Minneapolis-based Sleep Number to refresh smart-bed lineup in 2020

Sleep Number's smart-bed lineup will get a refresh in the second half of 2020.

CEO Shelly Ibach told analysts during the company's earnings call that while the company is hitting its sales targets with the Sleep Number 360 beds on the market, the mattress industry keeps evolving. Competitors like Lexington, Ky.-based Tempur Sealy International are increasingly adding technology innovations to their lineups as well.

"With this new [2020] portfolio, we will incorporate the advancement of our data science, design, software and hardware engineering for more breakthroughs in sleep health and wellness," Ibach told analysts. "These smart beds will have superior comfort, adjustability and temperature attributes in addition to an evolved SleepIQ experience featuring heart rate variability analytics and circadian-rhythm insights."

Sleep Number reported record third-quarter financial results after the market closed Tuesday that surpassed analysts' expectations for earnings and revenue. Much of the results were driven by the success of its 360 smart bed lineup.

The Minneapolis-based maker of beds, bases and sleep accessories closed its third quarter on Sept. 30. The company earned $28.1 million, or 94 cents per share. Earnings per share (EPS) was up 81% compared with the same quarter last year. The earnings were on record third quarter 2018 revenue of $474.8 million, up 14.5% from the same period a year ago.

"Our revolutionary Sleep Number 360 smart beds are delivering life-changing sleep and drove double-digit demand growth on top of double-digit demand growth the prior year. Our multiyear initiatives are resulting in the sales and profit growth we anticipated," Ibach said in a statement.

Analysts who cover Sleep Number were expecting third-quarter revenue of $462.07 million, or an 11.6% increase from third quarter last year, and expected earnings of 79 cents per share.

Comparable sales rose 10% for the quarter. The company did benefit from a favorable comparison: $24 million worth of sales and 23 cents of earnings per share were pulled from the third quarter to the fourth quarter of 2018.

Much of Sleep Number's success is dependent on the company's Sleep Number 360 smart beds that will be at the center of consumers' digitally focused sleep experience. Sensors in the mattress allow the bed to respond to users' movements throughout the night and its Sleep IQ technology gives users a biometric score on the quality of their sleep each night.

"We are creating a future where our 360 smart bed will be the hub for consumers' health and wellness with individualized digital health as core to our business," Ibach told analysts.

Sleep Number also raised the lower end of its 2019 earnings per share outlook by 10 cents to a range of $2.45 to $2.75 per share. It was the second quarter in a row Sleep Number raised guidance and it keeps the long-term goal to achieve $2.75 EPS for 2019 within in its stated range.

Sleep Number and its competitors can be optimistic about the fourth quarter, one analyst wrote.

"A large majority of retailers in our survey expect Q4 to be better than Q3," wrote Piper Jaffray analyst Peter Keith last week in Piper's monthly survey of mattress retailers.

In an updated research note after Sleep Number's earnings release, Keith reiterated his hold rating on the company but increased his 12-month price target from $43 to $49 per share and called Sleep Number's earnings call one its strongest in recent memory.

Shares of Sleep Number closed Tuesday at $46.86, up 67 cents or 1.45%. Shares and are up 48% for the year. On Wednesday, the stock was down 6 cents to $46.80.

Patrick Kennedy • 612-673-7926