Okay, good morning, everyone. Welcome to second day of ICR. My name is Peter Keith, Senior Research Analyst at Piper Sandler, covering hard lines and broad lines. Very happy this morning to be introducing Sleep Number. So many of you probably know the Sleep Number brand. It is a leading company in the personalized sleep wellness space, and it's best known for its Sleep Number bed with adjustable firmness. With me on stage is President and CEO Linda Findley. Welcome, Linda.
Thank you so much.
So it's been an interesting nine months. You joined Sleep Number in April of 2025. Why don't you just give a little bit of background on what attracted you to the role and a little bit of your own background?
Sure. So my background is really consumer companies that are enabled by technology. That's what I love to do. And I've also done a lot of either turnarounds or companies in some sort of transition or transformation. So prior to this, I was CEO of Blue Apron for five years before I sold that company. Prior to that, Etsy. Prior to that, Evernote. Prior to that, four years with Alibaba based out of Hong Kong. And so I've really enjoyed that intersection of what the consumer is looking for and how we can solve that challenge with technology and doing it in a highly sort of transformative environment. What attracted me to this is sort of a couple of things. I'll say both personal and professional. Personally, sleep has become a huge important aspect to a lot of people when it comes to health and wellness.
It's very important for me as well. I'm a breast cancer survivor, and so I've gone through the post-treatment side effects of that and what that means from a sleep perspective, hot flashes. It's essentially accelerated menopause plus pain, which is always fun. And honestly, the Sleep Number bed really just changed and transformed my ability to sleep. And so that's kind of part number one on the personal side. And I think it is something that is something I'm very passionate about, about improving lives through sleep. On the professional side, this is an incredible brand, an incredible product, highly differentiated. Our customers love and swear by this product. And so when I see that opportunity for something with this level of brand and this level of opportunity ahead of it and a gap in execution, it gets me very excited. So we have a 60% gross margin.
We have all the tools we need in order to be able to transform this into a high-growth, high-profit organization and do it in a very meaningful way with a product that matters a lot to customers. So that's part of what attracted me.
Okay, great. So you mentioned the gap in execution that you saw when you came in. So now you've been there nine months. What have been some of those key opportunities that you've gone after right away?
Yeah, so the very first opportunity that I went after was cost savings. We had the opportunity to really streamline the business, not just from a need to take dollars out of the business, which we needed to do to manage our debt and manage our cost structure, but also, frankly, for efficiency. I believe that smaller teams move faster. I believe that clear accountability, clear decision-making helps everyone move faster. And so we needed to reset a lot of things. So we reset product, we reset marketing, and we really dug into where could we actually streamline who's making what decision, when and where. So we took about $135 million out of the business since I started. I do think there's more opportunity to take more. It's just going to be a little bit more strategic and longer-term cost savings that come out.
But that ability to remove costs very quickly, while it hindered us for a short period of time because it hurt our ability to grow topline because we took so much, particularly out of marketing in the beginning, it allowed us to completely reset and build up from a fresh start, which gives us a lot more efficiency. So that's what we started to do in Q4. And then, of course, yesterday we announced the first of our new product line, which is really the start of the product transformation that goes alongside the marketing transformation.
Okay, all right, great. Maybe just on the cost reductions, maybe talk a little bit about where you've taken the cost out, fixed cost, variable cost, any specifics.
Sure. So we've really looked across G&A when it comes to efficiency of running the business and focus. Store footprint has been part of what we've looked at. I think there's probably more strategic ways to look at store footprint in the future. We've taken it out of some of our technology organization without necessarily dampening the innovation. The products that we actually just released or the two products we released yesterday and the products to come, normally that's a two-year cycle, and we've been able to do it in nine months because of how fast this company can move now, which is great, and so I think taking most of it out of fixed costs and really focusing on the corporate structure has been our goal all along.
The marketing piece that we took out so quickly in Q2 and Q3, where we took almost 30% out of marketing in Q2 and Q3, that is where we're adding back as we see efficiency because that's, of course, a great engine for the business going forward. So we stabilized marketing in Q4, and we've already talked about the fact that we're stabilizing marketing in 2026. So that piece is, that's the piece that we're sort of leaning back into. The rest of it is more of a permanent change, mostly in fixed costs.
Okay, great. All right, so rationalize the cost base. So next step, we'll get the revenues going.
Yes.
Okay, so let's just talk about the two products that you announced yesterday and the thought process around how it's different from the existing product line.
So my background means that I'm obsessed with customers. I always listen to customers. I love to talk to customers. Customers write letters to me, some nice, some not so nice, but you get a lot of feedback from customers. But more importantly, we have 1,800 people in the field that talk to our customers on a daily basis. And between their feedback and our customers' direct feedback to me, I very quickly got a picture for what the customer is looking to have. And that's simplicity. That's the ability to determine which bed is best for them more easily. Comfort, value, durability. Everyone's under pressure right now financially. They're looking for the best value they can get. So that comfort, value, durability factor is incredibly important. So I took all the customer feedback that I was getting and all the sales feedback that I was getting.
Then we took it through our marketing and our consumer insights part of the business and really dug in on broad research for new customer acquisition. We have a very loyal existing customer base, but wanted to think about how do we broaden and get more new customers into the business. That research really came back with this strong focus on comfort, value, and durability. We started looking at what can we actually do to modify our product to keep the heart of what makes Sleep Number great, which is a combination of the air adjustability, the personalization of sleep, the improvement of sleep, take the smart innovation that we've been doing for several years now, and think about the balance of what is the good, better, best that we offer customers.
Yesterday we announced the new entry line into our product line, which is going to be our new entry-level bed at $1,599, which has the comfort materials and the functionality and the adjustability of a $4,000 or $5,000 bed, but brought into that under $1,600 price point. That bed does not require an app to use. That is for a set of customers that maybe previously didn't consider Sleep Number or customers who are just looking to improve their sleep without necessarily having an app. That becomes the new entry line to our product. It is significantly improved over some of our previous entry line products and a great experience for the customer, also at a great margin for us. We also introduced a new base yesterday that's our first zero-clearance base where the legs can come off and it can sit on any piece of furniture.
Also simplified for the customer who maybe is looking for a non-app experience. But for us, what you're going to see going forward into the product is we know that the biggest growth in the industry is in that premium category, the $1,000-$3,000, $1,000-$5,000. We have incredible products all the way up to $1,000, and all those products do incredibly well, but we really want to drive more value into that $1,000-$5,000 price range and make it simpler for the customer to see their evolution through the Sleep Number brand.
Okay, great, and you could also mention that the bed is here.
Yes, I should have mentioned that. Peter actually got a chance to check it out yesterday. So if you go to the ballroom, we have the new bed that we just launched, which is called Comfort Mode. And the new base is there as well, although it's a little harder to see. And we also have one of our Climate Series beds, which is one of our top-of-the-line beds that has active cooling technology for people like me who need to sleep a little cooler at night.
Okay, so just sticking on the product, sometimes the most simplest changes are the best ones. And so when I look at the existing product line, I believe every single bed had the sleep technology, sleep monitoring, sleep tracking, and maybe not every single person wants that. So it was a forced attachment, and now this is the first product that you don't have to buy that. Is that?
I mean, we are incredible at sleep tracking, and we have partnerships with some of the leading research institutions in the world like Mayo Clinic. We have 550 people per night that have opted into sleep research. We have more than 30 billion hours of sleep data that we use in developing our products and everything else. So that technology is important and it's valuable to a lot of people. We just want to expand the TAM of people who are interested in experiencing the benefit of adjustable sleep with Sleep Number by allowing for people who maybe don't want the app as part of their sleep experience. It is all about simplicity and what the customer wants.
Okay, great. So then I want to pivot to marketing, and I've covered mattress space for a long time, so I always tell people, don't underestimate the importance of marketing in mattresses.
Yes.
On that note, we saw a lot of marketing last night during the football game for Sleep Number. So you guys appear to be back. So let's talk about the last nine months because you point out you've cut marketing rather substantially, which is a little bit dangerous. But I think when you joined, you also saw maybe some inefficiencies in the marketing spend. So what did you see when you came in? How are you trying to drive those improvements?
Yeah, so when I joined, it just felt like our marketing was a little bit out of date, actually, or a lot out of date, and I think we weren't taking full advantage of the technologies that are available today, especially as there's been changes in lookalike audiences and everything else and how all of that works. What we really did was reset and say, all right, we need to look at how can we best measure and reach the customers who are going to be most interested in our products, and we introduced a lot more digital marketing. We introduced tracking for our brand marketing, including some of the TV advertising that you've seen. We've introduced affiliates and a lot of other channels that allow us to sort of take advantage of the ecosystem for marketing, so essentially what we've done is modernize the marketing infrastructure.
We're still doing TV ads. We're still doing video streaming ads. We're doing social media. We're doing all of these different areas, and we're expanding those. We're doing it in a much more measurable and trackable way and combining it with changes we're making to the flow on our website to drive more efficiency, more conversion, more traffic to the stores, more interest in the brand. Again, highly recognized brand. We just need to surface the why. We do that through modernizing the marketing infrastructure. What you will see to come is an evolution of the creative side of it as well, which is, of course, coming behind some of the infrastructure we've put in on the actual changes that we've made to our marketing infrastructure. Our intent long-term is you get more with less from our marketing spend.
Okay, okay. And what about the messaging? Like, how should we think about that evolving? Because it feels like I think that got a little too narrow. And how do you see the opportunity in front of you?
Yeah, I mean, the messaging is incredibly important because we have an incredibly capable differentiated bed. We are the only bed out there that does all things at the same time, meaning firmness adjustability for both sides, head and foot adjustability for both sides, the Responsive Air that responds to you as you sleep, and then active temperature. So all those, when you look at the pinnacle of innovation for our beds, which are our Climate Series, all of those things in one bed are fairly unusual. And customers don't understand. They know that we have some of these features. They don't understand what they actually do for them. And so the messaging that you're going to see is really going to shift from how are you thinking about the features of the bed to how does the bed actually benefit you and your sleep.
So when you look at our Climate Series bed, if you are using the actual climate program and using temperature modulation, you can get up to 52 minutes extra restful sleep per night. Doesn't mean you're in bed 52 minutes longer. It means that your restful sleep is longer. And that's incredibly powerful for people who are either trying to focus at work, who are recovering from surgery, recovering from running a marathon, whatever that is, that matters a lot. Menopause is also another one. So really helping people understand the benefits of those features is how we're going on the marketing message going forward. The other piece of it is we are, because of all those features, the only bed that shifts with you.
So we are the only bed that once you buy it, whatever happens, if you have a baby, if you, again, if you run a marathon, you have surgery, you can change your bed every night if you want to, to adapt to you. Whereas most beds out there, whatever you buy, what you see is what you get. And that's what you're going to have going forward, whereas we constantly adjust to the needs in your life because you're going to own this for a long time. We test our beds for two and a half longer lifespan than most other mattresses. So you're going to own this bed for a long time.
Okay, all right. One other topic that I want to ask about is on the balance sheet. We get a lot of questions about that from investors. So there were some concerns several months ago around debt covenants. Maybe you walk through the debt amendment and how you're tracking towards the revised covenants.
Yeah. So I mean, one thing that we're very clear about is this is a turnaround. We have a lot of work to do on all fronts, on product marketing, on our distribution, and also, frankly, on our balance sheet. So a few months ago, we amended and extended our debt so that we were able to design the covenants going forward around our plan so that we are looking at, okay, here's what we think the company is going to do, and we're going to design our covenants to manage around that as we're rolling out new products, et cetera, and also extend it for a year. So that gives us the room that we need in order to be able to lean in and do those changes to the business and, of course, long-term generate cash and pay off that debt.
So that's really where we focused our time on that amend and extend. And it's really given us what we need in order to perform better and execute that turnaround of the business.
Okay, right, and I guess now seeing a step up in marketing because you have more flexibility.
Exactly.
So good example. Okay, all right. So I want to also ask about the changes to the management team because I think a lot of times a turnaround, it's usually not just one person. I would point out Sleep Number had a very static C-suite for 10 or more years, which when a company is doing well is good, but when a company is not doing well, it raises questions. So what were some of the key changes on the management team and that C-suite that you've made in your nine months so far?
Yeah. So I made quite a few changes, but I'm always very balanced about how I think about management changes. And everything goes back to the customer and what the customer needs. So examples of that are thinking about R&D more as a customer product organization. How are you actually building product for the customer as opposed to a more ethereal research and development type of approach? Everything needs to have the lens of the customer, and that's how we reorganize the team. So we made our most significant changes in marketing and finance. So we have a new CMO. We have a new CFO who just started a month ago. We also actually moved some people in the organization who had been there for a while and had different areas of expertise across the business into new roles.
So what that did is we have about a third new people, and then the rest are existing people that have just been shifted into new areas of focus, maybe based on their core expertise from their past. And what that allows us to have is retain the institutional knowledge, but introduce fresh thinking and fresh ideas. And honestly, it's been fantastic. It's been very energizing, and it's been really, really great to see that institutional knowledge come to bear in a different way on the organization and the open-mindedness to thinking differently.
Okay, great. I did want to also ask about the EBITDA margin. Looks like an interesting opportunity. So to give the audience some numbers, the guidance would imply around 5% EBITDA margin.
For 2025, yeah.
For 2025, yes. And then pre-COVID, you were at low double digit, so well off the pre-COVID level. When you do a pro forma adjustment on all these cost takeouts, which have an annualized, where do you think that EBITDA margin would be? And then can you get back to that low double digit level over time?
Yeah, so first of all, I absolutely think not only can we get back to the low double digit level, we can get back to, we can exceed that. And that's really based on all the costs that we've taken fundamentally out of the business. And it will just take the time to do it intelligently and continue to structure that. But I see no reason why we can't exceed the previous double digit margin numbers that we had in the past as we continue to manage the cost structure of the business and then change the trajectory at the top line. As far as 2025, really where we're landing in 2025, when you actually come out as a run rate on 2025, we're actually coming closer to 8% on adjusted EBITDA as an exit rate from the business.
That exit rate, I think, puts us in a good position for 2026 because of the number of pro forma costs we were able to take out in 2025 and continue to see going into the new year.
Okay, great. We get a lot of questions also on the store base. So I think there's about 600 stores today. As you're looking at stores into the future, is that something you see more store growth? Do you see optimization with relocations? How should we think about that evolution?
I think what you're going to see from us on the store footprint is more about optimization. So our store experience is something that our customers love. They love our salespeople. They love the experience of getting an IndividualFit session to understand their pressure points and learn about the beds. So we really want to make sure that we're maximizing that and concentrating that. So that really looks like probably a continued slight reduction in store real estate to consolidate those sales amongst the right real estate in the right places. We say a lot inside the business, right product, right customer, right time, and I think that the store footprint is one of those opportunities to bring more volume into our key areas and consolidate the revenue a bit to get more of that energy in individual stores.
So it probably looks like a slight reduction, but it'll also look like a few stores relocating to a slightly better location where they are and a shift in how we think about that strategy. But we've also said very clearly that distribution is the third pillar of our strategy. So looking at alternative distributions that complement that vertical store infrastructure can be wholesale, can be digital, could be other types of interesting ways to target customers that will also be on the table as well to complement that store fleet when it gets to sort of the right optimal size.
Okay, great, and so you historically have been 100% direct-to-consumer.
Correct.
Talking about wholesale. So I think you're starting to explore some other opportunities around distribution.
Yep. So we did a test with HSN in December, sorry, November, and we continue to sort of test some of these other channels. But what's important to us are channels that help us really target the right customer and help them understand the benefit of the product.
Okay. Looking at the industry, I think over the next couple of months, we do have a very interesting acquisition potential on the table. So one of your large suppliers is Leggett & Platt, unsolicited offer by Somni Group, which is one of your bigger competitors to buy Leggett & Platt. And so if that ultimately that acquisition goes through, how do you think about that supply relationship with Leggett? And do they supply items that you're now looking at, maybe other opportunities to diversify the supply?
So we've had an amazing 20-year partnership with Leggett & Platt. They've been an incredible partner for us. We've co-developed a huge number of products with them and worked very closely with them over the years. And so I don't necessarily have any worry about that particular part of the supply chain. That being said, even almost 10 years ago, actually exactly 10 years ago, we started the process of making sure we had some flexibility in our supply chain, mainly due to tariffs, frankly, but that really encouraged the company to look more creatively at sourcing solutions. So we feel ready for whatever happens in that front. But they have been a fantastic partner. And we've seen consolidation coming in the industry for quite some time and happening for quite some time. So it's not really a huge surprise to us.
Okay. And again, I think it's adjustable bases are one of the main components and a little bit of foam as well.
Yes, correct.
Okay, all right. Last question just to wrap up, sort of an assessment on the mattress industry. So maybe you're nine months in now, starting to get a little bit of a pulse. How do you feel about that industry backdrop and the opportunity going into 2026?
Yeah, I mean, I think it's really interesting because I do start to see some of the green shoots of a bit of a, I don't want to call it a recovery because I'm not sure that that's exactly the way that I would position it. But I do see green shoots of opportunity within the mattress industry. However, I still see a lot of volatility. You see customers have moments of confidence and then moments where they get a little bit more concerned. And so you're just seeing a lot of volatility. We've made it very clear inside Sleep Number that we want to develop a business that can thrive regardless of the macro environment. We don't want to be beholden to the macro environment. We would love a tailwind. And so we're very hopeful that that tailwind comes. But it's not built into our plan.
It's not built into our strategy just because there has been so much uncertainty, so I think overall, the industry, you are seeing a little bit of consolidation. You're seeing people looking more for value, and that figures into the product line that we're actually going forward, and that doesn't mean cheap. That means that they're looking for, what am I actually getting for my dollar? And everything we're looking at from a product perspective looks at bringing more into the products for a better price point, but still a premium price point because people do want something that's going to last. They want something that's going to improve their lives. They want something that's comfortable and something that's going to last, so from an industry perspective, that's where I see the customer going.
I see the millennial generation really thinking more and more carefully about sleep, health, and wellness and being willing to invest in that a little bit more. And they're in that bracket that I was talking about earlier. And that's really where I think we're going to see the biggest opportunity going forward. And I'm excited to bring them something that improves their lives.
Okay, all right. Well, that's great. Well, wish you a very successful 2026. It sounds very exciting with everything you've been working on.