[Management View]
Management emphasized a strategic turnaround for Sleep Number, focusing on aggressive transformation across all operational levels. CEO Linda A. Findley highlighted the company's potential and the need for rapid adjustments to address unexpected challenges. The new bank agreement extending debt maturity to 2027 provides financial flexibility for sales-driving initiatives.

[Outlook]
The company expects net sales of approximately $1.4 billion for fiscal 2025, with a gross profit margin near 60%. Adjusted EBITDA is projected at $70 million, with negative free cash flow of $50 million. Plans for 2026 include a major product lineup refresh, expanded distribution, and continued cost reductions.

[Financial Performance]
Net sales declined 19.6% YoY to $343 million in Q3 2025, impacted by reduced marketing and competitive pressures. Gross profit margin decreased by 93 basis points YoY to 59.9%. Operating expenses were reduced by 18% from 2024 levels. Adjusted EBITDA fell to $13.3 million, down $14.4 million from the previous year.

[Q&A Highlights]
Question 1: What is the cash part of the restructuring for 2025, and what level of cash restructuring charges will carry over into 2026?
Answer: Cash restructuring charges include contract termination and employee severance costs, with non-cash costs primarily from store write-offs and intellectual property asset write-downs. The total non-cash was about $30 million year-to-date. Most restructuring charges are expected to conclude in 2025.

Question 2: What are the biggest strategic changes to improve sales trajectory in the near term?
Answer: The company plans to reinvest in marketing, leveraging new bank covenants to increase spend efficiency. A 32% reduction in media spend in Q2 and Q3 impacted sales, but future marketing will focus on building a pipeline for subsequent quarters. Product resets and cost reductions, particularly in real estate, are also key strategies.

Question 3: Can you update on product evolution and timing for refreshed assortment?
Answer: New product offerings are expected in early 2026, focusing on value at accessible price points while maintaining premium quality. The goal is to broaden customer reach without compromising on product differentiation in adjustability and temperature.

Question 4: What is the trajectory of sales through the quarter and expectations for Q4?
Answer: Sales started strong but faced challenges during the competitive Labor Day period due to limited marketing spend. Q4 media spend will be slightly less than the previous year, with expectations for improved sales trends, aided by the fifty-third week.

[Sentiment Analysis]
Analysts expressed concern over competitive pressures and marketing constraints but showed interest in strategic initiatives for 2026. Management maintained an optimistic tone, emphasizing the potential for a successful turnaround.

[Quarterly Comparison]
| Metric | Q3 2025 | Q3 2024 |
|-------------------------|-----------------|-----------------|
| Net Sales | $343 million | $426.5 million |
| Gross Profit Margin | 59.9% | 60.8% |
| Operating Expenses | $204 million | $248.8 million |
| Adjusted EBITDA | $13.3 million | $27.7 million |

[Risks and Concerns]
Key risks include continued competitive pressures, reduced marketing flexibility, and the impact of restructuring costs. The company's ability to execute its turnaround strategy and achieve projected financial outcomes remains uncertain.

[Final Takeaway]
Sleep Number is navigating a challenging environment with a strategic focus on transformation and cost efficiency. While Q3 results were below expectations, management is optimistic about future growth driven by product innovation and expanded distribution. The new bank agreement provides a foundation for reinvestment in marketing and sales initiatives, crucial for stabilizing and growing the business in 2026.