Sleep Number Announces Fourth Quarter and Full Year 2025 Results

Reports FY2025 Net Sales of $1.4 Billion, Exceeding Adjusted EBITDA Guidance

Realized $185 Million of Annualized Cost Savings

Launches New Products as the Next Phase of Turnaround Strategy to Return to Profitable Growth

Sleep Number Corporation (NASDAQ:SNBR) today reported results for fourth quarter and the year ended January 3, 2026.

Linda Findley, President and CEO, commented, "Sleep Number exceeded 2025 guidance provided on our last earnings call. We are still in full turnaround mode and made significant progress against our new product and marketing strategies while continuing to reduce costs. For the full year 2025, pro-forma adjusted EBITDA margin was approximately 9% and anticipate double-digit adjusted EBITDA growth in 2026 as we continue to execute on our strategy.

"The launch of our ComfortMode bed in January exceeded our expectations and is outselling plan by 3.5 times, with stronger margins than the beds it replaces. The rest of the new product line, available this month, is all built on the same consumer research highlighting comfort and value, and we anticipate similar strength from the new beds, as the supporting marketing is also performing well.

"Even with the strength of our product and marketing strategies, the negative industry impact at the start of the year plus the clearance of our existing products had an outsized impact on our liquidity. We are implementing a plan to address our liquidity and capital strategy as we move towards topline growth in the second half of the year."

Fourth Quarter Overview (all comparisons year-over-year unless otherwise noted)

• Net sales of $347 million, down 8%, driven by ongoing industry demand pressure and lower store traffic.
• Gross profit of $193 million, a decrease of $32 million. Gross profit margin of 55.6% compared to 59.9% for the same period last year, primarily due to a $9.6 million inventory obsolescence charge associated with the introduction of the company's new product line. Excluding the charge, adjusted gross profit margin was 58.4%.
• Operating expenses were $201 million. Adjusted operating expenses before restructuring and other non-recurring costs were $197 million, a decrease of $20 million, or 9%, driven by lower marketing and selling expenses, general and administrative expenses, and research and development expenses.
• Restructuring and other non-recurring costs were $14 million, driven primarily by the $9.6 million inventory obsolescence charge and contract termination costs due to store closures.
• Net loss of $59 million compared with a net loss of $5 million for the same period last year, driven primarily by lower net sales and recognition of a $47.9 million deferred tax valuation adjustment during the fourth quarter of 2025.
• Adjusted EBITDA of $19 million, down 26%, driven by a year-over-year net sales decline, partially offset by lower operating expenses. Adjusted EBITDA margin of 5.6%, down 140 basis points ("bps").

Full Year Overview (all comparisons year-over-year unless otherwise noted)

• Net sales of $1.4 billion, down 16%, driven by driven by ongoing industry pressure and lower store traffic.
• Gross profit of $833 million, a decrease of $170 million. Gross profit margin of 59.0% of net sales, down 60 bps, driven by the $9.6 million inventory write-down charge and partially offset by the benefit of product cost reductions through value engineering and ongoing supplier negotiations and ongoing efficiencies in our home delivery and logistics operations.
• Operating expenses were $880 million. Adjusted operating expenses before restructuring and other non-recurring costs were $824 million, a decrease of $136 million, or 14%, driven by lower marketing and selling expenses, general and administrative expenses, and research and development expenses.
• Restructuring and other non-recurring costs were $65 million, driven primarily by severance and employee-related benefits, contract termination costs due to store closures, asset impairment charges, and inventory obsolescence.
• Net loss of $132 million compared with a net loss of $20 million last year.
• Adjusted EBITDA of $78 million, down 35%, driven by year-over year net sales decline, partially offset by lower operating expenses. Adjusted EBITDA margin of 5.5%, down 160 bps, exiting the year with an annualized pro forma adjusted EBITDA margin of approximately 9%, a 200 bps improvement versus the prior year.

Cash Flows and Liquidity Review (all comparisons year-over-year unless otherwise noted)

• Net cash used in operating activities was $3 million, down $30 million.
• Free cash flow was a use of $18 million, down $21 million.
• The company's leverage ratio calculated under its credit agreement was 4.1x EBITDAR at the end of the year versus the amended covenant maximum of 4.5x.

Additional Business Highlights

Sleep Number is executing a turnaround strategy centered on product, marketing and distribution with ongoing cost savings and operating efficiencies to reignite growth and increase financial resilience. Recent highlights include:

• Leadership and Organizational Realignment – After appointing a new CEO in April 2025, the company further strengthened the executive team with the appointment of a new Chief Marketing Officer in May 2025 and Chief Financial Officer in December 2025 while reorganizing reporting lines and responsibilities to improve accountability, accelerate decision-making, and enhance customer responsiveness.
• Product Portfolio Transformation – The company announced a new product line, taking only ten months versus the historical two years to design and develop, aimed to meet customer demands and simplify the shopping experience to address a broader range of sleep needs. Sleep Number launched the ComfortMode™ bed in January and sales have exceeded expectations by more than three times. The remainder of the new product line was announced separately today and will be available for purchase on March 23.
• Modernized Marketing Foundation – Under new leadership, Sleep Number has rebuilt its marketing foundation with refreshed creative and channel-specific media strategies aimed at strengthening brand awareness and funnel performance to drive purchase intent.
• Cost Structure Reset – Implemented $185 million of annualized cost reductions through efficiencies in general and administrative, corporate structure, technology, and adapting Sleep Number's existing real estate footprint. These changes created a more agile organization while preserving innovation. In 2026, Sleep Number is implementing another $50 million of annualized fixed costs savings.
• Capital Structure Review – Engaged Guggenheim Securities to evaluate inbound interest and other opportunities to address the company's amended credit facility and improve Sleep Number's liquidity, balance sheet and flexibility.

Conference Call Information

Management will host its regularly scheduled conference call to discuss the company's results at 8:30 a.m. ET (7:30 a.m. CT; 5:30 a.m. PT) 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 the leader in personalized sleep wellness. Its mattresses are designed to evolve with each sleeper to help them feel and perform their best. With adjustable firmness, pressure-relieving support and temperature balancing comfort built into every mattress, Sleep Number^® beds adapt to customers' changing needs, night after night, year after year.

Backed by almost 40 years of innovation, 1,000+ patents and patents pending, and billions of hours of sleep data, Sleep Number has helped more than 16 million people achieve their best sleep. The fully integrated model ensures quality, durability, and care at every step—from design and craftsmanship to delivery and long-term support.

Sleep Number products are awarded the industry's top recognitions, including ranked #1 in customer satisfaction for mattresses purchased in-store and online, and #1 in comfort, by J.D. Power. In addition, the company is the Official Sleep + Wellness Partner of the NFL, marking a relationship that leverages player health data, team partnerships, and league-wide initiatives to amplify brand awareness and drive consumer engagement.

Sleep Number mattresses, bases, bedding, and furniture are available exclusively at its 600 stores nationwide and online. To learn more, visit SleepNumber.com or a store near you.

Forward-looking Statements

Statements used in this news release relating to future plans, events, financial results or performance, such as the statements that: the company is launching new products as the next phase of its turnaround strategy to return to profitable growth; it anticipates double digit increase to adjusted EBITDA in 2026; it anticipates strong sales and margins from the new product line launching this month; it is implementing a plan to address liquidity and capital strategy as it moves towards topline growth in the second half of 2026; it is executing a turnaround strategy centered on product, marketing and distribution with ongoing cost savings and operating efficiencies to reignite growth and increase financial resilience; it is implementing $50 million of annualized fixed costs savings in 2026; and it is working with Guggenheim Securities to address the company's amended credit facility and improve its liquidity, balance sheet and flexibility 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 expense (benefit), interest expense, depreciation and amortization, stock-based compensation, restructuring costs, other non-recurring items, 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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Media Contact: Muriel Lussier, [email protected]