Sleep Number Announces First Quarter 2025 Results

Management Implements New Organizational Structure, Driving Company-Wide Efficiency, Including Marketing, Research and Development and General and Administrative Costs

New Structure Aims to Improve Cash Generation and Shareholder Value

• Net sales in the first quarter of $393 million, down 16% compared with the first quarter of 2024
• Gross profit margin of 61.2%, up 250 basis points versus the prior year
• Reduced first quarter operating expenses by $23 million year-over-year, before restructuring and other non-recurring costs
• Reported first quarter net loss of $8.6 million, compared with a net loss of $7.5 million for the same period last year
• Delivered first quarter adjusted EBITDA of $22 million, down 41% versus the same period last year
• Introduced new organizational structure and accelerated cost saving initiatives in the second quarter of 2025 with expected annualized operating expense reductions of $80 to $100 million before restructuring costs from the cost structure versus first quarter of 2025

Sleep Number Corporation (NASDAQ:SNBR) today reported results for the quarter ended March 29, 2025.

Linda Findley, President and CEO, commented, "We are laser focused on delivering strong returns for shareholders and are taking a different approach to the Sleep Number business. I see a way to run our business on a lower cost basis without compromising our topline. We are fundamentally changing how we operate. We implemented an organizational redesign, including changes to our leadership team, to simplify decision making and bring us closer to the customer. With that change, we reduced corporate management roles by 21%. In addition, we are reshaping key functions within the company, including marketing and research and development, to further drive efficiency. Since I joined three weeks ago, our efforts have reduced second quarter operating expenses by approximately 10% of our current cost structure, as of the first quarter of 2025."

"Sleep Number is truly differentiated and no one else does what we do. With the organizational changes implemented, we are now focused on building a strategy for growth with our customers at the center. I joined Sleep Number because I believe strongly in the company's long-term potential, and I am confident that we can change our trajectory to drive sustainable growth and profitability."

Financial Highlights (all comparisons year-over-year unless otherwise noted)

• Net sales of $393 million were down 16%, driven by lower volume and a reduced store count.
• Gross profit was $241 million, a decrease of $36 million. Gross profit margin increased 250 basis points to 61.2%, driven by the company's ongoing efforts to reduce material input cost and efficiency gains in its home delivery and logistics operations, along with a more favorable product mix.
• Operating expenses were $237 million before restructuring and other non-recurring costs, a decrease of $23 million, or 9%, primarily driven by lower marketing and selling expenses.
• Net loss was $8.6 million, or $0.38 per diluted share, down $1.2 million, driven primarily by lower net sales, partially offset by higher gross profit margin and lower operating expenses.
• Adjusted EBITDA was $22 million, down 41%, driven by a decline in net sales and associated loss of fixed cost leverage, partially offset by an improved gross margin rate and lower operating expenses. Adjusted EBITDA margin declined 230 basis points to 5.6%.

Cash Flows, Liquidity and Balance Sheet Highlights (all comparisons year-over-year unless otherwise noted)

• Net cash used in operating activities was $2.6 million for the quarter, down $36 million.
• Free cash flow was a use of $7.2 million for the quarter, down $32 million.
• The company's leverage ratio was 4.46x EBITDAR on a trailing 12-month basis at the end of the quarter versus the covenant maximum of 4.75x.

Company's Organizational Changes

In a separate press release today, the company announced a series of changes to its Executive Leadership Team reporting to Findley as part of an organizational redesign. The redesign also included broader changes across senior level roles. By consolidating overlapping capabilities and eliminating overspecialized roles, the company is now a more streamlined organization that the company believes will drive efficiency, increase accountability and accelerate decision-making to strengthen performance within a range of economic environments. With this change, Sleep Number reduced corporate management roles by 21%. With new leadership in place, the company anticipates further streamlining under each new function over the coming weeks.

The company has also taken aggressive, strategic actions to reduce expenses without compromising its topline, including marketing and research and development investments, through a sharper focus on near- and intermediate-term customer value. These actions are anticipated to reduce the company's cost structure by $80 to $100 million before restructuring costs on an annualized basis as compared to the first quarter of 2025. Approximately 35% of these costs are fixed, including research and development and general and administrative costs; 50% are structural changes to the marketing model for more efficiency; and 15% are volume-driven.

Financial Outlook

Given the recent leadership transition, changes being implemented within the business, and the rapidly evolving macroeconomic environment, the company will not be providing a 2025 outlook at this time. The company will continue to reassess its ability to provide such guidance as the new leadership team evaluates the company's strategy and the macroeconomic and consumer demand environment.

Conference Call Information

Management will host its regularly scheduled conference call to discuss the company's results at 5 p.m. EDT (4 p.m. CDT; 2 p.m. PDT) 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

Sleep Number is a sleep wellness company. We are guided by our purpose to improve the health and wellbeing of society through higher quality sleep; to date, our innovations have improved nearly 16 million lives. Our sleep wellness platform helps solve sleep problems, whether it's providing individualized temperature control for each sleeper through our Climate360^® smart bed or applying our 33 billion hours of longitudinal sleep data and expertise to research with global institutions.

Our smart bed ecosystem drives best-in-class engagement through dynamic, adjustable, and effortless sleep with personalized sleep and health insights; our millions of Smart Sleepers are loyal brand advocates. And our 3,600 mission-driven team members passionately innovate to drive value creation through our vertically integrated business model, including our exclusive direct-to-consumer selling in nearly 640 stores and online.

To learn more about life-changing, individualized sleep, visit a Sleep Number^® store near you, our newsroom and investor relations sites, or SleepNumber.com.

Forward-looking Statements

Statements used in this news release relating to future plans, events, financial results or performance, such as the statements that: the new organizational structure and accelerated cost saving initiatives introduced in the second quarter of 2025 have expected annualized operating expense reductions of $80 to $100 million before restructuring costs from the cost structure as compared to the first quarter of 2025 with approximately 35% of these costs being fixed, 50% being structural changes and 15% being volume-driven; the company has plans to run the business on a lower cost basis without compromising the topline; the company is fundamentally changing how it operates; the organizational redesign will simplify decision making, bring the company closer to the consumer, drive efficiency, increase accountability and accelerate decision-making to strengthen performance within a range of economic environments; the company can change its trajectory to drive sustainable growth and profitability; the company anticipates further streamlining under each new organizational function over the coming weeks; and future plans to issue financial guidance are forward-looking statements subject to certain risks and uncertainties which could cause the company's results to differ materially. The most important risks and uncertainties are described in the company's filings with the Securities and Exchange Commission, including in Item 1A of the company's Annual Report on Form 10-K and other periodic reports. Forward-looking statements speak only as of the date they are made, and the company does not undertake any obligation to update any forward-looking statement.

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 loss plus: income tax (benefit) expense, interest expense, depreciation and amortization, stock-based compensation, restructuring costs, CEO transition/proxy contest costs, 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:

SLEEP NUMBER CORPORATION AND SUBSIDIARIES

Calculation of Return on Invested Capital (Adjusted ROIC)

(in thousands)

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

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Investor Contact: Ryan Smith; [email protected]

Media Contact: Julie Elepano; (414) 732-9840; [email protected]