Sleep Country Reports Annual Revenue Growth of 0.9% with a Decline in Q4 Revenues of 10.4%

TORONTO, March 2, 2023 /CNW/ - Sleep Country Canada Holdings Inc. ("Sleep Country" or the "Company") (TSX: ZZZ) today released its financial results for the fourth quarter and year ended December 31, 2022.

All financial results are reported in Canadian dollars unless otherwise stated.

Fourth Quarter Financial Highlights
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• Revenues decreased by $28.2 million or 10.4% to $243.0 million in Q4 2022 from $271.2 million in Q4 2021;
• Same Store Sales ("SSS")¹ decreased by 11.5% in Q4 2022 from Q4 2021;
• The share of Revenues attributed to eCommerce channels increased to 21.1% in Q4 2022 from 20.9% in Q4 2021;
• Gross profit margin increased to 37.5% in Q4 2022 from 36.0% in Q4 2021;
• EBITDA¹ decreased by $6.6 million to $50.7 million in Q4 2022 from $57.3 million in Q4 2021;
• Operating EBITDA¹ margin decreased to 21.8% in Q4 2022 from 22.9% in Q4 2021;
• Net income attributable to the Company increased by $14.1 million or 53.1% to $40.5 million in Q4 2022 from $26.4 million in Q4 2021. This increase was positively impacted by a $20.5 million adjustment to the Hush redemption liabilities to reflect the estimated shift in achievement of the initial EBITDA targets to beyond the redemption period;
• Adjusted net income attributable to the Company¹ decreased by $7.1 million or 22.9% to $23.9 million in Q4 2022 from $31.0 million in Q4 2021;
• Diluted earnings per share ("EPS") increased by $0.42 or 59.2% to $1.13 in Q4 2022 from $0.71 in Q4 2021 impacted by;
• Positive impact from the $20.5 million adjustment to the redemption liabilities of $0.57 per share;
• Diluted adjusted EPS¹ decreased by $0.16 or 19.3% to $0.67 in Q4 2022 from $0.83 in Q4 2021;
• The Company has purchased for cancellation 976,532 common shares in Q4 2022 for total consideration of $22.0 million against its NCIB;
• Subsequent to year end, the Company acquired substantially all of the assets of Silk & Snow, one of Canada's top growing direct-to-consumer ecommerce retailers, for cash consideration of $24.1 million upfront and up to $19.5 million in contingent consideration based on specified earnings levels achieved during the three-year period beginning fiscal 2023; and
• Subsequent to year-end, on February 9, 2023, the Board declared a dividend of $0.215 per share payable on February 28, 2023 to shareholders of record at the close of business on February 17, 2023.

Annual Financial Highlights

• Revenues increased by $8.5 million or 0.9% to $928.7 million in 2022 from $920.2 million in 2021;
• The share of Revenues attributed to eCommerce channels decreased to 19.6% in 2022 from 23.5% in 2021;
• Gross profit margin increased to 36.7% in 2022 from 34.5% in 2021;
• EBITDA¹ increased by $11.0 million to $210.5 million in 2022 from $199.5 million in 2021;
• Operating EBITDA¹ margin increased to 23.5% in 2022 from 22.9% in 2021;
• Net income attributable to the Company increased by $21.9 million or 24.7% to $110.5 million in 2021 from $88.6 million in 2021. This increase was positively impacted by a $20.5 million adjustment to the Hush redemption liabilities to reflect the estimated shift in achievement of the initial EBITDA targets to beyond the redemption period;
• Adjusted net income attributable to the Company¹ increased by $4.6 million or 4.6% to $102.9 million in 2022 from $98.3 million in 2021;
• Diluted EPS increased by $0.63 or 26.5% to $3.01 in 2022 from $2.38 in 2021 impacted by:
• Positive impact from the $20.5 million adjustment to the redemption liabilities of $0.57 per share;
• Diluted adjusted EPS¹ increased by $0.17 or 6.4% to $2.81 in 2022 from $2.64 in 2021; and
• In 2022, the Company purchased for cancellation 2,339,409 common shares for total consideration of $57.7 million against its NCIB.

Fourth Quarter Business Highlights

• Opened two new Sleep Country/Dormez-vous stores in Q4 2022 in Griffintown, Montreal and Campbell River, Vancouver Island increasing the store count to 289;
• Expanded the Company's partnership with Walmart Canada, opening an additional six new Sleep Country/Dormez-vous Express stores in Walmart Supercentres in Ontario and Quebec bringing the total number of express stores to 17;
• Sleep Country/Dormez-vous and Endy were recognized as one of Canada's Most Admired Corporate Cultures in 2022 by Waterstone Human Capital; and
• Donated $50,000 worth of sleep essentials to YWCA of Montreal and Quebec bringing the total in-kind donations in support of community partners in 2022 to more than $900,000.

President & CEO Commentary and Outlook

"This quarter, we continued to operate in a challenging business environment with continued rising interest rates and economic uncertainty as consumer spending tightened. Despite these challenges and a decline in Revenues of 10.4% in Q4, we are pleased with our quarter over quarter three-year stacked SSS¹ growth of 24.1%, and our full year revenue growth of 0.9% with a three-year stacked SSS¹ growth of 21.7%," said Stewart Schaefer, President and CEO of Sleep Country.

"I am incredibly grateful to our entire team for their determination and hard work as we continued to position ourselves as the Leader in Sleep in Canada.  In another unprecedented year, our teams remained focused on our purpose-driven strategy and commitment to helping our customers get their best night's sleep and our mission to deliver shareholder value by driving innovation and efficiencies that will position our company for sustainable growth for years to come."

"We continued to expand our retail footprint with two new Sleep Country/Dormez-vous store openings in Q4 bringing our total store count to 289 locations at the end of the year. We opened seven more Sleep Country/Dormez-vous Express stores this year in Walmart Supercentres increasing our store-in-store presence to 17 locations.  Additionally, Hush received rave reviews for its first-ever retail pop up at Yorkdale Shopping Centre bringing its brand to life for thousands of customers."

"Subsequent to year-end, we welcomed Silk & Snow to our growing family of sleep brands, closing the acquisition on January 1, 2023. Silk & Snow is one of Canada's fastest growing direct-to-consumer sleep retailers, that will extend our omnichannel offering and line-up with the brand's affordable and accessible luxury bedding, bedroom furniture and bath products."

"As we look ahead, we are excited to continue executing on our multi-year strategic plans, making investments in our brands, partners, distribution channels, innovative products, and as always, with a passion to enhance our customer experience while delivering strong total shareholder returns," added Schaefer.

Dividend Declaration

On February 9, 2023, the Board declared a dividend of $0.215 per share, payable on February 28, 2023 to shareholders of record at the close of business on February 17, 2023. The dividend is designated as an "eligible dividend" for Canadian tax purposes.

Summary of Fourth Quarter and Annual Financial Results

(C$ thousands unless otherwise stated; other than store and share data)	Q4 2022				Q4 2021				Change								2022				2021				Change
Revenues	$	243,028			$	271,158				(10.4)	%						$	928,657			$	920,194				0.9	%
SSS^1		(11.5)	%			3.2	%											(1.8)	%			18.3	%
Gross profit margin %		37.5	%			36.0	%											36.7	%			34.5	%
Stores opened		2				-												5				6
Stores closed		-				2												1				2
Stores renovated/relocated		-				1												-				11
Operating EBITDA^1	$	53,005			$	62,065				(14.6)	%						$	218,559			$	210,889				3.6	%
Operating EBITDA margin^1 %		21.8	%			22.9	%											23.5	%			22.9	%
Net income attributable to    the Company	$	40,469			$	26,433				53.1	%						$	110,471			$	88,603				24.7	%
Adjusted net income attributable to    the Company^1	$	23,874			$	30,977				(22.9)	%						$	102,868			$	98,342				4.6	%
Basic EPS	$	1.14			$	0.72				58.3	%						$	3.04			$	2.41				26.1	%
Diluted EPS	$	1.13			$	0.71				59.2	%						$	3.01			$	2.38				26.5	%
Basic adjusted EPS^1	$	0.67			$	0.84				(20.2)	%						$	2.83			$	2.67				6.0	%
Diluted adjusted EPS^1	$	0.67			$	0.83				(19.3)	%						$	2.81			$	2.64				6.4	%

Note:

¹ See the "Non-IFRS and Other Measures" section of this news release.

Revenues decreased by $28.2 million or 10.4% from $271.2 million in Q4 2021 to $243.0 million in Q4 2022 mainly driven by a 11.5% decrease in SSS¹ partially offset by incremental revenue earned from Hush which was acquired in late October 2021, net four stores opened in 2022 and wrap stores opened in 2021.

Gross profit margin increased by 150 basis points from 36.0% for Q4 2021 to 37.5% for Q4 2022 due to an increase in average unit selling prices and lower inventory adjustments partially offset higher product, transportation and delivery costs, in addition, to deleveraging of occupancy and depreciation expenses. 

Total G&A expenses increased by $1.2 million or 2.3% from $56.3 million in Q4 2021 to $57.5 million in Q4 2022. This change was mainly driven by an increase in media and advertising and depreciation expenses partially offset by decrease in professional fees, mattress recycling and donation expenses.

Finance related (income) expenses decreased by $19.8 million from expense of $4.3 million in Q4 2021 to income of $15.5 million in Q4 2022. This decrease was mainly driven by a net $20.5  million adjustment due to the revised expected outcome of redemption liabilities related to the Hush acquisition and a gain on shares repurchased under the automatic share purchase program ("ASPP") in connection with the Company's NCIB, offset by decrease in the unrealized gain on the Company's interest rate swap.

Operating EBITDA¹ was $53.0 million for Q4 2022, or 21.8% of Revenues, compared to $62.1 million for Q4 2021, or 22.9% of Revenues, representing a decrease of $9.1 million or 14.6% mainly due to lower Revenues in Q4 2022, partially offset by an improved gross profit margin.

Net income before income taxes in Q4 2022 increased by $11.8 million from $37.2 million in Q4 2021 to $49.0 million in Q4 2022. The effective income tax rate decreased by 1120 basis points from 28.0% in Q4 2021 to 16.8% in Q4 2022. This decrease in the effective tax rate is mainly driven by the net $20.5 million adjustment to the redemption liabilities related to the Hush acquisition that is not deductible for tax purposes. The lower effective tax rate of 16.8% resulted in a decrease to income taxes of $2.2 million. 

Net income attributable to the Company for Q4 2022 increased by $14.1 million from $26.4 million ($0.72 per share) in Q4 2021 to $40.5 million ($1.14 per share) in Q4 2022, which was impacted by the $20.5 million adjustment of the redemption liabilities due to the revised expected outcome related to the Hush acquisition.

Adjusted net income attributable to the Company¹ for Q4 2022 decreased by $7.1 million from $31.0 million ($0.84 per share) in Q4 2021 to $23.9 million ($0.67 per share) in Q4 2022.

Summary of Annual Financial Results

Revenues increased by $8.5 million or 0.9% from $920.2 million in 2021 to $928.7 million in 2022. This increase was mainly driven by incremental revenue earned from Hush which was acquired in late October 2021, net four new stores opened in 2022 and wrap stores opened in 2021, partially offset by   decrease of SSS¹ by 1.8%.

Gross profit margin increased by 220 basis points from 34.5% for 2021 to 36.7% for 2022 due to an increase in average unit selling prices and lower inventory provision adjustments and delivery costs, partially offset by higher product, transport, salaries and commissions costs.

Total G&A expenses increased by $18.0 million or 10.1% from $178.2 million in 2021 to $196.2 million in 2022. This change was mainly driven by an increase in media and advertising, compensation, telecommunication and information technology, depreciation and other expenses partially offset by decrease in professional fees and mattress recycling and donations expenses.

Finance related (income) expenses decreased by $17.7 million from expense of $16.8 million in 2021 to income of $0.9 million in 2022. This decrease was mainly due to a net $20.5 million adjustment due to the revised expected outcome of the redemption liabilities related to the Hush acquisition and a gain on shares repurchased under the ASPP in connection with the Company's NCIB,  partially offset by decrease in the unrealized gain on the Company's interest rate swap .

Operating EBITDA¹ was $218.6 million for 2022, or 23.5% of Revenues, compared to $210.9 million for 2021, or 22.9% of Revenues, representing an increase of $7.7 million or 3.6% mainly due to an improved gross profit margin and partially offset by an increase in G&A expenses.

The Company's effective income tax rate decreased by 280 basis points from 27.0% in 2021 to 24.2% in 2022. This tax rate decrease is mainly driven by the net $20.5 million adjustment to the redemption liabilities related to the Hush acquisition that is not deductible for tax purposes. Net income before income taxes in 2022 increased by $24.2 million from $121.8 million in 2021 to $146.0 million in 2022 resulting in an increase to income taxes of $2.4 million. 

Net Income attributable to the Company for 2022 increased by $21.9 million from $88.6 million ($2.41 per share) in 2021 to $110.5 million ($3.04 per share) in 2022, which was impacted by the $20.5 million adjustment of the redemption liabilities due to the revised expected outcome related to the Hush acquisition.

Adjusted net Income attributable to the Company¹ for 2022 increased by $4.6 million from $98.3 million ($2.67 per share) in 2021 to $102.9 million ($2.83 per share) in 2022.

Conference Call

Sleep Country's President and CEO, Stewart Schaefer, and CFO, Craig De Pratto, will host a conference call for analysts and investors on March 3 at 8:00 a.m. ET. The dial-in numbers for the conference call are 416-764-8659 or 888-664-6392. This conference call will be recorded and available for replay until March 10, 2023. To listen to the replay, please dial 416-764-8677 or 888-390-0541 and use passcode 045075#.

About Sleep Country

Sleep Country is Canada's leading specialty sleep retailer with a purpose to transform lives by awakening Canadians to the power of sleep.  Sleep Country operates under the retailer banners; Sleep Country Canada, Dormez-vous, Endy, Hush and most recently acquired, Silk & Snow.  The Company has omnichannel and ecommerce operations including 288 corporate-owned stores and 20 warehouses across Canada.  Recognized as one of Canada's Most Admired Corporate Cultures in 2022 by Waterstone Human Capital, Sleep Country is committed to building a company culture of inclusion and diversity where differences are embraced and valued. The Company invests in its sleep ecosystem, innovative products, world-class customer experience, communities and its people.  

Non-IFRS and Other Measures

This news release refers to certain measures that are not recognized under IFRS and do not have a standardized meaning prescribed by IFRS, including "Same Store Sales" or "SSS", "EBITDA", "Operating EBITDA", "Operating EBITDA margin", "Adjusted net income attributable to the Company", "Basic adjusted EPS" and "Diluted adjusted EPS". For more information on these Non-IFRS and other measures as well as a reconciliation to the most comparable IFRS measure, refer to "Non-IFRS and Other Measures" in the Company's MD&A for Q4 2022 which is available on SEDAR at www.sedar.com.  

Forward-Looking Information

Certain information in this news release contains forward-looking information and forward-looking statements which reflect the current view of management with respect to the Company's objectives, plans, goals, strategies, outlook, results of operations, financial and operating performance, prospects and opportunities. Wherever used, the words "may", "will", "anticipate", "intend", "estimate", "expect", "plan", "believe" and similar expressions identify forward-looking information and forward-looking statements. Forward-looking information and forward-looking statements should not be read as guarantees of future events, performance or results, and will not necessarily be accurate indications of whether, or the times at which, such events, performance or results will be achieved. All of the information in this news release containing forward-looking information or forward-looking statements is qualified by these cautionary statements.

Forward-looking information and forward-looking statements are based on information available to management at the time they are made, underlying estimates, opinions and assumptions made by management and management's current good faith belief with respect to future strategies, prospects, events, performance and results, and are subject to inherent risks and uncertainties surrounding future expectations generally. Such risks and uncertainties include, but are not limited to, those described below under the sections "Risk Factors" and those described in the Company's 2022 annual information form (the "AIF") filed on March 2, 2023. A copy of the AIF can be accessed under the Company's profile on SEDAR at www.sedar.com. Additional risks and uncertainties not presently known to the Company or that the Company currently believes to be less significant may also adversely affect the Company.

Readers are urged to consider the risks, uncertainties, and assumptions carefully in evaluating the forward-looking information and forward-looking statements and are cautioned not to place undue reliance on such information and statements. The Company does not undertake to update any such forward-looking information or forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable laws.

SOURCE Sleep Country Canada Holdings Inc. Investor Relations

For more information about Sleep Country, please visit ir.sleepcountry.ca.