Shares of Sleep Number Corp. tanked Wednesday, after the mattress maker and retailer swung to a surprise quarterly loss, predicted a loss for the full year and said it reached an agreement with a shareholder that had been pushing for change.
It was a “challenging” quarter for Sleep Number and the bedding industry, Chief Executive Shelly Ibach said late Tuesday. “The consumer demand trajectory changed abruptly midway through the quarter,” Ibach said in a statement.
The stock
SNBR,
plummeted 33% in midday trading, on track to end at the lowest since March 2011, when it closed at $11.432011. It was also headed for the biggest one-day selloff since July 28, when it fell 29.36%
In a call with analysts after the results, Ibach detailed the problems.
Demand “weakened significantly” and moved to the lowest on record in the quarter as consumers lost purchasing power, she said.
People shifted to “scrutinizing their spending” from spending selectively, and considerations around price and value “took on heightened importance,” Ibach said.
Sleep Number’s marketing, digital and sales promotional strategies failed to address the value-seeking and the changes in consumer behavior. Even though people continued to desire Sleep Number’s products, perceived affordability of its smart beds and other wares “became a real barrier,” she said.
Sleep Number lost $2.32 million, or 10 cents a share, in the third quarter, versus earnings of $5 million, or 22 cents a share, in the year-ago quarter.
Revenue dropped 13% to $473 million, the company said.
Analysts polled by FactSet expected the company to earn 16 cents a share on sales of $509 million in the quarter.
Sleep Number also kicked off a plan to reduce costs in light of the lower demand. It hopes the plan will result in about $50 million less in operating expenses next year, the company said.
The cost-restructuring actions are “broad-based” and include cutting laying of about 500 employees, or 10% of the workforce, as well as store closures, the company said.
The layoffs will occur “across all areas of the organization,” including in corporate and research and development, the company said. It plans to close 40 to 50 stores by the end of next year, and slow down the rate of new store openings and remodels.
The restructuring will result in up to $20 million in one-time costs, with about $10 million of the costs falling in the fourth quarter, the company said.
Sleep Number also dialed back its 2023 EPS outlook, calling for a per-share loss of up to 70 cents, including the fourth-quarter restructuring charges.
That compares with a July guidance of 2023 EPS in a range between $1.25 and $1.75.
Separately, Sleep Number appointed Stephen E. Macadam and Hilary A. Schneider to its board, effective immediately, expanding the board to 12 people.
In conjunction with the appointments, Sleep Number entered into a cooperation agreement with shareholder Stadium Capital Management LLC.
As part of the agreement, the board has established a “capital allocation and value enhancement committee” to review capital use and investments, it said.
Independent director Michael J. Harrison said that the company was “grateful to have reached an agreement with Stadium Capital on a constructive path forward and are looking forward to working with Steve and Hilary toward our common goal of delivering long-term value for our shareholders.”
Stadium Capital, which owns about 9% of Sleep Number, published a letter in September criticizing the company, its executives, and the “abysmal” shareholder returns.
Shares of Sleep Number have lost 38% so far this year through Tuesday, contrasting with gains of about 14% for the S&P 500 index
SPX.
—Tomi Kilgore contributed to this article.
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