Please ensure Javascript is enabled for purposes of website accessibility

Why Sleep Number Shares Rose 56% Last Month

By Anders Bylund - May 11, 2020 at 2:41PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The maker of adjustable sleep systems hunkered down to tackle the coronavirus challenge, and then it crushed Wall Street's first-quarter estimates.

What happened

Shares of Sleep Number (SNBR -5.32%) gained 56.1% in April, according to data from S&P Global Market Intelligence. The maker of adjustable mattress systems took some dramatic cost-savings steps in the second week of April and followed that with a strong earnings report near the end of the month.

So what

Sleep Number's response to the ongoing COVID-19 crisis included furloughing 40% of its workers, reducing work hours for another 30% of the staff, and reducing cash payments to executives and board members in exchange for restricted stock units. The company also halted its share buybacks, drew down $262 million from its revolving credit facilities, and took out a 1-year term loan for another $75 million.

The first-quarter earnings report showed revenues rising 11% year over year to $473 million, while earnings increased by 70% to $1.36 per diluted share. Your average analyst would have settled for earnings near $0.72 per share on sales in the neighborhood of $433 million. Share prices rose more than 30% on April 23 (the day after the report) alone.

A grown man sleeps soundly in bed, squeezing a stuffed teddy bear.

Image source: Getty Images.

Now what

Consumers appear to have improved their bedding systems en masse as the coronavirus pandemic triggered stay-at-home orders. Sleep Number's weekly sales plummeted 80% when government directions forced the company to close 80% of its stores, taking the edge off this report's skyrocketing growth with a sharp drop in the last two weeks of the reporting period. The order flow has since improved to a 50% year-over-year decline, but the second quarter will almost certainly look weak next to the majestic first-quarter performance.

"We expect the existing government-mandated closures to continue to place meaningful pressure on sales through May and to a lesser extent, into June, followed by a gradual recovery in the back half of the year," CEO Shelly Ibach said in the earnings call. "We are doing everything in our power, financially, strategically, and operationally to effectively navigate through this crisis, continue to keep our team and customers safe and help our communities achieve higher quality sleep."

Sleep Number's stock has more than doubled from the multiyear lows it recorded in mid-March, but it also stands 36% below February's all-time highs. Fellow Fool Rick Munarriz says that Sleep Number has passed this test of financial fortitude. Shareholders should be able to sleep soundly for years to come.

Anders Bylund has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Sleep Comfort Corporation Stock Quote
Sleep Comfort Corporation
$44.32 (-5.32%) $-2.49

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/19/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.