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Sleep Number’s Deceptive Performance

Shares of adjustable mattress manufacturer Sleep Number (NASDAQ: SNBR) were awake and alert late last week following the company’s release of its fiscal third quarter earnings. Sleep Number’s stock jumped ahead of its previous day’s close by 11% on Thursday, Oct. 15, and while falling slightly on Friday, it still closed out the week with a 14% gain.

Both top- and bottom-line momentum fueled investors’ enthusiasm. The company reported a year-over-year sales advance of 12% to a quarterly record of $531 million. Operating margin jumped by nearly 500 basis points to 13.1%, as Sleep Number complemented its sales strength by holding operating expenses to a slight increase. As a result, diluted earnings per share increased by 90% against third quarter 2019, to $1.79 per share.

On the surface, it might appear that Sleep Number is participating in a pandemic-related boost, along with a host of other specialty retailers. But the company’s performance is deceptive; long-term shareholders should peer more deeply into this quarter’s results.

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