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Sleep Number Corp’s Fourth Quarter Results

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Sleep Number Corp’s Stock Soars 33% After Narrower Loss Than Expected

Sleep Number Corp.’s stock soared 33% on Friday, following the mattress maker’s fourth-quarter results that exceeded expectations. This marks the biggest one-day percentage gain in about 15 years for the company.

Strong Performance Amidst Caution

Despite the impressive stock surge, Chief Executive Shelly Ibach mentioned caution regarding expected continued pressure on demand in 2024. Factors such as subdued consumer sentiment, slow new-home purchases, and high interest rates are challenges the company anticipates facing.

First Quarter Projections

Chief Financial Officer Francis K. Lee highlighted that sales are projected to decrease by 10% in the first quarter compared to the same period in 2023 due to unfavorable weather conditions affecting in-store traffic.

Sales Trends and Forecast

Despite a double-digit sales decline in January, Sleep Number experienced a recovery to a low single-digit drop in February. The company expects low single-digit growth in the second half of the year and anticipates benefiting from easier comparisons to the previous year’s third quarter.

Industry Trends and Analyst Reactions

Rivals Tempur-Sealy International Inc. and Wayfair Inc. have reported similar trends in mattress sales for the first quarter. Analysts at Wedbush reiterated a neutral rating on Sleep Number’s stock but raised their price target due to improved profitability focus and cash generation. However, they caution on the company’s debt levels nearing covenant limits.

Overall, while Sleep Number Corp has shown strong performance, future challenges and mixed industry trends call for cautious optimism from investors and analysts alike.

Sleep Number Announces Aggressive Cost Reduction Plan

Sleep Number recently announced a strategic restructuring plan that successfully slashed costs by $85 million last year. The company is now gearing up to further reduce operating costs by an additional $40 to $45 million in the current year. This initiative is part of Sleep Number’s broader efforts to fortify its balance sheet, optimize its cost structure, and collaborate with financial institutions to amend financial covenants.

Analysts’ Observations and Recommendations

Despite the positive strides made by Sleep Number, analysts remain cautious about potential risks associated with increased discounting strategies. While the company’s sharpened messaging has resonated well with consumers, some analysts warn that reliance on incentives could lead to demand declines if not managed effectively in the future.

Raymond James analysts, led by Bobby Griffin, underscored Sleep Number’s unique product portfolio and the inherent advantages of its vertically integrated retail model. This unique selling proposition positions Sleep Number favorably against traditional bedding competitors, especially in light of the growing emphasis on health and sleep technology.

Mixed Outlook for Investors

While the cost-cutting program has been commended for its potential to enhance profitability once industry demand rebounds, Raymond James analysts opted to maintain a neutral stance. Given ongoing demand challenges and the company’s high leverage, investors are urged to exercise caution until there are clearer signs of stabilization in market demand and improvements in leverage metrics.

Financial Performance Highlights

In the fourth quarter, Sleep Number reported a net loss of $15 million, equivalent to 68 cents per share, in contrast to earnings of $37 million, or $1.60 per share, in the corresponding period the previous year. Adjusted for one-time items, including restructuring costs, the adjusted loss per share stood at 58 cents, surpassing FactSet’s estimated loss of 88 cents per share.

Total sales for the quarter dipped by 14% to $430 million, with demand softening by low single digits compared to the previous year. Despite the decline, Sleep Number managed to exceed FactSet’s consensus estimate of $421 million in sales.

Sleep Number’s stock price has experienced a significant 63% drop over the past 12 months, contrary to the broader S&P 500 index, which recorded a robust 27% gain during the same period.

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