Why Sleep Number Shares Are Slipping Today

Sleep Number Corp SNBR shares are trading lower by around 29% after it reported mixed Q2 FY23 results.

The company reported Q2 net sales of $459 million, missing the consensus of $471.4 million.

Net sales declined 16% YY on demand decline in mid-single digits. 

Gross margin stood at 57.6%, down from 59.2% prior-year quarter.

EPS of $0.03 was better than the consensus of $(0.01).

As of Q2 FY23, operating cash flow came in at $18.7 million, and cash and equivalents stood at $1.8 million.

"As we continue to navigate a challenging macro environment, our business is well positioned for growth. Demand has steadily improved year-to-date, and we expect this trend to continue in the back-half of the year as we benefit from the launch of our entire next generation smart bed portfolio, the Climate360 smart bed, and the advancement of our 'Sleep Next Level' advertising campaign with the start of the NFL season. We have taken actions across the business to drive efficiencies and remain on track to expand margins and generate more than $100 million in cash from operations in 2023," said Shelly Ibach, Chair, President and CEO. 

Outlook: SNBR revised EPS outlook to $1.25-$1.75 (from $1.25-$2.00) vs. consensus of $1.55. 

The company expects net sales to decrease in the low to mid-single digits Y/Y (prior view flat to down mid-single digits).

The company continues to see gross margin improvement of over 150 basis points Y/Y, generate more than $100 million of operating cash flow for the year, and positive free cash flows. 

The company projects capital expenditures of $50 million-$60 million for 2023.

Management: SNBR disclosed the appointment of Francis Lee as Executive Vice President (EVP) and Chief Financial Officer (CFO), effective August 14, 2023, replacing Interim CFO Chris Krusmark.

Price Action: SNBR shares are down 26.4% at $28.30 premarket on the last check Friday.