Sleep Number Corp ((SNBR)) has held its Q1 earnings call. Read on for the main highlights of the call.
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Sleep Number’s latest earnings call painted a picture of a business wrestling with short-term financial strain even as early signs of an operational turnaround emerge. Management highlighted strong consumer response to its new product lineup, improving demand trends and significant cost cuts, but also conceded that leverage, liquidity and margin pressure leave the company exposed until it secures longer-term financing.
Rapid Product Reset Delivers Strong Early Metrics
Sleep Number completed a full product reset across its stores in less than four weeks, and early data suggest the move is resonating with consumers. Locations featuring the new lineup showed a 12% lift in average retail unit, while the ComfortMode bed rollout drove a 15-point gain in overall net promoter score and a 27-point improvement versus the prior entry-level C series.
March Demand Turns Positive for the First Time in Two Years
After a weak start to the quarter, March demand increased roughly 6% year over year, marking the first positive comparable in two years. Management credited the improvement to the ComfortMode launch, refreshed marketing and active clearance of legacy SKUs, helping to offset earlier weather and macro headwinds.
Sales In Line, EBITDA Ahead of Plan
For the first quarter, Sleep Number reported net sales of $319 million, which management said met internal expectations despite a challenging backdrop. Adjusted EBITDA of approximately $5.8 million to $6.0 million came in ahead of plan, signaling some early payoff from product and cost actions even as overall profitability remains pressured.
Average Ticket Climbs with New Lineup Rollout
The company reported an average retail unit of $6,021 in the first quarter, slightly higher than a year ago. Stores already reset with the new beds delivered about 12% higher ARU, and leadership expects further ticket expansion as the full product line phases in across the fleet.
Premium Mix Improves with ComfortNext Lux
Sleep Number highlighted growing traction for its premium ComfortNext Lux model, now its top-selling bed and priced around $4,000 for a queen. This early shift toward a richer product mix supports the company’s strategy to lean into higher-margin offerings, which could help rebuild gross margin once transition and clearance effects subside.
Digital and E‑Commerce Momentum Builds
E‑commerce demand rose about 5% year over year in April, a notable bright spot as consumers increasingly shop online for big-ticket items. The company also cited improvements in AI-driven discoverability, with AI citations up roughly 25% year-to-date, and website streamlining that makes the purchasing process more straightforward for digital shoppers.
Cost-Saving Program Delivers Meaningful Reductions
Since the start of 2025, management has identified more than $235 million in annualized savings and executed roughly $200 million of that plan. First-quarter adjusted operating expenses before restructuring fell to $195 million, down $42 million or 18% from a year ago, and a separate $50 million annualized cost program is about 30% executed so far.
Short-Term Liquidity Boost from Lender Amendment
To shore up liquidity, Sleep Number reached an amendment with its lenders that adds about $55 million of near-term relief, including a new $25 million senior secured term loan. End-of-quarter liquidity stood at $40 million in cash and revolver capacity, and the agreement provides temporary covenant forbearance and minimum-liquidity relief through mid-2026.
Revenue Down Nearly 20% Year Over Year
Despite operational wins, the top line remained under pressure, with first-quarter net sales declining 19% year over year to $319 million. Management pointed to weak January and early February demand, driven by adverse weather and macroeconomic softness, as well as a 21% reduction in media spending compared with the prior year.
Margins Compress and EBITDA Declines Versus 2024
Adjusted EBITDA fell by roughly $16 million from the prior-year quarter, underscoring the profit impact of lower sales and promotional activity. Gross margin contracted to 57.9%, down 329 basis points year over year, reflecting a mix shift toward the new ComfortMode beds and heightened discounting on legacy inventory.
Free Cash Flow Remains a Use of Cash
Free cash flow for the quarter was a use of $13.2 million, about $6 million worse than last year but roughly $20 million better than internal plans. Management characterized this period as a trough-liquidity season, with cash consumption tied to launching the new product line and increased marketing investment to support demand.
Capital Structure Risks and Tight Runway
The new $25 million term loan obtained as part of the lender amendment matures on June 30, 2026, creating a relatively short fuse for resolving the balance sheet. Sleep Number is working with advisors to explore strategic and financing options, and executives acknowledged that without a longer-term recapitalization, the company’s financial flexibility remains constrained.
Inventory Clearance Weighs on Margins but Cleans the Slate
To make room for the refreshed lineup, Sleep Number has been discounting legacy SKUs, which added pressure to margins, though less than 100 basis points of the margin decline was attributed to this factor. Clearance activity and launch-related costs were cited as drags on fourth-quarter and first-quarter margins, but management believes most obsolescence charges are now behind the company.
Smaller Store Base and Mixed Comparable Trends
The retailer’s store count is down by roughly 9% year over year, contributing to overall revenue softness even as some same-store metrics improve. Looking ahead, management expects second-quarter net sales to be down low single digits to flat compared with last year, with later-quarter trends showing signs of better performance at comparable locations.
Cautious Guidance Reflects Ongoing Uncertainty
For the second quarter, Sleep Number expects net sales to range from slightly negative to flat year over year, supported by March’s 6% demand growth and April demand tracking to plan. Media spending should be roughly flat with the first quarter but meaningfully above last year, and while product and cost metrics trend positively, management declined to give multi-period guidance as it focuses on resolving its capital structure.
Sleep Number’s latest update offers a cautiously optimistic narrative of product-led momentum and disciplined cost control set against a backdrop of weak revenue, compressed margins and tight liquidity. Investors will likely watch closely to see whether early demand improvements and premium mix gains can translate into sustained cash generation and a successful recapitalization over the next two years.