Sleep Number's Earnings Reveal a Company in Transition—But Is It Time to Buy?
21min read The latest earnings report from Sleep Number Corporation (NASDAQ:SNBR) has sparked a mix of optimism and caution among investors. While the company highlighted margin improvements and strategic shifts, analysts remain divided on its near-term prospects, assigning an average price target of $8.33—far below its recent trading price. Yet, a speculative deep learning forecast suggests a potential rebound to $32.38 by mid-2025. Is Sleep Number worth buying now, or is this a company caught between innovation and financial headwinds?
The Numbers: A Mixed Picture
Sleep Number’s first-quarter 2025 results underscored both resilience and challenges. Revenue fell 16% year-over-year to $393 million, driven by softer consumer spending and inventory adjustments. Yet, gross profit margins expanded to 61.2%, a 250-basis-point improvement, thanks to operational efficiencies and a shift toward higher-margin Climate Series beds. This product line, which uses sleep data to adjust firmness, appears to be resonating with customers, as ARPU rose 4%.
However, operating expenses remain a concern. Excluding one-time costs, expenses dropped 9% to $237 million, but adjusted EBITDA plunged to $22 million, a $15 million decline from 2024. The leverage ratio also worsened to 4.46x EBITDAR, signaling financial strain.
Analysts: Hold the Course, But at What Price?
Wall Street’s skepticism is clear. Analysts have issued a "Hold" consensus, with price targets ranging from $6.00 (UBS) to $12.00 (Wedbush). The average target of $8.33 reflects deep concerns about declining revenue and the $30 million tariff impact looming in 2025. Piper Sandler, for instance, cited "execution risks" in its $11.00 price target, while UBS’s bearish stance highlights the company’s struggle to stabilize sales.
Investors should also note that Sleep Number’s stock has fallen 30% year-to-date, underperforming the broader market. The disconnect between the $13.53 recent price and analysts’ targets suggests a valuation reset may be underway.
The Bull Case: Turnaround in Sight?
Bulls argue that Sleep Number is making the right moves to rebound. The company’s $80–$100 million cost-cutting plan, including a 21% reduction in corporate roles, could free up cash for innovation. Management also emphasized partnerships—like its deal with GEM HEALTH to integrate sleep data into healthcare solutions—as a growth lever.
Moreover, the Climate Series’ strong performance hints at untapped potential. Sleep Number’s database of 33 billion hours of sleep data could fuel AI-driven product improvements, appealing to health-conscious consumers. CEO Linda Findley’s push for a “benefits-first” marketing strategy also aims to reignite demand after past missteps in messaging.
The Bear Case: Headwinds Ahead
Bears, however, point to significant obstacles. Declining consumer confidence since February 2025 has hit discretionary spending, and Sleep Number’s direct-to-consumer model relies heavily on consumer willingness to pay a premium. The $30 million tariff burden could further squeeze margins, while the leverage ratio remains precarious.
Analysts also question the feasibility of reversing the 12.5% revenue decline projected for Q2. With the S&P 500 expected to grow earnings by +11%, Sleep Number’s negative EPS estimates (-$0.14 for Q2) make it a laggard.
The $32.38 Wildcard
The deep learning forecast predicting a $32.38 price by July 2025 is intriguing but speculative. While the model highlights technical factors like volume and market cycles, Sleep Number’s fundamentals don’t yet support such optimism. The stock would need to more than quadruple from recent lows to hit this target—a stretch without a major turnaround.
Conclusion: A Buy for Patient Investors, But Proceed with Caution
Sleep Number’s story is one of strategic pivots amid turbulence. The margin gains and product differentiation suggest long-term potential, but near-term risks—tariffs, consumer sentiment, and execution—are substantial. Analysts’ $8.33 average target aligns with a “Hold” stance, while the $32.38 forecast is better viewed as a “what-if” scenario.
Investors willing to bet on management’s cost cuts and partnerships might consider a small position at current prices, but the stock’s volatility demands caution. As Sleep Number navigates this transition, the path to profitability remains narrow—and the stakes couldn’t be higher for a company whose sleep innovations once defined the market.
In the end, Sleep Number’s fate hinges on whether its premium value proposition can outpace the economic and competitive headwinds. For now, it’s a story of hope over certainty.
