Sleep Number's Q4 2024: Navigating Tariffs, Online Sales Struggles, and Shifting Demand Trends

These are the key contradictions discussed in Sleep Number Corporation's latest 2024Q4 earnings call, specifically including: Tariff Exposure and Pricing Actions, Online Channel Performance and Strategies, Online Sales Performance, Consumer Demand Trends, Demand Trends and Market Conditions, and Cost Management and Efficiency:



Operating Model Transformation and Financial Resilience:
- Sleep Number Corporation reported a 43% year-over-year increase in fourth quarter adjusted EBITDA, driven by a 190 basis point improvement in gross margin rate and $28 million reduction in operating expenses.
- The transformation was led by disciplined execution and structural changes to enhance margins and cash flow, positioning the company for long-term growth despite industry challenges.

Challenging Consumer Environment and Demand Pressure:
- U.S. mattress volumes for 2024 were estimated at 24 million units, the lowest since 2015, due to low consumer sentiment, high interest rates, and low housing turnover.
- Despite a 12% year-over-year decline in net sales to $377 million in Q4, the company managed to reach the midpoint of its EBITDA guidance through cost reductions and disciplined media spend management.

Gross Margin and Cost Management Improvements:
- The company saw a 190 basis point increase in gross margin rate for the year, reaching a full-year gross margin of 59.6%, nearly double the initial improvement target.
- This was achieved through material cost reductions, supplier negotiations, and efficiencies in home delivery and logistics operations, resulting in a $28 million reduction in Q4 operating expenses.

Tariff Impact and Strategic Mitigation:
- Sleep Number is assessing the impact of recently enacted tariffs, with approximately 70% of cost of goods sold relating to material costs and 1/3 of material exposure from Mexico.
- The company plans to mitigate tariff impacts by shifting suppliers, moving production, and monitoring fluid tariff situations to maintain financial flexibility.

Leadership Transition and Strategic Outlook:
- The independent directors of Sleep Number have selected Linda Findley as the new President and CEO, effective April 7, to guide the company through its next phase of growth.
- The company remains focused on optimizing media and promotional strategies to drive demand and maximize returns as the market recovers, leveraging strong brand equity and loyal customer base.