Q3 2025 Sleep Number Corp Earnings Call

Speaker #1: Welcome to Sleep Number Corp Q3 2025 Earnings Conference Call . At this time , all participants are in a listen only mode as a reminder , this call is being recorded today , Wednesday , November 5th , 2025 .

Speaker #1: This conference call will be available on the company's website . I Sleep Number Corp . Please refer to today's news release to access the replay on today's call , we have Linda Findley president and CEO and Bob Ryder , Interim Financial Chief Financial Officer of Sleep Number Corp .

Speaker #1: Before handing the call over to the company , we will review the safe Harbor statement . The primary purpose of this call is to discuss the results of the fiscal period ending on September 27th , 2025 .

Speaker #1: Commentary and responses to questions may include certain forward looking statements . These forward looking statements are subject to a number of risks and uncertainties outlined in the company's earnings news release , and discussed in some detail in the annual Report on Form 10-K and other periodic filings with the SEC .

Speaker #1: The company's actual future results may vary materially . In addition , any forward looking statements represent the company's views only as of today and should not be relied upon as representing its views as of any subsequent date .

Speaker #1: The company specifically disclaims any obligation to update these statements . Please also refer to the company's news release and SEC filings for a reconciliation of certain non-GAAP financial measures and supplemental financial information included in the news release .

Speaker #1: Or that may be discussed on this call . I will now turn the call over to Linda Findley . Sleep Number Corp , CEO .

Speaker #2: Thank you , Tiffany , and good morning . I have now been on the job for over six months . My learnings thus far make me incredibly optimistic about sleep numbers , future , and the ability to create significant shareholder value in the coming years .

Speaker #2: But nobody should be This is a turnaround of an inherently great company . I came to sleep number because I saw huge potential for the company , and I remain excited about what's ahead .

Speaker #2: full As in many situations like this , there were more challenges than I expected , which required us to move extremely fast to fix the business .

Speaker #2: The pace of our work , along with constraints imposed by our capital structure , has made the first six months choppy . We've accomplished a lot and we're optimistic that the work that we've accomplished positions us to execute the turnaround in 2026 .

Speaker #2: Importantly , after close collaboration with our banking partners , we have secured an amendment and extension of our bank agreement through 2027 . This now provides financial flexibility to focus on sales , driving initiatives and execute our turnaround .

Speaker #2: Our new agreement , combined with confused . meaningful fixed cost reductions achieved in 2025 , will allow us to invest in growth in 2026 .

Speaker #2: But more on these initiatives later . Q3 operating results were disappointing . I am not pleased , but we're on top of the reasons and we're moving quickly to stabilize all elements of the company as we articulated last quarter .

Speaker #2: We were hopeful that a more efficient marketing strategy could mitigate some of the top line headwinds associated with significantly cutting spend . Our results early in the quarter gave us confidence that this approach would be successful .

Speaker #2: However , competitive behaviors became even more aggressive than we had expected during the Labor Day period , and we did not have the financial flexibility to counter with our own messaging , which hurt our top line .

Speaker #2: We believe the new bank agreement and our fixed cost reductions will allow us to go on offense in the future . I want to take a few moments to explain why I'm confident that we can turn the top line in 2026 .

Speaker #2: First , our new product initiatives will simplify our offering and should attract a broader set of new customers while building on demand from our repeat buyers .

Speaker #2: This product evolution will capitalize on sleep number strong differentiators , and adjustable firmness and temperature . While other brands deliver elements of what we do .

Speaker #2: We deliver it all , and in my opinion , we do it better . Second , we are refreshing our creative to focus more on product value and benefits to drive greater interest and excitement about the brand .

Speaker #2: We are deploying our dollars into more efficient , higher return channels to drive traffic to our stores and digital channels . When our customers arrive , we know they're going to like what they see across the organization .

Speaker #2: We are changing everything from creative to social to customer interaction . We're already seeing notable payback improvement with our new marketing initiatives . Third , we're taking a fresh look at our distribution strategy .

Speaker #2: While we continue to see big benefits in our vertically integrated model . We believe there are opportunities to expand distribution into new channels , both physical and digital .

Speaker #2: We are optimizing our store footprint and leaning into digital to meet customers where they are . While exploring selective partnerships and new routes to market .

Speaker #2: For example , next week we will host a show on HSN with an exclusive bed as part of an ongoing testing of channel opportunities .

Speaker #2: Our vertical model is still our strategic advantage , but we feel strongly that we can build on that model while retaining its strengths .

Speaker #2: Finally , our substantial progress on fixed costs and our amendment agreement with our bank group means that total marketing spend in 2026 will be slightly up compared to 2025 , while still reducing our operating expenses .

Speaker #2: To put that in perspective , media investments in Q2 and Q3 of this year were down by 32% . Together , we are confident these initiatives put us on a path to stabilize our top line in 2026 , while meaningfully growing our adjusted EBITDA and free cash flow .

Speaker #2: We are working with urgency and at breakneck speed . In my six months at sleep number , there is no part of the company that hasn't been touched .

Speaker #2: Before I turn the call to Bob , I wanted to take a moment to thank all sleep number team members , for their continued dedication , exemplary .

Speaker #2: They are urgently pacing , prioritizing and executing on the things we know we're going . Going to bring the biggest value . I'm proud to stand shoulder to shoulder with them as we continue to forge ahead , to bring sleep number back to growth .

Speaker #2: With that , I will now turn the call over to Bob .

Speaker #3: Thanks , Linda , and good morning , everyone . Third quarter results are certainly not where we want them to be . Profits and cash flow were well below expectations due to disappointing sales .

Speaker #3: I'll get into the details of the third quarter results in just a moment . As we shared 90 days ago , we're in the midst of a business turnaround as comprehensive and will impact almost every aspect of the business .

Speaker #3: I want to highlight three important elements of our turnaround from a financial perspective . First , costs we've made considerable progress on costs in 2025 .

Speaker #3: Following two years of significant cost actions . We further reduced operating expenses excluding restructuring and non-recurring costs , by $115 million . Since the beginning of the year , and now expect to exceed our $130 million cost out target .

Speaker #3: These reductions have come from all dimensions of the business . HeadCount reductions , streamlining the organization , research and development costs , selling expenses , and marketing .

Speaker #3: The goal was to reduce costs aggressively while minimizing any negative business impact . The significant reductions in Q2 and Q3 media spend , however , did have a negative impact on the top line , and as aggressive as our fixed cost reductions were , they were not enough to offset the impact of reduced sales on our high gross margin product .

Speaker #3: As such , we have reduced our full year net full year net sales , adjusted EBITDA and free cash flow expectations . We're certainly not done reducing costs .

Speaker #3: There will be additional fixed cost reductions in Q4 and 2026 to further align our cost to our new lower sales base . Second , financing we successfully executed an amendment and extension of our bank agreement , extending maturity to the end of 2027 .

Speaker #3: The revised Covenants and terms align with our planned turnaround trajectory and provide the flexibility to invest in specific parts of the business with strong returns .

Speaker #3: This agreement reflects lender alignment with our strategic Reset and supports both near-term stability and long term growth . Third , our commercial strategies , the greatest value will be created by implementing our commercial strategies .

Speaker #3: We have a strongly recognized brand and a highly differentiated product , but we do have room to improve in 2026 , we will be repositioning our product lineup to better resonate with the larger consumer base , execute a more efficient and effective marketing approach , and expand channels of distribution , including website improvements to drive better conversion .

Speaker #3: We've been working on this commercial reset throughout 2025 , and we will see the results of these initiatives in 2026 . And importantly , our amended covenants provide us the flexibility to execute our plan .

Speaker #3: Now, let me walk through our Q3 results. Net sales of $343 million were down 19.6% year over year. This decline reflects the opportunity within our product portfolio and the impact of our significant marketing and media investment reductions.

Speaker #3: Marketing efficiency continues to improve , as we saw cost per acquisition decline 6% versus the prior year . However , we need to drive more traffic into both our stores and our website .

Speaker #3: We expect our marketing efforts to begin to do that in the fourth quarter . Gross profit margin was 59.9% , down 93 basis points versus last year , but up 82 basis points from Q2 the year over year decline was driven primarily by unit volume deleverage , partially offset by favorable product mix and lower promotional activity .

Speaker #3: Operating expenses , excluding restructuring and other non-recurring costs , were $204 million and 18% decline from 2024 . This reflects the continued cost outs we've been implementing across the organization to align with our sales reduction .

Speaker #3: We recorded $41 million in restructuring and other non-recurring costs in the quarter . Related to these ongoing transformation initiatives . These included severance and employee related benefits , contract termination costs and asset impairment charges .

Speaker #3: Approximately 30 million of these charges were non-cash and are attributable to sunsetting technology assets and closing several underperforming retail locations . Adjusted EBITDA was $13.3 million , down 14.4 million from last year .

Speaker #3: The decline was driven by lower net sales and gross profit margin compression , partially offset by lower media . Fixed operating expenses and variable selling expenses .

Speaker #3: In addition to reducing costs , we are also actively managing working capital with net year to date changes in inventory , accounts payable , receivables and prepayments being a $20 million source of cash .

Speaker #3: We have also reduced year to date capital expenditures by approximately $5 million compared to the prior year . We acknowledge current performance is not where we expected it or where we want it to be .

Speaker #3: However , we remain confident that actions we are taking will result in a turnaround of demand trends . As we are resetting the business and executing elements of our own plan .

Speaker #3: We are also realistic about the timing of the impact of our actions . We now expect net sales for the year to be approximately 1.4 billion , and gross profit margin of approximately 60% .

Speaker #3: The incremental cost reductions , excluding restructuring and other non-recurring items , are expected to result in a full , full year operating expenses of 825 million , or 135 million , less than 2020 .

Speaker #3: For the resulting adjusted EBITDA is now expected to be approximately $70 million , with negative free cash flow of approximately $50 million . With these anticipated outcomes , we expect to be in compliance with our new debt covenants .

Speaker #3: Looking ahead to 2026 , we are approaching our our plan process with three key objectives . First , and most importantly , stabilize sales and return to growth .

Speaker #3: After we revamp our product offering with more emphasis on serving the consumers priorities of comfort , durability and total value . To support that endeavor , we will continue to modernize our marketing approach , improve our website and expand distribution into new channels .

Speaker #3: Second , continue to take fixed costs out of the business , including continued consolidation of our real estate footprint . And finally , as stated before , generate free cash flow to pay down debt .

Speaker #3: With that, I'll turn it back to the operator for.

Speaker #1: At this time , if you would like to ask a question , press star . Then the number one on your telephone keypad .

Speaker #1: To withdraw your question , simply press star one again , please limit your questions to one follow up question . We will pause for just a moment to compile the Q&A roster .

Speaker #1: Our first question will come from the line of Bobby Griffin with Raymond James . Please go ahead .

Speaker #4: Good morning . Thanks , guys , for taking the questions . I guess two questions here . One , just on more modeling , but can you can you tell us what is the cash part of the restructuring for all 25 , in the non-cash part of the for all of 25 .

Speaker #4: And then what level of cash restructuring charges will carry over into 26 ? I'm just trying to get a cleaner view on just the cash flow generation capabilities as we stand here at today's revenue base .

Speaker #4: And then my second question is just the comments on the commercial strategies . I think you called out an expanded website , but any comments on wholesale ?

Speaker #4: Just what is the the the expansion that you guys have been working on for the commercial strategies ?

Speaker #3: Sure . I'll take the first half , right . And I'll let Linda talk the second half . So the first half . Look of the cash restructuring charges , I'd say the cash charges are kind of the normal ones .

Speaker #3: You see , contract termination costs and employee severance costs . And we you know , we're not giving guidance on what they will be in 2026 .

Speaker #3: And there there might be some more in Q4 , but they are included in the $50 million negative free cash flow guidance that we provided .

Speaker #3: I'm sorry for 2025 . And the non-cash costs were were primarily write offs for stores that we've stopped operating . It was was a big piece of it .

Speaker #3: And you can see this in the free cash flow statement . And the second part was a write off of some intellectual property assets that , that , that we had that we just don't think are worth as much as they , they , we thought they had been historically .

Speaker #3: And the total non-cash was about $30 million .

Speaker #4: Bob . That's for the year for the for the quarter , I guess I probably didn't ask it clearly .

Speaker #3: That's year .

Speaker #4: To date . Sorry . Okay . I was just trying to get a sense of the cash restructuring for all of 25 . What is expected to be and then what cash restructuring could carry over into 26 .

Speaker #4: If you have any guidance , just because when we look at free cash flow and cash flow from ops , we should kind of keep both of those in mind as we try to think about the level of what this business is doing today , as hopefully the cash restructuring won't be repeating at the same level in 26 .

Speaker #3: Sure . And so the , you know , for 25 , the numbers I provided were year to date , right . You'll see them pop right off the GAAP cash flow statements .

Speaker #3: That's year to date . 25 right . The the -50 that would include all the all the all the cash . Well it's just cash .

Speaker #3: All the cash charges that we expect for 25 and 26 . We're not giving guidance on but what you'll see when the when the debt agreement is filed on the AK and it might already be out there .

Speaker #3: There are some covenants around restructuring charges . Right . So you can you can model a max at least . .

Speaker #2: Okay , I will say just jumping in on that to sort of finish up before I jump into the commercial side of it .

Speaker #2: We did take most of those this year , like that's the that's the focus . That's why we went so aggressively on some of these cost reductions this year .

Speaker #2: So that is our intention is to really drive most of those into 2025 .

Speaker #4: Okay . Perfect . And then yeah , just the commercial strategies and larger consumer base . You called out things like that . Thank you .

Speaker #2: Yeah of course . So so looking at the commercial strategies , a big part of this is what we talked about with sort of refining our product offering in order to drive to a much larger audience .

Speaker #2: We already have a significantly larger audience coming to look at our brand on our website , coming to check out the products . But we we mainly convert a certain subset of that product .

Speaker #2: Today . And so by expanding our website and actually expanding the product offering and simplifying the product offering , we are confident we're going to be able to appeal to that larger customer base that's already looking to us and already knows our brand .

Speaker #2: And aspires to our brand . But create more product value fit for them . Starting in 2026 , to increase conversion for that group .

Speaker #2: So that's sort of the the website and product part of it that goes hand in hand with the distribution piece of it . So we just mentioned that we're doing our first test on HSN .

Speaker #2: There's several other wholesalers and other channel tests that will be announcing probably in the coming weeks and months , that will give you an idea of how we think we can expand while maintaining the strength of that vertical footprint , but actually supplementing it not cannibalizing it .

Speaker #2: But supplementing it with additional channels that reach some of those different expanded audience segments . So that's really how we're approaching this . We think that a lot of those aren't your necessarily traditional wholesalers from a mattress industry perspective , but rather broader value add channels that we can we can lean into that will add to the distribution and create additional brand awareness of the business .

Speaker #2: So again , look , in the coming weeks and months for some more announcements on what some of those are . But that is a big part of our strategy going forward is how can we supplement with distribution .

Speaker #4: Thank you . I appreciate it . I'll turn it over . Best of luck here in fourth quarter . Thanks .

Speaker #2: Thank you .

Speaker #1: Our next question comes from the line of Daniel Silverstein with UBS . Please go ahead .

Speaker #5: Thanks for taking our question and good morning . Maybe just to start . Good morning . Just to level morning . Just a level set .

Speaker #5: What are the biggest strategic changes that sleep number can make to improve the sales trajectory in the near term ? I guess if the competitive environment remains aggressive , like it was , you know , in the third quarter , how can sleep number drive that improved traffic that Bob mentioned with kind of the marketing budget .

Speaker #5: It has today ?

Speaker #2: Sure . Well , I think that's actually an important part of it . Is it isn't just about the marketing budget we have today .

Speaker #2: So so first of all , I do think that competitive environment will remain intense and it should remain intense . That's actually part of what makes this industry what it is .

Speaker #2: So we are anticipating that that intensity will continue . The difference being that we took about a 32% year over year cut in our marketing media spend , specifically in Q2 and Q3 , because we needed to move aggressively while we were negotiating with the banks that that reduction is very , very impactful on our ability to scale the business .

Speaker #2: Now , at the same time , that reduction also helped us reset our marketing stack to be more more efficient in the future and to lean into more channels , more effectively .

Speaker #2: So we are seeing those efficiency improvements already play out , but we were capping our spend not just in an overall year over year reduction , but it's important to note that we were looking at marketing spend that would only pay back in the quarter .

Speaker #2: Previously because we were managing to our bank debt with the new covenants that we put in place and with the negotiations with the bank , we've allowed ourselves the room not only to reinvest back into marketing .

Speaker #2: So we will be putting more dollars back and have already started putting more dollars back into marketing , into Q4 , based on efficient return on spend .

Speaker #2: So we're not we aren't we aren't going in efficient on any spend because we've been leaving money on the table in the past while we were constraining spend and that spend will not only benefit us in Q4 , but again , we'll benefit us in Q1 .

Speaker #2: Going forward . Because when you're when you're rolling into marketing spend , you not only want to spend for where you are now , but you want to continue to build the pipeline for future quarters .

Speaker #2: And we couldn't afford to do that before . So with the way that we both created more efficiency in marketing and been able to get leeway on our covenants to be able to lean in , not just to spend the benefits this quarter , but spend that builds the pipeline for future quarters .

Speaker #2: That's how you restart that flywheel , and that's the process that we're in right now . So it's all of those things together .

Speaker #2: But I want to be really , really clear that there are multiple aspects that we are looking at in the business here . It isn't just about that marketing efficiency .

Speaker #2: It is also about this product reset . And we do still see continued cost reduction opportunities in the fixed costs that were built and are not necessarily contributing to the longer term profitability of the business .

Speaker #2: So , as Bob said in his section of the script , you know , we are really focusing now on how can we take those fixed costs out of the business strategically and over time without actually incurring additional expenses to take those costs out of the business ?

Speaker #2: And that's mostly going to be on the real estate front as we consolidate our sales into our highest performing source .

Speaker #5: Very helpful and a good segue into our next question . As you're thinking about the larger scale strategic initiatives you laid out for 2026 , is it fair to assume that you know , rationalizing the store fleet is kind of the most tangible piece of that today ?

Speaker #5: Any any update on kind of the rank order of those things you mentioned would be really helpful . Thank you so much .

Speaker #2: Sure . So just to give a little bit of context , as you know , we've gone very aggressively on cost savings and as a little bit of just mental background and level setting , our headcount is currently now back at 2017 levels .

Speaker #2: So we went very aggressively on our headcount moves . And that is really , really impactful to the bottom line . Once we start to scale again .

Speaker #2: So we've been able to move quite a bit on creating again , not only cost efficiency in some of our corporate costs , but also be able to create that scale and that speed of operations within the business .

Speaker #2: So yes , real estate and store footprint would be the next level of what we can look at . We have very , very high transfer rates when we're strategic about the stores that we actually shift and , and close down .

Speaker #2: And we've done several of those so far this year . But I think very specifically , it's important that we look at our strategic benefit of where we can actually have the most productive stores and make each one of those stores more efficient and drive more sales to the to the leaders in each of those stores .

Speaker #2: So they can create that volume on top of a lighter , fixed base . From what we've had in the past .

Speaker #5: Thank you and best of luck for the holiday .

Speaker #2: Thank you .

Speaker #1: Our next question comes from the line of Brad Thomas , KeyBanc Capital Markets . Please go ahead .

Speaker #6: Hi . Good morning , and Linda , thanks for all the details this morning . Linda . I was hoping to follow up just on your thoughts on product and product evolution .

Speaker #6: We've talked in the past about an opportunity to bring in lower price point items . Could you just give an update ? Give us an update on your thinking and perhaps the timing of refreshed assortment .

Speaker #2: So I will give you as much detail as as I can . Given we are still under wraps , so to speak , but we are still looking at early 2026 in timing , just as we had mentioned before , and it's important to note that it's partially about price point , and it's partially about value at that price point .

Speaker #2: So this is really a radical focus on the consumer and what the consumer is looking for . So you will see price point moderation , but it's not necessarily going low end .

Speaker #2: I want to be super clear about that . We are a premium product and we we have a very , very loyal and excited customer base that loves the product that we have .

Speaker #2: What we're looking to do with the new product assortment , which will include simplification of our product assortment , is how do we actually bring more value to a broader audience of people .

Speaker #2: So that means driving value into price points that are more accessible to a broader amount of people . Still , in the premium space .

Speaker #2: So that's where we see the fact that we have strong differentiators and adjustability . We have strong differentiators in creating better sleep night after night .

Speaker #2: We have some of the best differentiators when it comes to temperature and adjustability. How can we bring that to a broader audience?

Speaker #2: By creating that value alongside comfort and durability that we're known for into a broader audience . So I can't give you much more detail than that , but it isn't just about price point .

Speaker #2: It's about driving value deeper into into our lower price points .

Speaker #6: That's very helpful . Thank you . And if I could follow up on on sales , could we just touch a little bit on what the trajectory was through the quarter ?

Speaker #6: What you're seeing more recently and then what the sort of underlying assumptions are in terms of the new revenue guidance and what you're expecting for for Q here .

Speaker #4: Sure .

Speaker #2: So so I'll start on that . And then , Bob , feel free to jump in and add anything you would like . But what we saw is we actually saw a strong start to the quarter .

Speaker #2: And and we saw pretty good performance in the beginning of the summer . And then we saw it get very , very choppy .

Speaker #2: And what I mean by that is we saw a lot of spikes and phases of demand as you got as you got closer to the Labor Day cycle and then as I mentioned , for us , we were managing our cash very carefully .

Speaker #2: We're managing our cash probably more than I would normally want to manage on a marketing program . And we're not as able to lean in to the highly competitive Labor Day cycle as maybe others would have been able to do .

Speaker #2: So from a marketing spend . So that impacted our demand towards the end of the quarter . So the quarter started off quite positively and and then sort of our biggest challenges came around the Labor Day , highly competitive cycle just because of our constraints that we had put into place in order to negotiate our , our , our debt .

Speaker #3: Yeah , I'll just follow up on that . Linda . So for for for for Q4 , we are expecting , you know , some improving trends .

Speaker #3: Certainly not where we want it to be long term . But our Q4 media spend will be , you know , a little less than Q4 last year , but not the down 30% or so we saw in Q2 , Q3 .

Speaker #3: So we think , you know , that should help us some additional media . You know , focused on on on the things that we think have returns .

Speaker #3: Also , last year's Q4 was , was , was a pretty down quarter . So I think the overlap helps us a little bit , but it will all get a little confusing because remember , the fourth quarter has that dreaded 53rd week , which just confuses everybody .

Speaker #3: But we do we do expect slightly better sales in in But you know , not not where we expect them to be in 25 .

Speaker #2: Yeah .

Speaker #3: And I think my 26 .

Speaker #2: One other point I want to make about that . And then happy to take another follow up , Brad , if you need it .

Speaker #2: But the the spend that we're leaning into in Q4 , as I mentioned in my previous comments , not only will benefit us in Q4 , but it will also benefit us in Q1 .

Speaker #2: So we are now back in a cycle of doing what you would normally do in a business , which is invest not just for that

Speaker #2: quarter , but be able to invest and start to set up the the next quarter as well . So that's a factor . There .

Speaker #2: You also asked a little bit about some of the some of the trends that we're seeing so far in Q4 . The the most I can give you on that is we just completed this renegotiation with our banks , and we just gave guidance and we are in line with both of those models that we have have put in place to date Q4 .

Speaker #2: as far as performance .

Speaker #6: Great . If I could just ask two quick clarifying questions . So for the fourth quarter , is it fair to assume that you all are thinking about the underlying sales trends improving slightly ?

Speaker #6: And then on a reported basis , we also get the list of the 53rd week ? Is that the way to think about it ?

Speaker #2: Yes , that's the way to think about it .

Speaker #6: Great . And then to be clear , when we think about the marketing underlying run rate , Linda , have we passed the kind of most conservative point you've been at and are now you at a point where you can test and start to lean in a little bit more because you've got this new bank loan , is that the way to think about the marketing opportunity ahead ?

Speaker #6: Correct ?

Speaker #2: Yes , yes . Correct . So the 32% down on media spend , and that's again , we've called out 32% down on media spend .

Speaker #2: There is obviously some broader marketing spend on top of that . But the 32% down on media spend only applied to Q2 and Q3 .

Speaker #2: Q4 will only be slightly down . As Bob said on media spend year over year . And we do not anticipate any of that baseline for 2026 .

Speaker #2: Now , I want to also very clear that we are we are seeing efficiencies and we don't ever expect to get to the spend levels that we were at before because we think that we are building a more efficient marketing program that with the right level of investment , will continue to pay off .

Speaker #6: That's very helpful . I appreciate all of it . Thank you .

Speaker #2: Yeah . No problem .

Speaker #1: Our next question comes from the line of Peter Keith with Piper Sandler . Please go ahead .

Speaker #5: Hi .

Speaker #7: Thank you . Good morning . Following up on one of Brad's questions regarding the new products , could you give us a sense of timing when we might start to see some of the newness in 2026 ?

Speaker #2: Again , all we've said publicly is early 2026 . And so we're staying with that . But I will tell you , this team is working at lightning speed on on everything that we're doing .

Speaker #2: So I can't give you much more detail than that . Unfortunately .

Speaker #7: Okay . Fair enough . And then I guess going back three months , you know , a lot of the the theme from , from the Q2 call was the improved conversion rates that you were seeing late Q2 and July .

Speaker #7: And I guess what what happened there was it did the conversion rates go down or did the competitive advertising kind of drown you out ?

Speaker #7: Just help me understand what changed so much .

Speaker #2: Sure . Well , again , the conversion rates did not go down . As a matter of fact , we continue to see improved efficiency .

Speaker #2: This is the reminder that a 32% decrease in media spend , even with conversion improvements , resulted in a 19 ish percent down on revenue .

Speaker #2: So ? So we are actually continuing to see those conversion improvements . We mentioned a 6% lift in improvement in overall cost of acquisition .

Speaker #2: So we're continuing to see that cycle pay back faster and faster . We are also shortening our payback times as part of that .

Speaker #2: So all of that is actually going really well . We just simply had to limit the number of actual dollars that we could put out that would apply in the quarter .

Speaker #2: And particularly in Q3 when you have the Labor Day MSE , which is the most competitive of all the MCs cost of media goes up because everyone's pushing into the same channels .

Speaker #2: And so we were not able to lean into that spend based on restrictions from our current negotiations . So that's really what I mean by that .

Speaker #2: We're still seeing all of those efficiencies , and we're seeing even more so , and we continue to see improvement as we run into new channels .

Speaker #2: It's just that previously we were restricted on the actual dollars . We could put against that .

Speaker #7: Okay . Fair enough . And then I guess I was kind of curious if you're doing anything different at the store level . You know , certainly you have a lot of employees that are commission based .

Speaker #7: And with the big cut in advertising , it's probably making them harder to get paid . So how do you resolve that issue ?

Speaker #7: Or are you seeing , you know , more turnover at the store level or can you can you I guess . Compensate people next year ?

Speaker #2: So we continue to actually look at our compensation structures to think about the right way to generate the best environment for our employees.

Speaker #2: So we're currently about 50 over 50 on on commission and fixed . And we continue to actually look at it . And we continue to evolve those programs as we go forward .

Speaker #2: We have actually simplified the selling process as well . So we just went through a big process where we created new sort of simplified selling paths for our employees so that they could actually drive more conversion .

Speaker #2: And we did see decent conversion lift in store . Same day sales during not just Labor Day , but during the entire quarter .

Speaker #2: So we're confident that we're making the right moves to improve our actual in-store sales process . But yes , a big part of the initiatives that we're doing are focused on getting that funnel bigger into the stores .

Speaker #2: So that we can drive more traffic into the stores and drive more traffic via the website , into the stores in order to increase the volume that we can actually convert of .

Speaker #7: Okay . All right . Great . One , one last question that I had for Bob just on the new the debt structure .

Speaker #7: So the press release notes up 5.25 debt covenant limit is that is that scale up or down like the previous debt agreement . And then what's the the new interest rate ?

Speaker #3: It does scale up . And down . Q4 Q1 and Q2 are all a little bit different . And then the covenants get tighter in Q3 , Q4 .

Speaker #3: Right ? I think you'll see that in the in the AK and yeah , all the the the fees and interest rates also changed , which you'll also see in that , in that AK release .

Speaker #7: Okay . Sounds good . We'll take a look . Thank you .

Speaker #1: As we have no further questions , ladies and gentlemen this will conclude today's question and answer session . I'd like to turn the conference call back over to Linda for any closing comments .

Speaker #2: Thanks , everyone for your time today . Our teams remain focused on the work ahead , and I look forward to updating you on progress in the coming months .

Speaker #2: And quarters . Should you have any further questions , please contact us directly . Thank you .