SNBRQ 10-K & 10-Q changes, risk factors and insider trading

Adverse changes in general economic conditions and consumer sentiment have reduced, and could continue to reduce discretionary consumer spending and, as a result, have adversely affected and could continue to adversely affect the Company’s sales, profitability, cash flows, availability of credit, and financial condition.

The Company’s success depends significantly upon discretionary consumer spending, which is influenced by a number of general economic factors, including without limitation economic growth, consumer confidence and sentiment, consumer disposable income, the housing market, employment, fuel prices, income and debt levels, interest rates, inflation, taxation, consumer shopping trends and the level of customer traffic in malls and shopping centers,traffic, political conditions and uncertainty with respect to the new presidential administration,conditions, inclement weather, natural disasters, recession and fears of recession, civil unrest and disturbances, terrorist activities, war and fears of war, as well as perceptions of personal wellbeing and security, health epidemics or pandemics. Adverse trends in these general economic factors and reduced consumer spending have and may continue to adversely affect the Company’s sales, profitability, cash flows, financial condition, availability of credit, including with respect to the Company’s current credit facility, its ability to service and pay down debt, and any potential new or replacement sources of credit, or cause the Company to breach covenants or other terms contained in its Credit Agreement, which could materially adversely affect the Company’s business, results of operations, cash flows and financial condition. In the first quarter of 2026, to date, our net sales have

Although previously high inflation subsided somewhat in 2024,2024 and 2025, it may again increase due to various economic factors, such as the imposition of increased tariffs or other inflationary economic policies, and adversely affect the Company’s business operations and financial results by increasing the costs of fuel, shipping, raw materials, labor, commodity, and other costs. While the Company has historically been able to pass along some cost increases to its customers, it has not and may not be able to offset such higher costs through price increases or other means, and its margins, profitability, cash flows, availability of credit, and financial condition have been and could continue to be adversely impacted.

The Federal Reserve significantly increased the federal funds raterates inhave 2023.fluctuated Althoughover the Federalpast Reservethree loweredyears and remain relatively high compared to the federal10-year funds rate in September, November and December 2024, the federal funds rate remains relatively high,average, adversely affecting customer purchasing behavior. It is uncertain whether the Federal Reserve will hold, reduce, or increase the rate going forward and such uncertainty, as well as any Federal Reserve action or non-action with respect to the rate, has and may continue to negatively affect customer purchasing behavior, which has and may continue to adversely affect the Company’s sales, profitability, cash flows, credit availability and financial condition.

The United States (U.S.) debt ceiling and budget deficit concerns have increased the possibility of credit-rating downgrades, economic slowdowns, or a recession in the UnitedU.S. States.The Therefederal remaingovernment increasedhas shutdown in 2026 and risks of aadditional government shutdownshutdowns or sovereign defaultdefaults remain if the spending bills necessary to fund the government through 20252026 are not passed by Congress. Whether or not these concerns materialize, growing uncertainty may reduce consumer confidence and increase levels of unemployment, all of which may reduce demand for the Company’s products, causing harm to its sales, profitability, cash flows, availability of credit, and financial condition.

The Company’s creditCredit facilityAgreement currently bears interest at a variable rate based on its leverage ratio.rate. The Company bears the risk that the rates charged by the Company’s lenders will outpace expectations and the earnings and cash flow of its business. This has reduced the Company’s profitability and has potential to continue to reduce profitability in addition to the potential to adversely affect the Company’s ability to service its debt, or cause the Company to breach covenants or other terms contained in its Credit Agreement, which could materially adversely affect the Company’s business, results of operations, cash flows and financial condition.

A reduction in the availability of, or increase in the cost of, credit to consumers generally or under the Company’s existing consumer credit programs has negatively impacted, and could continue to negatively impact, the

Company’s existing consumer credit programs has negatively impacted, and could continue to negatively impact, the Company’s sales, profitability, cash flows and financial condition.

A significant percentage of the Company’s sales are made under consumer credit programs through third parties. The amount and cost of credit available to consumers may be adversely impacted by macroeconomic factors, including general economic conditions, consumer confidence and sentiment, consumer disposable income, the housing market, employment, fuel prices, income and debt levels, interest rates, inflation, taxation, political conditions and uncertainty with respect to the new presidential administration, inclement weather, natural disasters, recession and fears of recession, civil unrest and disturbances, terrorist activities, war and fears of war, including the war between Russia and Ukraine and the warconflicts betweenin Israelthe andMiddle Hamas,East, as well as consumer perceptions of personal wellbeing and security, health epidemics or pandemics, which could cause suppliers of credit to adjust their lending criteria and costs. These macroeconomic factors have, and may continue to, adversely impact the cost of credit which, in turn, has and may continue to negatively impact the Company’s sales, profitability, cash flows and financial condition.

Synchrony Bank provides credit to the Company’s customers through a private label credit card agreement that is currently scheduled to expire on December 31, 2028, subject to earlier termination upon certain events. SynchronyAdverse Banktrends hasin discretiongeneral economic factors and reduced consumer spending have and may continue to controladversely affect the contentCompany’s sales, profitability, cash flows, financial condition, availability of financingcredit, offersincluding with respect to the Company’s customers and to set minimum credit standards under which credit is extended to customers.agreement

Reduction of credit availability due to changing economic conditions, including rising inflation, increased interest rates, changes in credit standards under the Company’s private label credit card program or changes in regulatory requirements, or the termination of its agreement with Synchrony Bank, could harm the Company’s sales, profitability, cash flows and financial condition.

The Company may not be successful in achieving the expected improvements, growth, cost savings, efficiencies, and other benefits related to its businessturnaround restructuring actionsstrategy and such actions could have adverse effects on the Company.

The Company’s turnaround strategy includesis identifyingcentered on product, marketing and executingdistribution, as well as ongoing cost savings and operating efficienciesefficiencies, to reignite growth and increase financial resilienceresilience. byThe expandingCompany’s profitturnaround marginsstrategy and cash flows to pay down debt as part of its operatingexecution transformation to a more durable business model. The Companythereof may not be successfulsuccessful, inwhich fullycould implementingadversely its cost savings plans or realizing anticipated savings and efficiencies, including potentially as a result of factors outsideimpact the Company’s control.business, results, profitability, cash flows, availability of credit, and financial condition. Current or future demand may not support the fixed costcosts of the Company’s turnaround strategy, infrastructure at an acceptable marginmargin, or its vertically integrated business model. A failure or delay in implementing or realizing the anticipated savingsimprovements, growth, cost savings, and efficienciesother benefits of itsthe costturnaround savings plans and related strategic initiativesstrategy could materially and adversely impact the Company’s business, results, profitability, cash flows, availability of credit, and financial condition. ChargesInvestments, costs and costscharges necessary or incurred in connection with implementing the costturnaround savings plan and business restructuring actionsstrategy may be significant and have been and may continue to be higher than expected. In addition, implementing the cost savings and operating efficiency plans has and could continue to negatively impact the Company’s workforce, partnerships, initiatives, innovation, brand, customer experience, and development plans or otherwise interfere with the Company’s ability to grow and compete effectively, each of which could adversely impact the Company’s business, results, profitability, cash flows, availability of credit, and financial condition.

The Company is highly dependent on the effectiveness of its marketing messages, the efficiency of its advertising expenditures in generating consumer awareness, consideration and conversation leading to sales of its products, and the ability to competitively price its products. Sleep Number continues to evolve its marketing strategies, adjust its messages and promotional discounts, differentiate its products despite competitors’ attempts to copy or adopt its messaging,products, and review the amount it spends on advertising, the timing of its spend, and where it is spent. The Company may not always be successful in developing effective messages,messages or addressing consumer perception regarding the price of its products, as the consumer and competition change, or in achieving efficiency in its advertising expenditures. The Company has been and may continue to be constrained in its ability to invest in advertising at a rate sufficient to drive demand.

Consumers areexpect increasingly havingseamless digital experiences and interactions as a part of their shopping experience. As a result, the Company’s future growth and profitability will depend in part on (i) the effectiveness and efficiency of the Company’s online experience, including without limitation advertising and search marketing and optimization programs,programs and how our brand shows up in artificial intelligence overviews and summaries, in generating consumer awareness and sales of its products; (ii) the Company’s ability to prevent confusion among consumers that can result from search engines that allow competitors to use its trademarks to direct consumers to competitors’ websites through confusing or misleading advertisements; (iii) its ability to prevent Internet publication of false or misleading information regarding its products or the Company’s competitors’ products; (iv) reviews of Sleep Number’s products; (v) the nature and tone of consumer sentiment, including those published online or elsewhere; and (vi) the stability and effectiveness of the Company’s website. Competitor spending on digital marketing programs has and may continue to increase, including without limitation from a number of direct-to-consumer, digital and omnichannel retailers, which, in turn, has and may continue to increase the cost of the Company’s digital marketing programs and online search terms.

The vast majority of the Company’s sales occur through Total Retail, including its retail stores and website. Total Retail represents the Company’s largest opportunity for growth in sales and improvement in profitability. The Company’s retail stores carry significant fixed costs. Sleep Number also makes significant capital expenditures as it opens new stores and remodel or reposition existing stores. The Company is highly dependent on its ability to maintain and increase sales per store to cover these fixed expenses, provide a return on its capital investments and improve the CompanyCompany’s operating margins. As a part of the Company’s cost savings plan and businessoperational restructuring actions,efficiencies, select stores have been closed and additional stores are expected to be closed, and, in some cases,and store remodels have been delayed. These closures and older retail store designs have resulted and may continue to result in higher than expected costs, charges, continued rent liability, lost sales, lower brand awareness, weakened customer experience, deteriorated reputation, or otherwise negatively impact the Company’s sales, profitability, cash flows, availability of credit, and financial condition.

Some of the Company’s stores are mall-based.mall-based, Thewhich Companystores dependsdepend on the continued popularity of malls as shopping destinations and the ability of mall anchor tenants and other attractions to generate customer traffic for its mall-based retail stores.traffic. Any decrease in mall traffic, including due to increased online shopping, could adversely affect the Company’s sales, profitability, cash flows, availability of credit, and financial condition.

Significant competition couldhas affected and is likely to continue to adversely affect the Company’s business.

BecauseAs ofa thevertically verticalintegrated integration ofbusiness, the Company’s business model, its products and distribution face significant competition from both manufacturers of different types of mattresses and a variety of retailers. The Company’s SleepIQ technology also faces significant competition from various manufacturers and retailers of sleep tracking and monitoring products.

The mattress industry is characterizedbecoming bymore a high degree of concentrationconcentrated among the largest manufacturers of innerspring mattresses and foam mattresses and one dominant national mattress retailer,manufacturer includingand furtherretailer. consolidationThe throughdominant a merger of one suchnational mattress manufacturer and retailer may further consolidate through an announced potential acquisition of a national mattressfoam retailerand thatadjustable closedbase in early 2025.supplier. In recent years, numerous direct-to-consumer companies and low-cost importers have entered the market, offering “bed-in-a-box” or similar products primarily through online distribution directly to consumers though many now also partner with traditional mattress retailers. A variety of sleep tracking and monitoring products that compete with the Company’s SleepIQ technology have been introduced by various manufacturers and retailers, both within and outside of the traditional mattress industry. A variety of mattress and base manufacturers have also come to market with copycat smart beds, some featuring a version of what they market as “adjustable firmness.” This competition has and may continue to increase the costs of search terms and digital advertising and otherwise adversely affect the Company’s business.

Some of the Company’s competitors have substantially greater financial, marketing and manufacturing resources, greater investment in customer experience, and greater brand name recognition than the Company does and sell products through broader and more established distribution touchpoints, which has and may continue to negatively impact traffic to the Company’s website,distribution call centers or stores.points. Consolidation in the mattress industry has and may continue to amplify this disparity. The Company’s national, exclusive distribution competes with other retailers who generally provide a wider selection of mattress and brand alternatives at varying price points than the Company offers. A number of these retailers also have more points of distribution, greater marketing resources, greater investment in customer experience, and greater brand name recognition than the Company does.

The Company’s products and services are highly differentiated from traditional innerspring mattresses and from viscoelastic and other foam mattresses, which have little or no technology and do not rely on electronics and air control systems. As a result, itsthe Company’s beds may be susceptible to failures that do not exist with traditional or foam mattresses. Failure to achieve and maintain acceptable quality standards could impact consumer acceptance of its products and services or result in negative media and Internet reports or owner dissatisfaction that could negatively impact the Company’s brand image and sales levels. In addition, a decline in product or service quality could result in an increase in return rates and a corresponding decrease in sales, or an increase in product warranty claims in excess of the Company’s warranty reserves.

The Company faces an inherent risk of exposure to product liability claims or regulatory actions if the use of its products is alleged to have resulted in personal injury or property damage. If any of the Company’s products proves to be defective or non-compliant with applicable regulations such as the federal Consumer Product Safety Commission flammability standards, the Company may be required to recall or redesign such products. The Company has at times experienced increased returns and adverse impacts on sales, as well as product liability litigation,claims asand aregulatory resultactions of media reports related to the alleged propensity of it products to develop mold. The Companyand may experience additionalsuch adverse impacts on sales and additional litigation if any similar media reports were to occuractions in the future. The Company maintains insurance against some forms of product liability claims, but such coverage may not be applicable to, or adequate for, liabilities actually incurred. A successful claim brought against the Company outside of, or in excess of, available insurance coverage, or any claim or product recall that results in significant adverse publicity about the Company, may have a material adverse effect on the Company’s sales, profitability, cash flows and financial condition.

The Company’s future growth and profitability depend in part on its ability to continue to improve and expand its product lineline, anticipate and respond to changing consumer trends, and to successfully execute new product introductions.

As described herein, the bedding industry, as well as the market for sleep monitoring products, are both highly competitive, and theThe Company’s ability to compete effectively in the highly competitive sleep and wellness field and to profitably maintain or grow its market share depend in part on its ability to continue to improve and expand the Company’s product line of adjustable firmness air beds, adjustable bases, SleepIQ technology, sleep health monitoring technologies, and related accessory products. The Company incurs significant research and development and other expenditures in the pursuit of improvements and additions to its product line and is re-prioritizing research and development resources in this highly constrained environment. As part of the Company’s turnaround strategy, it is repositioning the brand and reducing its core lineup from twelve mattresses to seven mattresses, including five new mattresses, and doing so on a faster timeline than the Company’s prior product launches. If these efforts do not result in meaningful product improvements or new product introductions,improvements, if the Company is not able to timely anticipate and respond to changing consumer trends and to gain widespread consumer acceptance of product improvements or new product introductions, or there are delays or production limitations with respect to its product improvements or new product introductions, the resulting impacts on our product mix and distribution strategy could adversely affect the Company’s sales, profitability,profitability (including margin), cash flows and financial conditioncondition. The Company’s comprehensive new product launch as part of its turnaround strategy has and may becontinue to result in inventory management issues including increased obsolescence and write-offs, as well as, inventory shortages and longer fulfillment times, which would adversely affected. If the Company offers products or services in other countries,affect the Company’s businesssales, mayprofitability be(including exposedmargin), tocash additional risks, such as additionalflows and variedfinancial legal/ regulatory requirements, complexity and cost to maintain operations in multiple countries, adapting and localizing products for enhanced market acceptance, ability to enforce intellectual property rights, tariffs and non-tariff barriers, which may become more prevalent in retaliation to tariffs recently imposed and proposed by the U.S. government, fluctuation in and barriers to currency exchange, and political or social unrest, and economic instability. In addition, if any significant product improvements or new product introductions are not successful, delayed, or constrained the Company’s reputation and brand image may be adversely affected.condition.

•Ability to achieve the improvements, growth, cost savings, efficiencies and other benefits fromrelated to its businessturnaround restructuring actions andstrategy to avoid adverse effects and the costs to implement its turnaround strategy;

•Ability to improve and expand the product lineline, anticipate and respond to changing consumer trends, and execute new product introductions;

•Fluctuations in commodity costsprices or third-party delivery or logistics costs and other inflationary pressures;

•Ability to effectively complete potential future acquisitions andacquisitions, business combinations or divestitures;

•Ability to comply with existing and changing government regulations and laws, and to commercialize new products and innovations that meet those existing and changing government regulations and laws;

•Risks associated with advancements inin, adoption of, or adoptionthe offailure to effectively adopt, artificial intelligence and related technologies;

•Business Overview

•Net sales for 20242025 decreased 11%16% to $1.7$1.4 billion, compared with $1.9$1.7 billion in 2023.2024. Demand was impacted by the ongoing weaknessindustry demand pressure and lower store traffic. In addition, 2025 included 53 weeks compared with 52 weeks in the mattressprior industryyear, andwith consumersthe continuingextra toweek scrutinizebenefiting their2025 spending.net sales by approximately $25 million. For additional details, see the components of total net sales growth on page 39.

•Average sales per store (sales for stores open at least one year, Total Retail, including online, phone and chatchat, adjusted for the additional 53rd week) for the year ended DecemberJanuary 28,3, 20242026 totaled $2.6$1.9 million, compared with $2.9$2.6 million for the same period last year.

•Gross profit ratemargin of 59.6%59.0% was 1.90.6 percentage points (ppt.) higherlower than the prior-year. The increase was primarily due to year-over-year product cost reductions through value engineering and ongoing supplier negotiations and efficiency gains in home delivery and logistics operations. For additional details, see the gross profit discussion on page 40.

•The $86$100 million year-over-year reduction in the Company’s operating expenses was due to lower sales and marketing expenses decrease of $81$102 millionmillion, general and decreasedadministrative expenses decrease of $19 million, and research and development expenses decrease of $11 million, partly offset by slightan increasesincrease in general and administrative expenses and restructuring costs of $33 million when compared to 2023.2024.

•The Company’s adjusted return on invested capital (Adjusted ROIC) was 7.6%negative 4.0% in 2024,2025, compared with 7.8%7.6% in 2023.2024. For additional details, see Non-GAAP Data Reconciliations section on page 44.

•The Company generatedused $27$3 million in cash from operating activities in 2024,2025, compared with generated cash used in operating activities of $9$27 million in 2023. Purchases of property and equipment for 2024 was $24 million, compared with $57 million in 2023.2024.

•Free cash flow providedused $4$18 million for the year ended DecemberJanuary 28,3, 2024,2026, compared with usingfree $66cash flow provided of $4 million for the same period last year.

(1)Stores are included in the comparable-store calculation in the 13th full month of operations. Stores that have been remodeled or repositioned within the same shopping center remain in the comparable-store base. Fiscal 2025 included 53 weeks, as compared to 52 weeks for the other periods presented. Total Retail comparable sales have been adjusted to remove the estimated impact of the additional week.

Net sales in 20242025 decreased 11%16% to $1.7$1.4 billion, compared with $1.9$1.7 billion in 20232024. dueThe todecrease thewas driven by ongoing weaknessindustry indemand the mattress industrypressure and consumerslower continuingstore to scrutinize their spending.traffic. The net sales change consisted primarily of a 10%17% Total Retail comparable sales decrease. In addition, 2025 included 53 weeks compared with 52 weeks in the prior year, with the extra week benefiting 2025 net sales by approximately $25 million. For additional details, see the components of total net sales growthchange on page 39.

The $205$271 million net sales decrease compared with the same period one year ago was primarily comprised of: (i) a $144$240 million decrease in the Company’s Total Retail comparable net sales; (ii) a $41$34 million decrease from phone, online and chat; (iii) a $21$22 million decrease resulting from net opened/closed stores in the past 12 months; (iv)partially offset by a(iv) $1$25 million increasefrom inthe wholesale/other.additional 53rd week. Total Retail smart bed unit sales decreased 12% compared with the prior year.

Gross profit for 20242025 of $833.0 million decreased by $170 million, or 17%, compared with $1.0 billion decreased by $86 million, or 8%, compared with $1.09 billion in 2023.2024. The 20242025 gross profit rate increaseddecreased to 59.6%59.0% of net sales, compared with 57.7%59.6% for the prior-year period. The 1.90.6 ppt. increasedecrease in the gross profit rate was mainly due to: (i) year-over-yearhigher productmanufacturing costcosts reductionsdriven throughprimarily valueby engineeringincreased obsolescence, tariffs, and ongoingthe supplierimpacts negotiationsof thatlower increasedvolume decreased the rate by 1.11.2 ppt; partially offset by (ii) efficiency gains in home delivery and logistics operations increased the rate by 1.0 ppt; (iii)a favorable pricingproduct actionssales takenmix over the past twelve months that increased the rate by 0.8 ppt; (iv) lower returns costswhich increased the rate by 0.3 ppt; partially offset byppt, (viii) productlogistics mixsavings ofand FlexFitreturn smartrate adjustablefavorability bases,led whichto pressureda 0.2 ppt. increase, and (iv) pricing increases during the current year benefited the rate by 0.8 ppt; and (vi) lower delivered smart bed volume deleveraged the rate by 0.50.1 ppt.

Sales and marketing expenses decreased $102 million to $664 million in 2025, compared with $767 million in 2024, compared with $847 million last year.2024. The sales and marketing expense rate increased to 45.6%47.1% of net sales, compared with 44.9%45.6% for the same period one year ago. The current-year sales and marketing expense rate increase of 0.71.5 ppt. was primarily due to the deleveraging impact of an 11%16% net sales decrease offset by a 10%13% decrease in expenses including a 9% lower media spend.

General and administrative (G&A) expenses increaseddecreased $3$19 million to $131 million in 2025, compared with $150 million in 2024, compared with $147 million in the prior year, and increased to 8.9%9.3% of net sales, compared with 7.8%8.9% of net sales one year ago. The $3$19 million increasedecrease in G&A expenses mainly consisted of the following: (i) ana increase in miscellaneous other expense of $4.8 million, which benefited during the prior year from legal and insurance settlements of $4.1 million; (ii) $4.6$8 million increaseyear-over-year decrease in company-wide, performance-based incentive compensation; due(ii) toa the$5 achievementmillion of fiscal year performance targetsdecrease in thedepreciation currentand yearamortization; partially offset by (iii) a $5.9$4 million reductiondecrease in employee compensation on lower headcount; and (iv) a $1.0$2 million benefit from a decrease in other occupancy and miscellaneous expenses. The G&A expenses rate increased by 1.10.4 ppt. in 2024,2025, compared with 20232024 due to the items discussed above in addition to the deleveraging impact of the 11%16% net sales decrease.

Research and development (R&D) expenses decreased by $11 million to $34 million in 2025, compared with $45 million in 2024, compared with $56 million in 2023 on lower outside services and headcount.2024. While the Company’s consumer innovation pipeline remains robust, it is re-prioritizing R&D resources in this highly constrained environment. Moving forward, the Company’s innovation agenda will focus on maintaining and improving the Company’s core technologies and introducing additional advancements, while driving costs out of the product.

InRestructuring fiscalcosts 2024,increased the Company incurred $18.1$33 million ofto restructuring$51 costsmillion in 2025, compared with $15.7$18 million in 2023. In the fourth quarter of 2023, the Company initiated business restructuring actions.2024. Charges incurred related to this initiative were primarily comprised of contract termination costs, severance and employee-related benefits, professional fees and other, and asset impairment chargescharges. andThese costs are included in the restructuring costs line in the Company’s consolidated statement of operations. The Company expects anapproximately additional $5 million to $7$13 million of additional restructuring costs to be incurred during 2025,2026, primarily due to leaseseverance and employee-related benefits, contract termination costs.costs, and asset impairment charges. See Note 11, Restructuring Costs, of the Notes to Consolidated Financial Statements included in Item 8, Financial Statements and Supplementary Data, of this Annual Report on Form 10-K for further information on restructuring costs.

•Ability to achieve costthe savings,improvements, growth, cost-savings, efficiencies and other benefits fromrelated to its businessturnaround restructuring actions andstrategy to avoid adverse effects and the costs to implement its turnaround strategy;

•Ability to improve and expand the product lineline, anticipate and respond to changing consumer trends, and execute new product introductions;

•Fluctuations in commodity costsprices or third-party delivery or logistics costs and other inflationary pressures;

•Ability to effectively complete potential future acquisitions andacquisitions, business combinations or divestitures;

•Ability to comply with existing and changing government regulations and laws, and to commercialize new products and innovations that meet those existing and changing government regulations and laws;

•Risks associated with advancements in orin, adoption of or the failure to effectively adopt, artificial intelligence and related technologies;

Sleep Number products are awarded the industry's top recognitions, including ranked #1 in customer satisfaction for mattresses purchased in-store and online, and #1 in comfort, by J.D. Power. In addition, the company is the Official Sleep + Wellness Partner of the NFL, marking a relationship that leverages players, team partnerships, and league-wide initiatives to amplify brand awareness and drive consumer engagement. Sleep Number’s life-changing, differentiated smart bedsmattresses combine physical and digital innovations, integrating unparalleled physical comfort with a highly advanced sleep wellness platform. The smart beds offer the Company’s signature firmness adjustability, enabling each sleeper adjustable comfort. Embedded digital sensors learn the sleep needs of each individual; “sense and do” technology uses the sensed data to automatically adjust the smart bedmattress to keep the sleeper comfortable throughout the night. Active temperature balancing technology supports the ideal climate for each sleeper and solves a prevalent sleep challenge. Additionally, the smart beds are an exceptional value, with personalized sleep insights delivered daily, new features regularly added to all smart beds through over-the-air updates and prices to meet most budgets. Sleep Number® smart beds provide unmatched features, benefits and comfort that can lead to improved sleep health and wellness for both sleepers.

The Company’s advantaged business model is supported by its consumer innovation strategy: an individualized, digital sleep wellness platform, a network of millions of highly engaged Smart Sleepers who are loyal brand advocates, a vertically integrated operating model and a team member culture of individuality, with an ambitious vision to become one of the world’s most beloved brands.individuality.

The Company’s 3,2003,000 mission-driven team members are focused on driving value creation, including our exclusive direct-to-consumer selling in 611577 stores and online, which meets customers whenever and wherever they choose to provide an exceptional experience and a lifelong relationship. Additionally, the Company partners with world-leading institutions to bring the power of 36 billion hours of longitudinal sleep data to sleep science and research.

The bedding industry has been in a sector level recession for three years with mattress industry unit volumes returning to an estimated 24 million units in 2024, the lowest level since 2015. Consumer sentiment remains well below historical averages, and high interest rates are putting ongoing pressure on the housing market. Consumers continue to scrutinize spending, with inflation and other factors weighing on their purchasing power. In November 2025, the Company introduced its turnaround strategy,strategy “Sleep Number Shifts,” a focused, company-wide effort to reposition the brand, expand reach to new customer groups, and reignite growth. The aim is to drive value for shareholders, customers and team members with efforts rooted in the consumer through all dimensions of the business.

Financial highlights for the three months ended SeptemberApril 27,4, 20252026 were as follows:

•Net losssales for the three months ended SeptemberApril 27,4, 20252026 wasdecreased $4019% to $319 million, compared with $3$393 million for the same period one year ago. Net loss per diluted shareDemand was $1.73,impacted comparedby withongoing $0.14industry fordemand thepressure sameand periodlower onestore year ago.traffic.

•TheAverage Company’ssales adjustedper return on invested capitalstore (Adjustedsales ROICfor stores open at least one year, Total Retail, including online, phone and chat) was (2.0)% on a trailing twelve-month basis for the period ended SeptemberApril 27,4, 2025,2026 totaled $2.2 million, compared with 4.5%$2.5 million for the comparablesame period one year ago.

•FreeNet cash flow used $17 millionloss for the ninethree months ended SeptemberApril 27,4, 2025,2026 was $50 million, compared with providing $34$9 million for the same period one year ago. Net loss per diluted share was $2.19, compared with $0.38 for the same period one year ago.

•As of SeptemberApril 27,4, 2025,2026, the Company had $580$606 million of borrowings under its credit facility.

(3)Represents Total Retail net sales divided by Total Retail smart bedmattress units.

Comparison of Three Months Ended SeptemberApril 27,4, 20252026 with Three Months Ended SeptemberMarch 28,29, 20242025

Net sales for the three months ended SeptemberApril 27,4, 20252026 of $343$319 million decreased 20%19% from $427$393 million for the same period one year ago driven by lower volume and reduced store count. Macro environment and weather conditions in January and early February in the three months ended April 4, 2026 had a significant negative impact on net sales. The net sales change consisted primarily of a 19%16% Total Retail comparable sales decrease.

The $84$74 million net sales decrease compared with the same period one year ago was comprised of the following: (i) a $69$54 million decrease in Total Retail comparable net sales; (ii) a $10$7 million decrease from online, phone and chat; and (iii) a $5$13 million decrease from net store closings and other. Total Retail smart bedmattress unit sales decreased 23%19% compared with the prior year. Total Retail average revenue per smart bedmattress unit increased by 4% to $5,995,$6,021, compared with $5,771$5,992 in the prior-year period.

Gross profit of $205$185 million for the three months ended SeptemberApril 27,4, 20252026 decreased by $54$56 million, or 21%,23%, compared with $260$241 million for the same period one year ago. The gross profit ratemargin totaled 59.9%57.9% of net sales for the three months ended SeptemberApril 27,4, 2025,2026, compared to 60.8%61.2% in the prior-year comparable period.

The current-year gross profit ratemargin decrease of 0.93.3 ppt was affected by the following items: (i) higheran manufacturingunfavorable costsproduct driven primarily by unit deleveragemix decreased the rate by 1.4 ppt; (ii) unfavorable logisticcost variances and homeother delivery costs due to lowernon-mattress unit volumesales decreasedand warranty related revenue deleveraged the rate by 1.4 ppt; and (iii) higher discounts on close-out models deleveraged the rate by 0.5 ppt; partially offset by (iii) favorable product mix increased the rate by 0.7 ppt;ppt.

Sales and marketing expenses for the three months ended SeptemberApril 27,4, 20252026 were $167$161 million, or 48.8%50.4% of net sales, compared with $205$189 million, or 48.2%48.1% of net sales, for the same period one year ago. The current-year sales and marketing expenses rate increase of 0.62.3 ppt. was primarily due to the deleveraging impact of an 20%19% net sales decline, partially offset by a 19%15% decrease in sales and marketing expenses including a 32% lower media spend.

General and administrative (G&A) expenses totaled $32$34 million, or 9.3%10.5% of net sales, for the three months ended SeptemberApril 27,4, 2025,2026, compared with $33$39 million, or 7.8%9.8% of net sales, in the prior-year period. The changes in G&A expenses consisted mainly of: (i) a $1.5$3 million decrease in stock-basedemployee compensation; (ii) a $2 million year-over-year decrease in company-wide, performance-based incentive compensation; and (iiiii) a $1.3$1 million decrease in depreciation and amortization; offset by (iii) a $1.1 increase in company-wide, performance-based incentive compensation due to an adjustment recorded during the prior year period, and (iv) a $0.7$1 million increase in professional and consulting fees. The G&A expenses rate decreasedincreased by 1.50.7 ppt. in the current-year period, compared with the same period one year ago due to the items discussed above offset by the deleveraging impact of lower net sales.

Research and development (R&D) expenses totaled $7$5 million for the three months ended SeptemberApril 27,4, 2025,2026, compared with $11 million with the same period one year ago. TheWhile changesthe inCompany’s consumer innovation pipeline remains robust, it is re-prioritizing R&D expensesresources werein primarilythis duehighly toconstrained lower headcount and outside services.environment. Moving forward, the Company’s innovation agenda will focus on maintaining and improving the Company’s core technologies and introducing additional advancements, while driving costs out of the product.

Interest expense, net totaled $13 million for the three months ended SeptemberApril 27,4, 2025,2026, compared to $12$11 million for the same period one year ago. The increase was due to an increase in the average debt outstanding compared to the same period one year ago offset slightly by a lower weighted-average interest rate.