SNBR - Earnings call transcript Q2 2018 | Sleep Number Corporation

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Operator

Welcome to Sleep Number's Q2 2018 Earnings Conference Call. All lines have been placed in a listen-only mode until the question-and-answer session. Today’s call is being recorded. If anyone has any objections, you may disconnect at this time. I would like to introduce Dave Schwantes, Vice President of Finance and Investor Relations. you. Thank

begin. may You

Dave Schwantes

Please Investor website welcome Please Callen, conference our Sleep our available of recorded primary joining our to call. Schwantes, fiscal purpose CFO. of the and for conference on Finance am sleepnumber.com. and Shelly telephone news and today quarter the our release This Senior news Ibach, call the us. or discuss Corporation this will in the Vice just of reconciliation XXXX results and on Dave in measures release refer details President discussed also and of President earnings this to Thank and that supplemental Vice being With to afternoon, call. to access be included be period the is financial me Number are ended. at David certain a the news The replay. CEO; non-GAAP second I Relations. our financial Good to information is you and for refer release President may

annual her the will responses news your in our However, now risks and a uncertainties for the of forward-looking our are on subject SEC. to forward-looking discussed commentary questions in turn results Shelly to report number other vary with certain and may and comments. in outlined statements. I release materially. our detail and over The Form future periodic These filings XX-K earnings may company's actual include call statements to some

Shelly Ibach

we My last call. you company. Good milestone our Dave. quarter joining night. completed SleepIQ earnings for important was you, and the score thank XX an for Thank afternoon Last week, second

by the we highly recently model. margin bottom beds accelerated few commoditized growth culmination environment, all bed last sales an restful The source technology. top for expansion. customers’ into repeat including is as referrals Number the Sleep smart Our relationships over proven quality differentiated and years to remain and for of lot ongoing of more are business the smart important the offering our transition heavy sleep, position lifelong our XXX to In brand customer improving new through is introduced translate lifting they increasingly XXX and our cX brand. our sleep most growth of a line through This to lives, an including

up Our second last year. were quarter million sales XX% net $XXX of versus

million quarter. Our by were prior share the per sales also prior This $X.XX $X.XX quarter year’s shortage, per one-time earnings were an earnings the share. impacted versus year's per a third year’s to second the tax shifted $XX share inventory loss which Note, benefit. $X.XX included

of slightly half the results were better year. our back will details performance second review greater drivers detail. the quarter. for the than the I expectations will for financial on focus Our David in the

XXXX deliver We are $X.XX of guidance to on to track $X.XX. our

We the our X) In aggressive experience. better not through smart half expect our XXX proven equation new X) campaign is are build to a further brands now where our beds brand commoditized X) of back NFL retail proliferation a promotions partnership; at sleep proven a inundated differentiated and XXX. starting through and value of Sleep X) sales sleep, delivering are momentum marketplace we “This amplification Bed,” marketing quality called in direct-to-consumer our strong a mattresses, consumers delivering on by Number

With air showing so our The proven SleepIQ we've that a the adjustability sleep. technologies with bed in analytics, for long you advantages increasing consumer technology quality XXX through and our competitive data create our strengthened sleep. have is sleep to smart smart keep firmness bed integrates responsive that interest adjusts to term, automatically the it tracking the investments night improves Our comfortable.

metrics awareness XX% record competitive our our and be metrics, bed and ratings, ratings strong sleep. all to product business position customer over as fortify are Brand referral continues and we high, stars, repeat of are X.X at our brand are sales. with smart loyalty Our smart

smart Our improve will sleep campaign on new overall your starting therefore and advertising called, your XXX. wellbeing ‘This XXX how a at Bed” not bed is focuses our

site. see the on can You ad the Investor

Our media is which in effectiveness steady, environment remains this significant.

year results included quarter of leverage versus a basis points Second XXX comparable media spending. last on

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by smart linking will messaging and our brand performance. sleep We amplify

from We their engagement NFL realize about players’ benefits to in are excited beds. smart the conversations

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are to X points contributing sales stores growth New year. this

store the Now smart increase fully are actions. to that bed, we we will transitioned XXX our also

to online at driving phone to include: we track in to the are of implemented store front compare effectiveness with quarter. the grew and growing XX% experience XX sales digital quarter, second We remain compared continuing rate. our about for business target stores the Highlights we complementary an XXXX new of in the how a We in on Online have XX that faster model we opened back in-store with online XXX a XXX the online and our in bed purchase in stores half advance visits. planned half. tool is

market we even retail Manhattan net tool are DMA one our of experience and and New we experience have These expect We business. open relationships brand have to Flatiron apparent repeat referral will year-end. we effective stores that in York team, new many are to XXX of the to only District with simplified this our our smart building a location and metrics stores three by unique are with The this outcomes exclusive we the In store XX which This expect this adding beds. store in metrics driven smart showcasing our mission distribution is long our direct life with now of consumer be focused year advantages and XXX to our approximately customers. our more August, new in is beds. on

investment will history. upgrades We've base smart We The supply half supplier entire chain, to smart largest product the made sales expect XXX second line, XXX momentum. is the in beds our company's supported logistics major network. that our our initiatives retail innovation marketing drive and and by manufacturing, bed

efficiency operating chain the half. supply starting We improvements expect in back and increased in from logistics profitability

will support network dissipate many opportunities pressures of and costs expand We the margins have through profitable balance will we in growth. transition The related to more the as a long-term efficient build margin year. of

we been cost have that cutting stronger lean innovation cost In and advancing prioritizing investments initiatives productivity, containment make while diligently addition, a competitor. us

priorities repurchasing our financial shareholder long-term. investing of over Our superior in will directors management and shares team and believe our the value of deliver flexibility business, maintaining capital board deployment

our of repurchases in share shares. Our the see value $XXX million ongoing we year-to-date reflects

to liquidity conservative structure approximately maintaining will million. be Our continue of a position capital $XXX

quality. we of for of purchase above is that Our can significant This ease and our trailing twelve-month, of marketplace as more ROIC measurement with which is we share product a and In commodity sleep an Today’s is retail be will more the capital. is XX.X% in well dense strategy has equal now as right country. cost are in the quarter time than we important even second generated that our an market to expected took quality the industry, performance. summary, product of confident in or It unprecedented value. with and powerful viewed prevail evolving

are reveals fact, U.S. XX% sleep in sleep helped sleep In is you big Tracking it. do the tech. households do but question research about has new awareness, buying interested of that what broadband

a results. communicating step addition to highly farther and technology tracking in goes effortless accurate Our

our for investments takes advantages. to strengthen adjust made Our XXX firmness smart sleep. important beds the quality action improved by competitive We've

proven innovations through Our proprietary quality daily technology. deliver customer interactions sleep our and smart

this It is moving The online that a direct products data highly contribute adopting related words about health our inspiring all where embraces team, confident consumer productive and strong year. to Conference. values few the provide their expectations I'll finally, engaged of and we distribution font-line paced-life. truly to see and of our task our now teamwork. our is remainder our quickly focused, is is more are to details value experience. the David, our exclusive turn Our and And integrity, you over to quality Sales passion, to data. vision. and and which our replicate model talented will to team, and Thank on quarter a courage innovation, it consumer And fast highly fast Service mission and of comparative for a to week who sleep quality integrated was the National and Last with advantage. commitment and

David Callen

we XX% c up step get over At to controlled QX the we realized and in to that forecasted. of prior year, today, the and to year the company transition adjusted achieved Day XXXX, to in well profit the the to the our Investor second or smart our value sales a of sequential we from to in transition we shifted temporary planned. one-time QX series for the customers growth. million the we've Shelly. excess highlighted significant will year quarter, estimated evolution November Net In chain shortage. XXX how you, supply beds due closeouts leading Thank to grew our our unlock growth X% profitability Fast responded QX of of transition QX this forward In advancing X% from spend unit there. deliveries last acceleration inventory required bulk investments growth $XX the sales

full the packed to in growth expect year bed We smart to unit contribute value also XXXX. cX

technology our benefits our customers continue smart to addition, the ARU complete X% In of SleepIQ beds, as base. the and adjustable XXX embrace increased

beyond for We customers a a complete step package X% opportunity reflecting continue XXXX sales as growth sleep the opt to of in from half more and grew again Comp back innovations. QX. up of ARU see

low to forecast the to mid as for beds. continue we comp benefit range from year single-digit growth the price XXX of smart We full

points quarter operating the planned XXX ending of in QX stores as X growth New sales states. with contributed all fifty stores

to the our those year-over-year Actions profits sales driving evolving profit towards wall opportunity in half in investments why X% $X incremental operating stores. XX the second our items growth gross basis year-over-year quarter. rate is the managed Transitioning deliver in in $X.X average I'll store gross XXX plans. pressure required million we on online flow of XXX to margin smart beds to sequential acceleration XX% our details rate a profit to our and points our the this, in million. month twelve taken resulted affecting year-over-year costs four basis to support these today trailing and supply chain versus up compelling profit initiatives has XX% at Despite is the through a metric first Our other through in this incremental Growing including points back half. least XX% margin provide support to per expecting improvement outline we're of quarter.

in and the was margin growth downward points of points adjustable basis from XXX the some are like inflation expected rate at both of product bed a mix XX.X% cX two Our half. by from FlextFit versus impacted and down smart pressure wind impacts. operating source year-end year and products to With we QX by of closeout inefficiencies compelling basis sales $XXX, value in lines the which mix prior expect XXX of back higher bases

adjustable expect while provide sales are also gross strong and base to products be continue the margin We end the expected rate. line dollar gross the profit higher of gains in attach back to at half. Both to pressuring

QX XX last continue and also impacts in of cost in specifically basis identified year included net Both back of points this We approximately half. expect points our charges XX about inflation of goods. transition basis the year to

XXXX. We expect from expected to costs a the in one-time back profit provide Relief approximately is the remaining transition be transition $X year million. half to this of costs in tailwind

to and in to XXX transition eliminating our another to logistics points outbound points versus basis XX by expect basis further first in year from and the home In improve charges to least margin half and beyond, back points. beds. advancing at gross absorbed support margin of our margin XXXX half. preassembled improve XX.X% we've in of lift delivery We expect rate expected this we the XXX gross the basis the by is inefficiencies sequentially Meaningful

distribution We center. ramp with are to on our assembly XXXX about preassembled of track deliveries exit XX% third as our being we

such seven centers of Our a the call six over plans next years. total of for or couple

year-over-year. invested During holding marketing business also costs year. expense R&D the other the flat leverage the while prior QX XXX of enabled controls second operating initiatives points we across prioritized quarter, basis spending sales versus and These in and

and our $X.XX investment tax the half. support up QX the of profit spending our that the We back one-time operating Our overall to per to all priorities XX value including a targets basis using and or performance tax in are expense demonstrated growth growth. points aligned levers EPS to in of project million benefits generated second $X of completed quarter. share drive leverage

our expect invested confidence year $XX the high of in be rate We've tax We projects the balance million year-to-date. XX%. to

last stores. full compared of repurchased This year-to-date to we shares million planned repurchases same beds of period As in of having our ahead million $XXX smart of $XX our year. line XXX the

trailing ROIC end the prior points our by million. the average sustainably to growing capital year invested XX.X% is twelve while QX. investments than Our of month XX This a basis resulted the in at higher business $XX grow

ROIC, to exceeds continue to We expect deliver weighted cost meaningfully of our average which mid-teen capital.

inventory million of the Company million $XX comparison delivery prior prior million primarily was of to $XX change year-to-date year-to-date. flows year and the for compared million QX $XX compensation accounted due year-over-year operating wide payouts shift. $XX Our the to in while cash shortage

million reflect investing ending of our capital letters million evolving and net business excluding $XXX Our $XXX debt plans credit time. prioritize over while structure in to liquidity our the cushion

covenant. to our Our month times, leverage our twelve X.X ratio EBITDAR of trailing X.XX compared

the cushion. liquidity of including in high shift, XXX this growth completion single-digit digit our high approximately year initiatives, for half to July and structure to to prior expect it introduction we Sleep half expect generate was for including of mid back milestone conservative capital million major smart mid a bed the sales net means digit delivery Number. growth The Adjusted We other in With single growth. $XXX a maintain QX. single our for

to the we've Our XXXX XX% increase while Year-to-date, in reflects EPS of purposely EPS business. at our $X year-over-year earned $X.XX guidance of $X.XX midpoint. $X.XX investing

based the We XXXX back the guidance arsenal sleep We on and of made initiatives. progress expect efficiency to improve half innovations deliver the lives our we've of full-year with that differentiated our to in growth marketplace. XXXX an enter against win

the point, for against creating urgency like are to executing our to we'd discipline prioritize and with at questions. while We our value continuing initiatives Christine, open this customer. line

Operator

Raymond question sir. from [Operator Thank you, comes first Instructions] The with Bobby Griffin James.

You question. ask your may

Bobby Griffin

taking afternoon question my congrats whole and and guys beds getting rolled Good appreciate the you series on I smart out.

Shelly Ibach

Thanks, Bobby.

David Callen

Thanks, Bobby.

Bobby Griffin

was want guidance, some help of So in XQ little with upside, of full I the ask guess may to reference a full-year to quarter year the end left was just offered first kind on and unpacking the what's question we at on since of but I changed spoke – the same. kind the be last this

is what's prior of be implies in and ramp products -- dots for consumer little the it connect help driving behavior, there or on So of me little guess just that, help and a the new XQ a on different the inflation, from expectations, it EPS any shift appreciated. would XQ. bit downward shift change I

Shelly Ibach

achieve just track as we're Bobby, represents think, year in guidance, midpoint $X, you EPS of And full a full with I on our starting of especially $X.XX that environment. our see full year growth. to XX% this year appropriate guidance which to

David Callen

in increase in a the that's EPS well. on rate add Its the healthy our midpoint, at and to back to that, too. XX% just as Bobby, Yeah half pretty

Bobby Griffin

the year benefit I mean followed always what included did $X.XX kind was in spoke. was understand. versus time benefit, I imply to – understand, $X.XX was the does maybe kind tax trying I into. it numbers weren’t last I I the because right, that's just to that. the All full what year adjusted change we that of full That's a numbers, If didn't for was but the tax of dig I trying

Shelly Ibach

was gross a had tailwinds, margin a And outlined. this tailwind good and pressure of the and would headwinds Bobby, we quarter, both as and in a be headwind we example

Bobby Griffin

fair the are for you what inventory you today, of guess a Okay, behind more you kind enough. I guess. I become think where that work balance on expect balance of when up then sheet kind I kind seeing I'm you cadence the starts of lastly And about that of expectation me the now new as start to to end product this and – to through normalized of it introduction okay,

David Callen

look to than Yeah, inventory it Bobby, it I be that gaining – and one where the otherwise we lines. million and transition expect between operating balance and through two out say the half. to of some would the our $X million product go would on efficiencies delivering product higher $XX products forward are of about with reflects is where still closing as back the the legacy we We're sheet some we line

Bobby Griffin

it’s then Shelly, kind out appreciate And all your in more of I way high more comments, guess, that to is series the I a what the of attachment down emphasis that that a of just that. consumer beds, kind prepared called the from thought, impressive. level process? a on the seeing guess of Is I pretty some of just you rate preference? think some driving C do selling

Shelly Ibach

very part. the missed I first

Bobby Griffin

of what cetera? your the is that, had standpoint curious the in to your an seeing goes bit kind attachment the I a on that the remarks really et exactly emphasis I in rate was if product little and change in a process more from high through it comments And offering. about higher opinion selling prepared it was driving level just is referring you of just

Shelly Ibach

base. to was come technology as adjustable well with is consumer the inclusive a with it's a design of perfectly example doing smart course a the that as a provide to adjustable smart adjustable our manner our is highly great it it which firmness of I and benefits attractive the that enjoys the of of our in the mattress think FlexTop too, to the the concept those core works all provides. the design which Sure, base. benefits is In so benefits And of bed and question goes well, ultimate that the SleepIQ customer great back bed. and And really customer one

excited able same we're smart into that's use that be that attachments our behind media part you fluctuations, units with going expect the our time I some certainly half, at here smart keeping expect to we of full continuing sure do is the from with And year, the touched the that this that's and at for bed compare is think committed drive to there from make a way how do good being and head really do marketplace the but reason to to growth support have look the on. the going equation at to XXX bed full both and the why will, the to the units. to we that of and and value in into growth of and beds we're and it. half similarly give initiatives our that we quarterly invest and bed strong excited to We're we we’re XXX ARU So where as this ARU some want power cX back in sleep it we great that back not be that proven and why quality part is to priced to ARU guidance to and

Bobby Griffin

for you thank the back color very half of through look – the best year. much and much Very of the

Shelly Ibach

thanks. Great,

David Callen

Bobby. Thanks,

Operator

next John with The comes question Stifel. Baugh from

your question. ask may You

John Baugh

I guide. that up taking one questions the recall digits. was for year I the my on Thank guide revenue the revenue first time evening. – you this is mid-to-high guess single Has the changed and

digits. I believe is see now something for I mid-single is back the I confused? half I getting think guide Am the equate the would And revenue roughly digits for to that mid-single year.

David Callen

at on No, high-single $XX and adjusted and about high-single about at got mid-to-high, shift single we we're growth. with QX basis digit that's for an that's year that million adjusting John, QX you’ve talking digits talked digits, it half, single-digit growth correct. exactly mid-to-high back but last When the

John Baugh

spend. then And help the Okay. me media with

I’m that could in or now media you just might versus loaded to it, sense be going I you to us half? and the spend percentage – get trying line of in curious revenue give Labor of a maybe reset a we're So front second first half guess equate think you where I’m in the the is and of product Day of for change? your we've kind big how the that's the the event.

Shelly Ibach

Right.

well as of investing As rate this that our we remarks probably look my flat hold in and around And bed we've prior spend we’ve past smart competitive similar the tested media have our we basis the behind marketplace the on annual it XX%. about of this in move that indicated half, as fairly part good into year. far now I year, we of back so talked We’ve be as just the out some to initiatives an And then sales percent is. so held I entire also at will XXX lined I'll maybe indicated how particular there. given there

John Baugh

then legacy I we And when you. understandable any the transition shift totally which we gross gross the XXXX? terms by And be of there's is think thing or XXXX? dollars. percentage old all if behind a to a You yet, of about curious year I that you'll more exit just on the mentioned how will that's with are kind products then, hopefully But of on exited adjustables mix there help clear as was of good be that and less enter clean? Understood. cost way or going feel this Where there's is in is margin curious we margin, think us the

David Callen

least tailwinds this first rate. around not we we're sequential talking as cost year chains, improvement period would both supply while half basis basis that XXX margin some will XX points next transition of half about eliminating expected tailwinds year. product gross as absorbed forward, as additional back Over we've look half XX% lines, expect we then, from margin that the second as And to to two having of Yes, within the our some from – gross having expansion to benefit we well is basis be John, of a in so XXX at reach. take time, we of those points two inefficiencies points

John Baugh

think necessarily Okay. should don't buybacks a or I of help you're what for is stock don't there guide year? And our then, lot any the lastly, the half be the quickly, you on on done expectations back year-to-date,

David Callen

had Yes, John, of our the fluctuations in in kind cash flows unusual year-to-date we some first half.

We expect sales our to cash flows in to operations profitability stronger. We're accelerated in the working and from capital accelerated be growth back half. with second cash much normalized support half along more generation looking the elements at our

liquidity use those our as you're million share thinking as about terms framework how kind in cushion of You with to guide work a $XXX repurchases. of guidance of can within along

John Baugh

and luck. good Great. Thank you

David Callen

Okay. lot. Thanks a

Operator

The Keith Piper comes Jaffray. Peter next with question from

You may ask your question.

Peter Keith

sales will within It be And just growth. to you bounce I little say off growth guess, slide of same-store that like same-store a your half Hey, sales of year. better bit the Thanks wanted first guess, flat. out you of know product format. back just came I relatively the new adjust little of on reflect questions. half year maybe better $XX good I million said had a than the afternoon expectations. I'm line is wanted for should of that sales to the it just I feels in I if it trying everyone. you shift, to XX% first I taking the bit QX than your the

headwind So half got little a bit I'm half is wondering the back anything first change about will of to a more the outlook? you in the there or with if year that confidence us give back – if things

Shelly Ibach

we half, expected first and half track Well, we're full with position back be guidance. year largely our on in where the to

of campaign, much at also quarter in supported were what new for it slightly week, quarter. second As are sleep full proven development indicated it here were achieved XX the smart market we're that with expecting we recall, we marketplace with initiatives, second of of second same for advertising X% the talking and and as our being were illustrating you the in consumer. And and now advancements benefits in experience, bed, we with you and down is the now quarter. And first smart stronger supported the not in But last lowest step-up our conversion NFL our process flat are quarter. $XXX. half. our And that we beds ahead with the we XXX we this selling and with about also, have the the Smart be is seasonally line the we And half, looking sales do brand, a simpler year-over-year all is retail in along our in is our beds. both amplification that's online to expect back Obviously,

then, adding fourth pX on about the and immediate third really in here different and If indicated iX. you the with see think with quarter, conversion a with the where year I the in second in very pleased we were on at did our high-end, step-up the the the We're last call, that situation. pX quarter. we quarter, last just It’s two floor models as the

on planned and achieve we're to for expected what yes, year. see to all talked about be sales the So we've we able to with track momentum

Peter Keith

Okay, I have lot were products you good. commoditized a And mentioning noticed thing normal. Do you My Shelly, the one like low-end. the were at felt about more it perspective just the within than that script talking some out evolving of the stores an conversion industry and taking perhaps, it at business is difficult? even the or traffic your be how more in Is perspective that even high-end? that may impacted making low-end on

Shelly Ibach

that businesses the write marketplace with what quarter. money I'm Alright, you very I'm dealing each in seeing lots And stating pressured industry, and to brands, industries and quarter and our the more focused that of marketplace into it well amount about and as greater in I with. conversion mattresses cost mean cost we're on traffic commoditized up but expected does in entering, has coming at does getting what It of too. search different and time as second consumer were it's degree brands in it all and when more other intense the are confuse it and you it lots is you is have only be more into at search see not continued. our the a and and commoditized And well. the all low-end. continue products as it more and as focused drive a

Peter Keith

Okay.

Shelly Ibach

it that and the imports So that think will year, forward and the entered is Chinese $X end. that at bringing million have around the all space of on be I all top that this low

of that So how how that to First business? our all, translated impacts we're impacts – excited.

the with interest and understand for at. the to and in able be value is research to opportunity the where the do overall excited sleep and consumers We’re

us at products for that $XXX are $XXX, the at Peter, now I'm talking so in be these really we And with it, where or when And we $X,XXX. marketplace that equation it, to cX our majority of we're out put up and to about good are a thing value and right now. about well-positioned. think And against opportunity it's we're excited this our

Peter Keith

lot and luck. for good Thanks Okay. the a feedback all

Shelly Ibach

bet. You

Operator

from Brad Capital question KeyBanc with Thomas Markets. next The comes

You your may ask question.

Brad Thomas

Hi, good afternoon everyone.

Shelly Ibach

Hi.

Brad Thomas

conclusion? that might bit more that in in to in store other the year, base high all looks single-digit my openings how New broadly, this this York in right, single-handedly guess, for store New York. about is like one, be your I that alone a talk two, you're and could about little a If ask year later year you and quarter you could your market at for if with then, fourth to X% the the growth about Wanted in done? and rate which growth you've the more strategy math that And XQ. store is get growth fair different in growth

Shelly Ibach

growth of net for the X% stores. for to closings we would end number be Yes, this or XXX expect period. about the And store of new repositions

Brad Thomas

Got you.

Shelly Ibach

And just Overall, the the store expect of will And we look X% if store for in store on that as are the stores do of that you new. then open opening new not XX look if full growth, we at about majority you each that the back to XXXX. at compared have so new QX. the we here XX we're in weeks, new we experienced here what year, impact

Brad Thomas

you, the of looking how at helpful. then, terms returns different other ones, that's the And some Shelly, all, if the for? from market of in you’re Got is

Shelly Ibach

New far is far Manhattan Manhattan our in we that we localized in itself then then mean, supported than to sense. many goes that and really for just locations, and great strategy stores awareness relocations new being beds, we've smart or there to DMAs. all a our looking to it have overall improve the it different quality so – it’s and are now complete excited. other It’s numerous location other in adding the – at particular Manhattan and have As brand perfect XXX I as Manhattan more marketplace. time York open opening right able been doing makes there some net by estate in about that in DMA that been and And opportunities. excited activate We're has us real

and well. in getting happy So performance of other the positioned stores with as you much the of [indiscernible] better know we're some our

David Callen

of we're kind similar opening that year add seen from economics past. the this as we expect the that new I'd in stores Brad, we've Overall,

Shelly Ibach

New York included.

David Callen

Yeah.

Unidentified Analyst

And asked company you. right ask now. getting just question that to Got a every then

business, you at As down pipeline any see here? coming do your impact tariffs you look the from

Shelly Ibach

those Yeah, the are at in imports be industry be really won't mean the but end, that there impact impact will There comments was that coming very antidumping and as low end. I industry some surfacing think the low I help us impact it I will the just with us. between some Peter at as some into little commodity to us. issues start – normalize some will the and we’re for for of the about

Unidentified Analyst

thank much. Got so you you,

David Callen

Brad. Thanks,

Operator

from The with comes Seth next question Securities. Wedbush Basham

You your ask question. may

Seth Basham

a Thanks and afternoon. good lot

Shelly Ibach

Hi, Seth.

Seth Basham

gross is margin. around question first My

but to headwinds your You you little spell a the expectations? experienced out us of bigger you could give bit maybe this of quarter, some at were those guys color than headwinds help more which

David Callen

product Sure, lines closeout year. Seth, the about from where of and basis say quarter, we really inefficiencies additional had about to two we from into the sales, end the are than operating towards down expect which that points thought wind coming XXX I the we would pressure those the it largely

Seth Basham

think Would you’re And new from you forward end mix the a products. Got you very pressure of was driven and cX continued lower also going effects closeouts, it, excited the to okay. that quarter due part standpoint? about when mattress experiencing expect about this mix you’re but

Shelly Ibach

at. XX of we’ve importantly, Yeah a gross we couple then basis expect we and got talked in the in did of to attach that as guess we’ve mix things market share the that half points improvement about well there. We've series. margin that the as considered how consider back from go And both c

compete this is and the better, the for intend do we to series this and pricing really equation. end, more us c We're our in strongly what excited. We with to bring premium to best area. brand In within to that's have key customers value good,

market So, opportunity there. we see share

points also better at and we We the see our at price it line see high-end. the in it

products use that process expect both of do of on units selling drive mix So exciting one about proprietary conversion. a this then is can and separate to exclusive for note, promotional to a process direct that we that And we on have things and have ARU. the we consumer distribution means model with and we business grow based dollars that a change the

So quarter, based drive second what quarter. not if for we achieving year-over-year you look different at expected shift we did mix And dollars the the while activities. can example, drive on promotional for you

So keep some and quickly. mind that adjustments make in can those of too pretty you

have like premium. where at at best in we So line excited and in really better, we're place to the good, full pricing

Seth Basham

goals ARU. both That to grow sense and your of makes terms in perfect units

you what's the trade some there If as Are down from customers your at Shelly, cX that introduced you concerned as is higher store as well? the comparable you a on you for cannibalization might expectation of end unit a look growth? effect products basis,

Shelly Ibach

to more to, new similar we This growth. goes is customers unit back think bringing the to key about and brand customers the

customers So else. something that converting won't into brand we’re the and purchasing the bringing customers that the more more c means be series

continue to benefit the there line. to for all are the who against there mean up there is afford trade addition smart the to at and is cX and customers, higher value from also any – I end our to and benefits many in same the to to want move able – the selling of bed who to line. product. convert time, our really In you along exciting pretty across confident our able And the and a our great is up be there's commodity we're buy process our features to frontline way And reason, at in when there sales are it. line, great reasons compelling

do is core So, what our competency. we well? This

Seth Basham

It makes sense.

is grow unit the expect growth, expectation Just or do a not? here, for comparable what lastly now reframe guidance to to thinking back units store you about half your

Shelly Ibach

always we our Yeah, total growth about and ARU expect do unit unit talk year and we full growth.

Seth Basham

Thank you. enough. Fair

Shelly Ibach

you. Thank

David Callen

Thanks, Seth.

Operator

The question from Michael next Lasser comes with UBS.

You may question. your ask

Michael Lasser

my lot Good evening. for taking Thanks question. a

or the comps So $XX year, flattish if last second the from bed. adjust for the third shift that from with and this growth it that's And quarter. we quarter, were quarter cX implies million closeout so models

them? of some you higher for the time Or beds this seeing down? a and shifts sale case? to Are you trading in implicitly folks So the that trade harder having end down. Why just were up was folks adjusted are bringing

David Callen

and smart of excited the out bed highlights smart our as we're up that and up We from the second models full back in about quarter quarter we sales well was the line advantage took advantages were Michael. planned model now advantages opportunities line. as in we bed. of of going in We're remaining half. No, stores complete support XXX into expecting performance those well some as rolled and the as XXX closeout as planned our pretty as of the the the The those with of step that the the used media

Michael Lasser

mid So mid – as to from high moderating digits planned, single your high mid sales digits. about you're sales previously guidance but from were to your to single

has So changed? what

Shelly Ibach

that have in we $X. to I of expect the back better guidance and for quarter in growth. slightly half track had was step we QX Yep, are up expectations single year second on our the we the with digit as we mentioned And mid full expected. $X.XX

Michael Lasser

Okay.

David Callen

it’s Yeah, to of On growth, $X.XX in the digit know, and mid million. digit in digit expect single you acceleration guidance to $X in the to $XX up the high adjusting growth adjusted in it’s consistent been out digits are and growth to committed have but our pretty in step that And half. in profitability we of back back half. delivering we EPS mid high to basis, a back an high QX half, single single significant our has QX single and high

Michael Lasser

the now give costs this single more customers and example Is for was and order customer And seems of rising quantification it acquire magnitude? right the it to acquisition so you like it spoke double was cost you rising about Could intense quarter. that digits digits? rising

Shelly Ibach

correct point which increasing did to I did about the is clarify I search acquisition not let me speak talk cost. and than costs. Well, costs, different acquisition rising here. rising

increasing continuously in-house very We our are we so in that with and will home, and back held media competitive lifelong buying now search importance yes, in out this advantages. our until the full brought our so results be our move responsive bed we’ve we customer repeat line is source Also advantage you fairly can We’ve the So, we're smart referral half. repeat or in customers, of And costs dollars flat continued be far into as the so media have our highlight the one acquisition year and we that. happy us. be and is and here we which second have we sales relationship our that and strong XXX media digital for quarter. rolled important with numerous efficient so a it investing we've that to one But leveraged referral know – we to sales. very our effectiveness in

Michael Lasser

good so for Thank luck year. the much and Okay, you okay.

Shelly Ibach

Great, thank you, Michael.

Operator

America with Nagle of comes question Bank next Lynch. Merrill The Curtis from

question. your ask may You

Curtis Nagle

evening. taking question for good thanks Great, the and

Shelly Ibach

Curtis. Hi,

Curtis Nagle

Shelly. are you? Hi, How

Shelly Ibach

Good.

Curtis Nagle

Good, good.

just a to what XXX a XXX why? Just like cushion. curious think you appropriate from on this not forward? aggressive I'm more is I'm looks I based think guess that liquidity It the it on do question was Is mistaken Or the moving little level going perhaps quick XXX. you're buybacks? on more a if the range just to I being

David Callen

on a us is gives And you we this significant we've going sense makes business we liquidity evaluate million regular XXX that very terms and level. structure basis eye those downside our in capital the liquidity more basis think the XXX we've an how to said a talked conversations cushion still forward. keep It appropriate we of board review think the is of Curtis, an and million, know $XXX what our million about in on XXX upside that about reflective to the on with and cushion. scenarios ongoing million

Shelly Ibach

I think we to add now. Curtis are where other the right

smart now deployed XXX strategy if have and also that beds helpful. full We line and that our is of progression it’s

Curtis Nagle

quick just then to And a understood. question Okay, Shelly.

be something works I action. think might you alluded the or probable? is a really industry? think just you to chatter that's Is that know reference in to the it potential been you in antidumping Or this

Shelly Ibach

and Yeah, I action it that we've reports will similar continuously comes all think, taken. read potential be up as

Curtis Nagle

Got it, okay, thanks very much.

David Callen

Thanks, Curtis.

Operator

Thank to this host the you. call remarks. back closing I like over turn time, for would your At to

David Callen

today. look XXXX well us dream to joining third and performance with We for you Sleep our quarter October. Thank discussing you forward big. in

Operator

call. conference for you concludes Sleep your QX This Thank earnings the Number’s participation.

time. disconnect may You this at

Sleep Number (SNBR) 25 Jul 182018 Q2 Earnings call transcript