Earnings call transcript Q4 2022

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Operator

Good day everyone. Welcome to Sleep Number's Q4 and Full Year 2022 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.

introduce Vice to and of like Relations. Investor would Dave President Schwantes, Finance I sir. ahead, go Please

Dave Schwantes

Good to for our Chris and Finance Shelly earnings Human am afternoon, Ibach, welcome Chief Schwantes, interim and conference quarter Corporation Dave Officer. and me Resources call. CFO XXXX Investor fourth our Relations. and Thank today President President Krusmark you Vice joining With I the us. of Sleep are Number and CEO;

on being be news a recorded to at and the the This our telephone measures release available the our website release reconciliation that Please be in replay. on conference financial in non-GAAP release news or and to refer for discussed is call. certain our news refer sleepnumber.com. this financial will supplemental included access may of Please details also to information

is primary discuss to the this results of The the ended. period purpose just call fiscal of

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

turn now call will the for Shelly I over her comments. to

Shelly Ibach

XX thank night. joining afternoon, call. our was for IQ you score last Good My and XXXX year-end sleep earnings

Callon to future him about details his wish endeavors. David appreciation providing our contributions Before for my to like XXXX I'd his Number express many results, in well and Sleep to

permanent Advisory a joining Arthur number, and operational held of in it's of to served past the Chris member roles Officer leadership search role EY number fleet XX And the Andersen. Chris member as Assurance assumed fleet Chief has of Chief Chris been as Human since Financial years. Practices replacement. Executive a a Krusmark, CPA and Prior Resource the and and a a President conduct for we has during financial fleet Interim, Vice team XXXX. Officer variety

During climate opportunities we'll orientation review XXXX financial strategic environment on year our the XXXX early number and business our when performance, long-term and for underscore improves. XXXX fleet today's growth position the share capitalize the to our that highlight profitable call, economic outlook milestones observations about and

quarter X% with for backlog. in offset the to First increased excess sales XX% our by net decline million, which servicing an $XXX quarter, of demand the was

per $X.XX. loss QX Our share was

year, share For included per net billion of X% of the results sales $X.X down year-over-year, and $X.XX. full earnings

spread year. reflects and impact economic demand business supply microchip XXXX the costs the the which sentiment, war drove that in and Ukraine, Constrained sustained external of of and in early reduced disruptions low Our significantly Omicron the performance began profits. consumer record pressured skyrocketing

enhance commitment Yet creative navigated challenges, customer's to as a purpose to our steady our macro to stream solutions team find passionate our we experience. galvanized of

We strengthened single Sleep the technology completed in our two XXX smart five-year wellness our climate that health new We a completed to our for network. introduced with innovation and platform, transition and the leadership and technology milestones we company assembly history, our fulfillment greatest important the future. bed

following are we with improvement experiencing XXXX, of early start our of associated business advancements. the With the signs in

which For months, X the support to unavailable has adjustable smart bases, chip and XX first full line September our including time we since have FlexFit in adequate XXXX. of inventory FlexFit X, been

an to range And thanks times, entire with normal we This best environment high. good operating price our to in of our are in offer remains enables us sensitivity better microchip where to improvements customers inventory. delivery

economic consumer favorable including indicators are seeing improving somewhat more sentiment. we addition, In

near points Although rose versus historic sentiment consumer January, still to nearly sequential improvement XX five lows, in a December.

market spend to media planned opportunity. near-term our increase cautiously we improvements, these With capture

in improvements taking in efficiency, action. this by the traffic mediate encouraged trends, related are We demand, since

improvement sequential fourth comparison XXXX high to against is a demand period, quarter single digits toughest notable our quarter. the date and from down Our represents

While trends with in encouraging, for environment. XXXX prudent continued uncertainty we remain planning the these early our XXXX assumptions reflecting are in

margin improvement sentiment us both and rebound prioritizing support a also demand when We initiatives the for are that improves. controlling and strong This expenses. consumer short long-term combination positions while

additional also are fee actions we prepared contingent Although to should warrant. execute conditions

full the $X.XX year, our the least expect at For growth net midpoint $X. to EPS And range we XX%. of the in profit at range, operating of of

operations million We of more expect cash generate XXXX including to than in flow. $XXX cash free positive from

strengthening consumer strategic to and benefit our wellness XXXX innovation business technology. our recent long-term, accomplishments contribute in directly and further Our our performance leadership

For comfort smart XXX quality. are the raving last example, design bed customers temperature ourselves since improving And our sleep October, climate introduction, are expectations. benefits, and bed its how about smart has their outperformed

are few different with perfect night, One temperatures. couple bed for said, customer comments. sleep a customer a Here great and settings first

climate my asleep greatly XXX I fall and a stay throughout so and third the improved month asleep And stated, ability Another night. bought bed ago worth it. has to noted, this a it's

is of demand While expected in deliveries still is sales scheduled Better our the than total climate March. mix. being into smart late percentage XXX a current resulting small bed

Our this suppliers be bed have we XXX to end of the by a fabulous values. to quarter. higher smart the And sales delivery support normal next climate output component increased expect consistently times for

next smart the Consumer our is incorporate which gen adaptive of is chain not the These of utilization for only second of beds track XXX the available of bed supply quarter. complexity gen due experience beginning next ahead climate smart response bed reduces our wellness components. to planned on encouraging it customers platform but health technology also smart our introduction supports more readily new which to and and the benefits, line, sleep related

ambient our lifestyle line, benefits. in new This next sleep gen disruptions. April, minimize blanket our through extends our to noise we customer designed optimizes plan circadian and created In furniture, a wake to lighting and addition your that routines which collection embedded sleep furniture to introduce sound speakers bed complement smart to rhythm

Number SleepIQ and connected our transition digital And high this that of very Sleep also collection for conditions. accessories, testing app. will health life current Number support experience we changes strategy. Sleep and satisfaction. This The app later our will health points optional advance all of includes is next in new touch our a further home Early year, for showing stages integrate smart simpler millions our evolution sleepers to

We with and full brand partnerships, seen media. strategic we restoring efficiency marketing improvement. demand have new demand our media in sequential are portfolio, initiatives Since supporting

We with also plan to campaign. introduce next the of a opening smart new generation beds

audience renewal World Super their Sleep scale. class partnership Football The a partnerships of of is and our official we the impact wellness National with largest of platforms. announced the amplify Bowl League, recovery NFL partner. benefits one smart and the performance as Number five-year and At with sleep beds engagement XX, world's

health past brand years includes five benefits reach the metrics of the relevance. engagement our this partnership, Our from deepening underscore and which and digital brand brand broadening our

XX% players Our owning of partnership Sleep beds. product built smart with Number has unparalleled NFL adoption

addition initiatives, In driving profit demand gross is improving a to priority. top

due in We a and in broker commodity premiums cost costs, some efficiencies expedited expect more of to fewer parts easing microchips. even margin begin reduced from deliveries, realizing XXXX, to improvement from flow meaningful gross using operating and

begin will more and single, and also to fulfillment model. a operating benefit with from We flexible assembly scalable

reduces services, disruption margin service flexibility contribute cost greater and quality more opportunities and improved reliability Our balance that integrated and optionality, will to enables distribution visibility chain control and waste new of savings. and increasing expanding providing manufacturing through delivery, drives in in-home gross for and and process, product supply which our greater network

strengthens improvement strategic enables stakeholders. profit advancements these Each for all value long-term and competitive creation our advantages margin supports our of

and Now on year and quarter performance for additional full provide Chris will detail XXXX. fourth outlook XXXX our

Chris Krusmark

Sleep join of today Number. Thank pleased am as Interim and good CFO to Sally, you, you afternoon, everybody. I

Dave lead to during Schwantes, we are Relations As next to through incredibly our Q&A. for Financial transition, team, and President team Vice of Investor privilege Officer. me an for this this will FP&A, experienced Shelly active have who finance Chief lead a we the is including join fortunate It talented search and

the our results. and factors significant external impact were Reported sales $XXX the both X% year. of quarter year quarter versus on a XXXX, for net In million fourth had prior fourth full

Our pricing $X.XX in earnings diluted with We at smart quarter primarily lower our per our are range. of units guidance actions. net due fourth end shared in of expectations increased XX,XXX the call X% ARU the consistent third delivered bed to QX quarter delivered loss was share

prior basis this due expectations to the the in faced chips. with quarter gross rate for modest margin and down supply our Gross came margin pressure rate short downward inefficiencies from the XX.X%, we of as XXX for of mix was quarter the of spending We year. product most pressure points uneven offset controls. gross delivered on We profit

and to year Full sales We Our the in expenses a year year EPS a up included sales results reduced with profit expenses $XXX XXXX reflects during point expense million billion. more year-over-year. sales deleverage operating reduction $X.XX of from X% than decline, year operating rate and the basis our $X.X XXX operating of the gross net decline. planned full X% net ended

XXXX, across the our prioritized expense XXX the than revolver term over spending increasing initiatives, product points organization. pipeline, due in versus more rate reducing investments to by primarily EPS prior Interest we the $X.XX impacted by In XXXX year, interest average on long our including while innovation basis year-over-year.

credit generated we X.X liquidity amended million our times of ratio cash million EBITDAR ended a facility times environment, operations of EBITDA challenging of and our $XXX revolving $XXX We $XX the Despite under with five of XXXX covenant. from million. and below leverage

to for our outlook XXXX. let's turn Now,

of of and since bases We teams. improved The semiconductors. customers smart greater had end ship delivery has bed us excited our and for to flow and have provide December, manufacturing from allowed are place our to will our improved benefiting for full times assortment normalize predictability an fulfillment in supply the

sales introducing October lifestyle XXXX. we from a will bed next which also the quarter. will second in beds benefit year We in smart of XXX begin And introduced furniture, climate smart our full and gen

and diluted expect between EPS For $X. of full XXXX, a $X.XX we year

XXXX. Here sentiment at are will the first at assumed remain We consumer near included our least in half levels assumptions current XXXX of or specific through outlook.

decline flat mid-single-digits expectations a year. The outlook high-single-digit to This in includes the to year are net we tougher sales versus of of sales prior first compares. the the as net low half assumes face the down

we in of and bed the next gen mid-single-digits benefit net year We smart sales down for with easier expect the comparisons half improvement up introductions. to back low-single-digits when face

Our points changes. soon guidance headwind from net of sales percentage to two backlog three as as year-over-year

We impacted expect points delivery premiums by rate improvements costs, modest XXXX. over Driven us in avoidance part costs by which our and expedited basis improve commodity and margin in XXXX. gross of brokerage XXX in to

actions entering December our ARU of in margin improved including year and benefit fulfillment in rate significantly also Pricing manufacturing gross of across annualized improve XXXX. expected taken and operations. provide Will actions $XX our labor XXXX. and delivery is XXXX, The efficiencies of enable a utilization production semiconductors and in supply million taken to the

be which down At our expenses be guidance for end year-over-year. of up our our in prioritizing in At reflected our to outlook, than year. expected carefully less are operating to of million more We operating than the we expect spending guidance, high-end low is current the X% the $XX expenses environment, XXXX. versus the are

$X.XX pressure programs. Our compensation guidance includes based participation incentive to approximately fund broad also of

We launch $X expect next gen smart costs million million to in approximately $X XXXX. bed of

at At by to our XXXX, the XXX midpoint grow our by we least improvement points, range, profit our profit guidance from XX% rate. operating rate expected approximately in our the profit basis most expect of notably in operating gross and

to versus more EBITA EBITDA XXXX at point improvement least XXXX XXX at expect with midpoint We our the in XX% of than our basis range, grow margin.

rate of approximately average $XX X% million in interest an with our rate of for expected assumes credit outlook under XXXX. an facility borrowing X% expense to of XXXX, compared Our on

for an the tax stock for quarter, effective including due to rate primarily tax planning compensation in XX% first expense of are year, the accounting. We discrete

year. to and million play a and cash cash in intend positive free repurchases from no XXXX the in more share for flows $XXX We than generate operations

leverage end X debt We XXXX below times expect to with EBITDAR.

approximately low first year same the units. XXXX, the a call closing bed of back Q&A. I now to and net to to sales XX,XXX thoughts versus we flat quarter to turn expect deliver expect few for turning the single up will before digits Shelly For quarter smart be last to

Shelly Ibach

been sleep for courage their hard inspiring and is work number Sleep by prudently profitable us. progress I creating life fleet which future touched to in our more engage truly Prioritizing future. Number have opportunities innovation changing thoughtful their commitment, in are strategic all and a costs of while and selfless more quickly their position company. managing so leadership passion innovations, grateful on to the capitalize throughout with our for team sustainable members growth It maintaining for

open please Chris, questions. take and be happy the Now Kellyanne, I to questions. Dave, will for line your

Operator

from Thank Instructions]. you. today [Operator first Bobby Raymond with Griffin We'll James. hear

Bobby Griffin

little can of take Good as the the XX% like margin. questions. does bit Thank afternoon, for this get better everybody. bit And as center it above I you touch, business, first, gross I around in outlook having with my want get. really to taking in you does guess a around good here it close to a to recovery gross seems profitability, margins

for just in So, XXX is the understand visibility unpack the going now on that have it has we there delivery can basis a points the the on actually is some under have into the of plus? to us everybody supply for more in lot little the visibility been have there things costs, still but you chain, tips, further I here you kind in aspect variability you have mind? you there into, control, or keep a

Dave Schwantes

the that it's XXXX. during gross over is Hey, improving And Thanks Certainly, Bobby. for Shelley are to basis Dave. we improve margin XXX big our rate, as for year. points mentioned, This question. for us the by a priority looking

of have goods talked with sold, flow significant chips. our because uneven we cost pressures observed we that commodity on over we years, of couple really along the last have have also taken of As of the in inefficiencies about

full So, assortment we flow the September good had enter we news is, year need of to the even in have product that that the get really since it's really place. chips 'XX, last first And the of efficiency. as time we

$XX to turning the look some with, we million expect that $XX specific So for million maybe Starting easing of to drivers the commodities. about of from benefit of we 'XX.

markets, some excited also, paid in late procure year, which are last some modest in longer commodities seen broker of premiums the markets in to procuring foam. have no we of delivery and we So, in during parts easing we paying here also expedited our the be those components, And are year to specifically costs. we

avoidance with we of those So, some about million that million year-over-year of points. basis $XX if about is worth you some costs, XX which commodity easing benefit, combine to the of $XX see

pricing. area that we second is really The look for

take So, August of in pricing we 'XX. did

as actions about benefit took also as of look to 'XX XX you in those expect we December worth at We million $XX pricing 'XX. points our that of about worth results, And well. be benefiting basis

third area mix. The would be really around

units of are in demand several our really It introduced October. those year. our are backlog, full for sitting Climate and XXX in during So, for enter sales Climate benefiting we along our we fourth It it to 'XX now have and those margin we a gross our had year units of as was for the in rate XXX strong lineup. look the excited with quarter

year. do from other we going to throw expect And unit maybe item one for lower expected the direction, some the deleverage volume modest

So deleverage our that's some cost going to create across business. fixed

three So volumes. from headwind really really one kind being unit of deleverage main buckets with

Bobby Griffin

for with half That you, there guess stronger appreciate I of a some ceiling Thank Is take comparisons. to the it me, I talked little you Anything work second was related. a you covenant. bit revenue the covenant half to Dave. the year any as time given about covenant? the all did guys the the very X clear. shape secondly the back details. front issues for the it I shape have guys or than little profitability, we the know for up to relates on think the about to of as quarter first I think revenue

Chris Krusmark

that to is in As performance at comparison shape stronger just year. be to the are we tougher, the be the bit we Part of we little expect particularly in look half a the have first of of sales the net certainly the QX. going year, much

of a think the more see, sales, first the in we a little year little back sales half about a first So, the less the proportionality do if sorry. of half, in and little more falling than you half

midpoint say kind about at the And at And back the I think year. guidance, EPS the being in the the year. of our being it probably look the the if XX% the splits, in of of to of EPS XX% of first I'll you half half rest

amend and October second our our Relative through leverage to up of leverage covenants, those an quarter. that through forecast times the have be the the balance five the quarter through did second to back that the in did covenants we well is did within had year. we the covenants to And to amendment

Operator

Sandler. here with Peter today Piper We'll from next Keith

Peter Keith

Hi, thanks. everyone. afternoon Good

a takes, and us versus pricing, it the could backlog in Looking there's I hoping versus be at you lot demand was other not might how of down for kind guide, of? sales break puts about I and of any you're of recognition and terms that factors thinking thinking

Shelly Ibach

I'll additional start, and some color Dave can here. provide

that lines time the inventory. the demand having start our since just with with First pleased restoring improvement result delivery normal we're experienced with full adjustable chip of as sequential of of all, line semiconductor smart a we've basis really

for we're inventory well-positioned the the chip So, year. with balance of our

another from January. represented up February step And

several So, compares that time, compares. we're get that against happy through we easier. that we the same difficult to progress year, know the see And as at

the a shape. that's little So bit on

Dave Schwantes

Yes.

color a units, which I embedded I think, add your to Peter, maybe on and of think little in bit question. is both ARU

So, looking for ARU we going number us least There's pricing. year digits benefiting we think areas the that a at up mid-single year. at the being are to be few one, in are

gross I the pricing a question, going as the really mentioned up So, benefit mix. profit well the that's to as in of plus be

So, mix, helps that starts it smart as with that the well. $XX,XXX ARU in it our really for product. And bed, about at gets ClimateXXX as

implied in units for expect imply digits So the that's our net being year-over-year. flat side down the ARU how be we we would see sales guidance of to business to mid-single down of

greatest up those quarter year, compares particularly easier in progress through to of expect we're we moderate, expect first and the balance as the as we the challenges think the against to the I do then year.

The the we're significant but on business about metrics in been be really others top of just get yet our that in units the industry industry. on actually for believe cautious data just think for prudent to on unit has in 'XX, frankly quickly I and but we we the based just units maybe like the not reached not to how ahead the bottom expecting 'XX. the any probably ourselves terms year, improvement see isn't it's on that expectations in that So touch And of think in year. we line out

Peter Keith

but Chris much get XXXX? I but would it maybe revenue backlog recognized in be Okay. I it, that, within down, how said And think didn't

Dave Schwantes

Yes.

to ended and with So, expect that Peter, of the benefit of backlog, half largely, $XX year the million first we the we about year. excess

we backlog of expect a So, we year-over-year changes. still about drag year-over-year, because talked

get So, the 'XX. backlog have from at that than do in that we to benefit 'XX more year, specifically, of half it backlog did of we year. the expect But we the the first benefit largely end

Peter Keith

getting attention topic interest with And just that's financing costs another is rise more in the rates.

guys third-party XX% about P&L to are at And back cut know we a finance So, beds. up on months you guys costs? to or have interest you maybe the do you your through are refinancing is with all seeing you that provided? What -- financing going in the show of of

Shelly Ibach

conversion utilized creative is pretty execute pressure our Financing costly We more we XXXX. and think total business, current and able added to different fact, tools ways. XXX financing in as on be about and about of have and approaches the basis in both points them depending a in bucket in as discounts to environment definitely

here we're actively are in our we XXXX, bucket. financing managing the cost along as with discount So,

about in thinking totality. it we're So,

lower months had during and balance be financing good a XX then months line. that carries We the our the gross low our President's would of the event. think of margin XX a example on line end on I

performance. creative being driving our cost able just approach to that while still mitigate the So be to in

Peter Keith

you, much. Thank very Okay.

Operator

Markets. We'll Brad KeyBanc Thomas hear with Capital now from

Brad Thomas

when how the with limited this I us, think had that not maybe had no products want headwind to standpoint frame popular puts get to availability for we have possible basis. year. it's the you they're think But takes. you from The have the estimate can I here you if first available or to up I just your wondering, kind assortment available we around you of what all some having and was for selling an assortment know where that point and and of just adjustable of that from you assortment, to and of know in

Shelly Ibach

for not Brad. you, XX our the months. in assortment up Thank in question FlexFit constrained us adjustable And base had FlexFit Microchip resulted the of for the having until the We in December that past XX X XXXX. challenge the X

to fell see, sentiment May, be see on really hurting once had the So, on what it we at our first, could it our impact the But performance could consumer customers. demand. behavior didn't last an from digital we that from appear and

And having our our basis are having full so for we be assortment, periods. only to also of to full excited not position so, adjustable normal inventory best, Microchip this good, delivery but the which have means support line, in and better smart we time the

And how I that be And right guess big single then change. That's I digits. as quarter, has most an February, had December it the pretty demand of effectiveness in impact the during best the step-up right with improvement our in XX%. from then another improvement had a way saw describe away would that well. now, in been the we've here having strong really high we sequential can fourth compare. difficult significant down And down performance quarter-to-date, then media

effectiveness good, better, and we're our all with again to selling of operating So, excited process on best. be having super cylinders the

consumer top and or performance, the then that introducing the of of next lots heading environment ClimateXXX of new smart generation year initiatives when improves. beds with be on especially then to environment And with as consumer our of creative the the to and the into drive balance able

Brad Thomas

pandemic. drive tightening are can talk approach some about Is And more traffic? perhaps feeling bit about of -- off and to kind here advertising that putting into the getting operations of here, is greater if given can you dovetail with see with height better the during you'll this than was the it of you advertising to world how hopefully taking be you the up that, little a

Shelly Ibach

are but and plans Well, at we time time, And at the I driving to highlight. started we're doing effectiveness. important normalized against least -- think delivery that we our that's assortment when to media and our same we periods, full return

our and good steps definitely new be we're to prudent and to smart support have take continue going we that we're drive our So, in beds. next-gen and to cautiously forward progress, approach performance creative making some

Operator

We'll hear Wedbush with Basham now from Securities. Seth

Seth Basham

demand demand January could in there more if on of the My February? at first stack improvement you some the trends a add February? What question basis, and each quarter-to-date. color is, from was to you much And in if it decline on two-year was improving January look

Shelly Ibach

Seth. Hey,

As we're single digits with in step a up I quarter-to-date February. highlighted, down high

you high the last If before. February digits at for a year single look the President's year up against event, we were record

definitely step compares. here a our year against in this so And and up tougher performance

Seth Basham

anticipating you're material compares remainder But still the fact the that [indiscernible] the improvement despite for of quarter

Shelly Ibach

a at As still this and it, with higher very consumer is the inflation variability. and down we savings -- rate cautious drawn interest look backdrop

very is in our the prudent just highest entering highest a So, trends very Consumer has sentiment the -- correlation a we're -- manner. overall. correlation to

time, So, prudent. forward the be at very same we'll going steps to continue We're and take to see.

Seth Basham

is on second then question And SG&A. my

then I Just know seems talked pieces about other big about? about And Are advertising pieces of big point incentive you. deleverage? advertising point. we a before. compensation, some thinking to about XXXX. being of the there a you that any think like think deleverage moving moving on pretty Thank in Should

Dave Schwantes

This Seth. is Hi, Dave.

being from would digits. really, down modest mid-single the to I to flat are we SG&A broadly, expect look at of deleverage sales we due that's in to think guiding And primarily if kind fact total. you SG&A that

total, deleverage pretty total So, think of with where flat at expenses looking our because guidance, operating the I year-over-year, in at the page. you're have we some sales of modest midpoint but

selling. through more fixed marketing and have quarter. And tend to benefit the and times. in to full we do more. some expect improved second As would so products in side, marketing leverage cost assortment, little as the you of do kind expect move having different from efficiency and then we're they marketing, you the in we elements at overall delever product SG&A see sales we introducing in some selling deleverage next-gen of about bit Again, the normalized here we're our excited that a we And delivery look

all to some efficiency So, is year-over-year. marketing we that lead think to going improved

funding And R&D at and programs then We the are leverage when G&A be does actually R&D. deleverage. of about think comp for rig broad-based base you think set, in G&A spending pressure the you overall spending, variable modest would to important But bring down if look expecting in the and some bring I just you that do if combined, very relative slightly. in some base employee

Seth Basham

And the the costs, of from higher pressure financing selling interest through that SG&A? flows component

Dave Schwantes

Yes.

revolver through the we utilized runs interest expense The related interest obviously, at below and marketing itself our financing of So, cost, purchase, line, is to to through time that that line. sales the NOP. our runs the expense which

Seth Basham

financing Got that you expect professional with to the line deleverage And it. in associated programs? XXXX, financing costs

Dave Schwantes

to flat. financing be Actually, we expect relatively

deleverage in in of expecting be a big I think of programs. that of 'XX mentioned about Shelly aren't we because going manage part had that we XXX points source to how basis deleverage the but we're in 'XX, to

Seth Basham

much. you, Understood. Thank very

Operator

We'll from hear next UBS. Atul with Maheswari

Atul Maheswari

incurred you. excess not of times, couple evening times year and of mentioned that a Shelly, recur even taking for thanks year. you my last have potentially chips should some costs Good supply of this delivery and Thank the question. normalized about

So, largely to normalized has supply this be at Sleep Number would fair it chain say point? that

Shelly Ibach

cut Has largely -- I'm sorry, out. you

Atul Maheswari

to Back normal.

Shelly Ibach

Yes. That Thank is absolutely fair too. you.

Atul Maheswari

in So, guess below than points is margin, holding more you're guiding level. peak XXX the to below basis the basis points your which gross still is Shelly, what back backdrop, -- XXX I today you the should gross be recover on that I gross drags normal exists periods. in margin able that chain? what still later the margin of mean some even potentially supply are to with

Shelly Ibach

our of frame the chip starts inventory the points at let well air that first we've me of expensive in time and the and additional don't using of of expect just delivery the all, freight these start Yes. I'll least of start not we past this markets improvement as some easiness year even broker years. hey, commodity and stops detail. costs having flow as also with, the so both can couple to have and that Dave But and add XXX had we basis

cost costs, the are at some and to rates inflation commodity significant more on do year. but next pricing in and this we we we the board before, that, on have some work -- have we were still that we that we year get have into back has take of to us last and easing to this offset then seeing year will and And took that

Dave Schwantes

Yes. would I add Atul, I This just Dave. would that. to just is add.

if trajectory. long-term about mean, the -- our been have our I and business, developing to we that Sorry, you certainly business investing think support

of last experience. we supporting completed much-improved year new And unit we leverage to, whole to as we've established. which customer end So, that is at just we're rebuild the a a really that network, our excited network volumes delivery new

so, we at as industry somewhat the units mentioned leverage think that units over we that and as we're trough-ish the scale for for And business. huge time, rebuild and presents levels our And I ourselves. efficiency probably we for earlier, across opportunities probably can

Atul Maheswari

Got it.

gross currently of margin Sleep that time get couple you for again? you XX%? Are it a some XXXX realistic is you line, that is higher of but of that And asking follow-ups share a here. Could there are believe Number have? examples pre-COVID. us costs were COGS level can I'm expect not Just to it your where part they structurally are than for back around realistic to that

Shelly Ibach

to as costs are that the well and now. us And realistic is the unit right It's important those pressures, an our as mentioned, levels. commodity prior definitely elevated for leverage as all Yes. aspect labor and to of back get costs are the margin Dave

we're headwinds have we So, that managing.

and drive our over to have the initiatives key ability of years, our a have next confidence margin lot do we of to so. We in couple

Dave Schwantes

against doing as gross year over of million, slightly Atul, are the improvement mind expectations flat XXX that backdrop about the of we we're to in sales the down. kind keep margin for that And Yes. of think

going we think against we've do deleverage be been I pressures of we working some really some us, leverage commodity and time have to also facing. claw get to are back So, the over to working, but that unit continue expect

Atul Maheswari

of that, you good the with Okay, That’s luck super year. and awesome. Thank rest helpful. for the

Operator

to no time. company back things would And like for at turn closing I with other remarks. this to the questions

Dave Schwantes

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

Operator

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Sleep Number (SNBR) 22 Feb 232022 Q4 Earnings call transcript