[10-Q] Sleep Number Corp Quarterly Earnings Report

Rhea-AI Filing Summary

Sleep Number (SNBR) reported a weak quarter with lower sales and losses. Net sales fell to $342.9 million, down 20% year over year, as lower volume and fewer stores weighed on results. Gross profit was $205.4 million with a 59.9% gross margin, slightly below last year’s 60.8%.

Operating loss was $40.3 million, driven in part by $39.2 million in restructuring costs. Net loss widened to $39.8 million, or $1.73 per diluted share. Sales and marketing fell in dollars but rose as a percentage of sales due to deleverage. R&D and G&A also declined year over year.

Liquidity remains tight. Cash was $1.3 million and borrowings under the credit facility were $579.5 million. For the first nine months, operating cash flow used $5.2 million and free cash flow used $17.0 million. On November 4, 2025, the company amended its credit agreement, extending maturity to December 3, 2027, adjusting pricing and covenants, and adding reporting requirements. The company was in compliance following the amendment. As of September 27, 2025, 22,790,000 common shares were outstanding.

Positive

• None.

Negative

• Net sales decreased 20% to $342.9M, reflecting lower volume and reduced store count
• Net loss widened to $39.8M (EPS -$1.73) with a $40.3M operating loss
• Restructuring costs of $39.2M in the quarter and $47.5M year-to-date
• High borrowings of $579.5M with minimal cash of $1.3M; free cash flow used $17.0M YTD
• Credit agreement amended with tighter covenants and higher margins, signaling elevated financing constraints

Insights

Retail credit & turnaround analyst

Sales fell 20% with losses and heavy restructuring; leverage remains elevated.

SNBR posted a sharp year-over-year decline with net sales at $342.9M and a net loss of $39.8M. Gross margin held near prior levels at 59.9%, but fixed-cost deleverage and $39.2M restructuring charges drove an operating loss. Nine-month cash from operations used $5.2M, and free cash flow used $17.0M.

Balance sheet risk is notable: borrowings totaled $579.5M and cash was $1.3M. The Nov 4, 2025 amendment extends debt maturity to Dec 3, 2027, adjusts pricing, tightens covenants, and adds a quarterly minimum EBITDA test beginning Q2 2026. Compliance was stated following the amendment; ongoing performance versus covenants will be critical.

Store base declined to 611, and comparable sales fell 19%, indicating demand softness. Actual impact from the turnaround efforts depends on execution and consumer trends.

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 27, 2025

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 000-25121

_______________________________________________________________________

SLEEP NUMBER CORPORATION

(Exact name of registrant as specified in its charter)

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)

Registrant’s telephone number, including area code: (763) 551-7000

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.01 per share		SNBR		Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities

Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),

and (2) has been subject to such filing requirements for the past 90 days. Yes  ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant

to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant

was required to submit such files). Yes  ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting

company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting

company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐		Accelerated filer	☒
Non-accelerated filer	☐		Smaller reporting company	☐
			Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for

complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ☐ No ☒

As of September 27, 2025, 22,790,000 shares of the registrant’s Common Stock were outstanding.

i | 2Q 2025 FORM 10-Q SLEEP NUMBER CORPORATION

Table of contents

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

INDEX

		Page
PART I: FINANCIAL INFORMATION		1
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Shareholders' Deficit	3
	Condensed Consolidated Statements of Cash Flows	4
	Notes to Condensed Consolidated Financial Statements	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	28
Item 4.	Controls and Procedures	28
PART II: OTHER INFORMATION		29
Item 1.	Legal Proceedings	29
Item 1A.	Risk Factors	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Mine Safety Disclosures	29
Item 5.	Other Information	29
Item 6.	Exhibits	30
SIGNATURES		32

1 | 3Q 2025 FORM 10-Q SLEEP NUMBER CORPORATION

Table of contents

PART I: FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Balance Sheets

(unaudited - in thousands, except per share amounts)

	September 27, 2025		December 28, 2024
Assets
Current assets:
Cash and cash equivalents	$1,264		$1,950
Accounts receivable, net of allowances of $920 and $1,113, respectively	13,902		17,516
Inventories	89,831		103,152
Income taxes receivable	11,903		—
Prepaid expenses	14,355		14,568
Other current assets	38,545		44,098
Total current assets	169,800		181,284
Non-current assets:
Property and equipment, net	95,126		129,574
Operating lease right-of-use assets	316,959		356,641
Goodwill and intangible assets, net	66,246		66,412
Deferred income taxes	24,930		33,575
Other non-current assets	76,327		93,324
Total assets	$749,388		$860,810
Liabilities and Shareholders’ Deficit
Current liabilities:
Borrowings under credit facility	$579,500		$546,600
Accounts payable	106,967		107,619
Customer prepayments	36,754		46,933
Accrued sales returns	14,932		19,092
Compensation and benefits	18,537		31,038
Taxes and withholding	10,555		18,619
Operating lease liabilities	82,001		82,307
Other current liabilities	49,566		55,804
Total current liabilities	898,812		908,012
Non-current liabilities:
Operating lease liabilities	279,028		307,201
Other non-current liabilities	92,890		97,183
Total liabilities	1,270,730		1,312,396
Shareholders’ deficit:
Undesignated preferred stock; 5,000 shares authorized, no shares issued and outstanding	—		—
Common stock, $0.01 par value; 142,500 shares authorized, 22,790 and 22,388 shares issued and outstanding, respectively	228		224
Additional paid-in capital	31,078		27,390
Accumulated deficit	(552,648)		(479,200)
Total shareholders’ deficit	(521,342)		(451,586)
Total liabilities and shareholders’ deficit	$749,388		$860,810

See accompanying notes to condensed consolidated financial statements.

2 | 3Q 2025 FORM 10-Q SLEEP NUMBER CORPORATION

Table of contents

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Operations

(unaudited - in thousands, except per share amounts)

	Three Months Ended				Nine Months Ended
	September 27, 2025		September 28, 2024		September 27, 2025		September 28, 2024
Net sales	$342,879		$426,617		$1,064,065		$1,305,479
Cost of sales	137,490		167,089		424,396		528,287
Gross profit	205,389		259,528		639,669		777,192
Operating expenses:
Sales and marketing	167,430		205,480		502,997		596,392
General and administrative	31,792		33,070		100,015		111,722
Research and development	7,328		10,583		27,651		34,602
Restructuring costs	39,154		1,963		47,546		14,382
Total operating expenses	245,704		251,096		678,209		757,098
Operating (loss) income	(40,315)		8,432		(38,540)		20,094
Interest expense, net	12,687		12,057		35,502		36,626
Loss before income taxes	(53,002)		(3,625)		(74,042)		(16,532)
Income tax benefit	(13,212)		(489)		(594)		(863)
Net loss	$(39,790)		$(3,136)		$(73,448)		$(15,669)
Basic net loss per share:
Net loss per share – basic	$(1.73)		$(0.14)		$(3.21)		$(0.69)
Weighted-average shares – basic	22,964		22,643		22,858		22,588
Diluted net loss per share:
Net loss per share – diluted	$(1.73)		$(0.14)		$(3.21)		$(0.69)
Weighted-average shares – diluted	22,964		22,643		22,858		22,588

See accompanying notes to condensed consolidated financial statements.

3 | 3Q 2025 FORM 10-Q SLEEP NUMBER CORPORATION

Table of contents

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Shareholders’ Deficit

(unaudited - in thousands)

	Common Stock				Additional Paid-in Capital		Accumulated Deficit		Total
	Shares		Amount
Balance at December 28, 2024	22,388		$224		$27,390		$(479,200)		$(451,586)
Net loss	—		—		—		(8,646)		(8,646)
Stock-based compensation	346		3		3,948		—		3,951
Repurchases of common stock	(74)		—		(563)		—		(563)
Balance at March 29, 2025	22,660		$227		$30,775		$(487,846)		$(456,844)
Net loss	—		—		—		(25,012)		(25,012)
Stock-based compensation	149		1		1,548		—		1,549
Repurchases of common stock	(38)		—		(381)		—		(381)
Balance at June 28, 2025	22,771		$228		$31,942		$(512,858)		$(480,688)
Net loss	—		—		—		(39,790)		(39,790)
Stock-based compensation	27		—		(789)		—		(789)
Repurchases of common stock	(8)		—		(75)		—		(75)
Balance at September 27, 2025	22,790		$228		$31,078		$(552,648)		$(521,342)

	Common Stock				Additional Paid-in Capital		Accumulate d Deficit		Total
	Shares		Amount
Balance at December 30, 2023	22,235		$222		$16,716		$(458,866)		$(441,928)
Net loss	—		—		—		(7,482)		(7,482)
Stock-based compensation	134		1		4,116		—		4,117
Repurchases of common stock	(43)		—		(570)		—		(570)
Balance at March 30, 2024	22,326		$223		$20,262		$(466,348)		$(445,863)
Net loss	—		—		—		(5,051)		(5,051)
Stock-based compensation	32		1		3,991		—		3,992
Repurchases of common stock	(3)		—		(42)		—		(42)
Balance at June 29, 2024	22,355		$224		$24,211		$(471,399)		$(446,964)
Net loss	—		—		—		(3,136)		(3,136)
Stock-based compensation	24		—		1,432		—		1,432
Repurchases of common stock	(8)		—		(116)		—		(116)
Balance at September 28, 2024	22,371		224		25,527		(474,535)		(448,784)

See accompanying notes to condensed consolidated financial statements.

4 | 3Q 2025 FORM 10-Q SLEEP NUMBER CORPORATION

Table of contents

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Condensed Consolidated Statements of Cash Flows

(unaudited - in thousands)

	Nine Months Ended
	September 27, 2025		September 28, 2024
Cash flows from operating activities:
Net loss	$(73,448)		$(15,669)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
Depreciation and amortization	42,631		50,379
Stock-based compensation	4,712		9,541
Loss on impairment of strategic investment asset	16,134		—
Loss on disposal and impairment of leased assets	19,753		2,457
Deferred income taxes	8,645		(7,014)
Changes in operating assets and liabilities:
Accounts receivable	3,614		9,833
Inventories	13,321		22,394
Income taxes	(18,267)		1,708
Prepaid expenses and other assets	3,159		(8,012)
Accounts payable	10,157		4,980
Customer prepayments	(10,179)		(5,629)
Accrued compensation and benefits	(12,491)		788
Other taxes and withholding	(1,701)		(1,157)
Other accruals and liabilities	(11,199)		(13,775)
Net cash (used in) provided by operating activities	(5,159)		50,824
Cash flows from investing activities:
Purchases of property and equipment	(11,888)		(17,218)
Payment to secure contractual rights	(3,280)		—
Issuance of note receivable	—		(2,942)
Proceeds from sales of property and equipment	—		156
Net cash used in investing activities	(15,168)		(20,004)
Cash flows from financing activities:
Net increase (decrease) in short-term borrowings	22,219		(31,039)
Repurchases of common stock	(1,019)		(728)
Debt issuance costs	(1,559)		—
Net cash provided by (used in) financing activities	19,641		(31,767)
Net decrease in cash and cash equivalents	(686)		(947)
Cash and cash equivalents, at beginning of period	1,950		2,539
Cash and cash equivalents, at end of period	$1,264		$1,592

See accompanying notes to condensed consolidated financial statements.

5 | 3Q 2025 FORM 10-Q SLEEP NUMBER CORPORATION

Table of Contents

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

 1. Business and Summary of Significant Accounting Policies

Business & Basis of Presentation

The Company prepared the condensed consolidated financial statements as of and for the three and nine months ended

September 27, 2025 of Sleep Number Corporation and its 100%-owned subsidiaries (Sleep Number or the Company),

without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) and they reflect, in

the opinion of management, all normal recurring adjustments, including the elimination of all significant intra-entity

balances and transactions, necessary to present fairly its financial position as of September 27, 2025 and December 28,

2024, and the consolidated results of operations and cash flows for the periods presented. The historical and quarterly

consolidated results of operations may not be indicative of the results that may be achieved for the full year or any future

period.

Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S.

Generally Accepted Accounting Principles (GAAP) have been condensed or omitted pursuant to such rules and

regulations. These condensed consolidated financial statements should be read in conjunction with the most recent

audited consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for

the fiscal year ended December 28, 2024 and other recent filings with the SEC.

The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to

make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities,

disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and the

reported amounts of sales, expenses and income taxes during the reporting period. Predicting future events is inherently

an imprecise activity and, as such, requires the use of judgment. As future events and their effects cannot be determined

with precision, actual results could differ significantly from these estimates. Changes in these estimates will be reflected in

the consolidated financial statements in future periods and could be material.

The Company’s critical accounting policies consist of stock-based compensation, warranty liabilities and revenue

recognition.

Accounting Pronouncements Issued But Not Yet Effective

In December 2023, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)

2023-09, "Income Taxes (Topic 740): Improvements in Income Tax Disclosures" to enhance the transparency and

decision usefulness of income tax disclosures. This amendment requires public companies to disclose specific categories

in the rate reconciliation and provide additional information for reconciling items that meet a quantitative threshold.

Additionally, under the amendment, entities are required to disclose the amount of income taxes paid disaggregated by

federal, state and foreign taxes, as well as disaggregated by material individual jurisdictions. Finally, the amendment

requires entities to disclose income from continuing operations before income tax expense disaggregated between

domestic and foreign and income tax expense from continuing operations disaggregated by federal, state and foreign. The

new rules are effective for annual periods beginning after December 15, 2024. The adoption of this standard is not

expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

In November 2024, the FASB issued ASU 2024-03, "Income Statement - Reporting Comprehensive Income - Expense

Disaggregation Disclosures (Subtopic 220-40)", which requires public business entities to disclose in the notes to the

financial statements more detailed information about the types of expenses included in certain expense captions in the

consolidated financial statements, including purchases of inventory, employee compensation, and depreciation and

amortization. The amendments are effective for the Company beginning with the 2027 annual period and in interim

periods beginning in 2028. Early adoption is permitted. The ASU may be adopted prospectively or retrospectively. The

Company is currently evaluating the impact of ASU 2024-03 on its consolidated financial statements and related

disclosures.

In July 2025, the FASB issued ASU 2025-05, “Financial Instruments—Credit Losses (Topic 326): Measurement of Credit

Losses for Accounts Receivable and Contract Assets”, which provides a practical expedient related to the estimation of

6 | 3Q 2025 FORM 10-Q SLEEP NUMBER CORPORATION

Table of Contents

SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for

under Topic 606, including those assets acquired in a business combination. The practical expedient permits an entity to

assume that current conditions as of the balance sheet date do not change for the remaining life of the current accounts

receivable and current contract assets. This guidance is effective for the Company for its fiscal year and all interim periods

beginning January 4, 2026 on a prospective basis. Early adoption is permitted. The Company is currently evaluating the

impact of the adoption of this guidance on its condensed consolidated financial statements.

Currently, management does not believe that any other recently issued, but not yet effective accounting pronouncements,

if adopted in their current form, would have a material impact on the Company’s consolidated financial statements.

Other Investments

The Company made a payment of $3.3 million during the second quarter of 2025 to secure contractual rights from a

strategic product-development partner. This payment was included in prepaid expenses in the Company’s condensed

consolidated balance sheet and as an investing activity in the Company’s condensed consolidated statement of cash

flows. In the third quarter of 2025, the Company made the decision to end business operations with the strategic-

development partner. In connection with this decision, the Company evaluated the recoverability of assets associated with

those operations and determined that the carrying amounts of those assets were unlikely to be recoverable and recorded

an impairment charge of $16.1 million, which are included in restructuring costs in the consolidated statements of

operations.

 2. Fair Value Measurements

At September 27, 2025 and December 28, 2024, the Company had $20 million and $19 million, respectively, of debt and

equity securities that fund the deferred compensation plan and are classified in other non-current assets. The Company

also had corresponding deferred compensation plan liabilities of $20 million and $19 million, respectively, at

September 27, 2025 and December 28, 2024 which are included in other non-current liabilities. The majority of the debt

and equity securities are Level 1 as they trade with sufficient frequency and volume to enable the Company to obtain

pricing information on an ongoing basis. Unrealized gains/(losses) on the debt and equity securities offset those

associated with the corresponding deferred compensation plan liabilities.

 3. Inventories

Inventories consisted of the following (in thousands):

	September 27, 2025		December 28, 2024
Raw materials	$2,917		$11,434
Work in progress	137		130
Finished goods	86,777		91,588
	$89,831		$103,152

 4. Goodwill and Intangible Assets, Net

Goodwill and Indefinite-lived Intangible Assets

Goodwill was $64.0 million at September 27, 2025 and December 28, 2024. Indefinite-lived trade name/trademarks

totaled $1.4 million at both September 27, 2025 and December 28, 2024.

Definite-lived Intangible Assets

Patents were $2.0 million at both September 27, 2025 and December 28, 2024. Accumulated amortization was

$1.2 million at September 27, 2025 and $1.0 million at December 28, 2024. Amortization expense was $55 thousand for

7 | 3Q 2025 FORM 10-Q SLEEP NUMBER CORPORATION

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SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

both the three months ended September 27, 2025 and September 28, 2024, and $0.2 million for both the nine months

ended September 27, 2025 and September 28, 2024.

Annual amortization for patents for subsequent years is as follows (in thousands):

2025 (excluding the nine months ended September 27, 2025 )		$60
2026		222
2027		222
2028		155
2029		99
2030		45
Total future amortization for definite-lived intangible assets		$803

 5. Credit Agreement

As of September 27, 2025, the Company’s credit facility had a total commitment amount of $670 million. The credit facility,

as amended, is for general corporate purposes and to meet seasonal working capital requirements. The Amended and

Restated Credit and Security Agreement, dated February 14, 2018, among the Company, U.S. Bank National Association

and the several banks and other financial institutions from time to time party thereto (as amended, the Credit Agreement).

The Credit Agreement provides the lenders with a collateral security interest in substantially all of the Company’s assets

and those of its subsidiaries and requires the Company to comply with, among other things, a maximum Net Leverage

Ratio and a minimum Interest Coverage Ratio (as defined in the Credit Agreement).

The carrying amount of the outstanding borrowings under the Credit Agreement approximates fair value because interest

rates approximate the current rates available to the Company. Under the terms of the Credit Agreement, the Company

pays a variable rate of interest and a commitment fee based on the amended terms below.

On November 4, 2025, the Company amended the Credit Agreement. The amendment, among other things: (a) extends

the maturity date of the Credit Agreement to December 3, 2027; (b) reduces the revolving credit facility from $485 million

to $475 million, which decreases further to $465 million on July 31, 2026; (c) replaces the leverage-based pricing grids

used to determine the Applicable Margin and Applicable Commitment Fee Rate (each as defined in the Credit Agreement)

in favor of (I) with respect to Applicable Margin for Term SOFR Loans, (x) 4.0% until December 31, 2026 and (y) 4.25%

starting January 1, 2027 and continuing thereafter, and (II) with respect to the Applicable Commitment Fee Rate, (x)

0.50% until December 31, 2026 and (y) 0.75% starting January 1, 2027 and continuing thereafter; (d) on each Regularly

Scheduled Payment Date (as defined in the Credit Agreement) occurring on and after March 31, 2027, increases the

amortization of outstanding term loans an additional $1,250,000 (for an aggregate scheduled principal payment of

$3,750,000); (e) terminates the accordion feature; (f) adjusts the permissible maximum Net Leverage Ratio (as defined in

the Credit Agreement) to (I) 5.25 to 1.00 for the quarterly reporting period ended September 27, 2025, (II) 4.50 to 1.00 for

the quarterly reporting period ending January 3, 2026, (III) 4.75 to 1.00 for the quarterly reporting period ending April 4,

2026, (IV) 4.80 to 1.00 for the quarterly reporting period ending July 4, 2026, and (V) 4.00 to 1.00 for each quarterly

reporting period thereafter; (g) adjusts the Liquidity financial covenant so that the Company must ensure that liquidity is no

lower than $30 million until September 30, 2026, and $40 million for each monthly reporting period thereafter; (h) adjusts

the permissible minimum Interest Coverage Ratio to (I) 1.50 to 1.00 for the quarterly reporting period ended September

27, 2025, (II) 2.10 to 1.00 for the quarterly reporting periods ending January 3, 2026 and April 4, 2026, (III) 1.80 to 1.00 for

the quarterly reporting period ending July 4, 2026, (IV) 2.10 to 1.00 for the reporting period ending October 3, 2026, and

(V) 2.20 to 1.00 for each quarterly reporting period occurring thereafter; (i) adds a new quarterly minimum EBITDA

covenant test that begins for the quarterly reporting period ending April 4, 2026; (j) adjusts the consolidated EBITDA

calculation to include an addback for certain expenses and costs incurred for the trailing twelve months for discontinued

operations, downsized functions and employment expenses for laid-off employees; and (k) provides for additional and

more frequent reporting requirements. Following such amendment, the Company was in compliance with all covenants.

In connection with the amendment, the Company also agreed to pay the lenders certain amendment fees and to

reimburse the lenders for certain expenses.

8 | 3Q 2025 FORM 10-Q SLEEP NUMBER CORPORATION

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SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following table summarizes the Company’s borrowings under the credit facility ($ in thousands):

	September 27, 2025		December 28, 2024
Outstanding borrowings	$579,500		$546,600
Outstanding letters of credit	$8,847		$7,147
Additional borrowing capacity	$81,653		$123,753
Weighted-average interest rate	7.9%		7.6%

 6. Leases

The Company leases its retail, office and manufacturing space under operating leases which, in addition to the minimum

lease payments, may require payment of a proportionate share of the real estate taxes and certain building operating

expenses. While the Company’s local market development approach generally results in long-term participation in given

markets, the retail store leases generally provide for an initial lease term of five to ten years. The Company’s office and

manufacturing leases provide for an initial lease term of up to fifteen years. In addition, the Company’s mall-based retail

store leases may require payment of variable rent based on net sales in excess of certain thresholds. Certain leases may

contain options to extend the term of the original lease. The exercise of lease renewal options is at the Company’s sole

discretion. Lease options are included in the lease term only if exercise is reasonably certain at lease commencement.

The Company’s lease agreements do not contain any material residual value guarantees. The Company also leases

vehicles and certain equipment under operating leases with an initial lease term of three to six years.

The Company’s operating lease costs include facility, vehicle and equipment lease costs, but exclude variable lease costs.

Operating lease costs are recognized on a straight-line basis over the lease term, after consideration of rent escalations

and rent holidays. The lease term for purposes of the calculation begins on the earlier of the lease commencement date or

the date the Company takes possession of the property. During lease renewal negotiations that extend beyond the original

lease term, the Company estimates straight-line rent expense based on current market conditions. Variable lease costs

are recorded when it is probable the cost has been incurred and the amount can be reasonably estimated. Future

payments for real estate taxes and certain building operating expenses for which the Company is obligated are not

included in operating lease costs.

At September 27, 2025, the Company’s finance right-of-use (ROU) assets and lease liabilities were not significant.

The Company evaluates its operating lease ROU assets for impairment whenever events or changes in circumstances

indicate that the carrying amount of the assets may not be recoverable. During the three months ended September 27,

2025, certain retail locations have ceased operations or plan to cease in the near term (“go-dark stores”) but remain under

lease obligations. As a result, the Company recorded impairment charges of $19.8 million, which are included in

restructuring costs in the consolidated statements of operations and cash flows. The Company continues to monitor its

real estate footprint and may incur additional impairment charges in future periods.

Lease costs were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 27, 2025		September 28, 2024		September 27, 2025		September 28, 2024
Operating lease costs(1)	$26,203		$26,445		$79,389		$80,180
Variable lease costs(2)	$37		$42		$178		$1

___________________________

(1)Includes short-term lease costs which are not significant.

(2)Variable lease costs include adjustments to percentage rent.

9 | 3Q 2025 FORM 10-Q SLEEP NUMBER CORPORATION

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SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

The maturities of operating lease liabilities for subsequent years are as follows(1) (in thousands):

2025 (excluding the nine months ended September 27, 2025)	$26,412
2026	101,086
2027	85,382
2028	71,833
2029	50,763
2030	36,733
Thereafter	52,841
Total operating lease payments(2)	425,050
Less: Interest	64,021
Present value of operating lease liabilities	$361,029

___________________________

(1)Total operating lease payments exclude $3 million of legally binding minimum lease payments for leases signed but not yet commenced.

(2)Includes the current portion of $82 million for operating lease liabilities.

Other information related to operating leases was as follows:

		September 27, 2025		December 28, 2024
Weighted-average remaining lease term (in years)		5.1		5.4
Weighted-average discount rate		6.7%		6.6%

		Nine Months Ended
(in thousands)		September 27, 2025		September 28, 2024
Cash paid for amounts included in present value of operating lease liabilities		$79,535		$81,089
Right-of-use assets obtained in exchange for operating lease liabilities		$12,048		$29,390

 7. Repurchases of Common Stock

For both the three months ended September 27, 2025 and September 28, 2024, we repurchased $0.1 million of common

stock in connection with the vesting of restricted stock grants. For the nine months ended September 27, 2025 and

September 28, 2024, we repurchased $1.0 million and $0.7 million, respectively, of common stock in connection with the

vesting of restricted stock grants. We made no purchases under the Board-approved stock purchase plan in either period.

As of September 27, 2025, the remaining authorization under the Board-approved $600 million share repurchase program

was $348 million.

 8. Revenue Recognition

Deferred contract assets and deferred contract liabilities are included in the condensed consolidated balance sheets as

follows (in thousands):

	September 27, 2025		December 28, 2024
Deferred contract assets included in:
Other current assets	$28,362		$30,154
Other non-current assets	44,039		48,988
	$72,401		$79,142

10 | 3Q 2025 FORM 10-Q SLEEP NUMBER CORPORATION

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SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

	September 27, 2025		December 28, 2024
Deferred contract liabilities included in:
Other current liabilities	$36,726		$38,129
Other non-current liabilities	56,308		60,988
	$93,034		$99,117

Deferred revenue and costs related to SleepIQ® technology are currently recognized on a straight-line basis over the

product's estimated life of 4.5 to 5.0 years because the Company’s inputs are generally expended evenly throughout the

performance period. During the three months ended September 27, 2025 and September 28, 2024, the Company

recognized revenue of $7 million and $10 million, respectively, that was included in the deferred contract liability balances

at the beginning of the respective periods. During the nine months ended September 27, 2025 and September 28, 2024,

the Company recognized revenue of $28 million that was included in the deferred contract liability balances at the

beginning of the respective periods.

Revenue from goods and services transferred to customers at a point in time accounted for approximately 97% and 98%

of revenues for the three months ended September 27, 2025 and September 28, 2024, respectively. Revenue from goods

and services transferred to customers at a point in time accounted for approximately 98% of revenues for both the nine

months ended September 27, 2025 and September 28, 2024.

Net sales were as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 27, 2025		September 28, 2024		September 27, 2025		September 28, 2024
Retail stores	$301,194		$374,593		$933,609		$1,147,931
Online, phone, chat and other	41,685		52,024		130,456		157,548
Total Company	$342,879		$426,617		$1,064,065		$1,305,479

Obligation for Sales Returns

The activity in the sales returns liability account was as follows (in thousands):

	Nine Months Ended
	September 27, 2025		September 28, 2024
Balance at beginning of year	$19,092		$22,402
Additions that reduce net sales	53,373		69,391
Deductions from reserves	(57,533)		(72,105)
Balance at end of period	$14,932		$19,688

 9. Stock-Based Compensation Expense

Total stock-based compensation expense was as follows (in thousands):

	Three Months Ended				Nine Months Ended
	September 27, 2025		September 28, 2024		September 27, 2025		September 28, 2024
Stock awards (1)	$(1,035)		$774		$2,962		$7,212
Stock options	247		658		1,750		2,329
Total stock-based compensation expense (1)	$(788)		$1,432		$4,712		$9,541

11 | 3Q 2025 FORM 10-Q SLEEP NUMBER CORPORATION

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SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

___________________________

(1) Changes in stock-based compensation expense include the cumulative impact of the change in the expected achievements of certain performance

targets.

 10. Profit Sharing and 401(k) Plan

Under the Company’s profit sharing and 401(k) plan, eligible employees may defer up to 50% of their compensation on a

pre-tax basis, subject to Internal Revenue Service limitations. Each pay period, the Company makes a contribution equal

to a percentage of the employee’s contribution. During the three months ended September 27, 2025 and September 28,

2024, the Company’s contributions, net of forfeitures, were $1.6 million and $1.9 million, respectively and during the nine

months ended September 27, 2025 and September 28, 2024, were both $5.1 million. Effective October 10, 2025, the

Company suspended the 401(k) matching contribution due to current business performance.

 11. Net Loss per Common Share

The components of basic and diluted net loss per share were as follows (in thousands, except per share amounts):

	Three Months Ended				Nine Months Ended
	September 27, 2025		September 28, 2024		September 27, 2025		September 28, 2024
Net loss	$(39,790)		$(3,136)		$(73,448)		$(15,669)
Reconciliation of weighted-average shares outstanding:
Basic weighted-average shares outstanding	22,964		22,643		22,858		22,588
Dilutive effect of stock-based awards	—		—		—		—
Diluted weighted-average shares outstanding	22,964		22,643		22,858		22,588
Net loss per share – basic	$(1.73)		$(0.14)		$(3.21)		$(0.69)
Net loss per share – diluted	$(1.73)		$(0.14)		$(3.21)		$(0.69)

For the three and nine month periods ended September 27, 2025 and September 28, 2024, otherwise dilutive stock-based

awards have been excluded from the calculation of diluted weighted-average shares outstanding, as their inclusion would

have had an anti-dilutive effect on our net loss per diluted share. Additional potential dilutive stock-based awards totaling

1.2 million for the both three months ended September 27, 2025 and September 28, 2024, respectively, and 1.6 million

and 1.3 million for the nine months ended September 27, 2025 and September 28, 2024, respectively, have been

excluded from the diluted net loss per share calculations because these stock-based awards were anti-dilutive.

 12. Restructuring Costs

In the fourth quarter of 2023, the Company initiated cost reduction actions to reduce operating expenses and accelerate

gross margin initiatives, and recognized $33.8 million of restructuring costs through December 28, 2024. The Company

has incurred an additional $47.5 million and of restructuring costs during the nine months ended September 27, 2025.

Charges incurred related to this initiative were comprised of contract termination costs, severance and employee-related

benefits, professional fees and other, and asset impairment charges and are included in restructuring costs in the

Company’s condensed consolidated statement of operations. The Company expects approximately $3 million of additional

restructuring costs to be incurred through the remainder of 2025, primarily due to severance and employee-related

benefits, contract termination costs, and asset impairment charges.

12 | 3Q 2025 FORM 10-Q SLEEP NUMBER CORPORATION

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SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following table provides a summary of the Company’s restructuring costs during the three and nine months ended

September 27, 2025 and September 28, 2024 (in thousands):

	Three Months Ended				Nine Months Ended
	September 27, 2025		September 28, 2024		September 27, 2025		September 28, 2024
Cash restructuring costs:
Contract termination costs (1)	$5,878		$300		$7,173		$4,483
Severance and employee-related benefits	2,923		1,663		9,415		2,905
Professional fees and other	801		—		818		4,494
Total cash restructuring costs	9,602		1,963		17,406		11,882
Non-cash restructuring costs:
Asset impairments (2)	29,552		—		30,140		2,500
Total restructuring costs	$39,154		$1,963		$47,546		$14,382

____________________

(1) Primarily comprised of strategic-development partner contract termination costs and lease termination costs.

(2) Primarily comprised of impairments of strategic-development partner long-lived assets, right-of-use assets and property and equipment.

The following table provides the activity in the Company’s restructuring related liabilities, which are included within

accounts payable, compensation and benefits and other current liabilities on the condensed consolidated balance sheet

(in thousands):

	September 27, 2025		December 28, 2024
Balance at the beginning of year	$3,341		$8,720
Expenses	17,406		14,888
Cash payments	(12,735)		(20,267)
Balance at the end of the period	$8,012		$3,341

Since the initiation of cost reduction actions in the fourth quarter of 2023, the Company has recognized a cumulative

$81.3 million of restructuring costs, as follows (in thousands):

		Cumulative
		September 27, 2025
Cash restructuring costs:
Contract termination costs (1)		$21,610
Severance and employee-related benefits		17,608
Professional fees and other		6,562
Total cash restructuring costs		45,780
Non-cash restructuring costs:
Asset impairments (2)		35,560
Total restructuring costs		$81,340

____________________

(1)Primarily comprised of strategic-development partner contract termination costs and lease termination costs.

(2) Primarily comprised of impairments of strategic-development partner long-lived assets, right-of-use assets and property and equipment.

13. Income Taxes

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AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Income tax benefit was $13.2 million for the three months ended September 27, 2025, compared with $0.5 million for the

same period one year ago. Income tax benefit totaled $0.6 million for nine months ended September 27, 2025, compared

with $0.9 million for the same period one year ago.

The Company evaluates its deferred income taxes quarterly to determine if valuation allowances are required. As part of

this evaluation, the Company assess whether valuation allowances should be established for any deferred tax assets that

are not considered more likely than not to be realized, using all available evidence, both positive and negative. This

assessment considers, among other matters, the nature, frequency, and severity of historical losses, forecasts of future

profitability, taxable income in available carryback periods and tax planning strategies. In making such judgments,

significant weight is given to evidence that can be objectively verified. During the nine months ended September 27, 2025,

the Company recorded a change in valuation allowance of $14 million on the basis of management’s reassessment of the

amount of its deferred tax assets primarily related to interest expense that are more likely than not to not be realized. The

Company continues to assess the need for the valuation allowance and will make adjustments when appropriate.

On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was enacted into law. The OBBBA makes permanent key

elements of the Tax Cuts and Jobs Act, including 100% bonus depreciation, domestic research cost expensing, and the

business interest expense limitation. ASC 740, “Income Taxes”, requires the effects of changes in tax rates and laws on

deferred tax balances to be recognized in the period in which the legislation is enacted. Consequently, as of the date of

enactment, and during the third quarter of 2025, the Company evaluated all deferred tax balances under the newly

enacted tax law and identified any other changes required to its financial statements as a result of the OBBBA.

14. Segments

The Company’s chief operating decision maker (CODM), who is the Chief Executive Officer, assesses company-wide

performance and allocates resources based on consolidated financial information. Consequently, the Company views the

entire organization as one reportable segment and the strategic purpose of all operating activities is to support that one

segment.

The CODM manages the Company’s business activities as a single operating and reportable segment at the consolidated

level. The CODM uses consolidated earnings and losses, as reported on the Company’s condensed consolidated

statement of operations, in evaluating performance of the Company in determining how to allocate resources of the

Company as a whole, including investing in the Company’s product development, sales and marketing campaigns, and

employee compensation. The measure of segment assets that is reviewed by the CODM is reported within the condensed

consolidated balance sheet as consolidated total assets. The CODM also uses consolidated earnings or losses before

interest, taxes, depreciation and amortization (Adjusted EBITDA) as the basis to evaluate the performance of the

Company.

14 | 3Q 2025 FORM 10-Q SLEEP NUMBER CORPORATION

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SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

The following is a summary of the significant expense categories and consolidated net loss details provided to the CODM

(in thousands):

	Three Months Ended				Nine Months Ended
	September 27, 2025		September 28, 2024		September 27, 2025		September 28, 2024
Net Sales	$342,879		$426,617		$1,064,065		$1,305,479
Less:
Cost of sales	(137,490)		(167,089)		(424,396)		(528,287)
Marketing expenses	(79,116)		(113,573)		(239,484)		(312,086)
Selling expenses	(88,314)		(91,907)		(263,513)		(284,306)
General and administrative	(31,792)		(33,070)		(100,015)		(111,722)
Research and development	(7,328)		(10,583)		(27,651)		(34,602)
Restructuring costs	(39,154)		(1,963)		(47,546)		(14,382)
Interest expense	(12,687)		(12,057)		(35,502)		(36,626)
Income tax benefit	13,212		489		594		863
Net loss	$(39,790)		$(3,136)		$(73,448)		$(15,669)

15. Commitments and Contingencies

Warranty Liabilities

The activity in the accrued warranty liabilities account was as follows (in thousands):

	Nine Months Ended
	September 27, 2025		September 28, 2024
Balance at beginning of period	$6,947		$8,503
Additions charged to costs and expenses for current-year sales	8,881		9,981
Deductions from reserves	(8,335)		(11,546)
Changes in liability for pre-existing warranties during the current year, including expirations	(1,674)		511
Balance at end of period	$5,819		$7,449

Legal Proceedings

The Company is involved from time to time in various legal proceedings arising in the ordinary course of its business,

including primarily commercial, product liability, employment and intellectual property claims. In accordance with U.S.

GAAP, the Company records a liability in its consolidated financial statements with respect to any of these matters when it

is both probable that a liability has been incurred and the amount of the liability can be reasonably estimated. If a material

loss is reasonably possible but not known or probable, and may be reasonably estimated, the estimated loss or range of

loss is disclosed. With respect to currently pending legal proceedings, the Company has not established an estimated

range of reasonably possible material losses either because it believes that it has valid defenses to claims asserted

against it, the proceeding has not advanced to a stage of discovery that would enable it to establish an estimate, or the

potential loss is not material. The Company currently does not expect the outcome of pending legal proceedings to have a

material effect on its consolidated results of operations, financial position or cash flows. Litigation, however, is inherently

unpredictable, and it is possible that the ultimate outcome of one or more claims asserted against the Company could

adversely impact its consolidated results of operations, financial position or cash flows. The Company expenses legal

costs as incurred.

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SLEEP NUMBER CORPORATION

AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

(unaudited)

Purported Class Action Complaint

On January 14, 2025, purported customers served a putative class action complaint on behalf of themselves and a

putative class of California consumers against Sleep Number in the United States District Court for the Central District of

California alleging that Sleep Number’s beds are perpetually on sale in violation of California law. The Plaintiff sought

injunctive relief, damages and attorney’s fees. Sleep Number brought a motion to dismiss for failure to state a claim and a

motion to transfer or, alternatively, dismiss based on the first-to-file doctrine (citing the purported class action complaint

filed on September 27, 2024 as described below). On April 8, 2025, the Court granted Sleep Number’s motion to transfer

or, alternatively, dismiss and dismissed the matter in its entirety based on the first-to-file doctrine. The plaintiffs did not

appeal the dismissal.

Purported Class Action Complaint

On September 27, 2024, a purported customer served a putative class action complaint on behalf of themself and a

putative class of California consumers against Sleep Number in the United States District Court for the Eastern District of

California alleging that Sleep Number’s beds are perpetually on sale in violation of California law. The plaintiff seeks

injunctive relief, damages and attorney’s fees.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF

OPERATIONS

Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to provide a

reader of the Company’s condensed consolidated financial statements with a narrative from the perspective of

management on its financial condition, results of operations, liquidity and certain other factors that may affect the

Company’s future results. MD&A is presented in seven sections:

•Forward-Looking Statements and Risk Factors

•Business Overview

•Results of Operations

•Liquidity and Capital Resources

•Non-GAAP Data Reconciliations

•Critical Accounting Policies

Forward-looking Statements and Risk Factors

The discussion in this Quarterly Report on Form 10-Q contains certain forward-looking statements that relate to

future plans, events, financial results or performance. You can identify forward-looking statements by those that

are not historical in nature, particularly those that use terminology such as “may,” “will,” “should,” “could,”

“expect,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “predict,” “intend,” “potential,” “continue” or the

negative of these or similar terms. These statements are subject to certain risks and uncertainties that could

cause actual results to differ materially from the Company’s historical experience and its present expectations or

projections. These risks and uncertainties include, among others:

•Changes in economic conditions and consumer sentiment and related impacts on discretionary consumer spending;

•Interest rates remain elevated, and may further increase and impact the cost of servicing the Company’s

indebtedness;

•Ability to remain in compliance with the financial covenants in the credit agreement governing the Company’s credit

facility, which will depend on the Company’s ability to execute its business plans, and if the Company cannot remain in

compliance with such financial covenants, the Company must seek alternative financing options, access to which may

depend on factors beyond the Company’s control or require the Company to accept unfavorable terms;

•Availability of attractive and cost-effective consumer credit options;

•Ability to achieve cost savings, efficiencies and other benefits from its business restructuring actions and to avoid

adverse effects;

•Effectiveness and efficiency of the Company’s marketing strategy and promotions;

•Ability to execute Sleep Number’s Total Retail distribution strategy;

•Ability to compete effectively;

•Ability to achieve and maintain high levels of product and service quality;

•Ability to improve and expand the product line and execute new product introductions;

•Ability to protect the Company’s technology, trademarks and brand, and the adequacy of its intellectual property

rights;

•Dependence on, and ability to maintain working relationships with key suppliers and third parties, including some that

are the only source of supply or services currently used by the Company;

•Fluctuations in commodity costs or third-party delivery or logistics costs and other inflationary pressures;

•Risks inherent in global-sourcing activities, including tariffs, foreign regulation, geo-political turmoil, war, pandemics,

labor challenges, foreign currency fluctuations, inflation, climate or other disasters and resulting supply shortages, and

production and delivery delays and disruptions;

•Operating with minimal levels of inventory, which may leave the Company vulnerable to supply shortages;

•Risks of disruption in the operation of any of the Company’s facilities and operations, including manufacturing,

assembly, distribution, logistics, field services, home delivery, headquarters, product development, retail or customer

service operations;

•Ability to effectively complete potential future acquisitions and business combinations;

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•Sleep Number’s ability, and the ability of its suppliers and vendors, to attract, retain and motivate qualified and

effective personnel;

•Ability to comply with existing and changing government regulations and laws, and to commercialize new products

and innovations that meet those existing and changing government regulations and laws;

•Ability to identify and withstand cyber threats that could compromise the security of the Company’s systems or those

of third parties upon which it relies and could result in a data breach or business disruption;

•Risks associated with advancements in or adoption of artificial intelligence technologies;

•Adequacy of the Company’s and third-party information systems, and costs and disruptions related to upgrading or

maintaining these systems;

•Volatility of Sleep Number stock, its removal from various stock indices and the potential negative effects of

shareholder activism or of changes in coverage by securities analysts;

•Unfavorable tax treatment;

•Environmental, social and governance risks, including increasing scrutiny and evolving regulatory and stakeholder

expectations; and

•Ability to adapt to climate change and readiness for legal or regulatory responses thereto.

Additional information concerning these, and other risks and uncertainties is contained under the caption “Risk

Factors” in Part I, Item 1A. in the Company’s Annual Report on Form 10-K and in Part II. Item 1A. in subsequent

Quarterly Reports on Form 10-Q.

The Company has no obligation to publicly update or revise any of the forward-looking statements contained in this

Quarterly Report on Form 10-Q.

Business Overview

Sleep Number is a wellness company and market leader in the design, manufacturing, marketing and distribution of highly

innovative sleep solutions. The Company’s purpose is to improve lives by personalizing sleep; to date, it has improved the

lives of over 16 million people. Sleep Number’s Smart Sleepers benefit from individualized sleep experiences, night after

night, and are experiencing the physical, mental and emotional benefits of life-changing sleep.

Sleep Number’s life-changing, differentiated smart beds combine physical and digital innovations, integrating unparalleled

physical comfort with a highly advanced sleep wellness platform. The smart beds offer the Company’s signature firmness

adjustability, enabling each sleeper adjustable comfort. Embedded digital sensors learn the sleep needs of each

individual; “sense and do” technology uses the sensed data to automatically adjust the smart bed to keep the sleeper

comfortable throughout the night. Active temperature balancing technology supports the ideal climate for each sleeper and

solves a prevalent sleep challenge. Additionally, the smart beds are an exceptional value, with personalized sleep insights

delivered daily, new features regularly added to all smart beds through over-the-air updates and prices to meet most

budgets. Sleep Number® smart beds provide unmatched features, benefits and comfort that can lead to improved sleep

health and wellness for both sleepers.

The Company’s advantaged business model is supported by its consumer innovation strategy: an individualized, digital

sleep wellness platform, a network of millions of highly engaged Smart Sleepers who are loyal brand advocates, a

vertically integrated operating model and a culture of individuality, with an ambitious vision to become one of the world’s

most beloved brands.

The Company’s 3,200 mission-driven team members are focused on driving value creation, including our exclusive direct-

to-consumer selling in 611 stores and online, which meets customers whenever and wherever they choose to provide an

exceptional experience and a lifelong relationship. Additionally, the Company partners with world-leading institutions to

bring the power of 36 billion hours of longitudinal sleep data to sleep science and research.

The bedding industry has been in a sector level recession for three years with mattress industry unit volumes returning to

an estimated 24 million units in 2024, the lowest level since 2015. Consumer sentiment remains well below historical

averages, and high interest rates are putting ongoing pressure on the housing market. Consumers continue to scrutinize

spending, with inflation and other factors weighing on their purchasing power. In November 2025, the Company

introduced its turnaround strategy, a focused, company-wide effort to reposition the brand, expand reach to new customer

groups, and reignite growth. The aim is to drive value for shareholders, customers and team members with efforts rooted

in the consumer through all dimensions of the business.

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Results of Operations

Quarterly and Year-to-Date Results

Quarterly and year-to-date operating results may fluctuate significantly as a result of a variety of factors, including

increases or decreases in sales, timing, amount and effectiveness of advertising expenditures, changes in sales return

rates or warranty experience, timing of investments in growth initiatives and infrastructure, timing of store openings/

closings and related expenses, changes in net sales resulting from changes in the Company’s store base, timing of new

product introductions and related expenses, timing of promotional offerings, competitive factors, changes in commodity

costs, disruptions in global supplies or third-party service providers, seasonality of retail and bedding industry sales,

consumer sentiment and general economic conditions. The extent to which these external factors will impact the

Company’s business and its consolidated financial results will depend on future developments, which are highly uncertain

and cannot be predicted. Therefore, the historical results of operations may not be indicative of the results that may be

achieved for any future period.

Highlights

Financial highlights for the three months ended September 27, 2025 were as follows:

•Net sales for the three months ended September 27, 2025 of $343 million decreased 20% from $427 million for the

same period one year ago driven by lower volume and reduced store count.

•The net sales change resulted from a 19% Total Retail comparable sales decrease. For additional details, see the

components of total net sales change on page 21.

•Average sales per store (sales for stores open at least one year, Total Retail, including online, phone and chat) on a

trailing twelve-month basis for the period ended September 27, 2025 totaled $2.3 million, compared with $2.7 million

for the same period one year ago.

•Operating loss for the three months ended September 27, 2025 was $40 million, compared with operating income of

$8 million for the same period one year ago. The $49 million decrease in operating income was driven by the lower

gross profit, partially offset by a $5 million reduction in operating expenses.

•Adjusted EBITDA for the three months ended September 27, 2025 was $13 million, compared to $28 million for the

same period one year ago. The decrease was primarily due to a lower gross profit when compared to the same period

one year ago, offset by higher restructuring costs.

•Gross profit rate of 59.9% for the three months ended September 27, 2025 compared to 60.8% for the same period

one year ago. See the gross profit discussion on page 21 for additional details.

•The $5 million year-over-year reduction in the Company’s operating expenses was due to lower sales and marketing

expenses, general and administrative expenses, and research and development expenses, partially offset by higher

restructuring costs.

•Net loss for the three months ended September 27, 2025 was $40 million, compared with $3 million for the same

period one year ago. Net loss per diluted share was $1.73, compared with $0.14 for the same period one year ago.

•The Company’s adjusted return on invested capital (Adjusted ROIC) was (2.0)% on a trailing twelve-month basis for

the period ended September 27, 2025, compared with 4.5% for the comparable period one year ago.

•The Company used $5 million in cash from operating activities for the nine months ended September 27, 2025,

compared with cash provided of $51 million for the same period one year ago.

•Free cash flow used $17 million for the nine months ended September 27, 2025, compared with providing $34 million

for the same period one year ago.

•As of September 27, 2025, the Company had $580 million of borrowings under its credit facility.

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The following table sets forth the Company’s results of operations expressed as dollars and percentages of net sales.

Figures are in millions, except percentages and per share amounts. Amounts may not add due to rounding differences.

	Three Months Ended								Nine Months Ended
	September 27, 2025				September 28, 2024				September 27, 2025				September 28, 2024
Net sales	$342.9		100.0%		$426.6		100.0%		$1,064.1		100.0%		$1,305.5		100.0%
Cost of sales	137.5		40.1%		167.1		39.2%		424.4		39.9%		528.3		40.5%
Gross profit	205.4		59.9%		259.5		60.8%		639.7		60.1%		777.2		59.5%
Operating expenses:
Sales and marketing	167.4		48.8%		205.5		48.2%		503.0		47.3%		596.4		45.7%
General and administrative	31.8		9.3%		33.1		7.8%		100.0		9.4%		111.7		8.6%
Research and development	7.3		2.1%		10.6		2.5%		27.7		2.6%		34.6		2.7%
Restructuring costs	39.2		11.4%		2.0		0.5%		47.5		4.5%		14.4		1.1%
Total operating expenses	245.7		71.7%		251.1		58.9%		678.2		63.7%		757.1		58.0%
Operating (loss) income	(40.3)		(11.8%)		8.4		2.0%		(38.5)		(3.6%)		20.1		1.5%
Interest expense, net	12.7		3.7%		12.1		2.8%		35.5		3.3%		36.6		2.8%
Loss before income taxes	(53.0)		(15.5%)		(3.6)		(0.8%)		(74.0)		(7.0%)		(16.5)		(1.3%)
Income tax benefit	(13.2)		(3.9%)		(0.5)		(0.1%)		(0.6)		(0.1%)		(0.9)		(0.1%)
Net loss	$(39.8)		(11.6%)		$(3.1)		(0.7%)		$(73.4)		(6.9%)		$(15.7)		(1.2%)
Net loss per share:
Basic	$(1.73)				$(0.14)				$(3.21)				$(0.69)
Diluted	$(1.73)				$(0.14)				$(3.21)				$(0.69)
Weighted-average number of common shares:
Basic	23.0				22.6				22.9				22.6
Diluted	23.0				22.6				22.9				22.6

The percentage of total net sales, by dollar volume, was as follows:

	Three Months Ended				Nine Months Ended
	September 27, 2025		September 28, 2024		September 27, 2025		September 28, 2024
Retail stores	87.8%		87.8%		87.7%		87.9%
Online, phone, chat and other	12.2%		12.2%		12.3%		12.1%
Total Company	100.0%		100.0%		100.0%		100.0%

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The components of total net sales change, including comparable net sales changes, were as follows:

	Three Months Ended				Nine Months Ended
	September 27, 2025		September 28, 2024		September 27, 2025		September 28, 2024
Sales change rates:
Retail comparable-store sales (1)	(19%)		(7%)		(17%)		(9%)
Online, phone and chat	(20%)		(18%)		(17%)		(17%)
Total Retail comparable sales change (1)	(19%)		(9%)		(17%)		(10%)
Net opened/closed stores and other	(1%)		(1%)		(1%)		0%
Total Company	(20%)		(10%)		(18%)		(10%)

___________________________

(1)Stores are included in the comparable-store calculations in the 13th full month of operations. Stores that have been remodeled or repositioned within

the same shopping center remain in the comparable-store base.

Other sales metrics were as follows:

	Three Months Ended				Nine Months Ended
	September 27, 2025		September 28, 2024		September 27, 2025		September 28, 2024
Average sales per store (1) (in thousands)	$2,276		$2,670
Average sales per square foot (1)	$735		$863
Stores > $2 million in net sales (2)	42%		60%
Stores > $3 million in net sales (2)	10%		20%
Average revenue per smart bed unit – Total Retail (3)	$5,995		$5,771		$5,958		$5,778

___________________________

(1)Trailing-twelve months Total Retail comparable sales per store open at least one year.

(2)Trailing-twelve months for stores open at least one year (excludes online, phone and chat sales).

(3)Represents Total Retail net sales divided by Total Retail smart bed units.

The number of retail stores operating was as follows:

	Three Months Ended				Nine Months Ended
	September 27, 2025		September 28, 2024		September 27, 2025		September 28, 2024
Beginning of period	630		646		640		672
Opened	2		1		5		11
Closed	(21)		(4)		(34)		(40)
End of period	611		643		611		643

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Comparison of Three Months Ended September 27, 2025 with Three Months Ended September 28, 2024

Net sales

Net sales for the three months ended September 27, 2025 of $343 million decreased 20% from $427 million for the same

period one year ago driven by lower volume and reduced store count. The net sales change consisted primarily of a 19%

Total Retail comparable sales decrease.

The $84 million net sales decrease compared with the same period one year ago was comprised of the following: (i) a

$69 million decrease in Retail comparable net sales; (ii) a $10 million decrease from online, phone and chat; and (iii) a

$5 million decrease from net store closings and other. Total Retail smart bed unit sales decreased 23% compared with the

prior year. Total Retail average revenue per smart bed unit increased by 4% to $5,995, compared with $5,771 in the prior-

year period.

Gross profit

Gross profit of $205 million for the three months ended September 27, 2025 decreased by $54 million, or 21%, compared

with $260 million for the same period one year ago. The gross profit rate totaled 59.9% of net sales for the three months

ended September 27, 2025, compared to 60.8% in the prior-year comparable period.

The current-year gross profit rate decrease of 0.9 ppt was affected by the following items: (i) higher manufacturing costs

driven primarily by unit deleverage decreased the rate by 1.4 ppt; (ii) unfavorable logistic and home delivery costs due to

lower unit volume decreased the rate by 0.5 ppt; partially offset by (iii) favorable product mix increased the rate by 0.7 ppt;

and (iv) lower promotional activity increased the rate by 0.3 ppt.

Sales and marketing expenses

Sales and marketing expenses for the three months ended September 27, 2025 were $167 million, or 48.8% of net sales,

compared with $205 million, or 48.2% of net sales, for the same period one year ago. The current-year sales and

marketing expenses rate increase of 0.6 ppt. was primarily due to the deleveraging impact of an 20% net sales decline,

partially offset by a 19% decrease in sales and marketing expenses including a 32% lower media spend.

General and administrative expenses

General and administrative (G&A) expenses totaled $32 million, or 9.3% of net sales, for the three months ended

September 27, 2025, compared with $33 million, or 7.8% of net sales, in the prior-year period. The changes in G&A

expenses consisted mainly of: (i) a $1.5 million decrease in stock-based compensation; and (ii) a $1.3 million decrease in

depreciation and amortization; offset by (iii) a $1.1 increase in company-wide, performance-based incentive compensation

due to an adjustment recorded during the prior year period, and (iv) a $0.7 million increase in professional and consulting

fees. The G&A expenses rate decreased by 1.5 ppt. in the current-year period, compared with the same period one year

ago due to the items discussed above offset by the deleveraging impact of lower net sales.

Research and development expenses

Research and development (R&D) expenses totaled $7 million for the three months ended September 27, 2025,

compared with $11 million with the same period one year ago. The changes in R&D expenses were primarily due to lower

headcount and outside services. Moving forward, the Company’s innovation agenda will focus on maintaining and

improving the Company’s core technologies and introducing additional advancements, while driving costs out of the

product.

Interest expense, net

Interest expense, net totaled $13 million for the three months ended September 27, 2025, compared to $12 million for the

same period one year ago. The increase was due to an increase in the average debt outstanding compared to the same

period one year ago offset slightly by a lower weighted-average interest rate.

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Restructuring Costs

Restructuring costs for the three months ended September 27, 2025 were $39 million, compared with $2 million for the

same period one year ago. Charges incurred related to this initiative were comprised of contract termination costs,

severance and employee-related benefits, professional fees and other, and asset impairment charges and are included in

the restructuring costs line in the Company’s condensed consolidated statement of operations. The Company expects an

additional $3 million of restructuring costs to be incurred through the remainder of 2025, primarily due to severance and

employee-related benefits, contract termination costs, and asset impairment charges. See Note 12, Restructuring Costs,

of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Information, of this

Quarterly Report on Form 10-Q for further information on restructuring costs.

Income tax benefit

Income tax benefit was $13.2 million for the three months ended September 27, 2025, compared with $0.5 million for the

same period one year ago. The change in income tax benefit was primarily due to the impact of the loss before income tax

levels.

The Company evaluates its deferred income taxes on a quarterly basis to determine if valuation allowances are required.

As part of this evaluation, the Company assess whether valuation allowances should be established for any deferred tax

assets that are not considered more likely than not to be realized, using all available evidence, both positive and negative.

This assessment considers, among other matters, the nature, frequency, and severity of historical losses, forecasts of

future profitability, taxable income in available carryback periods and tax planning strategies. In making such judgments,

significant weight is given to evidence that can be objectively verified. The Company did not record any additional

valuation allowance during the three months ended September 27, 2025. The Company continues to assess the need for

the valuation allowance and will make adjustments when appropriate.

Comparison of Nine Months Ended September 27, 2025 with Nine Months Ended September 28, 2024

Net sales

Net sales for the nine months ended September 27, 2025 decreased by $241 million, or 18%, to $1.1 billion, compared

with $1.3 billion for the same period one year ago driven by lower volume and reduced store count.

The net sales decrease consisted primarily of a 17% comparable sales decrease in Total Retail. For additional details, see

the components of total net sales change on page 20.

The $241 million net sales decrease compared with the same period one year ago was comprised of the following: (i) a

$193 million decrease in Retail comparable net sales; (ii) a $27 million decrease in online, phone and other sales; and (iii)

a $21 million decrease resulting from net store closings. Total smart bed unit sales declined 21% compared with the same

period one year ago. Average revenue per smart bed unit in Total Retail increased by 3% to $5,958, compared with

$5,778 in the prior-year period.

Gross profit

Gross profit of $640 million for the nine months ended September 27, 2025 decreased by $137 million, or 18%, compared

with $777 million for the same period one year ago. The gross profit rate increased to 60.1% of net sales for the nine

months ended September 27, 2025, compared to 59.5% in the prior-year comparable period.

The current-year gross profit rate increase of 0.6 ppt was affected by the following items: (i) favorable product mix

increased the rate by 0.8 ppt; (ii) strategic pricing actions partially offset by increased promotional activity increased the

rate by 0.2 ppt; (iii) year-over-year product cost reductions through value engineering and ongoing supplier negotiations

increased the rate by 0.1 ppt; partially offset by (iv) logistic and home delivery costs decreased the rate by 0.5 ppt.

Sales and marketing expenses

Sales and marketing expenses for the nine months ended September 27, 2025 were $503 million, or 47.3% of net sales,

compared with $596 million, or 45.7% of net sales, for the same period one year ago. The current-year sales and

marketing expenses rate increase of 1.6 ppt. was primarily due to deleveraging impact of an 18% net sales decline offset

by a 16% decrease in expenses including 19% lower media spend.

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General and administrative expenses

G&A expenses for the nine months ended September 27, 2025 totaled $100 million, or 9.4% of net sales, compared

with $112 million, or 8.6% of net sales, in the prior-year period. The $12 million decrease in G&A expenses consisted of:

(i) a $6.3 million year-over-year decrease in company-wide, performance-based incentive compensation and (ii) a $3.3

million decrease in depreciation and amortization; (iii) a $3.0 million decrease in employee compensation and (iv) a $0.3

million decrease in occupancy expenses; offset by a (v) a $1.3 million increase in professional and consulting fees

primarily related to proxy contest and CEO search costs that occurred during the first quarter of 2025. The G&A expenses

rate increased by 0.8 ppt. in the current-year period, compared with the same period one year ago due to the

deleveraging impact of the 18% net sales decrease.

Research and development expenses

R&D expenses decreased by 20% to $28 million for the nine months ended September 27, 2025, compared with $35

million for the same period one year ago on lower outside services and headcount. While the Company’s consumer

innovation pipeline remains robust, it is re-prioritizing R&D resources in this highly constrained environment. Moving

forward, the Company’s innovation agenda will focus on maintaining and improving the Company’s core technologies and

introducing additional advancements, while driving costs out of the product.

Interest expense, net

Interest expense, net decreased to $36 million for the nine months ended September 27, 2025, compared with $37 million

for the same period one year ago. The $1 million decrease was primarily driven by a lower weighted-average interest rate

compared with the same period one year ago.

Restructuring costs

Restructuring costs for the nine months ended September 27, 2025 were $48 million, compared with $14 million for the

same period one year ago. Charges incurred related to this initiative were comprised of contract termination costs,

severance and employee-related benefits, professional fees and other, and asset impairment charges and are included in

the restructuring costs line in the Company’s condensed consolidated statement of operations. The Company expects an

additional $3 million of restructuring costs to be incurred through the remainder of 2025, primarily due to severance and

employee-related benefits, contract termination costs, and asset impairment charges. See Note 12, Restructuring Costs,

of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, Financial Information, of this

Quarterly Report on Form 10-Q for further information on restructuring costs.

Income tax benefit

Income tax benefit totaled $0.6 million for the nine months ended September 27, 2025, compared with $0.9 million for the

same period one year ago.

The Company evaluates its deferred income taxes on a quarterly basis to determine if valuation allowances are required.

As part of this evaluation, the Company assess whether valuation allowances should be established for any deferred tax

assets that are not considered more likely than not to be realized, using all available evidence, both positive and negative.

This assessment considers, among other matters, the nature, frequency, and severity of historical losses, forecasts of

future profitability, taxable income in available carryback periods and tax planning strategies. In making such judgments,

significant weight is given to evidence that can be objectively verified. A valuation allowance of $14 million that was

recorded during the nine months ended September 27, 2025. The valuation allowance primarily related to deferred tax

assets on interest expense that are more likely than not to not be realized. The Company continues to assess the need for

the valuation allowance and will make adjustments when appropriate.

24 | 3Q 2025 FORM 10-Q SLEEP NUMBER CORPORATION

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Liquidity and Capital Resources

Managing liquidity and capital resources is an important part of the Company’s commitment to deliver superior

shareholder value over time.

The Company’s primary sources of liquidity are cash flows provided by operating activities and cash available under its

revolving credit facility, as amended. As of September 27, 2025, the Company does not have any off-balance sheet

financing other than its $9 million in outstanding letters of credit. The cash generated from ongoing operations and cash

available under the revolving credit facility are expected to be adequate to maintain operations, and fund anticipated

expansion, strategic initiatives and contractual obligations such as lease payments and capital commitments for new retail

stores for the foreseeable future.

Cash and cash equivalents totaled $1.3 million and $2.0 million at September 27, 2025 and December 28, 2024,

respectively. Significant changes in cash and cash equivalents during the nine months ended September 27, 2025

primarily consisted of $5 million of cash used in operating activities, $15 million of cash used in investing activities, and

$20 million of cash provided by financing activities.

The following table summarizes cash flows (in millions). Amounts may not add due to rounding differences:

	Nine Months Ended
	September 27, 2025		September 28, 2024
Total cash (used in) provided by:
Operating activities	$(5.2)		$50.8
Investing activities	(15.2)		(20.0)
Financing activities	19.6		(31.8)
Net decrease in cash and cash equivalents	$(0.7)		$(0.9)

Net cash used in operating activities for the nine months ended September 27, 2025 was $5 million, compared with net

cash provided by operating activities of $51 million for the nine months ended September 28, 2024. Significant

components of the year-over-year change in cash provided by operating activities included: (i) a $58 million year-over-

year increase in net loss; (ii) a $20 million fluctuation in income taxes, and (iii) a $13 million fluctuation in the amount of

compensation and benefits accrued and timing of the related payments resulting from year-over-year changes in

Company-wide performance-based incentive compensation; offset by (iv) a $33 million fluctuation in the impairment of

lease and store related assets and strategic investment assets, (v) a $16 million fluctuation in deferred income taxes, and

(vi) a $11 million fluctuation in prepaid expenses.

Net cash used in investing activities for the nine months ended September 27, 2025 was $15 million, compared with

$20 million for the nine months ended September 28, 2024. Cash used to purchase property and equipment was

$12 million for the nine months ended September 27, 2025, compared with $17 million for the same period one year ago.

In addition, the Company used $3 million cash for payment to secure contractual rights during the nine months ended

September 28, 2024.

Net cash provided by financing activities was $20 million for the nine months ended September 27, 2025, compared with

net cash used in financing activities of $32 million for the same period one year ago. Short-term borrowings increased by

$22 million during the current-year period due to an $33 million increase in borrowings under the revolving credit facility to

$580 million and a $11 million decrease in book overdrafts, which are included in the net change in short-term borrowings.

During the nine months ended September 27, 2025, the Company used $2 million of cash for debt issuance costs related

to the credit facility amendment during the first quarter of 2025. During both the nine months ended September 27, 2025

and September 28, 2024, the Company repurchased $1 million of its stock in connection with the vesting of employee

restricted stock awards.

In the second quarter of fiscal 2022, the Company suspended share repurchases under its Board-approved share

repurchase program. At September 27, 2025, there was $348 million remaining authorization under the Board-approved

$600 million share repurchase program. There is no expiration date governing the period over which the Company can

repurchase shares. The Company made no share repurchases under its Board-approved share repurchase program in

either period.

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At September 27, 2025, the Company had an aggregate amount of $580 million of borrowings outstanding under its credit

agreement, including $185 million in outstanding term loans and $395 million outstanding under its revolving credit facility,

along with $9 million in outstanding letters of credit. Availability under the revolving credit facility amounted to $82 million.

On November 4, 2025, the Company amended the Credit Agreement. The amendment, among other things: (a) extends

the maturity date of the Credit Agreement to December 3, 2027; (b) reduces the revolving credit facility from $485 million

to $475 million, which decreases further to $465 million on July 31, 2026; (c) replaces the leverage-based pricing grids

used to determine the Applicable Margin and Applicable Commitment Fee Rate (each as defined in the Credit Agreement)

in favor of (I) with respect to Applicable Margin for Term SOFR Loans, (x) 4.0% until December 31, 2026 and (y) 4.25%

starting January 1, 2027 and continuing thereafter, and (II) with respect to the Applicable Commitment Fee Rate, (x)

0.50% until December 31, 2026 and (y) 0.75% starting January 1, 2027 and continuing thereafter; (d) on each Regularly

Scheduled Payment Date (as defined in the Credit Agreement) occurring on and after March 31, 2027, increases the

amortization of outstanding term loans an additional $1,250,000 (for an aggregate scheduled principal payment of

$3,750,000); (e) terminates the accordion feature; (f) adjusts the permissible maximum Net Leverage Ratio (as defined in

the Credit Agreement) to (I) 5.25 to 1.00 for the quarterly reporting period ended September 27, 2025, (II) 4.50 to 1.00 for

the quarterly reporting period ending January 3, 2026, (III) 4.75 to 1.00 for the quarterly reporting period ending April 4,

2026, (IV) 4.80 to 1.00 for the quarterly reporting period ending July 4, 2026, and (V) 4.00 to 1.00 for each quarterly

reporting period thereafter; (g) adjusts the Liquidity financial covenant so that the Company must ensure that liquidity is no

lower than $30 million until September 30, 2026, and $40 million for each monthly reporting period thereafter; (h) adjusts

the permissible minimum Interest Coverage Ratio to (I) 1.50 to 1.00 for the quarterly reporting period ended September

27, 2025, (II) 2.10 to 1.00 for the quarterly reporting periods ending January 3, 2026 and April 4, 2026, (III) 1.80 to 1.00 for

the quarterly reporting period ending July 4, 2026, (IV) 2.10 to 1.00 for the reporting period ending October 3, 2026, and

(V) 2.20 to 1.00 for each quarterly reporting period occurring thereafter; (i) adds a new quarterly minimum EBITDA

covenant test that begins for the quarterly reporting period ending April 4, 2026; (j) adjusts the consolidated EBITDA

calculation to include an addback for certain expenses and costs incurred for the trailing twelve months for discontinued

operations, downsized functions and employment expenses for laid-off employees; and (k) provides for additional and

more frequent reporting requirements. Following such amendment, the Company was in compliance with all covenants.

In connection with the amendment, the Company also agreed to pay the lenders certain amendment fees and to

reimburse the lenders for certain expenses.

Over the past year, due to the conditions affecting our industry and business and our financial condition and results of

operations, we have had to seek waivers and amendments to our credit agreement as we otherwise would not have been

in compliance with the covenants thereunder. While we have received such waivers and amendments in the past, if our

business does not perform as expected, we will require additional waivers or amendments to the Credit Agreement and, if

such waivers or amendments cannot be obtained on commercially reasonable terms or at all, we will be required to seek

alternative financing options, which may not be available at all or available only at significant cost and which may contain

covenants that are more restrictive than those contained in the Credit Agreement. Our inability to obtain any required

waivers or amendments or obtain alternative financing on commercially reasonable terms, if at all, could have a material

adverse impact on our business, results of operations, financial condition and prospects.

Non-GAAP Data Reconciliations

Earnings before Interest, Taxes, Depreciation and Amortization (Adjusted EBITDA)

The Company defines earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) as net loss plus:

income tax expense (or minus income tax benefit), interest expense, depreciation and amortization, stock-based

compensation, restructuring costs, other non-recurring items and asset impairments. Management believes Adjusted

EBITDA is a useful indicator of the Company’s financial performance and its ability to generate cash from operating

activities. The Company’s definition of Adjusted EBITDA may not be comparable to similarly titled definitions used by other

companies. The table below reconciles Adjusted EBITDA, which is a non-GAAP financial measure, to the comparable

GAAP financial measure.

26 | 3Q 2025 FORM 10-Q SLEEP NUMBER CORPORATION

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Adjusted EBITDA calculations are as follows (in thousands):

	Three Months Ended				Trailing-Twelve Months Ended
	September 27, 2025		September 28, 2024		September 27, 2025		September 28, 2024
Net loss	$(39,790)		$(3,136)		$(78,113)		$(40,857)
Income tax benefit	(13,212)		(489)		(4,893)		(7,966)
Interest expense	12,687		12,057		47,244		49,313
Depreciation and amortization	12,975		15,859		56,706		67,335
Stock-based compensation	(788)		1,432		6,615		13,523
Restructuring costs (1)	39,154		1,963		51,230		30,110
Other non-recurring items (2)	2,228		—		5,053		—
Asset impairments	—		—		1,220		198
Adjusted EBITDA	$13,254		$27,686		$85,062		$111,656

_____________________

(1) Represents costs related to business restructuring actions.

(2) Represents costs related to CEO transition activities and proxy contest costs of $0.4 million and $0, respectively, for the three months ended

September 27, 2025 and $1.4 million and $1.9 million, respectively, for the trailing twelve months ended September 27, 2025. These costs were both

initiated in the fourth quarter of fiscal 2024. In addition, represents CFO search costs of $0.2 million and write off of debt issuance cost of $1.6 million

for both the three and trailing twelve months ended September 27, 2025. These costs were both initiated in the third quarter of 2025.

Free Cash Flow

The Company’s “free cash flow” data is considered a non-GAAP financial measure and is not in accordance with, or

preferable to, “net cash provided by operating activities,” or GAAP financial data. However, the Company is providing this

information as it believes it facilitates analysis for investors and financial analysts.

The following table summarizes free cash flow calculations (in thousands):

	Nine Months Ended				Trailing-Twelve Months Ended
	September 27, 2025		September 28, 2024		September 27, 2025		September 28, 2024
Net cash (used in) provided by operating activities	$(5,159)		$50,824		$(28,840)		$9,980
Subtract: Purchases of property and equipment	11,888		17,218		18,175		26,252
Free cash flow	$(17,047)		$33,606		$(47,015)		$(16,272)

Non-GAAP Data Reconciliations (continued)

Return on Invested Capital (Adjusted ROIC)

Adjusted ROIC is a financial measure the Company uses to determine how efficiently it deploys its capital. It quantifies the

return the Company earns on its adjusted invested capital. Management believes Adjusted ROIC is also a useful metric

for investors and financial analysts. The Company computes Adjusted ROIC as outlined below. Its definition and

calculation of Adjusted ROIC may not be comparable to similarly titled definitions and calculations used by other

companies.

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The tables below reconcile adjusted net operating profit after taxes (Adjusted NOPAT) and total adjusted invested capital,

which are non-GAAP financial measures, to the comparable GAAP financial measures (in thousands):

	Trailing-Twelve Months Ended
	September 27, 2025		September 28, 2024
Adjusted net operating profit after taxes (Adjusted NOPAT)
Operating income	$(35,762)		$490
Add: Operating lease expense (1)	24,956		27,371
Less: Income taxes (2)	1,443		(5,474)
Adjusted NOPAT	$(9,363)		$22,387
Average adjusted invested capital
Total deficit	$(521,342)		$(448,784)
Add: Long-term debt (3)	579,680		516,761
Add: Operating lease obligations (4)	361,029		401,153
Total adjusted invested capital at end of period	$419,367		$469,130
Average adjusted invested capital (5)	$460,891		$502,494
Adjusted return on invested capital (Adjusted ROIC) (6)	(2.0%)		4.5%

___________________________

(1) Represents the interest expense component of lease expense included in the Company’s financial statements under ASC 842, Leases.

(2) Reflects annual effective income tax rates, before discrete adjustments, of 13.4% and 19.6% for September 27, 2025 and September 28, 2024,

respectively.

(3) Long-term debt includes existing finance lease liabilities.

(4) Reflects operating lease liabilities included in the Company’s financial statements under ASC 842.

(5) Average adjusted invested capital represents the average of the last five fiscal quarters’ ending adjusted invested capital balances.

(6) Adjusted ROIC equals Adjusted NOPAT divided by average adjusted invested capital.

Note - the Company’s adjusted ROIC calculation and data are considered non-GAAP financial measures and are not in accordance with, or preferable

to, GAAP financial data. However, the Company is providing this information as it believes it facilitates analysis of the Company's financial performance

by investors and financial analysts.

GAAP - generally accepted accounting principles in the U.S.

Critical Accounting Policies

The Company discusses its critical accounting policies and estimates in Management’s Discussion and Analysis of

Financial Condition and Results of Operations in the Company’s Annual Report on Form 10-K for the fiscal year ended

December 28, 2024. There were no significant changes in the Company’s critical accounting policies since the end of

fiscal 2024.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The Company is exposed to changes in market-based short-term interest rates that will impact net interest expense. If

overall interest rates were one percentage point higher than current rates, annual net income would decrease by

$5.0 million based on the $580 million of borrowings under the credit facility at September 27, 2025. The Company does

not manage the interest-rate volatility risk of borrowings under the credit facility through the use of derivative instruments.

ITEM 4. CONTROLS AND PROCEDURES

Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures

The Company maintains disclosure controls and procedures, as defined in Exchange Act Rule 13a-15(e), that are

designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under

the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time

periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated

and communicated to the Company’s management, including its principal executive officer and principal financial officer,

or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The

Company’s management, with the participation of its principal executive officer and principal financial officer, evaluated the

effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period

covered by this quarterly report. Based on this evaluation, its principal executive officer and principal financial officer

concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by

this quarterly report.

Changes in Internal Control

There were no changes in the Company’s internal control over financial reporting during the fiscal quarter ended

September 27, 2025, that have materially affected, or are reasonably likely to materially affect, the Company’s internal

control over financial reporting.

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PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

The Company’s legal proceedings are discussed in Note 15 – Commitments and Contingencies, Legal Proceedings, of

the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, Notes to Condensed Consolidated

Financial Statements, of this Quarterly Report on Form 10-Q.

ITEM 1A. RISK FACTORS

The Company’s business, financial condition and operating results are subject to a number of risks and uncertainties,

including both those that are specific to the Company’s business and others that affect all businesses operating in a global

environment. Investors should carefully consider the information in this report under the heading, Management’s

Discussion and Analysis of Financial Condition and Results of Operations, and also the information under the heading,

Risk Factors, in the Company’s most recent Annual Report on Form 10-K and in subsequent Quarterly Reports on

Form 10-Q. The risk factors discussed in the Annual Report on Form 10-K and in subsequent Quarterly Reports on Form

10-Q including this Quarterly Report on Form 10-Q do not identify all risks that the Company faces because its business

operations could also be affected by additional risk factors that are not presently known to the Company or that it currently

considers to be immaterial to its operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS, AND ISSUER PURCHASES

OF EQUITY SECURITIES

(a) – (b) Not applicable.

(c) Issuer Purchases of Equity Securities

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)
June 29, 2025 through July 26, 2025		—		$—		—		$348,071,000
July 27, 2025 through August 23, 2025		3,059		$10.52		—		$348,071,000
August 24, 2025 through September 27, 2025		5,012		$8.80		—		$348,071,000
Total		8,071		$9.45		—		$348,071,000

___________________________

(1)The Company did not purchase any shares under its Board-approved $600 million share repurchase program (effective April 4, 2021), during the three

months ended September 27, 2025.

(2)In connection with the vesting of employee restricted stock grants, the Company repurchased 8,071 shares of its common stock at a cost of

$0.1 million during the three months ended September 27, 2025.

(3)There is no expiration date governing the period over which the Company can repurchase shares under its Board-approved share repurchase

program. Any repurchased shares are constructively retired and returned to an unissued status.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

30 | 3Q 2025 FORM 10-Q SLEEP NUMBER CORPORATION

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ITEM 5. OTHER INFORMATION

On November 4, 2025, the Company amended the Credit Agreement. More information can be found in Note 5 – Credit

Agreement of the Notes to Condensed Consolidated Financial Statements included in Part I, Item 1, Notes to Condensed

Consolidated Financial Statements, of this Quarterly Report on Form 10-Q.

Rule 10b5-1 Trading Plan and Non-rule 10b5-1 Trading Arrangement Adoptions, Modifications and Terminations

During the quarter ended September 27, 2025, none of the Company’s directors or officers adopted, modified or

terminated any contract, instruction or written plan for the purchase or sale of Company securities that was intended to

satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” as defined in

Item 408 of SEC Regulation S-K.

31 | 3Q 2025 FORM 10-Q SLEEP NUMBER CORPORATION

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ITEM 6. EXHIBITS

Exhibit Number		Description
10.1*		Twelfth Amendment to Amended and Restated Credit and Security Agreement
31.1*		Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*		Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*		Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
32.2*		Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
101.INS*		Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document
101.SCH*		Inline XBRL Taxonomy Extension Schema Document
101.CAL*		Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF*		Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB*		Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE*		Inline XBRL Taxonomy Extension Presentation Linkbase Document
104*		Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101)

*Filed Herein.

†        Management contract or compensatory plan or arrangement.

32 | 3Q 2025 FORM 10-Q SLEEP NUMBER CORPORATION

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SIGNATURES

Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be

signed on its behalf by the undersigned thereunto duly authorized.

		SLEEP NUMBER CORPORATION
		(Registrant)
Dated:	November 5, 2025	By:	/s/ Linda Findley
			Linda Findley
			Chief Executive Officer
			(principal executive officer)
		By:	/s/ Kelly F. Baker
			Kelly F. Baker
			Interim Principal Accounting Officer
			(principal accounting officer)

FAQ

What were Sleep Number (SNBR) Q3 net sales and the year-over-year change?

Net sales were $342.9 million, a 20% decrease from the prior year.

What was SNBR’s Q3 2025 profitability?

The company reported an operating loss of $40.3 million and a net loss of $39.8 million (EPS -$1.73).

How did gross margin trend for SNBR in Q3 2025?

Gross margin was 59.9%, compared with 60.8% a year ago.

What restructuring charges did SNBR record in Q3 2025?

Restructuring costs totaled $39.2 million in the quarter and $47.5 million year-to-date.

What is SNBR’s debt and cash position?

Borrowings under the credit facility were $579.5 million, and cash was $1.3 million.

Did SNBR amend its credit facility and what changed?

Yes. On November 4, 2025, maturity was extended to December 3, 2027, pricing and covenants were adjusted, and reporting was increased.

How many Sleep Number stores were operating at quarter-end?

SNBR operated 611 stores at the end of the period.