What happened

Shares of Sleep Number (SNBR -3.58%), which makes mattresses and other bedding products, fell sharply at the open on April 21, losing just shy of 16% of their value in the first few minutes of trading. Precipitating that move was the company's first-quarter 2022 earnings update, released after the close of trading on April 20, which was not particularly good reading. Here's a quick look at what put investors in such a negative mood.

So what

Sleep Number's first-quarter 2022 sales declined 7% year over year to $527 million. Wall Street analysts had been looking for sales that were just slightly higher than that. Earnings per share came in at $0.09 per share, which was way off from last year's $2.51 per share and the $0.33-per-share consensus estimate. Investors don't like it when companies miss on both the top and bottom lines, so it makes sense that the stock sold off on this news.

Two people in a bed looking at a computer.

Image source: Getty Images.

If only the bad news ended there. The reasons provided for the company's weak results included the constrained supply of computer chips and external factors including global geopolitical tensions and the omicron variant of the coronavirus. None of these issues is likely to go away anytime soon. And while the company highlighted that its backlog had grown 20%, reading into the company's comments suggests that this was probably related to its inability to actually build and deliver products. Which helps explain why the company lowered its full-year 2022 earnings guidance.

Now what

The current guidance calls for earnings to fall between $5 and $6 a share. This is a rather large negative shift in the outlook, since Sleep Number earned $6.16 per share in 2021 and started the New Year out calling for a 10%-to-15% earnings increase. The best-case scenario at this point is for earnings to decline around 2.5%, with the worst case amounting to a fairly painful drop of 19% or so. It's little wonder that investors are in a selling mood today.