Chip shortages causing nightmares for Minneapolis-based Sleep Number

Sleep Number's shares fell more than 23% Thursday after the company announced late Wednesday that third-quarter profits fell 90% due in large part to a continued shortage of computer chips.

A big slide in both revenue and net income was expected.

"The flow of chips is everything," CEO Shelly Ibach told analysts in a quarterly conference call. The chips drive the functionality and features of the Minneapolis-based company's signature smart beds.

The company also is dealing with softer than expected consumer demand, she said.

"We are aggressively pursuing actions to improve supply, margin and demand," Ibach said in a news release.

The company earned $5 million in the quarter, or 22 cents a share, on revenue of $540.6 million that decreased 16% from the third quarter of last year, it said after the markets closed Wednesday. Earnings were down from $53.7 million, or $2.22 a share, earned in the third quarter of 2021.

Company officials said the chip shortage will continue into the fourth quarter with about 15,000 chips from one supplier scheduled to arrive too late to help with delivery of finished products.

Analysts were expecting a tough comparison to the year-ago quarter when consumers were still in large part sheltered at home and focused on home improvements. But despite the chip shortages this year and lagging consumer demand, Sleep Number did better than expectations that it would earn 6 cents a share on revenue of $529.5 million.

"While the consumer is understandably cautious, our brand health remains very strong, and our customer loyalty is stellar," Ibach added.

Sleep Number's new Climate360 smart bed was introduced during the quarter. The new smart bed not only adjusts the firmness of the mattress to the individual sleeper but also offers individualized temperature control of the bed.

Sleep Number again lowered its guidance for the remainder of the year.

"We expect the consumer environment to remain challenging for the rest of the year and into 2023," Ibach told analysts.