Sleep Number Corp (SNBR) Q3 2026 Earnings Summary

Executive Summary

• Q3 2025 revenue of $343M declined 19.6% YoY; GAAP diluted EPS was -$1.73, with $41M in restructuring/non-recurring charges, as reduced media spend and intensified Labor Day competition pressured demand .
• The company amended and extended its bank agreement through 2027, easing covenant constraints and enabling reinvestment in growth initiatives (product simplification, brand repositioning, expanded distribution) starting in 2026 .
• Guidance was lowered: FY2025 net sales to ~$1.4B (from ~$1.45B), gross margin to ~60% (from 61%), OpEx ex-restructuring to ~$825M (from ~$830M), and adjusted EBITDA to ~$70M with ~-$50M FCF; management expects better Q4 trends with slightly higher media spend vs Q2/Q3 and benefit from the 53rd week .
• Key near-term catalysts: reinflated yet more efficient marketing into Q4, ongoing store footprint optimization, and early tests of new channels (e.g., HSN), offset by macro/tariff uncertainty and constrained consumer demand .

What Went Well and What Went Wrong

What Went Well

• Gross margin resilience: 59.9% in Q3, +82 bps sequentially vs Q2, supported by mix and lower promotional activity despite unit deleverage .
• Cost actions: Operating expenses (ex-restructuring) down 18% YoY in Q3; year-to-date working capital delivered ~$20M source of cash; capex reduced by ~$5M YoY .
• Strategic reset momentum: Bank agreement extended to 2027 and management laid out 2026 growth plan centered on product simplification, brand messaging, and expanded distribution; “This is a full turnaround… positioned to execute the turnaround in 2026” — CEO Linda Findley .

What Went Wrong

• Demand miss: Q3 sales fell short as 32% YoY media cuts in Q2/Q3 limited ability to counter aggressive holiday promotions; “competitive behaviors became even more aggressive… we did not have the financial flexibility to counter” — CEO .
• Profitability compression: Adjusted EBITDA declined to $13.3M (3.9% margin), down ~52% YoY, reflecting lower sales and lost fixed-cost leverage .
• Restructuring headwinds: $41M in Q3 restructuring/non-recurring charges (~$30M non-cash) tied to tech asset impairments and underperforming store closures, weighing GAAP EPS .

Financial Results

Sequential performance (Q1 → Q3 2025)

Q3 YoY comparison

Estimates vs Actuals (S&P Global consensus)

Values retrieved from S&P Global.*

KPIs and Operating metrics

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “This is a full turnaround of an inherently great company… we are optimistic that this work positions us to execute the turnaround in 2026.” — CEO Linda Findley .
• “Gross profit margin was 59.9%, down 93 bps YoY, but up 82 bps from Q2… driven primarily by unit volume deleverage, partially offset by favorable mix and lower promotional activity.” — Interim CFO Bob Ryder .
• “We successfully executed an amendment and extension of our bank agreement, extending maturity to the end of 2027… providing flexibility to invest in specific parts of the business with strong returns.” — Interim CFO .
• “Next week, we will host a show on HSN with an exclusive bed as part of an ongoing testing of channel opportunities.” — CEO .

Q&A Highlights

• Restructuring charges: $30M of Q3 charges were non-cash (tech asset write-offs and store closures); 2025 FCF guidance (-$50M) includes expected cash charges; 2026 restructuring cash not guided but covenants set maxima .
• Marketing trajectory: Q2/Q3 media down ~32% YoY constrained by covenants; Q4 media only slightly down YoY with pipeline-building spend beyond in-quarter payback under amended agreement .
• Store fleet strategy: High transfer rates when closing underperforming stores; consolidation to highest-performing locations to lower fixed costs .
• Distribution expansion: HSN test plus other non-traditional, value-add channels to supplement vertical model without cannibalization .
• Covenants/interest: Leverage ratio 5.0x EBITDAR at Q3 end vs covenant max 5.25x; covenants/fees/interest reset (details in 8-K) .

Estimates Context

• Q3 2025 consensus expected revenue ~$362.5M* vs actual ~$342.9M* (miss); consensus Primary EPS $0.14* vs actual -$0.38* (miss); consensus EBITDA ~$31.4M* vs actual ~$12.37M* (miss). Values retrieved from S&P Global.*
• FY2025 consensus revenue $1.396B* aligns with lowered guidance ($1.4B), implying estimates likely to drift down on margin and FCF after guidance reset. Values retrieved from S&P Global.*

Key Takeaways for Investors

• Near-term set-up: Q4 should show modest sequential improvement on less severe media cuts and benefit from 53rd week, but absolute demand remains pressured; watch holiday elasticity and promo intensity .
• Turnaround path: 2026 growth thesis centers on simplified premium product line, clearer value messaging, and new distribution channels; visibility improves as tests (e.g., HSN) scale .
• Balance sheet risk moderated: 2027 extension provides operational runway; covenant headroom (5.0x vs 5.25x) supports planned reinvestment .
• Cost discipline intact: OpEx ex-restructuring trending down; fixed-cost reductions and store rationalization a tailwind to EBITDA/FCF on any top-line stabilization .
• Watch non-GAAP vs GAAP: Significant restructuring/non-recurring items distort GAAP EPS; adjusted EBITDA context and free cash flow trajectory critical for equity/debt debates .
• Brand strength intact: JD Power recognition underscores product/experience differentiation, supporting medium-term repositioning and conversion efforts .
• Risk factors: Consumer softness, tariff policy shifts, competitive promotional intensity, and execution timing of product refresh/distribution expansion .

Notes: All figures reflect Q3 2025 (quarter ended September 27, 2025). Values retrieved from S&P Global for consensus-related data.*