Sleep Number Corp (SNBR) Q4 2024 Earnings Summary

Executive Summary

Q4 2024 net sales were $376.8M, down 12% YoY; gross margin expanded 330 bps to 59.9%, and adjusted EBITDA rose 43% YoY to $26.2M with a 7.0% margin .
The company delivered FY 2024 adjusted EBITDA of $120M (midpoint of prior outlook) and gross margin rate of 59.6% (+190 bps YoY), but free cash flow came in at $4M, below prior $10–$20M guidance due to year-end working capital and demand pressure .
Management deferred issuing FY 2025 outlook pending incoming CEO Linda Findley’s review; covenant flexibility was increased via an Eleventh Amendment: max leverage covenants of 4.75x (Q1–Q2’25), 4.50x (Q3’25), and 4.35x (Q4’25) with a minimum monthly liquidity covenant of $40M .
Near-term narrative centers on disciplined demand investment (media down 18% YoY in Q4) to protect margins/cash amid weak consumer sentiment; product mix shifts toward the higher-margin Climate series support ARU and margin resilience .

What Went Well and What Went Wrong

What Went Well

Gross margin rate expanded to 59.9% (+330 bps YoY) in Q4, aided by product cost reductions, favorable mix (Climate series), and logistics efficiencies; H2 gross margin exceeded 60% .
Operating expenses were reduced by $28M YoY in Q4 and $88M for FY 2024 (pre-restructuring), reflecting broad-based cost controls with discipline in media and selling expenses; adjusted EBITDA rose 43% YoY in Q4 .
Management strengthened balance sheet flexibility: amended credit facility covenants to provide cushion through 2025; incoming CEO Linda Findley appointed, signaling focus on growth/product/marketing transformation .

Quotes:

“We delivered gross margin rate improvement and operating cost reductions that were nearly double our original targets for the year, while generating positive free cash flow” – Shelly Ibach .
“Our gross margin rate for the last 6 months of the year was over 60%” – Francis Lee .

What Went Wrong

Top-line remains pressured: Q4 net sales down 12% YoY; demand weak across channels, with online particularly soft at lower price points; Total Company sales change down 12% in Q4 .
Free cash flow of $4M for FY fell short of the updated $10–$20M guidance (Q3), reflecting demand shortfalls and working capital dynamics; Q4 free cash flow was negative $30M .
Macro/tariff headwinds intensified in early 2025; exposure to Mexico (~1/3 of materials) within a cost base where ~70% of COGS are materials may force pricing/mitigation actions that risk demand in a scrutinizing consumer environment .

Financial Results

Metric	Q4 2023	Q3 2024	Q4 2024
Net Sales ($USD Millions)	$429.5	$426.6	$376.8
Diluted EPS ($USD)	$(1.12)	$(0.14)	$(0.21)
Gross Margin %	56.6%	60.8%	59.9%
Operating Expenses ($USD Millions)	$262.5	$251.1	$222.8
Operating Income Margin %	(4.6%)	2.0%	0.7%
Net Income Margin %	(5.9%)	(0.7%)	(1.2%)
Adjusted EBITDA ($USD Millions)	$18.3	$27.7	$26.2

Estimate comparison (S&P Global):

Q4 2024 consensus revenue and EPS: Unavailable due to S&P Global API limits; no estimate-based beat/miss analysis provided.

Segment/channel KPIs

KPI	Q4 2023	Q3 2024	Q4 2024
Retail Stores % of Sales	85.9%	87.8%	86.6%
Online/Phone/Chat %	14.1%	12.2%	13.4%
Retail Comp-Store Sales Change	(14%)	(7%)	(9%)
Online/Phone/Chat Sales Change	(20%)	(18%)	(17%)
Total Company Sales Change	(14%)	(10%)	(12%)
Stores Open (End of Period)	672	643	640
Avg Revenue per Smart Bed Unit ($)	$5,541	$5,771	$5,959
Avg Sales per Store ($000, TTM)	$2,853	$2,670	$2,601
Avg Sales per Sq Ft ($, TTM)	$926	$863	$841

Additional Q4 detail (GAAP):

Operating income of $2.8M; interest expense $11.7M; net loss $(4.7)M; diluted shares 22.659M .

Guidance Changes

Metric	Period	Previous Guidance	Current/Actual	Change
Adjusted EBITDA	FY 2024	$115–$125M (updated at Q3)	$120M	Met midpoint
Adjusted EBITDA	Q4 2024	“A little more than $25M” at midpoint	$26.2M	Slight beat
Net Sales	FY 2024	Down ~10% YoY	Down 11% YoY; $1.682B	Slightly lower than guide
Gross Margin Rate	FY 2024	≥150 bps expansion	+190 bps (59.6%)	Beat
Free Cash Flow	FY 2024	$10–$20M (updated at Q3)	$4M	Lower than guide
FY 2025 Outlook	FY 2025	None provided	Deferred (to be issued by new CEO)	Deferred
Leverage Covenant Max	2025	4.0x EBITDAR (prior commentary)	4.75x (Q1–Q2’25), 4.50x (Q3’25), 4.35x (Q4’25); min liquidity $40M	Increased flexibility

No guidance provided for OpEx, OI&E, or tax rate beyond contextual remarks; covenant amendment details included above .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q2 & Q3 2024)	Current Period (Q4 2024)	Trend
AI/technology in marketing	Expanding AI-based models, segmentation to improve media efficiency	Ongoing data-driven segmentation and personalized content to reach likely buyers	Persistent focus; execution deepening
Supply chain/logistics	Cost savings via parcel switch, flexible delivery labor model, truck utilization	Continued efficiency gains in home delivery/logistics sustaining GM expansion	Structural improvements sustained
Tariffs/macro	Minimal China input exposure; consumer weak, election/media volatility	New tariff enactment; ~1/3 materials from Mexico; 70% of COGS are materials; pricing mitigation considered	Macro worsened early 2025; tariff risk rising
Product performance	Climate360 strong; c1 role to attract value segment	Climate series outperforming; “growing at the top and losing at the bottom”; ARU up	Mix upmarket aiding margins
Channel trends	Holiday-event concentration; media agility; online softness	Online declines at low end; promotion tests post-President’s Day; store-based selling recertification	Online still lagging; stores focus on relationship selling
Regional/store fleet	Positive transfer rates; rationalizing underperformers	Continued closures; 5% fewer stores YoY; transfer rates supportive of profitability	Fleet optimization ongoing
Regulatory/legal/credit	Covenant trajectory to 4.0x in 2025; plan to stay within	Covenant amendment increases flexibility; exploring debt restructuring options	Added cushion; capital structure work
Consumer sentiment/housing	Weak sentiment; holiday event concentration; delayed decision-making	Sentiment fell further; durables buying conditions down 19%; President’s Day event disappointing	Weaker near-term consumer backdrop

Management Commentary

Strategy and resilience: “We have transformed Sleep Number’s operating model over the past 18 months for greater financial resilience… delivering gross margin rate improvement and operating cost reductions… while generating positive free cash flow” – Shelly Ibach .
Cost and margin levers: “Material cost reductions, ongoing supplier negotiations… and cost efficiencies in our home delivery and logistics operations… in Q4 we saw product mix also aiding” – Francis Lee .
Demand/macro stance: “Consumer sentiment is now 12 points lower than it was a year ago… buying conditions for durables [down] 19%… we reduced our media spend by 18% YoY in Q4… prioritizing profit” – Shelly Ibach .
Product mix: “We introduced our ClimateCool… strength is at the top [series], pressure at the bottom… good for gross margin rate” – Shelly Ibach .
Capital structure: “Amended our bank agreement to provide additional covenant flexibility through the end of 2025… exploring options to restructure our debt this year” – Francis Lee .

Q&A Highlights

Tariffs and COGS exposure: Largest exposure Mexico (~1/3 of materials); ~70% of COGS are materials; mitigation includes supplier shifts and production relocation; pricing actions considered but cognizant of demand impact .
Store count rationalization: Ongoing portfolio review; closures caused ~1–2 pts of net sales pressure in 2024 but transfer rates pleasing; supports profitability .
Online softness: Pressure at low-end Classic series; tested promotion for c1 at $799 to bolster online; mix strategy favors high-end Climate series .
Media spend discipline: Heaviest marketing typically in Q3; demand concentrated in events; Q4 media down 18% YoY to protect EBITDA; agility to scale with consumer efficiency .
Covenants and revenue base: Covenant flexibility now graduated (4.75x → 4.35x in 2025); revenue base to stay within covenants discussed will be addressed with guidance; cushion incorporated .

Estimates Context

S&P Global consensus estimates for Q4 2024 revenue and EPS were not retrievable due to API limits; therefore, beat/miss vs Wall Street consensus cannot be assessed at this time.
Company’s own Q4 adjusted EBITDA guide (“a little more than $25M” at midpoint) was modestly exceeded at $26.2M, suggesting operating execution offsetting demand shortfalls .

Key Takeaways for Investors

Margin durability: Structural cost actions and favorable mix (Climate series) are sustaining high-50s/low-60s gross margins even with double-digit sales declines, supporting EBITDA resilience .
Demand trade-offs: Management is prioritizing profitability and cash over top-line in an inefficient demand environment; expect continued media agility and event-driven cadence to persist near term .
Capital structure buffer: Covenant amendment increases 2025 flexibility; management is evaluating debt restructuring options, which could be a catalyst if terms materially reduce interest burden/risk .
Mix and ARU: Upmarket shift toward Climate products drives ARU and margins; watch the balance between protecting mix vs restoring unit growth at the low end (Classic series) .
Free cash flow: FY 2024 FCF at $4M fell short of updated guide; monitor working capital and demand trajectory (President’s Day weakness) for Q1 implications and leverage path .
Macro/tariff sensitivity: New tariffs add cost volatility; near-term pricing actions could pressure volumes; mitigation through supplier shifts will be key to maintaining GM% without sacrificing demand .
Leadership transition: New CEO Linda Findley (background in consumer/digital operations) may pivot marketing/product strategies; 2025 guidance timing and strategic priorities are a near-term narrative driver .

Appendix: Additional Data Points

Q4 2024 GAAP cash flow: Operating cash flow $(23.7)M; capex $6.3M; free cash flow $(30.0)M .
FY 2024 leverage ratio: 4.2x EBITDAR vs covenant max 4.8x; total debt including operating lease liabilities $943.5M .
Store fleet: End of Q4 2024 at 640 stores vs 672 prior year; average TTM sales per store $2.601M; average TTM sales/sq ft $841 .