- First quarter net sales grew 10% to $426 million
- First quarter diluted EPS grew 54% to $0.80
- Generated 38% increase in operating cash flows and 22% higher operating income
- Reiterates full-year 2019 earnings outlook of $2.25 to $2.75 per diluted share
Sleep Number Corporation SNBR today reported first quarter 2019 results for the period ended March 30, 2019.
"Sleep Number 360® smart beds, which are providing our customers with life-changing sleep, drove record first quarter sales and EPS," stated Shelly Ibach, President and CEO. "Our initiatives are extending brand reach, deepening consumer engagement and driving sustainable profitable growth."
First Quarter Overview
- Net sales increased 10% to $426 million, including a 5% comparable sales gain and 5 percentage points of growth from new stores
- Gross profit rate increased 40 basis points to 61.5% of net sales compared with 61.1% for the same period last year
- Operating income increased 22% to $33 million, or 7.7% of net sales, up 80 basis points versus the prior year's first quarter
- Earnings per diluted share increased 54% to $0.80, compared with $0.52 for the prior year
Cash Flows and Liquidity Review
- Generated $68 million of operating cash flows, up 38% versus the prior year
- Invested $20 million in capital expenditures, including 15 new stores opened during the quarter
- Returned $41 million to shareholders through share repurchases; continue to expect 2019 full-year share repurchases of $125 million to $145 million
- Adopted the new lease accounting standard, ASC Topic 842 this quarter, recording approximately $300 million of right-of-use assets and related lease liabilities; adoption had no impact on net income
- Ending leverage ratio of 2.8x EBITDAR is within the targeted operating range of 2.5x to 3.0x EBITDAR
- Return on invested capital increased to 16.5% for the trailing twelve-month period, well above our cost of capital
Financial Outlook
The company reiterates its outlook for
2019 earnings per diluted share of $2.25 to $2.75. The outlook assumes
6% to 10% net sales growth for 2019 and a 25% effective income tax rate
for the remainder of the year. The company anticipates 2019 capital
expenditures to be $50 million to $60 million.
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 listen to the call, please
dial 800-593-9959 (international participants dial 517-308-9340) and
reference the passcode "Sleep." To access the webcast, please visit the
investor relations area of the Sleep Number website at http://www.sleepnumber.com/eng/aboutus/InvestorRelations.cfm.
The webcast replay will remain available for approximately 60 days.
About Sleep Number Corporation
The leader in sleep
innovation, Sleep Number delivers proven, quality sleep through
effortless, adjustable comfort and biometric sleep tracking. Sleep
Number's revolutionary 360® smart bed and proprietary SleepIQ®
technology platforms are proving the connection between sleep and
well-being. With one of the most comprehensive databases of
biometric consumer sleep data and ranked #1 in J.D. Power's 2018
Mattress Satisfaction Report*, Sleep Number is improving lives by
individualizing sleep experiences. And with a commitment to improving
the well-being of over one million youth by 2025, Sleep Number is
redefining the future of health and wellness – for everyone. To
experience better quality sleep, visit SleepNumber.com
or one of our over 580 Sleep Number® stores located in all 50
states. For additional information, visit our newsroom
and investor
relations site.
*Sleep Number received the highest score in the J.D. Power 2015, 2016 and 2018 Mattress Satisfaction Reports of customers' satisfaction with their mattress. Visit jdpower.com/awards.
Forward-looking Statements
Statements used in this news
release relating to future plans, events, financial results or
performance are forward-looking statements subject to certain risks and
uncertainties including, among others, such factors as current and
future general and industry economic trends and consumer confidence; the
effectiveness of our marketing messages; the efficiency of our
advertising and promotional efforts; our ability to execute our
company-controlled distribution strategy; our ability to achieve and
maintain acceptable levels of product and service quality, and
acceptable product return and warranty claims rates; our ability to
continue to improve and expand our product line; consumer acceptance of
our products, product quality, innovation and brand image; industry
competition, the emergence of additional competitive products, and the
adequacy of our intellectual property rights to protect our products and
brand from competitive or infringing activities; the potential for
claims that our products, processes, advertising, or trademarks infringe
the intellectual property rights of others; availability of attractive
and cost-effective consumer credit options; pending and unforeseen
litigation and the potential for adverse publicity associated with
litigation; our manufacturing processes with minimal levels of
inventory, which may leave us vulnerable to shortages in supply; our
dependence on significant suppliers and our ability to maintain
relationships with key suppliers, including several sole-source
suppliers; the vulnerability of key suppliers to recessionary pressures,
labor negotiations, liquidity concerns or other factors; rising
commodity costs and other inflationary pressures; risks inherent in
global sourcing activities, including tariffs and the potential for
shortages in supply; risks of disruption in the operation of either of
our two primary manufacturing facilities; increasing government
regulations; the adequacy of our and third party information systems to
meet the evolving needs of our business and existing and evolving risks
and regulatory standards applicable to data privacy and security; the
costs, distractions and potential disruptions to our business related to
upgrading our management information systems; the vulnerability of our
and third-party information systems to attacks by hackers or other cyber
threats that could compromise the security of our systems, result in a
data breach or disrupt our business; and our ability to attract, retain
and motivate qualified management, executive and other key employees,
including qualified retail sales professionals and managers. Additional
information concerning these and other risks and uncertainties is
contained in the company's filings with the Securities and Exchange
Commission (SEC), including the Annual Report on Form 10-K, and other
periodic reports filed with the SEC. The company has no obligation to
publicly update or revise any of the forward-looking statements in this
news release.
| SLEEP NUMBER CORPORATION | ||||||||||||||
| AND SUBSIDIARIES | ||||||||||||||
| Consolidated Statements of Operations | ||||||||||||||
| (unaudited – in thousands, except per share amounts) | ||||||||||||||
| Three Months Ended | ||||||||||||||
| March 30, | % of | March 31, | % of | |||||||||||
| 2019 | Net Sales | 2018 | Net Sales | |||||||||||
| Net sales | $ | 426,445 | 100.0 | % | $ | 388,633 | 100.0 | % | ||||||
| Cost of sales | 164,212 | 38.5 | % | 151,156 | 38.9 | % | ||||||||
| Gross profit | 262,233 | 61.5 | % | 237,477 | 61.1 | % | ||||||||
| Operating expenses: | ||||||||||||||
| Sales and marketing | 186,827 | 43.8 | % | 171,917 | 44.2 | % | ||||||||
| General and administrative | 34,323 | 8.0 | % | 31,734 | 8.2 | % | ||||||||
| Research and development | 8,376 | 2.0 | % | 6,925 | 1.8 | % | ||||||||
| Total operating expenses | 229,526 | 53.8 | % | 210,576 | 54.2 | % | ||||||||
| Operating income | 32,707 | 7.7 | % | 26,901 | 6.9 | % | ||||||||
| Other expense, net | 2,609 | 0.6 | % | 525 | 0.1 | % | ||||||||
| Income before income taxes | 30,098 | 7.1 | % | 26,376 | 6.8 | % | ||||||||
| Income tax expense | 4,680 | 1.1 | % | 5,828 | 1.5 | % | ||||||||
| Net income | $ | 25,418 | 6.0 | % | $ | 20,548 | 5.3 | % | ||||||
| Net income per share – basic | $ | 0.83 | $ | 0.54 | ||||||||||
| Net income per share – diluted | $ | 0.80 | $ | 0.52 | ||||||||||
|
Reconciliation of weighted-average shares outstanding: |
||||||||||||||
| Basic weighted-average shares outstanding | 30,620 | 38,244 | ||||||||||||
| Dilutive effect of stock-based awards | 1,118 | 1,103 | ||||||||||||
| Diluted weighted-average shares outstanding | 31,738 | 39,347 | ||||||||||||
| SLEEP NUMBER CORPORATION | ||||||||||
| AND SUBSIDIARIES | ||||||||||
| Consolidated Balance Sheets | ||||||||||
| (unaudited – in thousands, except per share amounts) | ||||||||||
| subject to reclassification | ||||||||||
| March 30, | December 29, | |||||||||
| 2019 | 2018 | |||||||||
| Assets | ||||||||||
| Current assets: | ||||||||||
| Cash and cash equivalents | $ | 1,696 | $ | 1,612 | ||||||
|
Accounts receivable, net of allowance for doubtful accounts of $720 and $699, respectively |
18,613 | 24,795 | ||||||||
| Inventories | 83,314 | 84,882 | ||||||||
| Prepaid expenses | 10,043 | 8,009 | ||||||||
| Other current assets | 31,987 | 31,559 | ||||||||
| Total current assets | 145,653 | 150,857 | ||||||||
| Non-current assets: | ||||||||||
| Property and equipment, net | 203,649 | 205,631 | ||||||||
| Operating lease right-of-use assets 1 | 303,820 | - | ||||||||
| Goodwill and intangible assets, net | 74,862 | 75,407 | ||||||||
| Other non-current assets | 42,716 | 38,243 | ||||||||
| Total assets | $ | 770,700 | $ | 470,138 | ||||||
| Liabilities and Shareholders' Deficit | ||||||||||
| Current liabilities: | ||||||||||
| Borrowings under revolving credit facility | $ | 218,700 | $ | 199,600 | ||||||
| Accounts payable | 121,146 | 144,781 | ||||||||
| Customer prepayments | 30,518 | 27,066 | ||||||||
| Accrued sales returns | 19,957 | 19,907 | ||||||||
| Compensation and benefits | 29,349 | 27,700 | ||||||||
| Taxes and withholding | 23,842 | 18,380 | ||||||||
| Operating lease liabilities 1 | 54,197 | - | ||||||||
| Other current liabilities | 47,768 | 51,234 | ||||||||
| Total current liabilities | 545,477 | 488,668 | ||||||||
| Non-current liabilities: | ||||||||||
| Deferred income taxes | 5,646 | 4,822 | ||||||||
| Operating lease liabilities 1 | 278,446 | - | ||||||||
| Other non-current liabilities | 65,771 | 86,198 | ||||||||
| Total non-current liabilities | 349,863 | 91,020 | ||||||||
| Total liabilities | 895,340 | 579,688 | ||||||||
| Shareholders' deficit: | ||||||||||
|
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding |
- | - | ||||||||
|
Common stock, $0.01 par value; 142,500 shares authorized, 30,213 and 30,868 shares issued and outstanding, respectively |
302 | 309 | ||||||||
| Additional paid-in capital | - | - | ||||||||
| Accumulated deficit | (124,942 | ) | (109,859 | ) | ||||||
| Total shareholders' deficit | (124,640 | ) | (109,550 | ) | ||||||
| Total liabilities and shareholders' deficit | $ | 770,700 | $ | 470,138 | ||||||
|
1 |
Effective December 30, 2018, we adopted the new lease accounting standard. We adopted the new guidance on a modified-retrospective basis and have not restated prior periods. | |
| SLEEP NUMBER CORPORATION | ||||||||||||
| AND SUBSIDIARIES | ||||||||||||
| Consolidated Statements of Cash Flows | ||||||||||||
| (unaudited - in thousands) | ||||||||||||
| subject to reclassification | ||||||||||||
| Three Months Ended | ||||||||||||
| March 30, | March 31, | |||||||||||
| 2019 | 2018 | |||||||||||
| Cash flows from operating activities: | ||||||||||||
| Net income | $ | 25,418 | $ | 20,548 | ||||||||
|
Adjustments to reconcile net income to net cash provided by operating activities: |
||||||||||||
| Depreciation and amortization | 15,743 | 15,680 | ||||||||||
| Stock-based compensation | 3,638 | 3,084 | ||||||||||
| Net gain on disposals and impairments of assets | (433 | ) | (70 | ) | ||||||||
| Deferred income taxes | 824 | 1,184 | ||||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | 6,182 | (2,486 | ) | |||||||||
| Inventories | 1,568 | (2,485 | ) | |||||||||
| Income taxes | 4,208 | 4,762 | ||||||||||
| Prepaid expenses and other assets | (5,283 | ) | 13,894 | |||||||||
| Accounts payable | 5,857 | 123 | ||||||||||
| Customer prepayments | 3,452 | 2,412 | ||||||||||
| Accrued compensation and benefits | 1,750 | (7,567 | ) | |||||||||
| Other taxes and withholding | 1,254 | 1,662 | ||||||||||
| Other accruals and liabilities | 3,958 | (1,485 | ) | |||||||||
| Net cash provided by operating activities | 68,136 | 49,256 | ||||||||||
| Cash flows from investing activities: | ||||||||||||
| Purchases of property and equipment | (19,743 | ) | (8,805 | ) | ||||||||
| Proceeds from sales of property and equipment | 2,571 | 70 | ||||||||||
| Net cash used in investing activities | (17,172 | ) | (8,735 | ) | ||||||||
| Cash flows from financing activities: | ||||||||||||
| Net increase in short-term borrowings | 2,955 | 35,963 | ||||||||||
| Repurchases of common stock | (55,656 | ) | (77,648 | ) | ||||||||
| Proceeds from issuance of common stock | 2,836 | 857 | ||||||||||
| Debt issuance costs | (1,015 | ) | (1,009 | ) | ||||||||
| Net cash used in financing activities | (50,880 | ) | (41,837 | ) | ||||||||
| Net increase (decrease) in cash and cash equivalents | 84 | (1,316 | ) | |||||||||
| Cash and cash equivalents, at beginning of period | 1,612 | 3,651 | ||||||||||
| Cash and cash equivalents, at end of period | $ | 1,696 | $ | 2,335 | ||||||||
| SLEEP NUMBER CORPORATION | ||||||||||
| AND SUBSIDIARIES | ||||||||||
| Supplemental Financial Information | ||||||||||
| (unaudited) | ||||||||||
| Three Months Ended | ||||||||||
| March 30, | March 31, | |||||||||
| 2019 | 2018 | |||||||||
| Percent of sales: | ||||||||||
| Retail | 92.0 | % | 91.6 | % | ||||||
| Online and phone | 7.0 | % | 7.2 | % | ||||||
| Wholesale/other | 1.0 | % | 1.2 | % | ||||||
| Total | 100.0 | % | 100.0 | % | ||||||
| Sales change rates: | ||||||||||
| Retail comparable-store sales | 5 | % | (4 | %) | ||||||
| Online and phone | 6 | % | 7 | % | ||||||
| Company-Controlled comparable sales change | 5 | % | (3 | %) | ||||||
| Net opened/closed stores | 5 | % | 2 | % | ||||||
| Total Company-Controlled Channel | 10 | % | (1 | %) | ||||||
| Wholesale/other | (3 | %) | (37 | %) | ||||||
| Total | 10 | % | (1 | %) | ||||||
| Stores open: | ||||||||||
| Beginning of period | 579 | 556 | ||||||||
| Opened | 15 | 13 | ||||||||
| Closed | (9 | ) | (11 | ) | ||||||
| End of period | 585 | 558 | ||||||||
| Other metrics: | ||||||||||
| Average sales per store ($ in 000's) 1 | $ | 2,744 | $ | 2,595 | ||||||
| Average sales per square foot 1 | $ | 1,003 | $ | 973 | ||||||
| Stores > $1 million net sales 2 | 98 | % | 98 | % | ||||||
| Stores > $2 million net sales 2 | 66 | % | 60 | % | ||||||
| Average revenue per mattress unit 3 | $ | 4,804 | $ | 4,421 | ||||||
|
1 |
Trailing twelve months Company-Controlled comparable sales per store open at least one year. | |
|
2 |
Trailing twelve months for stores open at least one year. | |
|
3 |
Represents Company-Controlled Channel total net sales divided by Company-Controlled Channel mattress units. | |
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 income plus: income tax expense, interest expense, depreciation and amortization, stock-based compensation 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:
| Three Months Ended | Trailing-Twelve Months Ended | |||||||||||
| March 30, | March 31, | March 30, | March 31, | |||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||
| Net income | $ | 25,418 | $ | 20,548 | $ | 74,409 | $ | 61,164 | ||||
| Income tax expense | 4,680 | 5,828 | 15,834 | 20,560 | ||||||||
| Interest expense | 2,610 | 527 | 7,994 | 1,320 | ||||||||
| Depreciation and amortization | 15,637 | 15,612 | 61,673 | 60,537 | ||||||||
| Stock-based compensation | 3,638 | 3,084 | 11,966 | 15,143 | ||||||||
| Asset impairments | 139 | - | 235 | 244 | ||||||||
| Adjusted EBITDA | $ | 52,122 | $ | 45,599 | $ | 172,111 | $ | 158,968 | ||||
| Free Cash Flow | ||||||||||||
| (in thousands) | ||||||||||||
| Three Months Ended | Trailing-Twelve Months Ended | |||||||||||
| March 30, | March 31, | March 30, | March 31, | |||||||||
| 2019 | 2018 | 2019 | 2018 | |||||||||
| Net cash provided by operating activities | $ | 68,136 | $ | 49,256 | $ | 150,420 | $ | 134,994 | ||||
| Subtract: Purchases of property and equipment | 19,743 | 8,805 | 56,453 | 55,423 | ||||||||
| Free cash flow | $ | 48,393 | $ | 40,451 | $ | 93,967 | $ | 79,571 | ||||
|
Note - |
Our Adjusted EBITDA calculation and our "free cash flow" data are considered non-GAAP financial measures and are not in accordance with, or preferable to, "as reported," or GAAP financial data. However, we are providing this information as we believe it facilitates analysis of the Company's financial performance by investors and financial analysts. |
|
|
GAAP - |
generally accepted accounting principles in the U.S. |
|
SLEEP NUMBER CORPORATION AND SUBSIDIARIES
Calculation
of Return on Invested Capital (ROIC)
(in thousands)
ROIC is a financial measure we use to determine how efficiently we deploy our capital. It quantifies the return we earn on our invested capital. Management believes ROIC is also a useful metric for investors and financial analysts. We compute ROIC as outlined below. Our definition and calculation of ROIC may not be comparable to similarly titled definitions and calculations used by other companies. The tables below reconcile net operating profit after taxes (NOPAT) and total invested capital, which are non-GAAP financial measures, to the comparable GAAP financial measures:
| Trailing-Twelve Months Ended | ||||||||||
| March 30, | March 31, | |||||||||
| 2019 | 2018 | |||||||||
|
Net operating profit after taxes (NOPAT) |
||||||||||
| Operating income | $ | 98,234 | $ | 82,987 | ||||||
| Add: Rent expense 1 | 81,949 | 74,933 | ||||||||
| Add: Interest income | 4 | 56 | ||||||||
| Less: Depreciation on capitalized operating leases 2 | (20,815 | ) | (19,266 | ) | ||||||
| Less: Income taxes 3 | (38,490 | ) | (41,486 | ) | ||||||
| NOPAT | $ | 120,882 | $ | 97,224 | ||||||
|
Average invested capital |
||||||||||
| Total (deficit) equity | $ | (124,640 | ) | $ | 35,997 | |||||
| Add: Long-term debt 4 | 219,533 | 75,800 | ||||||||
| Add: Capitalized operating lease obligations 5 | 655,592 | 599,464 | ||||||||
| Total invested capital at end of period | $ | 750,485 | $ | 711,261 | ||||||
| Average invested capital 6 | $ | 732,890 | $ | 688,758 | ||||||
| Return on invested capital (ROIC) 7 | 16.5 | % | 14.1 | % | ||||||
| 1 | Rent expense is added back to operating income to show the impact of owning versus leasing the related assets. | |
| 2 | Depreciation is based on the average of the last five fiscal quarters' ending capitalized operating lease obligations (see note 6) for the respective reporting periods with an assumed thirty-year useful life. This is subtracted from operating income to illustrate the impact of owning versus leasing the related assets. | |
| 3 | Reflects annual effective income tax rates, before discrete adjustments, of 24.2% and 29.9% for 2019 and 2018, respectively. | |
| 4 | Long-term debt includes existing finance lease liabilities. | |
| 5 | A multiple of eight times annual rent expense is used as an estimate for capitalizing our operating lease obligations. The methodology utilized aligns with the methodology of a nationally recognized credit rating agency. | |
| 6 | Average invested capital represents the average of the last five fiscal quarters' ending invested capital balances. | |
| 7 | ROIC equals NOPAT divided by average invested capital. | |
|
Note - |
Our ROIC calculation and data are considered non-GAAP financial measures and are not in accordance with, or preferable to, GAAP financial data. However, we are providing this information as we believe it facilitates analysis of the Company's financial performance by investors and financial analysts. |
|
|
GAAP - |
generally accepted accounting principles in the U.S. |
View source version on businesswire.com: https://www.businesswire.com/news/home/20190417005818/en/
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