Q3 2020 Sleep Number Corp Earnings Call
[music].
[laughter] welcome to sleep numbers third quarter 2020 earnings conference call all lines have been placed in a listen only mode until the question and answer session. Today's call is being recorded if anyone has any objections you may disconnect at this time.
I would like to introduce Steve on peasant Vice President of Finance and Investor Relations. Thank you you may begin.
Good afternoon, and welcome to the Sleep number Corporation third quarter 2020 earnings Conference call. Thank you for joining us.
I am Dave Schwantes, Vice President of Finance and Investor Relations with me today.
With me today are Shelly ibach, our president and CEO and David Callen, Our Chief Financial Officer.
This telephone conference number dot com.
Please to access the replay.
Please also refer to our news release for a reconciliation of certain non-GAAP financial measure.
Measures and supplemental financial information included in the news release or that May be discussed on this call.
The primary purpose of this call is to discuss the results of the fiscal period. Just ended however, our commentary and responses to your questions may include certain forward looking statements. These forward looking statements are subject to a number of risks and uncertainties outlined in our earnings news release and discussed in some detail in.
Our annual report on form 10-K, and other periodic filings with the SEC.
The company's actual future results may vary materially.
I will now turn the call over to Shelly for her comments.
Good afternoon, and thank you for joining our 22003rd quarter earnings call My fleet by Q score with 88 last night.
Quality sleep has the power to improve lives and because of our team's dedication to our mission and our relentless focus on innovation sleep number is at the forefront of delivering this life changing benefit we have.
We have now improved nearly 13 million lives and counting.
This is particularly important in.
In this time of extreme threats and disruption in everyone's lives.
In the face of significant ambiguity caused by the pandemic. The sleep number team is helping our customers achieve an unparalleled sleep experience with our 360 smart beds.
I am grateful everyday for our team tenacity ingenuity and the care they show to one another and our customers.
And a purpose driven company based on individuality and well be out.
Our years of pacing in prioritizing strategic investments have contributed to our ability to deliver superior performance.
Bite simultaneous health and economic challenges.
We are well positioned for continued profitable growth and significant shareholder value creation.
Our third quarter 2020 performance provide of the strength resilience and sustainability of the differentiated consumer.
Efficient business model, we have built since transitioning to all 360 smart beds in 2018.
For the third consecutive year.
Our third quarter results reflect double digit demand growth, including 16% growth this year.
Record third quarter financial results include net sales of $531 million up 12% versus prior year with an 11% comp gain.
Net earnings per share were $1.79 up 90% now.
Net operating profit was $70 million or 13% of net sales an increase of 78%.
Year to date cash flows were $287 million up 51% versus the prior year to date and net debt was $180 million lower than a year ago.
These results clearly demonstrate our ability to create meaningful value for our customers team business partners and shareholders. We.
We are doing so in the short and long term during both robust and more challenging times, while also significantly advancing our strategic initiatives.
Several important factors contributed to this exceptional third quarter performance, including first our efficient and effective media performance, we continue to improve our media ROI each quarter as we advance our dynamic multi platform strategy we.
Begin leaning into customer acquisition, a year ago and have rapidly accelerated our digital capabilities. Since the pandemic began we are.
We are finding the highest value consumers through automation machine learning and our own proprietary data.
Digital traffic has already surpassed all of 2019, and we delivered 80 basis points of leveraging our media spending in the quarter.
Second our highly productive and sustainable sell from anywhere model. We developed an agile go to market approach that leverages, our sleep professional skills in building customer relationships and.
And aligned seamlessly with how our customer wants to shop in store online or by phone results are evident in our strong average revenue per unit and unit performance and it.
And increased conversion of digital traffic.
During the third quarter, even in store sales recovered our online and Boeing sales continued their triple digit growth.
Third our exclusive direct to consumer competitive advantage, our integrated approach to promotions financing selling process media and proprietary innovations are enabling us to increase sales and margin in a disruptive environment.
And fourth our new M seven and I 10, 360, smart beds, featuring temperature balancing layers and technology for greater comfort are exceeding expectations are.
Pioneering innovations are linking lead quality to individual health and wellness.
With data from nearly $1 billion week sessions, we now provide individual nighttime part.
Sleepers.
Biometric data focuses on cardiovascular resilience and provide insights about activity levels in energy for the following day.
Our society more health conscious than ever these new fleet. The wellness features are increasing engagement to new highs, which.
Which translates to even stronger brand advocacy.
All of these growth driving initiatives will continue to progress in the coming quarters.
Through smart inefficient use of capital, we have improved our operational efficiency and strengthened our competitive advantages.
For example, even with the hyper V shaped recovery in the third quarter demand the integration and coordination of our sales and service operations planning production fulfillment and delivery have enabled us to effectively manage a challenging global.
Supply chain, and logistics environment, including constrain inventory and cost pressures.
Strengthened partnerships and devised creative solutions with suppliers and kept everybody safe, while also meeting new standards for localized responsiveness.
This kinda tenacity and dedication led sleep number to be recognized recently by supply chain insights.
As a supply chain to admire for the second consecutive year.
In addition to superior metrics from our digital transformation, we were highlighted as having one of the most customer centric supply chain design.
Given our team learning during the past seven months I am most excited about what is yet to come the.
The impact our continued improvements will have on long term outcome.
Our financial and operational flexibility afforded by our strategic foresight in long term planning horizon and aided by the immediate capital preservation actions. We took when this crisis began.
Cured our ability to pivot swiftly and deliver exceptional sales and profitability in the quarter.
Although the COVID-19 pandemic continues we are maintaining appropriate liquidity to continue investing in innovation digital tools and mechanisms to build incremental flexibility into how we operate.
The pandemic has pressure tested our business model and we have demonstrated greater than expected agility and operational efficiency as we leverage the digital technology and data we've been investing in for years.
Our differentiated innovations vertically integrated business model learning agility and deep understanding of consumer trends are hallmarks of sleep number and they position us well for the balance of 2020 and longer term.
We are now experience.
Cheryl consumer shifts we anticipated at the inception of our consumer innovation strategy.
We see them it is important for the foreseeable future.
Consumers are prioritizing their home as well as their own wellbeing. They understand the strong connection between sleep and overall health and wellness.
Consumers are also adopting digital products and services at a much faster and higher rate.
Our life changing innovations have never been more relevant here.
Here are highlights of our strategic advancements in linking sleep to overall health and wellness.
Our 360 smart beds effortlessly deliver proven quality sleep and the.
And the connected health experience created by individualized fleet by Q data drive daily engagement with our insiders are customers.
The meaningful value delivered by these sleep number innovations deepens customer loyalty and inspires increasing referrals of our brand. This strong affinity is intensifying demand, it's driving greater advocacy and new customer growth.
In turn the expanding scale of our profitable core business is providing the foundation for us to pursue new adjacent fees in opportunities in the vibrant sleep health economy.
We are accelerating our authority and expertise in connected health through our investments in sleep Science research and selective partnerships through.
Through our analysis of nearly 8 billion hours of longitudinal sleep and biometric data, we're fueling new research insights and technologies.
These outcomes deliver on our purpose of.
Of improving the health and well being of society through higher quality sleep and health related metrics like heart rate variability.
Sleep number has established an important new consumer based research project aimed at identifying underline population health trends.
The new sleep research capability within sleep by Q technology provide the Companys smart sleeper community the opportunity to help advance fleet science.
Learnings will contribute to insights about the impact of sleep on holistic health as well as inform the development of new products services and partnerships to advance the science of fleet.
2020 has demonstrated the relevant reserve.
Resilience and sustainability of our differentiated strategy innovations and integrated business model.
As we enter the fourth quarter, our business momentum remains strong for the full year 2020, we expect EPS of at least $4 compared to 2019 $2.70.
This would reflect a five year EPS growth CAGR of more than 30%. In addition to our five year total shareholder return of greater than 100%.
Driven by our mission culture of individuality and capital flexibility, we are accelerating our competitive advantages moving society forward by delivering life changing sleep experiences and creating superior long term value for all of our stakeholders.
Now David will provide additional financial details on our third quarter performance and fourth quarter outlook.
Thank you Shelly.
Throughout this pandemic, our teams demonstrated urgency and agility, while advancing our initiatives.
The superior execution in Q3 delivered record performance cash generation and tremendous shareholder value creation.
These results are an outcome of the structure, we have been building for several years.
Both our capital structure and capital deployment, our oriented for maximum flexibility.
Securing liquidity early in the pandemic enabled us to focus quickly on cost controls and performance driving initiatives.
Those decisive actions led to exceptional performance in Q3 across the piano and record operating cash generation of $287 million year to date up 51% versus the prior year to date, despite the impacts of Cobiz.
While macro uncertainties remain including possible coded resurgence distracted consumers due to the presidential election, and possible recessionary pressures our performance reflects a dramatic improvement in our risk profile.
In accordance with our capital deployment priorities. We retired six months early the $75 million one year term loan taken out as insurance in the early days of the pandemic.
Along with the loan repayment, we also removed the related share repurchase and LIBOR floor restrictions from our $450 million revolving credit facility.
We are leaning into our initiatives and now expect our 2020 full year capex to be approximately $45 million.
Third quarter net sales of $531 million grew 12% versus the prior year.
As expected units drove call 12 points of growth in the quarter, while generating a healthy 4800 dollar air you $14 greater than the prior year.
Consumer shopping preferences, largely normalize in Q3 with 98% of our stores open on average.
Our brand reach expanded demand, 16% in Q3, leading to sizable growth both in stores and online.
14% of our Q3 net sales were transacted online about twice our historic norm.
Comp sales made up 11% of our growth in Q3, while new stores added one point.
Our unique go to market strip approach employs multiple sources of growth overtime.
Whether growing in store or online through units or air you.
Or from comp for new stores, we have created powerful advantages and flexibility with our business model.
We now expect Q4 net sales to increase 20% to 25% over the prior year, including eight points from the extra week in the quarter.
Also of note, we expect to eclipse another milestone by year end with average sales per store, including online of $3 million or more.
Remember that this important milestone would be more than three times. The average sales per store of the traditional mattress retailers highlighting the impressive productivity or 596 stores.
Further the average four wall profit of our stores at these sales levels are expected to exceed the average sales of traditional mattress retailers.
Our coated actions slowed our store portfolio expansion this year, but this delay is temporary.
We continue to expect 4% to 5% and average annual expansion of our store portfolio through 2025, while growing online and phone sales.
Our Q3 PML benefited from growth prioritization and spending controls we leverage total operating expenses 420 basis points in Q3, while investing in R&D and media and accruing to support higher than expected broad participation incentive comp costs.
We are confidently ramping up spending in Q4 to support our growth initiatives, especially programs driving and innovations across the business and expanding customer reach.
Our Q3 record net operating profit of $70 million or 13.1% of net sales was up 78% and 490 basis points versus the prior year.
Incremental operating profit flow through rate in Q3 was an exceptional 54%.
Double digit topline growth spending controls execution efficiencies and volume benefits across our fulfillment operations were the key drivers.
They delivered a 70 basis point improvement over prior year, and our Q3 gross margin to 63.1% and a.
And a 590 basis point sequential improvement since cobot affected Q2.
The hyper V shape demand recovery as certainly stressed our fulfillment capacity stretching our suppliers freight carriers manufacturing and homebuilders home delivery operations.
Strong partnerships and resilient team members work diligently to sing.
Significantly ahead of expectations.
This performance is a tribute to the tremendous efforts by our teams and partners, despite very difficult conditions as supply chains globally struggle to restart.
While supplies are tight we did not experience meaningful disruption for our customers in the third quarter.
Our record third quarter EPS of $1.79 is up 90% versus the prior year. This.
This Q3 performance brings our nine month EPS to $2.73, reflecting a 45% increase over the prior year to date. Despite the 45 cents Q2 loss this year due to covert shutdowns.
Our year to date EPS also exceeds the $2.70 earned for the entire year in 2019.
This performance velocity in 2020 demonstrates the compelling value, creating power of our business.
We now expect 2020 earnings per share of at least $4.
This implies Q4 EPS of $1.25 to $1.30, including approximately 25 cents from the 50, threerd week or about 24% growth excluding that benefit.
Adjusting the full year net sales and EPS to exclude the 50 Threerd week would mean a year over year EPS growth of 39% on 5% to 6% net sales growth.
This is on top of 41% EPS growth last year and more than 30% compounded annual EPS growth since 2015.
We've been delivering strong performance for several years by investing in our business and using all our EPS levers.
Our pursuit of breakthrough performance and the momentum of our initiatives provide confidence in the compelling value creation yet to come.
Our trailing 12 month ROI see through Q3 of 20.8% is up 240 basis points versus the prior 12 months.
These outsized returns are a direct outcome of our cash generation and capital deployment actions.
We have put to work approximately $400 million and highly productive capital projects and invested more than $800 million in sleep number stock the last six years.
We are bullish on our path forward and expect to accelerate investments in our innovations across the business.
We also see tremendous value in our stock and plan to resume our share repurchase program here in the fourth quarter.
We currently have $437 million remaining authorization from our board.
We ended Q3 with a leverage ratio of 1.9 times EBITDAR.
Overtime, we expect to return to our operating leverage target of 2.5 to three times, while maintaining our bias for liquidity preservation.
We continue to actively balance near term business risks with our commitment to sustain our advantage strategy.
This orientation enabled us to rebound with pace and to carry this momentum into the coming quarters.
Our sleep science leadership is delivering breakthrough value creation for all sleep number stake holders.
I'd like to again, thank our sleep number team and business partners. During these challenging times.
Your passion to improve lives is making a difference while driving exceptional performance well done.
So at this point please open the line for clarifying questions.
Yes.
As a reminder to ask a question will need to press star one on your telephone to withdraw your question press the pound or hash key.
Please standby, while we compile the Q and a roster.
Our first question comes from Peter Keith with Piper Sandler Your line is open.
Hi, good afternoon, everyone. Congrats on the nice quarter.
I wanted to just get a lot more insight on the demand shifts or revenue recognition shifts from Q3 to Q4 I know in the last call you thought there might be 10 million of shift from the late Labor day.
But you are seeing on the call that you didn't experience any meaningful consumer disruptions. So.
We still at a 10 million dollar shift or is that number bigger.
Bigger now that were in Q4, you have better visibility.
Yes, Hey, Peter Thanks for the question it is bigger our explosive growth in.
The quarter, 60% demand certainly led to a bit of a higher.
Backlog at the end of the quarter, but it's about offsetting the cost the debate.
The benefit that we had coming into the quarter.
All right.
Sort of that $30 million benefit coming in and got fully offset.
Right Okay.
Okay. That's helpful.
And then I want to ask.
A broader question on the new product launches so good.
You noted you're you're pleased with the new.
The new products that have the temperature balancing technology and those are at the high end of the price spectrum.
Although there your air you Didnt really show much year on year growth and.
And so im wondering if there was maybe an offset from higher internet sales or if potentially.
These higher end product launches, maybe weren't fully recognized in the third quarter and some of that will now show up in the fourth quarter.
Yes, Peter Thanks for the question. This is such an important area of our strategy that is unique to our business model and competitive advantages our ability to drive both units and a are you and as you know we look at these metrics on an annual.
Basis, while we have quarter quarterly shift so in the quarter. It represents both some.
Close out from our older models as well as the introduction of new we introduce the M. Seven in 10 of the new sleep number as smart bed here in the quarter and then just recently in in October introduce the <unk> eight so when we when we look at.
Driving our air you growth and in this case for the quarter, we are up about $14. So we're really happy with.
On delivering a very big average revenue per unit, while also driving units that represented 15% of the 16 teen growth in the quarter.
But the air you is driven by a combination of our innovations are selling process.
And the promotion state that we put forth all designed to deliver the utmost in customer benefit. So we have lots of different ways to go at this of course repeat sales contribute to that too. So we have many levers to work with and we have high confidence in our.
Ongoing ability to drive both Airview and unit growth.
As we have these last number of years and and certainly expect to continue to into the future.
And Peter I'd add one other thing aspect of this is generally there is a pretty strong correlation between our air you growth and gross margin rate and.
That wasn't the case, we were able to drive both.
Solid 4800 dollar here, you, while generating 70 basis points year over year improvement in our gross margin rate in the quarter.
The 12% unit volume velocity is certainly part of that as well.
Peter one part of your question I did not answer was on the it was regarding online sales and you're absolutely right you, 14% penetration, which is about two times prior year drive results in a lower a are you growth. So there is some impact there.
And at the same time, you can see our stores.
Certainly performed very well and grew along with a triple digit growth in.
In our online and phone sales.
Okay Thats helpful on it but I wanted to ask one last question sticking on new products.
Very intrigued with the climate 360 products you guys had announced in January of this past year.
We're getting closer to 2021 do you have any sense on timing of when that might actually be available in the market.
Yes, Peter as you know with the onset of the pandemic, we pushed the log onto our new 360, smart beds and instead of beginning the introduction in Q2, we just started at here in the third quarter. So we plan to do that over the next.
A few quarters and then climb at 360 will most likely launch.
Early in 2022.
Okay very helpful. Thank you so much.
You bet.
Our next question comes from Brad Thomas with Keybanc. Your line is open.
Hi, good afternoon, Shelly and Dave Congratulations on the quarter on the money here.
I wanted to ask about.
Thinking about margins and costs in the <unk>.
In the fourth quarter as I do some rough math.
On the strong revenue that they are set up to generate here in fourq Q it looks like the margin expansion or the contribution margin.
That you're implying in your guidance may only be about half what you saw in the third quarter can you just talk about what's changing from an expense standpoint, our margin standpoint that limit you from getting stronger.
Strong flow through going forward is what we just saw here.
Yes, Brad Thanks for the question on that it's really important as you you've seen how we operated this year at the onset of coated.
Late in Q1, we made big changes to our business model and we took about $80 million sequentially out of our operating out of ourselves sales and marketing expenses in particular.
From Q1 to Q2, and then here in Q3, we've rebuilt we.
Rebuilt some of that and added about $80 million back into the business and.
And but yet.
Aren't where we need to be to support the business that we that we expect to have going forward. So we are continuing to rebuild our structure in Q4 and that some of the cost that you are seeing in.
In Q4 relative to Q3, however, we're very excited about the opportunity to deliver $4 or more EPS while absorbing.
45 cent loss in Q2.
And and know that we have momentum beyond that.
Okay. That's helpful and I know you're not here to give.
Formal 2021 guidance, yet, but I was curious if you could give us any initial capex on how to think about.
Modeling next year, obviously, you wouldn't have an extra week. So that we know you would take out.
You got easy comparisons into two but.
How are you thinking about what growth for the company might look like next year as we lap an unusual 2020.
Right it is going to be an interesting.
Comparison on a quarter to quarter over quarter basis I'll call. Your next year that's.
Thats not new for US we've done that kind of thing in the past and we will certainly provide you lots of color on the February call your call out Brad about the 25 cents, we expect from the extra week and the two points of growth is correct those should be.
Considered adjustments to take down our 2020 numbers on which to build from but.
You can count on us using hall of our air.
EPS drivers, meaning growth on the topline leveraging the business modeling and deploying capital efficiently to continue to drive EPS growth and value for.
For shareholders.
Great. Thank you so much.
Yes, they are.
Our next question comes from Bobby Griffin with Raymond James Your line is open.
Good afternoon, everybody. Thank you for taking my questions over one instantiation healthy.
I guess to follow up on Brad's question really Dave.
Really interesting year with all the moving parts independent you had costs coming out cost coming in back into the business you guys have been working on the supply chain from some interesting things to throughout the last couple of years. So if we take maybe a high level look first at the business model first pre cobot is the same as the fixed variable costs Nate.
Sure if the model change drastically.
Yeah.
There are some elements of our changes that are certainly changing Bobby I.
We're also in terms of getting some efficiencies out of several areas at the same time, we know that our innovation pipeline is tremendous and we need to lean into that lever to make sure that we are protecting the future. Our bias is to support the long term profitable growth of the business and that's what we'll continue.
You to do.
One other element that I meant to comment on it.
The prior question about the gross margin or the overall profitability in Q4 versus Q3.
Gross margin rate, we expect in Q4.
Is is likely to be directionally about flat to prior year, which is about 50 basis points or so less than it was here in Q3 that.
Thats a reflection of.
Some of the inflation factors that we're starting to see in the logistics operations as well as foam costs and home delivery Tech labor.
Just thought I'd share all of that for your modeling purposes.
Okay. That's helpful and then in fact Im sorry go ahead.
I'll, maybe just jump in too just from an overall.
Perspective of driving performance.
As as I highlighted this is the third year, the third consecutive year that Weve put.
Put up a double digit growth demand go.
Growth demand and we're we're so bullish on the initiatives that we have in place in our ability to continue to drive growth quarter after quarter and year after year and yes, we'll continue to invest in our innovation to ensure we have the sustainability for the long term.
Term, but I think this is a quarter, where it's really evident that a lot went right. We you know we took a hard fast actions in Q2, and we cut expenses deeply to ensure our continuity and through this we have found new more efficient ways to reach customers we.
Enabled digital solutions across the business in marketing sales home delivery and fulfillment those deficiencies and that agility will all stay with us as we move forward and while we will bring back some expenses to be able to support the business and as a.
The long term nature of it they're going to be investments in some different and new capabilities. While also hanging onto the efficiencies and I would I would just say that we're we're still we're still learning on the efficiencies I mean this is as you can see it in the tremendous flow through here in the third.
Quarter on there there is.
There is a lot to to learn and take forward. So it's a little too soon for us to say exactly how this is going to model out for the next year, but we'll be doing we'll certainly do that in the coming months, what we're really excited with what weve uncovered how we're reaching.
Tumors and delivering life changing value to to them and we we see we see greater opportunity than than we had probably otherwise in the past on a number of fronts and I think the consumer trends around health and wellness is a big part of that as well.
Well it's.
It's giving us the.
Foresight to really lean into some future areas.
Faster than we otherwise would have.
Okay. That's helpful and that's exactly what I was trying to dive in there because you take to two out of it and you look at one Q in Threeq of this year the flow through is really stepped up versus.
First some historical standards. So it makes me wonder is just some of these efficiencies gained interchange the fixed variable structure I mean.
I guess just to follow up lastly on I mean, you look at the sales and marketing line. This quarter. The 80 points of de leverage from media Shelly called out but it also implies over 400 points sales of language from the new.
The non media portion, which is really the first time that we've seen that type of performance on that line item going a long time.
Yes for sure we were operating significantly significantly differently in this environment and as Shelly said, we've we've got some learnings that we're applying and we expect to hang on to some of those efficiencies as we go forward.
Stay tuned we're going to have a lot to talk about on the Q4 call in February.
Mark that's very good I appreciate through the details and going through kind of the line items best of luck in fourth Q4 quarter.
Thanks, a lot.
Our next question comes from Seth Basham with Wedbush Securities. Your line is open.
Okay. Thanks, a lot and good afternoon.
My question is also around the expense line. It seemed like you had some unprecedented sales and marketing leverage this quarter, primarily it seems because you had pulled back on expenses during the pandemic. If you think about the fourth quarter going forward.
Our expected leverage there is much more limited, especially when you back out the extra week are you thinking that Q4 is going to be norm on a more normalized from an expense standpoint going forward.
No I don't.
Expect that we're going to have more leverage than we would normally have even excluding the extra week.
Got it okay. Thank you and then secondly, and thinking about the.
Backlog year based.
Based on your forecast for the fourth quarter.
Would you expect to have caught up on the backlog or could extend into the first quarter of 2021.
You know we've had quarterly shifts in demand in prior years and we see this to be much the same.
By adding the 50 Threerd week this year to be actually gives us another week or two to get caught up on everything.
What we're delivering explosive demand growth at the same time. So this is kind of the next new level and so yes. This is this is going to be normal as we go forward as we see it.
Got it Okay and my last question is just around media leverage good performance this quarter, how much of that would you attribute to lower advertising rates.
So just just to be clear, we lean we spent more in our media year over year in the quarter just like we spent more in R&D.
Year over year, we continue to support our near and long term growth drivers, we did indeed get some favorable.
Cost benefits in in the marketplace.
But our teams are leaning into the digital side of our our media as well and then and are winning in the marketplace.
Can you just provide some color on what you're seeing from advertising digital.
Right.
For the year.
Well I.
First just need to highlight the majority of the leverage in media and again. This was an UN nother step up in our media ROI. So it was our most efficient.
Order and that has been continuous since 2014, and but we also had tremendous efficiency with how we're managing our overall digital platforms and utilizing our algorithm and proprietary data and that was the source of the greatest IFRS.
You can see for us because of our ability to reach.
Potential high converting consumers and also drive increased digital traffic and so I am not going to split out what part came from rate and it will certainly vary by by business and but we we continue to secure our media.
As as we move forward here in the fourth quarter and feel confident about our placements and our ability to drive growth.
And advance our initiatives, even further and we also.
Maybe it's helpful to hear that we would expect leverage whether we have favorable rates are not in the fourth quarter.
Sure great. Thanks, a lot and good luck.
Thanks Seth.
Our next question comes from a total Macquarie. Your line is open.
Good evening, Thanks, a lot for taking my question.
Your third quarter demand comp was quite a bit below one of your larger competitors. Paul why do you think that was the case and.
And then versus the broader market do you think you're gaining share.
And if so what do you think your gainshare from thank you.
Well I'm. So glad you asked this question because we operate our business for the long term and this is the third consecutive year for us of delivering double digit growth, that's very different than any of our competitors we've taken share for over.
For years and absolutely continue to believe we're taking share and will take share this year.
Okay.
Thanks.
Our next question comes from Curtis Nagle with Bank of America. Your line is open.
Good evening, Thanks, very much for taking my question just wanted to follow up quickly on.
Yes, a question is in terms of some other component sourcing.
Where youre seeing I guess.
Perhaps some of the biggest points of pressure and.
R&D.
Shortages or cause issues, you're seeing better or worse than they were at the beginning of Q3 Q4.
Relative to come out.
Well, yeah, I'll start and David can you can add some additional color certainly better than they were in Q2. There were in Q2, we were dealing with a lot more issues where different supply.
Supplier factories were shut down or they were at partial productivity and for the most part that has been resolved and this has really been a matter of note.
Responding to a hyper shaped the recovery when we were at fairly low inventory levels for obvious reasons.
As a as a shortly after the pandemic hit and what what I'm really excited about is how I would say masterful our teams have coordinated across all aspects of our integrated vertical model and how closely they work with their suppliers and business partners and.
How creative everyone has been together to solve and find ways to get the right inventory in the right places at the right time, Yeah, I'm not sure. How you would do that without this advantaged integrated business model and so I really put some highlight on that because it is pretty extraordinary.
Sorry, you know to deliver this level of revenue, while not having disruption in yen our delivery times for our customers and in any meaningful way and you know as far as.
As far as the specifics of where where theres. Some shortage, yes. It moves around because it's very highly responsive to two are demanded keep in mind. We also layered in the complexity of of introducing a new a new product line during the third quarter and so our teams have yeah.
Collectively managed all of that and we delivered on the performance that we drove on the top end, so I'm really big.
Big Shout out to our team all.
All across the board and its really impressed none of this would would happen without everyone's dedication and passion I want to.
I want to also take a second to revisit the last prior question about our demand versus competitors in there.
There is some misunderstanding we are fully direct to consumer and our the three years that Shelly highlighted of double digit demand growth is all based on real demand to end consumers then and some of our competitors have are delivering some of their demand growth.
Through sales to independent retailers and that they have different models I don't know that theres. Another competitor out there today that is a pure DTC player anymore. So just keep that in mind as you as you do your comparisons.
One other just quick follow up if I may in terms of the or the sourcing.
Okay, and any issues with some of the single.
Take a sourcing components like the Arab chart there.
Pumps or is that you're not in good shape.
We're in good shape everything.
Everything tight, but we're in good shape.
Terrific, Thanks very much.
You bet.
Our next question comes from Brad Thomas with Keybanc. Your line is open.
Great. Thanks, So much let me came for a follow up here.
I was hoping to just talk a little bit about the demand trends I think you told us last quarter, you're running up high single digits for during the last quarter May and June.
Reported 16% demand growth with three Q. I was hoping you could give us a little more color month by month, how things have played out.
There were any nuances around labor day for example.
And Weve had robust demand growth throughout the quarter both before during low.
Labor day event, and Aster and continue with strong momentum as we head into the fourth quarter.
Great and and so if I try to triangulate your.
Your guidance for GAAP revenues versus thinking about the demand trends.
To me that your guidance implies about 20% to 24% revenue growth for Q.
You got an extra week that adds about 8%.
If you had a 30 million backlog that you work through that could be 7%.
So that might imply demand revenue traction and maybe the 13% to 17% range through for Q am I.
Am I right.
Breaking it apart right way, if I think about it that way.
Sure Brad I think that.
That's fair and what you should.
Just keep in mind that we're we're delivering 7% to 8% top line growth for the full year, despite having 20% decline in sales in Q2 and the performance.
The performance and the rebound overall has been.
Nothing short of seller and we're excited about.
The opportunities for $4 or more on EPS in Q4 and in the momentum most out there theres. This is.
We've got our initiatives are working on all cylinders as Shelly highlighted and we're excited about where we're going.
If I could squeeze in one last one just on stores that secure.
Down a few stores for the second quarter in a row.
Hi, how are you thinking about.
Openings and repositioning.
In Fourq, you and maybe any initial thoughts on.
2021 and longer term as.
As it relates to the store base.
Right, Yes, we're expecting.
As we highlighted we.
Pause some of our initiatives because of Covance and stores were store openings was part of that.
And our Capex change $45 million reflects that as well.
We expect now to end this year with about 600 stores and then long term, we still continue to see great opportunities for local market development in store expansion.
The overall portfolio is expected to grow 4% to 5%.
On average per year between now and 2025.
And thats while driving.
Online and phone.
Sales increases as well Brad.
Wonderful thanks for letting me get back Ken I appreciate it absolutely.
There are no further questions at this time I will turn the call back over to sleep number for closing remarks.
Thank you for joining us today, we look forward to discussing our fourth quarter 2020 performance with you in February sleep, well and Dream Big.
This concludes today's conference call you may now disconnect.
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