Sleep Number (SNBR) Q2 2025 Earnings Transcript

The key read-through is that SNBR is no longer primarily a demand story; it is a balance-sheet constrained operating turnaround where management is intentionally sacrificing near-term revenue to prove control of the cost base. That usually helps equity only if the marketing reset truly lowers CAC on a durable basis, because once the easy expense cuts are harvested, the model will need top-line inflection to avoid a classic margin plateau. The 24% conversion improvement matters more than the headline sales decline — if that persists into the fall, the market may start to price in a 2026 re-acceleration rather than a permanent shrinkage path.

The deeper risk is that the company is simultaneously trying to re-price the product, simplify the funnel, and expand distribution while operating under covenant pressure. That combination often creates execution slippage: broader channel access can dilute pricing power, while a simpler assortment can cannibalize premium mix before new SKUs prove themselves. The most important second-order effect is on suppliers and lenders, not just consumers — if management needs more flexibility, vendor terms and covenant amendments become a hidden source of EBITDA support, but they also telegraph that true free-cash-flow durability is still unproven.

Contrarianly, the market may be underestimating how much of the current reset is actually a positive setup for 2H25 margin optics and 1H26 sentiment, even if the business remains structurally challenged. But the stock is also vulnerable to any sign that the conversion gains are promotional rather than structural, because then the company would have traded revenue for temporary efficiency without fixing the underlying brand consideration problem. In that scenario, the equity rerates lower quickly once investors conclude the cost cuts are exhausted and the only lever left is leverage management.