Annual profits and innovation set Sleep Number apart from upstart mattress makers

Sleep Number reported record fourth-quarter and annual results, solidifying its strategy of branding itself as not just a mattress retailer but a health-and-wellness company — a position that competitors like Casper aspire to.

For the fourth quarter, the Minneapolis-based maker and retailer of adjustable mattresses earned $24.1 million, or 82 cents per share. In the fourth quarter of 2018, the company earned $27 million, or 81 cents per share, but that included the benefit of $24 million in deliveries that had been shifted from the third quarter of 2018. Without those sales, the adjusted earnings per share in the year-ago quarter was 58 cents, giving Sleep Number adjusted EPS growth of 41%.

For the year, the company had revenue of $1.7 billion, up 11% from 2018 and EPS of $2.70 per share, up 41% for the year.

The company exceeded analysts' expectations on revenue and earnings for both periods.

Analysts had expected the company to earn 75 cents for the quarter and $2.64 for the year. Sleep Number also exceeded consensus revenue expectations by 3.4% in the quarter and 1.3% for the year.

"Consumer response to our revolutionary 360 smart beds has been exceptional, driving six consecutive quarters of double-digit demand growth, including acceleration in the fourth quarter," said Sleep Number's president and CEO, Shelly Ibach, in a news release. "Our differentiated, consumer innovation strategy drove record results again in 2019."

Competitors such as memory-foam mattress maker Casper have tried to develop that kind of differentiation from the competitive sector.

Most of Sleep Number's technology is concentrated in its 360 smart beds introduced in 2017. Sensors help adjust mattress firmness to a person's movement throughout a sleep session. Its Sleep IQ technology also records over 9 billion biometric data points collectively each night, giving users actionable data on their sleeping habits.

Casper, which hasn't turned profitable yet, eventually priced its IPO at $12 per share, the low end of an already adjusted downward offering range. Since its IPO at the beginning of the month, Casper shares are down 25%.

Sleep Number also issued guidance for 2020 saying it expects EPS to increase 15% for the year, to $3.10 per share, and sales to increase in the high single digits. The company plans to achieve those numbers through additional product innovations and approximately $60 million in capital expenditures in 2020.

Peter Keith, an analyst with Piper Sandler Cos., thinks Sleep Number's 2020 guidance is reasonable in what has been a favorable market for the mattress industry.

"We credit Sleep Number for executing well and continuing to push innovation that is driving consumer interest/demand," he wrote in a research note. "New product launches in 2020 with improved features could further help demand."

Sleep Number posted its results after the market closed on Wednesday, and shares rose 6% in Thursday morning trading to $59.99. They closed Thursday at $59.72. Its shares have risen 21% since the start of the year and have traded between $32.53 and $60.72 over the past 52 weeks.