What happened

Shares of Sleep Number (NASDAQ:SNBR) were sinking today after the mattress maker missed top-line estimates in its earnings report, and the company failed to raise its earnings outlook despite a strong bottom-line result. Consequently, the stock was down 19.5% as of 1:49 p.m. EDT.

So what

Sleep Number said comparable sales rose 5% in the first quarter, which along with new stores drove overall revenue up 10% to $426.4 million. However, that figure was shy of estimates at $427.5 million.

A woman tests a mattress in a store.

Image source: Getty Images.

Still, the comparable sales growth helped drive operating leverage as gross margin improved 40 basis points to 61.5%, and operating income increased 22% to $32.7 million. Earnings per share jumped from $0.52 to $0.80 due to aggressive share buybacks, which easily beat expectations at $0.73.

CEO Shelly Ibach said, "Sleep Number 360 smart beds, which are providing our customers with life-changing sleep, drove record first-quarter sales and EPS. Our initiatives are extending brand reach, deepening consumer engagement and driving sustainable profitable growth."

Now what

Despite the strong results, Sleep Number declined to raise its earnings guidance for the year, maintaining its outlook at $2.25 to $2.75 and sales increase of 6% to 10%. That may have spooked investors, as it seems to indicate that growth will slow over the rest of the year. Management also forecast that its second-quarter earnings would fall slightly as it laps a tax benefit from the year before. Considering its share count has fallen by nearly 20%, the company's EPS should get a lift even if its underlying performance doesn't improve.

Sleep Number shares had surged more than 50% year to date as well, so today's sell-off may partly be a correction for that surge.

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