SNBR - Earnings call transcript Q1 2024 | Sleep Number Corporation

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Operator

Welcome to Sleep Number's Q1 2024 Earnings Conference Call. [Operator Instructions]. 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

David Schwantes

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

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

version presentation, to to of over now We is investor her the will to of on latest for comments. our Relations turn also want Shelly section the website. I our refer the you available which Investor call

Shelly Ibach

earnings in [ XX. SleepIQ restoring debt. margins thank us. February, Since our and effectively, cash to ] joining competing increasing X our demonstrated throughout comparatives everyone, while consistently have My generation afternoon, members resourcefulness score executing strategic last Good and for down team night pay was call our last you

persist. our over transform last continues also to the faced have operating the challenges X that work we years model this As industry-wide

Sleep Number industry positioning a are of actions macroeconomic resilience across range for Our greater environments. and

we are results First quarter are adjusted year full largely guidance. our EBITDA reiterating expected, and we as

During performance our on ongoing highlights context brief today's taking on deliver consumer first describe quarter our actions call, I'll environment, we to provide commitments. share are a and the

Francis in remarks, mattress quarter previous after historic demand our for recession provide on first category X performance. mattress mid-single the my The further of industry Following digits details years unit declines. a will the double-digit likely down remains for incurring with

of debt. to rates improvement, consumer limited While purchasing due interest the power signs elevated sentiment card credit record-high showing is is consumers' and

their factors quarter. first decisions purchasing by President's are the result, continue ticket to need, demand period spending weather. scrutinize We near-term strongest weakest higher by durable As in in our January value experienced on February and contributed based perceive driven a demand make to selling throughout and volatility consumer they consumers primarily and the purchases. These Day price deferring and the impacted

EBITDA strategies million. precise customer climate, our year. margin quarter overall, prioritize the acquisition prior the activate was expected. our we sales our digits. selling costs demand demand to Against adjusted resulted the first compared to EBITDA from strong of $XX consumer For $XXX sales led while adjustments improved interest down of first year XX% prior performance. XX% our quarter, In that this the These Despite we better-than-expected and lowering quarter actions net the and to in we generated decline million, marketing execution to down pressured compared mid-single efficiently backdrop, real-time adjusted

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our Beds. clearly differentiated the of Smart more Next; marketing messaging to convey benefits

efficiency satisfaction metrics budget health leadership campaign resonating purchased Number temperature our consideration, a validation, particularly benefits, we are finally, by with gross high now the with of Beds Smart Beds individualized tenders. And drove The online improvements and the Beds, in over With brand on actions the more helping spend we value for quarters revenue our The the are margin Sleep for actions mix that they our in tests. premium that expected. Why touch campaign targets every a Smart sales past are customer we better have Smart continuing in-store new our the our resulting customers budget accelerated and to mattresses among established highlights this is and selling of additional Smart quarter, the Smart for promotional impact. drive for implemented J.D. test, adjustable we are Power ranking brand lower and a was digital These and higher X of value By Adjustable #X strategy benefits these and claims active than of profitable Choose strong consumers, process, in learn right and different generating actions in-store. and perception our trust Our before points. margin Sleep Base. the Number firmness, consider to scale across including the meeting conversion of rate experience, their in affordability first beginning select a a and adjust promotional our all mix Bed

model predictive current channel and new the by model We consumer mix leveraging to in our environments. strategies to will our econometric media used of goal and a capabilities accomplish elasticity promotional used investment of range guide this levels inform our

the Bed we CX by Bed $X.XX The Our new at teams a launch developed also that to will day. be priced Smart plan Smart third quarter. have every

resonate starting under of consumer. equation We with expect a strong $X,XXX to adjustability value scrutinizing the smart

Bed. be actions value-conscious will position among generation, $XXX support These on our taking competitive and particularly Smart in efficient more pricing demand CX our strengthen consumers. we addition, In

second Our is strategic restoring margins. imperative

in in $XX target of million realized of XXXX to we continuing are million We on operating improvements top $XX the to million XXXX. $XX cost

result, XXXX $XXX million expenses As XXXX million to expect we below a operating be to $XXX levels.

cost actions margin gross low the returning in to organization four sustainable mid-double on digits rate our our improvements, of sold to principal To on average leverage. industry margin as restore to acquisition, margin deliver are focused adjusted EBITDA across expense our to intently our these areas: and R&D of operating cost remain cost in we and customers, demand G&A normalizes. serve the expect and goods historical customer also We change driving XXs

process the structured strategies outsourcing of our quarter, serve sustainability our we flexibility self-service with logistics. These in In $X enable performance to During XXXX improved $XX for reductions these million acquisition efforts that performance categories. as in years. including first the EBITDA made to will predictive first tangible in in through compared and our and adjusted additional customer progress advancement Increasing our reductions million future in analytics, year. through same period free sourcing component goods debt of through flow as cost and generation cost each customers offerings, last strategies [ capabilities actions down product ] of third reductions well led results to quarter, priority. the pay drive the strategic in of to generation costs is improvements our will cash cash

$XX intact. free headwinds, Despite our XXXX, $XX As we million our of to flow. persistent of model to expect long-term opportunity we realize near-term the cash benefits remains transformation growth through generate million the operating

also purpose-driven one is sleep, last illustrated month. have remains which barriers positioned and the to through website sleep. Company new of Number is one we your robust to to partners performance, the lives As the compete and Sleep sleep Sleep industry Number's solve margins Thank restore in most health to Relations contributor commitment. they our the an important Investor for culture in improve wellness team we to to the of our top of needs. consumers ways and effectively, and is unmet address Sleep innovative as deck member's priorities flow. the quality areas posted consumer teams passion, critical and result uniquely X,XXX generate and free of help teamwork in you quality health proven cash mindset exceptional culture challenges and find our

We on With full a delivering the that, in the of durable we will as guidance. for gradual operating as to call our results and strategic details our over first provide turn shareholders focus industry's on to progression continue Francis, more year sleep model, implementation wellness quarter on I'll our value who recovery technology company. the capitalize our

Francis Lee

focus quarter I Thank One; our ongoing remarks you, restructuring efforts cost review afternoon, and; two, first everyone. XXXX making Shelly, primary today results; areas. of three our our three my on will outlook. and progress in good we are

below adjusted expectations. the with results Our sales dollars as for couple higher first quarter net in EBITDA a a came planned million of and than largely expected, little

me unpack first regarding quarter results. let our more details Now

First were year. down quarter sales million XX% of versus last net $XXX

growth sales of for included from headwind points backlog X year-over-year net quarter Our changes. the

a is year. we with were units for key X% gross company, X% we quarter the the rate margin down for Our quarter. progress prior first higher ARU down were with made to levels delivered our Restoring our in priority pleased the and versus the

XX.X% meaningful expectations was our Our and back year. the first quarter above margin gross a improvement of half last from of

We including cost organization, across of identify our continue the and efficiency in execute initiatives to goods sold. cost

efficiencies in were continue million first business, and of meaningful ahead year. Cost reductions selling $XX driving broad-based, prior progress and make versus in the were pre-restructuring including in expenses, R&D. in marketing our also We reductions Operating to plan we're quarter. costs and expenses down

balance of quarter of operating recorded $X the to to and of additional restructuring of $XX.X target We million for $XX million continue the year. reductions costs approximately the for year. in restructuring million We million the $XX expense costs expect

As we the restructuring adjusted quarter also the adjusted reported sales EBITDA statements a comparative financial a separate as net decline. due have our year, in $XX versus million year-over-year reminder, generated We last provided $XX and financial costs to as line our item figure purposes. are primarily in million an statements, in of EPS for

acceleration to balance, we adjusted quarter outstanding focus of credit with XXXX to efficiency expectation free for for expectations decline of first a EBITDA cost reduce modest generate of slightly from us our was the line our in is benefited ahead the sales key cash year. initiatives. A as the flow even Our

we million with flow quarter, compared generated $X combined CapEx million the $X included free with increase $XX of The $XX cash improvement operating year. flow $XX year-over-year in last first free in spending. a reduction For in cash million million a million flow cash

full to line. to cash of to generate $XX credit pay flow our the $XX we For intend we down use year, free expect to million which million

The to support durable are change me goals. enabling mechanisms model. ongoing on let to transformational work a we and of we in our in update more operating sustainable put promote meet build an are us place operational Now provide doing the

resilience. initiatives Our efficiency greater resulting operating efforts financial in are and and

simplification have serve. materials We cost increased strategic are options services, progressed total our our logistics to digital lowering self-service and initiatives of with goods, customer programs assets lowered for cost sourcing across that have

implemented leverage. G&A also sustained stringent support of have in indirect costs new We practices around

year that are no with communicated material Our store to there plan last track the quarter. actions we are on expectations, and for changes the our

reminder, a with fewer actions impact drag stores the store As end compared to XX be XXXX. sales XXXX we about and we to X-point expect growth, a to of XXXX expect net net to approximately

actions improvement margin are gross progressing. Our

We operating network. delivery additional are that focusing on value manufacturing our products, durable for engineering material home our efficiencies cost through reductions and and drive activities

turn reminder focus on environment to in remains outlook control. our assumptions performance demand year. The me key we update continue to Let things an the challenging, included a on XXXX on our the for can and projected we and

XXXX built plans the our year recovery demand experiencing recessionary of in industry on undergoing the operating of X-plus despite have years levels. any We basis the for expense material not

reiterating $XXX million $XXX million. full adjusted year outlook EBITDA range of We XXXX to are our

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

continue We year demand expect mid-single decline. net with be the digits sales low to a single-digit to down for

are percentage actions. backlog year-over-year from X point X changes We headwind net from assuming of percentage points store still and

the growth half to back the growth expected against comparisons. improve throughout sales year in expect easier of sales year single-digit with net We the low

points margin expect the We be in a of continue the XXX in basis the to back of XXXX approximately rate expansion majority half of to gross year.

costs of million. slightly than for approximately prior year, estimate the restructuring million our estimating $XX of $XX are We higher

X.Xx Our the of at was our debt-to-EBITDAR quarter quarter. first end X.Xx covenant the for ratio of the maximum compared to

leverage the below debt-to-EBITDAR QX in and continue our to expect X.XXx. end We to peak year

second our quarter wanted also performance expectations. to provide XXXX some regarding We clarity

net expecting prior versus to high the to We second backlog points of quarter, year digits from changes. year-over-year X sales X headwind be are single down including

$XX We improves. for we while sharing exhibited with model operator, With the ourselves operating look they to when environment business durable important as to team expect with to progress line rebound for we throughout We million the pace positioning you proceed demand the our to forward year. thank and please questions. as the a our the ongoing I rigor entire adjusted second $XX tenacity want open that, quarter EBITDA be changes make have to to more for million.

Operator

[Operator first line the Sandler. Instructions] question Keith from Your Piper Peter comes of of

Peter Keith

just wanted to into the dig few things. trends, demand clarify a just to I

on basis. up quarter mid-single the a digit ended think negative I So demand

at fair digit? you we're guess, think call, mid-single-digit that, guess trend? March, mid-single the I QX to QX? any far negative negative the I So And what of say I kind also you time just were of at so in in continue seeing is it comments around this

Shelly Ibach

Yes. the Peter, thank for you question.

right trends. month We certainly of first also QX choppy. The the so low demand You're down end your are to date quarter of April of was to digits. the in date, summary February, March single digits and mid-single and the did March and down shape

that demand is the largest period. to in appears the first May, month. again, mid-single and to expect be QX the quarter. mid-single second that, we're also we've everything industry to market for the expecting in low We the the read was around probably strength from the down for be quarter. of it of And And share course, understanded, And quarter, digits down digits

Peter Keith

those it's And with down mentioned helpful. And CQA bit. gross pricing the new about think on adjusting then as come implications Very the I'd just you ] little margin? we [ pricing any a coming maybe of in? the on you're back agree that. think the and and As product have QX, Okay. in in I cX Does half launching products adjustments the come that year

Shelly Ibach

way. on taking in Yes, cX. the The positive a we're cX pricing

that we for at our cX the and with developed point a actually opening $XXX. period here And certainly time. innovation of short the increasing of price by will Bed have price we're value-engineered like be a And So teams a basis margin positive year the about gross see that's improvement our cX the gross the and in Adjustable primarily $XXX on to as back in rate half. be of back the the the again, expect Firmness, to XXX we And margin these continue combination we to of actions half. in points contributor improvement expectations Smart

Peter Keith

and One helpful. I'm been off-wall wondering -- in know last an and Okay. you Shelly, I've ever pre-GFC taking something question, of Very one wide wholesale? to contemplated that the to brand, just thinking retailers manner. expand quite back innovative is X about of you'd I kind a about be take some more for it to were products? maybe of if an certainly looking was brand me manner, a on but And it's retailers, nice and you X taking to this the a go key if are specialized for thinking have to where way share new advantage environment

Shelly Ibach

and range much shareholder Well, focused increasing very thanks continue to the value. a And are forward. thought, as on explore so opportunities for of look we wide our we

we'll So to aggressively. compete continue

in You'll thanks -- see and be leaning your us thoughts. for

Operator

from line comes Raymond the question of next Griffin Robert Your of James.

Robert Griffin

bit your promotional Shelly back first, think to go a is talked This change I guess, you I I Bobby. of little was to it in wanted -- the some aspects. about remarks, prepared in the

kind that unpack changed you maybe sales of is the and aspects gives are now, what in data seeing right not driving share getting because different some impact that you that hoping, an you I was business investors in promotional zeroed can the just a sales you're given So kind the the this on of have in confidence I lot of turn flow to through? think of guys

Shelly Ibach

we where and QX? have Maybe about in plan we Thanks continue media how I'll we sales. where we -- spend with XX% media Yes. start Bobby. and of your question, to just for planned So

we we the focused in demand. messaging that around around we econometric efficiency mid-single digits our media And quarter initiatives, same this we're in started who to targeting, adjustments test, on model new in allocation, the in especially the spend challenging to how in media our we've -- our -- spend more the degree strategy promotional well, learn dollars built quite to down financing promotional expect a the model fourth helpful improving for We analytics environment. more is so allocate been promotional in building be first driving our we to media around precise greatest very dollars that predictive to on efficiency also make our XXXX, on quarter, continuing that so We our allocation as can segments that and actions were with we media from And addition benefit the informing and we is initiatives and efficiency utilizing have the the strategy. in this since that environment.

so continued learn. And to we've

this effectiveness around We constrained our in QX, ready We the drove second the to the have are we been demand, results and to results, begun results mix and margin this test gross applying very of a profile a higher although higher quarter. have in apply at scale effective turn greater and our in overall.

durable our very model in our real important a effective industry. to efficient be continues be is to that So with be of to and dollars. This more on media operating our able time pressure

in Our sentiment. with regular traffic industry now, natural which of a industry macro, right just only normally about contributes in consumer is benefits And about sales base XX% that strong from environment XX%. the flow

and both promotional will how of what effectiveness -- holistic deliver be and have our to apply balance our and us. really and reviewing for we're the against about, them excited dollars models media the them advanced And of manner the important margin able dollars for and that's in So year we revenue we and with to to a dollars machine generate taking our learning goals. that the is

Robert Griffin

on market-by-market share stores? the and it I portfolio you second started still a just of as recapture back I it's early over to these from store we've anything you're but And started basis on seeing I you've turn some and Francis, gone some what closing guess can know others Okay. is changes, of question process, my closing before the

Francis Lee

asking. thanks for Bobby,

track. are actions store progressing Our on

the the the our net And be relative XXXX. that as happening to we transfers our ending are expectations. they first And of will those data get in are we'll to continue continues tracking Majority we as with more solid early on As sales about here. are we that indications monitor year or of above store communicated, the closures to XX half time actions year.

Operator

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

Seth Basham

forward? per is that think year-over-year Could dipped mattress question that to why quarter. average revenue is? should us on which first give in going we how And you My unit, some color as the about

Francis Lee

question, our the be expectations Yes, I the for half line We with on first for and and thanks second out our expectations. up looking in certainly can half the of outlook ARU the single it it demand with the I those year. anticipate versus the units you in split for certainly share half second our in low to -- basis, we're can Francis. This half the year Seth. slightly the flattish is to year, The with when we plans. -- down ARU digits our look in first of for are year. at be at line right But a and

Seth Basham

change it driving that promotions? Or Is driven it? comparisons? driven being a is What's And being by by it. mix? or attachments Got

Shelly Ibach

asking them driving will our flattish. that continue was Xs mix, Xs we not I mix. specifically had -- that Francis see QX do, there about XX -- slightly. were by and into quarter after line, $XXX, And down was have QX some When compare, the the FlextFit about we you XXX. and to flat FlexFit the Seth, was about X a about came year's stronger And continue the Smart first you assortment be ARU, we Bed fluctuations. right, Climate we were innovation last ARU for strength to Mix think ARU with you're metrics it year, that year-over-year said, we these as months. our within up QX back for and the The look and the having from at to being driven

So at some FlexFit there was X pent-up on attach time. the that

drove year, a with little So margin but overall. relationship fourth composition ARU line ARU lower this driving and higher than than and the higher Smart prior thus, quarter, up yet Bed the mix a

from quarter less So financing rate and we dollar a the a dollars in perspective. in both spent promotion

Seth Basham

a segue. that's good Got you. And

So and as into but we later the financing promotional basis, X% improving terms gross what on extended a taking margin in rates your after dollars -- quarter? financing costs, account noticed about that

Shelly Ibach

rate financing mentioned basis so I the that When and Yes. demand than on the promo our year-over-year promo, a were combined and prior lower dollars year.

Seth Basham

Got it.

cash plan is we about Or financing versus between longer new and the saw adjust considerations non-holiday what think you more your forward? to models a share going effective periods versus around going terms As market are how holiday they of indicative you discounts there quarter later periods? is in how

Shelly Ibach

continue in and especially our or periods. different the And considerations absolutely the into Smart non-promotional strength tactics, we market lean of the the we in nonmarket period, are the other are There to of business will share share Sleepers period. seeing in some with

Operator

next comes Dan line from UBS. of Your question of Silverstein the

Unknown Analyst

is behalf Lasser. calling Michael in Dan on This of

Just a the expectations. question quick on demand comp

a year, full date is the mid-singles guidance decline, low down for So to range. the single-digit in XQ contemplates kind of

if So slight implies lot? the a compares back it multiyear year, you gets half this in that a back Like lot I at the acceleration accelerate easier. guess shouldn't half, look a but the in this

is wondering, that conservatism? some that's just level of question. I guess the just first So

Shelly Ibach

with start the let's Well, overall. industry Yes.

-- we have we much messaging even had about be down store right, pressured double-digit additional year, a X expect which We be and we of were expect to additional multiple with QX us we stronger. point pressure. industry you're year, the digits. in this That's still with pressure pressure QX, industry continue industry around a lap And to this even of QX to double for say, I more was should We our the as expect more opportunity, we and actions. for bit of unit pressured years declines, our little

So environment consumer weather March improvement we yet very January choppy as a the remains half. back also in strength consumer good pullback in some and experienced in the behavior in It and and a we do expect with February.

we also compares, in the our around more us as the initiatives like we confidence the But do our So environment competing able and consumer third improvement industry. gives -- quarter better the anxious to on easier see as remains commitments. in it to effectively for but we we're being in everyone, environment comp back choppy. We half a deliver expect this advance and for and

Unknown Analyst

Got kind of one. maybe it. question second a a of And then margins, on longer-term just more gross

of you this -- gets you -- continued from the work? the bps laid XX% the you just What If Or year. XXX expansion you path what's the there? achieve on guidance just few if today? major that guys remain glide drivers out operational it for to could plus a comments Is opportunity that remains

Francis Lee

sustainable Yes. in variety around Dan, prepared a on working across product. the we referenced model of are making our that we manufacturing, operating areas gross sourcing, changes remarks around I my how in deliver margin,

we And -- come changes. are so those as sustainable

year, come changes those fully next year and more into annualized be of beyond. Some in this they'll

past. some uptick the gross industry zone the so seen more getting essentially that and margin So you'll when also that going you'll normalized in you leverage we've with back volume couple forward that into returns be be a

Operator

Thomas question last Bradley line of comes the KeyBanc. from of Your

Bradley Thomas

and wanted the and I price on just increase. to Shelly, the cX follow relaunch up the

For any prior it significant early about you what it? the price one, increase on how maybe the $X,XXX. us can product different insights into refresh does from $XXX version the as seem And pretty you is just is give

list is I think significant. pretty the price today

promotional only make to demand. I stretched it talking you of were think drove consumer's we sure context or spend was know the you in bit quarter and bit that X more ago Just about a being a a little the

that at the something your So time? for right confidence is increase just this more that bit move that, is little price that a product about here

Shelly Ibach

thank Brad, your Yes, for you question.

and an introducing that are we we're at So Smart Bed called introducing the bed additional cX, $X.XX.

the the cX So increasing our but at of taking $XXX. pricing, by relaunching, pricing, taking time, and that not price comes cX, current than lower we're in same the just

So that's a step-up story.

we'll every Smart And Number the the on course, cX the pricing So with the Smart we Bed we'll will of cX Adjustable Firmness then take models. $X.XX day. Bed Sleep of $XXX and then at offer other with of features continue our Adjustability, and all Effortless

addition. an cX is the So

Bradley Thomas

Got you.

updated and I margin just could know then of Okay. current company? That's environment, and be you follow there's the growth R&D the is that any thinking a you're helpful. term still and able in also my properly wondering to term? of of to if just committed short up current company right innovation. the just thinking with own. drive To how in And the if longer what about question for but that be on short as is level spend But sort R&D margin reflect the the about I trends disciplined

Shelly Ibach

Yes, I'll measuring basis that then leverage. about my think of four mentioned cost will the we G&A cost comment ongoing the the operating acquisition, model, in durable goods cost the goods, I areas when R&D our cost and to an customers on script we on of be that the of serve -- and

in each those over So of each those future. -- always principal of out tying we'll time be areas. those to areas with ongoing discipline areas in the That helps on us

of as that's a innovation for good as innovations here significant and some cX about this re-prioritized model, the So like way of reduction driving about and we've year it. we think other the think in in of as our I us We're operating which after approach to helping as many resources, goods now it items our think strong R&D well we addition the cX, we pipeline coming have right is XXXX. sold get cost that efficiency,

Operator

the That to conference I session. company remarks. back now the over for will turn closing concludes our Q&A

David Schwantes

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

Operator

call. conference today's concludes This

may You disconnect. now

Sleep Number (SNBR) 24 Apr 242024 Q1 Earnings call transcript