Sleep Number (NASDAQ:SNBR) outlined progress in its turnaround efforts during its fourth-quarter and full-year 2025 earnings call, highlighting cost reductions, an accelerated product overhaul, and steps being taken to address liquidity and the company’s capital structure. The fiscal year ended January 3, 2026.
Full-year results met or exceeded prior outlook
CEO Linda Findley said 2025 was a “pivotal year” as the company reshaped teams and made “big turnaround changes” across retail and corporate operations, marketing, and product development. Findley said the company delivered on the guidance provided on the prior call.
CFO Amy O’Keefe, who joined in mid-December, said the full-year pro forma adjusted EBITDA margin was approximately 9%, representing a roughly 200 basis point improvement versus the prior year. O’Keefe added that operating expenses for the full year were $824 million, a $136 million reduction from the prior year (excluding restructuring and other non-recurring costs).
Q4 sales declined, margins pressured by inventory charge
O’Keefe said fourth-quarter results were “better than expected,” even as sales fell year-over-year. Net sales were $347 million, down 8% versus the prior-year quarter. She noted fiscal 2025 included a 53rd week, which favorably impacted year-over-year comparisons by about 660 basis points. Sleep Number ended the year with 600 stores, down by 40 from the prior year, while the performance trend improved sequentially across the year, according to O’Keefe.
Fourth-quarter gross margin was 55.6%, down 430 basis points versus the prior year. O’Keefe attributed the decline primarily to a $9.6 million non-recurring inventory obsolescence charge tied to the new product launch, as well as unit deleverage and higher tariffs. Excluding the inventory charge, adjusted gross margin was 58.4%.
Operating expenses in the quarter were $197 million, down 9% year-over-year excluding restructuring and other non-recurring costs, driven by cost-savings initiatives and lower variable selling expenses. Adjusted EBITDA was $19 million, down $7 million from the prior-year quarter.
Cost cuts: $185 million executed, another $50 million identified
Management emphasized the scale of cost reduction efforts. Findley said the company removed more than $185 million of annualized costs and identified another $50 million of annualized fixed-cost reductions that it is executing in 2026.
On the Q&A, O’Keefe said the incremental $50 million is expected to come from more “surgical” actions, including:
- Logistics and delivery changes
- Last-mile labor model resets
- Further review of corporate overhead structure
O’Keefe said all of the $50 million has already been identified, is already being executed, and is comprised of fixed costs.
Product reset and early read-through from ComfortMode
A central theme of the call was the company’s product lineup redesign. Findley said Sleep Number launched its first new bed and a new adjustable base in January, and that customer response has been “fantastic.” The company introduced the ComfortMode mattress priced under $1,600, aimed at attracting a new set of customers while retaining the brand’s emphasis on personalized comfort. Findley said that as of the end of February, ComfortMode sales were 3.5 times what the company expected and nearly twice the sales of the three c-series beds it replaces. Management also cited strong attachment rates for adjustable bases and bedding.
Findley said four new beds will be available in stores and online starting March 23, and the company is simplifying the buying experience by reducing the core lineup from 12 mattresses to seven across three collections:
- ComfortMode (new entry point): Includes the launched 10-inch model and an 11-inch ComfortMode Lux model starting at $2,099 for a queen.
- ComfortNext (starting at $2,999 for a queen): Includes three all-new beds, including two with a new Tri-Brid design combining foam, temperature materials, microcoils, and air adjustability.
- Climate Collection (starting at $5,499 for a queen): Includes existing ClimateCool and Climate360 beds with active temperature management.
In response to an analyst question about the impact on margins, Findley said the company designed the lineup so that “every bed in the line [has] the same margin and a strong margin profile,” adding that ComfortMode is “as margin accretive” as the Climate360 beds. O’Keefe added that the ComfortMode SKU delivered a 10 percentage point gross margin improvement versus the two c-series beds it replaced compared to the prior year.
Management also discussed rollout timing. Findley said all beds will be available for purchase starting March 23, with store floor resets beginning that date in higher-volume stores first. She said most stores will be set by mid-April, with some continuing into May, positioning the company for the Memorial Day period.
Marketing and liquidity: efficiency gains alongside near-term pressure
Findley said Sleep Number rebuilt its marketing foundation and improved funnel metrics during 2025, with early 2026 showing “accelerated year-over-year improvement” in cost per acquisition. She also pointed to a new ComfortMode-focused commercial—its first new commercial in more than two years—which management said has surpassed the prior campaign and competitive benchmarks. Findley said an annual brand tracker completed in January showed a 10% increase in brand consideration among premium shoppers, along with gains in drivers such as value, quality, comfort, and individualized comfort.
On spending levels, management said total marketing spend in 2026 is expected to be held flat versus 2025, but with a different cadence: Q1 spending will be down year-over-year due to an unusually high and inefficient Q1 last year, while Q2, Q3, and Q4 will be up year-over-year as the company evens out spending.
Management also described early-2026 demand volatility. Findley said the company faced industry-wide pressures from severe weather and macroeconomic impacts in January and early February, noting 236 stores were closed for at least one day in January, contributing to a significant sales decline early in the year. O’Keefe said January demand was soft versus last year and internal expectations, while performance improved sequentially during the President’s Day period as ComfortMode launched.
Given the scale of the changes underway, O’Keefe said the company would not provide formal guidance, but offered directional expectations. She said Q1 net sales are expected to decline in the high teens percentage range, with a “significant improvement” in year-over-year revenue performance in Q2 as the full product launch takes effect and media spend increases. She said the company expects double-digit sales growth in the second half with the benefits of new products, new creative assets, and expanded marketing reach tied to its partnership with Travis Kelce. O’Keefe said adjusted EBITDA is expected to increase in the high teens to mid-20s% range year-over-year off the $78 million 2025 base, and that the company expects positive free cash flow in 2026.
At the same time, management stressed liquidity and capital structure remain a top priority. O’Keefe said the company ended the year in compliance with its credit agreement and covenants, with total liquidity (cash plus revolver capacity) of $58 million, above the amended $30 million covenant floor. However, Findley and O’Keefe said softness at the start of 2026 and clearance activity tied to discontinuing legacy products have pressured liquidity and covenants. Findley said the company hired Guggenheim Securities to evaluate inbound interest and advise on refinancing opportunities related to the credit facility, and O’Keefe said the company is monitoring liquidity and covenant compliance while working with advisors to improve financial flexibility.
About Sleep Number (NASDAQ:SNBR)
Sleep Number Corporation (NASDAQ: SNBR) is a Minneapolis?based company specializing in the design, manufacture and retail of adjustable air mattresses and bedding products. The company’s flagship Sleep Number® bed features dual air chambers that allow each side of the mattress to be tailored to an individual’s preferred firmness, supported by integrated SleepIQ® technology. This proprietary monitoring system tracks biometric data such as heart rate, breathing and motion, delivering personalized sleep insights through a connected app.
Founded in 1987 as Select Comfort, the business pioneered adjustable air mattress technology and has since grown into a direct-to-consumer retailer.
