SNBR - Earnings call transcript Q3 2024 | Sleep Number Corporation

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Operator

Welcome to Sleep Number's Q3 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. Thank you.

You may begin.

David Schwantes

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

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

Shelly Ibach

XX Good thank SleepIQ was joining you last night. us. afternoon, score My for and everyone,

and the quarter filled our commitment results In keeping through I mission with the In addition purpose, will inspired executive CEO announcing Board Number's President vertically platform has million the XXXX combined Shareholders integrated lives. our company's digital improved These smart culture, Meeting. as we of Officer, innovations stakeholder that and which of an me with to the search practice announced Board remarkable Annual creation. The with our support and plan, Details our XXXX. I'm engaged strategic XXXX progressive new strategic retire and operating To further value letter no an effective Board in firm help serve to with also release Sleep transformation, composition transition, tremendous announced competitive today's and team's wellness to our changes governance. model I successor. Executive like company's associated to to CEO and described innovations, established identify that for in of as advantages life-changing Chief my today, and revolutionary give has third independent company have deep enduring gratitude Board are Sleep evolution business will retirement and end Chair, advisor Board additional later succession changes bed deliberate model also than Number's these our with almost today, XX aligning longstanding separate governance confidence the and shareholders. consistent

ongoing results. operating Now, resilience across shifting past to environments. we model to a our economic our third have year, for taken greater actions the of quarter financial Throughout range transform

we pressure the for us position in recession, planning results. gross XX.X%, their and This With these recovery a QX we our broad-based was Number line the a in of initiatives quarter, efficiencies agility demand demand in generating third a increased resulting During the of challenging demand. improvement our in and with drove third year accelerate rate to not furthermore superiority, quarter. innovation even are expected not resilience, in top execution had fit, delivering macroeconomic is third into our when lean expectations to quarter fourth it and combined ongoing persistent am proud comes. Sleep cash line with did improvement consumer stellar in I weakness million, industry's the adjusted experience in financial with our in which EBITDA team and improvement the environment. for bedding margin from $XX

guidance full year to million $XXX $XXX we lowering to a are a million. of our result, adjusted As EBITDA range

basis points margin million $XX our $XX and rate XXX of targets expansion. in expense We of XXXX to gross million are savings outpacing operating

XXX margin and above year, rate XX.X% our were million. XX.X% QX year-to-date before gross restructuring operating costs, Our was expenses prior basis gross margin year. prior $XX of year-to-date was XXX than better points down million year-over-year basis expenses and of points were down operating $XX rate QX

model indirect manufacturing Our actions cost our reductions are gross furthering and marketing in goods, leverage. to our acquisition, efforts to flexibility supported transform and by in of cost go-forward deepening efficiencies end-to-end our reducing variable of in demand-adjusted audience R&D R&D, segmentation our in G&A our our network, costs. and material more cost restructuring margin towards and increasing rates, operating resilience operating cost include and serve strategies, fulfillment sustaining expenses, Highlights

rigorous result X-year to of a operating which be costs million pre-restructuring XXXX down versus improvement million. $XX approximately expenses now full year, expect we will $XXX deliver expense actions, these a As approaching year operating prior

We improve in are this We that cuts financial confident and disappointing, durable consumers spending additional their require category to sustainability the model metrics. categories. our these demand power believe returning navigate and Consumer interest it we spending macroeconomic our increase of more continues will other to market. in as operating weak high-ticket remains to their before purchasing discretionary continue on products position lag rate and

first Sleep bedding double-digit X had half years of of and the we quarter, Number demand a improvement expected the third sequential lapping from the With declines industry in the year.

out periods marked half biggest and growth. when in This more low-single-digit Xth Day from X a purchases demand than consumer during was a the The much time in first events in weekends quarter Labor X promotional than these to years and up weekend leading prior value. in sale largely more the past with weekend were years was July QX budget make representative is consumer their maximum our prior strongest concentration concentrates However, weeks response performance. was for unchanged needs conscious, the shopping the decision scrutinizing event. years cautious spread to who of This is over more behavior

into innovation we our trends We near election this in leaning both presenting to with brand In sales economy, term are U.S. and conditions and expect the uncertainty. the pressured continue strong geopolitical ongoing environment, superiority.

marketing brand and effectively and our media initiatives of the more reach are intenders focused segmentation limited mattresses. we First, activate considering current to number deepening differentiators in on

bed conversion. Earlier award-winning solutions increase This layer. our the assortment the hot customer too and our includes expands set position smart to consideration challenges. we than price sleepers Climate smart innovations, Second, we new issues bed one ClimateXXX bed. This sleep temperature-balancing of of ClimateCool important cold. they our affecting most X/X new Number in smart points strengthening too and this revolutionary addresses and are or report DualTemp Sleep temperature of More which stores, series, market month, sleep all sleepers, temperature introduced now active the in leadership

lean customers manufacturing temperature that millions into durability, with and vertically-integrated wellness and smart and to series connected beds programs comfortable cooling simultaneously to that feature advantages, Climate through are margin to beds nearly our in financial smart with of to In proprietary we as and XXX competitive smart Number's these our Sleep including that selling Climate actions our quality platform fulfillment innovations to summary, sleep resilience gross model series online addition designed exclusive efficient business stores management, through are sleep addressing improve brand, temperature clear scientifically-backed our network. resonating our rate. In an deeper, accretive active more provide the we sleepers direct-to-consumer with take The and proven target deliver sleep and are are fluctuations sleep. continuing

are on when execution market our generate to market in and the Number stellar execution a serve and team innovation strategy, resilience positions our their a our with growth new driving to financial combined dedication as stakeholders. In all Their thank a as best-in-class capitalize and for leadership, passion, progress, us improve. efforts for our profitable results value cash closing, strong free deliver Sleep and foundation conditions growth transformation innovations differentiated to of our entire I environment. retail to flow difficult rigorous increased strong return returns Our that accelerate growth, for want mission

performance our Francis additional will year. for the provide Now, and outlook details about

Francis Lee

Shelly. Thank you,

your retirement say and me thank partnership. for and on you your leadership Let pending congratulations

to against weak to Turning controllables, environment commitment business, while a our our results team's bedding navigate demonstrate the continuing the deliver quarter to for historically industry. demand third our

improvement in control achieving resulted top initiatives gross guidance softer-than-expected ongoing our a us third rigor Our despite line. adjusted quarter cost margin EBITDA and

flow period versus $XX flow We generation continue with up focus year-to-date same million on maximizing year. cash to the last free cash

review turn quarter third Now, to of our results. a let's

basis changes Third and high-single-digit of demand quarter, from gross a with X were points XX% X down our backlog and prior the last point year, the decline. quarter points a million this of a $XXX the net sales fewer versus margin below delivered points for quarter even stores. We XX.X% year and couple sales included versus accomplished for decline, percentage of expectations. rate from XXX we up net Net year-over-year deleverage headwind year-over-year sales pressure the of from

parts the reductions, versus redesign margin gross expectations, a initiatives, XXX broad-based was driven which, year of same ahead last margin XX.X% including reducing points rate of and by include reminder, year-to-date period basis material of cost number for and gross up as primary actions, Our selected in efficiency switching supplier efficiencies delivery products, a utilization home components, parcel operations, for year-over-year provider. and savings ongoing delivery cost model, logistics increased material our flexible all from more home in labor negotiations including truck our

with streamline the cost our year-over-year an reduction Over cost restructuring year-to-date $XX additional we third with the operating have weak million. and demand continued -- expense a quarters, $XX align the reductions to quarter, we In million structure of environment. before in several costs past drove gross operating ongoing

were broad-based, including lower post versus expenses spend. fewer our the paring lower investment and reduced with media reductions Third stores R&D back marketing selling quarter expense prior Day, including expenses, operating XX year, Labor

free in generated have expenses Over reduced and the the the the $XX We to same operating expense pre-restructuring we $XXX generation past have last year. operating last of we our remained million expect $XXX year. adjusted By X approach up quarter, period priorities quarters, million. EBITDA adjusted EBITDA years X by costs. Maximizing million flow versus this reduction the total year-end, over XX% cash

point third margin expenses, net in XXX offset the prior rate decline. Our million by the year, increase basis reduction the was year-over-year quarter versus EBITDA by driven basis deleverage up our points and $XX of margin XXX operating gross from partially sales X.X% in adjusted the

in for was guidance million. $XX quarter with line $XX of Our our the million adjusted to range EBITDA

last million cash For we same flow $XX free generated $XX free cash year-over-year. the year-to-date than $XX million flow, the of with up third year, quarter, is million period higher which

million, million free which For of the free the million $XX includes $XX expectation to $XX $XX flow the full to million fourth we in cash expect flow now negative quarter. year, of cash

the guidance, negatively expectations expectations. free sales year position updated Our at along lowering year projected working flow to capital year-end, our with reduced due EBITDA to are for adjusted net which expect our we primarily cash our full impact

a outlook XXXX to $XX year. last cash from million updated improvement flow Our would million free represent $XX

XXXX our to outlook. Turning

previous our range the EBITDA updating $XXX $XXX outlook $XXX fourth of are year updated outlook million our we meaningfully ongoing million range demand full to to of revised The the to to improve which not We quarter. reflects a weak million do $XXX in million. bedding adjusted environment, to expect compared

the key quarter me approximately some to along for XX% assumptions Let included be expectations. net updated year. provide in fourth of expect We the down now our XXXX with sales our outlook,

Our percentage full to point changes headwind year net from sales year-over-year guidance average headwind of points of X percentage X count. from backlog lower continues and assume store

basis of XXX our expansion least expectations point increase. in XXX margin at points previous expect a XXXX least versus of rate basis gross at We

$X We outlook. expect capital million approximately year, the $XX for prior our lower of than expenditures million

prior to quarter of performance. the similar net year's sales be down adjusted EBITDA fourth performance. to Turning are expecting digits outlook, net midpoint fourth sales quarter, year-to-date high-single we our to our the versus At

more at year's $XX fourth quarter. We our the $XX outlook EBITDA expect million midpoint range adjusted little be than quarter of to for a to compared fourth last million

EBITDAR covenant the ratio Our quarter-end. a at X.Xx third to quarter at compared our leverage the of of as trailing basis X.Xx on end planned was XX-month maximum

increasing Our of quarter, the end expect the sequentially outstanding ratio as the trailing Based on EBITDAR. to to debt leverage illustrative XXXX year with stay some third quarter leverage our we year-end. Last in current balance structure. slightly covenant our within updated and XX-month below to guidance, quarter maximum second our slightly to the ratio levels at the of lowered in debt now EBITDAR improved we from net while a indicate covenant X.Xx X.Xx required our sales minimum quarter, than cost we around the our based comments on or provided well better

under additional $X.X remain EBITDAR of we year. the made, would net sufficient improvements next billion we sales to estimate covenant With have now be X.Xx throughout approximately the profitability

on outlook tenacity, reminder, for we am our a dedication call. I resilience As will XXXX and grateful provide of entire our our team. year-end the

model business also recovers. With please efficiencies more and for We importantly, that, questions. the to continue the help leading to help in durable bedding industry, historic the execute cost as offset across demand to business line a open to operator, thrive prolonged weakness us

Operator

take Raymond We'll our James. from at Bobby Griffin [Operator first question Instructions]

Robert Griffin

pending Shelly, retirement. congrats your on

Shelly Ibach

Thanks, Bobby.

Robert Griffin

So, played just a pulled in for unpacking election, maybe how media actually, up I bit of out. maybe is into just guess of spending actually kind various And just of me we've heard first little more is more. October, reports back the quarter tough, businesses heading

curious obviously, as kind seeing of Just of guidance. that part you're if, if updated that's XQ reflected being and the

Shelly Ibach

back period, weekend. the the Day media media we and not and we July then had the consumer And with in I was we X Labor my were and And And a than July, low-single-digit in regarding around same the did and low-single-digit points, so a pressure significantly both quarter, that activity outside consumer there. had pull weekends, weekend, the weekend, challenging. points been quite the August Day going about highlights of period, rest far X Xth into the spent stated, after shape July. seeing wasn't of marketplace. particularly in Bobby, We year. again, the growth, demand somewhat really growth of Early -- that from the year. we all And the in Labor October. very event had Yes, prepared the we gave It's remarks. consumer minimal continued And this July the we on anticipated has few into Labor consistent Day as had that we greater had holiday quarter Xth of

sequential out in third quarter, ticket play big a and that the the given challenges improvement category and we're is ongoing QX And how as in seeing for that's happen. expected it well, general. facing our didn't and We uncertainties

Robert Griffin

stronger -- just Shelly, fair original holiday the line helpful. it low-single-digit during period? have? That's the at to into even were in X with the Or those put weaker context, to were you growth just non-holiday was themselves say good. holidays was Okay. holidays expectations, to and actually numbers it Is spending be and very the the the plan for the seem than

Shelly Ibach

talking we last No, you with we've pressured just particularly we're spending. the scrutinizing more a described consumer with but of pronounced that she is much a it been well. about. behavior the outside weekends, consumer, seeing The Not It's are latter part in holiday with dealing the consumer also making consistent her just here since in more -- since very delayed yes, And well, been decision persistent than all so July, seen. decisive, we've the macro the of July, less that's of challenges. only

Robert Griffin

made made how sit this there of Okay. stores. are on And to progress of think it have demand help closing 'XX negative Is closings look then, round some secondly current the had kind given there store as be -- you going Does size underperforming four-wall year. on some we of this the today we've store me portfolio we've for stores not of about these understand you're closing? Just what with here some to me, today? your and thoughts today, the guidance. changes need I give environment? not portfolio, EBITDA year, another But at guys And that

Shelly Ibach

that for Thanks Yes. question.

went into -- the be As industry year, expecting everyone we flattish. was we the overall, to

XX%. transfer quite opportunistic this of time are I exceeding last We expected decided really with stores test from making we it points our were from what density. a those see, closures. year points selective expectations, still rates, which said, store closures. took focused in we We happy low-single with about are also, were be down on about like when stores, of action around choices. period. store And digits about that over store these But on to underperforming We're on And we X.X X.X the that's pressure part closures we and

have We a retail really healthy portfolio.

We'll it. across has flow-through our can retail been where a And portfolio industry as with we and grow to the sales portfolio. able be it store strong current country the think of largely should in healthy, Our strongly happy recovers. we're with generate be. lot it's We comp

wouldn't problem. a I characterize So it store as

Robert Griffin

And sorry. Francis Okay. go me, -- then, for I'm ahead, lastly

Francis Lee

add an we continue for an ongoing process us. and going just Yes, Bobby, that DMA, have was look going profitability process that's ongoing our where we I to by store be at to to

we like our Shelly continue going adapt adjust into we're that. confident really or active healthy have as be we're year as to fleet we've will mentioned, stores a to generally done So, year, plan contingencies we -- this business But now. the year, and right next there's with of all closures store and part

Robert Griffin

margin. Okay. And just last then, me was one gross on for

year things. been have I journey? Francis, One in has gross that guys of you of where margin unpack shown Series this self-help the the can you on. you some in going that we got of -- of World the sort bright spots guess, Can we are side

use Or baseball future kind more industry going gross and volume? self-help and XXXX? be maybe So margin there analogy. Sleep a on Is into is to XXXX Number's really dependent volumes of just the

Francis Lee

I'd we're our in on we're those in the as things Yes. actions we in put the that do. we've the that material planning. deliver how the analogy, processes an are we're planning examples team we done. along some redesign, you robust our using part that And strong and cost-out, products. nowhere but put planning journey, not we across -- we're through These active of at looking -- product given say ongoing We've of is place, basis inspection doing of near all

look one, constant run from this That's we year. is how we online and just this at honestly, to some then, in ongoing have and And anniversarying activity our the of through part initiatives but to to so, And going business the have programs we'll next and be ongoing. agility. not came have partially benefits improvement of year, that stop place as actions

Shelly Ibach

be to as [indiscernible]. it really will And we fun growth then, get in

Robert Griffin

some At waiting well, it as I'm Shelly. point, will Yes. it turn. on

Shelly Ibach

I saying when when, Yes. keep turns. it

Operator

Markets. Brad Thomas We'll move Capital KeyBanc next to at

Bradley Thomas

you best to Shelly, the on here. all wish move as you other things

Shelly Ibach

Thank you.

Bradley Thomas

new just to a seeing we're when assortment wanted kind as in be what in that seeing first you I more maybe weakness kind Could environment continues? what just out talk you're this or maybe promotions sort tough start a little you consumer weaving on thinking about might activity maybe of the the about of needed and you're if promotional run how of follow-up there. bit products

Shelly Ibach

range fluctuation able start with issues kind deal I'll -- Well, points. at what both addresses Great. Climate the the And are offer doing. need excited, the it's that temperature of question. really our active Yes. And range but and end significant that price series. really to -- is teams are of team, be price proud a This executing introduced exactly our gives to one highly points we're new also with. of to The and products innovation, your we're of the most transformation, customers exciting of temperature solutions operating are the be series management of of Super a our consumers advancing responsive. go-to-market Climate new with model of

consumers now. tailored in get media messages, mattress segmentation, more So be customers that to is focus responsive, are of to our absolutely find when -- for for more in need where addressing greater are spend We our right working marketing efficiency. to less deeper this And purchasing marketing is efficient these that's there far a with of us more segments that's and environment. in an area focus ways queue

area. what and going is in have pay know, we've we're our to pretty But all behaving. to little factors. honing they're we sure election wants And concentrated that more bit happens consumer in as with more not stores, is others hear selectively. I we been have historically how just and say conservative than behaved. consumers the prioritized EBITDA around with we make change until you And she spend at our on media other year, where which more our a this and the this we As more making. we consumer periods this periods, decision media we're spent overspend holiday to of see that the attention experienced of how to immediately August, the into see Being dollars looking other and would in delayed direct-to-consumer wait those we've the

and real well the out part and there's little there So hesitancy on some financing as with a to in pressure from then, quarter the money, approval usage.

Bradley Thomas

follow described know up for to of maybe right, the that see partner just year-over-year Synchrony their I the you're you importance and And the always with partners what on your dollar I and you perhaps them an such important to is you. that rates lower usage approved, sense. you makes how approval is comment, out But That usage values are better one And of Synchrony? approval being heard you're if and saying them. those for you've

Shelly Ibach

Slightly.

Bradley Thomas

could. if don't year about might to housekeeping, Okay. of be think we much and China subject just us, them Maybe cost your as big could to come I you maybe goods fruition how those next but characterize exposure, inputs, in one last I think for China? of of incremental you tariffs if have sold how much

Shelly Ibach

it's But minimal. before, years few challenge experienced overall we've total, semiconductor some all it's with the a as we the that shortage even to small few things but percentage was create -- issue. important. chip That ago, the pressure. talked But can a a a Yes,

Operator

Piper Peter at We'll Sandler. Keith to move next

Peter Keith

you the but congratulations best, of have on couple course. more a Shelly, retirement. quarters for wish We'll you probably here, all

Shelly Ibach

Great. Thank you.

Peter Keith

Just frame industry backdrop. trying up to the

mid-single. said later is ascertain what half, the Then similar versus the the we're is it's in to you half thought, than script, actually first down pretty demand comp half. if I was which been said it that first I challenging down you of was Francis, X% all year. think I aware QX period. really to think more challenging I'm trying And was a first Shelly,

maybe it industry the quarter for year? than first do half perhaps of straight-up worse question, the you a think just a the So was

Shelly Ibach

see in it going half I as And about demand double and to the prudent we're We and a expected. and we Yes. improvement we demand was in see the for it get quarter as about we're the we was line of as industry we cautious about X fourth that's be with thinking the -- years third quarter year, third characterize until with we well. were I yes, in would how believe step-up digits, didn't calling line we it. the were first the quarter. -- down

expected not improvement, all happen. that we and sequential did a So

very So fourth our advance similar the and our first same seeing it in why adjusted we range to the EBITDA continue the that's remained what we to to half, that's we're expect margin And to the and shared. on quarter. guidance. at that time, And see and we initiatives in gross deliver

Peter Keith

Okay. the over margin, QX. Very just good. was pivoting which And strong then, to gross quite obviously for

there Are margin to QX So, the step-down get so lapped? QX. on turn, expansion? now XXX Or gross how a guess, about or that thinking Francis, to margin I would are more for about initiatives you're be in basis be from challenging points, any implies the points, up is be up to, it starting just want prudent guess, gross it basis XXX I guidance in

Francis Lee

Yes.

you I think QX sequentially. to QX. versus last gross a on for XX%. going anticipate a QX, XX% have a than basis, Seasonally, lower of QX to our significant year-over-year But around step-up can to be year's tends we're margin rate

Operator

We'll next at Michael Lasser from our take question UBS.

Daniel Silverstein

team. for Silverstein Dan is Michael. our as Congratulations, on well This Shelly, from

given of backlog provide, that will a there the XQ, little can other bit Or Maybe Is facing? is to impact? get there of to Just just less sales you that all a trends the for better. is on X texture just a be guide start distractions consumer the questions. any function quick

Shelly Ibach

Yes.

sales? You're to speaking net

Daniel Silverstein

Yes.

David Schwantes

Dan. Yes. Thanks, is This Dave.

for X So being high-single about the digits. we're QX, XX%. guide if the at we've talked the year, our think months Year-to-date down you down the for about guide midpoint first sales of of

I'd versus XX%, similar. say, So quite they're high-single

So call a X we're backlog QX, There pressure not than or saw X difference. in in will what points. point be it we probably expecting any maybe QX dramatic little less

the the pressure. less months where X quarter. aren't fourth But first overall, we demand versus be trends year in difference of there'll So we expecting a little material a backlog were from

Daniel Silverstein

And but kick Okay. revenue the next question, about guidance in debt avoid understand I be think the year our appreciate 'XX the X.Xx I next to then, base second at start the quarter, giving commentary needed triggering covenants. you'll covenants in XQ. to

preparing bit is, is correct? the And So there of gets question mitigating remains worse? is B, else in if challenged actions or you're significantly terms anything little A, even that demand a

Francis Lee

Yes.

is of QX, the Your the to go covenants the read X.Xx. end on covenants correct. At

of and things. of One our a our margin changes XXXX. leverage $X.X require structure that rate is the on to current structure, is, minimum sales advancements, remain to that would cost covenants what with based So, couple our net through our us keep gross cost expect within we billion. approximately And

a We continue to and/or supplement got of evaluate importantly, work the of But to our of lot ongoing existing transformation part line. processes all of we've our alternatives our elements as within credit our in place.

to cost rate. us year. as And for tailwinds year margin structure, these be ongoing We significant into we our going are our the against progress have plan gross next made

David Schwantes

to on is maybe add Dave again. comment a Dan, just -- this QX

we sub-XX% year of -- be going gross think the that long. you didn't if QX. of benefits QX, we've actions to into cost rate go about all in all We're execute year, have to also this the So, up as a QX, we're QX we against margin continued

it, So -- we or expense QX expect our QX year, EBITDA would on initiatives improve We year's last I just that X.Xx. exiting of say, the in rate. an year's ratio would this execution margin expect certainly and ongoing the gross call should around exceeding based to of

into we think QX, when of covenant items the move does couple to specifically, X.Xx. a about just as So drop down to

Operator

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

David Schwantes

the and her joining Thank on her us retirement and I on chapter also announcement Shelly. congratulate next Shelly big. for today. her dream you well embarks Well life. to as deserved, her best she want Sleep wish all in

Operator

call. concludes this today's And conference

disconnect. now may You

Sleep Number (SNBR) 30 Oct 242024 Q3 Earnings call transcript