Sleep Number: Going Concern Warning, Covenant Breach Risk, and $588M Revolver

Sleep Number Corporation, the 39-year-old mattress retailer that pioneered adjustable air-supported beds, disclosed in its 2025 Form 10-K filing that there is "substantial doubt about the company's ability to continue as a going concern." The Minneapolis-based company — which operates approximately 600 stores nationwide and trades on the Nasdaq under the ticker SNBR — warned that 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" if it cannot secure sufficient financing within the next twelve months. Sleep Number has not filed for chapter 11 protection. This is a pre-filing distress story, and the company is actively working to avoid that outcome.

Company	Sleep Number Corporation
Ticker	SNBR (Nasdaq)
Headquarters	Minneapolis, Minnesota
Founded	1987 (as Select Comfort Corporation; renamed Sleep Number in 2017)
CEO	Linda Findley (appointed April 2025)
Stores	~600 (company-owned retail locations)
Employees	~3,100
FY2025 Revenue	$1.41 billion
FY2025 Net Loss	$132 million ($5.77 per share)
Debt Outstanding	$588.2 million (revolving credit facility)
Cash on Hand	$1.69 million (as of January 3, 2026)
Market Cap	~$64 million (as of March 2026)
Stock Price	~$3.31 (down from all-time high of $151.44 in March 2021)

Going Concern Disclosure and Covenant Risk

The going concern language appeared in Sleep Number's annual report filed with the SEC on March 11, 2026, alongside fourth-quarter and full-year 2025 earnings results. Management concluded that liquidity may be insufficient for at least twelve months, citing continued losses, expected covenant breaches, and dependence on lender relief and new capital.

Sleep Number's warning centers on two interrelated risks. First, the company expects to violate financial covenants tied to its amended credit agreement at some point during 2026. If that happens — and if lenders decline to grant waivers or further amendments — they could accelerate the outstanding debt and cancel remaining availability under the facility. Second, with only $1.69 million in cash on hand at year-end and $588.2 million drawn on its revolver, the company has no liquidity cushion to absorb a covenant breach or an acceleration event.

Total year-end liquidity — defined as cash plus remaining revolver capacity — stood at $58 million. The credit agreement includes a minimum liquidity covenant of $30 million through September 30, 2026, rising to $40 million thereafter, leaving limited headroom.

The company has engaged Guggenheim Securities to evaluate inbound interest and advise on opportunities to address the credit facility, improve liquidity, and strengthen the balance sheet.

Credit Facility and Debt Structure

Sleep Number's debt is concentrated in a single revolving credit facility governed by an Amended and Restated Credit and Security Agreement originally dated February 14, 2018, with U.S. Bank National Association serving as administrative agent, swing line lender, and issuing lender. The facility has been amended twelve times since inception.

The Twelfth Amendment, executed on November 4, 2025, extended the maturity date to December 3, 2027 and replaced leverage-based pricing grids with fixed interest rates. Term SOFR loans now carry a spread of 4.0% through December 31, 2026, rising to 4.25% on January 1, 2027. The commitment fee is 0.50% through the end of 2026, increasing to 0.75% in 2027.

The facility's total commitment is declining. It dropped from $485 million to $475 million upon execution of the Twelfth Amendment and steps down further to $465 million on July 31, 2026. The accordion feature — which previously allowed the company to increase borrowing capacity up to $1.2 billion — was terminated. Beginning March 31, 2027, the company must make quarterly principal payments of $1.25 million.

The lenders hold a collateral security interest in substantially all of Sleep Number's assets and those of its subsidiaries.

At year-end, $588.2 million was drawn against the revolver. The leverage ratio under the amended credit agreement was 4.1x EBITDAR against a covenant maximum that tightens on a quarterly schedule: 4.50x for the period ending January 3, 2026, 4.75x for the period ending April 4, 2026, and stepping down to 4.00x for each quarterly reporting period after Q3 2026. The interest coverage ratio covenant ranges from a minimum of 1.50x to 2.20x depending on the period. A new quarterly minimum EBITDA test takes effect in Q2 2026.

The company remained in compliance with all covenants at year-end 2025 but has acknowledged it expects to breach financial covenants during 2026. If lenders choose not to waive the violations or renegotiate the terms, they could demand immediate repayment of the full outstanding balance and terminate remaining commitments. With $1.69 million in cash on hand, the company would have no ability to meet an accelerated demand. The company is attempting to head this off through negotiations with existing lenders and through the Guggenheim Securities engagement.

Revenue Decline: Quarter by Quarter

Revenue fell 16% in fiscal year 2025 to $1.41 billion, down from $1.68 billion in 2024. The decline was consistent across all four quarters.

Quarter	Net Sales	YoY Change	Same-Store Sales
Q1 2025	$393.3 million	Down	Down 15%
Q2 2025	$327.9 million	Down	Down 19%
Q3 2025	$342.9 million	Down 19.6%	Down 19%
Q4 2025	$347.4 million	Down 8%	—

Fiscal 2025 included a 53rd week, which improved fourth-quarter year-over-year comparisons by approximately 660 basis points.

The net loss widened from $20 million in 2024 to $132 million in 2025, or $5.77 per diluted share. Adjusted EBITDA dropped 35% year-over-year to $78.3 million, though this exceeded the company's $70 million guidance. Pro forma adjusted EBITDA margin was approximately 9% for the full year, a 200 basis-point improvement over 2024.

Full-year gross margin was 59%, down 60 basis points year-over-year excluding a fourth-quarter inventory charge. Q4 gross margin fell to 55.6%, driven by a $9.6 million nonrecurring inventory obsolescence charge tied to the product lineup transition; the adjusted Q4 figure was 58.4%.

On a GAAP basis, Q4 revenue of $347 million beat analyst estimates, but the company posted a loss of $2.55 per share — far worse than the consensus estimate of a $0.55 loss — driven by restructuring charges and a deferred tax valuation adjustment.

Balance Sheet Deterioration

Total debt stands at approximately $579.5 million against total assets of $749.4 million. Total liabilities exceed $1.3 billion, and total shareholders' equity is negative at -$521.3 million.

Free cash flow for the full year was negative $17.7 million, roughly $30 million better than company guidance. Capital expenditures totaled $14 million, down $9 million year-over-year as the company cut discretionary spending.

The earnings quality ratio — cash flow relative to reported earnings — was 0.02x at year-end, indicating minimal cash generation relative to the reported figures.

The company has sustained net losses over each of the past three fiscal years and has indicated it anticipates continued losses in the near future.

Store Closures and the Direct-to-Consumer Burden

Sleep Number closed approximately 40 stores in 2025, exiting the year with roughly 600 locations. This follows 40 to 50 closures in 2024. The current store count is down from a peak of approximately 670 stores at the end of fiscal year 2022.

Average sales per store have declined from $3.28 million in 2022 to $2.85 million in 2023, with further deterioration in 2024 and 2025 as traffic and same-store sales continued to fall. Additional closures are expected as part of ongoing cost-reduction efforts.

Sleep Number operates exclusively through company-owned stores — it does not sell through third-party retailers or wholesale channels. This direct-to-consumer model means the company carries the full burden of lease obligations, payroll, and store-level overhead for every location. The company has acknowledged that store closures are resulting in higher-than-expected costs, continued rent liability on vacated locations, lost sales, and disruption to customer experience in affected markets.

The company has not disclosed a detailed breakdown of total lease obligations or occupancy costs as a percentage of revenue, but with 600 locations — predominantly in malls and shopping centers with multi-year leases — the fixed cost exposure is significant. In a chapter 11 scenario, the ability to reject unfavorable leases under Section 365 of the Bankruptcy Code would be one of the primary tools available.

Leadership and Organizational Overhaul

CEO Linda Findley joined Sleep Number on April 7, 2025, succeeding Shelly Ibach, who announced her retirement in October 2024 after leading the company for over a decade. The board engaged an independent executive search firm and appointed Findley following a formal succession process.

Findley previously served as CEO of Blue Apron Holdings from 2019 to 2024, where she oversaw a turnaround that ended with the company's sale to Wonder Group in September 2023.

Michael Harrison, who has served as independent lead director since May 2022, became independent board chair following the 2025 annual meeting. Two longer-serving directors announced plans to retire by the 2026 annual meeting, at which time the board intends to reduce its size.

Since joining, Findley has overseen more than $185 million in annualized cost reductions spanning general and administrative expenses, corporate headcount, technology, and store operations. An additional $50 million in annualized fixed-cost savings is being executed in 2026. Cumulative cost reductions over three years have reached approximately $308 million, and operating costs fell $136 million in 2025 alone, bringing full-year operating expenses to $824 million. Headquarters headcount has been reduced to 2018 levels.

In May 2025, Findley announced a new organizational structure that flattened the leadership team and consolidated reporting lines. Marketing budgets for Q2 and Q3 2025 were cut significantly, contributing to the same-store sales declines but preserving cash.

"We are still in full turnaround mode, and our progress in 2025 doesn't change the fact that we still have hurdles to clear in 2026," Findley told analysts on the Q4 earnings call.

No chief restructuring officer or formal restructuring counsel appointment has been publicly disclosed.

Product Lineup and Technology Assets

Sleep Number sells premium, technology-driven mattresses at price points ranging from $1,599 to $10,000. In an environment of weakening consumer sentiment, elevated interest rates, and tariff uncertainty, those purchases are among the first consumers defer.

The company's central technology platform is SleepIQ, an embedded operating system that tracks biometric sleep data without requiring a wearable device. Sleep Number holds 19 patents in consumer sleep technology and held a 45% grant share in the smart beds patent category as of September 2023. The SleepIQ data set and patent portfolio are among the company's most valuable assets in a potential sale scenario.

In January 2026, the company launched ComfortMode, a new sub-$1,600 mattress designed to reach consumers below Sleep Number's traditional price range, with a 10 percentage-point gross margin improvement over the predecessor C Series beds it replaced.

The broader product lineup was simplified from 12 mattresses to seven, organized into three collections: ComfortMode, ComfortNext, and Climate. The redesigned lineup became available on March 23, 2026.

In a restructuring or sale scenario, the SleepIQ platform, patent portfolio, and direct-to-consumer retail infrastructure represent the company's most valuable assets.

"Sleep Number Shifts" Turnaround Plan

Management has branded its restructuring effort "Sleep Number Shifts," focused on simplifying the product lineup, rebalancing marketing spend toward performance-oriented channels, and optimizing distribution.

For 2026, the company expects Q1 net sales to decline in the high teens percent year-over-year. Management anticipates significant revenue improvement in Q2 and double-digit sales growth in the second half of the year, driven by the new product lineup. Full-year adjusted EBITDA is expected to increase 18% to 25% year-over-year. The company expects free cash flow to turn positive for the full year.

No formal revenue guidance was issued.

Guggenheim Securities Engagement

Sleep Number has retained Guggenheim Securities to evaluate inbound interest and advise on opportunities to address the credit facility, improve liquidity, and strengthen the balance sheet.

Guggenheim Securities operates a Capital Structure Advisory group that advises companies, creditors, and financial sponsors on distressed M&A, recapitalizations, reorganizations, exchange offers, debt repurchases, and capital raises. The firm reports having restructured over $4 trillion in liabilities across its history. Recent engagements include Lumen, MultiPlan (now Claritev), Azul Brazilian Airlines, Rite Aid, Hawaiian Electric, Hertz, and Family Dollar, as well as advising the FDIC on the resolutions of First Republic Bank and Silicon Valley Bank.

In the retail sector specifically, Guggenheim has advised on the Rite Aid and Family Dollar restructurings — both chapter 11 cases involving large store portfolios, lease rejection strategies, and going-concern sales.

The engagement signals that Sleep Number is evaluating a range of options, from a refinancing or exchange offer to a potential sale process.

Mattress Industry Distress

Sleep Number is not struggling in isolation. In 2024, mattress and foundation sales fell 7.7% to $9.2 billion, with unit volume dropping 8.8% to approximately 36.5 million units. The declines continued into 2025, with first-quarter sales down 5.7% and second-quarter sales off 4.3%. For full-year 2025, the consensus industry forecast is a 5.5% decline in total units and a 3.5% decrease in shipment value, driven by elevated mortgage rates, weak housing activity, and a cooling labor market.

Industry forecasters project a modest recovery in 2026, with unit shipments expected to grow 3% and shipment value rising 5%. Existing home sales — the most reliable driver of mattress purchases — are forecast to increase 3.8% in 2026 after stagnating in 2024 and 2025.

The competitive landscape has consolidated. In February 2025, Tempur Sealy completed its $5 billion acquisition of Mattress Firm and rebranded as Somnigroup International. The combined entity generated approximately $8 billion in pro forma revenue and operates over 2,000 retail locations across the Tempur-Pedic, Sealy, Stearns & Foster, and Mattress Firm brands. That consolidation has concentrated market power and intensified pricing pressure on independent competitors like Sleep Number.

Beyond consolidation, Sleep Number faces competition from regional specialty retailers, discount chains, and direct-to-consumer online brands including Saatva, Purple, Casper, and Nectar, many of which have expanded into traditional retail channels.

Recent bankruptcies and distressed transactions in the sector:

• Mattress Firm filed for chapter 11 in 2018, closing hundreds of stores before emerging and later being acquired by Tempur Sealy.
• Serta Simmons Bedding, the largest U.S. mattress manufacturer, filed for chapter 11 in January 2023 and emerged in June 2023, but continues to close factories.
• Casper, the direct-to-consumer mattress brand, saw its stock decline after a 2020 IPO and was sold to private equity firm Durational Capital Management.
• American Mattress filed for chapter 11 in July 2025 and converted to chapter 7 liquidation in March 2026.

Pending Milestones and Possible Outcomes

Several paths remain open for Sleep Number:

Covenant waiver and refinancing. Existing lenders could waive the anticipated covenant breaches, and Guggenheim could help secure new or amended financing. The Twelfth Amendment already loosened several covenant levels, but the company expects further breaches as revenue continues to decline.

Out-of-court restructuring. The company could negotiate a liability management transaction — such as an exchange offer on the revolving facility debt, a new capital infusion, or a strategic partnership.

Strategic sale. A going-concern sale outside of bankruptcy, or a section 363 sale within one, are both possibilities given the company's brand, SleepIQ technology platform, patent portfolio, biometric data set, and direct-to-consumer infrastructure. The Guggenheim engagement specifically references evaluating "inbound interest," suggesting potential acquirers have already made approaches.

Chapter 11 filing. If negotiations with lenders stall, covenants are breached, and no refinancing materializes, chapter 11 becomes the backstop. A filing would provide the automatic stay, allow the company to reject unfavorable leases under Section 365, and facilitate a restructuring of the revolver debt. With 600 stores on multi-year leases, lease rejection alone could generate significant savings.

Liquidation. If no buyer emerges and the turnaround does not produce results, the company could face a wind-down of operations. American Mattress — chapter 11 followed by conversion to chapter 7 — is a recent sector example.

Key events to monitor:

• Covenant compliance testing through 2026 quarterly reporting periods, particularly the tightening net leverage ratio schedule and the new minimum EBITDA test in Q2
• Progress on Guggenheim's advisory engagement and any announced financing transactions
• Store closure announcements and lease rejection activity
• Q1 2026 earnings (expected mid-2026), where a high-teens percent revenue decline is already anticipated
• Lender negotiations and any amendments or waivers to the credit agreement — the Thirteenth Amendment, if it comes
• Potential retention of restructuring counsel or appointment of a chief restructuring officer
• Whether the simplified product lineup and ComfortMode launch translate into the projected second-half revenue recovery

The stock closed at $3.31 as of mid-March 2026, down from an all-time high of $151.44 in March 2021. The market capitalization has fallen to approximately $64 million.

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