Q1 2024 Sleep Number Corp Earnings Call
Yeah.
Okay.
[music].
Operator: Welcome to Sleep Number's Q1 2024 conference call. All lines have been placed in a listen-only mode until the question and answer session. Today's call is being recorded.
Welcome to sleep Number's Q1, 2024 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.
Operator: If anyone has any objections, you may disconnect at this time. I would like to introduce Dave Schwantes, Vice President of Finance and Investor Relations. Thank you. You may begin.
I would like to introduce Dave shrunk as Vice President of Finance and Investor Relations. Thank you you may begin.
David W. Schwantes: Good afternoon, and welcome to the Sleep number Corporation first quarter 2024 earnings conference call. Thank you for joining us I.
David W. Schwantes: Good afternoon, and welcome to the Sleep Number Corporation first quarter 2024 earnings conference call. Thank you for joining us.
David W. Schwantes: I am Dave Schwantes, Vice President of Finance and Investor Relations. With me today are Shelly Ibach, our Chair, President, and CEO, and Francis Lee, our Chief Financial Officer. This telephone conference is being recorded and will be available on our website at sleepnumber.com. Please refer to the details in our news release to access the replay.
David W. Schwantes: I am Dave Schwantes, Vice President of Finance and Investor Relations.
Speaker Change: With me today are Shelly, Iraq, our chair, President and CEO and Francis Lee, Our Chief Financial Officer.
Speaker Change: This telephone conference is being recorded and will be available on our website at sleep number of Dot com.
Speaker Change: These refer to the details in our news release to access the replay.
David W. Schwantes: Please also refer to our news release for a reconciliation of certain non-GAAP financial 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.
Speaker Change: Please also refer to our news release for a reconciliation of certain non-GAAP financial measures and supplemental financial information included in the news release or that may be discussed on this call.
Speaker Change: Mary purpose of this call is to discuss the results of the fiscal period just ended.
Speaker Change: However, our commentary and responses to your questions may include certain forward looking statements.
Speaker Change: 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.
David W. Schwantes: The company's actual future results may vary materially. We also want to refer you to the latest version of our investor presentation, which is available in the investor relations section of our website. I will now turn the call over to Shelly for her comment.
Speaker Change: The company's actual future results may vary materially.
Speaker Change: We also want to refer you to the latest version of our Investor presentation, which is available on the Investor Relations section of our website.
Speaker Change: I will now turn the call over to Shelly for her comments.
Shelly: Good afternoon, everyone and thank you for joining US My sleep IQ score last night was 90 10.
Shelly R. Ibach: Good afternoon, everyone, and thank you for joining us. My Sleep IQ score last night was 90. Since our last earnings call in February, our team members throughout the company have consistently demonstrated resourcefulness while executing our three strategic imperatives, competing effectively, restoring margins, and increasing cash generation to pay down debt. However, as this work to transform our operating model continues, the industry-wide challenges that we have faced over the last two years also persist.
Shelly: Since our last earnings call in February our team members throughout he has consistently demonstrated resourcefulness, while executing our three strategic imperatives, competing effectively restoring margins and increasing cash generation to pay down debt.
Shelly: As this work to transform our operating model continues to industry wide challenges that we have faced over the last two years also persist.
Shelly: Our actions are positioning sleep number for greater resilience across a range of macroeconomic and industry environment.
Shelly R. Ibach: Our actions are positioning Sleep Number for greater resilience across a range of macroeconomic and industry environments. First quarter results are largely as we expected, and we are reiterating our full year adjusted EBITDA guidance. During today's call, I'll provide brief context on the consumer environment, share our first quarter performance highlights, and describe ongoing actions we are taking to deliver on our commitment. Following my remarks, Francis will provide further details on our performance.
Shelly: First quarter results are largely as we expected and we are reiterating our full year adjusted EBITDA guidance.
Speaker Change: During today's call I'll provide brief context on the consumer environment share our first quarter performance highlights and describe ongoing actions, we are taking to deliver on our commitments.
Speaker Change: Following my remarks branches will provide further details on our performance.
Speaker Change: The mattress industry remains in a historic recession with demand for the category likely down mid single digits for the first quarter. After incurring two previous years of double digit mattress unit declines.
Shelly R. Ibach: The mattress industry remains in a historic recession, with demand for the category likely down mid-single digits for the first quarter after experiencing two previous years of double-digit mattress unit supply. While consumer sentiment is showing signs of improvement, the consumer's purchasing power is limited due to elevated interest rates and record-high credit card debt. As a result, consumers continue to scrutinize their spending and make near-term decisions based primarily on need, price, and perceived value, and they are deferring higher-ticket durable purchases.
Speaker Change: While consumer sentiment is showing signs of improvement the consumers' purchasing power is limited due to elevated interest rates and record high credit card debt.
Speaker Change: As a result consumers continue to scrutinize their spending and make near term decisions based primarily on need price and perceived value and they are deferring higher ticket durable purchases.
Shelly R. Ibach: These factors contributed to consumer purchasing volatility throughout the first quarter. We experienced our strongest demand in February, driven by the president's day selling period, and the weakest demand in January, impacted by weather. For the quarter overall, our demand was down mid-single digits. In the first quarter, we generated net sales of $470 million, down 11% from the prior year compared to the 10% decline we expected.
Speaker Change: These factors contributed to consumer purchasing volatility throughout the first quarter.
Speaker Change: We experienced our strongest demand in February driven by the President's day, selling period and the weakest demand in January impacted by weather.
Speaker Change: For the quarter overall, our demand was down mid single digits.
Speaker Change: In the first quarter, we generated net sales of $470 million down 11% from the prior year compared to the 10% decline we expected.
Shelly R. Ibach: Despite the pressured sales climate, our strong execution resulted in better than expected first quarter adjusted EBITDA of $37 million. Against this backdrop, we prioritize actions that efficiently activate consumer interest and demand while lowering our customer acquisition costs compared to prior years. These precise real-time adjustments to our marketing and selling strategies led to improved adjusted EBITDA margin performance. We have focused our efforts on three areas.
Speaker Change: Despite the pressured sales climate, our strong execution resulted in better than expected first quarter adjusted EBITDA of $37 million.
Speaker Change: Against this backdrop, we prioritize actions that efficiently activate consumer interest and demand, while lowering our customer acquisition costs compared to prior year.
Speaker Change: These precise real time adjustments to our marketing and selling strategies led to improved adjusted EBITDA margin performance.
Speaker Change: We have focused our efforts on three areas first consumer attitude no segments to optimize our media strategy and lower our cost, while maintaining impressions and increasing traffic.
Shelly R. Ibach: First, consumer attitude segments to optimize our media strategy and lower our costs while maintaining impressions and increasing traffic. Next, marketing messaging to convey more clearly the differentiated benefits of our SmartBeds. Our new Why Choose Sleep Number campaign highlights our leadership in adjustable firmness, active individualized temperature benefits, the value of our SmartBeds for every budget, and claims of high customer satisfaction with our SmartBeds, including our J.D. Power number one ranking for mattresses purchased in-store.
Speaker Change: Next marketing messaging to convey more clearly the differentiated benefits of our our smart beds.
Speaker Change: Our new why choose sleep number campaign highlights our leadership in adjustable firmness.
Speaker Change: Active individualized temperature benefits the value of our smart beds for every budget and claims of high customer satisfaction with our smart beds, including our J D power number one ranking for mattresses purchased in store.
Speaker Change: The campaign is resonating with consumers and our brand health metrics are strong on consideration value perception of the affordability of sleep number smart beds and brand trust, particularly among premium in tenders.
Shelly R. Ibach: The campaign is responding with consumers, and our brand health metrics are strong on consideration, value perception of the affordability of Sleep Number SmartBeds, and brand trust, particularly among premium and tender. And finally, actions that drive conversion by helping customers select the right smart bed for their budget before they consider the additional benefits of a smart adjustable base. By continuing to test, learn, and adjust our online experience, promotional strategy, and selling process, we are generating a more profitable sales mix across all our digital and in-store touch points.
And finally actions that drive conversion by helping customers select the right smart bed for their budget before they consider the additional benefits of a smart adjustable base.
Speaker Change: By continuing to test learn and adjust our online experience promotional strategy and selling process. We are generating a more profitable sales mix across all our digital and in store touch points.
Shelly R. Ibach: These actions drove a lower promotional spend and a higher mix in the first quarter, resulting in a gross margin rate that was better than we expected. The efficiency improvements we have implemented over the past two quarters are meeting the revenue and margin targets established in the different tests. With this validation, we are now beginning to scale these actions for accelerated impact.
These actions drove a lower promotional spend and a higher mix in the first quarter, resulting in a gross margin rate that was better than we expected.
Speaker Change: Yeah.
Speaker Change: The efficiency improvements we have implemented over the past two quarters are meeting the revenue and margin targets established in the different tests.
Speaker Change: With this validation we are now beginning to scale these actions for accelerated impact.
Shelly R. Ibach: We will accomplish this goal by leveraging our current econometric model used to inform media channel mix and investment levels and the predictive capabilities of our new elasticity model used to guide our promotional strategies in a range of consumer environments. Our teams have also developed a new smart bed that we plan to launch by the third quarter. The C1 SmartBed will be priced at $999 every day.
Speaker Change: We will accomplish this goal by leveraging our current econometric model used to inform media channel mix and investment levels and the predictive capabilities of our new elasticity model used to guide our promotional strategies and a range of consumer environments.
Speaker Change: Our teams have also developed a new smart bed that we plan to launch by the third quarter.
Speaker Change: <unk> smart bed will be priced at $9 99 everyday.
Shelly R. Ibach: We expect a strong value equation of smart adjustability starting under $1,000 to resonate with the scrutinizing consumer. In addition, we will be taking $200 off the price of our C2 smart bed. These actions strengthen our competitive position and support more efficient demand generation, particularly among value-conscious consumers. Our second strategic imperative is restoring margins. We are continuing to target operating cost improvements of 40 to 45 million dollars in 2024 on top of the 85 million dollars we realized in 2023. As a result, we expect 2024 operating expenses to be $125 to $130 million below 2022 levels.
We expect the strong value equation of smart adjustability 30 under $1000 to resonate with the scrutinizing consumer in.
Speaker Change: In addition, we will be taking $200 in pricing on our <unk> smart bed. These actions strengthen our competitive position and support more efficient demand generation, particularly among value conscious consumers.
Speaker Change: Our second strategic imperative is restoring margins, we are continuing to target operating cost improvements of $40 million to $45 million in 2024 on top of the $85 million, we realized in 2023.
Speaker Change: As a result, we expect 2020 for operating expenses to be $125 million to $130 million below 2022 levels.
Speaker Change: We also remain intently focused on returning our gross margin rate to our historical average in the low sixty's and expect our actions to restore our adjusted EBITDA margin to mid double digits as industry demand normalizes.
Shelly R. Ibach: We also remain intently focused on returning our gross margin rate to our historical average in the low 60s and expect our actions to restore our adjusted EBITDA margin to mid-double digits as industry demand normalizes. To deliver on these operating expense and margin improvements, we are driving sustainable change across the organization in four principal areas: cost of customer acquisition, cost to serve customers, cost of goods sold, and G&A R&D leverage.
Speaker Change: To deliver on these operating expense and margin improvements, we are driving sustainable change across the organization in four principal areas cost of customer acquisition cost to serve customers cost of goods sold and G&A R&D leverage.
Speaker Change: During the first quarter, we made tangible progress in each of these categories, including reductions in customer acquisition costs through the advancement of our predictive analytics.
Shelly R. Ibach: During the first quarter, we made tangible progress in each of these categories, including reductions in customer acquisition costs through the advancement of our predictive analytics, reductions in our cost to serve customers through self-service offerings, outsourcing strategies, and component sustainability efforts, and reductions in our Cost of Goods through Structured Sourcing Strategies with Additional Flexibility in Product and Logistics. These actions will drive improved 2024 results, as well as process, and capabilities that will enable performance improvements in future years.
Speaker Change: Reductions in our cost to serve customers through self service offerings outsourcing strategies and component sustainability efforts.
Speaker Change: And reductions in our cost of goods through structured sourcing strategies with additional flexibility in product and logistics.
Speaker Change: These actions will drive improved 20% to 24 results as well as process.
Speaker Change: Two capabilities that will enable performance improvements in future years.
Increasing cash generation to pay down debt is our third strategic priority in the first quarter. Our adjusted EBITDA performance led to free cash flow generation of $24 million compared to 3 million for the same period last year.
Shelly R. Ibach: Increasing cash generation to pay down debt is our third strategic priority. In the first quarter, our adjusted EBITDA performance led to free cash flow generation of $24 million compared to $3 million for the same period last year.
Shelly R. Ibach: As we realize the benefits of our operating model transformation through 2024, we expect to generate $60 to $80 million of free cash flow. Despite the persistent near-term headwinds, our long-term growth opportunity remains intact, as illustrated in the investor relations deck we posted to our website last month. Sleep remains one of the top health and wellness priorities of consumers and also one of the areas in which they have the most unmet needs.
Speaker Change: As we realize the benefits of our operating model transformation through 2024, we expect to generate $60 million to $80 million of free cash flow.
Speaker Change: Despite the persistent near term headwinds our long term growth opportunity remains intact as illustrated in the Investor Relations deck, we posted to our website last month.
Speaker Change: Sleep remains one of the top health and wellness priorities of consumers and also one of the areas in which they have the most unmet needs sleep number is uniquely positioned in the industry to address consumer barriers to quality sleep helps.
Shelly R. Ibach: Sleep Number is uniquely positioned in the industry to address consumer barriers to quality sleep, help solve critical sleep health challenges, and improve lives through proven quality sleep. Company culture is an important contributor to performance. And Sleep Number's exceptional culture is the result of our 4,000 team members' purpose-driven commitment. Thank you to our teams and partners for your passion, teamwork, and innovative mindset as we find new ways to compete effectively, restore margins, and generate robust, free cash flow.
Speaker Change: Help solve critical sleep health challenges and improve lives through proven quality sleep.
Speaker Change: Company culture is an important contributor to performance in sleep Number's exceptional culture is the result of our 4000 team members purpose driven commitment.
Speaker Change: Thank you to our teams and partners for your passion teamwork and innovative mindset as we find new ways to compete effectively restore margins and generate robust free cash flow.
Shelly R. Ibach: We continue to focus on delivering value for our shareholders as we capitalize on the implementation of our durable operating model, the industry's gradual recovery, and our strategic progression as a sleep wellness technology company. With that, I'll turn the call over to Francis, who will provide more details on our first quarter results and full year guidance.
Speaker Change: We continue to focus on delivering value for our shareholders as we capitalized on the implementation of our durable operating model the industry's gradual recovery in our strategic progression as a sleep wellness technology company.
Speaker Change: With that I'll turn the call over to Francis who will provide more details on our first quarter results and full year guidance.
Francis K. Lee: Thank you, Shelly, and good afternoon, everyone. I will focus my remarks today on three primary areas. One, a review of our first quarter results. Two, ongoing progress we are making in our cost restructuring efforts. And three, our 2024 outlook.
Francis K. Lee: Thank you Shelly and good afternoon, everyone I will focus my remarks today on three primary areas. One review of our first quarter results two ongoing progress we are making in our cost restructuring efforts and three our 2020 for outlook.
Francis K. Lee: Our results for the first quarter came in largely as expected, with adjusted EBITDA a little higher than planned and net sales a couple million dollars below expectation. Now, let me unpack more details regarding our first quarter results. First quarter net sales of $470 million were down 11% versus last year.
Francis K. Lee: Our results for the first quarter came in largely as expected with adjusted EBITDA, a little higher than plan and net sales a couple million dollars below expectations.
Francis K. Lee: Now, let me unpack some more details regarding our first quarter results.
Francis K. Lee: First quarter net sales of $470 million were down 11% versus last year.
Francis K. Lee: Our net sales growth for the quarter included four points of headwind from year-over-year backlog changes. Our delivered units were down 9% for the quarter, with our ARU down 1% versus the prior year. Restoring our gross margin rate to higher levels is a key priority for the company, and we were pleased with the progress we made in the first quarter. Our first quarter gross margin of 58.7% was above our expectations and a meaningful improvement from the back half of last year.
Francis K. Lee: Our net sales growth for the quarter included four points of headwind from year over year backlog changes are delivered units were down 9% for the quarter with or are you down 1% versus prior year.
Francis K. Lee: Restoring our gross margin rate to higher levels is a key priority for the company and we were pleased with the progress we made in the first quarter. Our first quarter gross margin of 58, 7% was above our expectations and a meaningful improvement from the back half of last year.
Francis K. Lee: We continue to identify and execute cost efficiency initiatives across the organization, including in our cost of goods sold. We also continue to make meaningful progress in driving efficiencies in our business, and we're ahead of plan in the first quarter. Operating expenses, pre-restructuring costs, were down $24 million versus the prior year. Cost reductions were broad-based, including reductions in selling and marketing expenses and R&D. We continue to target $40 to $45 million of operating expense reductions for the year. We recorded $10.6 million of restructuring costs in the quarter and expect approximately $3 million of additional restructuring costs for the balance of the year.
Francis K. Lee: We continue to identify and execute cost efficiency initiatives across the organization, including in our cost of goods sold.
Francis K. Lee: We also continued to make meaningful progress in driving efficiencies in our business and we're ahead of plan in the first quarter opt.
Francis K. Lee: Operating expenses pre restructuring costs were down $24 million versus prior year.
Francis K. Lee: Cost reductions were broad based including reductions in selling and marketing expenses and R&D.
Francis K. Lee: We continue to target $40 million to $45 million of operating expense reductions for the year.
Francis K. Lee: We recorded $10 6 million of restructuring costs in the quarter and expect approximately $3 million of additional restructuring costs the balance of the year.
Francis K. Lee: As a reminder, restructuring costs are reported as a separate line item in our financial statements, and we have also provided an as-adjusted EPS figure in our financial statements for comparative purposes. We generated $37 million of adjusted EBITDA in the quarter versus $49 million last year, primarily due to the year-over-year debt sales decline. Our first quarter adjusted EBITDA was slightly ahead of expectations as we benefited from the acceleration of our cost efficiency initiatives.
Francis K. Lee: As a reminder, our restructuring costs are reported as a separate line item in our financial statements and we have also provided an as adjusted EPS figure in our financial statements for comparative purposes.
Francis K. Lee: We generated $37 million of adjusted EBITDA in the quarter versus $49 million last year, primarily due to the year over year net sales decline.
Francis K. Lee: Our first quarter adjusted EBITDA was slightly ahead of expectations as we benefited from the acceleration of our cost efficiency initiatives.
Francis K. Lee: A key focus for us in 2024 is to generate free cash flow to reduce our outstanding credit line balance, even with the expectation of a modest sales decline for the year. For the first quarter, we generated $24 million of free cash flow compared with $3 million last year.
Francis K. Lee: A key focus for us in 2024 is to generate free cash flow to reduce our outstanding credit line balance even with the expectation of a modest sales decline for the year.
Francis K. Lee: For the first quarter, we generated $24 million of free cash flow compared with $3 million last year, the $21 million increase in free cash flow year over year included a $15 million improvement in operating cash flow combined with a $6 million reduction in capex spending.
Francis K. Lee: The $21 million increase in free cash flow year over year included a $15 million improvement in operating cash flow combined with a $6 million reduction in CapEx spending. For the full year, we expect to generate free cash flow of $60 to $80 million, which we intend to use to pay down our credit line. Now, let me provide an update on the ongoing work we are doing in support of a more durable operating model.
Francis K. Lee: For the full year, we expect to generate free cash flow of $60 million to $80 million.
Francis K. Lee: Which we intend to use to pay down our credit line.
Now let me provide an update on the ongoing work we are doing in support of a more durable operating model.
Francis K. Lee: The mechanisms we put in place to promote and build sustainable change are enabling us to meet our operational transformational goals.
Francis K. Lee: The mechanisms we put in place to promote and build sustainable change are enabling us to meet our operational transformational goals. Our initiatives and efforts are resulting in greater operating efficiency and financial resilience. We have progressed strategic sourcing initiatives across materials and logistics that have lowered our total cost of goods. Services simplification programs with increased digital assets for customer self-service options are lowering our cost to serve.
Francis K. Lee: Our initiatives and efforts are resulting in greater operating efficiency and financial resilience.
Francis K. Lee: We have progressed strategic sourcing initiatives across materials and logistics that have lowered our total cost of goods services simplification programs with increased digital assets for customer self service options are lowering our cost to serve.
Francis K. Lee: We have also implemented new stringent practices around indirect costs in support of sustained G&A leverage.
Francis K. Lee: Our store actions are on track with our expectations and there are no material changes to the plan for the year that we communicated last quarter.
Francis K. Lee: We have also implemented new stringent practices around indirect costs in support of sustained GNA leverage. Our store actions are on track with our expectations, and there are no material changes to the plan for the year that we communicated last quarter. As a reminder, we expect the net impact of store actions to be about a one point drag on 2024 net sales growth, and we expect to end 2024 with approximately 30 fewer stores compared to 2023. Our gross margin improvement actions are progressing. We are focusing on durable operating activities that drive value engineering for our products, material cost reductions, and additional efficiencies through our manufacturing and home delivery network.
Francis K. Lee: As a reminder, we expect the net impact of store actions to be about a one point drag to 2024 net sales growth.
Francis K. Lee: And we expect to enter 2024 with approximately 30 fewer stores compared to 2023.
Our gross margin improvement actions are progressing we are focusing on durable operating activities that drive value engineering for our products material cost reductions and additional efficiencies through our manufacturing and home delivery network.
Speaker Change: Let me turn to an update on our 2020 for outlook and a reminder, on key assumptions included in our projected performance for the year.
The demand environment remains challenging and we continue to focus on the things we can control.
Speaker Change: We have built our operating expense plans for the year on the basis of the industry not experiencing any material recovery in 2024, despite undergoing two plus years of recessionary demand levels.
Francis K. Lee: Let me turn to an update on our 2024 outlook and a reminder on key assumptions included in our projected performance for the year. The demand environment remains challenging, and we continue to focus on the things we can control. We have built our operating expense plans for the year on the basis of the industry not experiencing any material recovery in 2024, despite undergoing two plus years of recessionary demand levels. We are reiterating our 2024 full-year adjusted EBITDA Outlook range of $125 to $145 million.
We are reiterating our 2020 for full year, adjusted EBITDA outlook range of $125 million to $145 million.
Speaker Change: Here are a few items to highlight regarding the full year guidance in second quarter expectations.
We continue to expect net sales to be down mid single digits for the year with a low single digit demand decline.
We are still assuming three percentage points of headwind from year over year backlog changes and one percentage point from that store actions.
Speaker Change: We expect sales growth to improve throughout the year with low single digit net sales growth expected in the back half of the year against easier comparisons.
Francis K. Lee: Here are a few items to highlight regarding the full year guidance and second quarter expectation. We continue to expect net sales to be down mid-single digits for the year with a low single-digit demand decline. We are still assuming three percentage points of headwind from year-over-year backlog changes and one percentage point from net store action. We expect sales growth to improve throughout the year with low single-digit net sales growth expected in the back half of the year against easier comparisons.
Speaker Change: We continue to expect a majority of the approximately 100 basis points of gross margin rate expansion in 2024 to be in the back half of the year.
Speaker Change: We are estimating restructuring costs of approximately $14 million for the year slightly higher than our prior estimate of $12 million.
Speaker Change: Our debt to EBITDA ratio was four two times at the end of the first quarter compared to our covenant maximum of five <unk> times for the quarter.
Speaker Change: We continue to expect our debt to EBITDA leverage to peak in Q2 and end the year below 375 times.
Speaker Change: We also wanted to provide some clarity regarding our second quarter 2024 performance expectations we.
Francis K. Lee: We continue to expect a majority of the approximately 100 basis points of gross margin rate expansion in 2024 to be in the back half of the year. We are estimating restructuring costs of approximately $14 million for the year, slightly higher than our prior estimate of $12 million. Our debt to EBITDA ratio was 4.2 times at the end of the first quarter compared to our covenant maximum of 5.0 times for the quarter.
Speaker Change: We are expecting net sales to be down high single digits versus the prior year second quarter, including five to six points of headwind from year over year backlog changes.
Speaker Change: We expect second quarter, adjusted EBITDA to be 20% to $25 million.
Speaker Change: I want to thank the entire team for the rigor and tenacity they've exhibited as we make important changes to our business for a more durable operating model, while positioning ourselves to rebound with pace when the demand environment improves.
Francis K. Lee: We continue to expect our debt to EBITDA leverage to peak in Q2 and end the year below $3.75. We also wanted to provide some clarity regarding our second quarter 2024 performance expectations. We are expecting net sales to be down high single digits versus the prior year's second quarter, including five to six points of headwind from year-over-year backlog. We expect second quarter adjusted EBITDA to be $20 to $25 million. I want to thank the entire team for the rigor and tenacity they have exhibited as we make important changes to our business for a more durable operating model while positioning ourselves to rebound with pace when the demand environment improves. We look forward to sharing our ongoing progress with you as we proceed throughout the year. With that, Operator, please open the line for questions.
Speaker Change: We look forward to sharing our ongoing progress with you as we proceed throughout the year.
With that operator, please open the line for questions.
Operator: Thank you the floor is now open for questions Jeff.
Speaker Change: If you have dialed in and would like to ask a question. Please press star one on your telephone keypad.
Speaker Change: To raise your hand and joined the queue. If you would like to withdraw your question simply press Star one again.
Speaker Change: You are called upon to ask a question and are listening via loud speaker on your device. Please pick up your handset to ensure that your phone is not on mute when asking your question.
Speaker Change: Your first question comes from the line of Peter Keith of Piper Sandler Your line is open.
Peter Jacob Keith: Hi, Thanks, Good afternoon, everyone hope all is well.
Peter Jacob Keith: I just wanted to dig into the demand trends just to clarify a few things. So I think the quarter ended up negative mid single digit.
The mandate and so I think at the time of the Q4 call.
Peter Jacob Keith: You are also.
Peter Jacob Keith: Mid single digit so I guess, it's fair to say that in March you just kind of continue this negative mid single digit trend and any comments around.
Peter Jacob Keith: What we're seeing so far in Q2.
Operator: Thank you. The floor is now open for questions. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. If you're called upon to ask a question and are listening via loudspeaker on your device, please pick up your handset to ensure that your phone is not on mute when asking your question. Your first question comes from the line of Peter Keith of Piper Sandler. Your line is open.
Speaker Change: Yes, Hi, Peter Thank you for the question you are right in your summary of the demand trends.
Speaker Change: The shape of the first quarter was with.
Speaker Change: Certainly choppy we did end the month of February down low single digits and March in Q2 to date. Some margin in April to date are also down mid single digits. We expect the strength of Q2 to be in.
Speaker Change: Again around the market share period and that of course is the the largest month in and for the second quarter, we're expecting demand to be down low to mid single digits in the quarter end and from everything that we've read and understand it.
Peter Jacob Keith: Hi, thanks. Good afternoon, everyone. I hope all is well.
Peter Jacob Keith: I just want to dig into the demand trend just to clarify a few things. So I think the quarter ended up negative mid-single digit on a demand basis. I think at the time of the Q4 call, you were also at negative mid-single digit. So I guess it's fair to say that I guess with March, you just kind of continue this negative mid-single digit trend. And any comments around what we're seeing so far in Q2?
Speaker Change: It appears the industry, probably also of was down mid single digits for the first quarter.
Speaker Change: Okay.
Speaker Change: Very helpful I would agree with that.
Speaker Change: And then you mentioned.
Speaker Change: Launching the <unk> product in Q3, and I think.
Speaker Change: Adjusting our pricing on the on the Q&A.
Speaker Change: Q&A, that's coming down a little bit.
Does that have any implications on.
Shelly R. Ibach: Yeah. Hi Peter.
Speaker Change: On the gross margin.
Shelly R. Ibach: Thank you for the question. You're right in your summary of the demand trends. You know, the shape of the first quarter was, you know, certainly choppy. We did end the month of February down low single digits, and March and Q2 to date, so March and April to date are also down mid single digits. We expect the strength of Q2 to be in May, again, around the market share period, and that, of course, is the biggest month.
Speaker Change: We just think about maybe back half of the year as as those pricing adjustments come in and new products in it.
Speaker Change: Yes in a positive way the <unk> two we're taking pricing on the <unk>. So we're actually increasing the price of the <unk> by $200 in the C. One will be at $9 99, and that certainly have value engineered innovation that our teams have helped.
Speaker Change: <unk> here.
Speaker Change: In a short period of time, and we like the opening price point for the smart bed with adjustable firmness.
Shelly R. Ibach: And for the second quarter, we're expecting demand to be down low to mid single digits for the quarter. And from, you know, everything that we've read and understand, it appears the industry probably also was down mid single digits for the first quarter. Yeah. OK.
Speaker Change: And we.
Speaker Change: We see the combination of these actions to be.
Speaker Change: Positive as a contributor to our gross margin improvement expectations in the back half and again, we continue to expect about 100 basis points of gross margin rate improvement on the year, primarily in the back half.
Shelly R. Ibach: Okay, very helpful. I would agree with that. And then you mentioned you're launching the C1 product in Q3, and I think you're adjusting the pricing on the C2, I think it's coming down a little bit. Does that have any implications on the gross margin as we just think about it?
Speaker Change: Okay very helpful.
Speaker Change: One last one for me and Kelly this is kind of an off the wall question.
Shelly R. Ibach: Yes, in a positive way. The C2, we're taking pricing on the C2, so we're actually increasing the price of the C2 by $200. And the C1 will be at $999, and that's certainly a value-engineered innovation that our teams have developed here in a short period of time. And, you know, we like the opening price point for a smart bed with adjustable firmness, and we see the combination of...
Kelly: But it's something I've been speaking about.
Speaker Change: I'm wondering if you have ever contemplated taking the brand back to wholesale I know that was.
Kelly: Pre GST and quite a wide manner.
Kelly: Thinking about it maybe if you were to go in more of a specialized center wanted to key retailers.
Kelly: Nice way to expand the brands take some share.
Kelly: Should we be taking advantage of the environment, where retailers are looking for new innovative products.
Speaker Change: Well. Thanks, so much for you know for the thought and we continue to explore a wide range of opportunities as we look forward and are very focused on.
Peter Jacob Keith: Okay, very helpful. Do you know what the last one for me is?
Shelly R. Ibach: Well, thanks so much for the thought. And we continue to explore a wide range of opportunities as we look forward and are very focused on increasing our shareholder value. So we'll continue to compete aggressively. You'll see us leaning in. And thanks for your thoughts.
Speaker Change: Increasing our shareholder value. So we'll continue to compete aggressively you'll see us be leaning in NAND.
Speaker Change: Thanks for your thoughts.
Peter Jacob Keith: Okay, thank you, and good night.
Speaker Change: Okay. Thank you and good luck.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Robert Griffin of Raymond James Your line is open.
Operator: Your next question comes from the line of Robert Griffin of Raymond James. Your line is open.
Robert Kenneth Griffin: Hey guys, good afternoon, this is Bobby. Thanks for taking my questions. I guess Shelly, first, I wanted to go back to I think it was in your prepared remarks, you talked a little bit about the change and some of the promotional aspects. So I was hoping, can you just unpack kind of what you guys have changed and maybe share some of the data that you're seeing that gives you confidence that the different promotional aspects are not driving an impact in sales? Because I think right now, you know, a lot of investors are zeroed in on getting the sales to turn in this business given the kind of flow through.
Robert Kenneth Griffin: Hey, guys. Good afternoon. This is Bobby.
Robert Kenneth Griffin: Thanks for taking my questions I.
So first I wanted to go back to I think it was in your prepared remarks, you talked a little bit about the change in some of the promotional aspects. So I was hoping can you just unpack kind of what you guys have changed and then maybe share some of the data that youre seeing that gives you confidence that the different promotional aspects is not driving an impact in sales because I think right now.
Robert Kenneth Griffin: A lot of investors are zeroed in on.
Robert Kenneth Griffin: The sales return on this business given kind of the flow through.
Yeah. Thanks for your question Bobby.
Speaker Change: Maybe I'll just start with.
With with media, and where where we have media planned and where we.
Shelly R. Ibach: Thanks for your questions, Bobby. Maybe I'll just start with media and where we have media planned and how we spent in Q1. We continue to plan about 14% of sales. We expect efficiency from our initiatives, especially in this very challenging environment. In the first quarter, we were down mid-single digits in our media spend, the same as demand.
Speaker Change: How we spend.
Speaker Change: In Q1, so we continuing to plan about 14% of sales, we expect efficiency from our initiatives, especially in this very challenging environment and in the first quarter, we were down mid single digits in our media spend the same as as demand.
We focused on continuing to.
Speaker Change: Test learn and make adjustments building on the initiatives that we started in the fourth quarter around.
Shelly R. Ibach: We focused on continuing to test, learn, and make adjustments, building on the initiatives that we started in the fourth quarter around segments that we're targeting, around media allocation, messaging, and also our promotional strategy. And in addition to the econometric model that we've been utilizing since 2013 that is quite helpful in media allocation, the new model with predictive analytics that we have built around promotional strategy, our actions to be more precise in how we spend our promotional and financing dollars so that we benefit to the greatest degree, driving efficiency, and improving our efficiency so we can allocate more dollars to media in this environment. And so we've continued to learn.
Speaker Change: Segments, who we're targeting around the media allocation.
Speaker Change: Messaging and also our promotional strategy and in addition to the Econometric model that we've been utilizing for a.
Speaker Change: Since 2013.
Speaker Change: That is quite high.
Speaker Change: Helpful in media allocation.
Speaker Change: The new model with predictive analytics that we have built around promotional.
Speaker Change: Promotional strategy is informing.
Speaker Change: Our actions to be more precise on how we spend our promotional and financing dollars. So that we benefit to the greatest degree driving efficiency improving our efficiencies. So we can allocate more dollars to media in this environment.
Speaker Change: And so we've continued to learn we have been very effective in our test results and we are ready to apply this didn't have begun applying this at greater scale in the second quarter.
Shelly R. Ibach: We have been very effective in our test results, and we are ready to apply this and have begun applying this at greater scale in the second quarter. You know, I would turn to the results in Q1, although, you know, constrained around demand, the effectiveness of our results drove a higher mix and a higher growth margin profile overall. So that is, you know, very important in our durable operating model to be able to be more efficient and effective with our media dollars.
Speaker Change: And.
Speaker Change: I would turn to the results in Q1, although constrained around demand the effectiveness of our results drove.
Speaker Change: Drove a higher mix and a higher gross margin profile overall.
Speaker Change: So.
Speaker Change: That is very important in in our durable operating model to be able to be more efficient and effective with our media dollars. This continues to be.
Shelly R. Ibach: You know, this continues to be a time of real pressure on our industry. Our industry normally benefits from, you know, natural traffic flow in the macro, which contributes about 20 percent of sales in just a regular industry environment with strong consumer sentiment. And right now, that base is only about 12 percent. So the effectiveness of our dollars is really important for us, and that's what we're excited about, you know, with the advanced machine learning models that we have and taking and reviewing them in a holistic manner for both our media dollars and promotional dollars and how we will apply them for the balance of the year to be able to, you know, generate and deliver against our margin and revenue goals.
Speaker Change: Time of real pressure on our industry, our industry normally benefits from natural traffic flow in the macro which contributes about 20% of of sales in just a regular industry environment with strong consumer sentiment and right now.
Speaker Change: That base is only about 12% so the effectiveness of our dollars is really important for us and that's what we're excited about.
Speaker Change: With the advanced machine learning models that we have and taking and reviewing them in a holistic manner to both our media dollars and promotional dollars and how we will apply them for the balance of the year to be able to.
Speaker Change: Generate and deliver against our margin and revenue goals.
Speaker Change: Okay. Thank you and I guess my second question before I turn it back over to others is just on the store on the store portfolio changes. We've started some of the closing process and I know, it's still early where France is anything you can share on what youre seeing from a recapture basis as you've gone market by market and started closing some of these stores.
Francis K. Lee: Okay, thank you. And I guess my second question before I turn it back over to others is just on the store, on the store portfolio changes. We've started some of the closing process, and I know it's still early, but Francis, anything you can share on what you're seeing from a recapture basis as you've gone market by market and started closing some of these stores?
Francis K. Lee: Hey Bobby, thanks for asking. Our store actions are progressing on track. As we communicated, we will be ending the year with about 30 net store actions relative to 2023. The majority of those closures are happening in the first half of the year, and our early indications on the sales transfers are that they are tracking to or above our expectations, and we'll continue to monitor that as we get more solid data as time continues to move forward.
Speaker Change: Hey, Bobby Thanks for asking.
Bobby: Our store actions are progressing on track as we communicated we will be ending the year with about.
Bobby: <unk> net store actions relative to 2023.
Bobby: Majority of those closures are happening in the first half of the year and our early indications on the sales transfers are that they are tracking to or above our expectations and we'll continue to monitor that as we get more solid data as time continues here.
Robert Kenneth Griffin: Thank you. I'll turn it over to somebody else, but best of luck to you here in the second quarter.
Speaker Change: Thank you I'll turn it over to somebody else, but best of luck here in the second quarter.
Speaker Change: Thank you.
Speaker Change: Your next question comes from the line of Seth Basham of Wedbush.
Operator: Your next question comes from the line of Seth Basham of Woodbush. Your line is open. Thanks a lot.
Seth Mckain Basham: Bush your line is open.
Seth Mckain Basham: Thanks, a lot good.
Seth Mckain Basham: Thanks a lot and good afternoon. My first question is on average revenue per mattress unit, which dipped year-over-year in the quarter. Could you give us some color as to why that is and what we should do about that going forward?
Seth Mckain Basham: Good afternoon. My first question is on <unk>.
Seth Mckain Basham: Average revenue per mattress unit, which dipped year over year in the quarter could you give us some color as to why that is and how should we.
About that going forward.
Seth Mckain Basham: Okay.
Speaker Change: Yes, I can certainly thanks for the question Seth This Francis I can certainly share with you our outlook for the year, we anticipate ARU and units to be flattish for the year on a demand basis.
Francis K. Lee: I can certainly, thanks for the question Seth, this is Francis. I can certainly share with you our outlook for the year. We anticipate ARU and units to be flattish for the year on a demand basis in line with our expectations. When we split it out and look at it first half versus second half of the year, we're looking at the ARU to be down slightly in the first half and up low single digits in the second half of the year. But those are right in line with our expectations for our plan. I got it.
Speaker Change: In line with our expectations.
Speaker Change: The when we split it out and look at it first half versus second half of the year. We're looking at the area to be down slightly in first half and up low single digits in the second half of the year.
Speaker Change: But those are those are right in line with our expectations for our plans.
Seth Mckain Basham: Got it. And that change is being driven by comparisons? Is it being driven by a mix of or attachments or promotions? What's driving it?
Speaker Change: Got it and that changes being driven by comparisons is it being driven by a mix of our or attachments or promotions what's driving.
Speaker Change: Yeah.
Shelly R. Ibach: Seth, I think you were asking specifically about Q1 ARU, and the ARU from Q4 to Q1 came up about $200, and that was driven by mix. Mix within the SmartBed line driving a stronger innovation mix, and we continue to have strengths with our Climate 360. The year-over-year comparison, you're right, was down slightly, and we do, as Francis said, continue to see these two metrics being about flat for the year, flat-ish, and there will be some fluctuations.
Speaker Change: Yes.
Seth I think you were asking specifically about Q1, ARU and the ARU from Q4 to Q1 came up about $200.
Speaker Change: And that was driven by mix.
Speaker Change: Mix within the smart bed line driving a stronger innovation mix and we continue to have strength with our our climate $3 60, the year over year compare you are right was down.
Speaker Change: Slightly and we do as Francis said continue to see these two metrics being about flat for the year flattish.
Speaker Change: And there will be some fluctuations.
Shelly R. Ibach: So, you know, thus, this composition with a higher ARU than the fourth quarter but yet a little lower than the prior year, the relationship driving up the SmartBed line drove higher, you know, higher mix in ARU and margin overall, so we spent less promotion dollars and financing in the quarter from both a rate and a dollar perspective.
Speaker Change: When you look at last year's argue we it was the first quarter that we were.
That we had the flex fit three in.
Speaker Change: In the flex fit to back into our assortment after not having them for about 18 months. So there was some.
Speaker Change: Pent up attach on the flex fit three at that time.
Speaker Change: So thus this composition with a higher ARU than fourth quarter, but yet a little lower than prior year.
The relationship driving up the smart bed line drove higher.
Speaker Change: Higher mix in ARU and margin overall, so we spent less promotion dollars and financing in the quarter from both a rate and a dollar perspective.
Seth Mckain Basham: Gotcha, and that's a good segue. So, improving rate and margin dollars on a gross basis, but what about after taking into account promotional financing costs, as we noticed that your zero percent financing terms extended later in the quarter?
Speaker Change: Got you and that's a good segue, so improving rate and margin dollars on a gross basis, but what about after.
Speaker Change: Taking into account promotional financing costs as we noticed that your zero percent financing terms extended later in the quarter.
Speaker Change: Yes.
Shelly R. Ibach: Yes, when I mentioned that the promo, so promotion and financing combined, year over year, our dollars and rates were lower on a demand basis than the prior year.
Speaker Change: <unk> mentioned that the promo so promo and financing combined year over year.
Speaker Change: Our dollars and our rates were lower on a demand basis.
Speaker Change: Than the prior year.
Speaker Change: Got it as you think about new models and.
Seth Mckain Basham: As you think about your new models and how effective they are going between cash discounts versus longer financing terms, is what we saw later in the quarter more indicative of how you plan to adjust going forward, or are there considerations around holiday market share periods versus non-holiday periods?
How effective they are going between cash discounts versus longer financing terms is what we saw in the quarter more indicative of how you plan to adjust going forward or is there considerations around.
Speaker Change: Holiday.
Speaker Change: Market share periods versus non holiday periods.
Speaker Change: There are absolutely considerations in the different periods and we are seeing the strength of the business in the market share periods.
Shelly R. Ibach: There are absolutely considerations in the different periods, and we are seeing the strength of the business in the market share period. And we will continue to lean into other tactics, especially with our smart sleepers, in some of the non-promotional or non-market share periods.
Speaker Change: And we will continue to lean into other.
Speaker Change: Other tactics.
Speaker Change: Especially with our smart sleepers in some of the non promotional or non market share period.
Seth Mckain Basham: Got it. Thank you very much. Yeah.
Speaker Change: Got it thank you very much.
Operator: Your next question comes from the line of Dan Silverstein of UBS. Your line is open.
Speaker Change: Yeah. Thanks Seth.
Speaker Change: Your next question comes from the line of Dan Silverstein of UBS. Your line is open.
Dan Silverstein: Hey, guys, this is Dan calling in on behalf of Michael Lasser. Thanks for taking our questions and congrats on the quarter. Yeah, thanks, Dan. Nice to meet you. You as well.
Dan Silverstein: Hey, guys. This is Dan calling in on behalf of Michael Lasser.
Dan Silverstein: Thanks for taking our questions and congrats on the quarter.
Dan Silverstein: Yeah, Thanks, Dan Nice to meet you.
Dan Silverstein: You as well.
Shelly R. Ibach: Just a quick question on demand comp expectations. So for the full year, guidance contemplates a low single-digit decline, and 2Q to date is in the down mid-singles range. So I guess that implies a slight acceleration in the back half, but shouldn't this accelerate a lot? If you look at the multi-year comparisons in the back half this year, it gets a lot easier. So just wondering, is that just some level of conservatism? I guess that's the first question.
Dan Silverstein: Just a quick question on the demand comp expectations. So for the full year guidance contemplates a low single digit decline.
Dan Silverstein: <unk> to date is in the down mid singles range.
Speaker Change: So I guess that implies a slight acceleration in the back half, but shouldn't this accelerate a lot like if you look at the multi year compares in the back half. This year. It gets a lot easier. So just wondering is that just.
Speaker Change: Some level of conservatism I guess, that's the first question.
Shelly R. Ibach: Yeah, well, let's start with the industry overall. We continue to expect a pressured industry, even with multiple years of double-digit unit declines. We still expect the industry to be pressured this year. And we have a little bit of additional pressure with our store actions. That's about one point of additional pressure.
Speaker Change: Yeah, well, let's start with.
The industry overall, we continue to expect a pressured industry, even with multiple years of double digit unit declines.
We still expect the industry to be pressured this year and we have a little bit of additional pressure with our store actions.
Speaker Change: About one point of additional pressure and Youre right to as we lap Q3.
Shelly R. Ibach: And you're right, as we, you know, lap Q3. Q3 for us and, you know, for the industry was down double digits. We were, we had even more pressure in Q3 for opportunity, I should say, around our messaging this year, which we expect to be much stronger. So we do expect improvement in the back half. But, you know, it remains a very, you know, choppy environment, as we experienced in January with a consumer pullback and, and weather and, and also, you know, consumer behavior in March and yet, you know, some, some good strength in February.
Speaker Change: Q3 for us and for the industry was down double digits, we were we.
Speaker Change: We had even more pressure.
Speaker Change: In Q3.
More opportunity I should say around our messaging this year, which we expect to be much stronger. So we do expect improvement in the back half.
It remains a very choppy environment as we experienced in January with a consumer pull back in and whether in and also the consumer behavior in March and yet some some good strength in February so the environment remains choppy.
Shelly R. Ibach: So the environment remains choppy. We, you know, we do expect improvement in the 3rd quarter and in the back half as we, you know, compare easier with competitors, but also as we advance our initiatives around competing more effectively. And it gives us confidence in being able to deliver on our commitments. But we, you know, like everyone, we're anxious to see a better environment for the consumer and for this industry.
Speaker Change: And we we do expect improvement in the third quarter and in the back half as we comp easier compares but also as we advance our initiatives around competing more effectively and it gives us confidence in being able to deliver on our commitment.
Speaker Change: <unk>.
Speaker Change: Like everyone.
Speaker Change: Just to see a better environment for the consumer and for this industry.
Dan Silverstein: Got it. Thank you.
Speaker Change: Okay.
Speaker Change: Got it. Thank you and then just a second question on gross margins, maybe kind of more of a longer term one.
Francis K. Lee: And then just a second question on gross margins, maybe kind of more of a longer-term one. If you achieve the guidance you guys laid out for 100 BIFs of expansion this year, you know, what gets you, you know, what's the glide path to 60% plus from there? Is it just continued, you know, operational work? Or, you know, if you could just make a few comments on the major drivers that remain, the opportunity that remains today.
Speaker Change: If you achieve the guidance you guys laid out for 100 bps of expansion this year.
Speaker Change: What gets you what's the glide path to 60% plus from there or is it just continued operational work or if you could just a few comments on the major drivers data that remain the opportunity that remains today.
Speaker Change: Yeah, Hey, Dan.
Francis K. Lee: We are working on making sustainable changes in our operating model across a variety of areas that I referenced in my prepared remarks around gross margin, around sourcing, manufacturing, how we deliver the product. And so as we go, those are sustainable changes. Some of those changes come in this year, and they'll be more fully annualized into next year and beyond. So you couple that with some volume uptick when the industry returns, and you'll be getting essentially gross margin leverage going forward so that you'll be back into a more normalized zone that we've seen in the past.
Speaker Change: We are working on making sustainable changes in our in our operating model across a variety of areas that I referenced in my prepared remarks around gross margin around sourcing manufacturing.
Speaker Change: How we deliver the products.
Speaker Change: And so as we come those are sustainable changes some of those changes come in this year there'll be more fully annualized into next year.
Speaker Change: Beyond.
Speaker Change: So you couple that with also some.
Speaker Change: Volume uptick when the industry returns and you'll be getting essentially gross margin leverage going forward.
Speaker Change: So that youll be back into a more normalized zone that we've seen in the past.
Speaker Change: Okay.
Dan Silverstein: Thank you and best of luck!
Speaker Change: Thank you best of luck.
Speaker Change: Great. Thank you Dan.
Operator: Your last question comes from the line of Bradley Thomas of KeyBank. Your line is open.
Speaker Change: Your last question comes from the line of Bradley Thomas of Keybanc. Your line is open.
Bradley Bingham Thomas: Hi, thanks for getting on here. Shelly, I wanted to just follow up on the C2 and the relaunch and the price increase. For one, maybe, can you give us any early insights into how the product is different from the prior version as you refresh it? And just the $200 price increase does seem pretty significant on, what is it? About $1,100? I think the list price is pretty significant today, just in the context that we know the consumer's been a bit stretched, and I think it was only a quarter or two ago that you were talking about being a little bit more promotional to make sure you drove demand. So just a little bit more about your confidence that the price increase is something that is the right move here for that product.
Bradley Bingham Thomas: Hi, Thanks for getting me on here.
Bradley Bingham Thomas: Shelly I wanted to just follow up on the situ.
Bradley Bingham Thomas: And the relaunch and the price increase.
Bradley Bingham Thomas: For one maybe can you give us any.
Bradley Bingham Thomas: Early insights into.
Bradley Bingham Thomas: Now the product is different.
Bradley Bingham Thomas: Yes.
Bradley Bingham Thomas: From the prior version as you refresh it and just the $200 price increase does seem pretty significant.
Bradley Bingham Thomas: On.
Bradley Bingham Thomas: What is it about $1100 I think the list prices today are pretty significant.
Just in the context, so we know the consumer spend a bit stretched in and I think it was only a quarter or two ago that you were talking about being a little bit more promotional to make sure you drove demand. So just a little bit more about your confidence that that price increase.
Bradley Bingham Thomas: Is something that is the right move here for that product at this time.
Shelly R. Ibach: Yeah, Brad, thank you for your question. And so we are introducing an additional smart bed called the C1. And we're introducing that bed for $9.99. So that comes in lower than our current C2. And at the same time, we're taking pricing, not relaunching, but just taking pricing, increasing the price of the C2 by $200. So that's a step up from the C1.
Speaker Change: Yeah, Brad and thank you for your question and so we are introducing an additional smart bed called the <unk> one and.
Speaker Change: We're introducing that bad at $9 99.
Speaker Change: That comes in lower than our current <unk>.
Speaker Change: And at the same time, we're taking pricing not relaunching, but just taking pricing increasing the price of the situ by $200.
Speaker Change: So that's a step up story, so we'll offer the SD Wan.
Shelly R. Ibach: So we'll offer the C1 Sleep Number Smart Bed with adjustability, effortless adjustable firmness, and all the features of the Smart Bed at $9.99 every day. And then we will take the pricing of $200 on the C2, and then, of course, we'll continue with our other models. So, the C1's just in addition.
Speaker Change: Sleep number smart bed with.
Speaker Change: Adjustability effortless adjustable firmness and all the features of the smart bed at 999 every day and then we will take pricing.
Speaker Change: $200 on the <unk> and <unk> and then of course, we'll continue with with our other model. So the ones. In addition.
Shelly R. Ibach: Gotcha. Okay. That's helpful. And then I could follow up with a margin question of my own. I know that the company is committed to R&D and innovation, but I was wondering, as you reflect on the current margin trends and the current environment, if there's any updated thinking about what the right level of R&D spend is for the company to still be able to drive growth but also be disciplined, and just how you're thinking about that in the short term and the longer term.
Speaker Change: Gotcha Okay.
Speaker Change: That's helpful.
Speaker Change: And then just if I could follow up with a margin question of my own.
Speaker Change: <unk>.
Speaker Change: The company is committed to.
Speaker Change: R&D and innovation, but just wondering as you reflect on the current margin trends in the current environment. If there's any updated thinking about whats the right level of R&D spend is for the company.
Speaker Change: It's a properly still be able to drive growth, but also be disciplined and just how youre thinking about that in short sort of the short term and longer term.
Francis K. Lee: Yeah, I'll comment on the four The four areas that I mentioned in my script that we will be measuring on an ongoing basis when we think about our durable operating model, the cost of acquisition, the cost of goods, The Cost of Goods, The Cost to Serve Customers, and then G&A R&D Leverage. So we'll always be tying out to those principal areas in the future. That helps us with ongoing discipline over time in each of those areas.
Yeah.
Speaker Change: Yes.
Comment on the floor.
Speaker Change: The four areas that I've met.
Speaker Change: Mentioned in my script that we will be measuring on an ongoing basis, when we think about our durable operating model.
Speaker Change: The cost of acquisition the cost of goods.
Speaker Change: The cost of goods the cost to serve customers and then G&A R&D leverage.
So we'll always be.
Speaker Change: B tying out to those principal areas.
Speaker Change: In the future.
Speaker Change: That helps us with ongoing disciplined over time on each of those areas.
In each of those areas so.
Francis K. Lee: I think that's a good way to think about it as we talk about it. We're driving some significant R&D cost reduction here this year in our operating model, and we've reprioritized for efficiency many of the resources, which is helping us get after our cost of goods sold right now, as well as innovations like the C-1, the addition of C-1, and other strong innovation pipeline items that we have coming in as we approach 2025.
Speaker Change: I think thats, a good way to think about it as we think about it.
Speaker Change: We're driving.
Speaker Change: Some significant R&D reduction here this year in our operating model and we've re prioritized.
Speaker Change: For efficiency.
Speaker Change: Many of the resources, which is helping us get after our cost of goods sold right now as well as innovations like the <unk>. One. The addition of <unk>.
Speaker Change: And in other.
Speaker Change: Other strong innovation pipeline items that we are having I have coming in.
Bradley Bingham Thomas: Gotcha. That's helpful. Thanks so much, Shelly.
Speaker Change: <unk>.
Speaker Change: As we approach 2025.
Speaker Change: Gotcha that's helpful. Thanks, so much Shelly.
Operator: That concludes our Q&A session. I'll now turn the conference back over to the company for closing remarks.
Yeah. Thank you.
Speaker Change: That concludes our Q&A session I will now turn the conference back over to the company for closing remarks.
Shelly R. Ibach: Thank you for joining us today. We look forward to discussing our second quarter 2024 performance with you in July. Sleep well, and dream big.
Speaker Change: Okay.
Speaker Change: Thank you for joining us today, we look forward to discussing our second quarter 2024 performance with you in July.
Speaker Change: Sleep, well and dream Big.
Operator: This concludes today's conference call. You may now disconnect.
Speaker Change: Okay.
Speaker Change: This concludes today's conference call you may now disconnect.
Speaker Change: Okay.
Speaker Change:
Speaker Change: Okay.
Speaker Change: