Sleep Number Q1 2025 Earnings Call Transcript

Quartr
Provided by Quartr
April 30, 2025

There are 7 speakers on the call.

Operator

Welcome to Sleep Number's Q1 twenty twenty five Earnings Conference Call. At this time, all participants are in a listen only mode. As a reminder, this call is being recorded today, Wednesday, 04/30/2025. This conference call will be available on the company's website, ir.sleepnumber.com. Please refer to today's news release to access the replay.

Operator

On today's call, we have Linda Findley, President and CEO and Francis Lee, Executive Vice President and Chief Financial Officer of Sleep Number. Before handing the call over to the company, we will review the Safe Harbor statement. The primary purpose of this call is to discuss the results of the fiscal period ending on 03/29/2025. Commentary and responses to questions may include certain forward looking statements. These forward looking statements are subject to a number of risks and uncertainties outlined in the company's earnings news release and discussed in some detail in the annual report of on Form 10 ks and other periodic filings with the SEC.

Operator

The company's actual future results may vary materially. In addition, any forward looking statements represent the company's views only as of today and should not be relied upon as representing its views as of any subsequent date. The company specifically disclaims any obligation to update these statements. Please also refer to the company's news release and SEC filings for a reconciliation of certain non GAAP financial measures and supplemental financial information included in the news release or that may be discussed on this call. I will now turn the call over to Linda Findley, Sleep Number's CEO.

Speaker 1

Thank you, Jeannie, and thank you to everyone for joining today's call. It's my privilege to be here and lead Sleep Number at this time. I've spent my career building consumer brands and navigating business transformations. I'm excited to join the team as I see a lot of opportunities for the future of the company. We understand that we have a lot of work ahead of us, and we are confident that we can stabilize this business and bring our competitive advantages back to the forefront.

Speaker 1

We are laser focused on delivering strong returns for shareholders. This entails taking a different approach to the business, a process that we've already started. The strength of the Sleep Number brand and the depth of its consumer connection is clear. No one else has a product like Sleep Number. Our innovation leads the category, offering customizable comfort and adjustability that is responsive to a person's daily sleep patterns.

Speaker 1

Since joining earlier this month, I spent time digging into the business, listening to our team members and getting familiar with our customers. I've learned a lot and I'm turning those learnings into action. We've already executed several significant changes, which we will discuss today, and we're implementing several more in the coming weeks and months. We are making hard decisions now to create a stable business that can perform no matter the market conditions. On today's call, Francis will first walk you through the quarter results, and after that I will share more details on those changes.

Speaker 1

Francis?

Speaker 2

Thank you, Linda. I look forward to working together with you and our teams. The start of the year has had its challenges. We've responded quickly and will continue to take actions to put us in the best possible position as a company and for our shareholders. There will be more to come later this year.

Speaker 2

Starting with our Q1 financial performance, net sales for the first quarter were $393,000,000 a decrease of 16% compared to the prior year. Despite the headwinds, we have seen a positive consumer response to our Climate Series beds, which has helped to expand our ARU by approximately 4% versus last year. As Linda will articulate, we are focusing on the efficiency and effectiveness of our marketing to drive a sustainable return on investment in the near term. An area of continued strength is our gross profit margin, which expanded to 61.2% in the first quarter, up two fifty basis points versus last year. This improvement was driven by continued operational efficiencies in our supply chain and manufacturing operations as well as product mix.

Speaker 2

The strength of the Climate Series, our ClimateCool and Climate360 smart beds is contributing positively to gross profit margin. Our margin expansion is a result of sustained structural improvements we've made over the past eighteen months. We remain committed to aggressively managing operating expenses. First quarter operating expenses excluding restructuring and one time costs totaled $237,000,000 which was a $23,000,000 or 9% improvement over last year. The operating cost improvements are largely the result of lower variable marketing and selling expenses associated with lower net sales.

Speaker 2

Adjusted EBITDA for the quarter was $22,000,000 a decrease of $15,000,000 from the prior year. Adjusted EBITDA margin was 5.6%, two thirty basis points lower than prior year. While our gross profit margin rate improved, the decline in net sales and associated loss of fixed cost leverage pressured margins and gross adjusted EBITDA dollars. Our leverage ratio on a trailing twelve month basis was 4.46 times EBITDAR at the end of the first quarter within the 4.75 times covenant maximum. Shifting to tariffs, we are closely monitoring the evolving landscape and proactively managing through this dynamic environment.

Speaker 2

We anticipate the debt impact on the P and L to be limited in Q2 based on currently proposed policies and the ninety day pause that is in effect through July 8. Our sourcing strategies have evolved as part of our ongoing efforts to expand gross profit margin. And those changes have also given us greater flexibility on what we source from where. Our team has reevaluated our sourcing footprint considering the most recently proposed tariffs. We estimate the unmitigated impact to be approximately $30,000,000 for 2025, of which approximately $17,000,000 we believe can be offset through thoughtful partnership with our suppliers and leveraging the flexibility of our supply chain.

Speaker 2

We are evaluating the levers to mitigate the remainder based on what is best for the company and our customers. Our current financial assessment is based on what we know today, and we will continue to adapt to this highly dynamic situation. Turning to liquidity, we are actively working within our debt covenants. As we communicated last quarter, we amended our bank agreement, which provides more flexibility with our covenants through 2025. We are managing what's in our control and taking ongoing cost actions, including those that Linda will discuss.

Speaker 2

We estimate this work will result in 80,000,000 to $100,000,000 of annualized cost reduction from the business as compared to our 2025 cost structure before related restructuring costs. Also, we are currently working on ways to optimize our debt capital structure without diluting current shareholders. Our goal is to obtain the most flexibility to execute on our long term opportunities. As we've said on previous calls, we are focused on growing profitability and paying down debt. As we look to the rest of the year, we are not providing full guidance on this call in part due to the rapidly evolving macroeconomic environment including consumer sentiment.

Speaker 2

As you will hear from Linda, we are fundamentally changing how we run our business and anticipate these changes will positively impact our financial model in 2025 and beyond. That said, I want to provide some directional guideposts around what you can expect from us and the actions we're taking. We expect continued top line pressure in the near term given that the consumer environment is uncertain. However, from a cost perspective, we are prepared for demand not to improve significantly for the rest of the year if that should be the case. We expect to maintain the gross profit margin improvements we achieved last year through ongoing material cost reductions, partnership with our suppliers and efficiencies in our home delivery and logistics operations.

Speaker 2

Based on what we know today, tariffs could pressure that gross profit margin by approximately 100 basis points. We are taking a fresh look at our operations, including our organizational structure, our marketing spend efficiency and our R and D priorities. As I stated, we anticipate reducing our annualized costs by 80,000,000 to $100,000,000 Approximately 35% of these costs are fixed, including research and development and G and A. 50% are structural changes to our marketing model for greater efficiency and 15% are volume driven. More costs will come out over the next few months.

Speaker 2

We will see immediate impact in Q2 and increasing benefits in the back half of the year as we continue to optimize our cost structure. While we have hard work ahead, we are taking necessary actions now to position the company for a return to growth and profit flow through in the future. You can expect us to be bold in our actions as we take a closer look at our strategy and operations. Our focus on growing profitability and paying down debt remains unwavering. We are committed to creating value for our shareholders in a brand accretive, profitable and sustainable way over the long term.

Speaker 2

I will now turn it back to Linda.

Speaker 1

Thank you, Francis. The team has really stepped up to the challenge and they are excited to make the structural changes necessary to get us on the right track. In the past, we got ahead of ourselves and the consumer. We focused on innovating so far into the future and we lost sight of our core value proposition, helping people get a great night of sleep tonight. It's important for us to meet them where they are now and to better communicate the benefits and differentiation of where we are today.

Speaker 1

I believe our challenges are fixable in time and the solutions are largely within our Sleep Number sits on a strong foundation and we do not plan to change what makes us stand out. However, as we look to the future, we are taking a different approach to delivering a better experience for our customers and strong returns for our shareholders. To be successful, we need to be customer obsessed, leveraging our data to understand their needs, challenges, and what truly brings them to purchase and repeat purchase a sleep member bed. I've been working with the team to develop a plan forward, and now we're taking action with a heightened sense of urgency. I see a path to improve our business and performance both from a cost and a top line perspective.

Speaker 1

Some of these initiatives will take time to implement and others are already in progress. Right now, as Frances noted, we have opportunities to further reduce expenses across our organization, building on the efforts in 2023 and 2024. We are rightsizing our spending and working to position the business to weather the current economic environment no matter how long it persists. Our first priority is to change the way we are organized for maximum efficiency and to bring us closer to our customer. We created a new executive and senior leadership structure designed to consolidate overlapping capabilities and eliminate over specialized roles.

Speaker 1

We aligned our product innovation to what our customers value most now and where we can excel. We centralized our technology teams to support a more seamless customer and team member experience. And lastly, we are bringing end to end efficiency to our supply chain from sourcing to creation to fulfillment to ensure quality and consistency at every step of the journey. In addition to this realignment of our leadership team, we've made broader changes across the senior levels of the company. This organizational redesign is part of our efforts to strengthen company performance.

Speaker 1

It will simplify decision making, increase accountability and remove redundancies to better position us to succeed. With this change, we reduced our corporate management by 21%. With new leadership in place, we will further streamline the organization under each of these new functions over the coming weeks. While cost reductions are present across the board, I want to focus on two key areas that impact both people and budget, marketing and R and D. Given consumer sentiment is likely to remain depressed for the foreseeable future, we are reshaping our marketing and advertising approach to prioritize efficiency and impact.

Speaker 1

Over the next few months, we have an opportunity to lower our marketing spend as a percentage of revenue. The team is already developing new digital strategies and benefits focused messaging designed for our target audiences. While these initiatives will take time to fully materialize, our goal to is to establish a new marketing model that delivers more customer engagements from fewer dollars. To lead this effort, we appointed Amber Minson as our new Chief Marketing Officer. Amber will be responsible for driving sustainable demand generation, brand visibility and media efficiency to fuel growth.

Speaker 1

I have witnessed firsthand her ability to build and maintain high performing marketing organizations. As a data driven CMO, Amber's new perspective on our marketing function is an opportunity to further reassess our spend. We plan to reinvest in marketing when the time is right, but for now, our focus is on doing more with less. Regarding our R and D organization, we are redirecting its focus and lowering costs. Number was built on innovation and it will continue to be so.

Speaker 1

However, it's essential that we strike the right balance between enhancing innovation and ensuring that shareholder capital is being used efficiently. We have an innovative product that delivers up to twenty eight to forty four minutes of restful sleep per night through full adjustability of firmness, position and temperature settings, proven through real world sleep data. No matter if you wanna track your sleep data like me or just wake up refreshed because our beds effortlessly adjust to you night after night without ever looking at your device, our years of innovation meet your needs. With the only bed backed with thirty three billion hours of sleep data and counting, we are ahead of the curve, and that allows us to focus our resources on the here and now of our customers' needs. Specifically, we will deprioritize adjacent opportunities where returns are uncertain or will take longer to realize.

Speaker 1

Instead, we will focus our resources on maintaining and improving our core technologies and introducing additional advancements while driving costs out of the product. Together, these initial efforts are the first steps to creating a more efficient and focused company for shareholders, team members and customers. We expect the collective actions to reduce expenses by about $80,000,000 to $100,000,000 before restructuring costs on an annualized basis as compared to our Q1 twenty twenty five cost structure. Since I joined earlier this month, we have already reduced our Q2 operating expenses by approximately 10% compared to the Q1 twenty twenty five cost structure. We are also thinking long term and are evaluating more fundamental changes to position Sleep Number for future success.

Speaker 1

Now is a natural time to challenge assumptions and question all aspects of our business. Over the coming weeks, we intend to take a closer look at our strategy and operations. Everything is on the table. We are looking at our supply chain, distribution strategy, product selection and geographic reach. As I mentioned, our goal is to create a flexible cost structure that will set us up for growth and expansion.

Speaker 1

This is just the beginning. We are approaching this work with an open mind and a bias towards bold and rapid action. I look forward to sharing more details about our long term plan over the coming quarters. I'm energized to lead this company through the necessary reset. We are already making positive changes and we have a lot of work ahead of us.

Speaker 1

It will take time and effort. By putting the customer at the center of everything we do and leaning into the things that make us great, I believe that we can strengthen Sleep Number to its number one position as the leader in sleep wellness. I see a path to drive long term sustainable growth and profitability. We have helped people get a better night's sleep for nearly four years by delivering superior products that address tonight's problem. Before we turn to questions, I want to take a moment to thank the entire team.

Speaker 1

Sleep members advantage is more than our product. From the team of talented designers who craft each bed, the experts in our stores and support who genuinely care about customer sleep needs. Our team members are ready for change, and I'm looking forward to their future partnership. With that, let's open the call to questions. Operator?

Operator

And your first question comes from the line of Bobby Griffin with Raymond James. Please go ahead.

Speaker 3

Good evening. This is Alessandra Jimenez on for Bobby Griffin. Thank you for taking our questions. First, welcome, Linda, and we look forward to getting to know you. First, I just wanted you know, you've only been in the role for about three weeks, but maybe just on a high level, what do you see are the low hanging fruit for improvement that, you know, we should start to see in 2025?

Speaker 3

You know, I understand everything's on the table, but some of these aspects will take longer to realize.

Speaker 1

Sure. Thank you very much for the question, and I'm excited to be here. I would say it's really divided into three areas. One is, is in the marketing space. Feel like there's a huge amount of opportunity for new efficiency in marketing that would actually help us reduce the costs and reduce marketing as a percentage of revenue while also increasing the productivity of marketing and the efficiency of marketing.

Speaker 1

But the thing that excites me most about this change is actually that I also think we can deliver more benefits based messaging as part of, as part of this change that will help customers see the value within the sleep number bed. Again, whether or not they're looking for all the bells and whistles in the top of the line or if they're looking for, something in more of the mid price range, we wanna make sure that we have something for every customer that truly demonstrates value. So that's really the marketing side. The second thing that I have observed is this organizational structure change. Being able to unleash the talent of the team and being able to make decisions faster through a more streamlined organization not only saves cost, but also improves our ability to function quickly and innovate quickly.

Speaker 1

Because people will have clearer authority and the ability to make decisions faster, that should speed the organization. And then the third piece is this key point on r and d. Sleep Number has an incredible innovation history. The original product itself is one of the most innovative products out there. And so the ability to take advantage of the all the innovation that's been built up over the years really apply that to customer needs and rethink as you were talking as you as you were sort of alluding to, we mentioned that everything is on the table.

Speaker 1

That innovation that's happened in the past lets us really refocus and say, okay. How do we apply it to today's customer in this environment and make sure we're bringing the right product to the right person at the right time? It's going to be an innovation story still going forward, but that innovation story can be on a much smaller cost base from where it was before and take advantage of all that history of everything that's been built up to really, excite customers with true differentiated products.

Speaker 3

That's really helpful. And we look forward to learning more as you guys progress. And then I understand you're not providing guidance at this time, but I wanted to see if you can maybe provide any color on quarter to date demand so we can kind of level set our models for the near term.

Speaker 2

Yeah. Thanks for the question. As you know, the the q one results are out and it's been challenging environment that we've seen not just in our industry, but but overall across many sectors. Since February, we've seen consumer confidence decline and, you know, that's impacted people's willingness to spend, again, not just in our industry, but across the board. So we're focused right now on rightsizing our organization, controlling our costs, and really positioning ourselves to create a stable business that can perform no matter what the market conditions are.

Speaker 2

And we're not simply cutting costs. We're we're positioning our organization to be more efficient.

Speaker 1

I'm just gonna follow-up on that a little bit with, with some additional color, which is obviously Memorial Day is a very big thing for us, and we've already activated around Memorial Day. Our big focus right now though is focusing on preparing for Labor Day, and kind of getting the organization reset to that.

Speaker 3

Okay. That's helpful. Best of luck here moving through the year.

Speaker 1

Thanks.

Operator

Your next question comes from the line of Michael Lasser with UBS. Please go ahead.

Speaker 4

Hi, good evening. This is Dan Silverstein on for Michael. Thanks for taking our questions. And Linda, look forward to meeting you.

Speaker 1

Same. Thank you.

Speaker 4

Just on the overhaul, the marketing engine, what do you view as the biggest opportunities to strengthen the brand and the messaging to consumers? And just as a part of that, Sleep Number's used this partnership model with organizations like the NFL and others in the past. Do you see any opportunity to add some new dimension there? Any color would be greatly appreciated.

Speaker 1

I definitely see, opportunity to add new dimension there. I think that there's a couple of things to note. So first of all, from a brand and overall product perspective, again, there really isn't a product out there like Sleep Number. And the sort of rabid customer base that you you see engaging with the Sleep Number product is really pretty powerful. And if you follow our marketing, you notice that we've already made a strong move into more and more real world customer stories that tell that story from the firsthand perspective.

Speaker 1

So I think from a a marketing and branding perspective, there's a few different opportunities. One, of course, is leveraging as much as we can on new technologies, new digital processes in order to make sure that our marketing is as effective as possible. And that includes thinking differently about maybe where we place spend and how we think about placing spend in order to drive true audience targeting, and also true benefits messaging. Sleep Number's had a long history of technical innovation, and so you've seen a lot about our features and our functionality. But translating that into a benefits mindset is, is really what's next on our docket.

Speaker 1

So that's kind of number one on the marketing side. On the partnership side, I think the partnership side is extremely interesting. There's been some incredible partnerships over the years. I think there is opportunity to look at all of our partnerships and think about how we might want to continue to optimize them and use them to their maximum benefit. But the most positive aspects about those partnerships, we have some really unique partnerships that have actually contributed quite a bit to the bottom line of the company and to the innovation side.

Speaker 1

And what I mean by this is we are actually technically the largest sleep study in the world with 500,000 active sleepers constantly, sort of as as an ongoing nightly sleep study. And that data is incredibly powerful because that allows us to improve our product on a regular basis, and we can also use that in our marketing messaging and our other benefits messaging to make people understand how positive that is. So while we will look we'll be looking at every partnership and also potential new partnerships, we also will be recognizing where we're getting benefits from some of those partnerships already and make sure that we're actually maximizing that.

Speaker 4

Very helpful. And maybe just one more before we pass it along. You you spoke to nothing being off the table strategically. You know, with several changes in the competitive landscape, in the betting industry the past few years, is there an increased appetite to explore, you know, wholesale distribution at this point? And any other growth levers you think the new leadership with Fresh Eyes might take a look at?

Speaker 1

All I can say is our eyes are very, very fresh, and everything is on the table. Okay. Thank you.

Operator

Your next question comes from the line of Peter Keith with Piper Sandler. Please go ahead.

Speaker 5

Thanks. Good afternoon, Linda. Nice to meet you. Congratulations on the new role.

Speaker 1

Thank you so much.

Speaker 4

You had mentioned early in the

Speaker 5

call that you think the company got away from its core value proposition, and I was hoping you could flesh that out with a few more specifics to on how you think about where the company got away from that.

Speaker 1

Sure. I I think the primary thing that I think about when I say that is when you sleep in a sleep number bed, you just simply wake up feeling great. It it helps with aches and pains. It helps you get more quality sleep. It's a combination of the fact that you have the adjustability on both sides from a, a firmness perspective plus, temperature control plus the ability to adjust the base.

Speaker 1

There's just a lot about the core of the sleep number innovation that really just makes you more comfortable. And I think in the process of thinking through the future of the business, there are times where maybe we have added a lot more bells and whistles around the product and thinking very far into the future. And I'm talking, like, ten, fifteen years into the future of what is next, which I think is an incredible, place to be, and we've done a lot of great work there. But what I mean by that is I think that we have, maybe gotten a little bit further away from really explaining the value of the core sleep number proposition to the customer and making sure they just understand they're going to sleep better. Like, that is just the the truth.

Speaker 1

And so that's a bit of what I mean. Obviously, again, innovation is still a key part of that. That is how we got to that point of of having that ability to just create a better night's sleep. But, really what I mean by that statement is we have an opportunity to go back to our customer needs, what they're asking for the most, what they're looking for in our product, and make sure that we are both offering that at the right right price point, offering it in the right place and time where they want to buy it, and also making sure that we're being really clear with them about what those benefits are so that they can see them, you know, regardless of where they are on that on that spectrum of what they're looking for. So that's really what I mean by that statement.

Speaker 5

Okay. That's that's, extremely helpful. And just to follow-up on that, as you talked about the team is very focused right now on Labor Day. Should we expect that there are maybe some product changes or some of this customer feedback that you're taking in as Can you move that quickly by Labor Day? Is that what you mean by the the team being focused on that?

Speaker 5

Holidays a little further out?

Speaker 1

Again, I think that, everything's on the table, and, we're not ready to talk about that yet. But, again, everything is on the table. That's all I keep saying.

Speaker 5

Yeah. Fair enough. Okay.

Speaker 1

But we're already moving very yeah. Clearly, we're already moving very quickly, so we plan to continue to do so.

Speaker 5

Okay. I wanna make sure I get a a question to Francis so he doesn't feel lonely. The The tariff quantification is helpful. You mentioned so it's $13,000,000 of impact right now. I'm guessing that'll all be second half, and you can confirm that.

Speaker 5

And then what tariff level are you baking in for that $13,000,000 impact? Is that China at a full 145%? Or what just frame up what's embedded in the $13,000,000

Speaker 2

Yes. So I'll answer your first question around will it be second half? And the answer is yes. As I stated in my prepared remarks, the impact on q two will be limited primarily due to the pause on the tariffs going in effect through July 8. As we look at the balance of the year, we've looked at the totality of, where all our materials come from at the various rates, and that's all calculated in that $30,000,000 unmitigated.

Speaker 2

And then we have 17 which we believe we can be offset through the, you know, some of the actions we're taking. And there's $13,000,000 left which we are going to tackle and address all our levers inclusive of potentially strategic pricing as as we go forward. You asked about China at a 45%. Yes. That is the assumption within the the China portion of our business.

Speaker 2

So we're we're Okay. Tackled a bunch of it. We know there's some left and we're to continue to go after it.

Speaker 5

Very good. Thanks so much guys. Good luck.

Speaker 1

Thank you.

Operator

Your next question comes from the line of Brad Thomas with KeyBanc Capital Markets. Please go ahead.

Speaker 6

Hi, good afternoon. And Linda, let me add my congratulations and welcome to Sleep Number.

Speaker 1

Thank you.

Speaker 6

I I wanted to follow-up on that the advertising initially. It seems like, certainly, in this current environment, there's probably some real opportunities for efficiency there. One thing that we have seen over the years with Sleep Number is it has been a pretty well oiled machine from an advertising perspective. And when when it's been changed or dialed back, sometimes that's been had a negative impact on sales in the short term. I was wondering if you could just help us think about, you know, how you test and learn on this, what impact, if any, you're thinking there might be, if you're reducing total dollars being spent in terms of the sales impact from this.

Speaker 1

So the way that we're looking at the marketing spend right now is to really focus on true efficiency. So, I totally agree on on past levers when it comes to marketing, but I think this is actually sort of a rethink of the approach and how we would actually think about media spend and creating a little bit of less reliance on the actual dollar amount of media spend and more on focusing on core audiences in the right channels. So I would say that while there is there there are gonna be some bumps in the road. Obviously, there's there's transition time media is bought fairly far out in advance. We're not looking at it from a term of just cutting.

Speaker 1

We're actually looking at it from a term of reset thinking about how we also leverage our digital property, meaning the ecommerce site to help drive additional efficiency. So we can deviate from some of the trends of the past where a cost cut would actually automatically result in a lower customer number. And I think when you look at our numbers overall and you look at the industry numbers, you can see clearly that there's opportunity to increase efficiency and be able to bolster the marketing program and marketing return on on ad spend effectively compared to the rest of the industry. So I think there's still headroom there in order to do that.

Speaker 6

That's that's really helpful. I mean, if I could follow-up on that, just thinking about pricing and promotions over the years, obviously, six numbers done very good good job driving up ticket with innovation. Yeah. You know, how do you think about the level of promotion that might be necessary in the short term and in the long term, you know, and and how you navigate tariffs? Do you need to raise prices because of tariffs, or do you wanna get more promotional because that's, you know, what this industry may require of you right now?

Speaker 6

How are you thinking about some of that?

Speaker 1

Yeah. I think we have a pretty well oiled promotional machine, and so we understand how to pull those levers at the right time and the and in the right way. So that I think overall is is in pretty good shape and we can think about pulling those levers as need be. I think the most important thing when we look at tariffs, as as Francis was talking about, we've looked at a lot of different ways to manage the tariff impact across the business. And that includes looking at other costs, that includes looking at our overall sort of, process of how we produce, where we produce, using the flexibility that's already been built in our supply chain to try to manage that.

Speaker 1

At the same time, we also have a very good understand of price understanding of pricing of our product and, and really think carefully about where we want to leave core pricing the same for some of our core products. And then if we need to take pricing, take it within the right products that are at the right level of, of margin and, frankly, customer price point in order to make sure that we're balancing the portfolio where every customer can get what they need at the right price.

Speaker 6

Really helpful. If I could squeeze in one more, on stores. I don't think I heard any commentary on stores. How are you thinking about openings versus closures and refueling the portfolio base, you know, at this time?

Speaker 2

Yeah. Right now, incoming into this call, we've maintained our current strategy of store openings and closures, which we've described to you in the past. It's a very organic and kind of living process where we look at the total DMA and profitability. I think going forward, as Linda mentioned, everything's on the table. And so as a part of the holistic review of our strategy and operations, we will look at our store fleet and base, and what makes most sense with respect to how we go to market along the lines of our distribution channels.

Speaker 6

Very helpful. Thank you, Frances. Thanks, Linda.

Speaker 1

Thank you.

Operator

As we have no further questions, ladies and gentlemen, this will conclude today's question and answer session. I'd like to turn the conference call back over to Linda for any closing remarks.

Speaker 1

Thank you so much. We appreciate everybody joining the call today, and I look forward to meeting a lot of you as we execute our plans in the coming quarters. In the meantime, if you have any additional questions, please don't hesitate to reach out to us directly. Thank you.

Operator

This concludes today's call. Thank you all for joining. You may now disconnect.

Powered by Quartr

Key Takeaways

  • Sleep Number’s Q1 net sales fell 16% year-over-year to $393 million, though average revenue per unit rose about 4% and gross profit margin expanded by 250 basis points to 61.2%.
  • The company is targeting $80–100 million in annualized cost savings—35% fixed, 50% marketing and 15% volume-driven—including a 21% cut in corporate management and a 10% reduction in Q2 operating expenses.
  • Tariffs could have an unmitigated $30 million impact in 2025, with $17 million expected to be offset through supplier partnerships and supply-chain flexibility, leaving about $13 million to mitigate via pricing and sourcing strategies.
  • A major organizational overhaul includes a new leadership structure, centralization of technology teams, a refocused R&D pipeline on core products, and the appointment of a data-driven CMO to boost marketing efficiency and benefits-focused messaging.
  • Management is conducting a “everything on the table” strategic review—covering marketing models, product mix, store footprint and distribution channels—to create a lean, customer-obsessed platform aimed at restoring growth and profitability.
A.I. generated. May contain errors.
Earnings Conference Call
Sleep Number Q1 2025
00:00 / 00:00