Sleep Number Stock Wakes Up on Restructuring Plans

Sleep Number Co. (NASDAQ: SNBR) shares jumped 33% on its Q4 2023 earnings release. The consumer discretionary sector company is a leading manufacturer of smart adjustable beds and accessories. It competes with mattress giant Temper Sealy International Inc. (NYSE: TPX). Their lead product is Sleep Number smart beds, which enable users to adjust firmness on each side of the bed by selecting a number. Its SleepIQ technology tracks billions of nightly data points to offer insights to improve sleep quality. The company has been in restructuring mode, which caused shares to fall from $18.11 on December 14, 2023, to a low of $9.04 on February 7, 2024.

Innovation Series Beds

Sleep Number sells three Innovation series beds with air-chamber technology to adjust the firmness from the i8 smart bed to the i10 and the 360-degree iLE Limited Edition smart bed. They vary in pricing, height, support and cooling. They have advanced temperature balancing with a combination of 4X more ceramic gel layers to release excess heat or rapidly draw heat away for temperature-balancing comfort. They all have dual adjustability, responsive air that adjusts the firmness and SleepIQ to track sleep metrics. There is option Zero-G available.

Is the Worst Possibly Behind Them?

On February 22, 2024, Sleep Number Q4 2023 EPS losses of $1.12, missing consensus analyst estimates by 24 cents. Revenues fell 13.8% YoY to $429.52 million, still beating $420.78 million consensus estimates. Retail comparable-store sales fell 15%, while total company comparable-store sales fell 15% YoY. The gross margin was 56.6%, up 190 bps YoY, mostly from easing commodity prices, pricing actions, and operating cost reductions.This was partially offset by increased promotions. Check out the sector heatmap on MarketBeat.

Restructuring Update

Sleep Number provided updates on its restructuring progress. The broad-based cost management initiatives are progressing as planned. Operating expenses were cut by $85 million in full year 2023. The company will see another $40 million to $45 million in additional operating expenses trimmed in full year 2024. Sleep Number reduced its workforce by 4,100 workers in 2023. This is 7% less than 2019. The company expects specific ongoing workstreams to accelerate near-term growth and efficiency, which include service simplification, streamlining suppliers, reprioritizing spending to accelerate efficiency and growth and improving product value engineering.

Outlook for 2024

Sleep Number expects continued pressure on the mattress industry through 2024. In this context, Sleep Number expects an adjusted EBITDA of $125 million to $145 million. It expects net sales to fall by mid-single digits versus low single-digit demand decline in the prior year. Sleep Number expects nearly 100 bps of gross margin rate improvement and $12 million of restructuring charges in 2024. Get AI-powered insights on MarketBeat.

Free Cash Flow Generation

The company expects to generate $60 million to $80 million of free cash flow with a capex of $30 million. It expects Q1 2024 net sales to fall 10% YoY versus 10.5% consensus, including 3 to 4 points of headwind from YoY backlog changes. Q1 adjusted EBITDA is expected to be just over $30 million.

Sleep Number CEO Shelly Ibach commented, "Through broad-based restructuring actions to streamline our cost structure, restore margins and strengthen our balance sheet, we are transforming our operating model to improve our financial resilience and position our business for accelerating growth as the mattress industry demand environment improves. Importantly, our long-term opportunity remains intact as we lead through this transformation."

Sleep Number analyst ratings and price targets are at MarketBeat. Sleep Number's peers and competitor stocks can be found with the MarketBeat stock screener.

Daily Descending Triangle Breakout

The daily candlestick chart on SNBR illustrates a descending triangle breakout pattern. The descending trendline formed at the $18.11 swing high on December 14, 2024, before selling off to a low of $9.04 on February 7, 2024. The daily market structure low (MSL) was triggered at $9.88 the following day, causing SNBR to break through the descending trendline at $10.46. Shares staged a rally up to $11.83 before pulling back to retest the descending trendline as support. SNBR retested the $11.83 resistance ahead of the Q4 2023 earnings report. SNBR gapped up to $13.41 and peaked just under the $15.95 gap-fill level from Q3 2024 earnings. The daily relative strength index (RSI) is rising to test the 70-band. Pullback support levels are at $13.41, $11.83, $10.46 and $9.88.