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What changed in Sleep Number Corp's 10-K — 2023 vs 2024

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Paragraph-level year-over-year comparison of Sleep Number Corp's 2023 and 2024 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2024 report.

+381 added−364 removedSource: 10-K (2024-02-23) vs 10-K (2023-02-24)

Top changes in Sleep Number Corp's 2024 10-K

381 paragraphs added · 364 removed · 261 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

99 edited+50 added−65 removed27 unchanged
Biggest changeAdditional partnerships with four clubs — Super Bowl LVII Champion Kansas City Chiefs, Super Bowl LVI Champion Los Angeles Rams, the Dallas Cowboys and Minnesota Vikings— add to its national and community-activation efforts. • Sleep Number’s multi-year partnerships with content and media companies including Discovery Media, NFL Media, NFL Teams, Fox Sports, YouTube and more, and influencer and NFL athlete relationships also provide opportunities to drive ongoing awareness and consideration for consumers about the benefits of improved sleep performance.
Biggest changeIn 2023, Sleep Number had partnerships with five clubs — Super Bowl LIV, LVII and LVIII Champion Kansas City Chiefs, Super Bowl LVI Champion Los Angeles Rams, the Dallas Cowboys, Minnesota Vikings and Cincinnati Bengals— which add to its national media and community-activation efforts. These partnerships allow for focused communications in some of Sleep Number’s most important markets.
This “sell-from-anywhere” model supports customers’ shopping preferences and results in new customer acquisition, sustained repeat and referral, high conversion and strong revenue per smart bed unit — all of which drive continued sales and profitable growth. As the exclusive distributor of Sleep Number ® products, the Company has a nationwide portfolio of retail stores.
This “sell-from-anywhere” model supports customers’ shopping preferences and results in new customer acquisition, sustained repeat and referral, high conversion and strong revenue per smart bed unit – all of which drive sales and profitable growth. As the exclusive distributor of Sleep Number ® products, the Company has a nationwide portfolio of retail stores.
Affordable.™, ComfortFit™ CoolFit™, DualAir™, DualTemp™, Firmness Control™, FlexFit™, In Balance™, Partner Snore™, The Bed Reborn™, The Bed That Moves You™, The Best Bed For Couples™, True Temp™, Winter Soft™ and the Company’s bed model names. Several of the Company’s trademarks have been registered, or are the subject of pending applications for registration, in various foreign countries.
Affordable.™, ComfortFit™, CoolFit™, DualAir™, Firmness Control™, FlexFit™, In Balance™, Partner Snore™, The Bed Reborn™, The Bed That Moves You™, The Best Bed For Couples™, True Temp™, Winter Soft™ and the Company’s bed model names. Several of the Company’s trademarks have been registered, or are the subject of pending applications for registration, in various foreign countries.
Krusmark held a variety of leadership roles in finance at Sleep Number supporting sales, real estate, marketing and product. Prior to joining Sleep Number, Mr. Krusmark worked on the financial audit staff of EY and Arthur Andersen.
Krusmark held a variety of leadership roles in finance at Sleep Number supporting sales, real estate, marketing and product. Prior to joining Sleep Number, Mr. Krusmark worked on the financial audit staff of EY and Arthur Andersen. J.
Sleep Number competes against regional and local specialty bedding retailers, bedding manufacturers, home furnishing stores, mass merchants, national discount stores and online marketers. Furniture Today, a furniture industry trade publication, has ranked Sleep Number as the third largest U.S. bedding retailer and etailer for 2021, with an estimated 9% market share of industry retail revenue.
Sleep Number competes against regional and local specialty bedding retailers, bedding manufacturers, home furnishing stores, mass merchants, national discount stores and online marketers. Furniture Today, a furniture industry trade publication, has ranked Sleep Number as the third largest U.S. bedding retailer and etailer for 2022, with an estimated 9% market share of industry retail revenue.
Barra held leadership positions in the U.S. and internationally in process reengineering, finance, strategic alliances and corporate development for Best Buy, Grupo Futuro S.A., Citibank and GE Capital. ANDREA L. BLOOMQUIST, 53 Executive Vice President and Chief Innovation Officer (Joined the Company in 2008 and was promoted to current role in December 2020) Annie L.
Barra held leadership positions in the U.S. and internationally in process reengineering, finance, strategic alliances and corporate development for Best Buy, Grupo Futuro S.A., Citibank and GE Capital. ANDREA L. BLOOMQUIST, 54 Executive Vice President and Chief Innovation Officer (Joined the Company in 2008 and was promoted to current role in December 2020) Annie L.
Sleep Number’s smart bed ecosystem includes a full line of exclusive FlexFit™ smart adjustable bases that seamlessly integrate with Sleep Number smart bed, for an individualized sleep experience that is proven to deliver more restful sleep per night. Industry-leading smart bases offer endless adjustability by raising the head and feet for the ultimate relaxation.
Smart Adjustable Bases Sleep Number’s smart bed ecosystem includes a full line of exclusive FlexFit™ smart adjustable bases that seamlessly integrate with Sleep Number smart beds, for an individualized sleep experience that is proven to deliver more restful sleep per night. The Company’s industry-leading smart bases offer endless adjustability by raising the head and feet for ultimate relaxation.
In the United States, sleep disorders have been declared a public health epidemic by the U.S. Center for Disease Control. Sleep Number is focused on innovations that will address this growing problem. The total U.S. sleep-health economy was estimated to be $30 billion to $40 billion in a 2017 report published by McKinsey & Company.
In the United States, sleep disorders have been declared a public health epidemic by the U.S. Center for Disease Control. Sleep Number is focused on innovations that will address this growing problem. The total U.S. sleep-health economy was estimated to be over $30 billion in a 2017 report published by McKinsey & Company.
The Company also measures and reports a team member inclusion and belonging index, and conducts a self-identification survey to learn how team members identify and how they want to be appreciated as individuals; • Engagement: Sleep Number has a continuous listening strategy to ensure it stays connected to the voice of its team members at critical times of the team member experience.
The Company also measures and reports a team member inclusion and belonging index, and has conducted a self-identification survey to learn how team members identify and how they want to be appreciated as individuals; • Engagement: Sleep Number has a continuous listening strategy to ensure it stays connected to the voice of its team members at critical times of the team member experience.
The traditional view of the U.S. bedding industry, including mattresses and foundations (static and adjustable), is measured through data provided by the International Sleep Products Association (ISPA). According to ISPA*, the industry has grown by approximately 5% annually over the last 20 years, including 5% annually, on average, over the past five years.
The traditional view of the U.S. bedding industry, including mattresses and foundations (static and adjustable), is measured through data provided by the International Sleep Products Association (ISPA). According to ISPA*, the industry has grown by approximately 4% annually over the last 20 years, including 4% annually, on average, over the past five years.
HELLFELD, 44 Executive Vice President and Chief Legal and Risk Officer and Secretary (Joined the Company in 2013 and was promoted to current role in March 2022) Samuel R. Hellfeld, Sleep Number ® setting 65, serves as the Executive Vice President and Chief Legal and Risk Officer and Secretary and leads legal, internal audit, corporate security and asset protection.
HELLFELD, 45 Executive Vice President and Chief Legal and Risk Officer and Secretary (Joined the Company in 2013 and was promoted to current role in March 2022) Samuel R. Hellfeld, Sleep Number ® setting 65, serves as the Executive Vice President and Chief Legal and Risk Officer and Secretary and leads legal, internal audit, corporate security and asset protection.
HUNTER SAKLAD, 53 Executive Vice President and Chief Supply Chain Officer (Joined the Company in 2004 and was promoted to current role in January 2021) Hunter Saklad, Sleep Number ® setting 65, serves as the Executive Vice President and Chief Supply Chain Officer at Sleep Number and leads the Company’s sourcing, procuring, inventory planning and manufacturing capabilities.
HUNTER SAKLAD, 54 Executive Vice President and Chief Supply Chain Officer (Joined the Company in 2004 and was promoted to current role in January 2021) Hunter Saklad, Sleep Number ® setting 65, serves as the Executive Vice President and Chief Supply Chain Officer at Sleep Number and leads the Company’s sourcing, procuring, inventory planning and manufacturing capabilities.
These documents are posted on the Company’s website: select the “Investors” link, the “Governance” link and then the “Governance Documents” link. The information contained on the Company’s website or connected to it website is not incorporated by reference into this Form 10-K and should not be considered part of this report.
These documents are posted on the Company’s website: select the “Investors” link, the “Governance” link and then the “Governance Documents” link. The information contained on the Company’s website or connected to its website is not incorporated by reference into this Form 10-K and should not be considered part of this report.
IBACH, 63 Chair, President and Chief Executive Officer (Joined the Company in April 2007, was promoted to President and CEO in June 2012 and became Chair of the Board of Directors in May 2022) Shelly R. Ibach, Sleep Number ® setting 40, serves as the Chair, President and Chief Executive Officer (CEO) for Sleep Number (Nasdaq: SNBR).
IBACH, 64 Chair, President and Chief Executive Officer (Joined the Company in April 2007, was promoted to President and CEO in June 2012 and became Chair of the Board of Directors in May 2022) Shelly R. Ibach, Sleep Number ® setting 40, serves as the Chair, President and Chief Executive Officer (CEO) for Sleep Number (Nasdaq: SNBR).
Intellectual Property As a result of the Company’s R&D and strategic efforts, Sleep Number has continued to grow its patent portfolio, with a particular focus on smart features that improve sleep quality and thermal solutions to solve temperature disruptions to sleep.
Intellectual Property As a result of the Company’s R&D and strategic efforts, Sleep Number has continued to strengthen its patent portfolio, with a particular focus on smart features that improve sleep quality and thermal solutions to solve temperature disruptions to sleep.
Copies of any of the above-referenced information will also be made available, free of charge, upon written request to: Sleep Number Corporation Investor Relations Department 1001 Third Avenue South Minneapolis, MN 55404 17 | 2022 FORM 10-K SLEEP NUMBER CORPORATION
Copies of any of the above-referenced information will also be made available, free of charge, upon written request to: Sleep Number Corporation Investor Relations Department 1001 Third Avenue South Minneapolis, MN 55404 17 | 2023 FORM 10-K SLEEP NUMBER CORPORATION
This report may be accessed at www.sleepnumber.com: select the “Investors” link, the “ESG” link and then “Sustainability Reports.” The information contained on the Company’s website or connected to its website is not incorporated by reference into this Form 10-K and should not be considered part of this report. 14 | 2022 FORM 10-K SLEEP NUMBER CORPORATION Information about the Company’s Executive Officers SHELLY R.
It may be accessed at www.sleepnumber.com: select the “Investors” link, the “ESG” link and then “Sustainability Reports.” The information contained on the Company’s website or connected to its website is not incorporated by reference into this Form 10-K and should not be considered part of this report. 14 | 2023 FORM 10-K SLEEP NUMBER CORPORATION Information about the Company’s Executive Officers SHELLY R.
MELISSA BARRA, 51 Executive Vice President and Chief Sales and Services Officer (Joined the Company in 2013 and was promoted to current role in December 2020) Melissa Barra, Sleep Number ® setting 30, serves as the Executive Vice President and Chief Sales and Services Officer. Ms.
MELISSA BARRA, 52 Executive Vice President and Chief Sales and Services Officer (Joined the Company in 2013 and was promoted to current role in December 2020) Melissa Barra, Sleep Number ® setting 30, serves as the Executive Vice President and Chief Sales and Services Officer. Ms.
Prior to being promoted to his Chief Human Resources Officer role in July 2020, Mr. Krusmark served as Sleep Number’s Vice President of Sales Operations, Field Services and Training where he led retail and home delivery operations and wholesale business development. From June 2005 to October 2015, Mr.
Krusmark also served as Interim CFO. Prior to being promoted to his Chief Human Resources Officer role in July 2020, Mr. Krusmark served as Sleep Number’s Vice President of Sales Operations, Field Services and Training where he led retail and home delivery operations and wholesale business development. From June 2005 to October 2015, Mr.
Through ongoing interactions with customers via phone, email, chat and social media, customer service team members also provide a unique opportunity to benefit from insights that help the Company continuously improve its products and strengthen its service quality and innovation. This integration enables operational synergies and organizational efficiencies.
Through ongoing interactions with customers via phone, email, chat and social media, the customer service team also provides a unique opportunity to benefit from insights that help the Company continuously improve its products and strengthen its service quality and innovation. This integration enables operational synergies and organizational efficiencies.
More than 330,000 individuals in its Smart Sleeper SM community — and counting — have opted in to participate in ongoing sleep research and advance the science of sleep and health.
More than 433,000 individuals in its Smart Sleeper SM community — and counting — have opted in to participate in ongoing sleep research and advance the science of sleep and health.
Bloomquist held leadership positions in general management, sourcing, buying, development and planning at Macy’s and The Department Stores for Target Corporation. 15 | 2022 FORM 10-K SLEEP NUMBER CORPORATION KEVIN K. BROWN, 54 Executive Vice President and Chief Marketing Officer (Joined the Company in 2014 and was promoted to current role in December 2020) Kevin K.
Bloomquist held leadership positions in general management, sourcing, buying, development and planning at Macy’s and The Department Stores for Target Corporation. 15 | 2023 FORM 10-K SLEEP NUMBER CORPORATION KEVIN K. BROWN, 55 Executive Vice President and Chief Marketing Officer (Joined the Company in 2014 and was promoted to current role in December 2020) Kevin K.
Further, the Company’s manufacturing, distribution, delivery and other business operations and facilities are subject to additional federal, state or local laws or regulations including supply chain transparency, conflict minerals sourcing and disclosure, end-of-life disposal and recycling requirements, transportation and other laws or regulations relating to environmental protection and health and safety requirements.
Further, the Company’s manufacturing, distribution, delivery and other business operations and facilities are subject to additional federal, state or local laws or regulations including supply chain transparency, conflict minerals sourcing and disclosure, end-of-life disposal, recycling and packaging requirements, transportation, electrification of the Company’s vehicle fleet and other laws or regulations relating to environmental protection and health and safety requirements.
Hellfeld was an Associate at several law firms and also served as Law Clerk in the United States Court of Appeals for the Ninth Circuit and the United States District Court, Southern District of California. J.
Hellfeld was an Associate at several law firms and also served as Law Clerk in the United States Court of Appeals for the Ninth Circuit and the United States District Court, Southern District of California. CHRISTOPHER D.
Across its customer touchpoints, which include Stores, Online, Phone and Chat, it delivers a value-added retail experience that seamlessly integrates Sleep Number’s digital and physical experiences to meet customer needs. The Company offers an engaging and dynamic online experience to educate consumers and advance their purchase path, driving highly-qualified traffic to all its retail touchpoints.
Across its customer touchpoints, defined as Total Retail (Stores, Online, Phone and Chat), it delivers a value-added retail experience that seamlessly integrates Sleep Number’s digital and physical experiences to meet customer needs. The Company offers an engaging and dynamic online experience to educate consumers and advance their purchase path, driving highly-qualified traffic to all of its retail touchpoints.
The Company’s most dedicated Smart Sleepers, ICR members regularly interact with branded content — including video, web, email and blog content — which educates them about Sleep Number’s products and sleep expertise, adding value to their investment.
The Company’s most dedicated Smart Sleepers regularly interact with branded content – including video, web, email and blog content – which educates them about Sleep Number ® products and sleep expertise, adding value to their investment.
Many of the statutory and regulatory requirements that impact the Company’s retail and e-commerce operations are consumer-focused and pertain to activities such as the Company’s promotions, advertising claims, pricing, credit-based promotional offers, truth-in-advertising, privacy, “do not call/mail” requirements, text messaging requirements, warranty disclosure, delivery timing requirements, accessibility and similar requirements.
Many of the statutory and regulatory requirements that impact the Company’s retail and e-commerce operations are consumer-focused and pertain to activities such as the Company’s promotions, advertising claims, marketing practices, pricing, consumer credit offerings, truth-in-advertising, consumer privacy, “do not call/mail” requirements, text messaging requirements, warranty disclosure, delivery timing requirements, accessibility and similar requirements.
Barra leads the Company’s customer-focused strategy and its sales, real estate, filed services and customer relationship teams. From June 2019 to December 2020, Ms. Barra was Senior Vice President, Chief Sales, Services and Strategy Officer. Ms.
Barra leads the Company’s customer-focused strategy and its sales, real estate, field services, customer relationship, and corporate technology teams. From June 2019 to December 2020, Ms. Barra was Senior Vice President, Chief Sales, Services and Strategy Officer. Ms.
The Company holds various U.S. and foreign patents and patent applications regarding certain elements of the design and function of Sleep Number products, including air control systems, remote control systems, air chamber features, mattress construction, foundation systems, sensing systems, automated adjustments, in-bed temperature 9 | 2022 FORM 10-K SLEEP NUMBER CORPORATION control, as well as other technology.
The Company holds various U.S. and foreign patents and patent applications regarding certain elements of the design and function of Sleep Number products, including air control systems, remote control systems, air chamber features, mattress construction, foundation systems, sensing systems, automated adjustments, in-bed temperature control, as well as other technology.
The Company uses its HCM system to monitor the completion of learning courses for its team members. Sleep Number’s enterprise learning management system provides all team members access to an equitable learning and training curriculum that is dynamic and mobile-accessible; • Safety: Sleep Number has a commitment to maintain a safety-first mindset.
The Company uses its HCM system to monitor the completion of learning courses for its team members. Sleep Number’s enterprise learning management system provides all team members access to an equitable learning and training curriculum that is dynamic and mobile-accessible; 12 | 2023 FORM 10-K SLEEP NUMBER CORPORATION • Safety: Sleep Number has a commitment to maintain a safety-first mindset.
Sleep Number embraces every individual’s unique talents, perspectives and experiences, and strives to create an environment where we can each be our best self. Valuing diversity, equity and inclusion makes Sleep Number stronger and smarter, and fuels its innovation and teamwork.
Sleep Number embraces every individual’s unique talents, perspectives and experiences, and strives to create an environment where team members can each be their best self. Valuing diversity, equity and inclusion makes Sleep Number stronger and smarter, and fuels its innovation and teamwork.
The Company included ACS in its brand communications to Smart Sleepers, in its work with the National Football League (NFL), across its social media and more.
The Company included ACS in its brand communications to Smart Sleepers, in its work with the NFL, across its social media and more.
Sleep Number also has other intellectual property rights related to its products, processes and technologies, including trade secrets, trade dress and copyrights. The Company protects and enforces its intellectual property rights, including through litigation, as necessary. Industry and Competition Up to 50% of the developed world’s population experiences sleep deficiencies.
Sleep Number also has other intellectual property rights related to its products, processes and technologies, including trade secrets, trade dress and copyrights. The Company protects and enforces its intellectual property rights, including through litigation, as necessary. 9 | 2023 FORM 10-K SLEEP NUMBER CORPORATION Industry and Competition Up to 50% of the developed world’s population experiences sleep deficiencies.
The Company is also subject to existing and emerging federal and state laws relating to data security, privacy, cybersecurity disclosures and climate disclosure. It is Sleep Number’s policy and practice to comply with all legal and regulatory requirements. The Company’s procedures and internal controls are designed to promote such compliance.
The Company is also subject to existing and emerging federal and state laws relating to insider trading, data security, privacy, cybersecurity disclosure, clawback policy disclosures and greenhouse gas measurement and climate impact disclosure. It is Sleep Number’s policy and practice to comply with all legal and regulatory requirements. The Company’s procedures and internal controls are designed to promote such compliance.
Additional meaningful features include Partner Snore™ technology, which allows a sleeping partner to temporarily relieve mild snoring by raising the companion’s head at the touch of a button, Foot Warming which is designed to help an individual fall asleep faster and underbed lighting.
Additional features include Partner Snore™ technology, which allows a sleeping partner to temporarily relieve mild snoring by raising the companion’s head at the touch of a button; Foot Warming, which is designed to help an individual fall asleep faster; and under-bed lighting, for nighttime visibility.
As the Official Sleep and Wellness Partner of the NFL since 2017, the partnership broadens Sleep Number’s brand reach, deepens its brand relevance and magnifies the benefits of its proprietary innovations. The partnership has led to unparalleled product adoption: 80% of NFL players have a Sleep Number smart bed.
National Football League (NFL) As the Official Sleep and Wellness Partner of the NFL since 2018, the partnership broadens Sleep Number’s brand reach, deepens its brand relevance and amplifies the benefits of its proprietary innovations. The partnership has led to unparalleled product adoption: 80% of NFL players have a Sleep Number smart bed*.
The Company actively evolves its health and safety policies during the year to ensure the safety of its team members and customers; and • Total Rewards: Sleep Number benchmarks and reviews, at least annually, all aspects of its total rewards program for team members.
The Company actively evolves its health and safety policies during the year to ensure the safety of its team members and customers; and • Total Rewards: Sleep Number benchmarks and reviews, at least annually, all aspects of its total rewards program to ensure programs are valued, equitable and competitive.
Together, these teams are the driving force of the entire smart bed ecosystem including all smart beds, adjustable base designs and bedding solutions, and are comprised of experts in mechanical engineering, comfort, adjustability, temperature, anthropometrics and test systems.
Together, these teams are the driving force of the entire smart bed ecosystem including all smart beds, adjustable base designs and bedding solutions, and are comprised of experts in mechanical engineering, comfort, adjustability, temperature, anthropometrics and test systems. The Company’s research and development expenses were $56 million in 2023.
Sleep Number is leveraging the flexibility, visibility and resilience of its vertically-integrated model to respond nimbly as conditions change and to communicate clearly with customers regarding their delivery experience. 8 | 2022 FORM 10-K SLEEP NUMBER CORPORATION Home Delivery Service Sleep Number’s home delivery teams are another direct touchpoint with its customers.
Sleep Number is leveraging the flexibility, visibility and resilience of its vertically-integrated model to respond nimbly as conditions change. 6 | 2023 FORM 10-K SLEEP NUMBER CORPORATION Home Delivery Service Sleep Number’s home delivery teams are another direct touchpoint with its customers.
Partnerships, Collaborations and Smart Sleepers Partnerships Through partnerships with world-leading health and wellness institutions, Sleep Number is advancing sleep science with its highly accurate, longitudinal sleep data. This data, which comes from millions of Smart Sleepers, serves as the foundation for groundbreaking research on various health-related issues.
Health & Research Institutions Through partnerships with world-leading health and wellness institutions, Sleep Number is advancing sleep science with its highly accurate, longitudinal sleep data. This data serves as the foundation for groundbreaking research on various health-related issues.
The Company’s operations are subject to federal, state and local labor laws including, but not limited to, those relating to occupational health and safety, employee privacy, wage and hour, overtime pay, harassment and discrimination, equal opportunity and employee leaves and benefits.
The Company’s operations are subject to federal, state and local labor laws including, but not limited to, those relating to occupational health and safety, employee privacy, wage and hour, overtime pay, pay transparency, harassment and 11 | 2023 FORM 10-K SLEEP NUMBER CORPORATION discrimination, equal opportunity and employee leaves and benefits.
Through the analysis of longitudinal sleep and biosignal data, the Sleep Number smart bed can deliver both real-time interventions — including effortless comfort adjustments during the night, with no action required by the sleeper – and personalized sleep insights.
Through the analysis of sleeper-generated sleep and biosignal data, the smart bed can deliver both real-time interventions – including automatic comfort adjustments during the night, with no action required by the sleeper – and personalized sleep insights through its accompanying app.
Sleep Number has numerous U.S. patents, expiring at various dates between March 2023 and December 2040, and numerous U.S. patent applications pending. The Company also has numerous foreign patents, expiring at various dates between September 2023 and June 2045 and foreign patent applications pending.
Sleep Number has numerous U.S. patents, expiring at various dates between November 2025 and March 2042, and numerous U.S. patent applications pending. The Company also has numerous foreign patents, expiring at various dates between September 2026 and June 2045 and foreign patent applications pending.
Brand health metrics indicate that despite significant headwinds in 2022 — including low levels of consumer sentiment — Sleep Number continues to be thought of as a sleep innovation, sleep health, and sleep science leader. 6 | 2022 FORM 10-K SLEEP NUMBER CORPORATION The Company’s individualized messaging and brand marketing strategies are designed to emotionally connect with consumers about the benefits of life-changing sleep and the value of Sleep Number smart beds.
Brand health metrics indicate that despite significant headwinds in 2022 and 2023 – including low levels of consumer sentiment – Sleep Number continues to be thought of as a sleep innovation, sleep health and sleep science leader. The Company’s individualized messaging and brand marketing strategies are designed to emotionally connect with consumers.
KRUSMARK, 43 Executive Vice President and Interim Chief Financial Officer and Chief Human Resources Officer (Joined the Company in 2005, was promoted to Chief Human Resources Officer in July 2020 and assumed the role of Interim Chief Financial Officer in January 2023) Chris Krusmark, Sleep Number ® setting 55, serves as the Executive Vice President and Interim Chief Financial Officer and Chief Human Resources Officer, where he leads all finance functions and all human resources, training and learning functions.
KRUSMARK, 44 Executive Vice President and Chief Human Resources Officer (Joined the Company in 2005, was promoted to Chief Human Resources Officer in July 2020) Chris Krusmark, Sleep Number ® setting 55, serves as the Executive Vice President and Chief Human Resources Officer, where he leads all human resources, training and learning functions. From January 2023 through August 2023, Mr.
The Company has taken, and continues to take, various measures to mitigate the potential impact of supply disruptions, including strengthening relationships with primary suppliers, identifying new alternate suppliers, redesigning products, exploring alternative components and maintaining safety stocks. The Company expects supply constraints to ease in 2023 but the general supply environment to remain volatile.
The Company has taken, and continues to take, various measures to mitigate the potential impact of supply disruptions, including strengthening relationships with primary suppliers, identifying new alternate suppliers, redesigning products, exploring alternative components and maintaining safety stocks. The Company expects the general supply environment to remain challenged through 2024 as the global environment remains uncertain.
Sleep Number’s wellness technology platform automatically collects and analyzes billions of data points collected from millions of Smart Sleepers, conducting one of the largest sample sizes of sleep studies every night. This enables Smart Sleepers to benefit from the detection of health care issues related to sleep.
Sleep Number’s wellness technology platform automatically collects and analyzes billions of data points from millions of Smart Sleepers, conducting one of the largest sample sizes of sleep studies every night.
This participation has led to rapid enrollment in Institutional Review Board (IRB)-approved studies, which combine the power of Sleep Number’s broad sleep database with subjective understanding of sleeper behaviors to understand real-world outcomes.
This participation has led to rapid enrollment in Institutional Review Board (IRB)-approved studies, which combine the power of Sleep Number’s broad sleep database with subjective understanding of sleeper behaviors to understand real-world outcomes. The smart bed ecosystem is helping to advance the linkage of quality sleep to health, bringing significant benefits to real-world sleepers.
The Sleep Number smart bed’s proprietary “sense and do” technology digitally responds to each sleeper’s movements, automatically and effortlessly adjusting firmness, comfort and support to relieve pressure points throughout the night.
The combination of physical and digital innovation enables the Sleep Number smart bed’s proprietary “sense and do” technology, which digitally responds to each sleeper’s movements, effortlessly adjusting firmness, comfort and support to relieve pressure points.
Sleep Number’s mission-driven, highly-trained sleep experts use digital technology and its best-in-class relationship-based selling process, which is continually tested and refined, to find the right sleep solutions for its customers – wherever and whenever they want to shop.
Sleep Number’s mission-driven sleep experts use digital technology and a best-in-class, relationship-based selling process, which is continually tested and refined, to meet the changing consumer priorities. Processes are designed to match the right sleep solutions and right price point for its customers – wherever and whenever they want to shop.
Saklad held finance leadership roles at Ford Motor Company and Visteon. 16 | 2022 FORM 10-K SLEEP NUMBER CORPORATION Available Information Sleep Number is subject to the reporting requirements of the Exchange Act and its rules and regulations. The Exchange Act requires the Company to file reports, proxy statements and other information with the Securities and Exchange Commission (SEC).
Saklad held finance leadership roles at Ford Motor Company and Visteon. 16 | 2023 FORM 10-K SLEEP NUMBER CORPORATION Available Information Sleep Number is subject to the reporting requirements of the the Securities Exchange Act of 1934, as amended (Exchange Act) and its rules and regulations.
Sleep Number’s consumer innovation strategy with proprietary sleep innovations and exclusive direct-to-consumer distribution is highly differentiated, resulting in lifelong customer relationships and contributing to the Company’s continued profitable growth. *2022 ISPA industry information had not been published at the time of this report. 10 | 2022 FORM 10-K SLEEP NUMBER CORPORATION Manufacturers in the bedding industry mostly compete through national and regional retail partners, regional manufacturing verticals, and online direct-to-consumer.
Sleep Number’s consumer innovation strategy with proprietary sleep innovations and exclusive direct-to-consumer distribution is highly differentiated, resulting in lifelong customer relationships and contributing to the Company’s continued profitable growth. Manufacturers in the bedding industry mostly compete through national and regional retail partners, regional manufacturing verticals, and online direct-to-consumer.
The InnerCircle Rewards loyalty program - drives significant brand engagement. After the launch of the InnerCircle Rewards program, the Company welcomed over one million members who participated in over 13 million engagements with over 1,100 activities on its digital platform.
Sleep Number is delivering the improved sleep performance customers have been seeking. The Sleep Number ® Rewards loyalty program drives significant brand engagement. After the launch of the program, the Company welcomed over one million members who participated in over 5 million engagements with over 1,100 activities on its digital platform.
Sleep Number is advancing the science of sleep by funding several Mayo Clinic research projects, including: • Research to investigate the prevalence of disordered sleep (sleep apnea, insomnia and short sleep) in patients with Somali heritage and the implications for cardiovascular risk; • Research to explore the relationship between disrupted sleep and markers of aging (telomeres, senescence, chronological EKG based on AI); and • Research to explore excessive daytime sleepiness (EDS) and its cardiovascular implications.
Sleep Number is advancing the science of sleep by funding several Mayo Clinic research projects, including: • Research to investigate the prevalence of disordered sleep (sleep apnea, insomnia and short sleep) in patients with Somali heritage and the implications for cardiovascular risk; • Research to explore the relationship between disrupted sleep and markers of aging (telomeres, senescence, chronological EKG based on AI); and • Research to explore excessive daytime sleepiness (EDS) and its cardiovascular implications. 8 | 2023 FORM 10-K SLEEP NUMBER CORPORATION In 2022, Sleep Number formed a partnership with the American Cancer Society to study the connection between cancer and sleep quality, with the goal of developing the first-ever sleep strategies and guidance for cancer patients and survivors.
Patent and Trademark Office, including Sleep Number ® , SleepIQ ® , Sleep Number 360 ® , 360 ® , SleepIQ Kids ® , the Double Arrow logo, Select Comfort ® , AirFit ® , BAM Labs ® , the “B” logo, Comfortaire ® , Comfort.Individualized ® , Does Your Bed Do That? ® , the DualTemp logo, the DualAir Technology Inside logo, FlexTop ® , HealthIQ ® , IndividualFit ® , It ® , Know Better Sleep ® , Pillow[ology] ® , PillowFit ® , Probably the Best Bed in the World ® , Responsive Air ® , Sleep Is Training ® , Sleep Number Inner Circle ® , Sleep30 ® , Smart Bed For Smart Kids ® , Tech-e ® , The Only Bed That Grows With Them ® , This Is Not A Bed ® , Tonight Bedtime.
Patent and Trademark Office, including Sleep Number ® , SleepIQ ® , Sleep Number 360 ® , 360 ® , the Double Arrow logo, Select Comfort ® , AirFit ® ,Climate360 ® , Comfortaire ® , Does Your Bed Do That? ® , the DualTemp logo, the DualAir Technology Inside logo, FlexTop ® , HealthIQ ® , IndividualFit ® , Know Better Sleep ® , Pillow[ology] ® , PillowFit ® , Responsive Air ® , Sleep Is Training ® , Sleep Number Inner Circle ® , Sleep30 ® , Smart Sleeper SM ,Tech-e ® , This Is Not A Bed ® , and We Make Beds Smart ® .
Tomorrow The World ® , We Make Beds Smart ® and What’s Your Sleep Number? ® . We have several trademarks that are the subject of pending applications, including Auto Snore™, Climate360™, EnviroIQ™, HeartIQ™, Individualized Sleep Experiences™, RespiratoryIQ™, Retail Flow™, Sleep Number Labs logo, Sleep Number Labs Sleep For The Future logo, Smart Sleeper SM and WellnessIQ™.
We have several trademarks that are the subject of pending applications, including Auto Snore™, DualTemp™, EnviroIQ™, HeartIQ™, Individualized Sleep Experiences™, Inspire Next Level™, Perform Next Level™, RespiratoryIQ™, Retail Flow™, Sleep Next Level™, Sleep Number Labs logo, Sleep Number Labs Sleep For The Future logo, and WellnessIQ™.
With a relentless focus on the consumer, the Company has continued to advance its award-winning Sleep Number ® smart bed. Enhancing its trademark comfort, adjustability and highly accurate detection of sleep and biosignal data, the smart bed ecosystem has evolved into a progressive and adaptive wellness technology platform.
Enhancing its trademark comfort, adjustability and highly accurate detection of sleep and biosignal data, the smart bed has evolved into a progressive and adaptive wellness technology platform.
Sleep Number is pairing data and innovations with meaningful collaborations with world-leading partners in sleep, leveraging the potential of the Company’s research and technology to advance sleep science and to develop new products, services and synergistic interactions.
Sleep Number is pairing data and innovations with meaningful collaborations with world-leading partners in sleep, leveraging the potential of the Company’s research and technology to advance sleep science and to develop new products, services and synergistic interactions. 7 | 2023 FORM 10-K SLEEP NUMBER CORPORATION Partnerships and Collaborations Strategic partnerships amplify the effectiveness, impact and scale of Sleep Number’s brand and marketing efforts.
These systems are primarily comprised of packaged applications licensed from various software vendors plus a limited number of internally developed programs and digital solutions.
These systems are primarily comprised of packaged applications licensed from various software vendors plus a limited number of internally developed programs and digital solutions. See Item 1C. Cybersecurity for further information regarding the Company’s cybersecurity risk management program.
In 2022, media expense represented 14.6% of net sales. *Based on average SleepIQ ® data from sleepers who engaged with their Sleep Number ® setting, SleepIQ data and FlexFit TM adjustable base versus sleepers who had those same features but did not similarly engage with them. 7 | 2022 FORM 10-K SLEEP NUMBER CORPORATION Exclusive Direct-to-Consumer Distribution Sleep Number’s exclusive, direct-to-consumer distribution model supports lifelong relationships with its customers.
They actively write product reviews and post on social media, further activating the marketing flywheel and advancing the Company’s purpose. *Based on average SleepIQ ® data from sleepers who engaged with their Sleep Number ® setting, SleepIQ ® data and FlexFit TM adjustable base versus sleepers who had those same features but did not similarly engage with them. 5 | 2023 FORM 10-K SLEEP NUMBER CORPORATION Exclusive Direct-to-Consumer Distribution Sleep Number’s exclusive, direct-to-consumer distribution model supports lifelong relationships with its customers.
Ibach was Senior Vice President and General Merchandise Manager for Macy’s home division. From 1982 to 2005, Ms. Ibach held various leadership and executive positions within Target Corporation. CHRISTOPHER D.
Ibach was Senior Vice President and General Merchandise Manager for Macy’s home division. From 1982 to 2005, Ms. Ibach held various leadership and executive positions within Target Corporation. FRANCIS K. LEE, 52, Executive Vice President and Chief Financial Officer (Joined the Company in August 2023) Francis K.
Consumer Product Safety Commission, which requires rigorous and costly testing, has increased the cost and complexity of manufacturing the Company’s products and may adversely impact the speed and cost of product development efforts.
Compliance with health, safety and environmental laws and regulations, including the federal fire retardant standards developed by the U.S. Consumer Product Safety Commission, which requires rigorous and costly testing, has increased the cost and complexity of manufacturing the Company’s products and may adversely impact the speed and cost of product development efforts.
At December 31, 2022, Sleep Number employed a total of 5,115 team members, of which 92 were classified as part-time and 75 were employed on a temporary basis.
At December 30, 2023, Sleep Number employed a total of 4,145 team members, of which 77 were classified as part-time and 14 were employed on a temporary basis.
The breakdown of team members by area was as follows: 2,343 in retail sales and support, 911 in field services, 396 in customer service, 575 in manufacturing and logistics, and 890 in technology, corporate, management and administrative positions.
The breakdown of team members by area was as follows: 2,125 in retail sales and support, 490 in field services, 372 in customer service, 423 in manufacturing and logistics, and 735 in technology, corporate, management and administrative positions. Forty-two percent of team members are racially diverse and 40% are women.
The Company also operates a bedding fulfillment center at the same location as its Cincinnati, OH assembly distribution center. The Company sources the raw materials and components used in its products from third parties.
The assembly distribution centers fulfill customer orders that are made-to-order daily and assemble final mattress and order kitting with bases and accessories for shipment. The Company also operates a bedding fulfillment center at the same location as its Cincinnati, OH assembly distribution center. The Company sources the raw materials and components used in its products from third parties.
With more than 80% Smart Sleeper engagement, this community is actively using the physical and digital features of the platform, resulting in improved sleep performance. To date, the Company has leveraged and learned from more than 18 billion hours of sleep data gathered from over 2.3 billion real-world sleep sessions, generating comprehensive longitudinal and ecologically-valid data to improve sleep quality.
To date, the Company has leveraged and learned from more than 24 billion hours of sleep data gathered from over 3 billion real-world sleep sessions, generating comprehensive longitudinal and ecologically-valid data to improve sleep quality.
Sleep Number believes current partnerships and collaborations with physicians, researchers, and institutions — including the Mayo Clinic, American Cancer Society, Northwestern University, University of Pittsburgh and Sleep Number’s own Scientific Advisory Board — will further advance sleep science and research and deliver meaningful health solutions. These partnerships will provide society with a comprehensive, accurate picture of how sleep affects health.
By enabling a longitudinal view of sleep habits for organizations that otherwise may not have access, Sleep Number believes current partnerships and collaborations with physicians, researchers and institutions – including the Mayo Clinic, American Cancer Society, Northwestern University, University of Pittsburgh and Sleep Number’s own Scientific Advisory Board – will deliver meaningful health solutions.
In connection with all purchases financed under these arrangements, Synchrony Bank pays the Company an amount equal to the total amount of such purchases, net of promotional related discounts, upon delivery to the customer. Information Systems The Company uses information technology systems to operate, analyze and manage its business, to reduce operating costs and to enhance its customers’ experience.
Sleep Number is not liable to Synchrony Bank for its customers’ credit defaults. In connection with all purchases financed under these arrangements, Synchrony Bank pays the Company an amount equal to the total amount of such purchases, net of promotional related discounts, upon delivery to the customer.
The exclusive Sleep Number bedding collection and upholstered furniture feature a full line of sleep products designed to improve sleep comfort and quality, including pillows designed to fit each individual’s sleeping position.
The exclusive Sleep Number ® bedding collection and upholstered furniture line are designed to improve sleep comfort and quality, including pillows designed to fit each individual’s sleeping position. The Sleep Number ® Lifestyle Collection furniture enhances the sleep environment and supports the health and wellness benefits of the Sleep Number smart bed and FlexFit smart adjustable bases.
The Company pays Synchrony Bank a fee for extended credit promotional financing offers. Under the terms of the agreement, Synchrony Bank sets the minimum acceptable credit ratings, interest rates, fees and all other terms and conditions of the customers’ accounts, including collection policies and procedures.
Under the terms of the agreement, Synchrony Bank sets the minimum acceptable credit ratings, interest rates, fees and all other terms and conditions of the customers’ accounts, including collection policies and procedures. As the receivables are owned by Synchrony Bank, at no time are the receivables purchased or acquired from the Company.
Now, 100% of its smart beds are pre-assembled in its assembly distribution centers prior to delivery versus being assembled in customers’ homes by Sleep Number delivery technicians. Additionally in 2022, the Company moved its bedding fulfillment center from Minnesota to Ohio for improved fulfillment logistics.
Operations Integrated Sourcing and Logistics The Company completed a multi-year evolution of its supply chain network in 2022. Now, 100% of its smart beds are pre-assembled in its assembly distribution centers prior to delivery versus being assembled in customers’ homes by Sleep Number delivery technicians.
According to ISPA* and the Company’s estimates, industry wholesale shipments of mattresses and foundations (including imported products and adjustable bases) were approximately $13 billion in 2021 (approximately $25 billion at retail). The retail bedding industry is commoditized and highly competitive.
According to ISPA* and the Company’s estimates, industry wholesale shipments of mattresses and foundations (including imported products and adjustable bases) were approximately $12 billion in 2022 (approximately $23 billion at retail). The U.S. bedding industry has experienced recessionary demand levels for the past two years.
The Company’s Credit Agreement provides a revolving credit facility for general corporate purposes with net aggregate availability of $825 million. The Credit Agreement contains an accordion feature that allows the Company to increase the amount of the credit facility from $825 million up to $1.2 billion in total availability, subject to Lenders’ approval. The Credit Agreement matures in December 2026.
The Credit Agreement contains an accordion feature that allows the Company to increase the amount of the credit facility from $685 million up to $1.0 billion in total availability, subject to Lenders’ approval. The Credit Agreement matures in December 2026. Qualified customers are offered revolving credit to finance purchases through a private-label consumer credit facility provided by Synchrony Bank.
Qualified customers are offered revolving credit to finance purchases through a private-label consumer credit facility provided by Synchrony Bank. Approximately 53% of net sales in 2022 were financed by Synchrony Bank. The Company’s current agreement with Synchrony Bank expires December 31, 2028, subject to earlier termination upon certain events.
Approximately 48% of net sales in 2023 were financed by Synchrony Bank. The Company’s current agreement with Synchrony Bank expires December 31, 2028, subject to earlier termination upon certain events. The Company pays Synchrony Bank a fee for extended credit promotional financing offers.
Additionally, the longitudinal data generated from Sleep Number’s wellness technology platform can be shared with sleepers’ physicians, leading to insights that may guide health-provider diagnostics. The smart bed delivers an extensible ecosystem that delivers real-time, connected sleep and wellness solutions.
Additionally, the longitudinal data generated from Sleep Number’s wellness technology platform can be shared with sleepers’ physicians through a monthly HealthIQ ® report, leading to insights that may guide health-provider diagnostics. Sleep Number’s product innovation roadmap is driven by proprietary data from its millions of Smart Sleepers and sleep science.
The Lifestyle Collection provides an integrated sleep experience with accessories for aging and recovery, providing comfort, aiding in mobility and helping maintain independence at home. Research and Development Sleep Number’s global research and development (R&D) team is comprised of onshore teams in Minneapolis, MN and San Jose, CA and offshore teams in Europe and Asia.
Innovation Sleep Number’s global research and development (R&D) team is comprised of onshore teams in Minneapolis, MN and San Jose, CA and offshore teams in Europe and Asia.
Sleep Number’s holistic approach to talent management, designed to attract, motivate, develop, reward and retain the right talent, is critical to the execution of the Company’s consumer innovation strategy.
Sleep Number’s holistic approach to talent management, designed to attract, motivate, develop, reward and retain the right talent, is critical to the execution of the Company’s consumer innovation strategy. The Company sustains its inclusive culture built on individuality and wellbeing by providing an exceptional team member experience, offering ample opportunities for professional learning and advancement.
As a manufacturer, Sleep Number is committed to product quality and safety, including adherence to all applicable laws and regulations affecting the Company’s products and services. Compliance with health, safety and environmental laws and regulations, including the federal fire retardant standards developed by the U.S.
Governmental Regulation and Compliance As a vertically integrated manufacturer and retailer, the Company is subject to extensive federal, state and local laws and regulations affecting all aspects of its business. As a manufacturer, Sleep Number is committed to product quality and safety, including adherence to all applicable laws and regulations affecting the Company’s products and services.
With contributions from Sleep Number’s proprietary sleep data, American Cancer Society will conduct research over six years, which may lead to improved sleep outcomes for cancer patients and survivors. Sleep Number is also collaborating with researchers at the University of Pittsburgh to develop protocols to assess sleep health against objective sleep data. This research is anticipated to begin in 2023.
With contributions from Sleep Number’s proprietary sleep data, American Cancer Society will conduct research over six years, which may lead to improved sleep outcomes for cancer patients and survivors. Additionally, Sleep Number supports cancer patients and caregivers through donations of sleep solutions to American Cancer Society Hope Lodges across the country.
Sleep Number’s in-house digital capabilities, content marketing, online user experience and data-driven tools give it the flexibility to pivot quickly and optimize media investment, messages and audience by platform in real-time. The Company’s promotional strategy focuses on simplicity and relevance, driving consumers to the brand at the time when they are seeking a sleep solution.
High-profile video, including television and online streaming, is its most efficient media, followed by digital and social platforms. Sleep Number’s in-house digital capabilities, content marketing, online user experience and data-driven tools give it the flexibility to pivot quickly and optimize media investment, messages and audience by platform in real-time.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeAny such impacts or delays could adversely affect the Company’s sales, customer satisfaction, profitability, cash flows and financial condition. The Company relies upon several key suppliers and third parties that are, in some instances, the only source of supply or services currently used by the Company for particular materials, components, products or services.
Biggest changeIn addition, implementing the cost savings plans could unexpectedly and negatively impact the Company’s workforce, partnerships, initiatives, innovation, and development plans or otherwise interfere with the Company’s ability to grow and compete effectively, each of which could adversely impact the Company’s business, results, profitability, cash flows, availability of credit, and financial condition. 19 | 2023 FORM 10-K SLEEP NUMBER CORPORATION Risks Related to the Company’s Reliance on Third Parties and Reliance on a Global Supply Chain The Company relies upon several key suppliers and third parties that are, in some instances, the only source of supply or services currently used by the Company for particular materials, components, products, services, or consumer financing.
Economic Conditions, Consumer Sentiment and the Availability of Credit Adverse changes in general economic conditions have reduced, and could continue to reduce discretionary consumer spending and, as a result, have adversely affected and could continue to adversely affect the Company’s sales, profitability, cash flows and financial condition.
Economic Conditions, Consumer Sentiment and the Availability of Credit Adverse changes in general economic conditions have reduced, and could continue to reduce discretionary consumer spending and, as a result, have adversely affected and could continue to adversely affect the Company’s sales, profitability, cash flows, availability of credit, and financial condition.
Fluctuations in commodity prices or availability or third-party logistics costs has resulted, and could continue to result, in an increase in component costs and/or delivery costs.
Fluctuations in commodity prices or availability or third-party delivery or logistics costs has resulted, and could continue to result, in an increase in component costs and/or delivery costs.
The Company owns numerous registered and unregistered trademarks and trademark applications, including in particular the Sleep Number, Sleep Number 360, 360, Climate360 and SleepIQ trademarks, as well as other intellectual property rights, including trade secrets, trade dress and copyrights, which it believes has significant value and is important to the development, function, and marketing of its products.
The Company owns numerous registered and unregistered trademarks and trademark applications, including in particular the Sleep Number, Climate360 and SleepIQ trademarks, as well as other intellectual property rights, including trade secrets, trade dress and copyrights, which it believes has significant value and is important to the development, function, and marketing of its products.
While Sleep Number has taken steps to evolve its ESG priorities and related disclosures, including through implementing enhanced data collection methods and reporting certain data under recognized ESG reporting frameworks, the Company’s ESG practices may not meet the standards of all its stakeholders and advocacy groups may campaign for further changes.
While Sleep Number has taken steps to evolve its priorities and related disclosures, including through implementing enhanced data collection methods and reporting certain data under recognized reporting frameworks and standards, the Company’s practices may not meet the standards of all of its stakeholders and advocacy groups may campaign for further changes.
The locations where Sleep Number and its suppliers and global contractors operate have experienced, and may experience in the future, adverse regional events such as extreme weather conditions and other natural and man-made disasters, which could have a significant adverse effect on the Company, its ability to source necessary materials, components and products, and its ability to develop, launch, sell and deliver its products to customers.
The locations where Sleep Number and its suppliers and global contractors operate have experienced, and may experience in the future, adverse regional events such as extreme weather conditions, climate change and other natural and man-made disasters, which could have a significant adverse effect on the Company, its ability to source necessary materials, components and products, and its ability to develop, launch, sell and deliver its products to customers.
Extreme weather, natural disasters, power outages, or other unexpected events could result in physical damage to and complete or partial closure of one or more of the Company’s manufacturing, distribution centers or other facilities or those of its suppliers, temporary or long-term disruption in its supply chain or logistics, disruption of or harm to the Company’s workforce and/or disruption of its ability to deliver products to customers.
Extreme weather, natural disasters, power outages, or other unexpected climate-related events could result in physical damage to and complete or partial closure of one or more of the Company’s manufacturing, distribution centers or other facilities or those of its suppliers, temporary or long-term disruption in its supply chain or logistics, disruption of or harm to the Company’s workforce and/or disruption of its ability to deliver products to customers.
Additional risks and uncertainties, including risks and uncertainties that impact the business environment generally, those not presently known to the Company, or those that it currently see as immaterial, may also harm its business. If any of these risks occur, the Company’s business, results of operations, cash flows and financial condition could be materially and adversely affected.
Additional risks and uncertainties, including risks and uncertainties that impact the business environment generally, those not presently known to the Company, or those that it currently sees as immaterial, may also harm its business. If any of these risks occur, the Company’s business, results of operations, cash flows and financial condition could be materially and adversely affected.
If the Company’s marketing messages are ineffective or its advertising expenditures and other marketing programs, including digital programs, are inefficient in creating awareness and consideration of its products and brand name, and in driving consumer traffic to the Company’s website, call centers, or stores, the Company’s sales, profitability, cash flows and financial condition may be adversely impacted.
If the Company’s marketing messages are ineffective or its advertising expenditures and other marketing programs, including digital programs, are inefficient in creating awareness and consideration of its products and brand name, and in driving consumer traffic to the Company’s website, call centers, or stores, the Company’s sales, profitability, cash flows, availability of credit, and financial condition may be adversely impacted.
Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, climate change, health and safety, supply chain management, diversity, equity and inclusion, labor conditions and human rights, both in its own operations and in the Company’s supply chain.
Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, climate change, health and safety, supply chain management, diversity, equity and inclusion, labor conditions and human rights, both in their own operations and in the Company’s operations and supply chain.
Any maintenance, improvements or upgrades to information systems that may be required to meet the evolving needs of the Company’s business and cybersecurity needs as well as existing and emerging regulatory requirements may be costly to implement, may take longer or require greater resources than anticipated and may result in disruptions to its systems or business.
Any maintenance, improvements or upgrades to information systems and services that may be required to meet the ongoing and evolving needs of the Company’s business and cybersecurity needs as well as existing and emerging regulatory requirements may be costly to implement, may take longer or require greater resources than anticipated and may result in disruptions to its systems or business.
Shortage of materials caused by disruptions or unavailability of supply or an increase in the demand for its products, has harmed and could continue to harm the Company’s ability to satisfy customer demand, delay deliveries of its products to customers, lead to customer cancellations and returns, delay the development and launch of new products, and increase its costs.
Shortage of materials caused by disruptions or unavailability of supply or an increase in the demand for some or all of its products, has harmed and could continue to harm the Company’s ability to satisfy customer demand, delay deliveries of its products to customers, lead to customer cancellations and returns, delay the development and launch of new products, and increase its costs.
In addition, if the Company is not effective in preventing the publication of confusing, false or misleading information regarding its brand or its products, or if there is publication online or elsewhere of significant negative consumer sentiment regarding the Company, brand or products, sales, profitability, cash flows and financial condition may be adversely impacted.
In addition, if the Company is not effective in preventing the publication of confusing, false or misleading information regarding its brand or its products, or if there is publication online or elsewhere of significant negative consumer sentiment regarding the Company, brand or products, sales, profitability, cash flows, availability of credit, and financial condition may be adversely impacted.
Changes in law, the imposition of new or additional regulations or the enactment of any new or more stringent legislation that impacts employment and labor, trade, advertising and marketing practices, pricing, consumer credit offerings, “do not call/mail” requirements, text messaging requirements, product testing and safety, transportation and logistics, health care, tax, accounting, privacy and data security, health and safety or environmental issues, warranty disclosures, delivery timing requirements, accessibility requirements, among others, could require the Company to change the way it does business and could have a material adverse impact on the Company’s sales, profitability, cash flows and financial condition.
Changes in law, the imposition of new or additional regulations or the enactment of any new or more stringent legislation that impacts employment and labor, trade, advertising claims, marketing practices, pricing, consumer credit offerings, “do not call/mail” requirements, text messaging requirements, product testing and safety, health and wellness product requirements, use of artificial intelligence, transportation and logistics, health care, tax, accounting, privacy and data security, health and safety or environmental issues, warranty disclosures, delivery timing requirements, accessibility requirements, among others, could require the Company to change the way it does business and could have a material adverse impact on the Company’s sales, profitability, cash flows and financial condition.
In addition to requiring filers to quantify and disclose direct emissions data, the new rules also would require disclosure of climate impact arising from the operations and uses by the filer’s business partners and contractors and end-users of the filer’s products and/or services.
In addition to requiring filers to quantify and disclose direct emissions data, the new California rules and the proposed SEC rules also would require disclosure of climate impact arising from the operations and uses by the filer’s business partners and contractors and end-users of the filer’s products and/or services.
The Company’s longer-term Total Retail distribution strategy is also dependent on its ability to renew existing store leases and to secure suitable locations for new store openings, in each case on a cost-effective basis. The Company may encounter higher than anticipated rents and other costs in connection with managing its retail store base.
The Company’s longer-term Total Retail distribution strategy is also dependent on its ability to effectively select stores to close, renew existing store leases and to secure suitable locations for new store openings, in each case on a cost-effective basis. The Company may encounter higher than anticipated rents and other costs in connection with managing its retail store base.
If the Company’s information systems are disrupted in any material way, or maintenance, improvements or upgrades are required to meet the evolving needs of its business, cybersecurity needs, and existing and emerging regulatory requirements, the Company may be required to incur significant capital expenditures in the pursuit of improvements or upgrades to its information systems.
If the Company’s information systems and services are disrupted in any material way, or maintenance, improvements or upgrades are required to meet the ongoing or evolving needs of its business, cybersecurity needs, and existing and emerging regulatory requirements, then the Company may be required to incur significant capital expenditures in the pursuit of continuity, improvements or upgrades to its information systems and services.
These efforts may take longer and may require greater financial and other resources than anticipated, may cause distraction of key personnel, and may cause short-term disruptions or security vulnerabilities to the Company’s existing systems and business.
These efforts may take longer and may require greater financial and other resources than anticipated, may cause distraction of key personnel, and may cause short-term disruptions, fines, security vulnerabilities to, or otherwise negatively impact the Company’s existing systems and business.
If its ESG practices do not meet evolving standards or the Company’s priorities, then the Company’s reputation, its ability to attract or retain employees and its competitiveness, including as an investment and business partner, could be negatively impacted.
If its ESG practices do not meet evolving standards or the Company cannot make progress on its priorities, then the Company’s reputation, its ability to attract or retain employees and its competitiveness, including as an investment and business partner, could be negatively impacted.
If these efforts do not result in meaningful product improvements or new product introductions, if the Company is not able to gain widespread consumer acceptance of product improvements or new product introductions, or there are delays or production limitations with respect to its product improvements or new product introductions, the Company’s sales, profitability, cash flows and financial condition may be adversely affected.
If these efforts do not result in meaningful product improvements or new product introductions, if the Company is not able to gain widespread consumer acceptance of product improvements or new product introductions, or there are delays or production limitations with respect to its 23 | 2023 FORM 10-K SLEEP NUMBER CORPORATION product improvements or new product introductions, the Company’s sales, profitability, cash flows and financial condition may be adversely affected.
The Company’s failure, or perceived failure, to pursue or fulfill its priorities and objectives or to satisfy various reporting standards within the timelines the Company announces, or at all, could also expose the Company to government enforcement actions and private litigation. Climate change and legal or regulatory responses may adversely affect the Company’s business, operations and financial condition.
The Company’s failure, or perceived failure, to pursue or fulfill its priorities and objectives or to satisfy various reporting standards within the timelines the Company announces, or at all, could also expose the Company to government enforcement actions and private litigation. 29 | 2023 FORM 10-K SLEEP NUMBER CORPORATION Climate change and legal or regulatory responses may adversely affect the Company’s business, operations and financial condition.
The Company may not always be successful in developing effective messages, as the consumer and competition change, or in achieving efficiency in its advertising expenditures. 21 | 2022 FORM 10-K SLEEP NUMBER CORPORATION The Company relies in part upon third parties, such as social media influencers and athletes, to market its brand, and are unable to fully control their efforts.
The Company may not always be successful in developing effective messages, as the consumer and competition change, or in achieving efficiency in its advertising expenditures. The Company relies in part upon third parties, such as social media influencers and athletes, to market its brand, and are unable to fully control their efforts.
The Company’s products are highly differentiated from traditional innerspring mattresses and from viscoelastic and other foam mattresses, which have little or no technology and do not rely on electronics and air control systems. As a result, its 22 | 2022 FORM 10-K SLEEP NUMBER CORPORATION beds may be susceptible to failures that do not exist with traditional or foam mattresses.
The Company’s products are highly differentiated from traditional innerspring mattresses and from viscoelastic and other foam mattresses, which have little or no technology and do not rely on electronics and air control systems. As a result, its beds may be susceptible to failures that do not exist with traditional or foam mattresses.
Further, the adoption of a multi-layered regulatory approach to any one of the state or federal laws or regulations to which the Company is currently subject, particularly where the layers are in conflict, could require alteration of its manufacturing processes or operational parameters which may adversely impact the Company’s business.
Further, the adoption of a multi-layered regulatory approach to any one of the state or federal laws or regulations to which the Company is currently subject, particularly 25 | 2023 FORM 10-K SLEEP NUMBER CORPORATION where the layers are in conflict, could require alteration of its manufacturing processes or operational parameters which may adversely impact the Company’s business.
Sleep Number could also incur additional costs and require additional resources to implement various ESG practices to make progress against its priorities and to monitor and track its performance with respect to such priorities. The standards for tracking and reporting on ESG matters are relatively new, have not been formalized and continue to evolve.
Sleep Number could also incur additional costs and require additional resources to implement various projects that impact the progress made against its priorities and hurt its ability to monitor and track its performance with respect to such priorities. The standards for tracking and reporting on ESG matters are relatively new, have not been formalized and continue to evolve.
Any failure of the Company’s systems and processes or its third-party vendors’ systems and processes to adequately protect its data or customer or team member personal information from exposure, theft or loss could adversely impact the Company’s business, reputation, sales, profitability, cash flows and financial condition.
Any failure of the Company’s systems and processes or its third-party vendors’ systems and processes to adequately protect its data or customer or team member personal information from 26 | 2023 FORM 10-K SLEEP NUMBER CORPORATION exposure, theft or loss could adversely impact the Company’s business, reputation, sales, profitability, cash flows and financial condition.
The Company is currently assessing the impact of the new rules, if adopted as proposed, but at this time, it cannot predict the costs of implementation or any potential adverse impacts resulting from the new rules.
The Company is currently assessing the impact of the new California rules as well as the proposed SEC rules, but at this time, it cannot predict the costs of implementation or any specific potential adverse impacts resulting from the new rules.
Increases in prices of these commodities or logistics costs or other inflationary pressures have resulted, and may continue to result, in significant cost increases for the Company’s raw materials and product components, as well as increases in the cost of delivering its products to 20 | 2022 FORM 10-K SLEEP NUMBER CORPORATION customers.
Increases in prices of these commodities or logistics costs or other inflationary pressures have resulted, and may continue to result, in significant cost increases for the Company’s raw materials and product components, as well as increases in the cost of delivering its products to customers.
These information systems also contain confidential Company data regarding its business and innovations. The Company’s use and dependence on its information systems has increased with amplified remote working since the onset of the COVID-19 pandemic and additional data storage in cloud-based systems.
These information systems also contain confidential Company data regarding its business and innovations. The Company’s use and dependence on its information systems has increased with amplified remote working and has required additional data storage in cloud-based systems.
The Company’s stock price may fluctuate significantly in response to numerous factors such as: the overall performance of the equity markets and the economy as a whole; changes in the financial projections the Company or third parties may provide to the public or the Company’s failure to meet these projections; actual or anticipated changes in its growth rate relative to that of its competitors; failure of securities analysts to maintain coverage of the Company, changes in financial estimates by securities analysts who follow the Company or its failure to meet these estimates or the expectations of investors; and sales of share of the Company’s common stock by Sleep Number or its shareholders particularly sales by its directors, executive officers and significant shareholders or the perception that these sales could occur.
The Company’s stock price has and may continue to fluctuate significantly in response to numerous factors such as: the overall performance of the equity markets and the economy as a whole; the Company’s’ financial and operating performance, which may fluctuate due to the risk factors set forth herein; changes in the financial projections the Company or third parties may provide to the public or the Company’s failure to meet these projections; actual or anticipated changes in its growth rate relative to that of its competitors; inclusion or removal from various stock indices; significant stock trades by large shareholders; failure of securities analysts to maintain coverage of the Company; changes in financial estimates by securities analysts who follow the Company or its failure to meet these estimates or the expectations of investors; sales of share of the Company’s common stock by Sleep Number or its shareholders particularly sales by its directors, executive officers and significant shareholders or the perception that these sales could occur.
Sleep Number’s air chambers, certain electronic components, and some of its other components are manufactured outside the United States, and therefore are subject to risks associated with foreign sourcing of materials, including but not limited to: • Existing or potential duties, tariffs or quotas on certain types of goods that may be imported into the United States; • Political instability, unrest, geo-political turmoil, acts of terrorism, global conflicts or war (such as the war in Ukraine), outbreaks of pandemics or contagious diseases, shipping delays, foreign or domestic strikes, customs inspections, or other factors resulting in disruption in supply, transportation, trade, labor, or the availability of global contractors utilized in the Company’s business operations; • Foreign currency fluctuations; and • Economic uncertainties, including inflation.
Sleep Number’s air chambers, certain electronic components, and some of its other components are manufactured outside the United States, and therefore are subject to risks associated with foreign sourcing of materials, including but not limited to: • Existing or potential duties, tariffs or quotas on certain types of goods that may be imported into the United States; • Foreign regulations that may impact availability or cost of supply; • Political instability, unrest, geopolitical turmoil, acts of terrorism, global conflicts (such as any conflict that may arise between China and Taiwan) or war (such as the war between Russia and Ukraine and the war between Israel and Hamas), outbreaks of pandemics or contagious diseases, shipping delays, foreign or domestic strikes, customs inspections, or other factors resulting in disruption in supply, transportation, trade, labor, or the availability of global contractors utilized in the Company’s business operations; • Foreign currency fluctuations; • Economic uncertainties, including inflation; and • Adverse weather conditions, climate change or other natural or man-made disasters.
These factors have, and could continue to, increase the costs of doing business with foreign suppliers, lead to inadequate inventory levels or delays in shipping products to customers, which could harm the Company’s sales, customer satisfaction, profitability, cash flows and financial condition.
These factors have, and could continue to, increase the costs of doing business with foreign suppliers, lead to inadequate inventory levels or delays in shipping products to customers, or the need to find new sources for certain materials on short notice, which could harm the Company’s sales, customer satisfaction, profitability, cash flows and financial condition.
Additionally, although the Company does not have operations in Russia, Belarus, or Ukraine, have not had a material amount of sales into these countries, and have not been directly impacted by the war in Ukraine, some of the Company’s third-party suppliers have disclosed that they may source, directly or indirectly, a portion of their supply chain requirements of gold, tantalum, tin, tungsten, and birch plywood from Russia.
Additionally, although the Company does not have operations in Russia, Belarus, or Ukraine and has not been directly impacted by the war in Ukraine, some of the Company’s third-party suppliers have disclosed that they may source, directly or indirectly, a portion of their supply chain requirements of gold, tantalum, tin, and tungsten (collectively the “3TGs”), as well as birch plywood from Russia.
Sleep Number also makes significant capital expenditures as it open new stores and remodel or reposition existing stores. The Company is highly dependent on its ability to maintain and increase sales per store to cover these fixed expenses, provide a return on its capital investments and improve the Company operating margins. Some of the Company’s stores are mall-based.
Sleep Number also makes significant capital expenditures as it open new stores and remodel or reposition existing stores. The Company is highly dependent on its ability to maintain and increase sales per store to cover these fixed expenses, provide a return on its capital investments and improve the Company operating 22 | 2023 FORM 10-K SLEEP NUMBER CORPORATION margins.
While we can shift demand among our eight ADCs, disruption to any of the ADCs or other operations, facilities, workforce, or the Company’s nationwide logistics network could harm or delay its ability to satisfy customer demand, develop, test and launch new products, service its products and customers, and increase its costs.
Disruption to any of the Company’s operations, facilities, workforce, or the Company’s nationwide logistics network could harm or delay its ability to satisfy customer demand, develop, test and launch new products, service its products and customers, and increase its costs.
Such impacts and delays could adversely affect the Company’s sales, customer satisfaction, profitability, cash flows and financial results. 24 | 2022 FORM 10-K SLEEP NUMBER CORPORATION Risks Related to Legal Compliance and Legal Proceedings The Company’s business is subject to a wide variety of government laws and regulations.
Such impacts and delays could adversely affect the Company’s sales, customer satisfaction, profitability, cash flows, availability of credit, and financial results. Risks Related to Legal Compliance and Legal Proceedings The Company’s business is subject to a wide variety of government laws and regulations.
The Company depends on its information systems for many aspects of its business. Sleep Number has and may continue to have disruptions or outages to its information systems that negatively impact its business and systems.
The Company depends on its information systems and services for many aspects of its business including those provided by suppliers and third parties. Sleep Number has and may continue to have disruptions or outages to these information systems and services that negatively impact its business and systems.
Disruption to the Company’s manufacturing, distribution, logistics, home delivery, product development, and customer service operations could increase its costs of doing business or harm the Company’s ability to satisfy customer demand, develop and launch new products, and service its products and customers.
Disruption to the Company’s facilities and operations could increase its costs of doing business or harm the Company’s ability to satisfy customer demand, develop, test and launch new products, and service its products and customers.
The Company’s success depends significantly upon discretionary consumer spending, which is influenced by a number of general economic factors, including without limitation economic growth, consumer confidence and sentiment, the housing market, employment, income and debt levels, interest rates, inflation, taxation, consumer shopping trends and the level of customer traffic in malls and shopping centers, political conditions, civil unrest and disturbances, terrorist activities, war and fears of war, including the war in Ukraine, as well as health epidemics or pandemics, such as the COVID-19 pandemic.
The Company’s success depends significantly upon discretionary consumer spending, which is influenced by a number of general economic factors, including without limitation economic growth, consumer confidence and sentiment, consumer disposable income, the housing market, employment, fuel prices, income and debt levels, interest rates, inflation, taxation, consumer shopping trends and the level of customer traffic in malls and shopping centers, political conditions and election uncertainty, inclement weather, natural disasters, recession and fears of recession, civil unrest and disturbances, terrorist activities, war and fears of war, including the war between Russia and Ukraine and the war between Israel and Hamas, as well as perceptions of personal wellbeing and security, health epidemics or pandemics.
The failure to attract, retain and motivate qualified personnel may hinder the Company’s ability to execute its business strategy and growth initiatives and may adversely impact the Company’s sales, profitability, cash flows and financial condition.
The failure to attract, retain and motivate qualified personnel or the lack of effective organizational leadership, management or appropriate team capabilities may hinder the Company’s ability to execute its business strategy and growth initiatives and may adversely impact the Company’s sales, profitability, cash flows, and financial condition.
Risks Related to the Company’s Reliance on Third Parties and Reliance on a Global Supply Chain Sleep Number has been, and could continue to be, vulnerable to shortages in supply of components necessary to manufacture its products due to its manufacturing processes which operate with minimal levels of inventory or due to global shortages of supply of electronic componentry or other materials, which, in turn, has and may 19 | 2022 FORM 10-K SLEEP NUMBER CORPORATION continue to harm its ability to satisfy consumer demand and adversely impact the Company’s sales and profitability.
The Company has been, and could continue to be, vulnerable to shortages in supply of components necessary to manufacture its products due to its manufacturing processes which operate with minimal levels of inventory or due to global shortages of supply of electronic componentry or other materials, which, in turn, has and may continue to harm its ability to satisfy consumer demand and adversely impact the Company’s sales and profitability.
The amount and cost of credit available to consumers may be adversely impacted by macroeconomic factors, including general economic conditions, consumer disposable income, fuel prices, recession and fears of recession, unemployment, war and fears of war, inclement weather, consumer debt levels, conditions in the housing market, increased interest rates, sales tax rates and rate increases, inflation, civil disturbances and terrorist activities, consumer confidence in future economic and political conditions, natural disasters, and consumer perceptions of personal wellbeing and security, health epidemics or pandemics, such as the COVID-19 pandemic, which could cause suppliers of credit to adjust their lending criteria and costs.
The amount and cost of credit available to consumers may be adversely impacted by macroeconomic factors, including general economic conditions, consumer confidence and sentiment, consumer disposable income, the housing market, employment, fuel prices, income and debt levels, interest rates, inflation, taxation, political conditions and election uncertainty, inclement weather, natural disasters, recession and fears of recession, civil unrest and disturbances, terrorist activities, war and fears of war, including the war between Russia and Ukraine and the war between Israel and Hamas, as well as consumer perceptions of personal wellbeing and security, health epidemics or pandemics, which could cause suppliers of credit to adjust their lending criteria and costs.
In addition, any such sales of the Company’s common stock by these entities could also impair its ability to raise capital through the sale of additional equity securities.
In addition, any such sales of the Company’s common stock by these entities could also impair its ability to raise capital through the sale of additional equity securities. Our business could be negatively affected as a result of the actions of activists.
Any of these outcomes could impair the Company’s ability to achieve critical strategic initiatives and could adversely impact the Company’s sales, profitability, cash flows and financial condition. Additionally, on February 9, 2022, the SEC proposed new rules related to cyber security risk management, which may increase the Company’s regulatory burden and cost of compliance related to cyber security threats.
Any of these outcomes could impair the Company’s ability to achieve critical strategic initiatives and could adversely impact the Company’s sales, profitability, cash flows and financial condition. New SEC rules related to cybersecurity risk management may further increase the Company’s regulatory burden and the cost of compliance in such events.
These investors may sell their shares at any time for a variety of reasons, and such sales could depress the market price of the Company’s common stock, which could cause investors to lose all or a portion of their investment in its stock.
These investors have sold and may sell some or all of their shares at any time for a variety of reasons, and such sales could depress the market price of the Company’s common stock, which could adversely affect the Company’s stock price.
Sleep Number has established and plans to further establish priorities related to ESG matters. These priorities reflect the Company’s plans and aspirations and are not guarantees that it will be able to achieve them.
Sleep Number current ESG priorities reflect the Company’s strategic plans and aspirations and are not guarantees that it will be able to achieve them.
The Company incurs significant research and development and other expenditures in the pursuit of improvements and additions to its product line.
The Company incurs significant research and development and other expenditures in the pursuit of improvements and additions to its product line and is re-prioritizing research and development resources in this highly constrained environment.
If the Company is unable to protect and enforce its intellectual property, the Company may be unable to prevent other companies from using the Company’s technology or trademarks in connection with competitive products, which could adversely affect the Company’s sales, profitability, cash flows and financial condition. 23 | 2022 FORM 10-K SLEEP NUMBER CORPORATION The Company is from time to time subject to claims that its products, processes, advertising, or trademarks infringe the intellectual property rights of others.
If the Company is unable to protect and enforce its intellectual property, the Company may be unable to prevent other companies from using the Company’s technology or trademarks in connection with competitive products, which could adversely affect the Company’s sales, profitability, cash flows and financial condition.
If the Company’s relationship with the primary supplier of its air chambers, adjustable foundations, or electronic components is terminated or significantly disrupted, the Company could have difficulty in replacing these sources since there are relatively few other suppliers presently capable of manufacturing these components and products.
If the Company’s relationship with these suppliers or the suppliers’ services are disrupted, terminated or otherwise negatively impacted, the Company could have difficulty in replacing these sources since there are relatively few other suppliers presently capable of manufacturing these components and products.
Risks Related to the Company’s Stock A substantial amount of the Company’s stock is held by a small number of large investors and significant sales of its common stock by one or more of these holders could cause the Company’s stock price to fall, which could cause investors to lose all or a portion of their investment in its stock.
A substantial amount of the Company’s stock is held by a small number of large investors and significant sales of its common stock by one or more of these holders could adversely affect the Company’s stock price.
A variety of sleep tracking and monitoring products that compete with the Company’s SleepIQ technology have been introduced by various manufacturers and retailers, both within and outside of the traditional mattress industry. This competition has and may continue to increase the costs of search terms and digital advertising and otherwise adversely affect the Company’s business.
A variety of sleep tracking and monitoring products that compete with the Company’s SleepIQ technology have been introduced by various manufacturers and retailers, both within and outside of the traditional mattress industry.
New climate disclosure rules, if adopted by the SEC, may increase the Company’s costs and litigation risks, which would materially and adversely affect its future results of operations and financial condition.
New climate disclosure rules passed by California, as well as those proposed by the SEC, will increase the Company’s compliance costs and may subject the Company to litigation or other risks, which would materially and adversely affect its future results of operations and financial condition.
In addition, the Company’s interpretation of reporting frameworks or standards may differ from those of others and such frameworks or standards may change over time, any of which could result in significant revisions to the Company’s ESG priorities or reported progress. 27 | 2022 FORM 10-K SLEEP NUMBER CORPORATION The Company’s ability to achieve any ESG-related objective is subject to numerous risks, many of which are outside of its control, including: the availability and cost of low-or non-carbon-based energy sources and technologies, evolving regulatory requirements affecting ESG standards or disclosures, the availability of vendors and suppliers that can meet its sustainability, diversity and other standards, and the availability of raw materials that meet and further the Company’s sustainability objectives.
The Company’s ability to achieve any ESG-related objective is subject to numerous risks, many of which are outside of its control, including: the availability and cost of low-or non-carbon-based energy sources and technologies, evolving regulatory requirements affecting relevant standards or disclosures, the availability of vendors and suppliers that can meet its sustainability, diversity and other standards, and the availability of raw materials that meet and further the Company’s sustainability objectives.
The Company’s information systems and information systems of third-party vendors it uses to assist in the storage and management of information, including on-premise and cloud-based systems, contains personal information related to its customers and team members collected and maintained in the ordinary course of its business, such as credit card and demographic information of its customers, SleepIQ ® data, including biosignal data (e.g., sleep, physiological) from Sleep Number’s customer base and social security numbers, demographic information, and employment-related information of its team members.
The Company’s information systems and information systems of third-party vendors it uses to assist in the storage and management of information, including on-premise and cloud-based systems, contain personal, financial, and SleepIQ ® data and information related to its customers and team members collected and maintained in the ordinary course of its business.
Other factors that may influence the Company’s decision to utilize, limit, suspend or delay future share repurchases include market conditions, the trading price of its common stock, the nature and magnitude of other investment opportunities available to the Company from time to time, and the amount of available cash.
The imposition of the excise tax increased the cost to the Company of making repurchases and may cause it to reduce the number of shares repurchased when or if the Company were to resume share repurchases. 28 | 2023 FORM 10-K SLEEP NUMBER CORPORATION Other factors that may influence the Company’s decision to utilize, limit, suspend or delay future share repurchases include market conditions, the trading price of its common stock, the nature and magnitude of other investment opportunities available to the Company from time to time, and the amount of available cash.
The Company depends on the continued popularity of malls as shopping destinations and the ability of mall anchor tenants and other attractions to generate customer traffic for its mall-based retail stores. Any decrease in mall traffic, including due to increased online shopping, could adversely affect the Company’s sales, profitability, cash flows and financial condition.
Some of the Company’s stores are mall-based. The Company depends on the continued popularity of malls as shopping destinations and the ability of mall anchor tenants and other attractions to generate customer traffic for its mall-based retail stores.
While the Company has historically been able to pass along some cost increases to its customers, it has not and may not be able to fully offset such higher costs through price increases in a persistent inflationary environment, and its margins have and could continue to decrease.
While the Company has historically been able to pass along some cost increases to its customers, it has not and may not be able to offset such higher costs through price increases or other means, and its margins, profitability, cash flows, availability of credit, and financial condition have been and could continue to be adversely impacted.
Sleep Number bears the risk that the rates charged by the Company’s lenders will increase faster than the earnings and cash flow of its business, which has reduced profitability and is expected to continue to reduce profitability, adversely affect its ability to service its debt, or cause the Company to breach covenants contained in its Credit Agreement, which could materially adversely affect the Company’s business, financial condition and results of operations.
This has reduced the Company’s profitability and has potential to continue to reduce profitability in addition to the potential to adversely affect the Company’s ability to service its debt, or cause the Company to breach covenants or other terms contained in its Credit Agreement, which could materially adversely affect the Company’s business, financial condition and results of operations.
Whether or not a U.S. sovereign default occurs, growing uncertainty due to the unprecedented nature of such a default may trigger recessionary conditions, further reduce consumer confidence and increase levels of unemployment, all of which may reduce demand for the Company’s products, causing harm to it sales, profitability, cash flows and financial condition.
Whether or not these concerns materialize, growing uncertainty may reduce consumer confidence and increase levels of unemployment, all of which may reduce demand for the Company’s products, causing harm to its sales, profitability, cash flows, availability of credit, and financial condition.
Some of the Company’s competitors have substantially greater financial, marketing and manufacturing resources and greater brand name recognition than the Company does and sell products through broader and more established distribution touchpoints. The Company’s national, exclusive distribution competes with other retailers who generally provide a wider selection of mattress alternatives than the Company offers.
The Company’s 24 | 2023 FORM 10-K SLEEP NUMBER CORPORATION national, exclusive distribution competes with other retailers who generally provide a wider selection of mattress alternatives than the Company offers. A number of these retailers also have more points of distribution, greater marketing resources, and greater brand name recognition than the Company does.
Similarly, the Company relies on third parties to deliver some of its products to its facilities and customers on a timely and cost-effective basis. These third-party providers could be vulnerable to labor challenges, liquidity concerns, the impacts of global health conditions, or other factors that may result in delays in deliveries or increased costs of deliveries.
These third-party providers could be vulnerable to labor challenges, liquidity concerns, the impacts of global health conditions, or other factors that may result in disruption, delays in deliveries or increased costs of deliveries. Any significant delay in deliveries to its customers could lead to increased cancellations or returns and cause the Company to lose sales or incur increased costs.
As of December 31, 2022, the Company’s ten largest holders of common stock were institutional investors who held approximately 62% of the outstanding shares of common stock in the aggregate, with BlackRock Fund Advisors being the largest shareholder with approximately 16% of the Company’s outstanding shares of common stock.
As of December 31, 2023, the Company’s 25 largest holders of common stock were investors who held approximately 66% of the outstanding shares of common stock in the aggregate.
Inflation, which increased significantly during 2021 and remained at historically high rates throughout 2022 due to supply chain disruptions, increased demand or other economic factors, has adversely affected the Company’s business operations and financial results by increasing the costs of fuel, shipping, raw materials, labor, commodity, and other costs.
During 2022 and 2023, high inflation due to various economic factors, adversely affected the Company’s business operations and financial results by increasing the costs of fuel, shipping, raw materials, labor, commodity, and other costs and may continue to do so going forward.
Litigation, however, is inherently unpredictable, and it is possible that the ultimate outcome of one or more pending claims asserted against the Company, or claims that may be asserted in the future that the Company is currently not aware of, or adverse publicity resulting from any such litigation, could adversely impact the Company’s business, reputation, sales, profitability, cash flows and financial condition. 25 | 2022 FORM 10-K SLEEP NUMBER CORPORATION Risks Related to the Company’s Information Systems and Cybersecurity Information systems that contain confidential Company data, consumers’ personal information, and team members’ personal information may be subject to attacks by hackers or other cyber threats that could compromise the confidentiality, integrity, and availability of the data, which could substantially disrupt the Company’s business and could result in a breach of the data.
Litigation, however, is inherently unpredictable, and it is possible that the ultimate outcome of one or more pending claims asserted against the Company, or claims that may be asserted in the future that the Company is currently not aware of, or adverse publicity resulting from any such litigation, could adversely impact the Company’s business, reputation, sales, profitability, cash flows and financial condition.
A disruption in the supply or substantial increase in cost of any of these products or services has, and could continue to, harm the Company’s sales, profitability, cash flows and financial condition. Sleep Number currently obtains all the materials and components used to produce its smart beds from outside sources including some that are located outside the United States.
A disruption in the supply or substantial increase in cost of any of these products or services has, and could continue to, harm the Company’s sales, profitability, cash flows, availability of credit, and financial condition.
The Company’s Total Retail distribution strategy results in relatively few points of distribution, including 670 retail stores in 50 U.S. states as of the end of 2022, Online, Phone and Chat.
Any decrease in mall traffic, including due to increased online shopping, could adversely affect the Company’s sales, profitability, cash flows, availability of credit, and financial condition. The Company’s Total Retail distribution strategy results in relatively few points of distribution, including 672 retail stores in 50 U.S. states as of the end of 2023, Online, Phone and Chat.
The Company’s SleepIQ technology also faces significant competition from various manufacturers and retailers of sleep tracking and monitoring products. The mattress industry is characterized by a high degree of concentration among the largest manufacturers of innerspring mattresses and foam mattresses and one dominant national mattress retailer.
The Company’s SleepIQ technology also faces significant competition from various manufacturers and retailers of sleep tracking and monitoring products.
In 2022, the average interest rate with respect to the Company’s credit facility significantly increased year-over-year, adversely affecting the Company’s profitability, operations and reported earnings-per-share. 18 | 2022 FORM 10-K SLEEP NUMBER CORPORATION A reduction in the availability of, or increase in the cost of, credit to consumers generally or under the Company’s existing consumer credit programs has negatively impacted, and could continue to negatively impact, the Company’s sales, profitability, cash flows and financial condition.
A reduction in the availability of, or increase in the cost of, credit to consumers generally or under the Company’s existing consumer credit programs has negatively impacted, and could continue to negatively impact, the Company’s sales, profitability, cash flows and financial condition. A significant percentage of the Company’s sales are made under consumer credit programs through third parties.
The Company’s Board has authorized management to repurchase up to $600 million worth of shares, and as of December 31, 2022, the remaining authorization under that program was $348 million. The Inflation Reduction Act of 2022 (the Act) imposes a non-deductible 1% excise tax on net repurchases of shares, with some exceptions.
The Inflation Reduction Act of 2022 (the Act) imposed a non-deductible 1% excise tax on net repurchases of shares, with some exceptions. The excise tax was imposed on transactions occurring after December 31, 2022.
These events have disrupted, and may continue to, disrupt the Company’s operations and ability to source components and products. Risks Related to the Company’s Marketing Strategy and Execution of Total Retail Distribution Strategy The Company’s future growth and profitability depend upon the effectiveness and efficiency of its marketing programs.
These events have disrupted, and may continue to, disrupt the Company’s operations and ability to source components and products.
Any significant delay in deliveries to its customers could lead to increased cancellations or returns and cause the Company to lose sales or incur increased costs. Delays in deliveries and increases in freight charges or other costs of deliveries has and could continue to harm the Company’s sales, profitability, cash flows and financial condition.
Delays in deliveries and increases in freight charges or other costs of deliveries has and could continue to harm the Company’s sales, profitability, cash flows and financial condition. 20 | 2023 FORM 10-K SLEEP NUMBER CORPORATION The Company’s business is subject to risks inherent in global sourcing activities.
Sleep Number’s customer service operations are located in New Orleans, Louisiana and Minneapolis, Minnesota and the Company has retail stores across the country.
The product development and testing operations primarily occur in the Company’s corporate headquarters in Minneapolis, Minnesota and Sleep Number Labs facility in San Jose, California. Sleep Number’s customer service operations are largely remote positions with team members located across the country, and the Company has retail stores across the country.
The current labor challenges, the world-wide trends of corporate resignations, or other economic factors may prevent the Company, and its suppliers and vendors, from successfully hiring and retaining 26 | 2022 FORM 10-K SLEEP NUMBER CORPORATION qualified personnel.
In addition, the Company’s success will depend upon the effectiveness of its organizational leadership and managers as well as the capabilities of its team members. The current labor challenges or other economic factors may prevent the Company, and its suppliers and vendors, from successfully hiring and retaining qualified personnel.
Increases in interest rates has increased and may continue to increase the cost of servicing the Company’s indebtedness and have an adverse effect on its results of operations, cash flows and stock price. The Company’s credit facility currently bears interest at a variable rate based on its leverage ratio.
Additionally, instability or disruptions to credit markets or the financial services industry, including banks that fail or otherwise become distressed, could adversely affect the Company’s, sales, operations, profitability, cash flows, availability of credit, and financial condition. 18 | 2023 FORM 10-K SLEEP NUMBER CORPORATION Increases in interest rates has increased and may continue to increase the cost of servicing the Company’s indebtedness and have an adverse effect on its results of operations, cash flows and stock price.
The Company has home delivery operations and contractors that deliver its products to customers across the country as well as a bedding fulfillment center that ships bedding products to consumers via third-party services. The product development and testing operations primarily occur in the Company’s corporate headquarters in Minneapolis, Minnesota and Sleep Number Labs facility in San Jose, California.
The seven ADCs leverage component inventory to pre-assemble 100% of its smart mattresses to order rather than stocking finished goods. The Company has field service and home delivery operations and contractors that deliver and service its products across the country as well as a bedding fulfillment center that ships bedding products to consumers via third-party services.
Price increases to offset the increased costs, have, and may continue to, adversely impact the Company’s sales volumes. The Company’s business is subject to risks inherent in global sourcing activities.
Price increases to offset the increased costs, have, and may continue to, adversely impact the Company’s sales volumes. The Company relies on third parties to deliver some of its products to its facilities and customers on a timely and cost-effective basis.
Such rate increases have and may continue to negatively affect customer purchasing behavior, which has and may continue to adversely affect the Company’s sales. Additionally, on January 19, 2023, the U.S. reached its debt ceiling, requiring the U.S. Treasury to take extraordinary measures to avoid default. However, the U.S.
Such rate increases, as well as decisions and timing on whether or not to reduce the rate, have and may continue to negatively affect customer purchasing behavior, which has and may continue to adversely affect the Company’s sales, profitability, cash flows, credit availability, and financial condition.
Adverse trends in these general economic factors have and may continue to adversely affect the Company’s sales, profitability, cash flows and financial condition.
Adverse trends in these general economic factors and reduced consumer spending have and may continue to adversely affect the Company’s sales, profitability, cash flows, financial condition, availability of credit, including with respect to the Company’s current credit facility, its ability to service and pay down debt, and any potential new or replacement sources of credit, or cause the Company to breach covenants or other terms contained in its Credit Agreement, which could materially adversely affect the Company’s business, financial condition and results of operations.
A number of these retailers also have more points of distribution, greater marketing resources, and greater brand name recognition than the Company does.
Some of the Company’s competitors have substantially greater financial, marketing and manufacturing resources and greater brand name recognition than the Company does and sell products through broader and more established distribution touchpoints. Proposed consolidation in the mattress industry will amplify this disparity.
In order to combat recent high rates of inflation, the Federal Reserve significantly increased the federal funds rate beginning in 2022 and has indicated that further rate increases may be announced to combat rising inflation in the United States.
The Federal Reserve significantly increased the federal funds rate in 2022 and 2023 and has not reduced the rate to date.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe Company has six additional assembly distribution centers (Ontario, CA; Tampa, FL; Baltimore, MD; Minneapolis, MN; Cincinnati, OH; and Dallas, TX), with a total square footage of approximately 700,000 square feet and lease terms ending in October 2025 through May 2032. The leases include one or two, three- to five-year option renewals.
Biggest changeThe Company has five additional assembly distribution centers (Ontario, CA; Tampa, FL; Minneapolis, MN; Cincinnati, OH; and Dallas, TX) and one former assembly distribution center now used as a distribution center (Baltimore, MD), with a combined total square footage of approximately 700,000 square feet and lease terms ending in October 2025 through May 2032.
The lease term commenced in November 2017 and runs through October 2032. The lease includes three five-year renewal options. The Company leases two manufacturing facilities, each of which is combined with an assembly distribution center, (Irmo, SC and Salt Lake City, UT) of approximately 151,000 square feet and approximately 101,000 square feet, respectively.
The lease term commenced in November 2017 and runs through October 2032. The lease includes three five-year renewal options. The Company leases facilities, each of which is combined with an assembly distribution center, (Irmo, SC and Salt Lake City, UT) of approximately 151,000 square feet and approximately 158,000 square feet, respectively.
The Irmo facility lease runs through June 2026, with two five-year renewal options. The Salt Lake City facility lease runs through July 2025, with one five-year renewal option.
The Irmo facility lease runs through June 2026, with two five-year renewal options. The Salt Lake City facility leases run through July 2025, with one five-year renewal option.
The following table summarizes the geographic locations of Sleep Number’s 670 retail stores as of December 31, 2022: Retail Stores Retail Stores Retail Stores Alabama 11 Kentucky 9 North Dakota 2 Alaska 1 Louisiana 11 Ohio 22 Arizona 13 Maine 3 Oklahoma 6 Arkansas 7 Maryland 17 Oregon 8 California 74 Massachusetts 12 Pennsylvania 28 Colorado 15 Michigan 20 Rhode Island 1 Connecticut 7 Minnesota 16 South Carolina 10 Delaware 2 Mississippi 6 South Dakota 2 District of Columbia 1 Missouri 13 Tennessee 17 Florida 45 Montana 4 Texas 61 Georgia 25 Nebraska 4 Utah 9 Hawaii 2 Nevada 6 Vermont 1 Idaho 3 New Hampshire 4 Virginia 21 Illinois 25 New Jersey 15 Washington 18 Indiana 13 New Mexico 4 West Virginia 4 Iowa 7 New York 24 Wisconsin 11 Kansas 7 North Carolina 21 Wyoming 2 Total 670 Manufacturing, Distribution and Headquarters The Company leases its 238,000 square-foot corporate headquarters in Minneapolis, MN.
The following table summarizes the geographic locations of Sleep Number’s 672 retail stores as of December 30, 2023: Retail Stores Retail Stores Retail Stores Alabama 10 Kentucky 9 North Dakota 2 Alaska 1 Louisiana 11 Ohio 22 Arizona 14 Maine 3 Oklahoma 6 Arkansas 9 Maryland 16 Oregon 8 California 74 Massachusetts 11 Pennsylvania 26 Colorado 15 Michigan 19 Rhode Island 1 Connecticut 7 Minnesota 16 South Carolina 10 Delaware 2 Mississippi 6 South Dakota 2 District of Columbia 1 Missouri 13 Tennessee 17 Florida 47 Montana 4 Texas 64 Georgia 25 Nebraska 5 Utah 9 Hawaii 2 Nevada 7 Vermont 1 Idaho 3 New Hampshire 4 Virginia 20 Illinois 25 New Jersey 14 Washington 19 Indiana 13 New Mexico 4 West Virginia 4 Iowa 6 New York 22 Wisconsin 12 Kansas 6 North Carolina 23 Wyoming 2 Total 672 Manufacturing, Distribution and Headquarters The Company leases its 238,000 square-foot corporate headquarters in Minneapolis, MN.
The Company also operates a bedding fulfillment center at the same location as its Cincinnati, OH assemble distribution center. 30 | 2022 FORM 10-K SLEEP NUMBER CORPORATION
The leases include one or two, three- to five-year option renewals. The Company also operates a bedding fulfillment center at the same location as its Cincinnati, OH assembly distribution center. 33 | 2023 FORM 10-K SLEEP NUMBER CORPORATION

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS The Company’s legal proceedings are discussed in Note 12, Commitments and Contingencies, Legal Proceedings , in the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 31 | 2022 FORM 10-K SLEEP NUMBER CORPORATION PART II
Biggest changeITEM 3. LEGAL PROCEEDINGS The Company’s legal proceedings are discussed in Note 13, Commitments and Contingencies, Legal Proceedings , in the Notes to Consolidated Financial Statements in this Annual Report on Form 10-K. ITEM 4. MINE SAFETY DISCLOSURES Not applicable. 34 | 2023 FORM 10-K SLEEP NUMBER CORPORATION PART II

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 31 PART II 32 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 32 Item 6. Selected Financial Dat a 34 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 38 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 47 Item 8.
Biggest changeItem 4. Mine Safety Disclosures 34 PART II 35 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 35 Item 6. Selected Financial Data 37 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 41 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 50 Item 8.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeInformation concerning share repurchases completed during the fourth quarter of fiscal 2022 is set forth below: Period Total Number of Shares Purchased (1)(2) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (3) October 2, 2022 through October 29, 2022 — — $ 348,071,000 October 30, 2022 through November 26, 2022 848 $ 33.82 — 348,071,000 November 27, 2022 through December 31, 2022 682 $ 27.24 — 348,071,000 Total 1,530 $ 30.89 — $ 348,071,000 ____________________ (1) Sleep Number did not repurchase any shares during the three months ended December 31, 2022 under its Board-approved $600 million share repurchase program (effective April 4, 2021).
Biggest changeInformation concerning share repurchases completed during the fourth quarter of fiscal 2023 is set forth below: Period Total Number of Shares Purchased (1)(2) Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (1) Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (3) October 1, 2023 through October 28, 2023 247 $ 18.02 — $ 348,071,000 October 29, 2023 through November 25, 2023 236 $ 11.65 — 348,071,000 November 26, 2023 through December 30, 2023 1,784 $ 16.19 — 348,071,000 Total 2,267 $ 15.92 — $ 348,071,000 ____________________ (1) Sleep Number did not repurchase any shares during the three months ended December 30, 2023 under its Board-approved $600 million share repurchase program (effective April 4, 2021).
The Company is not restricted from paying cash dividends under the Credit Agreement so long as it is not in default under the Credit Agreement, its leverage ratio (as defined in the Credit Agreement) after giving effect to such restricted payments (as defined in the Credit Agreement) would not exceed 3.75:1.00 and no default or event of default (as defined in the Credit Agreement) would result therefrom.
The Company is not restricted from paying cash dividends under the Credit Agreement so long as it is not in default under the Credit Agreement, its leverage ratio (as defined in the Credit Agreement) after giving effect to such restricted payments (as defined in the Credit Agreement) would not exceed 3.00:1.00 and no default or event of default (as defined in the Credit Agreement) would result therefrom.
Any repurchased shares are constructively retired and returned to an unissued status. 32 | 2022 FORM 10-K SLEEP NUMBER CORPORATION Comparative Stock Performance The graph below compares the total cumulative shareholder return on Sleep Number’s common stock over the last five years to the total cumulative return on the Standard and Poor’s (S&P) 400 Specialty Stores Index and The Nasdaq Stock Market (U.S.) Index assuming a $100 investment made on December 30, 2017.
Any repurchased shares are constructively retired and returned to an unissued status. 35 | 2023 FORM 10-K SLEEP NUMBER CORPORATION Comparative Stock Performance The graph below compares the total cumulative shareholder return on Sleep Number’s common stock over the last five years to the total cumulative return on the Standard and Poor’s (S&P) 400 Specialty Stores Index and The Nasdaq Stock Market (U.S.) Index assuming a $100 investment made on December 29, 2018.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Sleep Number’s common stock trades on The Nasdaq Stock Market LLC (Nasdaq Global Select Market) under the symbol “SNBR.” As of January 28, 2023, there were approximately 187 holders of record of Sleep Number common stock.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Sleep Number’s common stock trades on The Nasdaq Stock Market LLC (Nasdaq Global Select Market) under the symbol “SNBR.” As of January 27, 2024, there were approximately 188 holders of record of Sleep Number common stock.
At December 31, 2022, the Company exceeded the 3.75:1:00 leverage ratio. Sleep Number has not historically paid, and has no current plans to pay, cash dividends on the Company’s common stock.
At December 30, 2023, the Company exceeded the 3.00:1:00 leverage ratio. Sleep Number has not historically paid, and has no current plans to pay, cash dividends on the Company’s common stock.
(2) In connection with the vesting of employee restricted stock grants, the Company repurchased 1,530 shares of its common stock at a cost of $47 thousand during the three months ended December 31, 2022. (3) There is no expiration date governing the period over which the Company can repurchase shares under its Board-approved share repurchase program.
(2) In connection with the vesting of employee restricted stock grants, the Company repurchased 2,267 shares of its common stock at a cost of $36 thousand during the three months ended December 30, 2023. (3) There is no expiration date governing the period over which the Company can repurchase shares under its Board-approved share repurchase program.
The information contained in this “Comparative Stock Performance” section shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically requests that it be treated as soliciting material or incorporate it by reference into a document filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. 12/30/17 12/29/18 12/28/19 01/02/21 01/01/22 12/31/22 Sleep Number Corporation $ 100 $ 85 $ 132 $ 218 $ 204 $ 69 S&P 400 Specialty Stores Index $ 100 $ 92 $ 104 $ 124 $ 180 $ 168 The Nasdaq Stock Market (U.S.) Index $ 100 $ 96 $ 132 $ 192 $ 234 $ 157 33 | 2022 FORM 10-K SLEEP NUMBER CORPORATION
The information contained in this “Comparative Stock Performance” section shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the Company specifically requests that it be treated as soliciting material or incorporate it by reference into a document filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. 12/29/18 12/28/19 01/02/21 01/01/22 12/31/22 12/30/23 Sleep Number Corporation $ 100 $ 154 $ 255 $ 238 $ 81 $ 46 S&P 400 Specialty Stores Index $ 100 $ 113 $ 134 $ 195 $ 183 $ 224 The Nasdaq Stock Market (U.S.) Index $ 100 $ 137 $ 199 $ 243 $ 163 $ 233 36 | 2023 FORM 10-K SLEEP NUMBER CORPORATION

Item 6. [Reserved]

Selected Financial Data — reserved (removed by SEC in 2021)

11 edited+1 added−3 removed4 unchanged
Biggest changeYear 2022 2021 2020 (1) 2019 2018 Consolidated Statements of Operations Data: Net sales $ 2,114,297 $ 2,184,949 $ 1,856,555 $ 1,698,352 $ 1,531,575 Gross profit 1,202,296 1,318,847 1,156,000 1,051,923 927,961 Operating expenses: Sales and marketing 919,629 905,359 771,195 766,922 687,380 General and administrative 153,266 161,412 158,999 137,956 119,378 Research and development 61,521 58,540 40,910 34,950 28,775 Operating income 67,880 193,536 184,896 112,095 92,428 Net income $ 36,610 $ 153,746 $ 139,189 $ 81,845 $ 69,539 Net income per share: Basic $ 1.63 $ 6.40 $ 5.03 $ 2.78 $ 1.97 Diluted $ 1.60 $ 6.16 $ 4.90 $ 2.70 $ 1.92 Shares used in calculation of net income per share: Basic 22,396 24,038 27,665 29,472 35,256 Diluted 22,852 24,947 28,428 30,355 36,165 Consolidated Balance Sheet Data: Cash and cash equivalents $ 1,792 $ 2,389 $ 4,243 $ 1,593 $ 1,612 Total assets (2) 953,936 919,540 800,136 806,043 470,138 Borrowings under revolving credit facility 459,600 382,500 244,200 231,000 199,600 Total shareholders’ deficit (438,177) (424,953) (223,978) (159,431) (109,550) Selected Operating Data: Stores open at period-end 670 648 602 611 579 Stores opened during period 49 77 30 59 53 Stores closed during period 27 31 39 27 30 Average sales per store (000’s) (3) $ 3,281 $ 3,600 $ 3,052 $ 2,877 $ 2,707 Percentage of stores with > $2 million in net sales (4) 76 % 84 % 67 % 70 % 65 % Percentage of stores with > $3 million in net sales (4) 36 % 48 % 29 % 30 % 25 % Average revenue per mattress unit - Total Retail (5) $ 5,403 $ 5,102 $ 4,856 $ 4,865 $ 4,482 Total Retail comparable-sales change (6) (6 %) 17 % 6 % 6 % 3 % Total retail square footage (at period-end) (000’s) 2,053 1,948 1,762 1,749 1,598 Average square footage per store open during period (4) 3,036 3,006 2,926 2,802 2,725 34 | 2022 FORM 10-K SLEEP NUMBER CORPORATION Year 2022 2021 2020 (1) 2019 2018 Average sales per square foot (3) $ 1,081 $ 1,212 $ 1,051 $ 1,034 $ 998 Average store age (in months at period-end) 91 91 97 94 95 Earnings before interest, depreciation and amortization (Adjusted EBITDA) (7) $ 148,024 $ 276,701 $ 267,891 $ 190,351 $ 165,588 Free cash flows (7) $ (33,316) $ 233,110 $ 242,561 $ 129,921 $ 86,025 Adjusted return on invested capital (Adjusted ROIC) (7) 17.6 % 47.2 % 39.9 % 24.4 % NA _____________________ (1) Fiscal year 2020 had 53 weeks.
Biggest changeYear 2023 2022 2021 2020 (1) 2019 Consolidated Statements of Operations Data: Net sales $ 1,887,482 $ 2,114,297 $ 2,184,949 $ 1,856,555 $ 1,698,352 Gross profit 1,088,530 1,202,296 1,318,847 1,156,000 1,051,923 Operating expenses: Sales and marketing 847,442 919,629 905,359 771,195 766,922 General and administrative 146,621 153,266 161,412 158,999 137,956 Research and development 55,797 61,521 58,540 40,910 34,950 Restructuring costs 15,728 — — — — Operating income 22,942 67,880 193,536 184,896 112,095 Net (loss) income $ (15,287) $ 36,610 $ 153,746 $ 139,189 $ 81,845 Net (loss) income per share: Basic $ (0.68) $ 1.63 $ 6.40 $ 5.03 $ 2.78 Diluted $ (0.68) $ 1.60 $ 6.16 $ 4.90 $ 2.70 Shares used in calculation of net (loss) income per share: Basic 22,429 22,396 24,038 27,665 29,472 Diluted 22,429 22,852 24,947 28,428 30,355 Consolidated Balance Sheet Data: Cash and cash equivalents $ 2,539 $ 1,792 $ 2,389 $ 4,243 $ 1,593 Total assets 950,880 953,936 919,540 800,136 806,043 Borrowings under revolving credit facility 539,500 459,600 382,500 244,200 231,000 Total shareholders’ deficit (441,928) (438,177) (424,953) (223,978) (159,431) Selected Operating Data: Stores open at period-end 672 670 648 602 611 Stores opened during period 36 49 77 30 59 Stores closed during period (34) (27) 31 39 27 Average sales per store (000’s) (2) $ 2,853 $ 3,281 $ 3,600 $ 3,052 $ 2,877 Percentage of stores with > $2 million in net sales (3) 65 % 76 % 84 % 67 % 70 % Percentage of stores with > $3 million in net sales (3) 24 % 36 % 48 % 29 % 30 % Average revenue per smart bed unit - Total Retail (4) $ 5,755 $ 5,403 $ 5,102 $ 4,856 $ 4,865 Total Retail comparable-sales change (5) (12 %) (6 %) 17 % 6 % 6 % Total retail square footage (at period-end) (000’s) 2,080 2,053 1,948 1,762 1,749 37 | 2023 FORM 10-K SLEEP NUMBER CORPORATION Year 2023 2022 2021 2020 (1) 2019 Average square footage per store open during period (3) 3,082 3,036 3,006 2,926 2,802 Average sales per square foot (2) $ 926 $ 1,081 $ 1,212 $ 1,051 $ 1,034 Average store age (in months at period-end) 93 91 91 97 94 Earnings before interest, depreciation and amortization (Adjusted EBITDA) (6) $ 126,676 $ 148,024 $ 276,701 $ 267,891 $ 190,351 Free cash flows (6) $ (66,084) $ (33,316) $ 233,110 $ 242,561 $ 129,921 Adjusted return on invested capital (Adjusted ROIC) (6) 7.8 % 17.6 % 47.2 % 39.9 % 24.4% _____________________ (1) Fiscal year 2020 had 53 weeks.
(2) Reflects annual effective income tax rates, before discrete adjustments, of 25.1%, 24.2%, 23.5% and 24.0% for 2022, 2021, 2020 and 2019, respectively. (3) Long-term debt includes existing finance lease liabilities. (4) Reflects operating lease liabilities included in the Company’s financial statements under ASC 842.
(2) Reflects annual effective income tax rates, before discrete adjustments, of 23.4%, 25.1%, 24.2%, 23.5% and 24.0% for 2023, 2022, 2021, 2020 and 2019, respectively. (3) Long-term debt includes existing finance lease liabilities. (4) Reflects operating lease liabilities included in the Company’s financial statements under ASC 842.
The tables below reconcile adjusted net operating profit after taxes (Adjusted NOPAT) and total adjusted invested capital, which are non-GAAP financial measures, to the comparable GAAP financial measures (in thousands): Year 2022 2021 2020 2019 Adjusted net operating profit after taxes (Adjusted NOPAT) Operating income $ 67,880 $ 193,536 $ 184,896 $ 112,095 Add: Operating lease interest (1) 25,912 24,763 24,966 25,635 Add: Interest income — — 97 3 Less: Income taxes (2) (23,542) (52,807) (49,391) (33,036) Adjusted NOPAT $ 70,250 $ 165,492 $ 160,568 $ 104,697 Average adjusted invested capital Total deficit $ (438,177) $ (424,953) $ (223,978) $ (159,431) Add: Long-term debt (3) 460,020 383,037 244,849 231,756 Add: Operating lease obligations (4) 436,412 408,552 345,161 357,651 Total adjusted invested capital at end of period $ 458,255 $ 366,636 $ 366,032 $ 429,976 Average adjusted invested capital (5) $ 400,038 $ 350,597 $ 402,647 $ 429,751 Adjusted return on invested capital (Adjusted ROIC) (6) 17.6 % 47.2 % 39.9 % 24.4 % _____________________ (1) Represents the interest expense component of lease expense included in the Company’s financial statements under ASC 842.
The tables below reconcile adjusted net operating profit after taxes (Adjusted NOPAT) and total adjusted invested capital, which are non-GAAP financial measures, to the comparable GAAP financial measures (in thousands): Year 2023 2022 2021 2020 2019 Adjusted net operating profit after taxes (Adjusted NOPAT) Operating income $ 22,942 $ 67,880 $ 193,536 $ 184,896 $ 112,095 Add: Operating lease interest (1) 27,777 25,912 24,763 24,966 25,635 Add: Interest income — — — 97 3 Less: Income taxes (2) (11,851) (23,542) (52,807) (49,391) (33,036) Adjusted NOPAT $ 38,868 $ 70,250 $ 165,492 $ 160,568 $ 104,697 Average adjusted invested capital Total deficit $ (441,928) $ (438,177) $ (424,953) $ (223,978) (159,431) Add: Long-term debt (3) 539,819 460,020 383,037 244,849 231,756 Add: Operating lease obligations (4) 433,154 436,412 408,552 345,161 357,651 Total adjusted invested capital at end of period $ 531,045 $ 458,255 $ 366,636 $ 366,032 $ 429,976 Average adjusted invested capital (5) $ 496,612 $ 400,038 $ 350,597 $ 402,647 $ 429,751 Adjusted return on invested capital (Adjusted ROIC) 7.8 % 17.6 % 47.2 % 39.9 % 24.4 % _____________________ (1) Represents the interest expense component of lease expense included in the Company’s financial statements under ASC 842.
The following table summarizes the Company’s free cash flow calculations (in thousands): Year 2022 2021 2020 2019 2018 Net cash provided by operating activities $ 36,138 $ 300,010 $ 279,661 $ 189,160 $ 131,540 Subtract: Purchases of property and equipment (69,454) (66,900) (37,100) (59,239) (45,515) Free cash flow $ (33,316) $ 233,110 $ 242,561 $ 129,921 $ 86,025 36 | 2022 FORM 10-K SLEEP NUMBER CORPORATION Non-GAAP Data Reconciliations (continued) Return on Invested Capital (Adjusted ROIC) Adjusted ROIC is a financial measure the Company uses to determine how efficiently it deploys its capital.
The following table summarizes the Company’s free cash flow calculations (in thousands): Year 2023 2022 2021 2020 2019 Net cash (used in) provided by operating activities $ (9,028) $ 36,138 $ 300,010 $ 279,661 $ 189,160 Subtract: Purchases of property and equipment (57,056) (69,454) (66,900) (37,100) (59,239) Free cash flow $ (66,084) $ (33,316) $ 233,110 $ 242,561 $ 129,921 39 | 2023 FORM 10-K SLEEP NUMBER CORPORATION Non-GAAP Data Reconciliations (continued) Return on Invested Capital (Adjusted ROIC) Adjusted ROIC is a financial measure the Company uses to determine how efficiently it deploys its capital.
See pages 36 and 37 for the reconciliation of these non-GAAP measures to the appropriate GAAP measures. 35 | 2022 FORM 10-K SLEEP NUMBER CORPORATION Non-GAAP Data Reconciliations Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) The Company defines earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) as net income plus: income tax expense, interest expense, depreciation and amortization, stock-based compensation and asset impairments.
See pages 39 and 40 for the reconciliation of these non-GAAP measures to the appropriate GAAP measures. 38 | 2023 FORM 10-K SLEEP NUMBER CORPORATION Non-GAAP Data Reconciliations Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) The Company defines earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) as net (loss) income plus: income tax expense, interest expense, depreciation and amortization, stock-based compensation, restructuring costs and asset impairments.
The Company’s Adjusted EBITDA calculations are as follows (in thousands): Year 2022 2021 2020 2019 2018 Net income $ 36,610 $ 153,746 $ 139,189 $ 81,845 $ 69,539 Income tax expense 12,285 33,545 36,783 18,663 16,982 Interest expense 18,985 6,245 9,021 11,591 5,911 Depreciation and amortization 66,626 59,779 60,783 61,410 61,648 Stock-based compensation 13,223 23,214 21,813 16,657 11,412 Asset impairments 295 172 302 185 96 Adjusted EBITDA $ 148,024 $ 276,701 $ 267,891 $ 190,351 $ 165,588 Free Cash Flow The Company’s “free cash flow” data is considered a non-GAAP financial measure and is not in accordance with, or preferable to, “net cash provided by operations,” or GAAP financial data.
The Company’s Adjusted EBITDA calculations are as follows (in thousands): Year 2023 2022 2021 2020 2019 Net (loss) income $ (15,287) $ 36,610 $ 153,746 $ 139,189 $ 81,845 Income tax (benefit) expense (4,466) 12,285 33,545 36,783 18,663 Interest expense 42,695 18,985 6,245 9,021 11,591 Depreciation and amortization 72,479 66,626 59,779 60,783 61,410 Stock-based compensation 14,855 13,223 23,214 21,813 16,657 Restructuring costs 15,728 — — — — Asset impairments 672 295 172 302 185 Adjusted EBITDA $ 126,676 $ 148,024 $ 276,701 $ 267,891 $ 190,351 Free Cash Flow The Company’s “free cash flow” data is considered a non-GAAP financial measure and is not in accordance with, or preferable to, “net cash provided by operations,” or GAAP financial data.
Stores that have been remodeled or repositioned within the same shopping center remain in the comparable-store base. The number of comparable stores used to calculate such data was 608, 568, 567, 539 and 524 for 2022, 2021, 2020, 2019 and 2018, respectively. Fiscal 2020 included 53 weeks, as compared to 52 weeks for the other periods presented.
(5) Stores are included in the comparable sales calculation in the 13th full month of operation. Stores that have been remodeled or repositioned within the same shopping center remain in the comparable-store base. The number of comparable stores used to calculate such data was 630, 608, 568, 567 and 539 for 2023, 2022, 2021, 2020 and 2019, respectively.
Comparable sales have been adjusted and reported as if all years had the same number of weeks. (7) These non-GAAP measures are not in accordance with, or preferable to, GAAP financial data. However, the Company is providing this information as it believes it facilitates annual and year-over-year comparisons for investors and financial analysts.
Fiscal 2020 included 53 weeks, as compared to 52 weeks for the other periods presented. Comparable sales have been adjusted and reported as if all years had the same number of weeks. (6) These non-GAAP measures are not in accordance with, or preferable to, GAAP financial data.
(4) For stores open during the entire period indicated (excludes Online, Phone and Chat sales). (5) Represents Total Retail net sales divided by Total Retail smart bed units. (6) Stores are included in the comparable sales calculation in the 13th full month of operation.
All other fiscal years presented had 52 weeks. (2) Trailing-twelve months Total Retail comparable sales per store open at least one year. (3) For stores open during the entire period indicated (excludes Online, Phone and Chat sales). (4) Represents Total Retail net sales divided by Total Retail smart bed units.
(5) Average adjusted invested capital represents the average of the last five fiscal quarters’ ending adjusted invested capital balances. (6) Adjusted ROIC equals Adjusted NOPAT divided by average adjusted invested capital. We have not included Adjusted ROIC for 2018 as ASC 842 was adopted in 2019.
(5) Average adjusted invested capital represents the average of the last five fiscal quarters’ ending adjusted invested capital balances. (6) Adjusted ROIC equals Adjusted NOPAT divided by average adjusted invested capital. Note – The Company’s Adjusted ROIC calculation and data are considered non-GAAP financial measures and are not in accordance with, or preferable to, GAAP financial data.
Note – The Company’s Adjusted ROIC calculation and data are considered non-GAAP financial measures and are not in accordance with, or preferable to, GAAP financial data. However, the Company is providing this information as it believes it facilitates analysis of the Company’s financial performance by investors and financial analysts.
However, the Company is providing this information as it believes it facilitates analysis of the Company’s financial performance by investors and financial analysts. GAAP - generally accepted accounting principles in the U.S. 40 | 2023 FORM 10-K SLEEP NUMBER CORPORATION
Removed
All other fiscal years presented had 52 weeks. (2) On December 30, 2018, the Company adopted ASC Topic 842, Leases , on a modified-retrospective basis. Comparative information has not been restated and continues to be reported under the standards in effect for those periods. (3) Trailing-twelve months Total Retail comparable sales per store open at least one year.
Added
However, the Company is providing this information as it believes it facilitates annual and year-over-year comparisons for investors and financial analysts.
Removed
The Company updated its Adjusted ROIC calculation for the reporting period ended December 31, 2022 to reflect adjustments consistent with ASC 842, Leases . All previous periods reported since the adoption of ASC 842 in fiscal year 2019 have been updated to reflect this calculation.
Removed
GAAP - generally accepted accounting principles in the U.S. 37 | 2022 FORM 10-K SLEEP NUMBER CORPORATION

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

54 edited+19 added−19 removed19 unchanged
Biggest changeThese risks and uncertainties include, among others: • Current and future economic conditions and consumer sentiment; • Increases in interest rates, which have increased the cost of servicing the Company’s indebtedness; • Availability of attractive and cost-effective consumer credit options; • Operating with minimal levels of inventory, which may leave the Company vulnerable to supply shortages; • Sleep Number’s dependence on, and ability to maintain strong working relationships with, key suppliers and third parties; • Rising commodity costs or third-party logistics costs and other inflationary pressures; • Risks inherent in global-sourcing activities, including tariffs, geo-political turmoil, war, strikes, labor challenges, government-mandated work closures, outbreaks of pandemics or contagious diseases, and resulting supply shortages and production and delivery delays and disruptions; • Risks of disruption due to health epidemics or pandemics, such as the COVID-19 pandemic; • Regional risks related to having global operations and suppliers, including climate and other disasters; • The effectiveness of the Company’s marketing strategy and promotional efforts; • The execution of Sleep Number’s Total Retail distribution strategy; • Ability to achieve and maintain high levels of product quality; • Ability to improve and expand Sleep Number’s product line and execute successful new product introductions; • Ability to prevent third parties from using the Company’s technology or trademarks, and the adequacy of its intellectual property rights to protect its products and brand; • Ability to compete; • Risks of disruption in the operation of any of the Company’s main manufacturing, distribution, logistics, home delivery, product development or customer service operations; • The Company’s ability to comply with existing and changing government regulation; • Pending or unforeseen litigation and the potential for associated adverse publicity; • The adequacy of the Company’s and third-party information systems and costs and disruptions related to upgrading or maintaining these systems; • The Company’s ability to withstand cyber threats that could compromise the security of its systems, result in a data breach or business disruption; • Sleep Number’s ability, and the ability of its suppliers and vendors, to attract, retain and motivate qualified personnel; • The volatility of Sleep Number stock; • Environmental, social and governance (ESG) risks, including increasing regulation and stakeholder expectations; and • The Company’s ability to adapt to climate change and readiness for legal or regulatory responses thereto. 38 | 2022 FORM 10-K SLEEP NUMBER CORPORATION Additional information concerning these and other risks and uncertainties is contained under the caption “Risk Factors” in this Annual Report on Form 10-K.
Biggest changeThese risks and uncertainties include, among others: • Changes in economic conditions and consumer sentiment and related impacts on discretionary consumer spending; • Increases in interest rates, which have increased the cost of servicing the Company’s indebtedness; • Availability of attractive and cost-effective consumer credit options; • Ability to achieve savings and efficiencies from cost savings plans related to business restructuring actions and to avoid unexpected adverse effects; • Dependence on, and ability to maintain working relationships with key suppliers and third parties; • Fluctuations in commodity costs or third-party delivery or logistics costs and other inflationary pressures; • Risks inherent in global-sourcing activities, including tariffs, foreign regulation, geo-political turmoil, war, pandemics, labor challenges, foreign currency fluctuations, inflation, and climate or other disasters, and resulting supply shortages and production and delivery delays and disruptions; • Operating with minimal levels of inventory, which may leave the Company vulnerable to supply shortages; • The effectiveness of the Company’s marketing strategy and promotional efforts; • The execution of Sleep Number’s Total Retail distribution strategy; • Ability to achieve and maintain high levels of product quality and to improve and expand the product line; • Ability to protect the Company’s technology, trademarks, and brand and the adequacy of its intellectual property rights; • Ability to effectively compete; • Risks of disruption in the operation of any of the Company’s facilities and operations, including manufacturing, assembly, distribution, logistics, field services, home delivery, headquarters, product development, retail or customer service operations; • Ability to comply with existing and changing government regulations and laws; • Pending or unforeseen litigation and the potential for associated adverse publicity; • The adequacy of the Company’s and third-party information systems and costs and disruptions related to upgrading or maintaining these systems; • The Company’s ability to identify and withstand cyber threats that could compromise the security of its systems, result in a data breach or business disruption; • Risks associated with advancements in or adoption of artificial intelligence technologies; • Sleep Number’s ability, and the ability of its suppliers and vendors, to attract, retain and motivate qualified and effective personnel; • The volatility of Sleep Number stock, its removal from various stock indices, and the potential negative effects of shareholder activism or of changes in coverage by securities analysts; • Environmental, social and governance risks, including increasing regulation and stakeholder expectations; and • The Company’s ability to adapt to climate change and readiness for legal or regulatory responses thereto. 41 | 2023 FORM 10-K SLEEP NUMBER CORPORATION Additional information concerning these and other risks and uncertainties is contained under the caption “Risk Factors” in this Annual Report on Form 10-K.
(2) Trailing-twelve months for stores open at least one year (excludes online, phone and chat sales). (3) Represents Total Retail net sales divided by Total Retail smart bed units. (4) Fiscal 2020 included 53 weeks, as compared to 52 weeks in fiscal 2022 and 2021. The additional week in 2020 was in the fiscal fourth quarter.
(2) Trailing-twelve months for stores open at least one year (excludes Online, Phone and Chat sales). (3) Represents Total Retail net sales divided by Total Retail smart bed units. (4) Fiscal 2020 included 53 weeks, as compared to 52 weeks in fiscal 2023, 2022 and 2021. The additional week in 2020 was in the fiscal fourth quarter.
The amendment, among other things, (a) provides relief from the requirement that the net leverage ratio not exceed 3.75x for certain corporate actions including Permitted Capital Distributions for Performance or Taxes (as defined in the Credit Agreement) and certain acquisition activity; (b) increases the permissible net leverage ratio to 5.0x for the three consecutive quarterly reporting periods ending July 1, 2023; (c) increases the commitment fee rate to 50 basis points and the margin applicable to interest rates for all borrowings by an additional 50 basis points, in each case if the net leverage ratio is greater than or equal to 4.5x; and (d) replaces the option to borrow at an interest rate based on London Interbank Offered Rate (LIBOR) to one based on a Term SOFR Rate.
The amendment, among other things, (a) provides relief from the requirement that the Net Leverage Ratio not exceed 3.75x for certain corporate actions including Permitted Capital Distributions for Performance or Taxes (as defined in the Credit Agreement) and certain acquisition activity; (b) increased the permissible Net Leverage Ratio to 5.0x for the three consecutive quarterly reporting periods ending July 1, 2023; (c) increased the commitment fee rate to 50 basis points and the margin applicable to interest rates for all borrowings by an additional 50 basis points, in each case if the net leverage ratio is greater than or equal to 4.5x; and (d) replaces the option to borrow at an interest rate based on London Interbank Offered Rate (LIBOR) to one based on a Term SOFR Rate.
Stores that have been remodeled or repositioned within the same shopping center remain in the comparable-store base. Fiscal 2020 included 53 weeks, as compared to 52 weeks for the other periods presented.
Stores that have been remodeled or repositioned within the same shopping center remain in the comparable-store base. Fiscal 2020 included 53 weeks, as compared to 52 weeks for the periods presented.
The Term SOFR Rate equals the sum of (x) the Term SOFR Screen Rate (as defined in the Credit Agreement) for the applicable interest period (but in no event less than zero), plus (y) 0.10%, plus (z) the margin based on Sleep Number’s net leverage ratio.
The Term SOFR Rate equals the sum of (x) the Term SOFR Screen Rate (as defined in the Credit Agreement) for the applicable interest period (but in no event less than zero), plus (y) 0.10%, plus (z) the margin based on Sleep Number’s net leverage ratio. The Company amended the Credit Agreement on July 24, 2023.
As of December 31, 2022, the remaining authorization under its Board-approved share repurchase program was $348 million. 40 | 2022 FORM 10-K SLEEP NUMBER CORPORATION The following table sets forth the Company’s results of operations expressed as dollars and percentages of net sales. Figures are in millions, except percentages and per share amounts.
As of December 30, 2023, the remaining authorization under its Board-approved share repurchase program was $348 million. 43 | 2023 FORM 10-K SLEEP NUMBER CORPORATION The following table sets forth the Company’s results of operations expressed as dollars and percentages of net sales. Figures are in millions, except percentages and per share amounts.
The 3% net sales decrease was driven by a 6% comparable sales decrease in Total Retail, partially offset by 3 percentage points (ppt.) of growth from net opened/closed stores in the past 12 months, and other.
The 11% net sales decrease was driven by a 12% comparable sales decrease in Total Retail, partially offset by 1 percentage points (ppt.) of growth from net opened/closed stores in the past 12 months, and other.
However, if actual results are not consistent with its estimates or assumptions, the Company may be exposed to additional losses or gains in future periods. A 10% change in its sales returns allowance at December 31, 2022 would have affected net income by approximately $1.9 million in 2022. Recent Accounting Pronouncements See “Part II, Item 8.
However, if actual results are not consistent with its estimates or assumptions, the Company may be exposed to additional losses or gains in future periods. A 10% change in its sales returns allowance at December 30, 2023 would have affected net (loss) income by approximately $1.7 million in 2023. Recent Accounting Pronouncements See “Part II, Item 8.
During the fiscal year ended December 31, 2022, the Company repurchased $64 million of its common stock (based on settlement dates, $55 million under its Board-approved share repurchase program and $9 million in connection with the vesting of employee restricted stock grants), compared with $382 million in 2021.
During the fiscal year ended December 30, 2023, the Company repurchased $4 million of its common stock (in connection with the vesting of employee restricted stock grants), compared with $64 million in 2022 (based on settlement dates, $55 million under its Board-approved share repurchase program and $9 million in connection with the vesting of employee restricted stock grants).
Online, phone and chat sales (included in comparable sales noted above) made up 14% and 13% of total net sales in 2022 and 2021, respectively, as consumers embraced transacting remotely with Sleep Number as well as in its stores. For additional details, see the components of total net sales growth on page 41 .
Online, Phone and Chat sales (included in comparable sales noted above) made up 13.2% and 13.7% of total net sales in 2023 and 2022, respectively, as consumers embraced transacting remotely with Sleep Number as well as in its stores. For additional details, see the components of total net sales growth on page 44 .
Total Retail comparable sales have been adjusted to remove the estimated impact of the additional week. 41 | 2022 FORM 10-K SLEEP NUMBER CORPORATION Other sales metrics were as follows: 2022 2021 2020 Average sales per store ($ in thousands) (1)(4) $ 3,281 $ 3,600 $ 3,052 Average sales per square foot (1)(4) $ 1,081 $ 1,212 $ 1,051 Stores > $2 million in net sales (2)(4) 76 % 84 % 67 % Stores > $3 million in net sales (2)(4) 36 % 48 % 29 % Average revenue per smart bed unit – Total Retail (3) $ 5,403 $ 5,102 $ 4,856 ____________________ (1) Trailing-twelve months Total Retail comparable sales per store open at least one year.
Total Retail comparable sales in 2020 have been adjusted to remove the estimated impact of the additional week. 44 | 2023 FORM 10-K SLEEP NUMBER CORPORATION Other sales metrics were as follows: 2023 2022 2021 Average sales per store ($ in thousands) (1)(4) $ 2,853 $ 3,281 $ 3,600 Average sales per square foot (1)(4) $ 926 $ 1,081 $ 1,212 Stores > $2 million in net sales (2)(4) 65 % 76 % 84 % Stores > $3 million in net sales (2)(4) 24 % 36 % 48 % Average revenue per smart bed unit – Total Retail (3) $ 5,755 $ 5,403 $ 5,102 ____________________ (1) Trailing-twelve months Total Retail comparable sales per store open at least one year.
The sales and marketing expense rate increased to 43.5% of net sales, compared with 41.4% for the same period one year ago.
The sales and marketing expense rate increased to 44.9% of net sales, compared with 43.5% for the same period one year ago.
The Company’s primary sources of liquidity are cash flows provided by operating activities and cash available under its $825 million revolving credit facility. As of December 31, 2022, the Company did not have any off-balance sheet financing other than its $6 million in outstanding letters of credit.
The Company’s primary sources of liquidity are cash flows provided by operating activities and cash available under its $685 million revolving credit facility. As of December 30, 2023, the Company did not have any off-balance sheet financing other than its $7 million in outstanding letters of credit.
The Company’s critical accounting policies and estimates relate to stock-based compensation, warranty liabilities and revenue recognition. 45 | 2022 FORM 10-K SLEEP NUMBER CORPORATION Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions Stock-Based Compensation The Company has stock-based compensation plans, which include non-qualified stock options and stock awards.
The Company’s critical accounting policies and estimates relate to stock-based compensation, warranty liabilities and revenue recognition. Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions Stock-Based Compensation The Company has stock-based compensation plans, which include non-qualified stock options and stock awards.
General and administrative expenses General and administrative (G&A) expenses decreased $8 million to $153 million in 2022, compared with $161 million in the prior year, and decreased to 7.2% of net sales, compared with 7.4% of net sales one year ago.
General and administrative expenses General and administrative (G&A) expenses decreased $7 million to $147 million in 2023, compared with $153 million in the prior year, and increased to 7.8% of net sales, compared with 7.2% of net sales one year ago.
Short-term borrowings increased by $98 million during 2022 due to a $77 million increase in borrowings under its credit facility to $460 million, in addition to a $21 million increase in book overdrafts which are included in the net change in short-term borrowings.
Short-term borrowings increased by $98 million during 2022 due to a $77 million increase in borrowings under its credit facility to $460 million, in addition to a $21 million increase in book overdrafts.
Amounts may not add due to rounding differences. 2022 2021 2020 $ % of Net Sales $ % of Net Sales $ % of Net Sales Net sales $ 2,114.3 100.0 % $ 2,184.9 100.0 % $ 1,856.6 100.0 % Cost of sales 912.0 43.1 % 866.1 39.6 % 700.6 37.7 % Gross profit 1,202.3 56.9 % 1,318.8 60.4 % 1,156.0 62.3 % Operating expenses: Sales and marketing 919.6 43.5 % 905.4 41.4 % 771.2 41.5 % General and administrative 153.3 7.2 % 161.4 7.4 % 159.0 8.6 % Research and development 61.5 2.9 % 58.5 2.7 % 40.9 2.2 % Total operating expenses 1,134.4 53.7 % 1,125.3 51.5 % 971.1 52.3 % Operating income 67.9 3.2 % 193.5 8.9 % 184.9 10.0 % Interest expense, net 19.0 0.9 % 6.2 0.3 % 8.9 0.5 % Income before income taxes 48.9 2.3 % 187.3 8.6 % 176.0 9.5 % Income tax expense 12.3 0.6 % 33.5 1.5 % 36.8 2.0 % Net income $ 36.6 1.7 % $ 153.7 7.0 % $ 139.2 7.5 % Net income per share: Basic $ 1.63 $ 6.40 $ 5.03 Diluted $ 1.60 $ 6.16 $ 4.90 Weighted-average number of common shares: Basic 22.4 24.0 27.7 Diluted 22.9 24.9 28.4 The percentage of the Company’s total net sales, by dollar volume, was as follows: 2022 2021 2020 Retail stores 86.3 % 87.1 % 85.2 % Online, phone, chat and other 13.7 % 12.9 % 14.8 % Total Company 100.0 % 100.0 % 100.0 % The components of total net sales change, including comparable net sales changes, were as follows: Net Sales Increase/(Decrease) 2022 2021 2020 Retail comparable-store sales (1) (8 %) 19 % (3 %) Online, phone and chat (1) 4 % 4 % 104 % Total Retail comparable sales change (1) (6 %) 17 % 6 % Net opened/closed stores, other and 53rd week 3 % 1 % 3 % Total Company (3 %) 18 % 9 % ____________________ (1) Stores are included in the comparable-store calculation in the 13th full month of operations.
Amounts may not add due to rounding differences. 2023 2022 2021 $ % of Net Sales $ % of Net Sales $ % of Net Sales Net sales $ 1,887.5 100.0 % $ 2,114.3 100.0 % $ 2,184.9 100.0 % Cost of sales 799.0 42.3 % 912.0 43.1 % 866.1 39.6 % Gross profit 1,088.5 57.7 % 1,202.3 56.9 % 1,318.8 60.4 % Operating expenses: Sales and marketing 847.4 44.9 % 919.6 43.5 % 905.4 41.4 % General and administrative 146.6 7.8 % 153.3 7.2 % 161.4 7.4 % Research and development 55.8 3.0 % 61.5 2.9 % 58.5 2.7 % Restructuring costs 15.7 0.8 % — — % — — % Total operating expenses 1,065.6 56.5 % 1,134.4 53.7 % 1,125.3 51.5 % Operating income 22.9 1.2 % 67.9 3.2 % 193.5 8.9 % Interest expense, net 42.7 2.3 % 19.0 0.9 % 6.2 0.3 % (Loss) income before income taxes (19.8) (1.0 %) 48.9 2.3 % 187.3 8.6 % Income tax (benefit) expense (4.5) (0.2 %) 12.3 0.6 % 33.5 1.5 % Net (loss) income $ (15.3) (0.8 %) $ 36.6 1.7 % $ 153.7 7.0 % Net (loss) income per share: Basic $ (0.68) $ 1.63 $ 6.40 Diluted $ (0.68) $ 1.60 $ 6.16 Weighted-average number of common shares: Basic 22.4 22.4 24.0 Diluted 22.4 22.9 24.9 The percentage of the Company’s total net sales, by dollar volume, was as follows: 2023 2022 2021 Retail stores 86.8 % 86.3 % 87.1 % Online, phone, chat and other 13.2 % 13.7 % 12.9 % Total Company 100.0 % 100.0 % 100.0 % The components of total net sales change, including comparable net sales changes, were as follows: Net Sales Increase/(Decrease) 2023 2022 2021 Retail comparable-store sales (1) (12 %) (8 %) 19 % Online, phone and chat (1) (15 %) 4 % 4 % Total Retail comparable sales change (1) (12 %) (6 %) 17 % Net opened/closed stores, other and 53rd week 1 % 3 % 1 % Total Company (11 %) (3 %) 18 % ____________________ (1) Stores are included in the comparable-store calculation in the 13th full month of operations.
During 2021, the Company repurchased 3.1 million shares at a cost of $364 million (based on trade dates, $116.79 per share). As of December 31, 2022, the remaining authorization under its Board-approved share repurchase program was $348 million. There is no expiration date governing the period over which the Company can repurchase shares.
During 2022, the Company repurchased 1.0 million shares at a cost of $55 million (based on trade dates, $57.46 per share). As of December 30, 2023, the remaining authorization under its Board-approved share repurchase program was $348 million. There is no expiration date governing the period over which the Company can repurchase shares.
The Company’s MD&A is presented in the following sections: • Overview • Results of Operations • Liquidity and Capital Resources • Critical Accounting Policies and Estimates • Recent Accounting Pronouncements Overview Business Overview Sleep Number is a wellness technology company.
The Company’s MD&A is presented in the following sections: • Overview • Results of Operations • Liquidity and Capital Resources • Critical Accounting Policies and Estimates • Recent Accounting Pronouncements Overview Business Overview Sleep Number is a wellness technology company and market leader in the design, manufacturing, marketing and distribution of highly innovative sleep solutions.
The number of retail stores operating was as follows: 2022 2021 2020 Beginning of period 648 602 611 Opened 49 77 30 Closed (27) (31) (39) End of period 670 648 602 Comparison of 2022 and 2021 Net sales Net sales in 2022 decreased 3% to $2.1 billion, compared with $2.2 billion in 2021.
The number of retail stores operating was as follows: 2023 2022 2021 Beginning of period 670 648 602 Opened 36 49 77 Closed (34) (27) (31) End of period 672 670 648 Comparison of 2023 and 2022 Net sales Net sales in 2023 decreased 11% to $1.9 billion, compared with $2.1 billion in 2022.
Total Retail comparable sales have been adjusted to remove the estimated impact of the additional week on those metrics.
Total Retail comparable sales have been adjusted to remove the estimated impact of the additional week in 2020.
Purchases of property and equipment for 2022 was $69 million, compared with $67 million in 2021. • The Company ended 2022 with $460 million of borrowings under its credit facility, compared with $383 million at the end of 2021. Net liquidity available under the credit facility was $359 million at December 31, 2022.
Purchases of property and equipment for 2023 was $57 million, compared with $69 million in 2022. • The Company ended 2023 with $540 million of borrowings under its credit facility, compared with $460 million at the end of 2022. Net liquidity available under the credit facility was $138 million at December 30, 2023.
Net income per diluted share decreased to $1.60, compared with $6.16 per diluted share in 2021. • The Company achieved a return on invested capital (Adjusted ROIC) of 17.6% in 2022, compared with 47.2% in 2021. • Cash provided by operating activities in 2022 decreased to $36 million, compared with $300 million for the prior year.
Net loss per diluted share decreased to $0.68, compared with net income per diluted share of $1.60 per diluted share in 2022. • The Company achieved a return on invested capital (Adjusted ROIC) of 7.8% in 2023, compared with 17.6% in 2022. • Cash used in operating activities in 2023 decreased to $9 million, compared with cash provided by operating activities of $36 million for the prior year.
In addition, the Company’s gross profit rate will fluctuate from year to year due to a variety of other factors, including return and exchange costs, and changes in performance-based incentive compensation. 42 | 2022 FORM 10-K SLEEP NUMBER CORPORATION Sales and marketing expenses Sales and marketing expenses totaled $920 million in 2022, compared with $905 million last year.
In addition, the Company’s gross profit rate will fluctuate from year to year due to a variety of other factors, including changes in manufacturing and supply chain operations and changes in performance-based incentive compensation. 45 | 2023 FORM 10-K SLEEP NUMBER CORPORATION Sales and marketing expenses Sales and marketing expenses decreased to $847 million in 2023, compared with $920 million last year.
Net cash provided by financing activities was $34 million for the fiscal year ended December 31, 2022, compared with net cash used of $235 million in 2021.
Net cash provided by financing activities was $68 million for the fiscal year ended December 30, 2023, compared with $34 million in 2022.
For additional details, see the components of total net sales growth on page 41 . • Sales per store in 2022 (sales for stores open at least one year, Total Retail, including online, phone and chat) on a trailing twelve-month basis totaled $3.3 million, 9% lower than 2021. • 2022 operating income of $68 million decreased by $126 million compared with $194 million in the prior year, driven by the decrease in net sales and lower gross margin.
For additional details, see the components of total net sales growth on page 44 . • Sales per store in 2023 (sales for stores open at least one year, Total Retail, including Online, Phone and Chat) on a trailing twelve-month basis totaled $2.9 million, 13.0% lower than 2022. • 2023 operating income of $23 million decreased by $45 million compared with $68 million in the prior year, driven by the decrease in net sales and lower gross margin; partially offset by a $69 million reduction in total operating expense that included $16 million of restructuring costs in the fourth quarter.
Income tax expense Income tax expense was $12 million for the year ended December 31, 2022, compared with $34 million for the same period one year ago. The effective income tax rate for the year ended December 31, 2022 was 25.1% compared with 17.9% for the year ended January 1, 2022.
Income tax (benefit) expense Income tax benefit was $4 million for the year ended December 30, 2023, compared with income tax expense of $12 million for the same period one year ago. The effective income tax rate for the year ended December 30, 2023 was 22.6% compared with 25.1% for the year ended December 31, 2022.
In addition, if actual results are not consistent with the assumptions used, the stock-based compensation expense reported in its financial statements may not be representative of the actual economic cost of the stock-based compensation. Finally, if the actual forfeiture rates, or the actual achievement of performance targets, are not consistent with the assumptions used, we could experience future earnings adjustments.
In addition, if actual results are not consistent with the assumptions used, the stock-based compensation expense reported in its financial statements may not be representative of the actual economic cost of the stock-based compensation.
Stock-based compensation excess tax benefits more favorably impacted the 2021 effective tax rate than 2022. Comparison of 2021 and 2020 For a discussion of the Company’s 2021 versus 2020 results, see its 2021 Form 10-K. Liquidity and Capital Resources Managing the Company’s liquidity and capital resources is an important part of its commitment to deliver superior shareholder value over time.
Comparison of 2022 and 2021 For a discussion of the Company’s 2022 versus 2021 results, see its 2022 Form 10-K. 46 | 2023 FORM 10-K SLEEP NUMBER CORPORATION Liquidity and Capital Resources Managing the Company’s liquidity and capital resources is an important part of its commitment to deliver superior shareholder value over time.
Average revenue per smart bed unit in Total Retail increased by 6% to $5,403, compared with $5,102 in the prior-year period. Gross profit Gross profit for 2022 of $1.2 billion decreased by $117 million, or 9%, compared with $1.3 billion in 2021. The 2022 gross profit rate decreased to 56.9% of net sales, compared with 60.4% for the prior-year period.
Total Retail smart bed unit sales decreased 16% compared with the prior year. Average revenue per smart bed unit in Total Retail increased by 7% to $5,755, compared with $5,403 in the prior-year period. Gross profit Gross profit for 2023 of $1.09 billion decreased by $114 million, or 9%, compared with $1.20 billion in 2022.
Significant changes in cash and cash equivalents during 2022 included $36 million of cash provided by operating activities and $98 million increase in short-term borrowings, which were offset by $69 million of cash used to purchase property and equipment, and $64 million of cash used to repurchase the Company’s common stock.
Significant changes in cash and cash equivalents during 2023 included $73 million increase in short-term borrowings, which were offset by $57 million of cash used to purchase property and equipment, $9.0 million of cash used by operating activities and $4 million of cash used to repurchase the Company’s common stock (in connection with the vesting of employee restricted stock grants).
Amounts may not add due to rounding differences: 2022 2021 Total cash provided by (used in): Operating activities $ 36.1 $ 300.0 Investing activities (70.6) (66.6) Financing activities 33.9 (235.2) Net decrease in cash and cash equivalents $ (0.6) $ (1.9) Cash provided by operating activities for the fiscal year ended December 31, 2022 was $36 million compared with $300 million for the fiscal year ended January 1, 2022.
Amounts may not add due to rounding differences: 2023 2022 Total cash (used in) provided by: Operating activities $ (9,028) $ 36,138 Investing activities (58,352) (70,607) Financing activities 68,127 33,872 Net increase (decrease) in cash and cash equivalents $ 747 $ (597) Cash used in operating activities for the fiscal year ended December 30, 2023 was $9 million compared with net cash provided by operating activities of $36 million for the fiscal year ended December 31, 2022.
Net cash used in investing activities was $71 million for the fiscal year ended December 31, 2022, compared with $67 million in 2021. Investing activities in 2022 included $69 million of property and equipment purchases, compared with $67 million last year. The $3 million year-over-year increase was primarily due to investments in information technology.
Net cash used in investing activities was $58 million for the fiscal year ended December 30, 2023, compared with $71 million in 2022. Investing activities in 2023 included $57 million of property and equipment purchases, compared with $69 million last year.
The $71 million net sales decrease compared with the same period one year ago was primarily comprised of: (i) a $135 million decrease in the Company’s Total Retail comparable net sales; and (ii) a $67 million increase resulting from net store openings. Total Retail smart bed unit sales decreased 9% compared with the prior year.
The $227 million net sales decrease compared with the same period one year ago was primarily comprised of: (i) a $206 million decrease in the Company’s Total Retail comparable net sales; (ii) a $42 million decrease from phone, online and chat; offset by (iii) a $21 million increase resulting from net store openings.
See Notes 7, Leases , and 12, Commitments and Contingencies , for further details on the Company’s contractual obligations. 43 | 2022 FORM 10-K SLEEP NUMBER CORPORATION Cash and cash equivalents totaled $2 million at both December 31, 2022 and January 1, 2022.
See Notes 7, Leases , and 13, Commitments and Contingencies , for further details on the Company’s contractual obligations. Cash and cash equivalents totaled $2.5 million and $1.8 million at December 30, 2023 and December 31, 2022, respectively.
Interest expense, net Interest expense, net increased to $19 million for the year ended December 31, 2022, compared with $6 million for the same period one year ago. The $13 million increase was primarily related to a higher weighted-average interest rate during 2022 compared with 2021.
These actions support $40 to $45 million of incremental operating expense reductions in 2024. Interest expense, net Interest expense, net increased to $43 million for the year ended December 30, 2023, compared with $19 million for the same period one year ago. The $24 million increase was primarily related to a higher weighted-average interest rate during 2023 compared with 2022.
A 10% change in its stock-based compensation expense for the year ended December 31, 2022, would have affected net income by approximately $1.0 million in 2022. Warranty Liabilities The Company provides a limited warranty on most of the products it sells.
A 10% change in its stock-based compensation expense for the year ended December 30, 2023, would have affected net (loss) income by approximately $1.1 million in 2023. 49 | 2023 FORM 10-K SLEEP NUMBER CORPORATION Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions Warranty Liabilities The Company provides a limited warranty on most of the products it sells.
The G&A expenses rate decreased by 0.2 ppt. in 2022, compared with 2021 due to the items discussed above offset by the deleveraging impact of the 3% net sales decrease. Research and development expenses Research and development (R&D) expenses increased by 5% to $62 million in 2022, compared with $59 million in 2021.
The G&A expenses rate increased by 0.6 ppt. in 2023, compared with 2022 due to the items discussed above in addition to the deleveraging impact of the 11% net sales decrease.
In connection with the preparation of its financial statements, the Company is required to make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, sales, expenses and the related disclosures. Predicting future events is inherently an imprecise activity and as such requires the use of judgment.
Critical Accounting Policies and Estimates The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP). In connection with the preparation of its financial statements, the Company is required to make estimates and assumptions about future events and apply judgments that affect the reported amounts of assets, liabilities, sales, expenses and the related disclosures.
The $8 million decrease in G&A expenses mainly consisted of the following: (i) $23 million lower employee compensation resulting from a year-over-year decrease in Company-wide performance-based incentive compensation; partially offset by (ii) a $5 million increase in employee compensation; (iii) $4 million increase in technology investments; and (iv) $6 million increase in other miscellaneous expenses including depreciation and travel expenses.
The $7 million decrease in G&A expenses mainly consisted of the following: (i) a $8.2 million reduction in employee compensation on lower headcount; (ii) a $3.1 million benefit from favorable legal settlements (iii) a $0.9 million reduction in professional and consulting fees; (iv) a $0.7 million decrease in travel and training expenses; and (v) a $1.2 million decrease in other miscellaneous expenses; partially offset by (vi) a $4.0 million increase in company-wide, performance-based incentive compensation due to the achievement of first half of the fiscal year performance targets in the current year; and (vi) a $3.5 million increase in technology investments.
However, because future events and their effects cannot be determined with certainty, actual results could differ from the Company’s assumptions and estimates, and such differences could be material.
On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that its financial statements are presented fairly and in accordance with GAAP. However, because future events and their effects cannot be determined with certainty, actual results could differ from the Company’s assumptions and estimates, and such differences could be material.
However, if actual results are not consistent with its estimates or assumptions, the Company may be exposed to losses or gains that could be material.
However, if actual results are not consistent with its estimates or assumptions, the Company may be exposed to losses or gains that could be material. A 10% change in its warranty liability at December 30, 2023, would have affected net (loss) income by approximately $0.7 million in 2023.
The Company bases its assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time its consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that its financial statements are presented fairly and in accordance with GAAP.
Predicting future events is inherently an imprecise activity and as such requires the use of judgment. The Company bases its assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time its consolidated financial statements are prepared.
Significant components of the $264 million year-over-year decrease in cash from operating activities included: (i) a $117 million decrease in net income in 2022 compared with 2021; (ii) $114 million fluctuation in customer prepayments due to the timing of customer deliveries; (iii) a $59 million fluctuation in accounts payable with both years impacted by business changes and timing of payments; and (iv) a $33 million change in prepaid expenses primarily due to timing and amount of vendor rebates.
Significant components of the $45 million year-over-year decrease in cash from operating activities included: (i) a $52 million decrease in net (loss) income in 2023 compared with 2022; (ii) $32 million fluctuation in customer prepayments due to the timing of customer deliveries; (iii) a $25 million change in prepaid expenses and other current assets primarily due to amount and timing of rebate payments; (iv) a $24 million fluctuation in accounts payable due to lower expenses in the current year’s fourth quarter and timing of payments; and (v) a $17 million fluctuation in accrued compensation and benefits primarily related to year-over-year changes in company-wide performance-based compensation that was earned in 2021 and paid in the first quarter of 2022, compared with no company-wide performance-based compensation earned in 2022 and paid in the first quarter of 2023.
The Company’s 2022 operating income rate decreased to 3.2% of net sales, compared with 8.9% of net sales in 2021.
The Company’s 2023 operating income rate decreased to 1.2% of net sales, compared with 3.2% of net sales in 2022. Its 2023 operating income rate was impacted by the deleveraging impact of the 11% decrease in net sales. • Net loss in 2023 of $15 million, compared with net income of $37 million in 2022.
Demand was negatively impacted by record low consumer sentiment and constrained chip supply that limited the Company’s product offerings and drove longer-than-normal lead times. • The 3% net sales decrease consisted of a 6% comparable sales decrease in Total Retail, partially offset by 3 percentage points (ppt.) of sales growth from net opened/closed stores in the past 12 months.
The bedding industry remains at recessionary levels with low consumer sentiment. • The 11% net sales decrease consisted of a 12% comparable sales decrease in Total Retail, partially offset by 1 percentage points (ppt.) of sales growth from net opened/closed stores in the past 12 months.
The Company generates revenue by marketing and selling its innovations directly to new and existing customers through its vertically integrated, exclusive, direct-to-consumer retail touch points including Stores, Online, Phone, and Chat (Total Retail).
The Company generates revenue by marketing and selling its innovative smart beds directly to new and existing customers through its vertically integrated, exclusive, direct-to-consumer retail touch points including Stores, Online, Phone, and Chat (Total Retail). 42 | 2023 FORM 10-K SLEEP NUMBER CORPORATION Results of Operations Fiscal 2023 Summary Financial highlights for fiscal 2023 were as follows: • Net sales for 2023 decreased 11% to $1.9 billion, compared with $2.1 billion in 2022.
The maximum net leverage ratio under its Credit Agreement is 5.0x for the three quarterly reporting periods ending December 31, 2022, April 1, 2023, and July 1, 2023 and 4.5x thereafter. • In 2022, Sleep Number invested $55 million to repurchase 1.0 million shares of its common stock ($57.46 per share, based on trade dates) under its Board-approved share repurchase program.
The Company’s net leverage ratio as defined in its Credit Agreement was 4.1x as of December 30, 2023. The maximum net leverage ratio under its Credit Agreement is 5.0x for the three quarterly reporting periods ending December 30, 2023. • The Company suspended share repurchases under the Board-approved share repurchase program in the second quarter of fiscal 2022.
The current-year sales and marketing expenses rate increase of 2.1 ppt. was primarily due to: (i) additional costs associated with operating 22 net new stores (1.0 ppt); and (ii) higher fees associated with its customer credit-based promotional offers (0.9 ppt).
The current-year sales and marketing expenses rate increase of 1.4 ppt. was primarily due to: (i) deleveraging impact of the 11% net sales decrease; partially offset by (ii) a decrease in consumer financing costs as the Company adjusted promotional offers to mitigate increased costs associated with the higher interest rate environment resulting in 0.3 ppt. of leverage; and (iii) a 12% decrease in media spend year-over-year resulting in 0.2 ppt. of leverage.
The 3.5 ppt. decrease in the gross profit rate was mainly due to: (i) year-over-year unfavorable product mix changes (2.0 ppt); (ii) operating inefficiencies resulting from the uneven flow of electronics supply and constrained deliveries (1.8 ppt); (iii) incremental costs from labor and material inflation (0.7 ppt); (iv) 9% lower delivered smart bed unit volume (0.2 ppt); partially offset by (v) price increases to offset inflation pressures (1.2 ppt).
The 0.8 ppt. increase in the gross profit rate was mainly due to: (i) favorable pricing actions taken over the past twelve months that increased the rate by 2.0 ppt.; (ii) improvement in commodity prices and operating efficiencies increased the rate by 1.5 ppt.; partially offset by (iii) product mix of FlexFit smart adjustable bases, pressured the rate by 1.6 ppt.; (iv) higher returns and warranty costs, primarily related to the returnability of the integrated adjustable base as part of the Climate360 smart bed, decreased the rate by 0.7 ppt; and (v) lower delivered smart bed volume deleveraged the rate by 0.3 ppt.
A 10% change in its warranty liability at December 31, 2022, would have affected net income by approximately $0.7 million in 2022. 46 | 2022 FORM 10-K SLEEP NUMBER CORPORATION Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions Revenue Recognition Certain accounting estimates relating to revenue recognition contain uncertainty because they require management to make assumptions and to apply judgment regarding the effects of future events.
Revenue Recognition Certain accounting estimates relating to revenue recognition contain uncertainty because they require management to make assumptions and to apply judgment regarding the effects of future events.
As of December 31, 2022, the weighted-average interest rate on borrowings under the credit facility was 6.7% and the Company was in compliance with all financial covenants. The Company has an agreement with Synchrony Bank to offer qualified customers revolving credit arrangements to finance their purchases from Sleep Number (Synchrony Agreement).
At December 30, 2023, the company’s leverage ratio as defined in the credit agreement was 4.1x versus the permissible net leverage ratio of 48 | 2023 FORM 10-K SLEEP NUMBER CORPORATION 5.0x, the weighted-average interest rate on borrowings under the credit facility was 8.5% and the Company was in compliance with all financial covenants.
Over 14 million people have had their lives improved by Sleep Number‘s award-winning sleep innovations and are experiencing the physical, mental and emotional benefits of life-changing sleep performance. The Company’s proprietary smart beds combine the physical and digital worlds, integrating exceptional sleep with a highly advanced digital technology platform.
Sleep Number’s life-changing, differentiated smart beds combine physical and digital innovations, integrating unparalleled physical comfort with a highly advanced technology platform. The smart beds offer the Company’s signature firmness adjustability, enabling each sleeper adjustable comfort.
Short-term borrowings increased by $145 million during 2021 due to a $138 million increase in borrowings under its credit facility to $383 million, in addition to a $7 million increase in book overdrafts. Financing activities for both years reflect the cash proceeds from the exercise of employee stock options.
Short-term borrowings increased by $73 million during 2023 due to a $80 million increase in borrowings under its credit facility to $540 million, offset by a $6 million decrease in book overdrafts which are included in the net change in short-term borrowings.
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With a purpose to improve the health and wellbeing of society through higher quality sleep, the Company – along with its more than 5,000 passionate team members – are dedicated to improving lives and committed to lifelong relationships with Smart Sleepers.
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The Company’s purpose is to improve the health and wellbeing of society through higher quality sleep; to date, it has improved the lives of over 15 million people. Sleep Number’s Smart Sleepers benefit from individualized sleep experiences, night after night, and are experiencing the physical, mental and emotional benefits of life-changing sleep.
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This means only Sleep Number can provide a dynamic, adjustable and adaptive sleep experience that effortlessly responds to the needs of each sleeper. The Company’s millions of Smart Sleepers benefit from their smart bed changing with them, over time; it is unique, like they are.
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Embedded digital sensors learn the sleep needs of each individual; “sense and do” technology uses the sensed data to automatically adjust the smart bed to keep the sleeper comfortable throughout the night. Active temperature balancing technology supports the ideal climate for both sleepers and solves a prevalent sleep challenge.
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The Company’s differentiated business model is guided by our purpose to improve the health and wellbeing of society through higher quality sleep. Sleep Number partners with world-leading sleep and health institutions to bring the power of 18 billion hours of longitudinal sleep data to sleep science and research.
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Additionally, the smart beds are an exceptional value, with personalized sleep insights delivered daily, new features regularly added to all smart beds through over-the-air updates, and prices to meet most budgets. Sleep Number ® smart beds provide unmatched features, benefits and comfort that can lead to improved sleep health and wellness for both sleepers.
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The Company’s retail experience meets its consumers whenever and wherever they choose – through online and in-store touchpoints. And Sleep Number’s 5,000 mission-driven team members passionately deliver individualized sleep experiences for everyone.
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The Company’s advantaged business model is supported by its consumer innovation strategy: an individualized sleep wellness platform, a network of highly engaged Smart Sleepers, a vertically integrated operating model, and a culture of individuality, with an ambitious vision to become one of the world’s most beloved brands.
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Through investments in its consumer innovation strategy and vertically integrated business model, Sleep Number strengthens its competitive advantages and creates a digital flywheel for sustainable growth, driving consumer demand and performance. The Company is committed to delivering superior stakeholder value creation over time.
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Sleep Number’s exclusive distribution meets its customers whenever and wherever they choose – through digital and in-store touchpoints – to provide an exceptional experience and a lifelong relationship. The Company partners with world-leading institutions to bring the power of 24 billion hours of longitudinal sleep data to sleep science and research.
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Through investments in its consumer innovation strategy and vertically integrated business model, Sleep Number strengthens its competitive advantages and creates a digital flywheel for sustainable growth, driving consumer demand and performance.
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And Sleep Number’s 4,100 purpose-driven team members are dedicated to the Company’s mission of improving lives by individualizing sleep experiences. Sleep Number is focused on cost improvement through broad-based restructuring actions to become a stronger, more durable company, poised for accelerating growth and superior shareholder returns as the bedding industry demand environment improves.
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Sleep Number is committed to creating long-term superior value for all stakeholders as it focuses on the Company’s three performance drivers: (1) increasing consumer demand; (2) leveraging its vertically integrated business model; and (3) deploying capital efficiently. 39 | 2022 FORM 10-K SLEEP NUMBER CORPORATION Results of Operations Fiscal 2022 Summary Financial highlights for fiscal 2022 were as follows: • Net sales for 2022 decreased 3% to $2.1 billion, compared with $2.2 billion in 2021.
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Demand was impacted by ongoing macro challenges with consumers’ increased focus on price to value as their purchasing power reached a record low in August of 2023.
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Net sales were affected by semiconductor chip supply constraints.
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Demand was impacted by ongoing macro challenges with consumers’ increased focus on price to value as their purchasing power reached a record low in August of 2023. The bedding industry remains at recessionary levels with low consumer sentiment.
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Its 2022 operating income rate was impacted by the 3.5 ppt. decrease in the gross profit rate, and the deleveraging impact of the 3% decrease in net sales. • The Company continued to prioritize investments in near- and long-term growth drivers in 2022, including a 5% increase in its innovation driving R&D expenses. • Net income in 2022 decreased to $37 million, compared with net income of $154 million in 2021.
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The 2023 gross profit rate increased to 57.7% of net sales, compared with 56.9% for the prior-year period.
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The Company’s net leverage ratio as defined in its Credit Agreement was 4.4x as of December 31, 2022.
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Research and development expenses Research and development (R&D) expenses decreased by $6 million to $56 million in 2023, compared with $62 million in 2022 on lower outside services and headcount. While the Company’s consumer innovation pipeline remains robust, it is re-prioritizing R&D resources in this highly constrained environment.
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Net sales were affected by semiconductor chip supply constraints. Demand was negatively impacted by record low consumer sentiment and constrained chip supply that limited the Company’s product offerings and drove longer-than-normal lead times.
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Restructuring costs In fiscal 2023, the Company incurred $15.7 million of restructuring costs. In light of the demand trajectory change in August 2023, the Company initiated business restructuring actions. Charges comprised of contract termination costs, severance and employee-related benefits, professional fees and other, and asset impairment charges.
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The R&D expense rate for 2022 increased to 2.9% of net sales, compared with 2.7% of net sales for the prior year. The spending level increase supports Sleep Number’s continued prioritization in its long-term life-changing sleep innovation initiatives.
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Financing activities for both years reflect the cash proceeds from the exercise of employee stock options. 47 | 2023 FORM 10-K SLEEP NUMBER CORPORATION In the second quarter of fiscal 2022, the Company suspended share repurchases under its Board-approved share repurchase program.
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The Company suspended share repurchases under the Board-approved share repurchase program in the second quarter until macro economic conditions improve. The Company repurchased 1.0 million shares at a cost of $55 million (based on trade dates, $57.46 per share) during the fiscal year ended December 31, 2022.
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The Company amended the Credit Agreement on October 26, 2022.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeIf overall interest rates were one percentage point higher than current rates, its annual net income would decrease by $3.4 million based on the $460 million of borrowings under its credit facility at December 31, 2022. The Company does not manage its interest-rate volatility risk through the use of derivative instruments. 47 | 2022 FORM 10-K SLEEP NUMBER CORPORATION
Biggest changeIf overall interest rates were one percentage point higher than current rates, its annual net (loss) income would decrease by $4.1 million based on the $540 million of borrowings under its credit facility at December 30, 2023. The Company does not manage its interest-rate volatility risk through the use of derivative instruments. 50 | 2023 FORM 10-K SLEEP NUMBER CORPORATION

Other SNBR 10-K year-over-year comparisons