|
|
|
Minnesota
|
|
41-1597886
|
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification No.)
|
1001 Third Avenue South
|
|
|
Minneapolis, Minnesota
|
|
55404
|
(Address of principal executive offices)
|
|
(Zip Code)
|
Large accelerated filer
|
ý
|
|
|
Accelerated filer
o
|
Non-accelerated filer
|
o
|
(Do not check if a smaller reporting company)
|
|
Smaller reporting company
o
|
|
|
|
|
Emerging growth company
o
|
|
|
|
Page
|
|
|
|
|
|
||
|
|
|
Item 1.
|
Financial Statements
(unaudited)
|
|
|
||
|
||
|
Condensed Consolidated Statements of Shareholders' (Deficit) Equity
|
|
|
||
|
||
Item 2.
|
||
Item 3.
|
||
Item 4.
|
||
|
|
|
|
|
|
Item 1.
|
||
Item 1A.
|
||
Item 2.
|
||
Item 3.
|
||
Item 4.
|
||
Item 5.
|
||
Item 6.
|
||
|
June 30,
2018 |
|
December 30,
2017 |
||||
Assets
|
|
|
|
||||
Current assets:
|
|
|
|
||||
Cash and cash equivalents
|
$
|
2,407
|
|
|
$
|
3,651
|
|
Accounts receivable, net of allowance for doubtful accounts of $547 and $714, respectively
|
22,065
|
|
|
19,312
|
|
||
Inventories
|
90,241
|
|
|
84,298
|
|
||
Income taxes receivable
|
6,527
|
|
|
—
|
|
||
Prepaid expenses
|
10,580
|
|
|
17,565
|
|
||
Other current assets
|
26,399
|
|
|
27,665
|
|
||
Total current assets
|
158,219
|
|
|
152,491
|
|
||
|
|
|
|
|
|||
Non-current assets:
|
|
|
|
|
|||
Property and equipment, net
|
202,378
|
|
|
208,646
|
|
||
Goodwill and intangible assets, net
|
76,497
|
|
|
77,588
|
|
||
Deferred income taxes
|
—
|
|
|
2,625
|
|
||
Other non-current assets
|
33,256
|
|
|
30,484
|
|
||
Total assets
|
$
|
470,350
|
|
|
$
|
471,834
|
|
|
|
|
|
|
|||
Liabilities and Shareholders’ (Deficit) Equity
|
|
|
|
|
|||
Current liabilities:
|
|
|
|
|
|||
Borrowings under revolving credit facility
|
$
|
182,500
|
|
|
$
|
24,500
|
|
Accounts payable
|
100,996
|
|
|
129,194
|
|
||
Customer prepayments
|
28,136
|
|
|
27,767
|
|
||
Accrued sales returns
|
16,527
|
|
|
19,270
|
|
||
Compensation and benefits
|
24,688
|
|
|
34,602
|
|
||
Taxes and withholding
|
9,078
|
|
|
24,234
|
|
||
Other current liabilities
|
48,065
|
|
|
46,822
|
|
||
Total current liabilities
|
409,990
|
|
|
306,389
|
|
||
|
|
|
|
|
|||
Non-current liabilities:
|
|
|
|
|
|||
Deferred income taxes
|
4,587
|
|
|
—
|
|
||
Other non-current liabilities
|
76,927
|
|
|
76,289
|
|
||
Total liabilities
|
491,504
|
|
|
382,678
|
|
||
|
|
|
|
|
|||
Shareholders’ (deficit) equity:
|
|
|
|
|
|||
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding
|
—
|
|
|
—
|
|
||
Common stock, $0.01 par value; 142,500 shares authorized, 34,893 and 38,813 shares issued and outstanding, respectively
|
349
|
|
|
388
|
|
||
Additional paid-in capital
|
—
|
|
|
—
|
|
||
(Accumulated deficit) retained earnings
|
(21,503
|
)
|
|
88,768
|
|
||
Total shareholders’ (deficit) equity
|
(21,154
|
)
|
|
89,156
|
|
||
Total liabilities and shareholders’ (deficit) equity
|
$
|
470,350
|
|
|
$
|
471,834
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
2018 |
|
July 1,
2017 |
|
June 30,
2018 |
|
July 1,
2017 |
||||||||
Net sales
|
$
|
316,338
|
|
|
$
|
284,673
|
|
|
$
|
704,971
|
|
|
$
|
678,572
|
|
Cost of sales
|
127,450
|
|
|
108,054
|
|
|
278,606
|
|
|
255,494
|
|
||||
Gross profit
|
188,888
|
|
|
176,619
|
|
|
426,365
|
|
|
423,078
|
|
||||
|
|
|
|
|
|
|
|
|
|
|
|||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|||||||
Sales and marketing
|
151,106
|
|
|
144,498
|
|
|
323,023
|
|
|
313,764
|
|
||||
General and administrative
|
28,828
|
|
|
28,819
|
|
|
60,562
|
|
|
62,588
|
|
||||
Research and development
|
6,868
|
|
|
6,363
|
|
|
13,793
|
|
|
13,959
|
|
||||
Total operating expenses
|
186,802
|
|
|
179,680
|
|
|
397,378
|
|
|
390,311
|
|
||||
Operating income (loss)
|
2,086
|
|
|
(3,061
|
)
|
|
28,987
|
|
|
32,767
|
|
||||
Other expense, net
|
1,453
|
|
|
282
|
|
|
1,978
|
|
|
420
|
|
||||
Income (loss) before income taxes
|
633
|
|
|
(3,343
|
)
|
|
27,009
|
|
|
32,347
|
|
||||
Income tax (benefit) expense
|
(3,111
|
)
|
|
(2,565
|
)
|
|
2,717
|
|
|
8,664
|
|
||||
Net income (loss)
|
$
|
3,744
|
|
|
$
|
(778
|
)
|
|
$
|
24,292
|
|
|
$
|
23,683
|
|
|
|
|
|
|
|
|
|
||||||||
Basic net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
||||||
Net income (loss) per share – basic
|
$
|
0.10
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.65
|
|
|
$
|
0.56
|
|
Weighted-average shares – basic
|
36,138
|
|
|
41,716
|
|
|
37,191
|
|
|
42,233
|
|
||||
Diluted net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
||||||
Net income (loss) per share – diluted
|
$
|
0.10
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.64
|
|
|
$
|
0.55
|
|
Weighted-average shares – diluted
|
36,844
|
|
|
41,716
|
|
|
38,096
|
|
|
43,080
|
|
|
Common Stock
|
|
Additional
Paid-in
Capital
|
|
Retained
Earnings
(Accumulated
Deficit)
|
|
Total
|
|||||||||||
|
Shares
|
|
Amount
|
|
|
|
||||||||||||
Balance at December 30, 2017
|
38,813
|
|
|
$
|
388
|
|
|
$
|
—
|
|
|
$
|
88,768
|
|
|
$
|
89,156
|
|
Net income
|
—
|
|
|
—
|
|
|
—
|
|
|
24,292
|
|
|
24,292
|
|
||||
Exercise of common stock options
|
124
|
|
|
1
|
|
|
1,595
|
|
|
—
|
|
|
1,596
|
|
||||
Stock-based compensation
|
254
|
|
|
3
|
|
|
6,739
|
|
|
—
|
|
|
6,742
|
|
||||
Repurchases of common stock
|
(4,298
|
)
|
|
(43
|
)
|
|
(8,334
|
)
|
|
(134,563
|
)
|
|
(142,940
|
)
|
||||
Balance at June 30, 2018
|
34,893
|
|
|
$
|
349
|
|
|
$
|
—
|
|
|
$
|
(21,503
|
)
|
|
$
|
(21,154
|
)
|
|
Six Months Ended
|
||||||
|
June 30,
2018 |
|
July 1,
2017 |
||||
Cash flows from operating activities:
|
|
|
|
||||
Net income
|
$
|
24,292
|
|
|
$
|
23,683
|
|
Adjustments to reconcile net income to net cash provided by operating activities:
|
|
|
|
|
|||
Depreciation and amortization
|
31,089
|
|
|
31,177
|
|
||
Stock-based compensation
|
6,742
|
|
|
7,876
|
|
||
Net loss on disposals and impairments of assets
|
15
|
|
|
2
|
|
||
Deferred income taxes
|
7,212
|
|
|
4,974
|
|
||
Changes in operating assets and liabilities:
|
|
|
|
|
|||
Accounts receivable
|
(2,753
|
)
|
|
(4,781
|
)
|
||
Inventories
|
(5,943
|
)
|
|
5,170
|
|
||
Income taxes
|
(19,075
|
)
|
|
(14,532
|
)
|
||
Prepaid expenses and other assets
|
8,242
|
|
|
2,110
|
|
||
Accounts payable
|
(4,859
|
)
|
|
11,858
|
|
||
Customer prepayments
|
369
|
|
|
19,518
|
|
||
Accrued compensation and benefits
|
(9,944
|
)
|
|
9,834
|
|
||
Other taxes and withholding
|
(2,608
|
)
|
|
(6,032
|
)
|
||
Other accruals and liabilities
|
(3,648
|
)
|
|
(2,050
|
)
|
||
Net cash provided by operating activities
|
29,131
|
|
|
88,807
|
|
||
|
|
|
|
||||
Cash flows from investing activities:
|
|
|
|
||||
Purchases of property and equipment
|
(21,341
|
)
|
|
(27,132
|
)
|
||
Proceeds from sales of property and equipment
|
70
|
|
|
—
|
|
||
Net cash used in investing activities
|
(21,271
|
)
|
|
(27,132
|
)
|
||
|
|
|
|
||||
Cash flows from financing activities:
|
|
|
|
|
|
||
Repurchases of common stock
|
(142,940
|
)
|
|
(80,094
|
)
|
||
Net increase in short-term borrowings
|
133,253
|
|
|
3,098
|
|
||
Proceeds from issuance of common stock
|
1,596
|
|
|
2,654
|
|
||
Debt issuance costs
|
(1,013
|
)
|
|
(10
|
)
|
||
Net cash used in financing activities
|
(9,104
|
)
|
|
(74,352
|
)
|
||
|
|
|
|
||||
Net decrease in cash, cash equivalents and restricted cash
|
(1,244
|
)
|
|
(12,677
|
)
|
||
Cash, cash equivalents and restricted cash, at beginning of period
|
3,651
|
|
|
14,759
|
|
||
Cash, cash equivalents and restricted cash, at end of period
|
$
|
2,407
|
|
|
$
|
2,082
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||
|
|
June 30,
2018 |
|
June 30,
2018 |
||||
Retail
|
|
$
|
286,853
|
|
|
$
|
642,922
|
|
Online and phone
|
|
24,927
|
|
|
52,894
|
|
||
Company-Controlled channel
|
|
311,780
|
|
|
695,816
|
|
||
Wholesale/Other channel
|
|
4,558
|
|
|
9,155
|
|
||
Total
|
|
$
|
316,338
|
|
|
$
|
704,971
|
|
|
Six Months Ended
|
||||||
|
June 30,
2018 |
|
July 1,
2017 |
||||
Balance at beginning of year
|
$
|
19,270
|
|
|
$
|
15,222
|
|
Additions that reduce net sales
|
36,555
|
|
|
32,434
|
|
||
Deductions from reserves
|
(39,298
|
)
|
|
(35,054
|
)
|
||
Balance at end of period
|
$
|
16,527
|
|
|
$
|
12,602
|
|
|
June 30,
2018 |
|
December 30,
2017 |
||||
Raw materials
|
$
|
4,285
|
|
|
$
|
6,577
|
|
Work in progress
|
214
|
|
|
170
|
|
||
Finished goods
|
85,742
|
|
|
77,551
|
|
||
|
$
|
90,241
|
|
|
$
|
84,298
|
|
|
June 30, 2018
|
|
December 30, 2017
|
||||||||||||
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
|
Gross Carrying
Amount
|
|
Accumulated
Amortization
|
||||||||
Developed technologies
|
$
|
18,851
|
|
|
$
|
7,796
|
|
|
$
|
18,851
|
|
|
$
|
6,705
|
|
Trade names/trademarks
|
101
|
|
|
101
|
|
|
101
|
|
|
101
|
|
||||
|
$
|
18,952
|
|
|
$
|
7,897
|
|
|
$
|
18,952
|
|
|
$
|
6,806
|
|
|
June 30,
2018 |
|
December 30,
2017 |
||||
Outstanding borrowings
|
$
|
182,500
|
|
|
$
|
24,500
|
|
Outstanding letters of credit
|
$
|
3,450
|
|
|
$
|
3,150
|
|
Additional borrowing capacity
|
$
|
114,050
|
|
|
$
|
125,500
|
|
Weighted-average interest rate
|
3.6
|
%
|
|
3.1
|
%
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
June 30,
2018 |
|
July 1,
2017 |
|
June 30,
2018 |
|
July 1,
2017 |
||||||||
Amount repurchased under Board-approved share repurchase program
|
|
$
|
65,000
|
|
|
$
|
25,000
|
|
|
$
|
140,000
|
|
|
$
|
75,000
|
|
Amount repurchased in connection with the vesting of employee restricted stock grants
|
|
292
|
|
|
300
|
|
|
2,940
|
|
|
5,094
|
|
||||
Total amount repurchased
|
|
$
|
65,292
|
|
|
$
|
25,300
|
|
|
$
|
142,940
|
|
|
$
|
80,094
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
June 30,
2018 |
|
July 1,
2017 |
|
June 30,
2018 |
|
July 1,
2017 |
||||||||
Stock awards
|
|
$
|
2,996
|
|
|
$
|
3,584
|
|
|
$
|
5,488
|
|
|
$
|
6,720
|
|
Stock options
|
|
662
|
|
|
588
|
|
|
1,254
|
|
|
1,156
|
|
||||
Total stock-based compensation expense
|
|
3,658
|
|
|
4,172
|
|
|
6,742
|
|
|
7,876
|
|
||||
Income tax benefit
|
|
896
|
|
|
1,406
|
|
|
1,652
|
|
|
2,654
|
|
||||
Total stock-based compensation expense, net of tax
|
|
$
|
2,762
|
|
|
$
|
2,766
|
|
|
$
|
5,090
|
|
|
$
|
5,222
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
2018 |
|
July 1,
2017 |
|
June 30,
2018 |
|
July 1,
2017 |
||||||||
Interest expense
|
$
|
(1,454
|
)
|
|
$
|
(288
|
)
|
|
$
|
(1,981
|
)
|
|
$
|
(470
|
)
|
Interest income
|
1
|
|
|
6
|
|
|
3
|
|
|
50
|
|
||||
Other expense, net
|
$
|
(1,453
|
)
|
|
$
|
(282
|
)
|
|
$
|
(1,978
|
)
|
|
$
|
(420
|
)
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
June 30,
2018 |
|
July 1,
2017 |
|
June 30,
2018 |
|
July 1,
2017 |
||||||||
Net income (loss)
|
$
|
3,744
|
|
|
$
|
(778
|
)
|
|
$
|
24,292
|
|
|
$
|
23,683
|
|
|
|
|
|
|
|
|
|
||||||||
Reconciliation of weighted-average shares outstanding:
|
|
|
|
|
|
|
|
|
|||||||
Basic weighted-average shares outstanding
|
36,138
|
|
|
41,716
|
|
|
37,191
|
|
|
42,233
|
|
||||
Dilutive effect of stock-based awards
|
706
|
|
|
—
|
|
|
905
|
|
|
847
|
|
||||
Diluted weighted-average shares outstanding
|
36,844
|
|
|
41,716
|
|
|
38,096
|
|
|
43,080
|
|
||||
|
|
|
|
|
|
|
|
||||||||
Net income (loss) per share – basic
|
$
|
0.10
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.65
|
|
|
$
|
0.56
|
|
Net income (loss) per share – diluted
|
$
|
0.10
|
|
|
$
|
(0.02
|
)
|
|
$
|
0.64
|
|
|
$
|
0.55
|
|
|
Six Months Ended
|
||||||
|
June 30,
2018 |
|
July 1,
2017 |
||||
Balance at beginning of year
|
$
|
9,320
|
|
|
$
|
8,633
|
|
Additions charged to costs and expenses for current-year sales
|
6,106
|
|
|
4,243
|
|
||
Deductions from reserves
|
(5,790
|
)
|
|
(3,665
|
)
|
||
Changes in liability for pre-existing warranties during the current year, including expirations
|
132
|
|
|
(55
|
)
|
||
Balance at end of period
|
$
|
9,768
|
|
|
$
|
9,156
|
|
ITEM 2.
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|
•
|
Risk Factors
|
•
|
Company Overview
|
•
|
Results of Operations
|
•
|
Liquidity and Capital Resources
|
•
|
Non-GAAP Data
|
•
|
Off-Balance-Sheet Arrangements and Contractual Obligations
|
•
|
Critical Accounting Policies
|
•
|
Current and future general and industry economic trends and consumer confidence;
|
•
|
The effectiveness of our marketing messages;
|
•
|
The efficiency of our advertising and promotional efforts;
|
•
|
Our ability to execute our Company-Controlled 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;
|
•
|
The potential for claims that our products, processes, advertising or trademarks infringe the intellectual property rights of others;
|
•
|
Availability of attractive and cost-effective consumer credit options;
|
•
|
Shortages in supply due to “just-in-time” manufacturing processes with minimal levels of inventory utilized for some of our products, or due to global shortages of electronic componentry;
|
•
|
Our dependence on significant suppliers and our ability to maintain relationships with key suppliers, including several sole-source suppliers;
|
•
|
Rising commodity costs and other inflationary pressures;
|
•
|
Risks inherent in global sourcing activities, including the potential for shortages in supply;
|
•
|
Risks of disruption in the operation of either of our two main manufacturing facilities;
|
•
|
Increasing government regulation and the costs of compliance and risks of non-compliance with existing and new regulations;
|
•
|
Pending or unforeseen litigation and the potential for adverse publicity associated with litigation;
|
•
|
The adequacy of our management information systems to meet the evolving needs of our business and existing and evolving regulatory standards applicable to data privacy and security;
|
•
|
The costs and potential disruptions to our business related to upgrading our management information systems;
|
•
|
The vulnerability of our management 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; and
|
•
|
Our ability to attract, retain and motivate qualified management, executive and other key employees, including qualified retail sales professionals and managers.
|
•
|
Net sales for the
three months ended
June 30, 2018
increased
11%
to
$316 million
, compared with
$285 million
for the same period one year ago. Net sales for the comparable period one year ago were affected by an approximately $25 million shift in sales from our second quarter to our third quarter as a result of a delay in deliveries and shipments related to an inventory shortage at a new supplier.
|
•
|
The
11%
sales
increase
resulted from a
9%
comparable sales
increase
in our Company-Controlled channel and
3
percentage points (ppt.) of growth from sales generated by
16
net new stores opened in the past 12 months.
|
•
|
The transition to our full line of Sleep Number 360
®
smart beds continued during the quarter and is now complete. In May 2017, we began selling our i7 and i10 smart beds. We launched a third smart bed model (the p6) in December 2017. In April 2018, we
|
•
|
Sales per store (Company-Controlled channel sales for stores open at least one year) on a trailing twelve-month basis for the period ended
June 30, 2018
totaled
$2.6 million
, 4% higher than the same period one-year ago.
|
•
|
Operating income for the three months ended June 30, 2018 was
$2 million
, a
$5 million
increase from an operating loss of
$3 million
for the prior-year period. Our operating income rate increased to
0.7%
of net sales, compared with an operating loss rate of
1.1%
of net sales for the same period last year. The current-period's operating income rate benefited from operating expense controls and sales leverage which mitigated the lower gross profit rate. Prior year's operating loss was affected by the sales shift discussed above.
|
•
|
Net income for the three months ended June 30, 2018 was
$4 million
, or
$0.10
per diluted share, compared with a net loss of
$1 million
, or
$(0.02)
per diluted share, for the same period one year ago. The current quarter includes a one-time tax planning benefit of $2.9 million, or $0.08 per diluted share, associated with the new Tax Cuts and Jobs Act.
|
•
|
Cash provided by operating activities totaled
$29 million
for the
six months ended
June 30, 2018
, compared with
$89 million
for the same period one year ago. The largest drivers in the year-over-year change in operating cash flows resulted from the timing of performance-based incentive compensation payments and expenses, fluctuations in customer prepayments resulting from higher than normal prepayments at July 1, 2017 (delayed deliveries and shipments due to an inventory shortage from one of our new suppliers) and year-over-year changes in inventory levels. Investing activities for the current-year period included
$21 million
of property and equipment purchases, compared with
$27 million
for the same period last year.
|
•
|
At
June 30, 2018
, cash and cash equivalents totaled
$2 million
and we ended the quarter with
$183 million
of borrowings under our
$300 million
revolving credit facility.
|
•
|
In the
second
quarter of
2018
, we repurchased
2.1 million
shares of our common stock under our Board-approved share repurchase program at a cost of
$65 million
(an average of
$30.36
per share). As of June 30, 2018, the remaining authorization under our Board-approved share repurchase program was $325 million.
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||||||||||||||
|
|
June 30,
2018 |
|
July 1,
2017 |
|
June 30,
2018 |
|
July 1,
2017 |
||||||||||||||||||||
Net sales
|
|
$
|
316.3
|
|
|
100.0
|
%
|
|
$
|
284.7
|
|
|
100.0
|
%
|
|
$
|
705.0
|
|
|
100.0
|
%
|
|
$
|
678.6
|
|
|
100.0
|
%
|
Cost of sales
|
|
127.5
|
|
|
40.3
|
%
|
|
108.1
|
|
|
38.0
|
%
|
|
278.6
|
|
|
39.5
|
%
|
|
255.5
|
|
|
37.7
|
%
|
||||
Gross profit
|
|
188.9
|
|
|
59.7
|
%
|
|
176.6
|
|
|
62.0
|
%
|
|
426.4
|
|
|
60.5
|
%
|
|
423.1
|
|
|
62.3
|
%
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Sales and marketing
|
|
151.1
|
|
|
47.8
|
%
|
|
144.5
|
|
|
50.8
|
%
|
|
323.0
|
|
|
45.8
|
%
|
|
313.8
|
|
|
46.2
|
%
|
||||
General and administrative
|
|
28.8
|
|
|
9.1
|
%
|
|
28.8
|
|
|
10.1
|
%
|
|
60.6
|
|
|
8.6
|
%
|
|
62.6
|
|
|
9.2
|
%
|
||||
Research and development
|
|
6.9
|
|
|
2.2
|
%
|
|
6.4
|
|
|
2.2
|
%
|
|
13.8
|
|
|
2.0
|
%
|
|
14.0
|
|
|
2.1
|
%
|
||||
Total operating expenses
|
|
186.8
|
|
|
59.1
|
%
|
|
179.7
|
|
|
63.1
|
%
|
|
397.4
|
|
|
56.4
|
%
|
|
390.3
|
|
|
57.5
|
%
|
||||
Operating income
|
|
2.1
|
|
|
0.7
|
%
|
|
(3.1
|
)
|
|
(1.1
|
%)
|
|
29.0
|
|
|
4.1
|
%
|
|
32.8
|
|
|
4.8
|
%
|
||||
Other expense, net
|
|
1.5
|
|
|
0.5
|
%
|
|
0.3
|
|
|
0.1
|
%
|
|
2.0
|
|
|
0.3
|
%
|
|
0.4
|
|
|
0.1
|
%
|
||||
Income before income taxes
|
|
0.6
|
|
|
0.2
|
%
|
|
(3.3
|
)
|
|
(1.2
|
%)
|
|
27.0
|
|
|
3.8
|
%
|
|
32.3
|
|
|
4.8
|
%
|
||||
Income tax (benefit) expense
|
|
(3.1
|
)
|
|
(1.0
|
%)
|
|
(2.6
|
)
|
|
(0.9
|
%)
|
|
2.7
|
|
|
0.4
|
%
|
|
8.7
|
|
|
1.3
|
%
|
||||
Net income
|
|
$
|
3.7
|
|
|
1.2
|
%
|
|
$
|
(0.8
|
)
|
|
(0.3
|
%)
|
|
$
|
24.3
|
|
|
3.4
|
%
|
|
$
|
23.7
|
|
|
3.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic
|
|
$
|
0.10
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
|
|
$
|
0.65
|
|
|
|
|
$
|
0.56
|
|
|
|
|
||
Diluted
|
|
$
|
0.10
|
|
|
|
|
|
$
|
(0.02
|
)
|
|
|
|
$
|
0.64
|
|
|
|
|
$
|
0.55
|
|
|
|
|
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Weighted-average number of common shares:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Basic
|
|
36.1
|
|
|
|
|
|
41.7
|
|
|
|
|
37.2
|
|
|
|
|
42.2
|
|
|
|
|
||||||
Diluted
|
|
36.8
|
|
|
|
|
|
41.7
|
|
|
|
|
38.1
|
|
|
|
|
43.1
|
|
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||
|
|
June 30,
2018 |
|
July 1,
2017 |
|
June 30,
2018 |
|
July 1,
2017 |
||||
Company-Controlled channel
|
|
98.6
|
%
|
|
97.7
|
%
|
|
98.7
|
%
|
|
98.0
|
%
|
Wholesale/Other channel
|
|
1.4
|
%
|
|
2.3
|
%
|
|
1.3
|
%
|
|
2.0
|
%
|
Total
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
100.0
|
%
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||
|
|
June 30,
2018 |
|
July 1,
2017 |
|
June 30,
2018 |
|
July 1,
2017 |
||||
Sales change rates:
|
|
|
|
|
|
|
|
|
|
|
||
Retail comparable-store sales
(1)
|
|
8
|
%
|
|
(6
|
%)
|
|
1
|
%
|
|
(1
|
%)
|
Online and phone
|
|
19
|
%
|
|
26
|
%
|
|
12
|
%
|
|
22
|
%
|
Company-Controlled comparable sales change
|
|
9
|
%
|
|
(4
|
%)
|
|
2
|
%
|
|
0
|
%
|
Net opened/closed stores
|
|
3
|
%
|
|
8
|
%
|
|
3
|
%
|
|
9
|
%
|
Total Company-Controlled channel
|
|
12
|
%
|
|
4
|
%
|
|
5
|
%
|
|
9
|
%
|
Wholesale/Other channel
|
|
(29
|
%)
|
|
(31
|
%)
|
|
(33
|
%)
|
|
(27
|
%)
|
Total net sales change
|
|
11
|
%
|
|
3
|
%
|
|
4
|
%
|
|
8
|
%
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
|
June 30,
2018 |
|
July 1,
2017 |
|
June 30,
2018 |
|
July 1,
2017 |
||||||||
Average sales per store
(1)
($ in thousands)
|
|
$
|
2,645
|
|
|
$
|
2,535
|
|
|
|
|
|
||||
Average sales per square foot
(1)
|
|
$
|
985
|
|
|
$
|
983
|
|
|
|
|
|
||||
Stores > $1 million in net sales
(2)
|
|
98
|
%
|
|
97
|
%
|
|
|
|
|
||||||
Stores > $2 million in net sales
(2)
|
|
63
|
%
|
|
58
|
%
|
|
|
|
|
||||||
Average revenue per mattress unit –
Company-Controlled channel
(3)
|
|
$
|
4,508
|
|
|
$
|
4,306
|
|
|
$
|
4,459
|
|
|
$
|
4,155
|
|
|
|
|
Three Months Ended
|
|
Six Months Ended
|
||||||||
|
|
June 30,
2018 |
|
July 1,
2017 |
|
June 30,
2018 |
|
July 1,
2017 |
||||
Beginning of period
|
|
558
|
|
|
546
|
|
|
556
|
|
|
540
|
|
Opened
|
|
11
|
|
|
8
|
|
|
24
|
|
|
24
|
|
Closed
|
|
(4
|
)
|
|
(5
|
)
|
|
(15
|
)
|
|
(15
|
)
|
End of period
|
|
565
|
|
|
549
|
|
|
565
|
|
|
549
|
|
|
|
Six Months Ended
|
||||||
|
|
June 30,
2018 |
|
July 1,
2017 |
||||
Total cash provided by (used in):
|
|
|
|
|
||||
Operating activities
|
|
$
|
29.1
|
|
|
$
|
88.8
|
|
Investing activities
|
|
(21.3
|
)
|
|
(27.1
|
)
|
||
Financing activities
|
|
(9.1
|
)
|
|
(74.4
|
)
|
||
Net decrease in cash, cash equivalents and restricted cash
|
|
$
|
(1.2
|
)
|
|
$
|
(12.7
|
)
|
|
|
Three Months Ended
|
|
Trailing-Twelve
Months Ended
|
||||||||||||
|
|
June 30,
2018 |
|
July 1,
2017 |
|
June 30,
2018 |
|
July 1,
2017 |
||||||||
Net income (loss)
|
|
$
|
3,744
|
|
|
$
|
(778
|
)
|
|
$
|
65,686
|
|
|
$
|
60,715
|
|
Income tax (benefit) expense
|
|
(3,111
|
)
|
|
(2,565
|
)
|
|
20,014
|
|
|
25,597
|
|
||||
Interest expense
|
|
1,454
|
|
|
288
|
|
|
2,486
|
|
|
924
|
|
||||
Depreciation and amortization
|
|
15,326
|
|
|
14,918
|
|
|
60,945
|
|
|
60,170
|
|
||||
Stock-based compensation
|
|
3,658
|
|
|
4,172
|
|
|
14,629
|
|
|
12,231
|
|
||||
Asset impairments
|
|
85
|
|
|
2
|
|
|
327
|
|
|
47
|
|
||||
Adjusted EBITDA
|
|
$
|
21,156
|
|
|
$
|
16,037
|
|
|
$
|
164,087
|
|
|
$
|
159,684
|
|
|
|
Six Months Ended
|
|
Trailing-Twelve
Months Ended
|
||||||||||||
|
|
June 30,
2018 |
|
July 1,
2017 |
|
June 30,
2018 |
|
July 1,
2017 |
||||||||
Net cash provided by operating activities
|
|
$
|
29,131
|
|
|
$
|
88,807
|
|
|
$
|
112,931
|
|
|
$
|
193,332
|
|
Subtract: Purchases of property and equipment
|
|
21,341
|
|
|
27,132
|
|
|
54,038
|
|
|
61,220
|
|
||||
Free cash flow
|
|
$
|
7,790
|
|
|
$
|
61,675
|
|
|
$
|
58,893
|
|
|
$
|
132,112
|
|
|
|
Trailing-Twelve
Months Ended
|
||||||
|
|
June 30,
2018 |
|
July 1,
2017 |
||||
Net operating profit after taxes (NOPAT)
|
|
|
|
|
||||
Operating income
|
|
$
|
88,135
|
|
|
$
|
87,124
|
|
Add: Rent expense
(1)
|
|
76,215
|
|
|
70,815
|
|
||
Add: Interest income
|
|
50
|
|
|
112
|
|
||
Less: Depreciation on capitalized operating leases
(2)
|
|
(19,640
|
)
|
|
(17,956
|
)
|
||
Less: Income taxes
(3)
|
|
(43,934
|
)
|
|
(46,095
|
)
|
||
NOPAT
|
|
$
|
100,826
|
|
|
$
|
94,000
|
|
|
|
|
|
|
||||
Average invested capital
|
|
|
|
|
||||
Total equity
|
|
$
|
(21,154
|
)
|
|
$
|
114,439
|
|
Add: Long-term debt
(4)
|
|
183,405
|
|
|
—
|
|
||
Add: Capitalized operating lease obligations
(5)
|
|
609,720
|
|
|
566,520
|
|
||
Total invested capital at end of period
|
|
$
|
771,971
|
|
|
$
|
680,959
|
|
Average invested capital
(6)
|
|
$
|
705,575
|
|
|
$
|
690,524
|
|
Return on invested capital (ROIC)
(7)
|
|
14.3
|
%
|
|
13.6
|
%
|
(a) – (b)
|
Not applicable.
|
(c)
|
Issuer Purchases of Equity Securities
|
Fiscal 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)
|
||||||
April 1, 2018 through April 28, 2018
|
|
616,438
|
|
|
$
|
33.19
|
|
|
610,258
|
|
|
$
|
369,757,000
|
|
April 29, 2018 through May 26, 2018
|
|
712,304
|
|
|
28.60
|
|
|
711,933
|
|
|
349,396,000
|
|
||
May 27, 2018 through June 30, 2018
|
|
820,816
|
|
|
29.80
|
|
|
818,559
|
|
|
325,000,000
|
|
||
Total
|
|
2,149,558
|
|
|
$
|
30.37
|
|
|
2,140,750
|
|
|
$
|
325,000,000
|
|
|
(1)
|
Under our Board-approved $500 million share repurchase program, we repurchased
2,140,750
shares of our common stock at a cost of
$65 million
(based on trade dates) during the three months ended
June 30, 2018
.
|
(2)
|
In connection with the vesting of employee restricted stock grants, we also repurchased
8,808
shares of our common stock at a cost of
$0.3 million
during the three months ended
June 30, 2018
.
|
(3)
|
There is no expiration date governing the period over which we can repurchase shares under our Board-approved share repurchase program. Any repurchased shares are constructively retired and returned to an unissued status.
|
Exhibit
Number
|
|
Description
|
|
Method of Filing
|
10.1
|
|
|
Filed herewith
|
|
31.1
|
|
|
Filed herewith
|
|
31.2
|
|
|
Filed herewith
|
|
32.1
|
|
|
Furnished herewith
(2)
|
|
32.2
|
|
|
Furnished herewith
(2)
|
|
101
|
|
The following financial information from the Company's Quarterly Report on Form 10-Q for the period ended June 30, 2018, filed with the SEC on August 3, 2018, formatted in eXtensible Business Reporting Language: (i) Condensed Consolidated Balance Sheets as of June 30, 2018 and December 30, 2017; (ii) Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018 and July 1, 2017; (iii) Condensed Consolidated Statement of Shareholders' (Deficit) Equity for the six months ended June 30, 2018; (iv) Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and July 1, 2017; and (v) Notes to Condensed Consolidated Financial Statements.
|
|
Filed herewith
|
|
|
SLEEP NUMBER CORPORATION
|
|
||
|
|
(Registrant)
|
|
||
|
|
|
|
||
Dated:
|
August 3, 2018
|
By:
|
|
/s/ Shelly R. Ibach
|
|
|
|
|
|
Shelly R. Ibach
|
|
|
|
|
|
Chief Executive Officer
|
|
|
|
|
|
(principal executive officer)
|
|
|
|
|
|
|
|
|
|
By:
|
|
/s/ Robert J. Poirier
|
|
|
|
|
|
Robert J. Poirier
|
|
|
|
|
|
Chief Accounting Officer
|
|
|
|
|
|
(principal accounting officer)
|
|
I.
|
AMENDMENTS TO THE AGREEMENT
|
(d)
|
Credit Criteria for Internet and Telephone Sales
. Bank will use commercially reasonable efforts
XXXX
. Bank’s credit criteria for the Internet and telephone channels
XXXX
. From time to time, Retailer may
XXXX
.
|
(a)
|
Bank initially will make available under the Program those credit-based promotions and corresponding Retailer Fee Percentages described on the attached Schedule 6(a). Subject to the qualifications set forth below in this 6(a), Retailer shall have the right to reduce any Retailer Fee Percentage on Schedule 6(a) (as the same may be adjusted from time to time pursuant to Section 6(c) or Section 6(e)) so as to reduce such Retailer Fee Percentage by
XXXX
below the Retailer Fee Percentage actually set forth on such Schedule (each such reduced rate is referred to as a “
Special Discount Rate
”); provided, that (i) such reduction shall be subject to the Special Discount Cap (as defined below), and (ii) for clarity, the application of
XXXX
reduction shall in no way result in any Retailer
|
(c)
|
(i) At the end of the
XXXX
and each
XXXX
thereafter, Bank and Retailer will review and evaluate the effectiveness of the Program generally (including the credit-based promotion sales mix, the overall level of sales charged to Accounts, and Account fraud and credit losses during such period), as well as the performance of each credit-based promotion during such period. Based on such review, Bank may, after consultation with and notice to Retailer, adjust the Retailer Fee Percentages and, for any credit-based promotion, terminate such promotion or adjust the Retailer Fee Percentage applicable thereto. In addition, Retailer acknowledges that Bank may modify, terminate, or replace one or more credit-based promotions due to changes in applicable law (including Regulation Z) or regulatory guidance. Notwithstanding the foregoing, Bank may review and adjust the Retailer Fee Percentages applicable to internet and telephone sales at the end of the
XXXX
and
XXXX
thereafter after complying with consultation and notice requirements of this section. As used herein
XXXX
means the
XXXX
commencing on the Effective Date and each such
XXXX
thereafter during the term hereof and any shorter prior from the beginning of a
XXXX
until the termination of this Agreement.
|
(a)
|
This Agreement shall continue until the end of the day on December 31, 2023 (the “Term”).
|
SYNCHRONY BANK
By:
/s/ Anthony S. Foster
Its:
SVP
|
SLEEP NUMBER CORPORATION
SELECT COMFORT RETAIL CORPORATION
By:
/s/ Andy Carlin
Its:
EVP/Chief Sales and Services Officer
|
Promotion
|
Retailer Fee Percentage
|
|
|
Retail
|
Telephone/Internet
|
6 Month WPDI
|
XXXX
|
XXXX
|
12 Month WPDI
|
XXXX
|
XXXX
|
13 Month WPDI
|
XXXX
|
XXXX
|
14 Month WPDI
|
XXXX
|
XXXX
|
15 Month WPDI
|
XXXX
|
XXXX
|
16 Month WPDI
|
XXXX
|
XXXX
|
17 Month WPDI
|
XXXX
|
XXXX
|
18 Month WPDI
|
XXXX
|
XXXX
|
19 Month WPDI
|
XXXX
|
XXXX
|
20 Month WPDI
|
XXXX
|
XXXX
|
21 Month WPDI
|
XXXX
|
XXXX
|
22 Month WPDI
|
XXXX
|
XXXX
|
23 Month WPDI
|
XXXX
|
XXXX
|
24 Month WPDI
|
XXXX
|
XXXX
|
|
|
|
18 Month EPNI
|
XXXX
|
XXXX
|
24 Month EPNI
|
XXXX
|
XXXX
|
25 Month EPNI
|
XXXX
|
XXXX
|
26 Month EPNI
|
XXXX
|
XXXX
|
27 Month EPNI
|
XXXX
|
XXXX
|
28 Month EPNI
|
XXXX
|
XXXX
|
29 Month EPNI
|
XXXX
|
XXXX
|
30 Month EPNI
|
XXXX
|
XXXX
|
31 Month EPNI
|
XXXX
|
XXXX
|
32 Month EPNI
|
XXXX
|
XXXX
|
33 Month EPNI
|
XXXX
|
XXXX
|
34 Month EPNI
|
XXXX
|
XXXX
|
35 Month EPNI
|
XXXX
|
XXXX
|
36 Month EPNI
|
XXXX
|
XXXX
|
48 Month EPNI
|
XXXX
|
XXXX
|
60 Month EPNI
|
XXXX
|
XXXX
|
|
|
|
60 Month Fixed Pay @ 5.99%
|
XXXX
|
XXXX
|
72 Month Fixed Pay @ 5.99%
|
XXXX
|
XXXX
|
1.
|
I have reviewed this
quarterly
report on
Form 10-Q
of Sleep Number Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date:
|
August 3, 2018
|
|
|
|
|
|
|
|
|
|
/s/ Shelly R. Ibach
|
|
|
|
Shelly R. Ibach
|
|
|
|
Chief Executive Officer
|
1.
|
I have reviewed this
quarterly
report on
Form 10-Q
of Sleep Number Corporation;
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)), for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
|
5.
|
The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors (or persons performing the equivalent functions):
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
|
b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
|
Date:
|
August 3, 2018
|
|
|
|
|
|
|
|
|
|
/s/ David R. Callen
|
|
|
|
David R. Callen
|
|
|
|
Senior Vice President and Chief Financial Officer
|
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date:
|
August 3, 2018
|
|
|
|
|
|
|
|
|
|
/s/ Shelly R. Ibach
|
|
|
|
Shelly R. Ibach
|
|
|
|
Chief Executive Officer
|
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date:
|
August 3, 2018
|
|
|
|
|
|
|
|
|
|
/s/ David R. Callen
|
|
|
|
David R. Callen
|
|
|
|
Senior Vice President and Chief Financial Officer
|