Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Sleep Number Corp (SNBR, Financial) achieved a gross margin rate improvement to 60.8% in Q3, up 340 basis points from the previous year.
- The company generated $28 million in adjusted EBITDA for the third quarter, aligning with expectations despite weak consumer demand.
- Year-to-date free cash flow increased by $50 million compared to the same period last year.
- Sleep Number Corp (SNBR) is implementing cost control measures, resulting in a $17 million reduction in operating expenses year-over-year for Q3.
- The introduction of the ClimateCool smart bed and expansion of the Climate series is resonating with customers and contributing positively to gross margins.
Negative Points
- Net sales for Q3 were down 10% year-over-year, falling short of expectations by 5 percentage points.
- The company lowered its full-year adjusted EBITDA guidance to a range of $115 million to $125 million due to ongoing weak demand.
- Consumer demand did not improve as expected in Q3, and no improvement is anticipated for Q4.
- The bedding industry continues to face a recession, with Sleep Number Corp (SNBR) experiencing persistent top-line pressure.
- There is a cautious consumer behavior, with spending concentrated around major sales events and delayed decision-making impacting sales.
Q & A Highlights
Q: Can you provide more details on how the quarter played out and if media spending has been affected by the upcoming election?
A: Shelly Ibach, CEO, explained that the quarter saw low-single-digit growth during holiday weekends like July 4 and Labor Day, but the rest of the quarter was challenging. Media spending was pulled back significantly after Labor Day due to low consumer presence, and this trend continued into October. The company is not expecting improvement in Q4 due to ongoing uncertainties and challenges in the big-ticket category.
Q: How do you view the current store portfolio given the demand environment? Are there plans for more closures?
A: Shelly Ibach stated that the company was opportunistic in closing underperforming stores and those part of a density test. The transfer rates exceeded expectations, and the current retail portfolio is healthy. The company believes it can generate significant comp sales with the existing store base as the industry recovers.
Q: Can you elaborate on the gross margin improvements and whether there is more self-help expected in 2025?
A: Francis Lee, CFO, mentioned that the company is along in its journey of gross margin improvement but not done. Ongoing initiatives include product redesign, material cost reductions, and delivery efficiencies. Benefits from these actions will continue into 2025, and the company plans to maintain constant improvement and agility.
Q: How is the consumer responding to promotions, and what new products are being introduced in this tough environment?
A: Shelly Ibach highlighted the introduction of the Climate series, which addresses temperature fluctuations at various price points. The company is focusing on deeper marketing segmentation and more efficient media spending. The consumer is more scrutinizing and delayed in decision-making, with a focus on holiday periods for purchases.
Q: What is the impact of potential tariffs on your cost of goods sold, particularly concerning China?
A: Shelly Ibach noted that the impact is minimal, as the percentage of inputs from China is small. However, even minor components can create pressure, as seen with past semiconductor shortages.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
