SNBR - Sleep Number Announces Fourth-Quarter and Full-Year 2021 Results

February, 23 2022 04:01 PM Sleep Number Corporation

Fourth-quarter demand increased high-single digits over prior-year demand (adjusted for extra fiscal week last year); a late receipt of semiconductor components from a large global supplier delayed more than $125 million of delivered net sales
Full-year net sales grew to a record $2.18 billion with full-year diluted earnings per share (EPS) of $6.16
Generated record operating cash flows of $300 million for the year and full-year ROIC of 27.6%
Provides 2022 outlook for a 10-15% increase in diluted EPS versus 2021, including constrained first quarter

Sleep Number Corporation (Nasdaq: SNBR) today reported results for the year ended January 1, 2022.

“Strong demand for Sleep Number’s 360 smart beds again drove record earnings in 2021, even with pandemic-induced global supply chain disruptions,” said Shelly Ibach, President and CEO. “The fourth quarter proved to be the most challenging as we received semiconductor components too late in December to fulfill our planned deliveries. Global electronics supplies remain constrained in the near-term, while demand for our 360 smart beds remains strong, reflecting increased consumer engagement and referrals from more than two million connected smart sleepers. We continue to focus on delivering long-term stakeholder value to build upon our 5-year EPS CAGR of 41% through 2021.”

Fourth Quarter Overview

Net sales decreased 13% to $492 million (-7% adjusted); with a late December receipt of semiconductor components constraining delivered net sales by more than $125 million (about two and half weeks of deliveries)
Diluted EPS of $0.47 for the fourth quarter, compared to $2.19 for the same period last year, or $1.89 excluding the 53 ^rd week
Fiscal 2020 included a 53 ^rd week in the fourth quarter, which we estimate added approximately $41 million in net sales, $11.2 million in operating income and $0.30 of diluted EPS

Full Year Overview

Net sales increased 18% (+20% adjusted) to $2.18 billion in 2021, including a 17% comparable sales gain; up 29% compared to 2019
Gross profit increased 14% (+17% adjusted) to $1.32 billion, or 60.4% of net sales, while offsetting significant input cost increases with pricing actions and efficiency gains; up 25% compared to 2019
Operating income increased 5% (+11% adjusted) to $194 million; up 73% compared to 2019
Diluted EPS increased 26% (+34% adjusted) to a record $6.16; up 128% compared to 2019

Cash Flows and Liquidity Review

Generated $300 million in net cash from operating activities, up 7% versus last year and 59% higher than 2019
Invested $67 million in capital expenditures and repurchased $364 million of Sleep Number stock during 2021
Leverage ratio of 2.6x EBITDAR at the end of 2021
Return on invested capital (ROIC) of 27.6% for the year, up 260 bp versus prior year and nearly four times our weighted-average cost of capital

Financial Outlook

The company expects full-year 2022 diluted EPS to increase 10 to 15% versus 2021. The outlook for 2022 assumes continued global electronics supply constraints with the greatest impact expected in the first quarter. Accordingly, the 2022 outlook assumes first quarter EPS of 30 to 40 cents with EPS growth of approximately 80% expected for the last nine months of the year. The company anticipates 2022 capital expenditures of $70 million to $80 million.

Conference Call Information

Management will host its regularly scheduled conference call to discuss the company’s results at 5 p.m. EST (4 p.m. CST; 2 p.m. PST) today. To access the webcast, please visit the investor relations area of the Sleep Number website at https://ir.sleepnumber.com . The webcast replay will remain available for approximately 60 days.

About Sleep Number Corporation

Individuality is the foundation of Sleep Number. Our purpose driven company is comprised of over 5,000 passionate team members who are dedicated to our mission of improving lives by individualizing sleep experiences. We have improved nearly 14 million lives and are positively impacting society’s wellbeing through higher-quality sleep.

Our award-winning 360 ^® smart beds are informed by science. They learn from over one billion sleep sessions of highly-accurate, real-world sleep data – the cumulation of almost 14 billion hours’ worth - to automatically adjust to each sleeper and provide effortless comfort and proven quality sleep. Our 360 smart beds deliver individualized sleep health reports and insights, including a daily SleepIQ ^® score, and are helping to advance meaningful sleep health solutions by applying sleep science and research.

For life-changing sleep, visit SleepNumber.com or one of our 650 Sleep Number ^® stores. More information is available on our newsroom and investor relations sites.

Forward-looking Statements

Statements used in this news release relating to future plans, events, financial results or performance, such as the company’s expectations for full-year 2022 diluted EPS and capital expenditures, are forward-looking statements subject to certain risks and uncertainties including, among others, such factors as current and future general and industry economic trends and consumer confidence; risks inherent in outbreaks of pandemics or contagious disease, including the COVID-19 pandemic; risks inherent in global-sourcing activities, including tariffs, outbreaks of pandemics or contagious diseases, such as the COVID-19 pandemic, strikes and the potential for shortages in supply or disruption or delay of production and delivery of materials and products in our supply chain; risks of disruption in the operation of any of our main manufacturing, distribution, logistics, home delivery, product development, or customer service facilities or operations; our manufacturing processes with minimal levels of inventory, which may leave us vulnerable to shortages in supply; our dependence on significant suppliers and third parties and our ability to maintain relationships with key suppliers or third parties, including several sole-source suppliers or service providers; rising commodity costs and other inflationary pressures; the effectiveness of our marketing messages; the efficiency of our advertising and promotional efforts; our ability to execute our Total Retail distribution strategy; our ability to achieve and maintain acceptable levels of product and service quality, and acceptable product return and warranty claims rates; our ability to continue to improve and expand our product line, and consumer acceptance of our products, product quality, innovation and brand image; industry competition, the emergence of additional competitive products and the adequacy of our intellectual-property rights to protect our products and brand from competitive or infringing activities; claims that our products, processes, advertising, or trademarks infringe the intellectual-property rights of others; availability of attractive and cost-effective consumer credit options; increasing government regulation; pending or unforeseen litigation and the potential for adverse publicity associated with litigation; the adequacy of our and third-party information systems to meet the evolving needs of our business and existing and evolving risks and regulatory standards applicable to data privacy and cybersecurity; the costs and potential disruptions to our business related to upgrading or maintaining our information systems; the vulnerability of our and third party information systems to attacks by hackers or other cyber threats that could compromise the security of our systems, result in a data breach or disrupt our business; environmental risks, including increasing environmental regulation and the broader impacts of climate change such as from weather-related events; and our ability to attract, retain and motivate qualified management, executive and other key team members, including qualified retail sales professionals and managers. Additional information concerning these and other risks and uncertainties is contained in the company’s filings with the Securities and Exchange Commission (SEC), including the Annual Report on Form 10-K, and other periodic reports filed with the SEC. The company has no obligation to publicly update or revise any of the forward-looking statements in this news release.


SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)



Thirteen



Fourteen




Weeks Ended



Weeks Ended




January 1,

% of

January 2,

% of


2022

Net Sales

2021

Net Sales









Net sales

$
491,984


100.0
%

$
567,896


100.0
%
Cost of sales


212,260


43.1
%


211,997


37.3
%
Gross profit


279,724


56.9
%


355,899


62.7
%
Operating expenses:








Sales and marketing


220,236


44.8
%


221,712


39.0
%
General and administrative


29,924


6.1
%


47,084


8.3
%
Research and development


14,907


3.0
%


12,511


2.2
%
Total operating expenses


265,067


53.9
%


281,307


49.5
%
Operating income


14,657


3.0
%


74,592


13.1
%
Interest expense, net


1,845


0.4
%


813


0.1
%
Income before income taxes


12,812


2.6
%


73,779


13.0
%
Income tax expense


1,671


0.3
%


12,420


2.2
%
Net income

$
11,141


2.3
%

$
61,359


10.8
%









Net income per share – basic

$
0.49




$
2.28












Net income per share – diluted

$
0.47




$
2.19





















Reconciliation of weighted-average








shares outstanding:








Basic weighted-average shares outstanding


22,939





26,960



Dilutive effect of stock-based awards


877





1,100



Diluted weighted-average shares outstanding


23,816





28,060


SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Operations
(unaudited – in thousands, except per share amounts)



Fifty-Two



Fifty-Three




Weeks Ended



Weeks Ended




January 1,

% of

January 2,

% of


2022

Net Sales

2021

Net Sales









Net sales

$
2,184,949


100.0
%

$
1,856,555


100.0
%
Cost of sales


866,102


39.6
%


700,555


37.7
%
Gross profit


1,318,847


60.4
%


1,156,000


62.3
%
Operating expenses:








Sales and marketing


905,359


41.4
%


771,195


41.5
%
General and administrative


161,412


7.4
%


158,999


8.6
%
Research and development


58,540


2.7
%


40,910


2.2
%
Total operating expenses


1,125,311


51.5
%


971,104


52.3
%
Operating income


193,536


8.9
%


184,896


10.0
%
Interest expense, net


6,245


0.3
%


8,924


0.5
%
Income before income taxes


187,291


8.6
%


175,972


9.5
%
Income tax expense


33,545


1.5
%


36,783


2.0
%
Net income

$
153,746


7.0
%

$
139,189


7.5
%









Net income per share – basic

$
6.40




$
5.03












Net income per share – diluted

$
6.16




$
4.90





















Reconciliation of weighted-average








shares outstanding:








Basic weighted-average shares outstanding


24,038





27,665



Dilutive effect of stock-based awards


909





763



Diluted weighted-average shares outstanding


24,947





28,428


SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Balance Sheets
(unaudited – in thousands, except per share amounts)
subject to reclassification







January 1,

January 2,


2022

2021
Assets




Current assets:




Cash and cash equivalents

$
2,389


$
4,243

Accounts receivable, net of allowances




of $924 and $1,046, respectively


25,718



31,871

Inventories


105,644



81,362

Prepaid expenses


18,953



20,839

Other current assets


54,917



43,489

Total current assets


207,621



181,804






Non-current assets:




Property and equipment, net


195,128



175,223

Operating lease right-of-use assets


371,133



314,226

Goodwill and intangible assets, net


70,468



72,871

Other non-current assets


75,190



56,012

Total assets

$
919,540


$
800,136






Liabilities and Shareholders’ Deficit




Current liabilities:




Borrowings under revolving credit facility

$
382,500


$
244,200

Accounts payable


162,547



91,904

Customer prepayments


129,499



72,017

Accrued sales returns


22,368



24,765

Compensation and benefits


51,240



76,786

Taxes and withholding


22,087



23,339

Operating lease liabilities


72,360



62,077

Other current liabilities


64,177



60,856

Total current liabilities


906,778



655,944






Non-current liabilities:




Deferred income taxes


688



242

Operating lease liabilities


336,192



283,084

Other non-current liabilities


100,835



84,844

Total non-current liabilities


437,715



368,170

Total liabilities


1,344,493



1,024,114






Shareholders’ deficit:




Undesignated preferred stock; 5,000 shares authorized,




no shares issued and outstanding


-



-

Common stock, $0.01 par value; 142,500 shares authorized,




22,683 and 25,390 shares issued and outstanding, respectively


227



254

Additional paid-in capital


3,971



-

Accumulated deficit


(429,151
)


(224,232
)
Total shareholders’ deficit


(424,953
)


(223,978
)
Total liabilities and shareholders’ deficit

$
919,540


$
800,136


SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(unaudited - in thousands)
subject to reclassification


Fifty-Two

Fifty-Three


Weeks Ended

Weeks Ended


January 1,

January 2,


2022

2021





Cash flows from operating activities:




Net income

$
153,746


$
139,189

Adjustments to reconcile net income to net cash provided by




operating activities:




Depreciation and amortization


60,394



61,563

Stock-based compensation


23,214



21,813

Net loss on disposals and impairments of assets


37



247

Deferred income taxes


446



(3,566
)
Changes in operating assets and liabilities:




Accounts receivable


6,153



(11,893
)
Inventories


(24,282
)


5,703

Income taxes


(3,066
)


1,057

Prepaid expenses and other assets


(13,836
)


(13,717
)
Accounts payable


54,405



(16,755
)
Customer prepayments


57,482



37,769

Accrued compensation and benefits


(24,790
)


36,825

Other taxes and withholding


1,814



111

Other accruals and liabilities


8,293



21,315

Net cash provided by operating activities


300,010



279,661






Cash flows from investing activities:




Purchases of property and equipment


(66,900
)


(37,100
)
Proceeds from sales of property and equipment


257



55

Purchase of intangible assets


-



(1,973
)
Net cash used in investing activities


(66,643
)


(39,018
)





Cash flows from financing activities:




Net increase (decrease) in short-term borrowings


145,473



(11,639
)
Repurchases of common stock


(382,376
)


(235,644
)
Proceeds from issuance of common stock


4,441



9,602

Debt issuance costs


(2,759
)


(312
)
Net cash used in financing activities


(235,221
)


(237,993
)





Net (decrease) increase in cash and cash equivalents


(1,854
)


2,650

Cash and cash equivalents, at beginning of period


4,243



1,593

Cash and cash equivalents, at end of period

$
2,389


$
4,243


SLEEP NUMBER CORPORATION
AND SUBSIDIARIES
Supplemental Financial Information
(unaudited)











Thirteen

Fourteen

Fifty-Two

Fifty-Three


Weeks Ended

Weeks Ended

Weeks Ended

Weeks Ended


January 1,

January 2,

January 1,

January 2,


2022

2021

2022

2021









Percent of sales:








Retail stores


85.8
%


85.3
%


87.1
%


85.2
%
Online, phone, chat and other


14.2
%


14.7
%


12.9
%


14.8
%
Total Company


100.0
%


100.0
%


100.0
%


100.0
%









Sales change rates:








Retail comparable-store sales ⁴


(11
%)


12
%


19
%


(3
%)
Online, phone and chat ⁴


(11
%)


93
%


4
%


104
%
Total Retail comparable sales change ⁴


(11
%)


19
%


17
%


6
%
Net opened/closed stores, other and 53rd week


(2
%)


10
%


1
%


3
%
Total Company


(13
%)


29
%


18
%


9
%









Stores open:








Beginning of period


632



596



602



611

Opened


22



10



77



30

Closed


(6
)


(4
)


(31
)


(39
)
End of period


648



602



648



602










Other metrics:








Average sales per store ($ in 000's) ^{1, 4}

$
3,600


$
3,052





Average sales per square foot ^{1, 4}

$
1,212


$
1,051





Stores > $2 million net sales ^{2, 4}


84
%


67
%




Stores > $3 million net sales ^{2, 4}


48
%


29
%




Average revenue per smart bed unit ³

$
5,309


$
4,931


$
5,102


$
4,856

Trailing twelve months Total Retail comparable sales per store open at least one year.

Trailing twelve months for stores open at least one year (excludes online, phone and chat sales).

Represents Total Retail (stores, online, phone and chat) net sales divided by Total Retail smart bed units.

⁴

Fiscal 2020 included 53 weeks, as compared to 52 weeks in fiscal 2021 and 2019. The additional week in 2020 was in the fiscal fourth quarter. Total Retail comparable sales have been adjusted to remove the estimated impact of the additional week on those metrics.

SLEEP NUMBER CORPORATION AND SUBSIDIARIES

Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)

(in thousands)

We define earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) as net income plus: income tax expense, interest expense, depreciation and amortization, stock-based compensation and asset impairments. Management believes Adjusted EBITDA is a useful indicator of our financial performance and our ability to generate cash from operating activities. Our definition of Adjusted EBITDA may not be comparable to similarly titled definitions used by other companies. The table below reconciles Adjusted EBITDA, which is a non-GAAP financial measure, to the comparable GAAP financial measure:



Thirteen

Fourteen

Fifty-Two

Fifty-Three


Weeks Ended

Weeks Ended

Weeks Ended

Weeks Ended


January 1,

January 2,

January 1,

January 2,


2022

2021

2022

2021









Net income

$
11,141

$
61,359

$
153,746

$
139,189
Income tax expense


1,671


12,420


33,545


36,783
Interest expense


1,844


813


6,245


9,021
Depreciation and amortization


15,434


15,194


59,779


60,783
Stock-based compensation


3,512


6,259


23,214


21,813
Asset impairments


60


42


172


302









Adjusted EBITDA

$
33,662

$
96,087

$
276,701

$
267,891


Free Cash Flow
(in thousands)











Thirteen

Fourteen

Fifty-Two

Fifty-Three


Weeks Ended

Weeks Ended

Weeks Ended

Weeks Ended


January 1,

January 2,

January 1,

January 2,


2022

2021

2022

2021









Net cash provided by (used in) operating activities

$
7,326


$
(7,621
)

$
300,010

$
279,661
Subtract: Purchases of property and equipment


17,530



9,026



66,900


37,100









Free cash flow

$
(10,204
)

$
(16,647
)

$
233,110

$
242,561


Calculation of Net Leverage Ratio under Revolving Credit Facility
(in thousands)







Fifty-Two

Fifty-Three


Weeks Ended

Weeks Ended


January 1,

January 2,


2022

2021





Borrowings under revolving credit facility

$
382,500

$
244,200
Outstanding letters of credit


3,997


3,997
Finance lease obligations


537


650
Consolidated funded indebtedness

$
387,034

$
248,847
Capitalized operating lease obligations ¹


610,072


548,749
Total debt including capitalized operating lease obligations (a)

$
997,106

$
797,596





Adjusted EBITDA (see above)

$
276,701

$
267,891
Consolidated rent expense


101,679


91,458
Consolidated EBITDAR (b)

$
378,380

$
359,349





Net Leverage Ratio under revolving credit facility (a divided by b)

2.6 to 1.0

2.2 to 1.0

¹ A multiple of six times annual rent expense is used as an estimate for capitalizing our operating lease obligations in accordance with our credit facility.

Note - Our Adjusted EBITDA and EBITDAR calculations, Free Cash Flow data and Calculation of Net Leverage Ratio under Revolving Credit Facility are considered non-GAAP financial measures and are not in accordance with, or preferable to, "as reported," or GAAP financial data. However, we are providing this information as we believe it facilitates analysis of the Company's financial performance by investors and financial analysts.

GAAP - generally accepted accounting principles in the U.S.

SLEEP NUMBER CORPORATION AND SUBSIDIARIES

Calculation of Return on Invested Capital (ROIC)

(in thousands)

ROIC is a financial measure we use to determine how efficiently we deploy our capital. It quantifies the return we earn on our invested capital. Management believes ROIC is also a useful metric for investors and financial analysts. We compute ROIC as outlined below. Our definition and calculation of ROIC may not be comparable to similarly titled definitions and calculations used by other companies. The tables below reconcile net operating profit after taxes (NOPAT) and total invested capital, which are non-GAAP financial measures, to the comparable GAAP financial measures:



Fifty-Two

Fifty-Three


Weeks Ended

Weeks Ended


January 1, 2022

January 2, 2021
Net operating profit after taxes (NOPAT)




Operating income

$
193,536


$
184,896

Add: Rent expense ¹


101,679



91,458

Add: Interest income


-



97

Less: Depreciation on capitalized operating leases ²


(25,592
)


(24,001
)
Less: Income taxes ³


(65,216
)


(59,387
)
NOPAT

$
204,407


$
193,063






Average invested capital




Total deficit

$
(424,953
)

$
(223,978
)
Add: Long-term debt ⁴


383,037



244,849

Add: Capitalized operating lease obligations ⁵


813,432



731,664

Total invested capital at end of period

$
771,516


$
752,535






Average invested capital ⁶

$
739,873


$
773,413






Return on invested capital (ROIC) ⁷


27.6
%


25.0
%

Rent expense is added back to operating income to show the impact of owning versus leasing the related assets.

Depreciation is based on the average of the last five fiscal quarters' ending capitalized operating lease obligations (see note 5) for the respective reporting periods with an assumed thirty-year useful life. This life assumption is based on our long-term participation in given markets though specific retail location lease commitments are generally 5 to 10 years at inception. This is subtracted from operating income to illustrate the impact of owning versus leasing the related assets.

Reflects annual effective income tax rates, before discrete adjustments, of 24.2% and 23.5% for 2021 and 2020, respectively.

⁴

Long-term debt includes existing finance lease liabilities.

⁵

A multiple of eight times annual rent expense is used as an estimate for capitalizing our operating lease obligations. The methodology utilized aligns with the methodology of a nationally recognized credit rating agency.

⁶

Average invested capital represents the average of the last five fiscal quarters' ending invested capital balances.

⁷

ROIC equals NOPAT divided by average invested capital.

Note - Our ROIC calculation and data are considered non-GAAP financial measures and are not in accordance with, or preferable to, GAAP financial data. However, we are providing this information as we believe it facilitates analysis of the Company's financial performance by investors and financial analysts.

GAAP - generally accepted accounting principles in the U.S.

View source version on businesswire.com: https://www.businesswire.com/news/home/20220223005066/en/

Investor Contact: Dave Schwantes; (763) 551-7498; investorrelations@sleepnumber.com
Media Contact: Julie Elepano; (414) 732-9840; julie.elepano@sleepnumber.com

Company Name:	Sleep Number Corporation
Stock Symbol:	SNBR
Market:	NASDAQ
Website:	sleepnumber.com

Twitter