Stay Awake For Sleep Number’s (NASDAQ: SNBR) Earnings Report

Sleep Number (NASDAQ:SNBR) will report earnings after the market closes on July 15. The consensus opinion is for the company to report negative earnings of 76 cents per share. However, the whisper number suggests Sleep Number will beat that forecast with a “less bad” report of negative 67 cents per share on revenue of $226.45 million.

Whether you choose to look at things from a consecutive quarter basis or a year-over-year basis, the numbers are not going to be good. That’s not unexpected understanding that the company shut down 80% of its stores by March 31 due to the global pandemic.

At this point, it’s critical to note that 92% of the company’s sales come from its brick-and-mortar retail channel, and with good reason. A mattress is one of the more personal decisions consumers can make.

That's why the revenue number intrigues me. Yes, it would mark the lowest quarterly revenue in four years. But it would also be surprisingly strong given the fact that customers didn’t have the opportunity to test drive the product.

Sleep Number Should Withstand the Pandemic

But there are other ways to look at revenue. In the company’s prior year’s earnings report, Sleep Number reported it had stress tested to test its liquidity even if sales were only going to reach 20% of last year’s level for the full year. A revenue number of around $220 million would be well above that. This suggests that liquidity should be no issue for the company.

For the last three years, Sleep Number has reported higher revenues on a full-year basis. That streak will almost undoubtedly end this year, but that shouldn’t discourage investors. Many stores simply were not open. And, as any restaurant will tell you, online can only make up for so much.

Still, investors will be curious to see how those numbers come in. And just as important, they will look to understand the company’s forward guidance.

Are All Beds Created Equal?

When it was first introduced, the idea of sleeping on an air mattress was something that sounded uncomfortable. Like something you would use on a camping trip. Obviously a company like Sleep Number didn’t see it that way, and the rest is history.

One reason for this is the company’s ability to maintain its own stores and distribution network. Of course, during the pandemic that model was put to the test.

The company is a major disrupter in the bedding industry. And it appears that Sleep Number is successfully figuring out to successfully compete with memory foam. In fact, many of the Sleep Number mattresses include a layer of memory foam.

But as more Americans have been staying home, and possibly spending more of that time in bed with a shorter commute, they may have opted for a better sleep experience. Investors should pay attention to see if the revenue numbers bear that out.

Sleep Number is Preparing For the Worst

In the company’s first-quarter earnings report, chief executive officer (CEO) Shelly Ibach put out this outlook for the company’s revenue, “We expect the existing government-mandated closures to continue to place meaningful pressure on sales through May and to a lesser extent, into June, followed by a gradual recovery in the back half of the year.”

At the same time, Sleep Number spoke of some significant cost-saving steps including suspending share buybacks, furloughing 40% of its workforce. Company executives reduced their compensation and the company has reduced planned capital expenditures by approximately $25 million with a significant chunk of that spending already having occurred in the first quarter.

Is Sleep Number a Buy?

The company is still sitting on a market cap above $1.3 billion and SNBR stock is up nearly 25% in the last three months. Sleep Number has an appealing price-to-earnings ratio that sits below 15. But that kind of number would suggest a company that is expecting growth.

But Sleep Number is not. In fact, analysts are expecting earnings per share to drop an average of 11% for the next three years. And with the broader market expected to have an EPS gain of 9.2% over the next three years, Sleep Number is behind the curve.

SNBR stock has a share price of just below $50 at the time of this writing, the stock is more than 200% above its March low and within approximately 20% of its 52-week high. That sure seems like a stock that fits the description of too high too fast. It’s a stock that’s worth watching, but you may want to wait for a better entry point.