Sleep Number Corporation (SNBR)

The revenue/earnings "shortfall" is due exclusively to supply chain issues that are in the process of resolving over the next few months into Q4. The following excerpts from the earnings CC explain the upcoming revenue and earnings rebound. It will be "exceptional" in management's words:

"While we continue to expect to deliver top and bottom-line growth each quarter of 2021 versus 2019, Q3 deliveries will be limited by supply availability. We expect supplier capacity gains to catch-up with our robust demand to support high volume of deliveries in Q4.

For modeling purposes, we anticipate about 50% two-year EPS growth in Q3 and exceptional net sales and earnings in the fourth quarter and full year. Turning to, our balance sheet and cash flows.

Customer prepayments of $119 million reflects, accelerated demand growth and larger backlogs. In the first half we generated record cash from operations of $161 million, investing $32 million in capital projects and $267 million in Sleep Number stock.

We continue to expect approximately 650 stores by year-end and greater sales growth contribution from new stores in the back half. Our Q2 ending debt leverage was 2.2 times EBITDAR, compared with our longer-term target of 2.5 times to 3 times.

At the end of Q2, $500 million remains of our authorization for future repurchases of our stock. Investing in Sleep Number continues to be attractive for shareholder value creation.

With the above expected performance and further guidance increase, we expect to generate more than $300 million of cash from operations, in 2021. Our liquidity, balance sheet and team's passion, have us well positioned, to deliver superior value creation for the balance of 2021 and beyond."

As I have said all along, the company repurchased a significant number of shares in Q4 and 2020 as a whole:

"We invested $228 million in Sleep Number shares in 2020, including $190 million in Q4 at an average price of $71 per share. Our 25% ROIC reflects the efficiency of our capital deployment actions over time and our 2.2 times EBITDAR ending leverage compares to our targeted operating range of 2.5 times to 3 times. We ended the year with $247 million remaining under the current authorization from our Board and continue to see significant value in Sleep Number stock."

"Turning now to our 2021 guidance and assumptions. We expect to deliver at least $6 of diluted EPS in 2021, which implies one year growth of at least 30% over our record 2020 EPS excluding the 53rd week."

Applying a 30 P/E to the $6 EPS guidance, justified by the projected earnings growth rate, gives a target PPS of $180, a 50% pop over today's closing price of $120.

Expect growth. As CFO Callen said, "2020 was as the saying goes an overnight success 10 years in the making made possible by the culture of problem solving and innovation embraced at Sleep Number. Despite the more than 100% increase in our share price for the last year, we believe execution of our sleep science and technology-enabled strategies and digitally advantaged business will deliver significant upside for all stakeholders."

GLTA

It was not an hallucination when SNBR was selling at 61 in February before the COVID pandemic hit. We are sitting at $32 today, plenty of punishment for the existing uncertainty and risk. While it is well off the March lows, I'm convinced good gains are ahead later in 2020. That is only a few short months away.

The company performed extremely well in Q1 prior to the COVID outbreak. Shelly Ibach said in the April CC: Q1 results included 11% net sales growth to $473 million with a 7% comp gain and five points from new stores, 61% growth in net operating profit to 11% of net sales, 70% growth in earnings per share to $1.36 and 54% growth in free cash flow to $75 million. During the quarter units grew 10% and average revenue per unit rose 2%, driving a 240 basis point increase in gross margin rate to nearly 64%. These results reflect accelerating consumer demand for the health and wellness benefits provided by our revolutionary 360 smart beds.

CFO Callen went on to say that: The business disruption from COVID-19 pandemic and our related actions to date will delay but not derail the significant value-creating prospects of our business. Our continuously improving initiatives across the business that delivered compelling value creation in 2019 did so again in the first quarter of 2020.

Sitting here with a PE of 10, I firmly believe the stock price can easily get back to the 50s/60s in late 2020 or early 2021 as sales recover to trend. That is an easy near-double in my book.

The digitization of the bed industry is still very early. I think in 20 years almost all people will have their vital functions monitored while they sleep. For example, to be aware of pauses in breathing or heart problems at an early stage.
What I like about Sleep Number is that it is a successful company in the bed market. Earnings per share have increased fivefold over the past 10 years.
The smart bed creates the opportunity to significantly increase the sales revenue per bed and to earn money in the long term via a subscription service model for evaluating the vital functions of the customer.
Everyone needs a bed. A bed that records and evaluates vital signs is a game changer in this industry. I say: 100% yes. The question is more whether Sleep Number like Peloton can go from a pioneer to a market leader.
When the semiconductors are no longer scarce, the beds are sold to other countries around the world

I belatedly read the Q3 earnings CC transcript and came across the following statement from the CFO:

"We have put to work approximately $400 million in highly productive capital projects and invested more than $800 million in Sleep Number stock the last six years. We are bullish on our path forward and expect to accelerate investments in our innovations across the business. We also see tremendous value in our stock and plan to resume our share repurchase program here in the fourth quarter. We currently have $437 million remaining authorization from our board."

My screen is showing a current market cap of $1.94B. The potential PPS boost from a share repurchase program of that magnitude is incredible. GLTA

SNBR delivered as promised. Can Mr. Market somehow spin this good quarter into bad news? Guidance of $7.25 for the year remains unchanged despite talk of extended customer deliveries. My money says management is sandbagging another earnings beat.

Note the news of another share repurchase. Average outstanding shares are 15% below year-ago numbers. This corporate finance strategy continually escapes Wall Street's notice. It's a huge advantage to shareholders over the long term. Our share of the company earnings stream grows without adding a single dollar of our own money. Congrats to management.