Shares Plummet 30% in After-Hours Trading
Shares of Sleep Number Corp. (SNBR) tumbled 30% in after-hours trading on Tuesday following the unexpected announcement of a quarterly loss. The mattress maker and retailer also projected a loss for the full year and revealed an agreement with a shareholder advocating for change.
Challenging Quarter and Industry Landscape
CEO Shelly Ibach acknowledged the difficulties faced by both Sleep Number and the bedding industry as a whole. Ibach stated that the consumer demand trajectory shifted abruptly midway through the quarter, leading to unforeseen challenges.
However, Sleep Number quickly responded to the changing dynamics by implementing several measures. These actions involved cost reductions, adjustments to sales and marketing strategies, and amendments to the credit agreement to provide more flexibility until 2024.
Quarterly Performance and Analyst Expectations
Sleep Number reported a loss of $2.32 million, or 10 cents per share, in the third quarter compared to earnings of $5 million, or 22 cents per share, in the same period last year. The company’s revenue also dipped by 13% to $473 million.
Analysts surveyed by FactSet had anticipated earnings of 16 cents per share on sales of $509 million for the quarter, making Sleep Number’s results fall short of expectations.
Cost-Reduction Strategies
To counter the decline in demand, Sleep Number has initiated a comprehensive cost-reduction plan. The company aims to achieve approximately $50 million in reduced operating expenses for the next year through these measures.
The cost-restructuring actions will be wide-ranging and will involve layoffs across various departments, including corporate and research and development. Additionally, Sleep Number plans to close 40 to 50 stores by the end of next year and slow down its pace of new-store openings and remodels.
Sleep Number remains committed to navigating through these challenges and capitalizing on future opportunities in the mattress and bedding industry.
Sleep Number Announces Restructuring and Revised EPS Outlook
Sleep Number, a leading sleep solutions company, has announced a significant restructuring plan that is expected to incur one-time costs of up to $20 million. Approximately $10 million of these costs will be incurred in the fourth quarter, according to the company’s statement.
As a result of the restructuring, Sleep Number has revised its 2023 EPS outlook. The company now anticipates a per-share loss of up to 70 cents, including the restructuring charges in the fourth quarter. This revision comes as a contrast to the previous guidance provided in July, which projected 2023 EPS in the range of $1.25 to $1.75.
In addition to this announcement, Sleep Number has made two key appointments to its board. Stephen E. Macadam and Hilary A. Schneider have been appointed as board members, effectively expanding the board to 12 individuals. The company has also entered into a cooperation agreement with Stadium Capital Management LLC, a significant shareholder.
Under the cooperation agreement, Sleep Number’s board has established a dedicated committee called the “Capital Allocation and Value Enhancement Committee.” This committee will be responsible for reviewing capital utilization and investment strategies, aiming to maximize value for shareholders.
Commenting on the appointments and cooperation agreement, Michael J. Harrison, an independent director at Sleep Number, expressed gratitude for reaching an agreement with Stadium Capital. Harrison stated that the company looks forward to collaborating with Stephen and Hilary to achieve their shared objective of delivering long-term value for shareholders.
Stadium Capital, which owns approximately 9% of Sleep Number, recently published a letter criticizing the company’s performance and shareholder returns, describing them as “abysmal.”
The market has responded to this news, with Sleep Number’s stock experiencing a decline of 38% year-to-date, while the S&P 500 index has seen gains of about 14%.
Sleep Number’s restructuring plan and revised EPS outlook reflect the company’s commitment to address market challenges and focus on long-term value creation for its shareholders.
