Sleep Number (SNBR) Q3 Earnings call transcript Oct 30, 2024
2min read In a recent earnings call, Sleep Number Corporation provided an update on its performance and outlook for the future. Here are some key takeaways from the call.
Financial Performance and Outlook
For the third quarter of 2024, Sleep Number reported net sales of $427 million, down 10% compared to the same period last year. The company attributed this decline to a high-single-digit demand decline, backlog changes, and fewer stores. Despite the challenging sales environment, Sleep Number managed to achieve a gross margin rate of 60.8%, up 340 basis points from the prior year. This improvement, coupled with cost control measures, allowed the company to achieve adjusted EBITDA of $28 million, in line with its expectations.
Looking ahead, Sleep Number lowered its full-year adjusted EBITDA guidance to a range of $115 million to $125 million, reflecting the ongoing weak demand environment in the bedding industry. The company expects net sales to be down approximately 10% for the year, with operating expenses reduced by approximately $75 million versus prior year. This reduction in expenses, along with gross margin improvements, is expected to lead to a more durable business model that will position Sleep Number for growth when demand recovers.
Operational Initiatives
Sleep Number highlighted its ongoing efforts to transform its operating model for greater financial resilience. This includes deepening audience segmentation in marketing strategies, sustaining material cost reductions, increasing demand-adjusted efficiencies in manufacturing and fulfillment, and reducing R&D and indirect operating expenses. The company also introduced the revolutionary ClimateCool smart bed, expanding its assortment of temperature-balancing sleep solutions. These initiatives are aimed at addressing consumer needs, improving financial performance, and positioning Sleep Number for long-term success.
Consumer Behavior and Market Trends
Sleep Number noted that consumer spending in its category and other high-ticket discretionary products remains disappointing, with consumers requiring additional interest rate cuts to improve their financial position and increase purchasing power. The company also observed a more scrutinizing consumer who is budget conscious and concentrates purchases during promotional events for maximum value. These trends underscore the challenges facing the bedding industry and highlight the importance of strategic initiatives to navigate the market.
Leadership Transition
Shelly Ibach, Chair, President, and CEO of Sleep Number, announced her retirement, effective no later than the 2025 Annual Shareholders Meeting. The company has engaged an executive search firm to identify her successor and will support a smooth transition by having Shelly serve as strategic advisor to the new CEO and Board through the end of 2025. This leadership change marks an important moment for Sleep Number as it navigates a challenging market and positions itself for growth.
In conclusion, Sleep Number's Q3 2024 earnings call provided insights into the company's financial performance, strategic initiatives, and market trends. Despite the ongoing challenges in the bedding industry, Sleep Number is taking steps to enhance its financial resilience, improve operational efficiencies, and innovate its product offerings. The company's focus on cost control, gross margin improvements, and strategic marketing initiatives positions it for long-term growth, even in a challenging market.
