Earnings call transcript Q1 2023

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Operator

Welcome to Sleep Number's Q1 2023 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

Investor President welcome conference our Sleep joining call. at Schwantes, Finance Resources our be Human CEO; am and and This today quarter us. Corporation available and XXXX sleepnumber.com. will telephone conference on are Interim Chair, Dave and of Chris and President website CFO earnings Thank Vice With Shelly to afternoon and me Ibach, Number the recorded our first Chief I Relations. Officer. Good you Krusmark, is for being

may Please the ended. to financial refer The call. for also results just our news financial release discuss to the of be purpose non-GAAP is details period primary that to in release and measures in of refer discussed call access our release included on a news fiscal certain news information Please this the of the this supplemental reconciliation replay. the to or

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

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

Shelly Ibach

our hallmarks execute IQ advancing while be and traits help thank to These XX was score current last we in long-term Sleep our XXXX quarter strategy. ingenuity navigate the environment, night. team My continue as afternoon Good resilience challenges. call. you for first Sleep joining us also earnings macroeconomic Agility, and Number our of

of driver of than adaptive strengthen a from our advantages. our products focus competitive with our includes potential and a future XX%, SmartBank strong more for high that and services. technology community products is best-in-class and We have digital platform progressive, metric sleepers. wellness SmartFed engagement level Their This average a through our referrals, our generates ecosystem maintained innovations engagement million monthly greater evolving a X.X on smart of ecosystem that into health than strategically revenue

with Our overcame first versus from team's incremental points to leveraged beds as in our was quarter consumer Through quarter in our backlog. dropped performance sentiment exceptional deliver our fulfillment February. incremental late execution, March expectations. demand consistent X our the pressures We we existing network smart

supply XX,XXX we of a As of steady smart After $XXX and consistent flow and more to us quarter. delivered operations. return has the sales Microchip of result, million to disruption, net beds nearly efficient X for the years enabled

from and more up margin First XX.X% was newly we easing in a modest quarter gross basis our as commodity XXX benefited flexible supply of unified, prices pricing points year from ago actions, network.

also rate profit year. of $XX $XX per were represented was margin $X.XX share versus operating gross over up million back point million from Net a step-up in the last first half quarter. XXX year last QX year's Our basis prior of earnings $X.XX and

every X through set Phase mid-May. Labor the us we enables fully remains kicked smart of sleep to all We improved includes introduction and the stores transitioned consumer with sentiment. will ago, first sequence historically of selling remainder couple cadence beds. challenged of are demand A QX low a off focused next-generation driving in new beyond Day. and well This presale help level what of their in optimize in achieve and our and cycle being of for process their early while closeout phase backdrop adjustable weeks smart on a are designed of stage lifestyle demand This of furniture. next our starting and also validations X be iXX of ahead to the with life. FlexFit realize QX smart X sleepers our new new full our bases potential MX drivers, These planned beds, intently and by

Our more use adjust patterns Number breaking hours next-gen insights sleeper's biometrics XX changing XXX Sleep and and beds smart to sensors of to from then billion sleep by original embedded from needs. research-grade each using beds ground smart data. support than innovations These have learn our proprietary award-winning advanced Sleeper's longitudinal fleet automatically

and All beds also stay feature ceramic will cool our new smart help all foam to comfortably balance gel layers that use temperatures night.

The algorithms beds October wellness and smart new to was XXXX by next-gen XXX in with ecosystem smart the health physical addition, products our digital our digital future Smart Bed and technologies support introduced combining platform services. and and machine creates which bed. In learning benefit integration technology of Climate our from AI

showcases innovations her next-level Gabrielle and husband the With new these introducing sleeper MBA campaign. Wade. smart our are Dwyane with one sleep to this they couple credibility smart a media famer, bed than a Union XX Hall bring followers, social Wade that in We of actress, advertising highlighted and authenticity million campaign benefits more and award-winning features

benefit alignment improved and consumers' their between strong heightened interest in consumer well-being. indicates relatability Our messaging, research

campaign viewed Investor our Relations New be highlights site. can on

the challenging, its smart proven since Climate introduction environment a innovation While is bed driver. of a stronger-than-expected is The macroeconomic our XXX sales remains example. demand great

most sales. building repeat next-gen creative, smart beds, loyal our success on simplified that new experience more power customers referral X.X smart who the online million are and We sleepers, than of drive and with our

the third prior execution trends by balance the improve With we year-over-year expect our in we to comparisons, as purpose-driven and year demand initiatives fourth quarters. and strong integrated especially lap these year of the the team, easier

on outlook provide additional year our results and quarter details quarter Now, full XXXX. Chris will and second for first

Chris Krusmark

Thank you, few to Shelly. start would I like a by emphasizing points.

and from with both line in expectations were results quarter top a first bottom-line perspective. Our our

we outlook year, lap the comparisons. we as cautious easier for macro even in Given the begin of our balance to remain the current environment,

with the initiatives to demand drive outlined. is evident commitment performance Our Shelly

agility the to pull continue We if with as warrant. back environment conditions to flexibility and are operate and prepared on current navigate costs we

to me more financial our let comments on Now turn detailed results.

year million sales decline February on sales call. from growth with store additions. units of outlined $XXX smart the net offset sales First-quarter Net prior and our comp X%, bed earnings delivered of X with both points a versus flat new of consistent we were by net expectations were

than as quarter smart which the We beds less XX% planned was the year. delivered in prior XX,XXX

first XX% increased year basis. the versus demand included growth ARU Our a on prior single-digit ARU which high quarter

reminder, impacted of a semiconductor delivered year in of a and quarter our FlexFit beds shortage first deliveries the adjustable X bases higher-priced pressured prior As year's chips last smart which related ARU.

the backlog backlog quarter, the excess normalized reduced During quarter. end our return second we to and expect by million approximately to by of levels the $XX

quarter rate chips. The of included our resulting semiconductor pricing gross and actions XXX efficiencies up operating benefit the versus point basis prior first basis XX.X% in and changes gross of last of the rate product taken Our mix with a expectations. steady year-over-year flow XXX margin our profit was line in year, points from year year-over-year increase

progress expansion gross first milestone rate in margin an XXXX. points margin gross to delivering Our basis important our on in XXX rate is at of quarter path least

versus quarter and lower with demand down in profit grew million by net profit combined net Disciplined sales operating operating $XX included also line expenses year-over-year G&A R&D that spend on in last quarter $X increase reduction growth headcount. media with a a the million First and was were our operating million $XX expectations. an on of first-quarter a gross driven were consistent spending in This $X million year-over-year year prior expenses. the in profit year. reduction

effective reflect our $XXX EBITDA, gross the earnings our controls. $X.XX last the amended margin of Xx with leverage below a and We year, $X.XX quarter facility of ratio liquidity covenant. revolving First per share cost of expansion under quarter credit million rate compared ended with and Xx

EPS full-year range XXXX outlook $X our reiterating are We $X.XX of per share. to

and guidance Here few the expectations. a are items highlight full-year second-quarter regarding to

For the we continue to full to be digits. expect net flat mid-single sales down year, to

sales expect in to up more face low single with We to year. easier free mid-single share back from for the in benefit cash introductions. and next-gen of XXXX We continue the smart digits when to digits and than intend million operations and plan repurchases flows $XXX year, generate comparisons in improvement the cash fully positive half no bed from down net we

with single double sales expecting to to the to be net quarter, are low low down second to For down compared digits we last digits demand year flat mid-teens.

$XXX reminder, the last a sales grew from second year's in net of reduction quarter. XX% over million benefiting As year-over-year, quarter backlog

the lowest quarter decline. net with net quarter demand and an year-over-year a expecting for sales seasonally second are We in our expected loss

I will few Shelly back a Q&A. for closing call turn the up to for the now opening comments call prior to

Shelly Ibach

proud of of our enabled have perseverance team so for challenges global X innovations. and years I'm array past passion. They to an life-changing their to deliver the address while continuing over us

sleepers which smart mindset commitment our are sets and and the all, worsen. capitalize tangible all to flexible like if to for opportunities long purpose strategic a value throughout of us dedication maintained benefits quickly has environment will improves as their business Above priorities health for at our allow conditions external the pivot to deliver superior team our stakeholders. on and to heart Our profitable

will open questions. respond your Now Christy, Chris, to Dave and please the I line.

Operator

Our Instructions] question first Raymond Bobby line comes from of Griffin the from James. [Operator

Bobby Griffin

a Good Chris, think heard comments, demand in correctly. mentioned hitting think, laid Good I to on singles. but in down running quarter-to-date, afternoon, job flat everybody. question And executing down I when last low you guess, digits, lot if single of first, high we of for was kind you built plan. talk that I out, the on right I things XQ in its open-ended your

that kind exactly how demand quarter of So up and improved missing we March kind seeing on the trend current the you're just and curious did -- periods? of you're where shape

Shelly Ibach

of you, bit question. majority at I but there captured the of Thank a end you Great. And the Bobby. think little kind your I

Bobby Griffin

see get comments down into digits the I flat do And are I flat is April? to quarter-to-date when getting single XQ high throughout about did How curious, XQ maybe correctly. low just down down to and you single the spoke business low? Yes, I'm the digits, demand. that last, heard we you if improve down to think in quarter talking was single high in prepared the to we guys guide

Shelly Ibach

area and QX. demand here for expect the Yes. then we'll about maybe Thank in important start speaking on shape question. we QX move commentary little in the I'll a is into and the an shape with you This the improvement why

from then, the So, sentiment on to QX with was year-end quarter we consumer communicated delivering we digits landed. February on pleased with March which for we're a of our And earnings were in step-up fourth call, high drop course, points. X of our Then down single QX, where drop expectations. from running QX big when

demand We also month saw March. in the our in of pressure trend increased

us double being digits. So low and March digits, down ended double down up tougher for

April, expectations months. April as our into It's April historically so and some April. in was of we lower one And early had track improvement moved quarter. with our in And the is we on QX have as

June. and are that's low year-over-year flat May be with growth think to to significant And X that QX demand of we drop are year balance down comparison May of I expect and down last that we the year. to there the positive to because is do digits important move So big in changes as easier occurring. highlight. the But continues then single decline into One double-digit

demand-driving And the secondly, we the initiatives have. initiatives, that

our We of this QX here drivers, also including are starting and next-generation demand yesterday. new sequence early introduction was smart the QX released then beds just just our campaign full of and which over

So our we'll stores balance that's degree the quarter, moves and to QX, then the introduce May all early will when of and line. be a higher mid later in set everything the of by

crisis banking the with environment. resilience been excited with abrupt yet challenged at end dropped all Sleep is was this high Number recognize And the These we there's that have spending, too. the proven a QX fairly out have. and in really that which and a initiatives with consumer, for yet still over years experienced the we're very we change So initiatives the especially occurring and consumer that there

and big this contemplating than the backdrop lot of in year we're initiatives. QX compares are were but recognizing also of have the challenging they the So for a the balance the balance different, year we

Bobby Griffin

back kind in of different of how down That second was any then associates? turn early for the little being mentioned part that. about just of just success me you're meats all have by the kind bed dollars guess behind you Or that, a I across it word a before you Climate lastly yet? XXX it mouth put Have or of driven is kind you and quarter, falling meaningful And in the marketing areas? just just I was store bit that just as Can been approaching talk you of over. And helpful. guys the spend

Shelly Ibach

part first of then the the and second. I'll address the question

had have So is extended the and and delivery out in our to we we efficiency expect Last year, assortment lasted we really full begin difficult year. did that our not down of with, yes, also through we media. windows environment. media And a full were and

to to as accordingly about the we media we're our those that creative environment part question your more spending. efficiently the Climate second temperature new then climate. So time, execution of on and well. mean will fair the same we and excited And work evolves, was it amount will of the our media what at did creative the do as benefits. our XXX expect a And respond with and have was wanting of absolutely we And consumers around a driver efficiency focused

Operator

Your comes of Sandler. next from Piper the line question Keith from Peter

Matthew Egger

This Peter. for is Matt on Egger

on First costs, real and seeing whether with you're what how one input those from that are foam trending curious or on me is just time. be transportation

Shelly Ibach

Matt. Yes,

will We share have some specifics. and seen cost some easing of Dave commodity

Dave Schwantes

for about $XX realized commodity see easing to the And when that here so percentage ratable our nice Matt, a are million to in great we commodity QX February, guidance and we that year. expect Yes. back it's did we've of of million $XX in relief. we provided

some we're tied improvement to in million QX the a was of more So saw to commodity release getting that some margin of in to banking expect. $XX gross the we we improvement. part not our seeing And lot on million that but We're year rate did than this XX.X%. $XX

Matthew Egger

in or talked great curious and rates consumer remarks. That's to with ticket maybe impact higher base on prepared And you're the costs your you if given pressure higher that any sales hear. of financing then kind the attachment your secondly, on sentiment about adjustable the seeing

Shelly Ibach

those from we're seeing from perspective, the to financing. -- received in pressure well reported and seem greater in mitigate financing by And made had I've We've adjustments we've the demand do broadly we then and pressure. a some impact to there higher-end see not that some cost the financing a did additional did hit consumer everything to our customers. adjustments from our be environment about higher as Well, And and ARU. it read degree strong we consumer occurred March also

correlation some there's there. So

Operator

Your line next comes of Capital Brad from Markets. question the with Thomas KeyBanc

Brad Thomas

I here can know question was more of sort margin. And first an talk the was drivers My hoping in that XQ. of just the you here about I bit there's mix unusual gross were on around in a kind little you quarter. delivering

line then sight so supply And wondering tailwind improvement a chain gross quarter. margin how supply here about thinking going forward? versus sort does be how might the much to the just chain the And improving of the for mix in of much cost

Dave Schwantes

Brad, the thanks question. for

from So last looking the as QX at were that the drivers over specifically, the really pricing taken largest expected. One, year. we're benefiting we've

So we some driver mid-last be would largest the we year, basis that December. points pricing took XXX some in that did of year-over-year. cumulatively, take And

in like commodity are also improvement seeing prices question We nice [indiscernible]. the

where we of the some We up from lot was just significant there I shift QX the million margin expected. biggest were mix be have the really a the the ClimateXXX into in attribute what second would were QX, did mix. improvement. product year, wouldn't wouldn't benefit did phenomenon rate. some as came last those I perspective, QX delivered more to of a saw that similar changes. driver the have But that overall to which product from of helpful to because in a terms gross From of in chalk lot it So necessarily orders shifts of QX at -- year-over-year looking we to a

of pivoting volume to at of traditionally a the we coming QX in something more QX. we lower to year view in of sequential from the really, XX% expecting as a sequential And have to range. normal We QX how slight a XX.X% business. kind XX% decline a are to that the specifically, look unit Maybe do of seasonality -- down balance the function you from QX just that's

We change expect QX little and that in a can again well. bit the mix product as

year, half of QX. to out a expect And in the the if of seasonal see we at you So of nothing little more dip back where a were look the do to things but we QX. return ordinary expecting then in we're bit

where In So we're year-over-year back call going year. more impacted the of the year, year-over-year a XX% it biggest improvement you're last to up at is that around if half level. against the you're looking because half of back see

expecting to the year. the So half see improvement are of we significant in back

Brad Thomas

of range, just quarters Dave. the off about the and you helpful, deliveries of ARU mean, the building with higher the where And the out? quarters, of that, a were think pretty that really new of $X,XXX as some bit going how potential maybe the do That's partly if rolling here to this dovetail to Is think quarter, you a if to to back a about we level? at range thinking few wide last little of really Or level go a level due unusual. products I keeps high off this good kind the as with be ARU

Dave Schwantes

Yes.

comments is it Let metric think me provide few on I a ARU an because interesting year-over-year.

at look up ARU you on up ARU digits. in high Chris demand said as a XX%. if actually remarks, single So his was basis, And is

year-over-year comparing when of So our we of and high-end high-end shortage impacted the beds we had a from which last year's a ability to lot smart benefit deliver QX had chips to bases. our

comparing ARU led very to which last QX. it So year we're to depressed in a

see the then last quarter. for lot ARU that pivot to year we which higher-end you it you're QX, led bases whipsaw delivered going the the $X,XXX where As and to product of a was an to and those

at you at balance that is forward. a year, specific any major appropriate. is think Brad, your by worked We've around as question, kind you the specifically, I as looking giving backlog. largely something but through aren't go QX range the We're look of $X,XXX of number More quarter we not shifts the and

for we the ARU would are reasonable probably high growth that's as of kind translate into number. a And year a first would still half kind growth that high well, of and think the a little what a single-digit bit year, the back higher. of expecting of be half in the maybe similar that I So single-digit range,

Operator

next Your the from question Basham Securities. Seth of from Wedbush line comes

Seth Basham

product and question afternoon. lot on new good launches. My a the Thanks is

costs us of give of sales SG&A some year color as that the your standpoint, how launches great. could a you you to as to from with If benefit cost much rate the and this some well as goods them both expect be would associated

Shelly Ibach

the the those the to of combination and Well, integrated we improve easier initiatives beds and smart next-gen our expect creative, initiatives -- the Furniture bases along the new the demand smart do new the of help with lifestyle trends new compares.

we'll So into it. the full we we is around QX. over then and our when setting quarters, head X line the benefit Got of most half the million our as and -- in back when place. with we $X costs associated QX are the stores all have

Seth Basham

alluded And sure to then planning in know I related product are increase. on that's support a not. or I'm some you the to directly you step-up material advertising launches? not if

Shelly Ibach

we Yes. additional on our the constrained performance Again, the efficiency full we And semiconductor having the our where with on the we of window. expect headwinds and assortment long-dated delivery based by not were had media last that based year. chips and

So we some accordingly. pull to expect and back environment the we in and we'll and lean there efficiency are incremental benefiting to continue continue from read that or

Seth Basham

Got it.

we you're is you standpoint could demand of of on how year move the And just and the Okay. balance year? in from back the as X-year last the my stack thinking half about demand base what remind through us then a look compares like if a question

Shelly Ibach

Yes. is was digits we econometric has predictive is Seth and us into a for demand, for which really about the factors that balance down built the media tool use regression just the effective reminder many a to for make both and other I'll May comment One year. of model it. starting the double in

and us as the gives do want changing environment where on So the forward and XXXX? dollars to comment about to it we place confidence maybe to recognizing expected move those X-year Dave, also and degree. what trend consumer you

Dave Schwantes

Yes.

the just to on relative specifics XX maybe So, demand.

digits in quarter first shape down the quarter, about We a So year-over-year. of mid-single talked were the previously. lot we that

the of year, the most quarters at look back double challenging were were the half. last X down we quarters the you digits If in and

So we half most certainly the the disruption in saw year. significant back the of

that of still when of get to I call your trending, want And you were a numbers above it, compares you're If on basis look the down digits. first the XXXX. back call plus question, in was XXXX, which multiyear looking of XX% think it compare half it, at to part the at being to really the last compares year to, part the of you relative go year, year those single kind

a in the pretty terms trajectory change So of significant comparison. there's

of if disruption extended times. took about think saw our reminder, a you assortment It sentiment half having from the May. product as consumer back performance ratcheted a significant also last and in And full of year, lack most hit certainly in the we up delivery

so numbers, And we product. new the those lap have we as

full in We product have the our hands. assortment of

marketing creative. We have normalized delivery new times,

So things was more of we of some part fact what in a that even difficult going, very us. the lot than is were But there's the environment. was that industry disrupted demand cases a we think, for in

Operator

question from UBS. from line next of comes Atul Maheswari Your the

Atul Maheswari

Shelly, of yet in demand up back a low you guidance has further sentiment half consumer guidance digit. you're you -- to the down single-digit been back-up that last guidance the mentioned maintaining there since mid-single but time provided drop

take need improvement you deteriorating in sentiment backdrop? macro is, question to this more really a not my given outlook? why So And conservative the achieve stance an do

Shelly Ibach

Yes. question. Thanks for the

pressured in did March a January it has it's March. points environment. then and all stayed great went sentiment, to X Since clarify. in pressured And it opportunity February up So we X Online, up has do expect historic it dropped The -- went low yes, and about at points. that and points. consumer in April,

guidance when continues. where It's year. it the that's and early we it expected in earlier We provided

that additional we're and changes up different the compares. the on in We deploying QX demand-driving have significant and in here going against with QX business initiatives

banking illustrating I macro consumer. think environment. expect current in a do sensitive is to, like environment, a There's the the we So And fluctuations. up what the on going was occur be up and challenged it how that's step how an something I expecting impact has the situation. day we're And to also

this resolved when Sometimes been most last sometimes it years of is a that with a particularly since for we've historic disruptive that But it's but the environment within is now longer. been few dealing and lows. dropped weeks to couple May

Atul Maheswari

managed makes my Shelly, the just you as to already weakened extent than costs room tightly? target the Like you'd key demand future cut areas revenues? cost pretty very slower-demand do much And what that follow-up, sense. become given That a to it could And environment? you've more expect. jeopardizing you in hard what have How it. are costs Got that at what without does more point cut to

Shelly Ibach

We're are And we navigate do environment. continue of processes -- and as cost our flexibility management that range to take we clear we the prepared a great on would Well, very we view the agility expediently. so cost with to And thorough operating have cuts wide the additional -- the additional and will we very a if in worsens. with risk actions environment cost do and well execute are mitigants.

Atul Maheswari

Understood. in sneak one. second given that loss to If do could ratio leverage expect end the quarter you you one expectations last What's the have? I slight the just

Dave Schwantes

Yes.

reset, of the X. under expect Atul, ended QX, And we end end what to kind just QX So X.X at is said X.X. year at we the of we to

had through flowed year's a last quarter. quarter at of look the you that if that we some in really second because quarter, it strong was the of right second backlog You're

of to we're second going exactly within where X. last -- up. ratio bit the And QX did covenant it covenant we is softer the We're quarter is we year throughout be it expecting certainly the and and year QX a but range that go in, end leverage We of that giving go we under not go then the raise that what X.X. our into the to of the expected get and rest of put quarter do expect quarter down as specifics X.X and drop out that, So in get did up come to to out than was year certainly, 'XX. little through for second to to the proactively

Operator

at this questions call I further our to no would for host are over to the back remarks. like turn There closing time.

Dave Schwantes

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

Operator

This concludes today's call. conference

now may disconnect. You

Sleep Number (SNBR) 26 Apr 232023 Q1 Earnings call transcript