On Tuesday, Piper Sandler reiterated a Neutral rating with a $12.00 stock price target on Sleep Number shares (NASDAQ: NASDAQ:SNBR). The firm's stance comes amid calls for changes in the company's leadership and Board dynamics. Piper Sandler acknowledged Sleep Number's reputable brand, innovative products, and positive retail experience, but also pointed out longstanding issues under the current leadership.
The analyst expressed concerns over a decade of underperformance and poor capital allocation, suggesting that these issues have been compounded by a corporate culture lacking accountability. The commentary highlighted recommendations from Stadium Capital to make the CEO search process more independent and to reconstitute the Board, implying that such changes could unlock significant upside for Sleep Number.
Sleep Number has been under scrutiny for its performance and leadership decisions, with the outgoing CEO and long-tenured Board members being at the center of this critique. The firm believes that with a new CEO at the helm, there could be improvements in the company's culture, execution, capital allocation, and communication, which in turn could benefit the company's stock performance.
The analysis by Piper Sandler suggests that Sleep Number has untapped potential that could be realized with a shift away from past practices. The firm emphasized that their comments were made after considerable thought and were based on the company's history of underperforming relative to its potential.
In other recent news, Sleep Number Corporation has been facing significant governance changes proposed by Stadium Capital Management, LLC, its largest shareholder. Stadium Capital is pushing for new directors on the board, the appointment of an Executive Chairman, and an independent CEO search process, expressing dissatisfaction with the current leadership.
The investment firm has also criticized the recent governance changes announced by Sleep Number, including the upcoming retirement of CEO Shelly Ibach.
In the recent earnings call, Sleep Number reported a 10% year-over-year decline in net sales for Q3 2024, amounting to $427 million. Despite this, the company's adjusted EBITDA remained steady at $28 million. The company also revised its full-year adjusted EBITDA guidance downward, in line with its focus on financial resilience and cash flow generation.
As part of its recent developments, Sleep Number has introduced the ClimateCool smart bed to its product lineup and is aiming for a full-year expense reduction of about $75 million. The company expects a full-year net sales decline of approximately 10% and projected capital expenditures of $25 million. Notably, Sleep Number's adjusted EBITDA for Q4 is expected to exceed $25 million, indicating a potential recovery.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on Sleep Number's financial situation, providing context to Piper Sandler's analysis. The company's market capitalization stands at $332.21 million, reflecting its current valuation in the market.
InvestingPro Tips highlight some key aspects of Sleep Number's financial health. The company operates with a significant debt burden, which aligns with Piper Sandler's concerns about capital allocation. However, Sleep Number boasts impressive gross profit margins, with the latest data showing a gross profit margin of 58.8% for the last twelve months as of Q3 2024. This strength in margins supports the analyst's recognition of Sleep Number's reputable brand and innovative products.
Interestingly, the stock has seen a significant return of 26.17% over the last week, potentially reflecting market reactions to discussions about leadership changes. This volatility is consistent with another InvestingPro Tip noting that the stock generally trades with high price volatility.
It's worth noting that InvestingPro offers 11 additional tips for Sleep Number, providing a more comprehensive analysis for investors interested in delving deeper into the company's prospects.
The data and tips from InvestingPro reinforce Piper Sandler's balanced view, highlighting both the challenges and potential upside for Sleep Number as it navigates potential leadership changes and seeks to improve its performance.
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