Why Is Sleep Number (SNBR) Stock Rocketing Higher Today

Jabin Bastian /
2024/02/23 12:00 pm EST

What Happened:

Shares of bedding manufacturer and retailer Sleep Number (NASDAQ:SNBR) jumped 41.1% in the morning session after the company reported fourth-quarter results that exceeded analysts' revenue expectations. That likely relieved investors as the mattress industry remained in a downturn. Although Sleep Number missed analysts' EPS estimates from a GAAP perspective, its adjusted EPS beat by a wide margin (loss of $0.58 per share vs estimates of a $0.88 per share loss). The adjustment added back $16 million of restructuring costs the company recorded during the quarter, which was related to the planned cost-cutting initiatives management is executing; in 2024, the company expects to save $40-45 million in operating expenses. 

Looking ahead, management expects the industry to remain pressured but shared free cash flow guidance that significantly beat Wall Street's estimates ($70 million vs estimates of $48 million). Overall, this was a mixed quarter for Sleep Number, but its free cash flow guidance was impressive.

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What is the market telling us:

Sleep Number's shares are very volatile and over the last year have had 59 moves greater than 5%. But moves this big are very rare even for Sleep Number and that is indicating to us that this news had a significant impact on the market's perception of the business. 

The biggest move we wrote about over the last year was 4 months ago, when the stock dropped 41.9% on the news that the company reported third-quarter results with revenue and EPS missing Wall Street's estimates, and it lowered its full-year guidance significantly for both metrics. Same-store sales also missed, and free cash flow turned negative. Management cited a downturn in demand for mattresses during the quarter, consistent with commentary we've heard from the broader consumer durables sector. As a reminder, bedding sales are highly correlated to home sales (you get a new bed when you move), and with high interest rates, the housing market has ground to a halt compared to years past. To adapt to the changing economic environment, Sleep Number initiated cost reductions that are expected to reduce 2024 operating expenses by approximately $50 million. This includes a reduction in workforce by around 10% or approximately 500 team members. Overall, this was a bad quarter for Sleep Number.

Sleep Number is up 1.8% since the beginning of the year, but at $14.50 per share it is still trading 63.6% below its 52-week high of $39.86 from February 2023. Investors who bought $1,000 worth of Sleep Number's shares 5 years ago would now be looking at an investment worth $332.03.

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