SNBR - Sleep Number: An Interesting Gamble But Not A Value Play

2024-04-01 10:42:45 ET

Summary

• SNBR's stock price got decimated -88% over the past 3 years due to the combination of falling demand and an unstable balance sheet.
• In 2020-2021, Sleep Number management materially destroyed long-term shareholder value through debt-funded share buybacks at excessively high share prices.
• This (unnecessarily) put Sleep Number in a precarious situation as demand started to fall, raising serious concerns about the company’s financial stability.
• The brand is strong and the business model is intact, which means that SNBR could see a substantial recovery from current price levels.
• While the Stock Research Platform does not typically look at companies with unstable balance sheets, I am discussing here whether SNBR may be worth a gamble.

Sleep Number ( SNBR ) is an U.S. company specializing in innovative bedding solutions, particularly renowned for its adjustable mattresses. Users can customize the firmness or softness of their mattress according to their individual preferences, utilizing a remote control or a smartphone app to adjust the air pressure within the mattress chambers. Their more premium beds also come with height adjustable head and/or foot sections, as well as temperature control. With a focus on personalized comfort and sleep quality, Sleep Number integrates cutting-edge technology such as sleep tracking features to provide insights into users' sleep patterns and facilitate optimal rest.

Thesis

While both the U.S. mattress market and Sleep Number have been in decline for the past two years, the industry is projected to return to its historical average annual growth of 4% through the rest of the decade. As consumers' focus on a healthy sleep increases, Sleep Number is well-positioned to compete with its high-tech adjustable smart beds that come with integrated sleep tracking solutions, allowing users to track their sleeping pattern through the company’s proprietary SleepIQ app....

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