Sleep Number Pops 10% On Quarterly Profit, Outlook Outperformance

Sleep Number shares jumped almost 10% in Wednesday’s extended trading session after the smart bed company provided a strong full-year outlook backed by better-than-expected quarterly earnings.

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Sleep Number (SNBR) reported that third-quarter earnings per diluted share spiked 90% to $1.79 year-on-year, exceeding the Street consensus of $1.06 per share. Net sales rose 12% to $531 million year-on-year, including an 11% comparable sales gain. Online and phone sales were up 111% versus the prior year and made up 14% of net sales. Analysts on average had expected revenue of $523.5 million for 3Q.

Looking ahead, the company expects to generate full-year 2020 earnings per diluted share of $4, which would represent a 48% increase versus the $2.70 reported last year. The Street had forecast earnings of $2.77 per share for the year. The outlook assumes 7% to 8% net sales growth for 2020.

In addition, Sleep Number announced plans to resume share repurchases in the fourth quarter and to operate, over time, with leverage of 2.5x to 3.0x EBITDAR, with expected seasonal fluctuations.

“Our exceptional third quarter performance reflects the ongoing relevance of our life-changing 360 smart beds as consumers deepen their understanding of the importance of quality sleep to their overall health and wellness,” said Sleep Number CEO Shelly Ibach. “For the third consecutive year, since transitioning to our smart beds, our Q3 results reflect double-digit demand growth. We again demonstrated the resilience of our vertical business model through our top and bottom-line performance and a trailing twelve months ROIC of nearly 21%.”

The company generated $287 million in net cash from operating activities in the first nine months of 2020, up 51% versus last year. On a year-to-date basis, it reported operating free cash flows of $259 million, up 81% from the same period in 2019.

Shares in SNBR have appreciated 19% so far this year. (See SNBR stock analysis on TipRanks)

Ahead of earnings results, Raymond James analyst Bobby Griffin, who has a Hold rating on the stock had estimated 3Q20 same-store sales growth of up to 9% and 3Q20 EPS of $1.05 and for 2020/2021 EPS his estimates are $2.88 and $3.12 respectively.

Piper Sandler analyst Peter Keith recently raised the stock’s price target to $70 (20% upside potential) from $65 and maintained a Buy rating, saying that sales trends are “improving solidly” with July very likely “running up nicely” year-over-year.