Sleep Number Corporation Q4 FY2025 earnings call

1. Delivered on guidance in 2025 with net sales in line, adjusted EBITDA exceeding guidance. 2. Radically reset business by lowering fixed cost structure, removing over $185 million of annualized costs and identifying another $50 million. 3. Launched new bed and adjustable base in January, with sales of comfort mode mattress three and a half times expected. 4. Simplified buying experience, reduced core lineup from 12 mattresses to 7 organized into three collections: Comfort Mode, Comfort Next, and Climate. 5. Rebuilt marketing foundation, modernized customer attraction, saw improvements in funnel metrics and brand tracker results. 6. Hired new CFO to streamline operations and strengthen capital structure.

Full year net sales were $1.41 billion. Adjusted EBITDA was $78 million. Q4 net sales were $347 million, 8% below prior year. Gross profit margin in Q4 was 55.6%, down 430 basis points vs prior year. Full year gross margin was 59%, down 60 basis points. Operating expenses in Q4 were $197 million, down 9% year over year. Full year operating expenses were $824 million, a $136 million reduction. Adjusted EBITDA for full year was $78 million, pro forma adjusted EBITDA margin was approximately 9%.

1. Not providing guidance today. 2. Expect Q1 net sales to decline in the high teens. 3. Expect significant improvement in year-over-year revenue performance in Q2 with full impact of new product launch. 4. Expect double-digit sales growth in second half with benefits of new products, new creative assets, and marketing reach with Travis Kelsey. 5. Expect Adjusted EBITDA for full year to increase in the high teens to mid-20s percent range year over year and free cash flow to be positive.

1. Industry-wide softness, severe weather and macroeconomic impacts affected sales in January and early February. 2. Pressure on liquidity due to industry-wide softness, inventory clearance for new product line, and management of marketing spend. 3. Potential impact of non-recurring inventory obsolescence charge and unit deleverage and higher tariffs on gross margin.

Q: With new product launches, what were the main pain points and how will new beds reset impact ASPs, cost per bed, and margins?

A: Pain points were expanding audience to serve existing and new demographics, focusing on comfort, value, durability. Comfort mode bed is margin accretive.

Q: What's the phasing of new product launches?

A: Four new beds and a new base available starting March 23rd, key stores set by mid-April.

Q: How is marketing spend being thought about in 2026?

A: Marketing spend held flat overall, Q1 down, Q2, 3, 4 up year over year as spend is evened out.

Q: On clearance of existing products, was it greater markdown than expected?

A: Expected to do clearance work, had inventory hangover in Q1 and February, working through in March