Sleep Number said Thursday it has laid off 500 people — about 10% of total employees — throughout all levels and locations of the organization.

A day after reporting disappointing third-quarter results and a restructuring to eliminate $50 million in operating costs, Sleep Number also said it has agreed to add two new board members after an activist campaign from one of the company's five largest shareholders.

Minneapolis-based Sleep Number has reached a cooperation agreement with Stadium Capital Management after a letter from investor Stadium Capital criticized Sleep Number for poor execution and lax corporate governance.

As part of the agreement, Sleep Number increased the size of its board to 12 members, adding Hilary Schneider and Stephen Macadam. Schneider is a former chief executive of Shutterfly Inc. and held executive positions at Yahoo Inc. Macadam is a former president and CEO of public companies EnPro Industries Inc. and BlueLinx Holdings Inc.

Sleep Number also will close 40 to 50 of its stores in 2024.

After the earnings announcement Tuesday and the agreement Wednesday, Sleep Number shares on Wednesday lost more 29% of their worth.

For the quarter ended Sept. 30 the maker of smart beds and accessories lost $2.3 million, or 10 cents a share, after it had posted a profit of $5 million, or 22 cents a share, in the third quarter of 2022.

Quarterly revenue decreased 13% to $473 million amid a broad downturn in the bedding industry. Results badly missed analyst expectations, and Sleep Number said it is reducing guidance for the remainder of the year.

"The third quarter was challenging for Sleep Number and the bedding industry as the consumer demand trajectory changed abruptly midway through the quarter," said Shelly Ibach, Sleep Number's chief executive, in the earnings release.

Yet Sleep Number has additional issues, wrote Seth Basham, an analyst with Wedbush Securities.

"On one hand, SNBR's results are a product of depressed industry environment that is struggling to find a bottom, but its bloated cost structure and high-debt burden leaves it with little room to absorb negative demand fluctuations" Basham wrote.

Stadium Capital Management is an investment firm based in New Canaan, Conn., that takes a long-term view of its holdings and owns about 9% of Sleep Number's shares.

In its Sept. 13 letter, Stadium Capital was critical of Sleep Number's long-term shareholder returns, capital allocation and poor corporate governance including "questionable compensation decisions." The firm proposed adding a representative to the board and two new independent board members.

As part of the cooperation agreement, the Sleep Number board will form a Capital Allocation and Value Enhancement Committee of which Schneider and Macadam are to be members. Schneider and Macadam are expected to be added to other board committees as well.

Another longtime shareholder of Sleep Number, St. Louis Park-based Blue Clay Capital, also urged Sleep Number to add more shareholder-friendly board members in a letter it sent to the Sleep Number board at the end of October that largely supported Stadium Capital.

"We are pleased to have reached an agreement with the Board on the appointment of two highly qualified, independent directors and the formation of a Capital Allocation Committee that will deliver analysis and recommendations to the full board," said Alexander Seaver, co-founder and managing director of Stadium Capital, in a news release.