Sleep Number Corporation

03/12/2026 | Press release | Distributed by Public on 03/12/2026 05:07

Annual Report for Fiscal Year Ending January 3, 2025 (Form 10-K)

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward-LookingStatements
The discussion in this Annual Report contains certain forward-looking statements that relate to future plans,
events, financial results or performance. You can identify forward-looking statements by those that are not
historical in nature, particularly those that use terminology such as "may," "will," "should," "could," "expect,"
"anticipate," "believe," "estimate," "plan," "project," "predict," "intend," "potential," "continue" or the negative
of these or similar terms. These statements are subject to certain risks and uncertainties that could cause actual
results to differ materially from the Company's historical experience and present expectations or projections.
These risks and uncertainties include, among others:
•Changes in economic conditions and consumer sentiment and related impacts on discretionary consumer spending;
•Interest rates remain elevated, and may further increase and impact the cost of servicing the Company's
indebtedness;
•Availability of attractive and cost-effective consumer credit options;
•Ability to achieve the improvements, growth, cost savings, efficiencies and other benefitsrelated to its turnaround
strategy to avoid adverse effects and the costs to implement its turnaround strategy;
•Ability to continue as a going concern;
•Access to additional capital and its access to such capital or alternative financing options may depend on factors
beyond the Company's control or require the Company to accept unfavorable terms;
•Ability to manage our credit agreement, which contains financial covenants and other restrictions on our actions;
•Effectiveness and efficiency of the Company's marketing strategy and promotions;
•Ability to execute Sleep Number's Total Retail distribution strategy;
•Ability to compete effectively;
•Ability to achieve and maintain high levels of product and service quality;
•Ability to improve and expand the product line, anticipate and respond to changing consumer trends, and execute new
product introductions;
•Ability to protect the Company's technology, trademarks and brand, and the adequacy of its intellectual property
rights;
•Dependence on, and ability to maintain working relationships with key suppliers and third parties, including some that
are the only source of supply or services currently used by the Company;
•Fluctuations in commodity prices or third-party delivery or logistics costs and other inflationary pressures;
•Risks inherent in global-sourcing activities, including tariffs, foreign regulation, geo-political turmoil, war, pandemics,
labor challenges, foreign currency fluctuations, inflation, climate or other disasters and resulting supply shortages, and
production and delivery delays and disruptions;
•Operating with minimal levels of inventory, which may leave the Company vulnerable to supply shortages;
•Risks of disruption in the operation of any of the Company's facilities and operations, including manufacturing,
assembly, distribution, logistics, field services, home delivery, headquarters, product development, retail or customer
service operations;
•Ability to effectively complete potential future acquisitions, business combinations or divestitures;
•Sleep Number's ability, and the ability of its suppliers and vendors, to attract, retain and motivate qualified and
effective personnel;
•Ability to comply with existing and changing government regulations and laws;
•Ability to identify and withstand cyber threats that could compromise the security of the Company's systems or those
of third parties upon which it relies and could result in a data breach or business disruption;
•Risks associated with advancements in, adoption of, or the failure to effectively adopt, artificial intelligence and related
technologies;
•Adequacy of the Company's and third-party information systems, and costs and disruptions related to upgrading or
maintaining these systems;
37 | 2025FORM 10-K
SLEEP NUMBER CORPORATION
•Volatility of Sleep Number stock, its removal from various stock indices and the potential negative effects of
shareholder activism or of changes in coverage by securities analysts;
•Unfavorable tax treatment;
•Environmental, social and governance risks, including increasing scrutiny and evolving regulatory and stakeholder
expectations; and
•Ability to adapt to climate change and readiness for legal or regulatory responses thereto.
Additional information concerning these and other risks and uncertainties is contained under the caption "Item
1A. Risk Factors" in this Annual Report on Form 10-K.
Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide a
reader of the Company's consolidated financial statements with a narrative from the perspective of management on its
financial condition, results of operations, liquidity and certain other factors that may affect its future results. The
Company's MD&A is presented in the following sections:
•Business Overview
•Results of Operations
•Liquidity and Capital Resources
•Non-GAAP Data Reconciliations
•Critical Accounting Policies and Estimates
•Recent Accounting Pronouncements
Business Overview
SleepNumber is the leader in personalized sleep wellness. Its mattresses are designed to evolve with each sleeper to
help them feel and perform their best.With adjustable firmness, pressure-relieving support and temperature balancing
comfort built into every mattress, Sleep Number beds adapt to customers' changing needs, night after night, year after
year.
2025 was a transformational year for Sleep Number. Under the leadership of its new CEO, Linda Findley, who joined the
Company in April 2025, the business has undergone change at every level.The Company:
•Created a more streamlined operation designed to enable faster decision-making by consolidating roles across
key functions and strengthening accountability;
•Reduced operating costs across the business by $136 millionas compared to 2024, excluding restructuring and
other non-recurring costs;
•Added financial flexibility by extending the Credit Agreement through the end of 2027; and
•Executed the Twelfth Amendment to the Amended and Restated Credit and Security Agreement, dated as of
February 14, 2018 (as amended, supplemented or otherwise modified from time to time), among U.S. Bank
National Association, as Administrative Agent, Swing Line Lender and Issuing Lender, and certain other financial
institutions party thereto (the "Credit Agreement") to amend financial covenants.
With a stronger foundation, in November 2025, the Company introduced its turnaround strategy "Sleep Number Shifts," a
focused, company-wide effort to reposition the brand, expand reach to new customer groups, and reignite growth. The
aim is to drive value for shareholders, customers and team members with efforts rooted in the consumer through all
dimensions of the business. It is centered on three key areas:
•Product:The Company is simplifying its offering with the goal of growing its customer base while building on the
demand from repeat customers
•Marketing: The Company is modernizing its efforts by expanding channels and reach with new creative to better
connect with today's consumer and drive engagement with a focus on better ROI
•Distribution: The Company is focused on optimizing store footprint as well as exploring opportunities to expand
distribution into new channels, both physical and digital.
38 | 2025FORM 10-K
SLEEP NUMBER CORPORATION
"Sleep Number Shifts" is being implemented as the Company continues to execute cost savings and operating
efficiencies, including real estate optimization and right-sizing the fixed cost base. While the Company is focused on
implementing the "Sleep Number Shifts" and executing cost savings and operating efficiencies, it faces liquidity
challenges. See "Risk Factors-Risks Related to Indebtedness and Liquidity."
Results of Operations
Financial Highlights for Fiscal 2025were as follows:
•Net sales for 2025decreased 16%to $1.4 billion, compared with $1.7 billionin 2024. Demand was impacted by
ongoing industry demand pressure and lower store traffic. In addition, 2025 included 53 weeks compared with 52
weeks in the prior year, with theextra week benefiting 2025 net sales by approximately $25 million. For additional
details, see the components of total net sales growth on page 39.
•The net sales change resulted from a 17%comparable sales decrease in Total Retail. For additional details, see the
components of total net sales change on page 39.
•Average sales per store (sales for stores open at least one year, Total Retail, including online, phone and chat,
adjusted for the additional 53rd week) for the year ended January 3, 2026totaled $1.9 million, compared with
$2.6 millionfor the same period last year.
•Gross profit margin of 59.0%was 0.6percentage points (ppt.) lower than the prior-year. For additional details, see the
gross profit discussion on page 40.
•The $100 millionyear-over-year reduction in the Company's operating expenses was due to sales and marketing
expenses decrease of $102 million, general and administrative expenses decrease of $19 million, and research and
development expenses decrease of $11 million, partly offset by an increase in restructuring costs of $33 millionwhen
compared to 2024.
•Operating loss for 2025was $47 millioncompared to operating income of $23 millionfor 2024. The $69 million
decrease in operating income in the current year was driven by the lower gross profit, partially offset by the
Company's $100 millionreduction in total operating expenses. The Company's 2025operating loss rate was impacted
by the deleveraging impact of the 16%decrease in net sales.
•Adjusted EBITDA for 2025was $78 million, compared to $120 millionin 2024due to year-over-year net sales decline
offset by ongoing cost reduction actions. For additional details, see Non-GAAP Data Reconciliations section on page
44.
•Income tax expense in 2025was $36.0 million, compared to income tax benefit of $5.2 millionin 2024. In 2025, the
Company recorded a $55 million valuation allowance on its deferred income taxes resulting primarily from its inability
to utilize certain net operating losses and state R&D tax credits. This was partially offset by a decrease in income tax
expense of $14 million when compared to 2024 due to higher net loss in 2025.
•Net loss in 2025was $132 million, compared with $20 millionin 2024. Net loss per diluted share increased to $5.77,
compared with $0.90in 2024.
•The Company's adjusted return on invested capital (Adjusted ROIC) was negative 4.0%in 2025, compared with 7.6%
in 2024. For additional details, see Non-GAAP Data Reconciliations section on page 44.
•The Company used $3 millionin cash from operating activities in 2025, compared with generated cash of $27 million
in 2024.
•Free cash flow used $18 million for the year ended January 3, 2026, compared with free cash flow provided of
$4 million for the same period last year.
•The Company ended 2025with $588 millionof borrowings under its revolving credit facility, compared with
$547 millionat the end of 2024.
39 | 2025FORM 10-K
SLEEP NUMBER CORPORATION
The following table sets forth the Company's results of operations expressed as dollars and percentages of net sales.
Figures are in millions, except percentages and per share amounts. Amounts may not add due to rounding differences.
2025
2024
2023
$
% of
Net
Sales
$
% of
Net
Sales
$
% of
Net Sales
Net sales
$1,411.5
100.0%
$1,682.3
100.0 %
$1,887.5
100.0%
Cost of sales
578.5
41.0%
679.5
40.4 %
799.0
42.3%
Gross profit
833.0
59.0%
1,002.8
59.6 %
1,088.5
57.7%
Operating expenses:
Sales and marketing
664.2
47.1%
766.6
45.6 %
847.4
44.9%
General and administrative
130.7
9.3%
150.0
8.9 %
146.6
7.8%
Research and development
33.9
2.4%
45.3
2.7 %
55.8
3.0%
Restructuring costs
50.7
3.6%
18.1
1.1 %
15.7
0.8%
Total operating expenses
879.5
62.3%
979.9
58.2 %
1,065.6
56.5%
Operating (loss) income
(46.6)
(3.3%)
22.9
1.4 %
22.9
1.2%
Interest expense, net
49.4
3.5%
48.4
2.9 %
42.7
2.3%
Loss before income taxes
(96.0)
(6.8%)
(25.5)
(1.5 %)
(19.8)
(1.0)%
Income tax expense (benefit)
36.0
2.5%
(5.2)
(0.3 %)
(4.5)
(0.2)%
Net loss
$(132.0)
(9.3%)
$(20.3)
(1.2 %)
$(15.3)
(0.8)%
Net loss per share:
Basic and diluted
$(5.77)
$(0.90)
$(0.68)
Weighted-average number of common shares:
Basic and diluted
22.9
22.6
22.4
The percentage of the Company's total net sales, by dollar volume, was as follows:
2025
2024
2023
Retail stores
87.6%
87.6%
86.8%
Online, phone, chat and other
12.4%
12.4%
13.2%
Total Company
100.0%
100.0%
100.0%
The components of total net sales change,including comparable net sales changes, were as follows:
Net Sales Increase/(Decrease)
2025
2024
2023
Retail comparable-store sales(1)
(17%)
(9%)
(12%)
Online, phone and chat(1)
(17%)
(17%)
(15%)
Total Retail comparable sales change(1)
(17%)
(10%)
(12%)
Net opened/closed stores and 53rd week
1%
(1%)
1%
Total Company
(16%)
(11%)
(11%)
(1)Stores are included in the comparable-store calculation in the 13th full month of operations. Stores that have been remodeled or repositioned within
the same shopping center remain in the comparable-store base. Fiscal 2025 included 53 weeks, as compared to 52 weeks for the other periods
presented. Total Retail comparable sales have been adjusted to remove the estimated impact of the additional week.
40 | 2025FORM 10-K
SLEEP NUMBER CORPORATION
Other sales metrics were as follows:
2025
2024
2023
Average sales per store ($ in thousands)(1)(4)
$1,946
$2,601
$2,853
Average sales per square foot(1)(4)
$629
$841
$926
Stores > $2 million in net sales(2)(4)
32%
57%
65%
Stores > $3 million in net sales(2)(4)
8%
18%
24%
Average revenue per smart bed unit - Total Retail(3)
$6,060
$5,818
$5,755
(1)Trailing-twelve months Total Retail comparable sales per store open at least one year.
(2)Trailing-twelve months for stores open at least one year (excludes Online, Phone and Chat sales).
(3)Represents Total Retail net sales divided by Total Retail smart bed units.
(4)Fiscal 2025 included 53 weeks, as compared to 52 weeks in fiscal 2024. The additional week in 2025 was in the fiscal fourth quarter. Total Retail
comparable sales have been adjusted to remove the estimated impact of the additional week on the twelve months ended January 3, 2026.
The number of retail stores operating was as follows:
2025
2024
2023
Beginning of period
Opened
Closed
(46)
(44)
(34)
End of period
Comparison of 2025and 2024
Net sales
Net sales in 2025decreased 16%to $1.4 billion, compared with $1.7 billionin 2024. The decrease was driven by ongoing
industry demand pressure and lower store traffic. The net sales change consisted primarily of a 17%Total Retail
comparable sales decrease. In addition, 2025 included 53 weeks compared with 52 weeks in the prior year, with the extra
week benefiting 2025 net sales by approximately $25 million. For additional details, see the components of total net sales
change on page 39.
The $271 millionnet sales decrease compared with the same period one year ago was primarily comprised of:(i) a
$240 million decrease in the Company's Total Retail comparable net sales; (ii) a $34 million decrease from phone, online
and chat; (iii) a $22 million decrease resulting from net opened/closed stores in the past 12 months; partially offset by (iv)
$25 million from the additional 53rd week.Total Retail smart bed unit sales decreased 12%compared with the prior year.
Average revenue per smart bed unit in Total Retail increased to $6,060, compared with $5,818in the prior-year period.
Gross profit
Gross profit for 2025of $833.0 milliondecreased by $170 million, or 17%, compared with $1.0 billionin 2024. The 2025
gross profit rate decreased to 59.0%of net sales, compared with 59.6%for the prior-year period. The 0.6ppt. decrease in
the gross profit rate was mainly due to: (i) higher manufacturing costs driven primarily by increased obsolescence, tariffs,
and the impacts of lower volume decreased the rate by 1.2 ppt; partially offset by (ii) a favorable product sales mix which
increased the rate by 0.3 ppt, (iii) logistics savings and return rate favorability led to a 0.2 ppt. increase, and (iv) pricing
increases during the current year benefited the rate by 0.1 ppt.
Sales and marketing expenses
Sales and marketing expenses decreased $102 millionto $664 millionin 2025, compared with $767 millionin 2024. The
sales and marketing expense rate increased to 47.1%of net sales, compared with 45.6%for the same period one year
ago. The current-year sales and marketing expense rate increase of 1.5ppt. was primarily due to the deleveraging impact
of an 16%net sales decrease offset by a 13%decrease in expenses including a 9%lower media spend.
41 | 2025FORM 10-K
SLEEP NUMBER CORPORATION
General and administrative expenses
General and administrative (G&A) expenses decreased $19 millionto $131 millionin 2025, compared with $150 millionin
2024, and increased to 9.3%of net sales, compared with 8.9%of net sales one year ago. The $19 milliondecrease in
G&A expenses mainly consisted of the following: (i) a $8 million year-over-year decrease in company-wide, performance-
based incentive compensation; (ii) a $5 million decrease in depreciation and amortization; (iii) a $4 million decrease in
employee compensation; and (iv) a $2 million decrease in other occupancy and miscellaneous expenses. The G&A
expenses rate increased by 0.4ppt. in 2025, compared with 2024due to the items discussed above in addition to the
deleveraging impact of the 16%net sales decrease.
Research and development expenses
Research and development (R&D) expenses decreased $11 millionto $34 millionin 2025, compared with $45 millionin
2024. While the Company's consumer innovation pipeline remains robust, it is re-prioritizing R&D resources in this highly
constrained environment. Moving forward, the Company's innovation agenda will focus on maintaining and improving the
Company's core technologies and introducing additional advancements, while driving costs out of the product.
Restructuring costs
Restructuring costs increased $33 millionto $51 millionin 2025, compared with $18 millionin 2024. Charges incurred
related to this initiative were primarily comprised of contract termination costs, severance and employee-related benefits,
professional fees and asset impairment charges. These costs are included in the restructuring costs line in the Company's
consolidated statement of operations. The Company expects approximately $13 million of additional restructuring costs to
be incurred during 2026, primarily due to severance and employee-related benefits, contract termination costs, and asset
impairment charges. See Note 11, Restructuring Costs, of the Notes to Consolidated Financial Statements included in
Sleep Number Corporation published this content on March 12, 2026, and is solely responsible for the information contained herein. Distributed via EDGAR on March 12, 2026 at 11:10 UTC. If you believe the information included in the content is inaccurate or outdated and requires editing or removal, please contact us at [email protected]