• Net Sales: $393 million, a decrease of 16% compared to the prior year.
• Average Revenue per Unit (ARU): Increased by approximately 4% versus last year.
• Gross Profit Margin: Expanded to 61.2%, up 250 basis points from last year.
• Operating Expenses: $237 million, a $23 million or 9% improvement over last year, excluding restructuring and one-time costs.
• Adjusted EBITDA: $22 million, a decrease of $15 million from the prior year.
• Adjusted EBITDA Margin: 5.6%, 230 basis points lower than the prior year.
• Leverage Ratio: 4.46 times EBITDAR at the end of the first quarter.
• Annualized Cost Reduction Target: $80 million to $100 million compared to the 2025 structure.
• Corporate Management Reduction: Reduced by 21% as part of organizational redesign.

• Warning! GuruFocus has detected 10 Warning Signs with SNBR.

Release Date: April 30, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Sleep Number Corp (NASDAQ:SNBR) reported a gross profit margin expansion to 61.2% in Q1 2025, up 250 basis points from the previous year, driven by operational efficiencies and product mix.
• The company has seen a positive consumer response to its Climate Series beds, contributing to a 4% increase in Average Revenue per Unit (ARU) compared to last year.
• Sleep Number Corp (NASDAQ:SNBR) is implementing significant cost reductions, estimating $80 million to $100 million in annualized savings, which includes restructuring and operational efficiencies.
• The company is focusing on marketing efficiency, aiming to lower marketing spend as a percentage of revenue while increasing engagement through benefits-focused messaging.
• Sleep Number Corp (NASDAQ:SNBR) is leveraging its extensive sleep data, with 33 billion hours of data, to enhance product innovation and customer experience.

Negative Points

• Net sales for Q1 2025 decreased by 16% compared to the prior year, indicating a challenging start to the year.
• Adjusted EBITDA for the quarter was $22 million, a decrease of $15 million from the previous year, with a margin decline of 230 basis points.
• The company is facing potential tariff impacts, with an estimated unmitigated impact of $30 million for 2025, which could pressure gross profit margins.
• Sleep Number Corp (NASDAQ:SNBR) is not providing full guidance for the year due to the uncertain macroeconomic environment and consumer sentiment.
• The company acknowledges that it previously lost sight of its core value proposition by focusing too far into future innovations, which may have impacted current consumer engagement.

Q & A Highlights

Q: What are the low-hanging fruits for improvement that Sleep Number should start to see in 2025? A: Linda Findley, President and CEO, highlighted three areas: marketing efficiency, organizational structure changes, and R&D focus. She believes there is significant potential to enhance marketing efficiency, reduce costs, and improve productivity. Streamlining the organization will enable faster decision-making and innovation. Additionally, leveraging Sleep Number's history of innovation can help refocus on customer needs and deliver differentiated products.

Q: Can you provide any color on quarter-to-date demand to help level set models for the near term? A: Francis Lee, CFO, noted that consumer confidence has declined since February, impacting spending across sectors. The company is focused on rightsizing the organization, controlling costs, and creating a stable business that can perform under various market conditions. Linda Findley added that they are preparing for key sales events like Memorial Day and Labor Day.

Q: What are the biggest opportunities to strengthen the brand and messaging to consumers? A: Linda Findley sees opportunities in leveraging new technologies and digital processes for effective marketing. She emphasized the importance of translating technical features into benefits-focused messaging. Partnerships, such as those with the NFL, will be optimized for maximum benefit, and the company will explore new partnerships to enhance brand visibility.

Q: Is there an increased appetite to explore wholesale distribution given changes in the competitive landscape? A: Linda Findley stated that everything is on the table, indicating openness to exploring various strategic options, including wholesale distribution, as part of a comprehensive review of the company's strategy and operations.

Q: How is Sleep Number approaching pricing and promotions in light of tariffs and industry conditions? A: Linda Findley explained that the company has a well-oiled promotional machine and is managing tariff impacts through various strategies, including cost management and supply chain flexibility. Pricing adjustments will be made strategically to balance the product portfolio and ensure customers receive value at the right price points.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.