ITEM 1A. RISK FACTORS
An investment in Sleep Number’s common stock involves a high degree of risk. Stakeholders should carefully consider
the specific risks set forth below and other matters described in this Annual Report on Form 10-K before making an
investment decision. The risks and uncertainties described below are not the only ones facing the Company. Additional
risks and uncertainties, including risks and uncertainties that impact the business environment generally, those not
presently known to the Company, or those that it currently sees as immaterial, may also harm its business. If any of these
risks occur, the Company’s business, results of operations, cash flows and financial condition could be materially and
adversely affected.
Risks Related to our Business and Industry
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 custo mer traffic, political 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
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been adversely affected by negative consumer sentiment, inclement weather, and we have experienced a year-over-year
decrease in net sales.
Although previously high inflation subsided somewhat in 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 funds rates have fluctuated over the past three years and remain relatively high compared to the 10-year
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 U.S. The federal government has shutdown in 2026 and risks of
additional government shutdowns or sovereign defaults remain if the spending bills necessary to fund the government
through 2026 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.
Additionally, instability or disruptions to credit markets or the financial services industry, including banks that fail or
otherwise become distressed, could adversely affect the Company’s, sales, operations, profitability, cash flows, availability
of credit, and financial condition.
Interest rates remain elevated, and may further increase, and impact the cost of servicing the Company’s
indebtedness and have an adverse effect on its results of operations, cash flows and stock price.
The Company’s Credit Agreement currently bears interest at a variable 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 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 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
conflicts in the Middle 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. Adverse trends in
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 agreement
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with Synchrony Bank, or cause the Company to breach covenants or other terms contained in its agreement with
Synchrony Bank, which could materially adversely affect the Company’s business, results of operations, cash flows and
financial condition. Synchrony Bank has discretion to control the content of financing offers to the Company’s customers
and to set minimum credit standards under which credit is extended to customers.
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, and other
benefits related to its turnaround strategy and such actions could have adverse effects on the Company.
The Company’s turnaround strategy is centered on product, marketing and distribution, as well as ongoing cost savings
and operating efficiencies, to reignite growth and increase financial resilience. The Company’s turnaround strategy and its
execution thereof may not be successful, which could adversely impact the Company’s business, results, profitability, cash
flows, availability of credit, and financial condition. Current or future demand may not support the costs of the Company’s
turnaround strategy, infrastructure at an acceptable margin, or vertically integrated business model. A failure or delay in
implementing or realizing the anticipated improvements, growth, cost savings, and other benefits of the turnaround
strategy could materially and adversely impact the Company’s business, results, profitability, cash flows, availability of
credit, and financial condition. Investments, costs and charges necessary or incurred in connection with implementing the
turnaround strategy 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.
Risks Related to Indebtedness and Liquidity
There is substantial doubt about the Company’s ability to continue as a going concern, and this may adversely
affect our stock price, our ability to raise capital or enter into strategic transactions, and our relationships with
key stakeholders.
In accordance with ASC Topic 205-40, Going Concern, the Company’s management evaluates whether there are certain
conditions and events, considered in the aggregate, that raise substantial doubt about the Company’s ability to continue
as a going concern. This evaluation includes considerations related to the Company’s forecasted liquidity and cash
consumption requirements for one year from the date of issuance of our consolidated financial statements included in this
Annual Report on Form 10-K.
As discussed in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations –
Liquidity and Capital Resources , the Company has, throughout 2025, announced certain fixed cost reductions, pursued
alternative financing, and continues to pursue its t urnaround strategy , however the timing, costs and realization of these
cannot be guaranteed to ensure sufficient cash flow is generated to provide liquidity to meet the Company’s obligations.
While these actions demonstrate a series of material steps taken to improve the Company’s financial condition, the
Company has a history of net losses over the past three years and expects to continue to incur additional losses in the
near future. In addition, the Company anticipates that it will not remain in compliance with the financial covenants of its
Credit Agreement for the next twelve months. Inability to remain in compliance with such covenants will result in an event
of default under the Credit Agreement, allowing the lenders thereunder to declare all indebtedness thereunder due and
payable and terminate remaining commitments. As a result of these considerations, the Company’s liquidity may be
insufficient to meet its obligations for at least one year from the date of issuance of these financial statements, which
raises substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans to address the substantial doubt about the Company’s ability to continue as a going concern, as
described above, include the following actions:
• execute the Company’s turnaround strategy centered on product, marketing and distribution with ongoing cost
savings and operating efficiencies to reignite growth and increase financial resilience;
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• engage in negotiations with the lenders in its Credit Agreement with the goal of amending or waiving financial
covenants and certain other provisions of its credit facility; and
• engaged financial advisors to assist in negotiating with the lenders and identifying and securing additional capital
options, alternative financing arrangements, strategic alternatives, or other comprehensive solutions to address
the Company’s capital structure and leverage needs to return to growth and create long-term value.
There can be no assurance of the Company’s ability to realize these plans , and the Company’s ability to realize these
plans depends, in part, on factors beyond the Company’s control . As a result, the Company has concluded that
management’s plans do not alleviate substantial doubt about the Company’s ability to continue as a going concern for at
least one year from the date of issuance of these financial statements.
There may be adverse impacts to the Company’s stock price, the Company’s ability to obtain supplies and services on
credit and the Company’s ability to raise capital, obtain waivers of the covenants under, or refinance the indebtedness
under, its Credit Agreement or enter into strategic transactions, or the Company’s relationship with its key stakeholders
and other counterparties as a result of the uncertainty regarding its ability to continue as a going concern or successfully
execute its plan to address the substantial doubt related thereto. If the Company is unable to successfully execute its
mitigation plan or obtain sufficient financial resources, its business, results of operations, financial condition, and cash
flows could be materially and adversely affected and it could be forced to terminate, significantly curtail or cease our
operations, pursue strategic alternatives or commence a case under the U.S. Bankruptcy Code.
The Company will require additional capital and its access to such capital or alternative financing options may
depend on factors beyond the Company’s control or may require the Company to accept unfavorable terms.
Absent a material improvement in the Company’s performance, the Company will need to obtain additional capital to
enable the Company to fund its operations, execute its business and turnaround strategies, service and repay its
indebtedness or to fund other liquidity needs. If the Company is unable to obtain additional capital to fund its operations
and strategies or satisfy its debt obligations, it will have to undertake alternative financing options, such as refinancing or
restructuring its indebtedness, selling assets, reducing or delaying capital investments, raising additional capital or
pursuing strategic alternatives, including commencement of a case under the U.S. Bankruptcy Code. The Company’s
ability to execute on these actions will depend on numerous factors including the Company’s financial condition at such
time and the condition of the capital markets and other factors beyond the Company’s control. Any new capital or
refinancing of the Company’s indebtedness could be at higher interest rates and could require the Company to comply
with more onerous covenants or other unfavorable terms, which could further restrict its business operations. The
Company cannot assure that any new capital raise, refinancing or debt restructuring would be possible, or if possible,
would be completed on favorable or acceptable terms. If sufficient cash from operations, refinancing, or external funding is
not available, the Company may be unable to adequately fund its business plan and operations and the Company’s
business, results of operations, cash flows and financial condition would be materially and adversely affected.
The Company’s credit facility contains financial covenants and other restrictions that may limit the Company’s
financial and operational flexibility or otherwise adversely affect our results of operations.
The terms of the Company’s credit facility, as set out in the Credit Agreement, includes a number of covenants, restrictions
and payment requirements that limit the Company’s ability to, among other things, incur additional indebtedness, grant
liens, sell or otherwise dispose of our assets, pay dividends, make redemptions and repurchases of stock, make
investments, loans and acquisitions or change the nature of our business. These may restrict the Company’s current and
future operations and could adversely affect its ability to finance its future operations or capital needs. In addition,
complying with the covenants and restrictions may make it more difficult for the Company to successfully execute its
business and turnaround strategies. In addition, the Credit Agreement includes financial covenants that, among other
things, require the Company to maintain a minimum liquidity amount and to satisfy certain leverage ratios, interest
coverage ratios and EBITDA targets. Absent a material improvement in the Company’s financial performance, it will be
unable to satisfy these ratios during 2026. A failure to comply with the covenants, restrictions or payment requirements set
out in the Credit Agreement could result in an event of default, which, if not cured or waived , would give the lenders the
right to terminate their commitments to provide additional loans, declare all borrowings outstanding, together with accrued
and unpaid interest and fees, to be immediately due and payable, increase the interest rates applicable to such debt, and
exercise rights and remedies, including by way of initiating foreclosure proceedings against any assets constituting
collateral for the obligations under the credit facilities. If our debt were to be accelerated, the Company may not have
sufficient liquidity or the ability to refinance the debt or sell sufficient assets to repay the debt, which could immediately
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adversely affect the Company’s business, results of operations, financial condition, and cash flows. Even if the Company
were able to obtain new financing, such financing may not be on favorable or acceptable terms.
Risks Related to the Company’s Marketing Strategy and Execution of Total Retail Distribution Strategy
The Company’s future growth and profitability depend upon the effectiveness and efficiency of its marketing
programs and promotions.
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, 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 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.
The Company relies in part upon third parties, such as social media influencers and athletes, to market its brand, and is
unable to fully control their efforts. Influencers and athletes with whom the Company maintains a relationship could
engage in behavior or use their platforms to communicate directly with Sleep Number’s customers in a manner that
reflects poorly on its brand, and these communications may be attributed to the Company or otherwise adversely affect
the Company. It is not possible to prevent such behavior, and the precautions the Company takes to prevent or detect this
activity may not be effective.
Consumers expect seamless 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 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.
If the Company’s marketing messages are ineffective or its advertising expenditures and other marketing programs,
including digital programs, are inefficient in creating awareness and consideration of its products and brand name, and in
driving consumer traffic to the Company’s website, call centers, or stores, the Company’s sales, profitability, cash flows,
availability of credit, and financial condition may be adversely impacted. In addition, if the Company is not effective in
preventing the publication of confusing, false or misleading information regarding its brand or its products, or if there is
publication online or elsewhere of significant negative consumer sentiment regarding the Company, brand or products,
sales, profitability, cash flows, availability of credit, and financial condition may be adversely impacted.
The Company’s future growth and profitability depend on its ability to execute its Total Retail distribution
strategy.
The vast majority of the Company’s sales occur through Total Retail, including its retail stores and website. The
Company’s retail stores carry significant fixed costs, and it has made significant capital expenditures in that store footprint.
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 Company’s operating margins. As a part of the Company’s
cost savings and operational efficiencies, select stores have been closed and additional stores are expected to be closed,
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.
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Some of the Company’s stores are mall-based, which stores depend on the continued popularity of malls as shopping
destinations and the ability of mall anchor tenants and other attractions to generate customer 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.
The Company’s Total Retail distribution strategy results in relatively few points of distribution, including 600 retail stores in
50 U.S. states as of the end of 2025 , Online, Phone and Chat. Several of the mattress manufacturers and retailers with
which the Company competes have significantly more brick-and-mortar points of distribution than it does, which makes
the Company highly dependent on its ability to drive consumers to its points of distribution to maintain and gain market
share.
When the Company is better positioned to extend existing leases or open new stores in the future, it may encounter
higher than anticipated rents, be unable to find or obtain suitable new locations or renew existing locations, and may need
to navigate a deteriorated reputation among potential landlords.
Risks Related to the Company’s Ability to Compete Effectively
Significant competition has affected and is likely to continue to adversely affect the Company’s business.
As a vertically integrated business, the Company’s products and distribution face significant competition from both
manufacturers of different types of mattresses and a variety of retailers.
The mattress industry is becoming more concentrated among the largest manufacturers of innerspring mattresses and
foam mattresses and one dominant national mattress manufacturer and retailer. The dominant national mattress
manufacturer and retailer may further consolidate through an announced potential acquisition of a national foam and
adjustable base 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 distribution 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.
These manufacturing and retailing competitors, or a combination of these competitors, or new entrants into the market,
may compete aggressively and maintain and gain market share with existing or new products, and may pursue or expand
their presence in the adjustable firmness air bed segment of the market as well as in the market for sleep tracking and
monitoring products. The Company has limited ability to anticipate the timing and scale of new product introductions,
advertising campaigns or new pricing strategies by its competitors, which could inhibit its ability to maintain or increase
market share, or to maintain the Company’s profit margins.
If the Company is unable to effectively compete with other manufacturers and retailers of mattress and sleep tracking and
monitoring products, the Company’s sales, profitability, cash flows and financial condition may be adversely impacted.
Failure to achieve and maintain high levels of product and service quality could negatively impact the Company’s
sales, profitability, cash flows and financial condition.
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, the Company’s beds may be susceptible to failures that do not exist with traditional or foam
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mattresses. Also, the Company has launched and is launching new products on a faster timeline than the Company’s prior
product launches, which truncated timeline could result in unforeseen issues like potential technical or quality issues.
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. An unexpected increase in return rates or warranty claims could harm the Company’s sales,
profitability, cash flows and financial condition.
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
product liability claims and regulatory actions and may experience such actions 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 line, anticipate and respond to changing consumer trends, and to successfully execute new product
introductions.
The 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, 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, 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 (including margin), cash flows and financial condition. The Company’s comprehensive new
product launch as part of its turnaround strategy has and may continue to result in inventory management issues including
increased obsolescence and write-offs, as well as, inventory shortages and longer fulfillment times, which would adversely
affect the Company’s sales, profitability (including margin), cash flows and financial condition.
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.
The Company’s intellectual property rights may not prevent others from using its technology or trademarks in
connection with the sale of competitive products. The Company is from time to time subject to claims that its
products, processes or trademarks infringe intellectual property rights of others.
The Company owns various U.S. and foreign patents and patent applications related to certain elements of the design and
function of the Company’s beds, biosignal monitoring and related products. The Company owns numerous registered and
unregistered trademarks and trademark applications, including in particular the Sleep Number, Climate360 and SleepIQ
trademarks, as well as other intellectual property rights, including trade secrets, trade dress and copyrights, which it
believes has significant value and is important to the development, function, and marketing of its products. These
intellectual property rights may not provide adequate protection against infringement or piracy, may not prevent
competitors from developing and marketing products that are similar to or competitive with Sleep Number beds, biosignal
monitoring or other products, and may be costly and time-consuming to protect and enforce. The Company’s patents are
also subject to varying expiration dates. In addition, the laws of some foreign countries may not protect its intellectual
property rights and confidential information to the same extent as the laws of the U.S. If the Company is unable to protect
and enforce its intellectual property, the Company may be unable to prevent other companies from using the Company’s
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technology or trademarks in connection with competitive products, which could adversely affect the Company’s sales,
profitability, cash flows and financial condition.
The Company is from time to time subject to claims that its products, processes, advertising, or trademarks infringe the
intellectual property rights of others. The defense of these claims, even if ultimately successful, may result in costly
litigation, and if the Company is not successful in its defense, it could be subject to injunctions and liability for damages or
royalty obligations, and the Company’s sales, profitability, cash flows and financial condition could be adversely affected.
Risks Related to the Company’s Reliance on Third Parties and Reliance on a Global Supply Chain
The Company relies upon several key suppliers and third parties that are, in some instances, the only source of
supply or services currently used by the Company for particular materials, components, products, systems,
services, or consumer financing. A disruption in the supply or substantial increase in cost of any of these
products or services has, and could continue to, harm the Company’s sales, profitability, cash flows, availability
of credit, and financial condition.
Sleep Number currently obtains all the materials and components used to produce its smart beds from outside sources
including some that are located outside the U.S. In several cases, including its air chambers, integrated non-adjustable
foundations, adjustable foundations, various components for its Firmness Control and Smart Control systems, certain
electronic componentry, certain foam formulations, as well as its fabrics and zippers, the Company obtains these
materials, components and products from suppliers who serve as the only source of supply, or who supply the vast
majority of the Company’s needs of the particular material, component or product. While the Company believes that some
of these materials, components and products, or suitable replacements, could be obtained from other sources in the event
of a disruption or loss of supply, it has not been able to, and in the future may not be able to, find alternative sources of
supply or alternative sources of supply on comparable terms, quantities and timelines. If the Company’s relationship with
these suppliers or the suppliers’ services are disrupted, terminated or otherwise negatively impacted, including by
consolidations in the industry or by government actions, such as the imposition of tariffs or other trade restrictions , the
Company could have difficulty in replacing these sources since there are relatively few other suppliers presently capable
of manufacturing these components and products or that offer similar services. Constraints on the ability of certain of its
suppliers to timely meet commitments, including in an environment of increased demand for consumer products and
services and labor challenges, has, and may continue to, adversely impact the Company’s ability to meet its products and
services demand, result in additional costs, or otherwise adversely impact the Company’s business, operations and
financial results.
The Company also relies on limited critical suppliers for its information technology systems and services and e-commerce
as well as Synchrony Financial for the majority of its consumer financing services. If the Company’s relationship with
these suppliers or the suppliers’ services are disrupted, terminated or otherwise negatively impacted, the Company could
have difficulty in replacing these systems, services and e-commerce in a timely and cost-effective manner, adversely
impacting the Company’s sales, profitability, cash flows, availability of credit, and financial condition.
In addition, third parties on which the Company relies, for various reasons have demanded or required or may demand or
require changes to their payment terms and frequency, credit limits and exposures, or other contractual terms with the
Company. As a part of its turnaround strategy and cost savings and operational efficiencies, the Company has and will
continue to carefully manage its cash, including extending payment terms and delaying payments. If the Company is
unable to accommodate or otherwise resolve third-party demands, changes to contractual terms or perceived
deterioration of its credit worthiness, the Company’s supply of goods, products and services from these third parties could
be disrupted, terminated or otherwise negatively impacted and the Company may not be able to or could have difficulty in
replacing the supply of such goods, products and services in a timely and cost-effective manner, adversely impacting the
Company’s sales, profitability, cash flows, availability of credit, and financial condition.
Fluctuations in commodity prices or availability, or third-party delivery or logistics costs, have resulted, and
could continue to result, in an increase in component costs and/or delivery costs.
The Company’s business is subject to significant increases or volatility in the prices or availability of certain commodities,
including but not limited to electronic componentry, fuel, oil, natural gas, rubber, cotton, plastic resin, corrugate, steel and
chemical ingredients used to produce foam, as well as third-party logistic costs. Tariffs on these commodities, increases in
prices of these commodities or logistics costs, supply shortages or other inflationary pressures have resulted, and may
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SLEEP NUMBER CORPORATION
continue to result, in significant cost increases for the Company’s raw materials and product components, as well as
increases in the cost of delivering its products to customers. The Company has been, and may continue to be, unable to
offset any such increased costs through value engineering and similar initiatives, or through price increases or availability,
and, as a result, the Company’s profitability, cash flows and financial condition have been, and may continue to be
adversely impacted. Price increases to offset the increased costs, have, and may continue to, adversely impact the
Company’s sales volumes.
The Company relies on third parties to deliver some of its products to its facilities and customers on a timely and cost-
effective basis. These third-party providers could be vulnerable to labor challenges, liquidity concerns, the impacts of
global health conditions, or other factors that may result in disruption, delays in deliveries or increased costs of deliveries.
Any significant delay in deliveries to its customers could lead to increased cancellations or returns and cause the
Company to lose sales or incur increased costs. Delays in deliveries and increases in freight charges or other costs of
deliveries has and could continue to harm the Company’s sales, profitability, cash flows and financial condition.
The Company’s business is subject to risks inherent in global sourcing activities.
Sleep Number’s air chambers, certain electronic components, and some of its other components are manufactured
outside the U.S., and therefore are subject to risks associated with foreign sourcing of materials, including but not limited
• Existing or potential duties, tariffs or quotas on certain types of goods that may be imported into the U.S., including
recent and proposed unilateral tariffs, tariffs on certain goods from China and Mexico, tariffs on goods subject to the
United States-Mexico-Canada Agreement (USMCA), and recent and proposed tariffs on materials such as steel;
• Foreign regulations that may impact availability or cost of supply;
• Political instability, unrest, geopolitical turmoil, acts of terrorism, global conflicts, including geopolitically challenging
situations in regions such as Russia, the Middle East and China, outbreaks of pandemics or contagious diseases,
shipping delays, foreign or domestic strikes, customs inspections, changes in immigration rates, laws, and
enforcement, or other factors resulting in disruption in supply, transportation, trade, labor, or the availability of global
contractors utilized in the Company’s business operations;
• Foreign currency fluctuations;
• Economic uncertainties, including inflation and policies that may have an inflationary effect, such as tariffs; and
• Adverse weather conditions, climate change or other natural or man-made disasters.
The Company cannot predict whether the countries in which some of its components are manufactured, or may be
manufactured in the future, or where the Company contracts for labor will be subject to new or additional trade restrictions
imposed by the U.S. or other foreign governments, including the likelihood, type, or effect of any such restrictions. The
U.S. government has implemented certain trade policies, including imposing and proposing tariffs on most of our foreign
suppliers. A significant portion of the Company’s imports are subject to the USMCA, so any changes increasing tariffs
under the USMCA would have negative consequences. Similarly, some of the Company’s third-party suppliers have
disclosed that they may source, directly or indirectly, a portion of their supply chain requirements of 3TGs or fabrics from
China, which materials have generally been under scrutiny for potential ties to Uyghur forced labor camps. These factors
have, and could continue to, increase the costs of doing business with foreign suppliers, lead to inadequate inventory
levels or delays in shipping products to customers, or the need to find new sources for certain materials on short notice,
which could harm the Company’s sales, customer satisfaction, profitability, cash flows and financial condition.
The locations where Sleep Number and its suppliers and global contractors operate have experienced, and may
experience in the future, adverse regional events such as extreme weather conditions, climate change and other natural
and man-made disasters, which could have a significant adverse effect on the Company, its ability to source necessary
materials, components and products, and its ability to develop, launch, sell and deliver its products to customers. Climate
change may increase the frequency and severity of adverse weather conditions and other natural disasters. All regions of
the U.S. and warmer climates globally may be particularly impacted by extreme weather, such as hurricanes, natural
disasters, droughts, wildfires and rising sea levels. These events have disrupted, and may continue to, disrupt the
Company’s operations and ability to source components and products.
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SLEEP NUMBER CORPORATION
The Company has been, and could continue to be, vulnerable to shortages in supply of components necessary to
manufacture its products due to its manufacturing processes which operate with minimal levels of inventory or
due to global shortages of supply of electronic componentry or other materials, unexpected increased consumer
demand or inadequate demand forecasting, which, in turn, has and may continue to harm its ability to satisfy
consumer demand and adversely impact the Company’s sales and profitability.
A significant percentage of the Company’s products are assembled after it receives orders from customers utilizing
manufacturing processes with minimal levels of raw materials, work-in-process and finished goods inventories. Lead times
for ordered components may vary significantly, and some components used to manufacture its products are provided on a
sole source basis. The Company’s ongoing efforts to mitigate supply chain weaknesses may not be successful or may
have unfavorable effects such as increased storage costs or excess supply. Shortage of materials caused by disruptions
and unavailability of supply, an increase in the demand for some or all of its products or inability to adequately forecast
supply needs, has harmed and could continue to harm the Company’s ability to satisfy customer demand, delay deliveries
of its products to customers, lead to customer cancellations and returns, delay the development and launch of new
products, and increase its costs. These risks have been and will continue to be exacerbated by developments in the
semiconductor and technology supply chain, including increased global demand for more sophisticated, high‑performance
computing and artificial intelligence‑related chips, which has and will continue to strain and divert manufacturing capacity
and supplier resources from the production of lower‑capacity or legacy chips that remain critical to many of the Company’s
products. In addition, the Company may carry some excess inventory of certain components for various products from
time to time especially when the Company has faced component shortages or when the Company introduces new
products that use different components, and if the Company is unable to use that excess inventory fully or timely, the
Company m ay run the risk of obsolescence, which could result in write-downs of inventory and an adverse effect on gross
margins. As the Company executes its turnaround strategy, and has launched and is launching new products, for a
product transition that repositions the brand and reduces its core lineup from twelve mattresses to seven mattresses,
including five new mattresses, on a faster timeline than any prior product launches, it has incurred and may continue to
incur inventory obsolescence related to this significant product transition. Any such impacts or delays have and may
continue to adversely affect the Company’s sales, customer satisfaction, profitability, cash flows and financial condition.
Risks Related to the Company’s Vertically Integrated Business Model
Disruption to the Company’s facilities and operations could increase its costs of doing business or harm the
Company’s ability to satisfy customer demand, develop, test and launch new products, and service its products
and customers.
As a vertically integrated business, the Company has various facilities and operations including manufacturing, assembly,
distribution, logistics, field services, home delivery, headquarter, product development, retail and customer service. Sleep
Number operates a dedicated cut and sew facility for cover production in Irmo, SC and an advanced engineering and
prototyping facility in Salt Lake City, UT. Each of these facilities are combined with an assembly distribution center (ADC).
There are three additional ADCs (Minneapolis, MN; Cincinnati, OH; and Dallas, TX). The five ADCs leverage component
inventory to pre-assemble 100% of its mattresses to order rather than stocking finished goods. The Company has field
service and home delivery operations and contractors that deliver and service its products across the country as well as a
bedding fulfillment center that ships bedding products to consumers via third-party services. The product development and
testing operations primarily occur in the Company’s corporate headquarters in Minneapolis, Minnesota and Sleep Number
Labs facility in San Jose, California. Sleep Number’s customer service operations are largely remote positions with team
members located across the country and international third-party contractors, and the Company has retail stores across
the country. Disruption to any of the Company’s operations, facilities, workforce, third-party contractors, or the Company’s
nationwide logistics network, could harm or delay its ability to satisfy customer demand, develop, test and launch new
products, service its products and customers, and increase its costs. While the Company’s metrics related to customer’s
experience indicate that the customer experience has improved over prior year, the Company’s customer service
operations remain reliant on third-party contractors. Such impacts and delays could adversely affect the Company’s sales,
customer satisfaction, profitability, cash flows, availability of credit, and financial condition.
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Any future acquisitions, business combinations or divestitures t he Company completes involve a number of
risks, the occurrence of which could adversely affect the Company’s business, reputation, operating results and
financial condition.
The Company’s ability to complete future acquisitions, business combinations or divestitures will depend, in part, on the
availability of suitable candidates at acceptable prices, terms, and conditions; the Company’s ability to compete effectively
for transaction candidates; and the availability of capital and personnel to complete such transactions and run the resulting
operations effectively. The benefits of the transaction may take more time than expected to develop, integrate into or
divest from the Company’s operations, and the Company cannot guarantee that future transactions will, in fact, produce
any benefits. Such transactions may involve a number of risks, the occurrence of which could adversely affect the
Company’s business, reputation, operating results and financial condition, including: (i) diversion of management’s
attention; (ii) disruption to the Company’s existing operations and plans or the inability to effectively manage the
Company’s expanded operations; (iii) reallocation of amounts of capital from other operating initiatives and/or an increase
in the Company’s leverage and debt service requirements to fund any such transactions, which could in turn restrict the
Company’s ability to access additional capital when needed or pursue other important elements of its business strategy;
(iv) infringement by acquired businesses of intellectual property rights of others; (v) violation of confidentiality, intellectual
property and non-compete obligations or agreements by employees of an acquired business or lack of or inadequate
formal intellectual property protection mechanisms in place at an acquired business; (vi) inaccurate assessment of
additional post-transaction investments, undisclosed, contingent, tax or other liabilities or problems, unanticipated costs
associated with an acquisition, and an inability to recover or manage such liabilities and costs; (vii) incorrect estimates
made in the accounting for transactions and incurrence of non-recurring charges, including restructuring charges in
connection with any future effort to reduce costs and streamline operations; and (viii) additional risks that may arise as a
result of the transaction with international entities, including managing international laws and regulations applicable to the
business, operations and personnel.
Risks Related to Workforce
The Company’s operating performance, profitability, and future growth depend upon its ability to attract, retain
and motivate qualified and effective personnel.
As a vertically integrated manufacturer and retailer, the Company’s future growth and profitability will depend upon its
ability to attract, retain and motivate qualified personnel in a wide variety of areas to execute its growth strategy, including
qualified management and executive personnel, retail sales professionals and managers, and manufacturing, home
delivery and technical personnel. In addition, the Company’s success will depend upon the effectiveness of its
organizational leadership and managers as well as the capabilities of its team members; some of these risks may be
heightened while the Company executes its turnaround strategy and ongoing cost savings and operational efficiencies.
Labor challenges or other economic factors may prevent the Company, and its suppliers and vendors, from successfully
hiring and retaining qualified personnel especially for critical business functions. The failure to attract, retain and motivate
qualified personnel or the lack of effective organizational leadership, management or appropriate team capabilities or
resources may hinder the Company’s ability to execute its turnaround strategy, growth initiatives, business operations,
and may adversely impact the Company’s sales, profitability, cash flows and financial condition.
Certain portions of the Company’s workforce, in particular its home delivery, logistics, manufacturing, warehouse, and
retail, may seek to unionize or engage in unionization activities. Such activities may cause distraction from the Company’s
core business, reduce the Company’s ability to manufacture, sell, or deliver its products, increase the Company’s costs,
reduce efficiency, and adversely impact the Company’s sales, profitability, cash flows and financial condition.
Risks Related to Legal Compliance and Legal Proceedings
The Company’s business is subject to a wide variety of government laws and regulations. These laws and
regulations, as well as any new or changed laws or regulations, could disrupt the Company’s operations or
increase its compliance costs. Failure to comply with such laws and regulations could have further adverse
impacts on the Company’s operations.
The Company is subject to a variety of laws and regulations. Laws and regulations at the international, federal, state and
local levels frequently change and the Company cannot always reasonably predict the impact from, or the ultimate cost of
compliance with, future regulatory or administrative changes. Changes in law, the imposition of new or additional
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SLEEP NUMBER CORPORATION
regulations or the enactment of any new or more stringent legislation that impacts employment and labor, trade,
advertising claims, marketing practices, pricing, consumer credit offerings, “do not call/mail” requirements, text messaging
requirements, product testing and safety, health and wellness product requirements, use of artificial intelligence,
transportation and logistics, health care, tax, accounting, privacy and data security, health and safety or environmental
issues, warranty disclosures, delivery timing requirements, accessibility requirements, among others, could require the
Company to change the way it does business and could have a material adverse impact on the Company’s sales,
profitability, cash flows and financial condition. New or different laws or regulations could increase direct compliance costs
for the Company or may cause its vendors to raise the prices they charge the Company because of increased compliance
costs. Further, the adoption of a multi-layered regulatory approach to any one of the state or federal laws or regulations to
which the Company is currently subject, particularly where the layers are in conflict, could require alteration of its
manufacturing processes or operational parameters which may adversely impact the Company’s business.
Legislative or regulatory changes that impact the Company’s relationship with its workforce, such as minimum wage
requirements or health insurance or other employee benefits mandates, could increase the Company’s expenses and
adversely affect its operations. While it is Sleep Number’s policy and practice to comply with legal and regulatory
requirements and its procedures and internal controls are designed to promote such compliance, the Company cannot
assure that all of its operations will comply with all such legal and regulatory requirements. Further, laws and regulations
change over time and the Company may be required to incur significant expenses, modify its operations, or delay new
product introductions in order to ensure compliance. This could harm the Company’s profitability, cash flows and financial
condition. If Sleep Number is found to be in violation of any laws or regulations, it could become subject to fines, penalties,
damages or other sanctions as well as potential adverse publicity or litigation exposure. This could adversely impact the
Company’s business, reputation, sales, profitability, cash flows and financial condition.
Risks Related to the Company’s Information Systems and Cybersecurity
Information systems that contain confidential Company data, consumers’ personal information, and team
members’ personal information may be subject to attacks by hackers or other cyber threats that could
compromise the confidentiality, integrity, and availability of the data, which could substantially disrupt the
Company’s business and could result in a breach of the data.
The Company’s information systems and information systems of third-party vendors it uses to assist in the storage and
management of information, including on-premise and cloud-based systems, contain personal, financial, and SleepIQ ®
data and information related to its customers and team members collected and maintained in the ordinary course of its
business. These information systems also contain confidential Company data regarding its business and innovations. The
Company’s use and dependence on its information systems requires data storage in cloud-based systems. While the
Company maintains, and requires the Company’s third-party vendors to maintain, security measures to protect this
information, a breach of these security measures, such as through third-party action and attacks, team member error,
access to its data and systems, malfeasance or otherwise, could compromise the security of the Company’s data and
customers’ and team members’ personal information. Like many other businesses, Sleep Number has and will likely
continue to experience cyber-based attacks and incidents from time to time. As the techniques used to breach security
measures change frequently and may not be recognized until launched against a target, the Company may be unable to
anticipate these techniques or to implement adequate preventive measures. In addition, the Company or its third-party
vendors may not be successful in timely identification or containment of cyber-based attacks and incidents. Any failure of
the Company’s systems and processes or its third-party vendors’ systems and processes to adequately protect its data or
customer or team member personal information from exposure, theft or loss could adversely impact the Company’s
business, reputation, sales, profitability, cash flows and financial condition.
Advancements in and adoption of, or the failure to effectively adopt, artificial intelligence and related
technologies may increase cost and risks associated with competition, regulatory requirements, and
cybersecurity threats.
Rapidly evolving technological and regulatory developments related to artificial intelligence and related technologies may
increase competitive, legal, and security risks facing the Company. To effectively compete, the Company needs identify
and evolve with emerging technological and broader industry trends, including technologies such as artificial intelligence
and related technologies as well as to develop appropriate protections, safeguards, and policies for handling the
processing of data. In addition, the regulatory and legal landscape regarding artificial intelligence is rapidly evolving and
the Company may be challenged to timely comply in a cost-effective manner. Any actual or perceived failure to effectively
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adopt artificial intelligence or related technologies, comply with evolving regulatory frameworks regarding, or if adoption
introduces bias or other issues, the development and use of artificial intelligence could adversely affect the Company’s
business operations, reputation, customer satisfaction, profitability, cash flows and financial condition. In addition, new
artificial intelligence technologies may increase the risk of internal or external data loss, misappropriation of intellectual
property, and enable cyber-attackers to create increasingly effective and powerful methods of cyber-attack, including, for
example, the development of malicious code, denial-of-service attacks, use of quantum computing, sophisticated phishing
attempts, and other attacks. The Company may not be able to sufficiently identify, withstand, and contain such attacks,
which may cause disruption to business operations and harm the Company’s sales, customer satisfaction, profitability,
cash flows and financial condition.
Any maintenance, improvements or upgrades to information systems and services that may be required to meet
the ongoing and evolving needs of the Company’s business and cybersecurity needs as well as existing and
emerging regulatory requirements may be costly to implement, may take longer or require greater resources than
anticipated and may result in disruptions to its systems or business.
The Company depends on its information systems and services for many aspects of its business including those provided
by suppliers and third parties. Sleep Number has and may continue to have disruptions or outages to these information
systems and services that negatively impact its business and systems. If the Company’s information systems and services
or if any suppliers or other third-parties’ information systems and services upon which the Company relies are disrupted in
any material way, or maintenance, improvements or upgrades are required to meet the ongoing or evolving needs of its
business, cybersecurity needs, and existing and emerging regulatory requirements, then the Company may be required to
incur significant capital expenditures in the pursuit of continuity, improvements or upgrades to its information systems and
services. These efforts may take longer and may require greater financial and other resources than anticipated, may
cause distraction of key personnel, and may cause short-term disruptions, fines, security vulnerabilities to, or otherwise
negatively impact the Company’s existing systems and business. Any of these outcomes could impair the Company’s
ability to achieve critical strategic initiatives and could adversely impact the Company’s sales, profitability, cash flows and
financial condition.
Risks Related to the Company’s Stock
The Company’s stock price has and may continue to fluctuate and the Company’s financial results, removal from
various stock indices and other factors have and may continue to adversely affect the Company’s stock price.
The Company’s stock price has and may continue to fluctuate significantly in response to numerous factors such as: the
overall performance of the equity markets and the economy as a whole; the Company’s’ financial and operating
performance, which may fluctuate due to the risk factors set forth herein; changes in the financial projections the
Company or third parties may provide to the public or the Company’s failure to meet these projections; actual or
anticipated changes in its growth rate relative to that of its competitors; inclusion or removal from various stock indices;
significant stock trades by large shareholders; failure of securities analysts to maintain coverage of the Company;
changes in financial estimates by securities analysts who follow the Company or its failure to meet these estimates or the
expectations of investors; sales of shares of the Company’s common stock by Sleep Number or its shareholders
particularly sales by its directors, executive officers and significant shareholders or the perception that these sales could
occur. Although the Company’s common shares are listed on the Nasdaq Stock Market, the volume of trades on any given
day may be limited and, as a result, shareholders might not be able to sell or purchase its common shares at the volume,
price or time desired.
A substantial amount of the Company’s stock is held by a small number of large investors and significant sales
of its common stock by one or more of these holders could adversely affect the Company’s stock price.
As of January 2, 2026, the Company’s 25 largest holders of common stock were investors who held approximately 79 % of
the outstanding shares of common stock in the aggregate. These investors have sold and may sell some or all of their
shares at any time for a variety of reasons, and such sales could depress the market price of the Company’s common
stock, which could adversely affect the Company’s stock price. In addition, any such sales of the Company’s common
stock by these entities could also impair its ability to raise capital through the sale of additional equity securities.
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The Company’s business could be negatively affected as a result of shareholder activism.
While the Company welcomes shareholders’ constructive input, the Company could be negatively affected as a result of
shareholder activism, which could cause the Company to incur significant expense, disrupt the execution of its business
strategy, and impact the performance of its stock price. The Company has been, and may continue to be, the subject of
shareholder activism, and it is subject to the risks associated therewith. Responding to shareholder activism, including
proxy contests, requires significant time and attention from management and the Board, potentially interfering with the
Company’s ability to execute its strategic plan. The Company may be required to incur significant legal fees and other
expenses, and the attention of management may be diverted by such activism. Any of these impacts could materially and
adversely affect the Company’s business and operating results, and the Company’s stock price has experienced, and may
continue to experience, fluctuation or otherwise be adversely affected by shareholder activism.
If securities analysts do not publish, or cease publishing, research or reports about the Company, the Company’s
business, or if they change their recommendations regarding the Company’s stock adversely, the price of the
Company’s common stock and trading volume could decline.
The trading market for the Company’s common stock could be influenced by any research and reports that securities or
industry analysts publish about the Company, the Company’s business or the Company’s market. If one or more of the
analysts who covers the Company downgrades the Company’s common stock or publishes inaccurate or unfavorable
research about the Company, the Company’s business or the Company’s market, the price of the Company’s common
stock would likely decline. If one or more of these analysts ceases coverage of the Company or fails to publish reports on
the Company regularly, demand for the Company’s common stock could decrease, which could cause the price of the
Company’s common stock and trading volume to decline.
Risks Related to Tax Treatment
Unfavorable tax treatment may adversely affect the Company’s financial condition.
The Company's effective tax rate could be adversely affected by changes in the valuation allowance of deferred tax assets
or changes in tax laws. The Company has significant deferred tax assets and must generate sufficient earnings of the
appropriate character in order to utilize its deferred tax assets. If the Company’s earnings remain flat or decline over an
extended period of time, it may not be able to utilize its deferred tax assets and it has and may in the future need to record
a valuation allowance against them that could adversely affect its results of operations, cash flows and financial condition
in the period in which the valuation allowance is recorded. As of January 3, 2026 , a valuation allowance of $55.3 million
has been recorded to recognize only the portion of the deferred tax asset that is more likely than not to be realized.
Risks Related to Environmental, Social and Governance Matters
The Company’s priorities and progress with respect to sustainability, or Environmental, Social and Governance
(ESG), matters, and scrutiny and evolving expectations from the public, investors, regulators, vendors, and other
stakeholders may expose the Company to numerous risks, including risks to its reputation and stock price,
additional costs, and compliance risks.
Different stakeholder groups have divergent views on ESG matters such environment, climate change, health and safety,
supply chain management, diversity, equity and inclusion, labor conditions and human rights in the Company’s operations
and supply chain, which increases the risk that any action or lack thereof with respect to ESG matters may be perceived
negatively by at least some stakeholders and adversely impact the Company’s reputation and business. Sleep Number’s
current ESG priorities reflect the Company’s strategic plans and aspirations and are not guarantees that it will be able to
achieve them. The Company’s ability to achieve any ESG-related objectives is subject to numerous risks, many of which
are outside of its control, including: the availability and cost of relevant technologies and materials and evolving regulatory
requirements affecting relevant standards or disclosures. While some stakeholders may not be satisfied with the
Company’s ESG practices or initiatives or the speed with which the Company is implementing such initiatives, other
stakeholders may be opposed to the implementation of such initiatives at all, which could result in customer backlash or
other adverse effects. The ESG performance of the Company’s competitors, some of which are subject to more rigorous
international ESG-related disclosure regulations, may be better perceived than the Company’s, which may result in
potential or current customers, suppliers or investors electing to do business with its competitors rather than the Company,
and may detract from the Company’s ability to attract or retain employees. Furthermore, the Company’s efforts to
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SLEEP NUMBER CORPORATION
accurately report its ESG status under evolving and competing standards has resulted and may continue to result in a lack
of consistent or meaningful comparative data from period to period and which has and could result in revisions to the
Company’s ESG priorities and reported progress. The Company’s failure, or perceived failure, to pursue or fulfill its ESG
priorities or to satisfy various reporting standards may present numerous operational, reputational, competitive, financial,
legal, government enforcement action and other risks, any of which could have a material adverse impact, including on
the Company’s reputation, stock price, and results of operations, cash flows and financial condition.
The SEC adopted climate disclosure rules, which would have required new climate-related disclosures in SEC filings,
including certain climate-related metrics and greenhouse gas emissions data, information about climate-related targets
and goals, transition plans, if any, and extensive attestation requirements. However, these climate-related disclosure rules
remain stayed pending litigation in the Eighth Circuit Court of Appeals. The SEC has withdrawn its defense of the rules,
creating uncertainty regarding their future applicability. At the state level, California has enacted legislation that would
require the Company to make broad-based climate-related disclosures, and other states are considering similar
measures. In addition to requiring companies to quantify and disclose direct emissions data, the California rules seek
disclosure of climate impact arising from companies’ operations, their business partners and the end-users of their
products. The Company is refining its measurements and readiness to report under the California rules. Sleep Number
has and will continue to incur costs relating to the collection, review and assurance for required disclosures of climate-
related information and may experience increased costs, litigation, regulatory, business, reputation, or other risks.
Climate change and legal or regulatory responses may adversely affect the Company’s business, operations and
financial condition.
Climate change presents various near- and long-term risks that may adversely impact the Company’s business. The
enactment of certain laws and regulations to address or limit the effects of climate change, or changes to existing laws
and regulations, could mandate more restrictive standards or require such changes on a more accelerated time frame.
The consequences of climate change and the ensuing governmental regulations could disrupt the Company’s operations
or harm its ability to source necessary materials and components and manufacture its products, which may adversely
affect the Company’s financial condition. If public perception of Sleep Number’s compliance with laws and regulations
related to climate change is negative, it could adversely affect the Company’s business, reputation and shareholder
perception. Adverse publicity or climate-related litigation that impacts the Company could also have a negative impact on
its business.
Extreme weather, natural disasters, power outages, or other unexpected climate-related events could result in physical
damage to and complete or partial closure of one or more of the Company’s manufacturing, distribution centers or other
facilities or those of its suppliers, temporary or long-term disruption in its supply chain or logistics, disruption of or harm to
the Company’s workforce and/or disruption of its ability to deliver products to customers. Current or future insurance
arrangements may not provide protection for costs that may arise from such events, particularly if such events are
catastrophic in nature or if multiple such events occur. Climate change may also subject the Company’s business to
significant increases or volatility in the prices of certain commodities, including but not limited to electronic componentry,
fuel, oil, natural gas, rubber, cotton, plastic resin, corrugate, plywood, steel and chemical ingredients used to produce
foam, as well as third-party logistic costs. Further, the long-term effects of climate change on general economic conditions
and the Company’s industry in particular are unclear, and changes in the supply, demand, or available sources of energy
and the regulatory and other costs associated with energy production and delivery may affect the availability or cost of
goods and services, including natural resources, necessary to run its business. Any long-term disruption in the Company’s
ability to service its customers from one or more manufacturing, distribution centers or other facilities could have an
adverse effect on the Company’s results of operations, cash flows and financial condition.
