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What changed in Sleep Number Corp's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of Sleep Number Corp's 2022 and 2023 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 2023 report.

+477 added−453 removedSource: 10-K (2023-02-24) vs 10-K (2022-03-01)

Top changes in Sleep Number Corp's 2023 10-K

477 paragraphs added · 453 removed · 346 edited across 9 sections

Item 1. Business

Business — how the company describes what it does

119 edited+69 added−52 removed3 unchanged
Biggest changeOur partnership with the NFL broadens our brand reach, deepens our brand relevance and magnifies the benefits of our proprietary innovations. Additional partnerships with four clubs — Super Bowl LVI Champion Los Angeles Rams, Dallas Cowboys, Kansas City Chiefs and Minnesota Vikings — add to our national and community-activation efforts.
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.
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 6% 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 5% annually over the last 20 years, including 5% annually, on average, over the past five years.
Ibach served as the Company’s Executive Vice President and Chief Operating Officer and from October 2008 to June 2011, she served as Executive Vice President, Sales & Merchandising. Ms. Ibach joined the Company in April 2007 as Senior Vice President of U.S. sales for Company-owned channels. Before joining the Company, Ms.
From June 2011 to June 2012, Ms. Ibach served as the Company’s Executive Vice President and Chief Operating Officer and from October 2008 to June 2011, she served as Executive Vice President, Sales and Merchandising. Ms. Ibach joined the Company in April 2007 as Senior Vice President of U.S. sales for Company-owned channels. Before joining the Company, Ms.
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.
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.
Many of the statutory and regulatory requirements that impact our retail and e-commerce operations are consumer-focused and pertain to activities such as our 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, 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.
Patent and Trademark Office, including Sleep Number ® , SleepIQ ® , Sleep Number 360 ® , 360 ® , SleepIQ Kids ® , the Double Arrow logo, Select Comfort ® , AirFit ® , the “B” logo, Comfortaire ® , 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 ® , 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.
Consumer Product Safety Commission, which requires rigorous and costly testing, has increased the cost and complexity of manufacturing our products and may adversely impact the speed and cost of product development efforts.
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.
These documents are posted on our website — select the “Investors” link, the “Governance” link and then the “Governance Documents” link. The information contained on our website or connected to our 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 it website is not incorporated by reference into this Form 10-K and should not be considered part of this report.
In 2021, we provided funding for Mayo Clinic to conduct several multi-year studies, two of which particularly demonstrated our societal impact: • A study that will investigate the prevalence of obstructive sleep apnea and determine the presence of comorbid cardiovascular diseases in U.S. patients of Somali descent, a large and growing population in Minnesota, which is also home to both Sleep Number and Mayo Clinic headquarters; and • A study that will explore the relationship between disrupted sleep and markers of aging to test the hypotheses that disrupted or inadequate sleep and sleepiness are indicative of older biological age and may contribute to the acceleration of the aging process.
In 2022, the Company provided funding for Mayo Clinic to conduct several multi-year studies, two of which particularly demonstrated Sleep Number’s societal impact: • A study that will investigate the prevalence of obstructive sleep apnea and determine the presence of comorbid cardiovascular diseases in U.S. patients of Somali descent, a large and growing population in Minnesota, which is also home to both Sleep Number and Mayo Clinic headquarters; and • A study that will explore the relationship between disrupted sleep and markers of aging to test the hypotheses that disrupted or inadequate sleep and sleepiness are indicative of older biological age and may contribute to the acceleration of the aging process.
Saklad served as Senior Vice President and Chief Information Officer. From June 2011 to December 2012, Mr. Saklad served as the Vice President, Consumer Insight and Strategy at Sleep Number.
From December 2012 to December 2020, Mr. Saklad served as Senior Vice President and Chief Information Officer. From June 2011 to December 2012, Mr. Saklad served as Vice President, Consumer Insight and Strategy at Sleep Number.
Our mission-driven, highly-trained sleep experts use digital technology and our best-in-class relationship-based selling process, which is continually tested and refined, to find the right sleep solutions for our customers — wherever and whenever they want to shop.
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.
Our 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 us 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 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.
These documents are posted on our website at www.SleepNumber.com — select the “Investors” link, the “Financials” link, and then the “SEC Filings” link. The information contained on our website or connected to our 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 corporate website at www.sleepnumber.com: select the “Investors” link, the “Financials” link, and then the “SEC Filings” 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.
Sleep Number has partnered with Blue Star Families for seven years, providing monetary support for the organization and the gift of quality sleep to the families of those who serve and sacrifice for our country. • GENYOUth, an organization whose programming reaches 38 million students annually in 73,000 U.S. schools, is devoted to helping students live healthfully and raise their academic achievement.
Sleep Number has partnered with Blue Star Families for eight years, providing monetary support for the organization and the gift of improved sleep performance to the families of those who serve and sacrifice for our country. • GENYOUth is an organization whose programming reaches 38 million students annually in 73,000 U.S. schools, is devoted to helping students live healthfully and raise their academic achievement.
Prior to joining Sleep Number, Mr. Hellfeld was a Partner in the law firm of Fox Rothschild LLP (fka Oppenheimer Wolff & Donnelly LLP) practicing in the areas of intellectual property and litigation. Prior to 2010, Mr.
Hellfeld was a Partner in the law firm of Fox Rothschild LLP (fka Oppenheimer Wolff & Donnelly LLP), practicing in the areas of intellectual property and litigation. Prior to 2010, Mr.
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.
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.
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 15 | 2021 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 | 2022 FORM 10-K SLEEP NUMBER CORPORATION
Further, our 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, including COVID-19 safety and prevention.
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.
Through a link to a third-party content provider, our corporate website provides free access to our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
Through a link to a third-party content provider, the corporate website provides free access to its annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after the Company electronically files such material with, or furnishes it to, the SEC.
We pay Synchrony Bank a fee for extended credit promotional financing offers. Under the terms of our 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.
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.
As part of our commitment to team member wellbeing and the health of our communities, Sleep Number also encourages team members to become involved in their local communities by volunteering their time and talents in support of causes or organizations that inspire them.
As part of Sleep Number’s commitment to team member wellbeing and community health, the Company also encourages team members to become involved in their local communities by volunteering their time and talents in support of causes or organizations that inspire them.
Notwithstanding these patents and patent applications, we cannot ensure that these patent rights will provide substantial protection or that others will not be able to develop products that are similar to, or competitive with, our products. We have a number of trademarks and service marks registered with the U.S.
Notwithstanding these patents and patent applications, the Company cannot ensure that these patent rights will provide substantial protection or that others will not be able to develop products that are similar to, or competitive with, Sleep Number products. Sleep Number has a number of trademarks and service marks registered with the U.S.
MELISSA BARRA, 50 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. From June 2019 to December 2020, Ms.
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.
Each registered mark is renewable indefinitely as long as the mark remains in use and/or is not deemed to be invalid or canceled. We also have a number of common law trademarks, including ActiveComfort™, Comfortable. Adjustable.
Each registered mark is renewable indefinitely as long as the mark remains in use and/or is not deemed to be invalid or canceled. The Company also has a number of common law trademarks, including ActiveComfort™, Clima-Temp™, Comfortable. Adjustable.
Saklad held finance leadership roles at Ford Motor Company and Visteon. 14 | 2021 FORM 10-K SLEEP NUMBER CORPORATION Available Information We are subject to the reporting requirements of the Exchange Act and its rules and regulations. The Exchange Act requires us 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 | 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).
We also make available, free of charge on our website, the charters of the Audit Committee, Management Development and Compensation Committee and Corporate Governance and Nominating Committee, as well as our Code of Business Conduct (including any amendment to, or waiver from, a provision of our Code of Business Conduct) adopted by our Board.
The Company also makes available, free of charge on its website, the charters of the Audit Committee, Management Development and Compensation Committee and Corporate Governance and Nominating Committee, as well as its Code of Business Conduct (including any amendment to, or waiver from, a provision of its Code of Business Conduct) adopted by the Company’s Board.
To further support this commitment and amplify our positive community impact, we are honored to partner with several national organizations to fulfill our purpose of improving the health and wellbeing of society through higher quality sleep.
To further support this commitment and amplify its positive community impact, Sleep Number is honored to partner with several national organizations to fulfill its purpose of improving the health and wellbeing of society through higher quality sleep.
As a manufacturer, we are committed to product quality and safety, including adherence to all applicable laws and regulations affecting our products and services. Compliance with health, safety and environmental laws and regulations, including the federal fire retardant standards developed by the U.S.
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.
We leverage a sophisticated media mix to drive our performance marketing and advertising, with emphasis on digital and aligned with consumer consumption, contributing to improved media return on investment (ROI). High-profile video, including television and online streaming, is our most efficient media, followed by digital and social platforms.
The Company leverages a sophisticated media mix to drive its performance marketing and advertising, with emphasis on digital and aligned with consumer consumption, contributing to improved media return on investment. High-profile video, including television and online streaming, is its most efficient media, followed by digital and social platforms.
The key survey touchpoints are at new hire, pulse check-in, annual engagement and exit, enabling leaders to monitor team member sentiment and course-correct in real time as appropriate; • Performance Management: We utilize our human capital management (HCM) system to track and follow team member performance assessments and development plans.
The key survey touchpoints are at new hire, pulse check-in, annual engagement and exit, enabling leaders to monitor team member sentiment and course-correct in real time as appropriate; • Performance Management: Sleep Number utilizes a human capital management (HCM) system to track and follow team member performance evaluations, competency assessments and development plans.
Qualified customers are offered revolving credit to finance purchases through a private-label consumer credit facility provided by Synchrony Bank. Approximately 50% of our net sales in 2021 were financed by Synchrony Bank. Our current agreement with Synchrony Bank expires December 31, 2023, subject to earlier termination upon certain events.
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.
This report may be accessed at www.sleepnumber.com by clicking on the “INVESTORS” link, then click on the “ESG” link and “Sustainability Reports.” The information contained on our website or connected to our website is not incorporated by reference into this Form 10-K and should not be considered part of this report. Information about our Executive Officers SHELLY R.
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.
We use our HCM system to monitor the completion of learning courses for our team members. Our enterprise learning management system provides all team members access to an equitable learning and training curriculum that is dynamic and mobile-accessible; • Safety: We have a commitment to maintain a safety-first mindset at Sleep Number.
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.
Prior to being promoted to his new role in July 2020, Mr. Krusmark served as Sleep Number’s Vice President of Sales Operations, Field Services and Training where he led retail operations, sales promotions and incentives, home delivery operations, the Company’s customer sales center and wholesale business development. From June 2005 to October 2015, Mr.
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.
Our 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. We are also subject to existing and emerging federal and state laws relating to data security and privacy.
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.
American Cancer Society In 2022, we formed a landmark partnership with the American Cancer Society to study the connection between cancer and quality sleep, with the goal of developing the first-ever sleep strategies and guidance for cancer patients and survivors.
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 5 | 2022 FORM 10-K SLEEP NUMBER CORPORATION survivors.
As a retailer, we are subject to additional laws and regulations that apply to retailers generally and govern the marketing and sale of our products and the operation of both our retail stores and our e-commerce activities.
As a retailer, the Company is subject to additional laws and regulations that apply to retailers generally and govern the marketing and sale of the Company’s products and the operation of both Sleep Number retail stores and e-commerce activities.
Across our customer touchpoints which include Stores, Online, Phone and Chat, we deliver a value-added retail experience that seamlessly integrates our digital and physical experiences to meet customer needs. We offer an engaging and dynamic online experience to educate consumers and advance their purchase path, driving highly-qualified traffic to all our retail touchpoints.
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.
Proprietary Sleep Innovations Delivering life-changing innovations, sleep health, sleep science and research, Sleep Number’s innovation roadmap is driven by proprietary data and research from its millions of Smart Sleepers, with a purpose to improve the health and wellbeing of society through higher-quality sleep.
Sleep Number’s product innovation roadmap is driven by proprietary data and research from its millions of Smart Sleepers, with a purpose to improve the health and wellbeing of society through higher quality sleep, addressing the most pressing sleep health needs.
We embrace every individual’s unique talents, perspectives and experiences, and strive to create an environment where we can each be our best selves. Valuing diversity, equity and inclusion makes us stronger, smarter and fuels our innovation and teamwork.
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.
We have policies and practices that create clear expectations for how each team member contributes to a safe and healthy workplace. We collect and monitor workplace injury and accident information across all our locations and take appropriate steps to reduce incident rates, number of workers’ compensation claims and lost workdays.
The Company has policies and practices that create clear expectations for how each team member contributes to a safe and healthy workplace. The Company collects and monitors workplace injury and accident information across all its locations and takes appropriate steps to reduce incident rates, number of workers’ compensation claims and lost workdays.
As the receivables are owned by Synchrony Bank, at no time are the receivables purchased or acquired from us. We are not liable to Synchrony Bank for our customers’ credit defaults.
As the receivables are owned by Synchrony Bank, at no time are the receivables purchased or acquired from the Company. Sleep Number is not liable to Synchrony Bank for its customers’ credit defaults.
Our exclusive Sleep Number bedding collection and smart furniture (coming in 2023) feature a full line of sleep products designed to improve sleep comfort and quality, including a pillow collection designed to fit each individual’s sleeping position.
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.
Affordable.™, CoolFit™, DualAir™, DualTemp™, Firmness Control™, FlexFit™, In Balance™, Partner Snore™, The Bed Reborn™, The Bed That Moves You™, The Best Bed For Couples™ and our bed model names. 8 | 2021 FORM 10-K SLEEP NUMBER CORPORATION Several of our trademarks have been registered, or are the subject of pending applications for registration, in various foreign countries.
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.
Working Capital We are able to operate with minimal working capital requirements because we sell directly to customers, utilize both “make-to-order” and “make-to-stock” production processes and operate retail stores that serve mainly as showrooms. We have historically generated sufficient cash flows to self-fund operations through an accelerated cash-conversion cycle.
Working Capital The Company is able to operate with minimal working capital requirements because it sells directly to customers, utilizes both “make-to-order” and “make-to-stock” production processes and operates retail stores that serve mainly as showrooms. Sleep Number has historically generated sufficient cash flows to self-fund operations through an accelerated cash-conversion cycle.
The breakdown of team members by area was as follows: 2,487 in retail sales and support, 1,054 in field services, 415 in customer service, 642 in manufacturing and logistics, and 917 in technology, corporate, management and administrative positions.
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.
IBACH, 62 President and Chief Executive Officer (Joined the Company in April 2007 and was promoted to President and CEO in June 2012) Shelly R. Ibach, Sleep Number ® setting 40, serves as the President and Chief Executive Officer (CEO) for Sleep Number (Nasdaq: SNBR). From June 2011 to June 2012, Ms.
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).
Intellectual Property We hold various U.S. and foreign patents and patent applications regarding certain elements of the design and function of our 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 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.
In addition to a network of global suppliers, we currently operate two component manufacturing plants (Irmo, SC and Salt Lake City, UT) and five assembly distribution centers (Irmo, SC; Salt Lake City, UT; Ontario, CA; Baltimore, MD; and Tampa, FL) with three additional assembly distribution centers (Dallas, TX; Cincinnati, OH; and Minneapolis, MN) opening in 2022.
In addition to a network of global suppliers, Sleep Number currently operates two component manufacturing plants (Irmo, SC and Salt Lake City, UT), each of which is combined with an assembly distribution center and six additional assembly distribution centers (Ontario, CA; Baltimore, MD; Tampa, FL; Dallas, TX; Cincinnati, OH; and Minneapolis, MN).
KRUSMARK, 42 Senior Vice President and Chief Human Resources Officer (Joined the Company in 2005 and was promoted to current role in July 2020) Christopher Krusmark, Sleep Number ® setting 55, serves as the Senior Vice President and Chief Human Resources Officer, where he leads all human resources, training and learning functions.
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.
This “sell-from-anywhere” model supports our 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.
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.
Through frequent service and support interactions with customers via phone, email, live chat and social media, these team members also provide a unique opportunity to gather insights that help us continuously improve our products, strengthen our service quality and advance our innovation. This integration enables operational synergies and drives organizational efficiencies.
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.
Rawson Professor and Director of the Sleep, Metabolism and Health Center at the University of Chicago Daniel Buysse, MD: Professor of Sleep Medicine and Psychiatry and Clinical and Translational Science at University of Pittsburgh School of Medicine Judith Owens, MD, MPH: Professor of Neurology at Harvard Medical School and Director of the Center for Pediatric Sleep Disorders at Boston Children’s Hospital Virend Somers, MD, PhD: Professor of Medicine at Mayo Clinic College of Medicine and Science, Director of the Cardiovascular Facility and the Sleep Facility Center for Clinical and Translational Science at Mayo Clinic Mayo Clinic Collaboration In 2020, we announced a collaboration with Mayo Clinic.
Rawson Professor and Director of the Sleep, Metabolism and Health Center at the University of Chicago • Judith Owens, MD, MPH : Professor of Neurology at Harvard Medical School and Director of the Center for Pediatric Sleep Disorders at Boston Children’s Hospital • Virend Somers, MD, PhD : Professor of Medicine at Mayo Clinic College of Medicine and Science, Director of the Cardiovascular Facility and the Sleep Facility Center for Clinical and Translational Science at Mayo Clinic Smart Sleepers Sleep Number focuses on lifelong relationships with its customers.
We also measure and report a team member inclusion and belonging index, and conduct a self-identification survey to learn how our team members identify and how they want to be appreciated as individuals; • Engagement: We have a continuous listening strategy to ensure we stay connected to the voice of our team members at critical times of the team member experience.
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.
Hellfeld, Sleep Number ® setting 65, serves as the Senior Vice President and Chief Legal and Risk Officer and Secretary and leads legal, internal audit, corporate security and asset protection. From October 2015 to September 2018, Mr. Hellfeld served as Vice President, Associate General Counsel. Mr. Hellfeld joined Sleep Number in March 2013 as Corporate Counsel.
From September 2018 to March 2022, Mr. Hellfeld served as Senior Vice President and Chief Legal and Risk Officer. From October 2015 to September 2018, Mr. Hellfeld served as Vice President, Associate General Counsel. Mr. Hellfeld joined Sleep Number in March 2013 as Corporate Counsel. Prior to joining Sleep Number, Mr.
HUNTER SAKLAD, 52 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. From December 2012 to December 2020, Mr.
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.
We have taken, and continue 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 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.
Our major systems include an in-store order entry system, a retail portal system, a payment processing system, in-bound and out-bound telecommunications systems for direct marketing, delivery scheduling and customer service systems, e-commerce systems, a data warehouse system and an enterprise resource planning (ERP) system.
The Company’s major systems include an order entry system, a customer relationship management system, a payment processing system, inbound and outbound telecommunications systems for direct marketing, delivery scheduling and customer service systems, e-commerce systems, a data warehouse system and an enterprise resource planning system.
The U.S. bedding industry generally experiences lower sales demand in the second quarter of the calendar year and increased sales demand during selected holiday or promotional periods.
Seasonality The Company’s business is modestly impacted by seasonal influences inherent in the U.S. bedding industry and general retail shopping patterns. The U.S. bedding industry generally experiences lower sales demand in the second quarter of the calendar year and increased sales demand during selected holiday or promotional periods.
Ongoing sleep science research is enabled by the more than 200,000 sleepers in the 360 smart bed Smart Sleeper community that have opted in to participate and advance the science of sleep and health.
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.
There is a high degree of concentration among manufacturers, who produce innerspring, memory foam and hybrid beds, under nationally recognized brand names, including Tempur Sealy, Stearns & Foster, Serta and Simmons.
Price, quality, brand name recognition, product availability and product performance are the primary ways manufacturers differentiate themselves. There is a high degree of concentration among manufacturers who produce innerspring, memory foam and hybrid beds under nationally recognized brand names, including Tempur-Pedic, Sealy, Stearns & Foster, Serta, and Simmons. National manufacturers still dominate the bedding industry.
They are the first and only smart bed with integrated and validated data collection and feedback that requires no action by the user to deliver proven quality sleep.
The Sleep Number smart beds are the first and only smart beds with integrated and validated data collection and feedback that requires no action by the user to deliver proven quality sleep. The smart bed ecosystem is helping to advance the linkage of quality sleep to health, bringing significant benefits to real-world sleepers.
In connection with all purchases financed under these arrangements, Synchrony Bank pays us an amount equal to the total amount of such purchases, net of promotional related discounts, upon delivery to the customer.
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.
With sleep at the center, our culture supports the wellbeing of our team members across the pillars of physical, emotional, financial, career and community, and connects their work to the Sleep Number mission and goals. We celebrate individuality in each other, in our own lives and in our customers’ lives.
With sleep at the center, Sleep Number’s culture supports the wellbeing of its team members across the pillars of physical, emotional, financial, career and community, and connects their work to the Sleep Number mission and goals. Founded on the premise that “one size doesn’t fit all,” Sleep Number celebrates individuality in its team members’ and customers’ lives.
At January 1, 2022, we employed a total of 5,515 team members, of which 145 were classified as part-time and 110 were employed on a temporary basis.
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.
According to ISPA and our estimates, industry wholesale shipments of mattresses and foundations (including imported products and adjustable bases) were approximately $13 billion in 2021 (approximately $26 billion at retail). The retail bedding industry is commoditized and highly competitive. Sleep Number competes against regional and local specialty bedding retailers, home furnishing stores, mass merchants, national discount stores and online marketers.
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.
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. DAVID R. CALLEN, 55 Executive Vice President and Chief Financial Officer (Joined the Company in 2014 and was promoted to current role in December 2020) David R.
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.
Throughout 2021, we encountered temporary disruptions in our supply of various materials and components due to well-documented shortages and constraints in the global supply chain.
Throughout 2022, the Company encountered disruptions in its supply of various materials such as semiconductor chips and components due to shortages and constraints in the global supply chain.
Our leaders are deeply committed to the success of our talent management approach and we hold ourselves accountable by routinely measuring our progress on a variety of elements and metrics including: • Retention: To advance brand awareness, increase overall candidate traffic and diverse hiring, and improve retention strategies, we track numerous talent recruitment, retention and turnover metrics, including new hires on a monthly, quarterly and rolling 12-month basis; • Diversity, Equity and Inclusion (DEI): We maintain a dashboard that tracks race/ethnicity and gender by job grade, tenure and generation to provide increased visibility to leaders across our Company on progress toward key goals.
Sleep Number leaders are deeply committed to the success of its talent management approach and the Company holds itself accountable by routinely measuring its progress on a variety of elements and metrics including: • Retention: To advance brand awareness, increase overall candidate traffic and diverse hiring, and improve retention strategies, Sleep Number tracks numerous talent recruitment, retention and turnover metrics, including new hires on a monthly, quarterly and rolling 12-month basis; • Diversity, Equity and Inclusion (DEI): Sleep Number’s approach to DEI is designed to embrace different perspectives, cultivate an inclusive environment and empower its team members.
Customers that do not qualify for credit under our agreement with Synchrony Bank may apply for credit under a secondary program that we offer through another provider. 10 | 2021 FORM 10-K SLEEP NUMBER CORPORATION Human Capital Grounded in our shared values of passion, integrity, innovation, courage and teamwork, and guided by our purpose to improve society’s health and wellbeing through higher quality sleep, our team members are highly engaged and make a difference in the world every day.
Human Capital Grounded in Sleep Number’s shared values of passion, integrity, innovation, courage and teamwork, and guided by its purpose to improve society’s health and wellbeing through higher quality sleep, the Company’s team members are highly engaged and make a difference in the world every day.
The 360 smart bed’s proprietary “sense and do” technology digitally responds to each sleeper’s movements and automatically adjusts to relieve pressure points, effortlessly adjusting firmness, comfort and support throughout the night, keeping both sleepers comfortable at their individual Sleep Number ® settings. It enables data quantification and delivers individualized sleep health evaluations and outcomes, responding to the needs of 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.
Brown served in executive leadership roles at Meijer, Inc., Sears Holdings Corporation, Jo-Ann Stores, Inc. and Accenture. SAMUEL R. HELLFELD, 43 Senior Vice President and Chief Legal and Risk Officer and Secretary (Joined the Company in 2013 and was promoted to current role in September 2018) Samuel R.
He joined the Company in 2014 as Senior Vice President and Chief Marketing Officer. Before joining Sleep Number in 2014, Mr. Brown served in executive leadership roles at Meijer, Inc.; Sears Holdings Corporation; Jo-Ann Stores, Inc. and Accenture. SAMUEL R.
As a result of our R&D and strategic efforts, we have continued to grow our patent portfolio, with a particular focus on smart features that improve sleep quality, and thermal solutions to solve temperature disruptions to sleep. Our world-wide patent portfolio now contains more than 380 patents, which enhances our protection of our exclusive and proprietary technologies.
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.
One in three adults suffer from a lack of adequate sleep. Sleep Number is focused on producing products to 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 $30 billion to $40 billion in a 2017 report published by McKinsey & Company.
Barra was Senior Vice President, Chief Sales, Services and Strategy Officer. Ms. Barra was Senior Vice President and Chief Strategy and Customer Relationship Officer from January 2015 to June 2019 and Vice President, Consumer Insights and Strategy from February 2013 to January 2015. Her breadth of experience covers finance, mergers and acquisitions, strategy, sales, services, real estate, PR and communications.
Barra was Senior Vice President and Chief Strategy and Customer Relationship Officer from January 2015 to June 2019 and Vice President, Consumer Insights and Strategy from February 2013 to January 2015. Prior to joining Sleep Number in February 2013, Ms.
This reflects the traditional view of the bedding industry which includes the sales of mattresses and foundations, as well as emerging solutions for insufficient sleep such as routine modification and therapeutic treatment. We believe the sleep economy will continue to evolve and grow as consumers look for products and reliable data sources to address sleep deprivation challenges.
This reflects the traditional view of the bedding industry, which includes the sales of mattresses and foundations, as well as emerging solutions for insufficient sleep such as routine modifications and therapeutic treatments.
Our new smart furniture is designed to complement and enhance the features and health and wellness benefits of the 360 smart bed and FlexFit smart adjustable bases.
Expected in the first-half of 2023, the new Sleep Number Lifestyle Collection furniture is designed to enhance the sleep environment and support the health and wellness benefits of the Sleep Number smart bed and FlexFit smart adjustable bases.
ITEM 1. BUSINESS Overview At Sleep Number, our purpose is to improve the health and wellbeing of society through higher quality sleep. We are committed to leveraging the power of sleep and sleep science to improve lives and create a healthier, kinder and more inclusive world.
Social Impact Commitment Sleep Number is committed to leveraging the power of sleep, and sleep science, to improve lives and create a healthier, kinder, more inclusive world.
In 2021, 84% of our Stores open for a full year generated net sales of greater than $2 million, and 48% of our Stores open for a full year generated more than $3 million in net sales. In 2021, our Online, Phone, Chat and Other sales accounted for 13% of our net sales.
Average annual net sales per store in 2022, based on Total Retail (which includes Stores, Online, Phone and Chat), was $3.3 million. In 2021, 76% of Stores open for a full year generated net sales of greater than $2 million, and 36% of Stores open for a full year generated more than $3 million in net sales.
We continue to invest in our demand drivers for the near- and long-term success of our brand, delivering a simpler and even more engaging experience for our customers. Our newly launched enterprise customer identity platform creates a seamless connection for deeper customer engagement.
Sleep Number continues to invest in its demand drivers for near- and long-term performance, delivering a simpler and even more engaging experience for its Smart Sleeper community. Sleep Number’s newly launched enterprise customer identity platform, which connects its customer loyalty program, InnerCircle SM Rewards (ICR), inside the Sleep Number smart bed app, creates a seamless connection for deeper customer engagement.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeLitigation, however, is inherently unpredictable, and it is possible that the ultimate outcome of one or more pending claims asserted against us, or claims that may be asserted in the future that we are currently not aware of, or adverse publicity resulting from any such litigation, could adversely impact our business, reputation, sales, profitability, cash flows and financial condition.
Biggest changeLitigation, 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.
Our business is subject to significant increases or volatility in the prices of certain commodities, including but not limited to electronic componentry, fuel, oil, natural gas, rubber, cotton, plastic resin, corrugate, steel and chemical ingredients used to produce foam, as well as third-party logistic costs.
The Company’s business is subject to significant increases or volatility in the prices of certain commodities, including but not limited to electronic componentry, fuel, oil, natural gas, rubber, cotton, plastic resin, corrugate, steel and chemical ingredients used to produce foam, as well as third-party logistic costs.
These additional regulatory requirements or approvals may be prohibitively expensive or otherwise delay or prevent certain features, innovations, or product from being commercialized. Pending or unforeseen litigation and the potential for adverse publicity associated with litigation could adversely impact our business, reputation, financial results or financial condition.
These additional regulatory requirements or approvals may be prohibitively expensive or otherwise delay or prevent certain features, innovations, or product from being commercialized. Pending or unforeseen litigation and the potential for adverse publicity associated with litigation could adversely impact the Company’s business, reputation, financial results or financial condition.
These manufacturing and retailing competitors, or new entrants into the market, may compete aggressively and gain market share with existing or new products, and may pursue or expand their presence in the adjustable firmness air bed segment of the market as well as in the market for sleep tracking and monitoring products.
These manufacturing and retailing competitors, or a combination of these competitors, or new entrants into the market, may compete aggressively and gain market share with existing or new products, and may pursue or expand their presence in the adjustable firmness air bed segment of the market as well as in the market for sleep tracking and monitoring products.
Climate change may also subject our business to significant increases or volatility in the prices of certain commodities, including but not limited to electronic componentry, fuel, oil, natural gas, rubber, cotton, plastic resin, corrugate, steel and chemical ingredients used to produce foam, as well as third-party logistic costs.
Climate change may also subject the Company’s business to significant increases or volatility in the prices of certain commodities, including but not limited to electronic componentry, fuel, oil, natural gas, rubber, cotton, plastic resin, corrugate, plywood, steel and chemical ingredients used to produce foam, as well as third-party logistic costs.
Further, the long-term effects of climate change on general economic conditions and our industry in particular are unclear, and changes in the supply, demand, or available sources of energy and the regulatory and other costs associated with energy production and delivery may affect the availability or cost of goods and services, including natural resources, necessary to run our business.
Further, the long-term effects of climate change on general economic conditions and the Company’s industry in particular are unclear, and changes in the supply, demand, or available sources of energy and the regulatory and other costs associated with energy production and delivery may affect the availability or cost of goods and services, including natural resources, necessary to run its business.
As described in greater detail below, the bedding industry, as well as the market for sleep monitoring products, are both highly competitive, and our ability to compete effectively and to profitably grow our market share depend in part on our ability to continue to improve and expand our product line of adjustable firmness air beds, SleepIQ technology and related accessory products.
As described in greater detail below, the bedding industry, as well as the market for sleep monitoring products, are both highly competitive, and the Company’s ability to compete effectively and to profitably grow its market share depend in part on its ability to continue to improve and expand the Company’s product line of adjustable firmness air beds, SleepIQ technology and related accessory products.
As a result, our future growth and profitability will depend in part on (i) the effectiveness and efficiency of our online experience, including without limitation advertising and search marketing and optimization programs, in generating consumer awareness and sales of our products; (ii) our ability to prevent confusion among consumers that can result from search engines that allow competitors to use our trademarks to direct consumers to competitors’ websites through confusing or misleading advertisements; (iii) our ability to prevent Internet publication of false or misleading information regarding our products or our competitors’ products; (iv) reviews of our products; (v) the nature and tone of consumer sentiment, including those published online or elsewhere; and (vi) the stability of our website.
As a result, the Company’s future growth and profitability will depend in part on (i) the effectiveness and efficiency of the Company’s online experience, including without limitation advertising and search marketing and optimization programs, in generating consumer awareness and sales of its products; (ii) the Company’s ability to prevent confusion among consumers that can result from search engines that allow competitors to use its trademarks to direct consumers to competitors’ websites through confusing or misleading advertisements; (iii) its ability to prevent Internet publication of false or misleading information regarding its products or the Company’s competitors’ products; (iv) reviews of Sleep Number’s products; (v) the nature and tone of consumer sentiment, including those published online or elsewhere; and (vi) the stability of the Company’s website.
Reduction of credit availability due to changing economic conditions, including rising inflation, increased interest rates, changes in credit standards under our private label credit card program or changes in regulatory requirements, or the termination of our agreement with Synchrony Bank, could harm our sales, profitability, cash flows and financial condition.
Reduction of credit availability due to changing economic conditions, including rising inflation, increased interest rates, changes in credit standards under the Company’s private label credit card program or changes in regulatory requirements, or the termination of its agreement with Synchrony Bank, could harm the Company’s sales, profitability, cash flows and financial condition.
In addition, if any significant product improvements or new product introductions are not successful, delayed, or constrained our reputation and brand image may be adversely affected. Our intellectual property rights may not prevent others from using our technology or trademarks in connection with the sale of competitive products.
In addition, if any significant product improvements or new product introductions are not successful, delayed, or constrained the Company’s reputation and brand image may be adversely affected. The Company’s intellectual property rights may not prevent others from using its technology or trademarks in connection with the sale of competitive products.
Any maintenance, improvements or upgrades to information systems that may be required to meet the evolving needs of our business and cybersecurity needs as well as existing and emerging regulatory requirements may be costly to implement and may take longer or require greater resources than anticipated, and may result in disruptions to our systems or business.
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.
In addition, the laws of some foreign countries may not protect our intellectual property rights and confidential information to the same extent as the laws of the United States.
In addition, the laws of some foreign countries may not protect its intellectual property rights and confidential information to the same extent as the laws of the United States.
Our future growth and profitability depend on our ability to execute our Total Retail distribution strategy. The vast majority of our sales occur through Total Retail, including our retail stores and our website. Total Retail represents our largest opportunity for growth in sales and improvement in profitability. Our retail stores carry significant fixed costs.
The Company’s future growth and profitability depend on its ability to execute its Total Retail distribution strategy. The vast majority of the Company’s sales occur through Total Retail, including its retail stores and website. Total Retail represents the Company’s largest opportunity for growth in sales and improvement in profitability. The Company’s retail stores carry significant fixed costs.
These investors may sell their shares at any time for a variety of reasons, and such sales could depress the market price of our common stock, which could cause investors to lose all or a portion of their investment in our stock.
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.
If our marketing messages are ineffective or our advertising expenditures and other marketing programs, including digital programs, are inefficient in creating awareness and consideration of our products and brand name, and in driving consumer traffic to our website, call centers, or stores, our 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 and financial condition may be adversely impacted.
In addition, a decline in product quality could result in an increase in return rates and a corresponding decrease in sales, or an increase in product warranty claims in excess of our warranty reserves. An unexpected increase in return rates or warranty claims could harm our sales, profitability, cash flows and financial condition.
In addition, a decline in product quality could result in an increase in return rates and a corresponding decrease in sales, or an increase in product warranty claims in excess of the Company’s warranty reserves. An unexpected increase in return rates or warranty claims could harm the Company’s sales, profitability, cash flows and financial condition.
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 our existing systems and our 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 or security vulnerabilities to the Company’s existing systems and business.
The consequences of climate change and the ensuing governmental regulations could disrupt our operations or harm our ability to source necessary materials and components and manufacture our products, which may adversely affect our financial condition.
The consequences of climate change and the ensuing governmental regulations could disrupt the Company’s operations or harm its ability to source necessary materials and components and manufacture its products, which may adversely affect the Company’s financial condition.
In addition, if we are not effective in preventing the publication of confusing, false or misleading information regarding our brand or our products, or if there is publication online or elsewhere of significant negative consumer sentiment regarding our Company, brand or our products, our 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 and financial condition may be adversely impacted.
ITEM 1A. RISK FACTORS An investment in our common stock involves a high degree of risk. You should carefully consider the specific risks set forth below and other matters described in this Annual Report on Form 10-K before making an investment decision. The risks and uncertainties described below are not the only ones facing us.
ITEM 1A. RISK FACTORS An investment in Sleep Number’s common stock involves a high degree of risk. You should carefully consider the specific risks set forth below and other matters described in this Annual Report on Form 10-K before making an investment decision. The risks and uncertainties described below are not the only ones facing the Company.
Risks Related to Our Stock A substantial amount of our stock is held by a small number of large investors and significant sales of our common stock by one or more of these holders could cause our stock price to fall, which could cause investors to lose all or a portion of their investment in our stock.
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.
Any failure of our systems and processes or our third-party vendors’ systems and processes to adequately protect our data or customer or team member personal information from exposure, theft or loss could adversely impact our 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 exposure, theft or loss could adversely impact the Company’s business, reputation, sales, profitability, cash flows and financial condition.
The failure to attract, retain and motivate qualified personnel may hinder our ability to execute our business strategy and growth initiatives and may adversely impact our sales, profitability, cash flows and financial condition.
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.
Our air chambers, certain electronic components, and some of our 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 current conflict in Ukraine), outbreaks of pandemics or contagious diseases (such as the COVID-19 pandemic), 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 our 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; • 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.
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 our manufacturing, distribution centers or other facilities or those of our suppliers, temporary or long-term disruption in our supply chain, logistics, or workforce and/or disruption of our ability to deliver 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.
It is not possible to prevent such behavior, and the precautions we take to prevent or detect this activity may not be effective. Consumers are increasingly having digital experiences and interactions as a part of their shopping experience.
It is not possible to prevent such behavior, and the precautions the Company takes to prevent or detect this activity may not be effective. Consumers are increasingly having digital experiences and interactions as a part of their shopping experience.
In addition, any such sales of our common stock by these entities could also impair our 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.
As a vertically integrated manufacturer and retailer, our future growth and profitability will depend in part upon our ability to attract, retain and motivate qualified personnel in a wide variety of areas to execute our growth strategy, including qualified management and executive personnel, retail sales professionals and managers, and manufacturing, home delivery and technical personnel.
As a vertically integrated manufacturer and retailer, the Company’s future growth and profitability will depend upon its ability to attract, retain and motivate qualified personnel in a wide variety of areas to execute its growth strategy, including qualified management and executive personnel, retail sales professionals and managers, and manufacturing, home delivery and technical personnel.
If our relationship with the primary supplier of our air chambers, adjustable foundations, or electronic components is terminated or significantly disrupted, we 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 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.
Failure to achieve and maintain acceptable quality standards could impact consumer acceptance of our products or result in negative media and Internet reports or owner dissatisfaction that could negatively impact our brand image and sales levels.
Failure to achieve and maintain acceptable quality standards could impact consumer acceptance of its products or result in negative media and Internet reports or owner dissatisfaction that could negatively impact the Company’s brand image and sales levels.
Disruption to of our manufacturing, distribution, logistics, home delivery, product development, and customer service operations could increase our costs of doing business or harm our ability to satisfy customer demand, develop and launch new products, and service our products and customers.
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.
Our longer-term Total Retail distribution strategy is also dependent on our ability to renew existing store leases and to secure suitable locations for new store openings, in each case on a cost-effective basis. We may encounter higher than anticipated rents and other costs in connection with managing our retail store base.
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.
If any of our products proves to be defective or non-compliant with applicable regulations such as the federal Consumer Product Safety Commission flammability standards, we may be required to recall or redesign such products.
If any of the Company’s products proves to be defective or non-compliant with applicable regulations such as the federal Consumer Product Safety Commission flammability standards, the Company may be required to recall or redesign such products.
A successful claim brought against us outside of, or in excess of, available insurance coverage, or any claim or product recall that results in significant adverse publicity about us, may have a material adverse effect on our sales, profitability, cash flows and financial condition.
A successful claim brought against the Company outside of, or in excess of, available insurance coverage, or any claim or product recall that results in significant adverse publicity about the Company, may have a material adverse effect on the Company’s sales, profitability, cash flows and financial condition.
If our information systems are disrupted in any material way, or maintenance, improvements or upgrades are required to meet the evolving needs of our business, cybersecurity needs, and existing and emerging regulatory requirements, we may be required to incur significant capital expenditures in the pursuit of improvements or upgrades to our information systems.
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.
Legislative or regulatory changes that impact our relationship with our workforce, such as minimum wage requirements or health insurance or other employee benefits mandates, could increase our expenses and adversely affect our operations.
Legislative or regulatory changes that impact the Company’s relationship with its workforce, such as minimum wage requirements or health insurance or other employee benefits mandates, could increase the Company’s expenses and adversely affect its operations.
We cannot predict whether the countries in which some of our components are manufactured, or may be manufactured in the future, or where we contract for labor will be subject to new or additional trade restrictions imposed by the United States or other foreign governments, including the likelihood, type, or effect of any such restrictions.
The Company cannot predict whether the countries in which some of its components are manufactured, or may be manufactured in the future, or where the Company contracts for labor will be subject to new or additional trade restrictions imposed by the United States or other foreign governments, including the likelihood, type, or effect of any such restrictions.
These laws and regulations, as well as any new or changed laws or regulations, could disrupt our operations or increase our compliance costs. Failure to comply with such laws and regulations could have further adverse impacts on our operations.
These laws and regulations, as well as any new or changed laws or regulations, could disrupt the Company’s operations or increase its compliance costs. Failure to comply with such laws and regulations could have further adverse impacts on the Company’s operations.
As a consumer innovation Company with differentiated products, we face an inherent risk of exposure to product liability claims or regulatory actions if the use of our products is alleged to have resulted in personal injury or property damage.
As a consumer innovation Company with differentiated products, the Company faces an inherent risk of exposure to product liability claims or regulatory actions if the use of its products is alleged to have resulted in personal injury or property damage.
We have at times experienced increased returns and adverse impacts on sales, as well as product liability litigation, as a result of media reports related to the alleged propensity of our products to develop mold. We may experience additional adverse impacts on sales and additional litigation if any similar media reports were to occur in the future.
The Company has at times experienced increased returns and adverse impacts on sales, as well as product liability litigation, as a result of media reports related to the alleged propensity of it products to develop mold. The Company may experience additional adverse impacts on sales and additional litigation if any similar media reports were to occur in the future.
We are subject to a wide variety of laws and regulations relating to the bedding industry or to various aspects of our business. Laws and regulations at the federal, state and local levels frequently change and we cannot always reasonably predict the impact from, or the ultimate cost of compliance with, future regulatory or administrative changes.
The Company is subject to a wide variety of laws and regulations relating to the bedding industry or to various aspects of its business. Laws and regulations at the federal, state and local levels frequently change and the Company cannot always reasonably predict the impact from, or the ultimate cost of compliance with, future regulatory or administrative changes.
Any long-term disruption in our ability to service our customers from one or more manufacturing, distribution centers or other facilities could have an adverse effect on our operations.
Any long-term disruption in the Company’s ability to service its customers from one or more manufacturing, distribution centers or other facilities could have an adverse effect on the Company’s operations.
Our operations and those of our suppliers are located in various regions of the U.S. and across the globe, which subjects us to regional risks, such as adverse weather conditions and other natural or man-made disasters.
The Company’s operations and those of its suppliers are located in various regions of the U.S. and across the globe, which subjects the Company to regional risks, such as adverse weather conditions and other natural or man-made disasters.
Further, the adoption of a multi-layered regulatory approach to any one of the state or federal laws or regulations to which we are currently subject, particularly where the layers are in conflict, could require alteration of our manufacturing processes or operational parameters which may adversely impact our 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 where the layers are in conflict, could require alteration of its manufacturing processes or operational parameters which may adversely impact the Company’s business.
Any such impacts or delays could adversely affect our sales, customer satisfaction, profitability, cash flows and financial condition. We rely upon several key suppliers and third parties that are, in some instances, the only source of supply or services currently used by us for particular materials, components, products or services.
Any 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.
We have home delivery operations and contractors that deliver our products to customers across the country as well as a bedding fulfillment center that ships bedding products to consumers via third-party services. Our product development and testing operations primarily occur in our corporate headquarters in Minneapolis, Minnesota and Sleep Number Labs facility in San Jose, California.
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.
Like many other businesses, we have and will likely continue to experience cyber-based attacks and incidents from time to time. As the techniques used to breach such security measures change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventive measures.
Like many other businesses, Sleep Number has and will likely continue to experience cyber-based attacks and incidents from time to time. As the techniques used to breach security measures change frequently and may not be recognized until launched against a target, the Company may be unable to anticipate these techniques or to implement adequate preventive measures.
Any shortage of materials caused by any disruption or unavailability of supply or an increase in the demand for our products, has harmed and could continue to harm our ability to satisfy customer demand, delay deliveries of our products to customers, lead to customer cancellations and returns, delay the development and launch of new products, or increase our costs.
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.
In several cases, including our air chambers, integrated non-adjustable foundations, adjustable foundations, various components for our Firmness Control systems, certain electronic componentry, certain foam formulations, as well as our fabrics and zippers, we obtain these materials, components and products from suppliers who serve as the only source of supply, or who supply the vast majority of our needs of the particular material, component or product.
In several cases, including its air chambers, integrated non-adjustable foundations, adjustable foundations, various components for its Firmness Control and Smart Control systems, certain electronic componentry, certain foam formulations, as well as its fabrics and zippers, the Company obtains these materials, components and products from suppliers who serve as the only source of supply, or who supply the vast majority of the Company’s needs of the particular material, component or product.
New or different laws or regulations could increase direct compliance costs for us or may cause our vendors to raise the prices they charge us because of increased compliance costs.
New or different laws or regulations could increase direct compliance costs for the Company or may cause its vendors to raise the prices they charge the Company because of increased compliance costs.
Additional risks and uncertainties, including risks and uncertainties that impact the business environment generally, those not presently known to us, or those that we currently see as immaterial, may also harm our business. If any of these risks occur, our 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 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.
These intellectual property rights may not provide adequate protection against infringement or piracy, may not prevent competitors from developing and marketing products that are similar to or competitive with our beds or other products, and may be costly and time-consuming to protect and enforce. Our patents are also subject to varying expiration dates.
These intellectual property rights may not provide adequate protection against infringement or piracy, may not prevent competitors from developing and marketing products that are similar to or competitive with Sleep Number beds, biosignal monitoring or other products, and may be costly and time-consuming to protect and enforce. The Company’s patents are also subject to varying expiration dates.
Our 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, our 20 | 2021 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 22 | 2022 FORM 10-K SLEEP NUMBER CORPORATION beds may be susceptible to failures that do not exist with traditional or foam mattresses.
If these efforts do not result in meaningful product improvements or new product introductions, if we are not able to gain widespread consumer acceptance of product improvements or new product introductions, or there are delays or production limitations with respect to our product improvements or new product introductions, our 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 product improvements or new product introductions, the Company’s sales, profitability, cash flows and financial condition may be adversely affected.
As we work to develop innovations with enhanced health capabilities, including possible capabilities of providing advanced monitoring and health risk evaluations, depending on the features that ultimately become commercially available, some features may require regulatory requirements or approvals beyond those that apply to our current products or features.
As the Company works to develop innovations with enhanced health capabilities, including possible capabilities of providing advanced monitoring and health risk evaluations, depending on the features that ultimately become commercially available, some features may require regulatory requirements or approvals beyond those that apply to Sleep Number’s current products or features.
The stock price of our Company 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 we or third parties may provide to the public or our failure to meet these projections; actual or anticipated changes in our growth rate relative to that of our competitors; failure of securities analysts to maintain coverage of us, changes in financial estimates by any securities analysts who follow our Company or our failure to meet these estimates or the expectations of 24 | 2021 FORM 10-K SLEEP NUMBER CORPORATION investors; and sales of share of our common stock by us or our shareholders particularly sales by our directors, executive officers and significant shareholders or the perception that these sales could occur.
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.
A significant percentage of our products are assembled after we receive orders from customers utilizing manufacturing processes with minimal levels of raw materials, work-in-process and finished goods inventories. Lead times for ordered components may vary significantly, and some components used to manufacture our products are provided on a sole source basis.
A significant percentage of the Company’s products are assembled after it receives orders from customers utilizing manufacturing processes with minimal levels of raw materials, work-in-process and finished goods inventories. Lead times for ordered components may vary significantly, and some components used to manufacture its products are provided on a sole source basis.
Our ability to commercialize new products and innovations may be delayed or prevented by regulatory requirements.
The Company’s ability to commercialize new products and innovations may be delayed or prevented by regulatory requirements.
The locations where we and our 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 material adverse effect on us, our ability to source necessary materials, components and products, and our ability to develop, launch, sell and deliver our 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 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.
We are involved from time to time in various legal proceedings arising in the ordinary course of our business, including primarily commercial, product liability, employment and intellectual property claims. We currently do not expect the outcome of any pending matters to have a material effect on our consolidated results of operations, financial position or cash flows.
The Company is involved from time to time in various legal proceedings arising in the ordinary course of its business, including primarily commercial, product liability, employment and intellectual property claims. The Company currently does not expect the outcome of any pending matters to have a material effect on the Company’s consolidated results of operations, financial position or cash flows.
For example, efforts to purchase raw materials in advance for product manufacturing may result in increased storage costs or excess supply.
For example, efforts to purchase raw materials in advance for product manufacturing has resulted in, and may continue to result in, increased storage costs or excess supply.
Our future growth and profitability depend in part on our ability to continue to improve and expand our product line and to successfully execute new product introductions.
The Company’s future growth and profitability depend in part on its ability to continue to improve and expand its product line and to successfully execute new product introductions.
A significant percentage of our sales are made under consumer credit programs through third parties.
A significant percentage of the Company’s sales are made under consumer credit programs through third parties.
Changes in 22 | 2021 FORM 10-K SLEEP NUMBER CORPORATION 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 us to change the way we do business and could have a material adverse impact on our 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 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.
These factors could increase our costs of doing business with foreign suppliers, lead to inadequate inventory levels or delays in shipping beds to our customers, which could harm our 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, which could harm the Company’s sales, customer satisfaction, profitability, cash flows and financial condition.
While we believe that some of these materials, components and products, or suitable replacements, could be obtained from other sources in the event of a disruption or loss of supply, we may not be able to find alternative sources of supply or alternative sources of supply on comparable terms, quantities and timelines.
While the Company believes that some of these materials, components and products, or suitable replacements, could be obtained from other sources in the event of a disruption or loss of supply, it has not been able to, and in the future may not be able to, find alternative sources of supply or alternative sources of supply on comparable terms, quantities and timelines.
Further, laws and regulations change over time and we may be required to incur significant expenses and/or to modify our operations in order to ensure compliance. This could harm our profitability or financial condition.
Further, laws and regulations change over time and the Company may be required to incur significant expenses and/or to modify its operations in order to ensure compliance. This could harm the Company’s profitability or financial condition.
We maintain insurance against some forms of product liability claims, but such coverage may not be applicable to, or adequate for, liabilities actually incurred.
The Company maintains insurance against some forms of product liability claims, but such coverage may not be applicable to, or adequate for, liabilities actually incurred.
We may also be unable to find or obtain suitable new locations. Failure to achieve and maintain a high level of product quality could negatively impact our sales, profitability, cash flows and financial condition.
The Company may also be unable to find or obtain suitable new locations or renew existing locations. Failure to achieve and maintain a high level of product quality could negatively impact the Company’s sales, profitability, cash flows and financial condition.
These information systems also contain confidential Company data regarding our business and innovations. Our use and dependence on our information systems has increased with amplified remote working during 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 since the onset of the COVID-19 pandemic and additional data storage in cloud-based systems.
In addition, with the increasing prevalence of and consumer demand for electronic products, along with COVID-19’s impact on the global supply chain, the global supply of electronic componentry is increasingly strained, which has led to shortages in supply and increased prices, and has adversely affected, and we expect may continue to adversely affect, our operations, costs, production capacity, delivery timeframe, product development, sales, profitability, and financial results.
In addition, with the increasing prevalence of and consumer demand for electronic products, along with COVID-19’s impact on the global supply chain over the past three years, the global supply of electronic componentry has been strained, which has led to shortages in supply and increased prices, and has adversely affected, and may continue to adversely affect, its operations, costs, production capacity, delivery timeframe, product development, sales, profitability, and financial results.
Fluctuations in commodity prices or availability or third-party logistics costs could result in an increase in component costs and/or delivery costs.
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.
A disruption in the supply or substantial increase in cost of any of these products or services could harm our sales, profitability, cash flows and financial condition. We currently obtain all the materials and components used to produce our 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 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.
We have limited ability to anticipate the timing and scale of new product introductions, advertising campaigns or new pricing strategies by our competitors, which could inhibit our ability to retain or increase market share, or to maintain our profit margins.
The Company has limited ability to anticipate the timing and scale of new product introductions, advertising campaigns or new pricing strategies by its competitors, which could inhibit its ability to retain or increase market share, or to maintain the Company’s profit margins.
If public perception of our compliance with laws and regulations related to climate change is negative, it could adversely affect our business, reputation and shareholder perception. Adverse publicity or climate-related litigation that impacts us could also have a negative impact on our business.
If public perception of Sleep Number’s compliance with laws and regulations related to climate change is negative, it could adversely affect the Company’s business, reputation and shareholder perception. Adverse publicity or climate-related litigation that impacts the Company could also have a negative impact on its business.
Some of our competitors have substantially greater financial, marketing and manufacturing resources and greater brand name recognition than we do and sell products through broader and more established distribution touchpoints. Our national, exclusive distribution competes with other retailers who generally provide a wider selection of mattress alternatives than we offer.
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.
If we are found to be in violation of any laws or regulations, we could become subject to fines, penalties, damages or other sanctions as well as potential adverse publicity or litigation exposure. This could adversely impact our business, reputation, sales, profitability, cash flows or financial condition.
If Sleep Number is found to be in violation of any laws or regulations, it could become subject to fines, penalties, damages or other sanctions as well as potential adverse publicity or litigation exposure. This could adversely impact the Company’s business, reputation, sales, profitability, cash flows or financial condition.
While it is our policy and practice to comply with legal and regulatory requirements and our procedures and internal controls are designed to promote such compliance, we cannot assure that all of our operations will comply with all such legal and regulatory requirements.
While it is Sleep Number’s policy and practice to comply with legal and regulatory requirements and its procedures and internal controls are designed to promote such compliance, the Company cannot assure that all of its operations will comply with all such legal and regulatory requirements.
Our Total Retail distribution strategy results in relatively few points of distribution, including 648 retail stores in 50 U.S. states as of the end of 2021, Online, Phone and Chat.
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.
Our information systems and information systems of third-party vendors we use to assist in the storage and management of information, including on-premise and cloud-based systems, contain personal information related to our customers and team members collected and maintained in the ordinary course of our business, such as credit card and demographic information of our customers, SleepIQ ® data, including biometric data (e.g., sleep, physiological) from our customer base and social security numbers, demographic information, and employment-related information of our 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, 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.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeThe following table summarizes the geographic locations of our 648 retail stores as of January 1, 2022: Retail Stores Retail Stores Retail Stores Alabama 11 Louisiana 11 Ohio 22 Alaska 1 Maine 3 Oklahoma 5 Arizona 13 Maryland 15 Oregon 8 Arkansas 7 Massachusetts 11 Pennsylvania 26 California 71 Michigan 19 Rhode Island 1 Colorado 15 Minnesota 17 South Carolina 10 Connecticut 7 Mississippi 6 South Dakota 2 Delaware 2 Missouri 12 Tennessee 17 Florida 45 Montana 4 Texas 61 Georgia 23 Nebraska 4 Utah 8 Hawaii 2 Nevada 6 Vermont 1 Idaho 3 New Hampshire 4 Virginia 19 Illinois 24 New Jersey 13 Washington 17 Indiana 12 New Mexico 4 West Virginia 4 Iowa 7 New York 24 Wisconsin 11 Kansas 7 North Carolina 21 Wyoming 2 Kentucky 8 North Dakota 2 Total 648 Manufacturing, Distribution and Headquarters We lease our 238,000 square-foot corporate headquarters in Minneapolis, MN.
Biggest changeThe 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.
In addition, our mall-based retail store leases may require payment of contingent rent based on net sales in excess of certain thresholds. Certain retail store leases may contain options to extend the term of the original lease.
In addition, the mall-based retail store leases may require payment of contingent rent based on net sales in excess of certain thresholds. Certain retail store leases may contain options to extend the term of the original lease.
We lease our retail stores under operating leases which, in addition to the minimum lease payments, may require payment of a proportionate share of the real estate taxes and certain building operating expenses. Our retail store leases generally provide for an initial lease term of five to 10 years.
The Company leases its retail stores under operating leases which, in addition to the minimum lease payments, may require payment of a proportionate share of the real estate taxes and certain building operating expenses. The Company retail store leases generally provide for an initial lease term of five to 10 years.
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 lease runs through July 2025, with one five-year renewal option.
The lease term commenced in November 2017 and runs through October 2032. The lease includes three five-year renewal options. We lease two manufacturing facilities in Irmo, SC and Salt Lake City, UT of approximately 151,000 square feet and approximately 101,000 square feet, respectively. The Irmo facility lease runs through June 2026, with two five-year renewal options.
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.
ITEM 2. PROPERTIES Retail Locations We currently lease all of our existing retail store locations and expect that our policy of leasing stores, rather than owning stores, will continue.
ITEM 2. PROPERTIES Retail Locations Sleep Number currently leases all of its existing retail store locations and expects that its policy of leasing stores, rather than owning stores, will continue.
We have five distribution centers and four other distribution-related facilities located in Brooklyn Park, MN; Redlands, CA; Dallas, TX; Tampa, FL; Cincinnati, OH; Baltimore, MD; Salt Lake City, UT and Irmo, SC, with a total square footage of approximately 1.0 million square feet and lease terms ending in July 2023 through July 2031.
The 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.
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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

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeITEM 3. LEGAL PROCEEDINGS Our 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. 26 | 2021 FORM 10-K SLEEP NUMBER CORPORATION PART II
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

Item 4. Mine Safety Disclosures

Mine Safety Disclosures — required of mining issuers

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Biggest changeItem 4. Mine Safety Disclosures 26 PART II 27 Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 27 Item 6. Selected Financial Data 29 Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33 Item 7A. Quantitative and Qualitative Disclosures About Market Risk 42 Item 8.
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.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeThe 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 we specifically request 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. 12/31/16 12/30/17 12/29/18 12/28/19 01/02/21 01/01/22 Sleep Number Corporation $ 100 $ 166 $ 142 $ 219 $ 362 $ 339 S&P 400 Specialty Stores Index 100 78 71 80 96 139 The Nasdaq Stock Market (U.S.) Index 100 130 125 171 248 304 28 | 2021 FORM 10-K SLEEP NUMBER CORPORATION
Biggest changeThe 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
We are not restricted from paying cash dividends under our Credit Agreement so long as we are not in default under the Credit Agreement, our leverage ratio (as defined in our Credit Agreement) after giving effect to such restricted payments (as defined in our Credit Agreement) would not exceed 3.75:1.00 and no default or event of default (as defined in our 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 3.75:1.00 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. 27 | 2021 FORM 10-K SLEEP NUMBER CORPORATION Comparative Stock Performance The graph below compares the total cumulative shareholder return on our 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 31, 2016.
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.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock trades on The Nasdaq Stock Market LLC (Nasdaq Global Select Market) under the symbol “SNBR.” As of January 29, 2022, there were approximately 192 holders of record of our 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 28, 2023, there were approximately 187 holders of record of Sleep Number common stock.
(2) In connection with the vesting of employee restricted stock grants, we repurchased 1,617 shares of our common stock at a cost of $0.1 million during the three months ended January 1, 2022. (3) There is no expiration date governing the period over which we can repurchase shares under our Board-approved share repurchase program.
(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.
Information concerning share repurchases completed during the fourth quarter of fiscal 2021 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 3, 2021 through October 30, 2021 609 $ 86.60 — $ 402,939,000 October 31, 2021 through November 27, 2021 785 $ 81.41 — 402,939,000 November 28, 2021 through January 1, 2022 223 $ 77.47 — 402,939,000 Total 1,617 $ 82.82 — $ 402,939,000 ____________________ (1) We did not repurchase any shares during the three months ended January 1, 2022 under our Board-approved $600 million share repurchase program (effective April 4, 2021).
Information 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).
However, we have not historically paid, and have no current plans to pay, cash dividends on our 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.

Item 6. [Reserved]

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

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Biggest changeYear 2021 2020 (1) 2019 2018 2017 Consolidated Statements of Operations Data: Net sales $ 2,184,949 $ 1,856,555 $ 1,698,352 $ 1,531,575 $ 1,444,497 Gross profit 1,318,847 1,156,000 1,051,923 927,961 897,347 Operating expenses: Sales and marketing 905,359 771,195 766,922 687,380 650,357 General and administrative 161,412 158,999 137,956 119,378 127,269 Research and development 58,540 40,910 34,950 28,775 27,806 Operating income 193,536 184,896 112,095 92,428 91,915 Net income $ 153,746 $ 139,189 $ 81,845 $ 69,539 $ 65,077 Net income per share: Basic $ 6.40 $ 5.03 $ 2.78 $ 1.97 $ 1.58 Diluted $ 6.16 $ 4.90 $ 2.70 $ 1.92 $ 1.55 Shares used in calculation of net income per share: Basic 24,038 27,665 29,472 35,256 41,212 Diluted 24,947 28,428 30,355 36,165 42,085 Consolidated Balance Sheet Data: Cash and cash equivalents $ 2,389 $ 4,243 $ 1,593 $ 1,612 $ 3,651 Total assets (2) 919,540 800,136 806,043 470,138 471,834 Borrowings under revolving credit facility 382,500 244,200 231,000 199,600 24,500 Total shareholders’ (deficit) equity (424,953) (223,978) (159,431) (109,550) 89,156 Selected Operating Data: Stores open at period-end 648 602 611 579 556 Stores opened during period 77 30 59 53 36 Stores closed during period 31 39 27 30 20 Average sales per store (000’s) (3) $ 3,600 $ 3,052 $ 2,877 $ 2,707 $ 2,618 Percentage of stores with > $2 million in net sales (4) 84 % 67 % 70 % 65 % 61 % Percentage of stores with > $3 million in net sales (4) 48 % 29 % 30 % 25 % 22 % Average revenue per mattress unit - Total Retail (5) $ 5,102 $ 4,856 $ 4,865 $ 4,482 $ 4,283 Total Retail comparable-sales increase (6) 17 % 6 % 6 % 3 % 4 % Total retail square footage (at period-end) (000’s) 1,948 1,762 1,749 1,598 1,489 Average square footage per store open during period (4) 3,006 2,926 2,802 2,725 2,647 29 | 2021 FORM 10-K SLEEP NUMBER CORPORATION Year 2021 2020 (1) 2019 2018 2017 Average sales per square foot (3) $ 1,212 $ 1,051 $ 1,034 $ 998 $ 995 Average store age (in months at period-end) 91 97 94 95 97 Earnings before interest, depreciation and amortization (Adjusted EBITDA) (7) $ 276,701 $ 267,891 $ 190,351 $ 165,588 $ 169,097 Free cash flows (7) $ 233,110 $ 242,561 $ 129,921 $ 86,025 $ 112,778 Return on invested capital (ROIC) (7) 27.6 % 25.0 % 17.8 % 16.0 % 14.3 % _____________________ (1) Fiscal year 2020 had 53 weeks.
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.
All other fiscal years presented had 52 weeks. (2) On December 30, 2018, we 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.
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.
SELECTED FINANCIAL DATA (in thousands, except per share and selected operating data, unless otherwise indicated) The Consolidated Statements of Operations Data and Consolidated Balance Sheet Data presented below have been derived from our Consolidated Financial Statements and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Consolidated Financial Statements and Notes thereto included in this Annual Report on Form 10-K.
SELECTED FINANCIAL DATA (in thousands, except per share and selected operating data, unless otherwise indicated) The Consolidated Statements of Operations Data and Consolidated Balance Sheet Data presented below have been derived from Sleep Number’s Consolidated Financial Statements and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and Notes thereto included in this Annual Report on Form 10-K.
Management believes Adjusted EBITDA is a useful indicator of our financial performance and our ability to generate cash from operating activities. Our definition of Adjusted EBITDA may not be comparable to similarly titled definitions used by other companies. The table below reconciles Adjusted EBITDA, which is a non-GAAP financial measure, to the comparable GAAP financial measure.
Management believes Adjusted EBITDA is a useful indicator of the Company’s financial performance and its ability to generate cash from operating activities. The Company’s definition of Adjusted EBITDA may not be comparable to similarly titled definitions used by other companies. The table below reconciles Adjusted EBITDA, which is a non-GAAP financial measure, to the comparable GAAP financial measure.
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 568, 567, 539, 524 and 512 for 2021, 2020, 2019, 2018 and 2017, respectively. 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. 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.
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, we are providing this information as we believe it facilitates annual and year-over-year comparisons for investors and financial analysts.
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.
Note - Our ROIC calculation and data are considered non-GAAP financial measures and are not in accordance with, or preferable to, GAAP financial data. However, we are providing this information as we believe it facilitates analysis of the Company’s financial performance by investors and financial analysts.
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.
It quantifies the return we earn on our invested capital. Management believes ROIC is also a useful metric for investors and financial analysts. We compute ROIC as outlined below. Our definition and calculation of ROIC may not be comparable to similarly titled definitions and calculations used by other companies.
It quantifies the return the Company earns on its adjusted invested capital. Management believes Adjusted ROIC is also a useful metric for investors and financial analysts. The Company computes Adjusted ROIC as outlined below. Its definition and calculation of Adjusted ROIC may not be comparable to similarly titled definitions and calculations used by other companies.
Our Adjusted EBITDA calculations are as follows (in thousands): Year 2021 2020 2019 2018 2017 Net income $ 153,746 $ 139,189 $ 81,845 $ 69,539 $ 65,077 Income tax expense 33,545 36,783 18,663 16,982 25,961 Interest expense 6,245 9,021 11,591 5,911 975 Depreciation and amortization 59,779 60,783 61,410 61,648 61,077 Stock-based compensation 23,214 21,813 16,657 11,412 15,763 Asset impairments 172 302 185 96 244 Adjusted EBITDA $ 276,701 $ 267,891 $ 190,351 $ 165,588 $ 169,097 Free Cash Flow Our “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 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.
GAAP - generally accepted accounting principles in the U.S. 32 | 2021 FORM 10-K SLEEP NUMBER CORPORATION
GAAP - generally accepted accounting principles in the U.S. 37 | 2022 FORM 10-K SLEEP NUMBER CORPORATION
See pages 31 and 32 for the reconciliation of these non-GAAP measures to the appropriate GAAP measures. 30 | 2021 FORM 10-K SLEEP NUMBER CORPORATION Non-GAAP Data Reconciliations Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA) We define 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 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.
The following table summarizes our free cash flow calculations (in thousands): Year 2021 2020 2019 2018 2017 Net cash provided by operating activities $ 300,010 $ 279,661 $ 189,160 $ 131,540 $ 172,607 Subtract: Purchases of property and equipment (66,900) (37,100) (59,239) (45,515) (59,829) Free cash flow $ 233,110 $ 242,561 $ 129,921 $ 86,025 $ 112,778 31 | 2021 FORM 10-K SLEEP NUMBER CORPORATION Non-GAAP Data Reconciliations (continued) Return on Invested Capital (ROIC) ROIC is a financial measure we use to determine how efficiently we deploy our capital.
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.
However, we are providing this information as we believe it facilitates analysis for investors and financial analysts.
However, the Company is providing this information as it believe it facilitates analysis for investors and financial analysts.
This is subtracted from operating income to illustrate the impact of owning versus leasing the related assets. (3) Reflects annual effective income tax rates, before discrete adjustments, of 24.2%, 23.5%, 24.0%, 24.1% and 33.3% for 2021, 2020, 2019, 2018 and 2017, respectively. (4) Long-term debt includes existing finance lease liabilities.
(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.
(5) A multiple of eight times annual rent expense is used as an estimate for capitalizing our operating lease obligations. The methodology utilized aligns with the methodology of a nationally recognized credit rating agency. (6) Average invested capital represents the average of the last five fiscal quarters’ ending invested capital balances. (7) ROIC equals NOPAT divided by average invested capital.
(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.
Removed
The tables below reconcile net operating profit after taxes (NOPAT) and total invested capital, which are non-GAAP financial measures, to the comparable GAAP financial measures (in thousands): Year 2021 2020 2019 2018 2017 Net operating profit after taxes (NOPAT) Operating income $ 193,536 $ 184,896 $ 112,095 $ 92,428 $ 91,915 Add: Rent expense (1) 101,679 91,458 87,835 79,390 74,019 Add: Interest income — 97 3 4 97 Less: Depreciation on capitalized operating leases (2) (25,592) (24,001) (22,358) (20,392) (18,865) Less: Income taxes (3) (65,216) (59,387) (42,592) (36,444) (48,970) NOPAT $ 204,407 $ 193,063 $ 134,983 $ 114,986 $ 98,196 Average invested capital Total (deficit) equity $ (424,953) $ (223,978) $ (159,431) $ (109,550) $ 89,156 Add: Long-term debt (4) 383,037 244,849 231,756 200,458 — Add: Capitalized operating lease obligations (5) 813,432 731,664 702,680 635,120 592,152 Total invested capital at end of period $ 771,516 $ 752,535 $ 775,005 $ 726,028 $ 681,308 Average invested capital (6) $ 739,873 $ 773,413 $ 757,361 $ 719,055 $ 686,436 Return on invested capital (ROIC) (7) 27.6 % 25.0 % 17.8 % 16.0 % 14.3 % _____________________ (1) Rent expense is added back to operating income to show the impact of owning versus leasing the related assets.
Added
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.
Removed
(2) Depreciation is based on the average of the last five fiscal quarters’ ending capitalized operating lease obligations (see note 5) for the respective reporting periods with an assumed thirty-year useful life. This life assumption is based on our long-term participation in given markets though specific retail location lease commitments are generally five to 10 years at inception.
Added
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.

Item 7. Management's Discussion & Analysis

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

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Biggest changeThese risks and uncertainties include, among others: • Current and future general and industry economic trends and consumer confidence; • Risks inherent in outbreaks of pandemics or contagious disease, including the COVID-19 pandemic; • Risks inherent in global sourcing activities, including tariffs, outbreaks of pandemics or contagious diseases, strikes and the potential for shortages in supply or disruption or delay of production and delivery of materials and products in our supply chain; • Risks of disruption in the operation of any of our manufacturing, distribution, logistics, home delivery, product development, or customer service facilities or operations; • Our manufacturing processes with minimal levels of inventory, which may leave us vulnerable to shortages in supply; • Our dependence on significant suppliers and third parties and our ability to maintain relationships with key suppliers or third parties, including several sole-source suppliers or service providers; • Rising commodity costs and other inflationary pressures; • The effectiveness of our marketing messages; • The efficiency of our advertising and promotional efforts; • Our ability to execute our Total Retail distribution strategy; • Our ability to achieve and maintain acceptable levels of product and service quality, and acceptable product return and warranty claims rates; • Our ability to continue to improve and expand our product line, and consumer acceptance of our products, product quality, innovation and brand image; • Industry competition, the emergence of additional competitive products and the adequacy of our intellectual property rights to protect our products and brand from competitive or infringing activities; • Claims that our products, processes, advertising, or trademarks infringe the intellectual property rights of others; • Availability of attractive and cost-effective consumer credit options; • Increasing government regulation; • Pending or unforeseen litigation and the potential for adverse publicity associated with litigation; • The adequacy of our and third-party information systems to meet the evolving needs of our business and existing and evolving risks and regulatory standards applicable to data privacy and security; • The costs and potential disruptions to our business related to upgrading or maintaining our information systems; • The vulnerability of our and third-party information systems to attacks by hackers or other cyber threats that could compromise the security of our systems, result in a data breach or disrupt our business; • Environmental risks, including increasing environmental regulation and the broader impacts of climate change such as from weather-related events; and • Our ability, and the ability of our suppliers and vendors, to attract, retain and motivate qualified management, executive and other key team members, including qualified retail sales professionals and managers. 33 | 2021 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: • 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.
(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 2021 and 2019. 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 2022 and 2021. The additional week in 2020 was in the fiscal fourth quarter.
Management believes the accounting policies discussed below are the most critical because they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting policies and estimates, and related disclosures with the Audit Committee of our Board.
Management believes the accounting policies discussed below are the most critical because they require management’s most difficult, subjective or complex judgments, resulting from the need to make estimates about the effect of matters that are inherently uncertain. Management has reviewed these critical accounting policies and estimates, and related disclosures with the Audit Committee of its Board.
See Note 1, Business and Summary of Significant Accounting Policies , and Note 8, Shareholders’ Deficit , to the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K, for a complete discussion of our stock-based compensation programs.
See Note 1, Business and Summary of Significant Accounting Policies , and Note 8, Shareholders’ Deficit , to the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K, for a complete discussion of its stock-based compensation programs.
See Note 1, Business and Summary of Significant Accounting Policies , and Note 9, Revenue Recognition , to the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K, for a complete discussion of our revenue recognition policies.
See Note 1, Business and Summary of Significant Accounting Policies , and Note 9, Revenue Recognition , to the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K, for a complete discussion of its revenue recognition policies.
Option-pricing models and generally accepted valuation techniques require management to make assumptions and to apply judgment to determine the fair value of our awards. These assumptions and judgments include estimating the volatility of our stock price, future employee forfeiture rates and future employee stock option exercise behaviors.
Option-pricing models and generally accepted valuation techniques require management to make assumptions and to apply judgment to determine the fair value of the awards. These assumptions and judgments include estimating the volatility of its stock price, future employee forfeiture rates and future employee stock option exercise behaviors.
Our significant accounting policies are discussed in Note 1, Business and Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, which are included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
The Company’s significant accounting policies are discussed in Note 1, Business and Summary of Significant Accounting Policies, of the Notes to Consolidated Financial Statements, which are included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide a reader of our consolidated financial statements with a narrative from the perspective of management on our financial condition, results of operations, liquidity and certain other factors that may affect our future results.
Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide a reader of the Company’s consolidated financial statements with a narrative from the perspective of management on its financial condition, results of operations, liquidity and certain other factors that may affect its future results.
Our estimates of sales returns contain uncertainties as actual sales return rates may vary from expected rates, resulting in adjustments to net sales in future periods. These adjustments could have an adverse effect on future results of operations.
The Company’s estimates of sales returns contain uncertainties as actual sales return rates may vary from expected rates, resulting in adjustments to net sales in future periods. These adjustments could have an adverse effect on future results of operations.
Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 1, Business and Summary of Significant Accounting Policies - “New Accounting Pronouncements ” for recent accounting pronouncements that may affect our financial reporting.
Financial Statements and Supplementary Data – Notes to Consolidated Financial Statements – Note 1, Business and Summary of Significant Accounting Policies - “New Accounting Pronouncements ” for recent accounting pronouncements that may affect the Company’s financial reporting.
In connection with the preparation of our financial statements, we are 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.
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.
These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our historical experience and our present expectations or projections.
These statements are subject to certain risks and uncertainties that could cause actual results to differ materially from the Company’s historical experience and present expectations or projections.
However, because future events and their effects cannot be determined with certainty, actual results could differ from our assumptions and estimates, and such differences could be material.
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.
The sales and marketing expense rate decreased to 41.4% of net sales, compared with 41.5% for the same period one year ago.
The sales and marketing expense rate increased to 43.5% of net sales, compared with 41.4% for the same period one year ago.
We base our assumptions, estimates and judgments on historical experience, current trends and other factors that management believes to be relevant at the time our consolidated financial statements are prepared. On a regular basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with GAAP.
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.
Changes in these assumptions can materially affect the fair value estimates or future earnings adjustments. Performance-based stock awards require management to make assumptions regarding the likelihood of achieving performance targets. We do not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions we use to determine stock-based compensation expense.
Changes in these assumptions can materially affect the fair value estimates or future earnings adjustments. Performance-based stock awards require management to make assumptions regarding the likelihood of achieving performance targets. The Company does not believe there is a reasonable likelihood that there will be a material change in the future estimates or assumptions it uses to determine stock-based compensation expense.
Total Retail comparable sales have been adjusted to remove the estimated impact of the additional week. 36 | 2021 FORM 10-K SLEEP NUMBER CORPORATION Other sales metrics were as follows: 2021 2020 2019 Average sales per store ($ in thousands) (1)(4) $ 3,600 $ 3,052 $ 2,877 Average sales per square foot (1)(4) $ 1,212 $ 1,051 $ 1,034 Stores > $2 million in net sales (2)(4) 84 % 67 % 70 % Stores > $3 million in net sales (2)(4) 48 % 29 % 30 % Average revenue per smart bed unit – Total Retail (3) $ 5,102 $ 4,856 $ 4,865 ____________________ (1) Trailing-twelve months Total Retail comparable sales per store open at least one year.
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.
A 10% change in our warranty liability at January 1, 2022, would have affected net income by approximately $0.8 million in 2021. 41 | 2021 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.
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.
In addition, our 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. 37 | 2021 FORM 10-K SLEEP NUMBER CORPORATION Sales and marketing expenses Sales and marketing expenses totaled $905 million in 2021, compared with $771 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 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.
However, if actual results are not consistent with our estimates or assumptions, we may be exposed to additional losses or gains in future periods. A 10% change in our sales returns allowance at January 1, 2022 would have affected net income by approximately $1.7 million in 2021. 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 31, 2022 would have affected net income by approximately $1.9 million in 2022. Recent Accounting Pronouncements See “Part II, Item 8.
The majority of our warranty claims are incurred within the first year. However, our warranty liability contains uncertainties because our warranty obligations cover an extended period of time. A revision of estimated claim rates or the projected cost of materials and freight associated with sending replacement parts to customers could have a material adverse effect on future results of operations.
However, the Company’s warranty liability contains uncertainties because its warranty obligations cover an extended period of time. A revision of estimated claim rates or the projected cost of materials and freight associated with sending replacement parts to customers could have a material adverse effect on future results of operations.
However, if actual results are not consistent with our estimates or assumptions, we 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.
The cash generated from ongoing operations and cash available under our revolving credit facility are expected to be adequate to maintain operations and fund anticipated expansion, strategic initiatives and contractual obligations such as lease payments and 38 | 2021 FORM 10-K SLEEP NUMBER CORPORATION capital commitments for new retail store locations for the foreseeable future.
The cash generated from ongoing operations and cash available under its revolving credit facility are expected to be adequate to maintain operations and fund anticipated expansion, strategic initiatives and contractual obligations such as lease payments and capital commitments for new retail store locations for the foreseeable future.
Amounts may not add due to rounding differences. 2021 2020 2019 $ % of Net Sales $ % of Net Sales $ % of Net Sales Net sales $ 2,184.9 100.0 % $ 1,856.6 100.0 % $ 1,698.4 100.0 % Cost of sales 866.1 39.6 % 700.6 37.7 % 646.4 38.1 % Gross profit 1,318.8 60.4 % 1,156.0 62.3 % 1,051.9 61.9 % Operating expenses: Sales and marketing 905.4 41.4 % 771.2 41.5 % 766.9 45.2 % General and administrative 161.4 7.4 % 159.0 8.6 % 138.0 8.1 % Research and development 58.5 2.7 % 40.9 2.2 % 35.0 2.1 % Total operating expenses 1,125.3 51.5 % 971.1 52.3 % 939.8 55.3 % Operating income 193.5 8.9 % 184.9 10.0 % 112.1 6.6 % Interest expense, net 6.2 0.3 % 8.9 0.5 % 11.6 0.7 % Income before income taxes 187.3 8.6 % 176.0 9.5 % 100.5 5.9 % Income tax expense 33.5 1.5 % 36.8 2.0 % 18.7 1.1 % Net income $ 153.7 7.0 % $ 139.2 7.5 % $ 81.8 4.8 % Net income per share: Basic $ 6.40 $ 5.03 $ 2.78 Diluted $ 6.16 $ 4.90 $ 2.70 Weighted-average number of common shares: Basic 24.0 27.7 29.5 Diluted 24.9 28.4 30.4 The percentage of our total net sales, by dollar volume, was as follows: 2021 2020 2019 Retail stores 87.1 % 85.2 % 91.8 % Online, phone, chat and other 12.9 % 14.8 % 8.2 % 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) 2021 2020 2019 Retail comparable-store sales (1) 19 % (3 %) 6 % Online, phone and chat (1) 4 % 104 % 12 % Total Retail comparable sales change (1) 17 % 6 % 6 % Net opened/closed stores, other and 53rd week 1 % 3 % 5 % Total Company 18 % 9 % 11 % ____________________ (1) Stores are included in the comparable-store calculation in the 13th full month of operations.
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.
Online, phone and chat sales (included in comparable sales noted above) made up 13% and 15% of total net sales in 2021 and 2020, respectively, compared with 8% in 2019 as consumers embraced transacting remotely with Sleep Number as well as in our stores. For additional details, see the components of total net sales growth on page 36 .
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 .
Our critical accounting policies and estimates relate to stock-based compensation, warranty liabilities and revenue recognition. 40 | 2021 FORM 10-K SLEEP NUMBER CORPORATION Description Judgments and Uncertainties Effect if Actual Results Differ from Assumptions Stock-Based Compensation We have 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. 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.
As of January 1, 2022, the remaining authorization under our Board-approved share repurchase program was $403 million. 35 | 2021 FORM 10-K SLEEP NUMBER CORPORATION The following table sets forth our results of operations expressed as dollars and percentages of net sales. Figures are in millions, except percentages and per share amounts.
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.
Amounts may not add due to rounding differences: 2021 2020 Total cash provided by (used in): Operating activities $ 300.0 $ 279.7 Investing activities (66.6) (39.0) Financing activities (235.2) (238.0) Net change in cash and cash equivalents $ (1.9) $ 2.7 Cash provided by operating activities for the fiscal year ended January 1, 2022 was $300 million compared with $280 million for the fiscal year ended January 2, 2021.
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.
We have not made any material changes in the accounting methodology used to establish our sales returns allowance during the past three fiscal years. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our sales returns allowance.
The Company has not made any material changes in the accounting methodology used to establish its sales returns allowance during the past three fiscal years. The Company does not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions it uses to calculate its sales returns allowance.
Income tax expense Income tax expense was $34 million for the year ended January 1, 2022, compared with $37 million for the same period one year ago. The effective income tax rate for the year ended January 1, 2022 was 17.9% compared with 20.9% for the year ended January 2, 2021.
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.
We have not made any material changes in our warranty liability assessment methodology during the past three fiscal years. We do not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions we use to calculate our warranty liability.
The Company has not made any material changes in its warranty liability assessment methodology during the past three fiscal years. The Company does not believe there is a reasonable likelihood that there will be a material change in the estimates or assumptions it uses to calculate its warranty liability.
As of January 1, 2022, the weighted-average interest rate on borrowings under the credit facility was 1.6% and we were in compliance with all financial covenants. We have an agreement with Synchrony Bank to offer qualified customers revolving credit arrangements to finance purchases from us (Synchrony Agreement).
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).
Warranty Liabilities We provide a limited warranty on most of the products we sell. See Note 1, Business and Summary of Significant Accounting Policies , to the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K, for a complete discussion of our warranty program and liabilities.
See Note 1, Business and Summary of Significant Accounting Policies , to the Notes to Consolidated Financial Statements, included in Item 8, Financial Statements and Supplementary Data , of this Annual Report on Form 10-K, for a complete discussion of its warranty program and liabilities. The majority of its warranty claims are incurred within the first year.
Total Retail smart bed unit sales increased 12% compared with the prior year. Average revenue per smart bed unit in Total Retail increased by 5% to $5,102, compared with $4,856 in the prior-year period. Gross profit Gross profit for 2021 of $1.3 billion increased by $163 million, or 14%, compared with $1.2 billion in 2020.
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.
Both years’ effective tax rates were positively impacted by stock-based compensation excess tax benefits. Comparison of 2020 and 2019 For a discussion of our 2020 versus 2019 results, see our 2020 Form 10-K. Liquidity and Capital Resources Managing our liquidity and capital resources is an important part of our commitment to deliver superior shareholder value over time.
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.
The G&A expenses rate decreased by 1.2 ppt. in 2021, compared with 2020 due to the leveraging impact of the 18% net sales increase, partially offset by the items discussed above. Research and development expenses Research and development (R&D) expenses increased by 43% to $59 million in 2021, compared with $41 million in 2020.
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.
For additional details, see the components of total net sales growth on page 36 . • Sales per store in 2021 (sales for stores open at least one year, Total Retail, including online, phone and chat, adjusted for the additional 53rd week in 2020) on a trailing twelve-month basis totaled $3.6 million, 18% higher than 2020. • 2021 operating income of $194 million increased by $9 million, or 5%, compared with $185 million in the prior year, driven by the strong increase in net sales.
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.
Short-term borrowings increased by $145 million during 2021 due to a $138 million increase in borrowings under our credit facility to $383 million, in addition to a $7 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 which are included in the net change in short-term borrowings.
During the fiscal year ended January 1, 2022, we repurchased $382 million of our common stock (based on settlement dates, $364 million under our Board-approved share repurchase program and $18 million in connection with the vesting of employee restricted stock grants), compared with $236 million in 2020.
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.
However, if actual results are not consistent with our estimates or assumptions, we may be exposed to changes in stock-based compensation expense that could be material. In addition, if actual results are not consistent with the assumptions used, the stock-based compensation expense reported in our financial statements may not be representative of the actual economic cost of the stock-based compensation.
However, if actual results are not consistent with its estimates or assumptions, the Company may be exposed to changes in stock-based compensation expense that could be material.
Under the terms of the Synchrony Agreement, Synchrony Bank sets the minimum acceptable credit ratings, the interest rates, fees and all other terms and conditions of the customers’ accounts, including collection policies and procedures, and is the owner of the accounts. As the accounts are owned by Synchrony Bank, at no time are the accounts purchased or acquired from us.
Under the terms of the Synchrony Agreement, Synchrony Bank sets the minimum acceptable credit ratings, the interest rates, fees and all other terms and conditions of the customer accounts, including collection policies and procedures, and is the owner of the accounts.
The Synchrony Agreement contains certain financial covenants, including a maximum leverage ratio and a minimum interest coverage ratio consistent with our Credit Agreement. As of January 1, 2022, we were in compliance with all financial covenants.
The Synchrony Agreement contains financial covenants consistent with the Company’s credit facility as of December 31, 2022, including a maximum net leverage ratio and a minimum interest coverage ratio. As of December 31, 2022, the Company was in compliance with all financial covenants.
Our primary sources of liquidity are cash flows provided by operating activities and cash available under our $825 million revolving credit facility (increased from $600 million to $825 million as of December 3, 2021). As of January 1, 2022, we do not have any off-balance sheet financing other than our $4 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 $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.
Our 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 At Sleep Number, our purpose is to improve the health and wellbeing of society through higher quality sleep.
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.
Efficiency gains and operating initiatives included improved store operating productivity. General and administrative expenses General and administrative (G&A) expenses increased $2 million to $161 million in 2021, compared with $159 million in the prior year, but decreased to 7.4% of net sales, compared with 8.6% of net sales one year ago.
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.
Significant changes in cash and cash equivalents during 2021 included $300 million of cash provided by operating activities and $145 million increase in short-term borrowings, which were offset by $67 million of cash used to purchase property and equipment, and $382 million of cash used to repurchase our common stock. The following table summarizes our cash flows (dollars in millions).
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.
Our 2021 operating income rate was impacted by the 1.9 ppt. decrease in our gross profit rate, partially offset by the leveraging impact of the 18% increase in net sales. • We continued to prioritize investments in near- and long-term growth drivers in 2021, including a 43% increase in our innovation driving R&D expenses. • Net income in 2021 increased 10% to $154 million, compared with net income of $139 million in 2020, and increased 88% compared with net income of $82 million in 2019.
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.
Our 2021 operating income rate decreased to 8.9% of net sales, compared with 10.0% of net sales in 2020.
The Company’s 2022 operating income rate decreased to 3.2% of net sales, compared with 8.9% of net sales in 2021.
The number of retail stores operating was as follows: 2021 2020 2019 Beginning of period 602 611 579 Opened 77 30 59 Closed (31) (39) (27) End of period 648 602 611 Comparison of 2021 and 2020 Net sales Net sales in 2021 increased 18% to $2.2 billion, compared with $1.9 billion in 2020, and increased 29% compared with $1.7 billion in 2019. 2020 included 53 weeks compared with 52 weeks in 2021 and 2019, with the extra week benefiting 2020 net sales by $41 million.
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.
Short-term borrowings decreased by $12 million during 2020 due to a $13 million increase in borrowings under our credit facility to $244 million, which was more than offset by a $25 million decrease in book overdrafts. Financing activities for both years reflect the cash proceeds from the exercise of employee stock options.
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.
Our leverage ratio as defined in our credit agreement was 2.6x as of January 1, 2022. Under the terms of the credit agreement, we pay a variable rate of interest and a commitment fee based on our leverage ratio. The credit agreement is for general corporate purposes, to meet our seasonal working capital requirements and to repurchase our common stock.
Under the terms of the Credit agreement, the Company pays a variable rate of interest and a commitment fee based on its leverage ratio. The Credit 44 | 2022 FORM 10-K SLEEP NUMBER CORPORATION agreement is for general corporate purposes, to meet the Company’s seasonal working capital requirements and to repurchase Sleep Number common stock.
See Notes 7, Leases , and 12, Commitments and Contingencies , for further details on our contractual obligations. Cash and cash equivalents totaled $2 million and $4 million at January 1, 2022 and January 2, 2021, respectively.
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.
The 18% net sales increase was driven by a 17% comparable sales increase in Total Retail and 1.0 percentage point (ppt.) of growth from net opened/closed stores in the past 12 months, and other (including the additional 53rd week in 2020).
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.
We are not liable to Synchrony Bank for our customers’ credit defaults. Critical Accounting Policies and Estimates Our consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP).
As the accounts are owned by Synchrony Bank, at no time are the accounts purchased or acquired from the Company. Sleep Number is not liable to Synchrony Bank for its customers’ credit defaults. Critical Accounting Policies and Estimates The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles (GAAP).
The $328 million net sales increase compared with the same period one year ago was primarily comprised of: (i) a $297 million increase in our Total Retail comparable net sales; (ii) a $30 million increase resulting from net store openings; and (iii) a $1 million increase in phone, online, chat and other sales.
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.
Investing activities in 2021 included $67 million of property and equipment purchases, compared with $37 million last year. The $30 million year-over-year increase was primarily due to higher property and equipment purchases for new and remodeled stores.
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.
The R&D expense rate for 2021 increased to 2.7% of net sales, compared with 2.2% of net sales for the prior year. The 43% spending level increase supports our ongoing consumer innovation strategy.
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.
As of January 1, 2022, the remaining authorization under our Board-approved share repurchase program was $403 million. There is no expiration date governing the period over which we can repurchase shares. On December 3, 2021, we amended our revolving credit facility to increase our net aggregate availability from $600 million to $825 million.
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.
The maximum leverage ratio under our credit agreement is 4.5x. • In 2021, we invested $364 million to repurchase 3.1 million shares of our common stock ($116.79 per share, based on trade dates) under our Board-approved share repurchase program.
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.
Diluted earnings per share for 2020 benefited from the profits generated during the additional 53rd week ($0.30 per diluted share). • We achieved a return on invested capital (ROIC) of 27.6% in 2021, compared with 25.0% in 2020. • Cash provided by operating activities in 2021 increased by 7% to $300 million, compared with $280 million for the prior year.
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.
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. A 10% change in our stock-based compensation expense for the year ended January 1, 2022, would have affected net income by approximately $1.7 million in 2021.
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.
Under our Board-approved share repurchase program, we repurchased 3.1 million shares at a cost of $364 million (based on trade dates, $116.79 per share) during the fiscal year ended January 1, 2022. During 2020, we repurchased 3.4 million shares at a cost of $228 million ($66.49 per share).
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.
Significant components of the $20 million year-over-year increase in cash from operating activities included: (i) a $15 million increase in net income in 2021 compared with 2020; (ii) a $71 million fluctuation in accounts payable with both years impacted by business changes and timing of payments; (iii) a $62 million fluctuation in the amount of compensation and benefits accrued and timing of the related payments resulting from year-over-year changes in Company-wide performance-based incentive compensation; and (iv) a $30 million change in inventories with both years’ changes in inventory balances driven by forecasted future customer demand and anticipated supply chain constraints.
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.
Interest expense, net Interest expense, net decreased to $6 million for the year ended January 1, 2022, compared with $9 million for the same period one year ago. The $3 million decrease was mainly driven by a lower level of outstanding borrowings during 2021 compared with 2020.
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.
The 1.9 ppt. decrease in the gross profit rate was mainly due to: (i) incremental costs due to rapid inflation related to labor and materials, and expediting costs resulting from current-period supply chain shortages (3.2 ppt.); partially offset by (ii) the leverage from the 18% net sales increase, including price increases to offset inflation pressures, combined with a more favorable sales mix of higher-margin products.
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).
Risk Factors for additional discussion on the COVID-19 pandemic and the impact on our business. 34 | 2021 FORM 10-K SLEEP NUMBER CORPORATION Results of Operations Fiscal 2021 Summary Financial highlights for fiscal 2021 were as follows: • Net sales for 2021 increased 18% to $2.2 billion, compared with $1.9 billion in 2020, and increased 29% compared with $1.7 billion in 2019.
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.
The $2 million increase in G&A expenses mainly consisted of the following: (i) $3 million of additional professional and consulting fees; partially offset by (ii) a $1 million net reduction in employee compensation resulting from a year-over-year decrease in Company-wide performance-based incentive compensation, partially offset by increased employee compensation to support the growth of our business (prior year included the temporary and permanent elimination of certain roles due to changing business needs based on the COVID-19 pandemic).
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.
Net liquidity available under our credit facility was $439 million at January 1, 2022. Our leverage ratio as defined in our credit agreement was 2.6x as of January 1, 2022.
The Company’s net leverage ratio as defined in its Credit Agreement was 4.4x as of December 31, 2022.
In addition, prior-year property and equipment purchases reflect actions taken to temporarily reduce capital spending based on the economic uncertainties associated with the pandemic. Net cash used in financing activities was $235 million for the fiscal year ended January 1, 2022, compared with $238 million in 2020.
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.
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We are committed to leveraging the power of sleep, and sleep science, to improve lives and create a healthier, kinder, more inclusive world. And because our more than 5,500 team members are dedicated to our mission as well as the disciplined execution of our vertically integrated business model and differentiated strategy, Sleep Number is at the forefront of sleep innovation.
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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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As the exclusive designer, manufacturer, marketer, retailer and servicer of Sleep Number 360 smart beds and SleepIQ technology, Sleep Number is uniquely equipped to offer the life-changing benefit of high-quality, individualized sleep solutions and services. To date, we have improved almost 14 million lives.
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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.
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With our enterprise-wide investments in innovation, technology, logistics, marketing and customer service, Sleep Number has created a highly relevant, competitively advantaged strategy and has become a beloved brand built on a foundation of individuality and wellbeing.
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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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Together with our expertise in sleep research, commitment to data science and analytics, and deep understanding of consumers – including structural shifts in their behavior that we have anticipated since the 2012 inception of our consumer innovation strategy and which were accelerated by the global pandemic – we are driving profitable growth and delivering superior value for all our stakeholders.
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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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COVID-19 Pandemic — Impact on our Business At the onset of the COVID-19 pandemic in mid-March 2020, government restrictions resulted in the temporary closure of most of our retail stores, with 47% of our stores closed on average during the second quarter of 2020.
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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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While prioritizing the safety of our team, serving our customers and ensuring business continuity, we swiftly took decisive actions to strengthen our liquidity, cash flows and financial position, and mitigate the future impact on our operations and financial performance.

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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, our annual net income would decrease by $2.9 million based on the $383 million of borrowings under our credit facility at January 1, 2022. We do not manage our interest-rate volatility risk through the use of derivative instruments. 42 | 2021 FORM 10-K SLEEP NUMBER CORPORATION
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
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to changes in market-based short-term interest rates that will impact our net interest expense.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to changes in market-based short-term interest rates that will impact its net interest expense.

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