SNBR Q2 Deep Dive: Cost-Cutting and Marketing Reset Shape Sleep Number's Outlook

Bedding manufacturer and retailer Sleep Number (NASDAQ:SNBR) missed Wall Street’s revenue expectations in Q2 CY2025, with sales falling 19.7% year on year to $327.9 million. The company’s full-year revenue guidance of $1.45 billion at the midpoint came in 4.3% below analysts’ estimates. Its non-GAAP loss of $0.82 per share was significantly below analysts’ consensus estimates.

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StockStory’s Take

Sleep Number’s second quarter was marked by a significant revenue decline and a non-GAAP loss that fell short of Wall Street’s expectations, leading to a sharp negative market reaction. Management pointed to an intentional and deep reduction in marketing spend as a primary driver behind the lower sales, with CEO Linda Findley explaining, “We took the necessary actions to reset the marketing program with a 30% cut to Q2 year-over-year marketing spend.” The company’s leadership adopted a self-critical tone, acknowledging that these cuts, while necessary to improve efficiency, contributed to the revenue shortfall.

Looking ahead, Sleep Number’s outlook is shaped by a multi-pronged strategy focused on product simplification, continued cost discipline, and exploring new distribution channels. Management emphasized that operational changes, including a substantial cost base reduction and more efficient marketing, are expected to set the stage for margin improvement and eventual sales stabilization. CEO Linda Findley stated, “We are resetting the business...and building the programs, infrastructure and creative content that will set us up for strength in the future,” while also noting that product enhancements and new channel partnerships will likely take effect in 2026.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to a deliberate reset in marketing and organizational structure, which impacted near-term sales but is expected to support long-term improvements.

• Marketing overhaul and spend cuts: The company implemented a 30% year-over-year reduction in marketing expenditures, rapidly shifting its strategy after identifying inefficiencies in prior campaigns. This contributed to lower revenue in the quarter but set a foundation for improved marketing efficiency moving forward.
• Organizational realignment: Sleep Number executed broad cost-cutting measures across general and administrative (G&A), research and development (R&D), and selling expenses. The leadership expects more than $130 million in annualized cost savings in 2025 compared to 2024, exceeding prior targets.
• Product simplification underway: Management is refining product offerings based on customer data and research, aiming to make the buying process easier and the portfolio more accessible. Efforts include new price points, clearer differentiation between products, and a focus on comfort and durability features.
• Channel and distribution review: The company is considering digital-first initiatives, retail partnerships, and new channels beyond traditional stores. Management stressed the importance of maintaining strong margins while broadening distribution, seeking to leverage the vertical model.
• Early signs of improved efficiency: Despite the revenue decline, Sleep Number reported a 24% increase in customer conversion rates and improved cost per acquisition, with management noting continued progress into July. These trends are viewed as encouraging signals that the reset is taking hold.

Drivers of Future Performance

Looking forward, Sleep Number’s strategy hinges on cost control, marketing effectiveness, and new product and channel initiatives to stabilize and eventually grow revenue.

• Marketing efficiency gains: Management expects that recent changes in marketing strategy and spend will continue to yield higher conversion rates and lower acquisition costs, with the ultimate goal of aligning marketing outlays with industry best practices and supporting sales recovery.
• Product and channel evolution: The upcoming simplification of the product portfolio, paired with exploration of digital-first and partnership models, is intended to make Sleep Number’s offerings more attractive to a broader range of consumers. These initiatives are expected to begin rolling out in 2026, with ongoing research guiding their development.
• Cost discipline and capital structure management: The company plans to maintain strict control over expenses while working to improve its debt position. Management highlighted ongoing engagement with lenders and the expectation of breakeven cash flow in the second half of the year, positioning the company for more flexibility in future investments.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will closely monitor (1) the continued improvement in marketing efficiency and resulting trends in customer acquisition, (2) progress toward product portfolio simplification and digital channel expansion, and (3) the company’s ability to achieve and sustain cost savings while managing its capital structure. Any updates on partnerships or new distribution initiatives will also be important milestones.

Sleep Number currently trades at $8.72, up from $8.16 just before the earnings. Is there an opportunity in the stock?See for yourself in our full research report (it’s free).

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