consolidated balance sheets as follows (in thousands): March 30, 2019 December 29, 2018 Deferred Contract Assets included in: Other current assets $ 21,342 $ 20,553 Other non-current assets 30,829 29,456 $ 52,171 $ 50,009 March 30, 2019 December 29, 2018 Deferred Contract Liabilities included in: Other current liabilities $ 33,023 $ 32,395 Other non-current liabilities 43,044 42,194 $ 76,067 $ 74,589 During the three months ended March 30, 2019 and March 31, 2018, we recognized revenue of $9 million and $8 million, respectively, that was included in the deferred contract liability balance 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 months ended March 30, 2019 and March 31, 2018. Net sales from each of our channels was as follows (in thousands): Three Months Ended March 30, 2019 March 31, 2018 Retail $ 392,226 $ 356,069 Online and phone 29,763 27,967 Company-Controlled channel 421,989 384,036 Wholesale/Other channel 4,456 4,597 Total $ 426,445 $ 388,633 Obligation for Sales Returns The activity in the sales returns liability account was as follows (in thousands): Three Months Ended March 30, 2019 March 31, 2018 Balance at beginning of year $ 19,907 $ 19,270 Additions that reduce net sales 21,726 20,651 Deduction from reserves (21,676 ) (20,905 ) Balance at end of period $ 19,957 $ 19,016

Stock-Based Compensation Expens

Stock-Based Compensation Expense	3 Months Ended
	Mar. 30, 2019
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Stock-Based Compensation Expense	9. Stock-Based Compensation Expense Three Months Ended March 30, 2019 March 31, 2018 Stock awards $ 3,033 $ 2,493 Stock options 605 591 Total stock-based compensation expense 3,638 3,084 Income tax benefit 898 756 Total stock-based compensation expense, net of tax $ 2,740 $ 2,328

Profit Sharing and 401(k) Plan

Profit Sharing and 401(k) Plan	3 Months Ended
	Mar. 30, 2019
Profit Sharing And401 K Plan [Abstract]
Profit Sharing and 401(k) Plan	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 March 30, 2019 and March 31, 2018, our contributions, net of forfeitures, were $1.5 million and $1.4 million, respectively.

Other (Expense) Income, Net

Other (Expense) Income, Net	3 Months Ended
	Mar. 30, 2019
Other Income And Expenses [Abstract]
Other (Expense) Income, Net	11. Other Expense, Net Three Months Ended March 30, 2019 March 31, 2018 Interest expense $ 2,610 $ 527 Interest income (1 ) (2 ) Other expense, net $ 2,609 $ 525

Net Income Per Common Share

Net Income Per Common Share	3 Months Ended
	Mar. 30, 2019
Earnings Per Share [Abstract]
Net Income per Common Share	12. The components of basic and diluted net income per share were as follows (in thousands, except per share amounts): Three Months Ended March 30, 2019 March 31, 2018 Net income $ 25,418 $ 20,548 Reconciliation of weighted-average shares outstanding: Basic weighted-average shares outstanding 30,620 38,244 Dilutive effect of stock-based awards 1,118 1,103 Diluted weighted-average shares outstanding 31,738 39,347 Net income per share – basic $ 0.83 $ 0.54 Net income per share – diluted $ 0.80 $ 0.52 For the three months ended March 30, 2019 and March 31, 2018, anti-dilutive stock-based awards excluded from the diluted net income per share calculations were immaterial.

Commitments and Contingencies

Commitments and Contingencies	3 Months Ended
	Mar. 30, 2019
Commitments And Contingencies Disclosure [Abstract]
Commitments and Contingencies	13. Commitments and Contingencies Warranty Liabilities The activity in the accrued warranty liabilities account was as follows (in thousands): Three Months Ended March 30, 2019 March 31, 2018 Balance at beginning of year $ 10,389 $ 9,320 Additions charged to costs and expenses for current-year sales 3,192 3,500 Deductions from reserves (3,127 ) (3,271 ) Changes in liability for pre-existing warranties during the current year, including expirations 1,166 (77 ) Balance at end of period $ 11,620 $ 9,472 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 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 losses either because we believe that we have valid defenses to claims asserted against us or the proceeding has not advanced to a stage of discovery that would enable us to establish an estimate. 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 January 12, 2015, Plaintiffs David and Katina Spade commenced a purported class action lawsuit in New Jersey state court against Sleep Number alleging that Sleep Number violated New Jersey consumer statutes by failing to provide to purchasing consumers certain disclosures required by the New Jersey Furniture Regulations. It is undisputed that plaintiffs suffered no actual damages or in any way relied upon or were impacted by the alleged omissions. Nonetheless, on behalf of a purported class of New Jersey purchasers of Sleep Number beds and bases, plaintiffs sought to recover a $100 statutory fine for each alleged omission, along with attorneys’ fees and costs. Sleep Number removed the case to the United States District Court for the District of New Jersey, which subsequently granted Sleep Number’s motion to dismiss. Plaintiffs appealed to the United States Court of Appeals for the Third Circuit, which certified two questions of law to the New Jersey Supreme Court relating to whether plaintiffs who have suffered no actual injury may bring claims. The New Jersey Supreme Court accepted the certified questions and on April 16, 2018, ruled in our favor on one of the two questions, holding that a consumer only has standing to bring a claim under the relevant statute if the consumer has been harmed by the defendant’s conduct. The Third Circuit remanded the case to the federal district court, which dismissed the lawsuit on March 5, 2019. Plaintiffs’ deadline to appeal the dismissal has passed and the dismissal is final. On September 18, 2018, former Home Delivery Technician, Donald Cassels, and former Field Services Delivery Assistant, Jose Cadenas, filed suit in Superior Court in San Francisco County, California alleging representative claims on a purported class action basis under the California Labor Code Private Attorney General Act. While the two representative plaintiffs were in the Home Delivery workforce, the Complaint does not limit the purported plaintiff class to that group. The plaintiffs allege that Sleep Number failed or refused to adopt adequate practices, policies and procedures relating to wage payments, record keeping, employment disclosures, meal and rest breaks, among other claims, under California law. The plaintiffs purport to represent all former and current Sleep Number employees in the State of California aggrieved by the alleged practices. The Complaint seeks damages in the form of civil penalties and plaintiffs’ attorneys’ fees, and expressly disclaims the recovery of any purported individual specific relief or underpaid wages. After Sleep Number raised issues with the plaintiffs’ choice of venue, the Court transferred venue from the Superior Court in San Francisco County to Superior Court in Fresno County. We intend to vigorously defend this matter.

Business and Summary of Signi_2

Business and Summary of Significant Accounting Policies (Policies)	3 Months Ended
	Mar. 30, 2019
Accounting Policies [Abstract]
Business and Basis of Presentation	We prepared the condensed consolidated financial statements as of and for the three months ended March 30, 2019 of Sleep Number Corporation and 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 March 30, 2019 and December 29, 2018, 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. 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 December 29, 2018 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. Changes in these estimates will be reflected in the consolidated financial statements in future periods. Our critical accounting policies consist of stock-based compensation, goodwill and indefinite-lived intangible assets, 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.
New Accounting Pronouncements	New Accounting Pronouncements Recently Adopted Accounting Guidance Effective December 30, 2018 (beginning of fiscal 2019), we adopted ASC Topic 842, Leases The new guidance establishes a right-of-use (ROU) model that requires us to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months. We have elected the following practical expedients and accounting policies related to the adoption of the new lease standard: • We did not reassess our prior conclusions about lease identification, lease classification and initial direct costs; • We did not elect the use of hindsight; • We adopted an accounting policy for short-term leases allowing us to not recognize ROU assets and lease liabilities for leases with a term of 12 months or less; and • We elected the option to not separate lease and non-lease components for all of our leases. In accordance with the new guidance on December 30, 2018, we recorded $299 million of net operating lease ROU assets and $327 million of operating lease liabilities ($52 million recorded in current operating lease liabilities and $275 million in non-current operating lease liabilities). Deferred rent and lease incentive liabilities associated with historical operating leases totaling $28 million were reclassified to the operating lease ROU assets as required by ASC Topic 842. The adoption of the new guidance had no impact on accumulated deficit, net income or net cash provided by operating activities. At December 30, 2018, our finance ROU assets and lease liabilities were not significant. See Note 6, Leases

Inventories (Tables)

Inventories (Tables)	3 Months Ended
	Mar. 30, 2019
Inventory Disclosure [Abstract]
Schedule of Inventories	Inventories consisted of the following (in thousands): March 30, 2019 December 29, 2018 Raw materials $ 4,385 $ 4,549 Work in progress 104 3 Finished goods 78,825 80,330 $ 83,314 $ 84,882

Credit Agreement (Tables)

Credit Agreement (Tables)	3 Months Ended
	Mar. 30, 2019
Debt Disclosure [Abstract]
Schedule of Borrowings Under Credit Facility	The following tables summarizes our borrowings under the credit facility ($ in thousands): March 30, 2019 December 29, 2018 Outstanding borrowings $ 218,700 $ 199,600 Outstanding letters of credit $ 3,497 $ 3,497 Additional borrowing capacity $ 227,803 $ 96,903 Weighted-average interest rate 4.2 % 4.2 %

Leases (Tables)

Leases (Tables)	3 Months Ended
	Mar. 30, 2019
Leases [Abstract]
Schedule of Operating Lease Costs	Operating lease costs were as follows (in thousands): Three Months Ended March 30, 2019 Operating lease costs (1) $ 21,056 Variable lease cost $ 499 (1) Includes short-term lease costs which are not significant.
Schedule of Maturities of Operating Lease Liabilities and Aggregate Future Commitments Under Operating Leases	The maturities of operating lease liabilities as of March 30, 2019, are as follows (in thousands): 2019 (excluding the three months ended March 30, 2019) $ 58,730 2020 71,142 2021 63,969 2022 56,501 2023 48,089 2024 37,133 Thereafter 92,942 Total lease payments (1) 428,506 Less: Interest 95,863 Present value of operating lease liabilities (2) $ 332,643 (1) Total lease payments exclude $53 million of legally binding minimum lease payments for leases signed but not yet commenced. (2) Includes the current portion of $54 million for operating lease liabilities. The aggregate future commitments under operating leases as of December 30, 2018, were expected to be as follows (in thousands): 2019 $ 78,337 2020 73,331 2021 66,491 2022 59,515 2023 51,076 Thereafter 149,318 Total lease payments (1) 478,068 (1) Total lease payments include $62 million of legally binding minimum lease payments for leases signed but not yet commenced.
Schedule of Other Information Related Operating Leases	Other information related to operating leases was as follows: March 30, 2019 Weighted-average remaining lease term (years) 6.8 Weighted-average discount rate 7.5 % Three Months Ended (in thousands) March 30, 2019 Cash paid for amounts included in present value of operating lease liabilities $ 19,757 Right-of-use assets obtained in exchange for operating lease liabilities (1) $ 16,153 (1) See Note 1, Recently Adopted Accounting Guidance

Repurchase of Common Stock (Tab

Repurchase of Common Stock (Tables)	3 Months Ended
	Mar. 30, 2019
Repurchase Of Common Stock [Abstract]
Schedule of Repurchase of Common Stock	Repurchases of our common stock were as follows (in thousands): Three Months Ended March 30, 2019 March 31, 2018 Amount repurchased under Board-approved share repurchase program $ 40,900 $ 75,000 Amount repurchased in connection with the vesting of employee restricted stock grants 6,082 2,648 Total amount repurchased $ 46,982 $ 77,648

Revenue Recognition (Tables)

Revenue Recognition (Tables)	3 Months Ended
	Mar. 30, 2019
Revenue Recognition [Abstract]
Schedule of Deferred Contract Liabilities and Deferred Contract Assets	Deferred contract assets and deferred contract liabilities are included in our consolidated balance sheets as follows (in thousands): March 30, 2019 December 29, 2018 Deferred Contract Assets included in: Other current assets $ 21,342 $ 20,553 Other non-current assets 30,829 29,456 $ 52,171 $ 50,009 March 30, 2019 December 29, 2018 Deferred Contract Liabilities included in: Other current liabilities $ 33,023 $ 32,395 Other non-current liabilities 43,044 42,194 $ 76,067 $ 74,589
Disaggregation of Revenue	Net sales from each of our channels was as follows (in thousands): Three Months Ended March 30, 2019 March 31, 2018 Retail $ 392,226 $ 356,069 Online and phone 29,763 27,967 Company-Controlled channel 421,989 384,036 Wholesale/Other channel 4,456 4,597 Total $ 426,445 $ 388,633
Schedule of Sales Return Liability	The activity in the sales returns liability account was as follows (in thousands): Three Months Ended March 30, 2019 March 31, 2018 Balance at beginning of year $ 19,907 $ 19,270 Additions that reduce net sales 21,726 20,651 Deduction from reserves (21,676 ) (20,905 ) Balance at end of period $ 19,957 $ 19,016

Stock-Based Compensation Expe_2

Stock-Based Compensation Expense (Tables)	3 Months Ended
	Mar. 30, 2019
Disclosure Of Compensation Related Costs Sharebased Payments [Abstract]
Schedule of Stock-Based Compensation Expense	Three Months Ended March 30, 2019 March 31, 2018 Stock awards $ 3,033 $ 2,493 Stock options 605 591 Total stock-based compensation expense 3,638 3,084 Income tax benefit 898 756 Total stock-based compensation expense, net of tax $ 2,740 $ 2,328

Other (Expense) Income, Net (Ta

Other (Expense) Income, Net (Tables)	3 Months Ended
	Mar. 30, 2019
Other Income And Expenses [Abstract]
Schedule of Other (Expense) Income, Net	Three Months Ended March 30, 2019 March 31, 2018 Interest expense $ 2,610 $ 527 Interest income (1 ) (2 ) Other expense, net $ 2,609 $ 525

Net Income Per Common Share (Ta

Net Income Per Common Share (Tables)	3 Months Ended
	Mar. 30, 2019
Earnings Per Share [Abstract]
Components of Basic and Diluted Net 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 March 30, 2019 March 31, 2018 Net income $ 25,418 $ 20,548 Reconciliation of weighted-average shares outstanding: Basic weighted-average shares outstanding 30,620 38,244 Dilutive effect of stock-based awards 1,118 1,103 Diluted weighted-average shares outstanding 31,738 39,347 Net income per share – basic $ 0.83 $ 0.54 Net income per share – diluted $ 0.80 $ 0.52

Commitments and Contingencies (

Commitments and Contingencies (Tables)	3 Months Ended
	Mar. 30, 2019
Commitments And Contingencies Disclosure [Abstract]
Warranty Liabilities	The activity in the accrued warranty liabilities account was as follows (in thousands): Three Months Ended March 30, 2019 March 31, 2018 Balance at beginning of year $ 10,389 $ 9,320 Additions charged to costs and expenses for current-year sales 3,192 3,500 Deductions from reserves (3,127 ) (3,271 ) Changes in liability for pre-existing warranties during the current year, including expirations 1,166 (77 ) Balance at end of period $ 11,620 $ 9,472

Business and Summary of Signi_3

Business and Summary of Significant Accounting Policies - New Accounting Pronouncements - Additional Information (Details) - USD ($) $ in Thousands		Mar. 30, 2019	Dec. 30, 2018	Dec. 29, 2018
Accounting Policies [Line Items]
Net Operating Lease, Right-of-Use Asset		$ 303,820		$ 0
Operating Lease Liability	[1]	332,643
Operating Lease, Liability Current		54,197		0
Operating Lease, Liability Noncurrent		$ 278,446		$ 0
Accounting Standards Update 2016-02
Accounting Policies [Line Items]
Net Operating Lease, Right-of-Use Asset			$ 299,000
Operating Lease Liability			327,000
Operating Lease, Liability Current			52,000
Operating Lease, Liability Noncurrent			275,000
Deferred rent and lease incentive liabilities			$ 28,000
[1]	Includes the current portion of $54 million for operating lease liabilities.

Fair Value Measurements (Detail

Fair Value Measurements (Details) - Recurring - Level 1 - USD ($) $ in Millions	Mar. 30, 2019	Dec. 29, 2018
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	$ 7	$ 6
Other Noncurrent Liabilities
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Deferred compensation plan liability	$ 7	$ 6

Inventories - Schedule of Inven

Inventories - Schedule of Inventories (Details) - USD ($) $ in Thousands	Mar. 30, 2019	Dec. 29, 2018
Inventory Disclosure [Abstract]
Raw materials	$ 4,385	$ 4,549
Work in progress	104	3
Finished goods	78,825	80,330
Inventories	$ 83,314	$ 84,882

Goodwill and Intangible Asset_2

Goodwill and Intangible Assets, Net - Additional Information 1 (Details) - USD ($) $ in Millions	Mar. 30, 2019	Dec. 29, 2018
Goodwill And Intangible Assets [Line Items]
Goodwill	$ 64	$ 64
Trade Names
Goodwill And Intangible Assets [Line Items]
Indefinite-lived trade name/trademarks	$ 1.4	$ 1.4

Goodwill and Intangible Asset_3

Goodwill and Intangible Assets, Net - Additional Information 2 (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 30, 2019	Mar. 31, 2018	Dec. 29, 2018
Goodwill And Intangible Assets [Line Items]
Amortization expense definite-lived intangible assets	$ 0.5	$ 0.5
Developed Technologies
Goodwill And Intangible Assets [Line Items]
Gross carrying amount	19		$ 19
Accumulated amortization	$ 9		$ 9

Credit Agreement - Additional I

Credit Agreement - Additional Information (Details) - February 2019 Amendment $ in Millions	3 Months Ended
	Mar. 30, 2019USD ($)
Line Of Credit Facility [Line Items]
Current borrowing capacity	$ 450
Maximum Borrowing Capacity	$ 600
Expiration Date	Feb. 29, 2024
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	Mar. 30, 2019	Dec. 29, 2018
Line Of Credit Facility [Line Items]
Borrowings under revolving credit facility	$ 218,700	$ 199,600
February 2019 Amendment
Line Of Credit Facility [Line Items]
Borrowings under revolving credit facility	218,700
Outstanding letters of credit	3,497
Additional borrowing capacity	$ 227,803
Weighted-average interest rate	4.20%
February 2018 Amendment
Line Of Credit Facility [Line Items]
Borrowings under revolving credit facility		199,600
Outstanding letters of credit		3,497
Additional borrowing capacity		$ 96,903
Weighted-average interest rate		4.20%

Leases - Additional Information

Leases - Additional Information (Details)	Mar. 30, 2019
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) $ in Thousands	3 Months Ended
	Mar. 30, 2019USD ($)
Leases [Abstract]
Operating lease costs	$ 21,056	[1]
Variable lease cost	$ 499
[1]	Includes short-term lease costs which are not significant.

Leases - Schedule of Maturities

Leases - Schedule of Maturities of Operating Lease Liabilities and Aggregate Future Commitments Under Operating Leases (Details) - USD ($) $ in Thousands		Mar. 30, 2019		Dec. 29, 2018
Operating Leases
2019 (excluding the three months ended March 30, 2019)		$ 58,730
2019				$ 78,337
2020		71,142		73,331
2021		63,969		66,491
2022		56,501		59,515
2023		48,089		51,076
2024		37,133
Thereafter				149,318
Thereafter		92,942
Total lease payments		428,506	[1]	$ 478,068	[2]
Less: Interest		95,863
Present value of operating lease liabilities	[3]	$ 332,643
[1]	Total lease payments exclude $53 million of legally binding minimum lease payments for leases signed but not yet commenced.
[2]	Total lease payments include $62 million of legally binding minimum lease payments for leases signed but not yet commenced.
[3]	Includes the current portion of $54 million for operating lease liabilities.

Leases - Schedule of Maturiti_2

Leases - Schedule of Maturities of Operating Lease Liabilities and Aggregate Future Commitments Under Operating Leases (Parenthetical) (Details) - USD ($) $ in Thousands	Mar. 30, 2019	Dec. 29, 2018
Leases [Abstract]
Lessee operating lease, lease not yet commenced, minimum lease payments excluded	$ 53,000
Operating Lease, Liability Current	$ 54,197	$ 0
Lessee operating lease, lease not yet commenced, minimum lease payments included		$ 62,000

Leases - Schedule of Other Info

Leases - Schedule of Other Information Related Operating Leases (Details) $ in Thousands	3 Months Ended
	Mar. 30, 2019USD ($)
Leases [Abstract]
Weighted-average remaining lease term (years)	6 years 9 months 18 days
Weighted-average discount rate	7.50%
Cash paid for amounts included in present value of operating lease liabilities	$ 19,757
Right-of-use assets obtained in exchange for operating lease liabilities	$ 16,153	[1]
[1]	See Note 1, Recently Adopted Accounting Guidance, for the impact of our initial adoption of the lease standard.

Repurchase of Common Stock - Sc

Repurchase of Common Stock - Schedule of Repurchase of Common Stock (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 30, 2019	Mar. 31, 2018
Repurchase Of Common Stock [Abstract]
Amount repurchased under Board-approved share repurchase program	$ 40,900	$ 75,000
Amount repurchased in connection with the vesting of employee restricted stock grants	6,082	2,648
Total amount repurchased	$ 46,982	$ 77,648

Repurchase of Common Stock - Ad

Repurchase of Common Stock - Additional Information (Details) $ in Millions	Mar. 30, 2019USD ($)
Repurchase Of Common Stock [Abstract]
Remaining authorized stock purchase plan	$ 145

Revenue Recognition - Schedule

Revenue Recognition - Schedule of Deferred Contract Assets and Deferred Contract Liabilities (Details) - USD ($) $ in Thousands	Mar. 30, 2019	Dec. 29, 2018
Disaggregation Of Revenue [Line Items]
Deferred Contract Assets	$ 52,171	$ 50,009
Deferred Contract Liabilities	76,067	74,589
Other Current Assets
Disaggregation Of Revenue [Line Items]
Deferred Contract Assets	21,342	20,553
Other Non-current Assets
Disaggregation Of Revenue [Line Items]
Deferred Contract Assets	30,829	29,456
Other Current Liabilities
Disaggregation Of Revenue [Line Items]
Deferred Contract Liabilities	33,023	32,395
Other Non-current Liabilities
Disaggregation Of Revenue [Line Items]
Deferred Contract Liabilities	$ 43,044	$ 42,194

Revenue Recognition - Additiona

Revenue Recognition - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 30, 2019	Mar. 31, 2018
Disaggregation Of Revenue [Line Items]
Revenue recognized, included in beginning deferred contract liability balance	$ 9	$ 8
Transferred at Point in Time
Disaggregation Of Revenue [Line Items]
Revenue from goods and services transferred to customers at a point in time	98.00%	98.00%

Revenue Recognition - Disaggreg

Revenue Recognition - Disaggregation of Revenue (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 30, 2019	Mar. 31, 2018
Disaggregation Of Revenue [Line Items]
Net Sales	$ 426,445	$ 388,633
Retail
Disaggregation Of Revenue [Line Items]
Net Sales	392,226	356,069
Online and Phone
Disaggregation Of Revenue [Line Items]
Net Sales	29,763	27,967
Company-Controlled Channel
Disaggregation Of Revenue [Line Items]
Net Sales	421,989	384,036
Wholesale/Other Channel
Disaggregation Of Revenue [Line Items]
Net Sales	$ 4,456	$ 4,597

Revenue Recognition - Schedul_2

Revenue Recognition - Schedule of Sales Return Liability (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 30, 2019	Mar. 31, 2018
Sales Return Liability [Roll Forward]
Balance at beginning of year	$ 19,907	$ 19,270
Additions that reduce net sales	21,726	20,651
Deduction from reserves	(21,676)	(20,905)
Balance at end of period	$ 19,957	$ 19,016

Stock-Based Compensation Expe_3

Stock-Based Compensation Expense - Schedule of Stock-Based Compensation Expense (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 30, 2019	Mar. 31, 2018
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	$ 3,638	$ 3,084
Income tax benefit	898	756
Total stock-based compensation expense, net of tax	2,740	2,328
Time-based, Performance-based and Market-based Stock Awards
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	3,033	2,493
Employee Stock Option
Share-based Compensation Arrangement by Share-based Payment Award [Line Items]
Total stock-based compensation expense	$ 605	$ 591

Profit Sharing and 401(k) Plan

Profit Sharing and 401(k) Plan - Additional Information (Details) - USD ($) $ in Millions	3 Months Ended
	Mar. 30, 2019	Mar. 31, 2018
Profit Sharing And401 K Plan [Abstract]
Employee compensation deferral (in hundredths)	50.00%
Employer Contributions	$ 1.5	$ 1.4

Other (Expense) Income, Net - S

Other (Expense) Income, Net - Schedule of Other (Expense) Income, Net (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 30, 2019	Mar. 31, 2018
Other Income And Expenses [Abstract]
Interest expense	$ 2,610	$ 527
Interest income	(1)	(2)
Other expense, net	$ 2,609	$ 525

Net Income per Common Share - C

Net Income per Common Share - Components of Basic and Diluted Net Income per Share (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 30, 2019	Mar. 31, 2018
Net Income Per Common Share [Abstract]
Net income	$ 25,418	$ 20,548
Basic weighted-average shares outstanding	30,620,000	38,244,000
Dilutive effect of stock-based awards	1,118,000	1,103,000
Diluted weighted-average shares outstanding	31,738,000	39,347,000
Net income per share – basic	$ 0.83	$ 0.54
Net income per share – diluted	$ 0.80	$ 0.52

Commitments and Contingencies W

Commitments and Contingencies Warranty Liabilities (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 30, 2019	Mar. 31, 2018
Warranty Liabilities [Roll Forward]
Balance at beginning of year	$ 10,389	$ 9,320
Additions charged to costs and expenses for current-year sales	3,192	3,500
Deductions from reserves	(3,127)	(3,271)
Changes in liability for pre-existing warranties during the current year, including expirations	1,166	(77)
Balance at end of period	$ 11,620	$ 9,472