Quick Facts
- Sleep Number has $936 million in debt with negative shareholder equity of $451.6 million
- Company expects to violate financial covenants in 2026 despite credit agreements extending through December 2027
- Bankruptcy probability assessed at 36-38% with Altman Z-Score of -0.39 placing it in distress zone
Sleep Number has issued a going concern warning as part of its ongoing turnaround efforts, acknowledging that bankruptcy remains a possibility as the mattress retailer struggles with mounting debt and liquidity constraints.
The company faces a severe financial crisis with over $936 million in debt and a debt-to-equity ratio of 210.5. Sleep Number reported negative shareholder equity of $451.6 million and maintains only $58 million in total liquidity at year-end.
CEO Linda Findley said the company has “radically reset the business by lowering our fixed cost structure and built a leaner, more nimble organization.” However, she acknowledged that “we are still in full turnaround mode” with significant hurdles ahead in 2026.
Sleep Number expects to violate financial covenants in 2026. The Net Leverage Ratio must step down from 5.25x in Q3 2025 to 4.0x by Q3 2026, while the Interest Coverage Ratio must rise from 1.50x to 2.20x over the same period.
Financial analysis firms assess Sleep Number’s probability of bankruptcy at 36-38%. The company’s Altman Z-Score of -0.39 places it in the distress zone, suggesting possible bankruptcy within two years.
For 2025, Sleep Number reported net sales of $1.41 billion with adjusted EBITDA of $78 million. The company experienced a net loss of $59 million in Q4, an increase from last year’s $5 million loss.
The retailer operates 600 stores across all 50 states, with stores accounting for 88% of net sales. Average annual sales per store reached $1.9 million in 2025.
Sleep Number has removed more than $185 million of annualized costs and identified another $50 million in fixed-cost reductions for execution in 2026. The company launched its ComfortMode mattress in January, priced under $1,600, which Findley said is “outselling plan by 3.5 times.”
The company has engaged Guggenheim Securities to evaluate opportunities to address its credit facility and improve liquidity. Findley noted that “three things hit us particularly hard” including industry-wide softness, inventory clearance, and careful marketing spend management.
Sleep Number’s turnaround strategy centers on simplifying its product portfolio, modernizing marketing, and expanding distribution channels. The outcome depends on the 2026 sales trajectory and covenant compliance.
Read more: Sleep Number issues going concern warning, says bankruptcy is possible
