Sleep Number Corp (SNBR) Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 net sales declined 16% to $393.3M, with gross margin expanding 250 bps to 61.2%; diluted EPS was -$0.38 as adjusted EBITDA fell to $22.0M, pressured by deleverage on lower volumes .
• Management withdrew 2025 guidance to reassess strategy under new CEO Linda Findley; announced accelerated cost actions targeting $80–$100M annualized opex reductions before restructuring costs, with Q2 opex cut ~10% versus the Q1 cost base .
• Consensus set-up: EPS missed by a wide margin (actual -$0.305 vs -$0.055*), revenue slightly missed ($393.3M vs $398.0M*); EBITDA also below consensus (actual $16.7M* vs $31.7M*) as volume-driven deleverage outweighed margin gains. Bold miss on EPS drives estimate-reset risk. Values retrieved from S&P Global.
• Stock narrative catalysts: new organizational redesign and leadership changes , CMO appointment to overhaul marketing efficiency , tariff risk quantified (~$30M unmitigated; ~100 bps gross margin headwind) ; regulatory tailwind from NAD action curbing Tempur-Pedic disparagement .

What Went Well and What Went Wrong

What Went Well

• Gross margin expanded to 61.2% (+250 bps YoY), driven by material input cost reductions, logistics efficiency, and favorable mix (Climate Series) .
• Rapid cost action: opex down $23M YoY (pre-restructuring), and Q2 opex reduced ~10% versus Q1 cost structure; annualized cuts of $80–$100M planned (35% fixed, 50% marketing model, 15% volume-driven) .
• CEO strategic focus: “We are fundamentally changing how we operate… reduced corporate management roles by 21%… focused on efficiency without compromising topline” .

What Went Wrong

• Demand weakness: net sales fell 16% YoY on lower volume and reduced store count; adjusted EBITDA declined 41% and margin fell 230 bps to 5.6% .
• Liquidity and leverage: operating cash flow use of $2.6M and FCF of -$7.2M; leverage ratio at 4.46x EBITDAR (below 4.75x covenant but elevated) .
• External risk: tariffs present ~$30M unmitigated impact (management expects ~$17M offsets) and ~100 bps gross margin headwind; company paused full-year guidance amid macro uncertainty .

Financial Results

Quarterly trend vs prior quarters

YoY comparison (Q1 2025 vs Q1 2024)

Estimates vs Actuals (Q1 2025)

Values retrieved from S&P Global. Note: Company reports Adjusted EBITDA of $22.0M; SPGI EBITDA figures may reflect a different (non-adjusted) definition .

KPIs

Cash Flow and Balance Sheet Highlights (Q1 2025)

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• CEO Linda Findley: “We are fundamentally changing how we operate… reduced corporate management roles by 21%… reshaping marketing and R&D to drive efficiency… efforts have reduced second quarter operating expenses by approximately 10%” .
• CFO Francis Lee: “Adjusted EBITDA margin was 5.6%, 230 bps lower… decline in net sales and associated loss of fixed cost leverage pressured margins… leverage ratio was 4.46x EBITDAR” .
• CFO on tariffs: “Unmitigated impact… approximately $30 million for 2025, of which approximately $17 million… can be offset… remaining $13 million… evaluate levers… assumes China at 145%” .
• CEO on marketing: “Do more with less… benefits-based messaging… lower marketing spend as % of revenue” .
• Leadership changes: New roles to consolidate capabilities and improve efficiency; CMO appointment to drive media efficiency .

Q&A Highlights

• Demand and near-term set-up: Consumer sentiment weak; Memorial Day activated; focus shifting to Labor Day planning .
• Marketing overhaul: Emphasis on digital targeting, benefits-heavy messaging, testing/reallocation rather than simple cuts; caution that spend changes may have short-term bumps .
• Tariff quantification and pricing: ~$30M unmitigated, ~$17M offsets; strategic pricing considered to manage residual impact; Q2 limited impact due to pause through July 8 .
• Store fleet: Ongoing portfolio review; healthy fleet but “everything on the table” under new leadership .
• Wholesale channel: Management reiterated all options under review; no commitments .

Estimates Context

• EPS: Significant miss versus consensus (-$0.305 actual vs -$0.055*), implying deleverage and lower volume outweighed margin improvements. Values retrieved from S&P Global.
• Revenue: Slight miss ($393.3M actual vs $397.9M*), consistent with lower volumes and reduced store count. Values retrieved from S&P Global.
• EBITDA: Below consensus ($16.7M* vs $31.7M*); company-reported Adjusted EBITDA was $22.0M, highlighting definitional differences and deleverage on lower sales . Values retrieved from S&P Global.

Key Takeaways for Investors

• Expect estimate cuts: EPS and EBITDA materially missed; with paused FY guidance and quantified tariff headwinds, near-term consensus likely resets lower. Values retrieved from S&P Global.
• Cost actions are the core bull case: $80–$100M annualized opex cuts, Q2 opex -10%, and sustained gross margin structure support eventual profit flow-through when demand stabilizes .
• Mix tailwind persists: Climate Series strength lifts ARU and gross margin, partially offsetting volume pressure; continued focus on benefits-led marketing could support conversion .
• Tariffs are the swing factor: ~100 bps gross margin headwind contemplated; offsets in sourcing and supplier partnerships underway; watch strategic pricing implementation .
• Liquidity and leverage bear watching: Leverage at 4.46x EBITDAR (below covenant); management pursuing debt structure optimization without dilution .
• Trading implications: Near-term sentiment constrained by lack of outlook and macro; catalysts include detailed cost program execution, tariff mitigation updates, and potential demand stabilization into late summer/fall promotional periods .
• Medium-term thesis: If marketing efficiency and cost redesign hold while macro normalizes, SNBR’s structurally higher gross margin and lower opex could drive outsized earnings recovery and deleveraging .