Shares of Sleep Number (SNBR -0.35%) were down 29.5% as of 3:45 p.m. ET Wednesday after the bed manufacturer announced weak quarterly results, lowered its full-year outlook, and revealed significant restructuring initiatives.
For Sleep Number's third quarter of 2023, net sales declined 13% year over year to $472.6 million, translating to a net loss of $2.3 million, or $0.10 per share (compared to net income of $0.22 per share in the same year-ago period). Analysts on average were expecting net income of $0.17 per share on revenue of $514.5 million.
On Sleep Number's nightmarish quarter
While Sleep Number entered Q3 with high expectations, the company says "demand decelerated abruptly in August and September," resulting in a low-double-digit percent demand decline for the quarter.
"In response, we acted quickly to further reduce costs, recalibrate our sales and marketing approach, and amend our credit agreement to provide additional covenant flexibility through the end of 2024," stated Sleep Number chair and CEO Shelly Ibach. "We expect these actions and broad-based restructuring initiatives to result in a more durable operating model, with improved profitability and cash flows in a range of economic environments."
More specifically, Sleep Number is reducing its head count across all areas of the organization, including corporate and R&D functions. The company is also planning to close 40 to 50 stores by the end of 2024, while slowing its rate of new store openings and remodels.
What's next for Sleep Number stock?
Sleep Number expects its restructuring will result in up to $20 million of one-time costs, with around $10 million (or roughly $0.35 per share) being recorded in the fourth quarter. As such, the company lowered its full-year 2023 outlook to call for a loss of up to $0.70 per share, assuming a low-double-digit percent decline in net sales.
Previously, Sleep Number's guidance called for 2023 earnings of $1.25 to $1.75 per share, assuming a low-to-mid-single-digit decline in net sales. And analysts, on average, were expecting 2023 earnings of $1.33 per share on a roughly 4.8% net sales decline.
In the end, Sleep Number hardly alone as a consumer goods stock experiencing demand headwinds in today's uncertain macroeconomic environment. And it might well emerge a more durable business once the fruits of its restructuring take hold. But it's hard to imagine a more disastrous report than the one with which investors were just presented.
It should come as no surprise, then, to see Sleep Number stock falling so hard in response. Until we see more tangible signs of a sustained improvement in demand -- and, in turn, a shift back toward sustained, profitable growth -- I'm content watching this story unfold from the sidelines.
