ex99_1.htm

Exhibit 99.1

Unleashing Profitable Growth

May 2012

Edwin Boon

Vice President

Investor Relations & Corporate Strategy

Forward Looking Statements

Statements used in this presentation relating to future plans, events, financial results or performance are
forward-looking statements subject to certain risks and uncertainties including, among others, such factors
as general and industry economic trends; consumer confidence; the effectiveness of the company’s
marketing messages; the efficiency of its advertising and promotional efforts; consumer acceptance of its
products, product quality, innovation and brand image; availability of attractive and cost-effective consumer
credit options; execution of the company’s retail store distribution strategy; the company’s dependence on
significant suppliers, and its ability to maintain relationships with key suppliers, including several sole-source
suppliers; the vulnerability of key suppliers to recessionary pressures, labor negotiations, liquidity concerns
or other factors; rising commodity costs and other inflationary pressures; industry competition; the
company’s ability to continue to improve its product line; warranty expenses; risks of pending and potentially
unforeseen litigation; increasing government regulations, which have added or will add cost pressures and
process changes to ensure compliance; the adequacy of the company’s management information systems
to meet the evolving needs of its business and evolving regulatory standards applicable to data privacy and
security; the company’s ability to attract and retain senior leadership and other key employees, including
qualified sales professionals; and uncertainties arising from global events, such as terrorist attacks or a
pandemic outbreak, or the threat of such events. Additional information concerning these and other risks
and uncertainties is contained in the company’s filings with the Securities and Exchange Commission
(SEC), including the Annual Report on Form 10-K, and other periodic reports filed with the SEC. The
company has no obligation to publicly update or revise any of the forward-looking statements in this
presentation.

Video to be played.

Shelly Ibach

Chief Operating Officer

Incoming President & Chief Executive Officer

• Integrated customer-centric strategy

• Proprietary product and exclusive distribution

• Unique business model

Sleep Number Overview

Advantaged Growth Opportunity

On path for $1.5+ billion in sales and 15%+ operating margin by 2015

Consideration*

*Company Study

Industry Dynamics

Favor Sleep Number

Non-innerspring consideration
now similar to innerspring

Consumer acceptance fueled by
health and wellness trends

Sleep Number is well positioned
with differentiated product and
controlled distribution

•

Now within
2 pts

Everyone will know Sleep Number

and how it will improve their life

Innovative Sleep Number products will move

society forward with meaningful consumer benefits.

Sleep Number will be easy to find and customers will interact with us

when and how they want

Customers will love their Sleep Number experience and enthusiastically recommend
Sleep Number to their family and friends

Leveraging our unique business model to fund innovation and growth will benefit our
customers, employees and shareholders.

•

Becoming the New Standard in Sleep
by providing individualized sleep experiences

Our Long Term Goals

Everyone Will Know Sleep Number

and how it will improve their life

Redefine broader target
customer

Persuasive creative
development

Increase media reach,

effectiveness and investment

•

55%

Leading

Innerspring

Leading

Non-Innerspring

32%

15%

Sleep Number*

* Unaided Brand Awareness as of August 2011 per company study

Broaden Awareness

# 1 Growth

Opportunity

Everyone Will Know Sleep Number

Persuasive TV Campaign: Customer Experience

60 Second Promotional Focus

30 Second Product Launch

Video to be played.

Invest in persuasive advertising

Shift media investments from

less effective types

Focus on local development

and national advertising

Singular brand message

•

Everyone Will Know Sleep Number

Increase media reach

Increasing media effectiveness
& investment

2009

2012

Direct
Response

National broad

Reach

~$60M

Local broad
reach

Everyone Will Know Sleep Number

Persuasive creative - consumer
benefits versus problems

Drive store traffic - customer
focused value and urgency
versus 1-800 call to action

Effective reach - reaching broad
target customer with frequency

•

Increased Effectiveness

Increasing advertising impact

Direct
Response

Broad
Reach

• Infomercial format

• Problem/solution

• 2 or 28 minutes

• 2 step process

• Off peak hours

• Narrow, need state
target customer

• Low reach/high
frequency

• Brand experience

• Consumer benefit

• 30-60 seconds

• Drive to store

• Peak day parts

• Broader target
customer

• High reach/high
frequency

Everyone Will Know Sleep Number

Leading Indicator for market
share growth

•

(Q1)

+ 5 points

* Company study

Everyone Will Know Sleep Number

Awareness and market share
gains - overall and in leading
markets

Leading markets illustrate long
term growth opportunity

•

Results: Increased Awareness
and Market Share

Awareness drives market share

Leading market

11%

Awareness*

Market share

15%

30%

20%

35%

12%

* Company study

National average

Innovative Sleep Number Products

will move society forward with meaningful consumer benefits

Sleep Number bed series

Proprietary family of products

Business model leverages growth

•

Individualizing Sleep

Innovative Sleep Number Products

• DualAir™ Technology

• Clinically proven to improve
quality of sleep

• Premium good/better/best -
starting at $999 queen set

Sleep Number bed series

Innovative Sleep Number Products

DualAir™ Technology that individualizes comfort

Proprietary family of sleep products with exclusive distribution

Proven to improve quality of sleep and loved by customers

•

Key advantages

Sleep Number will be easy to find

and customers will interact with us when and how they want

Integrated local market strategy

Optimize existing stores

Fill-in gaps with new stores

Unique and exclusive store
experience

•

Retail distribution strategy

•

National Retailer

Sleep Number store presence, 45 states

Sleep Number will be easy to find

Local market development Year 1

Heavy-up local media

Rapid real estate optimization

Store team development

Apply strategy to 13 large,
underdeveloped markets*

Launch 4 markets in 2011,
3 in 2012 and 6 in 2013-2014

•

Aggressive growth strategy

•

Growing 2-3x faster
Year 1

22%

16%

25%

27%

49%

59%

66%

2011 YOY% net sales-total company

Aggressive growth markets

Aggressive
growth

strategy

launch

* Sleep Number is underpenetrated in these markets representing only 24% of sales, but 33% of total US mattress sales (~$4B)

Sleep Number will be easy to find

Flexible store format

Flexible real estate strategy -
mall and non-mall formats

Reposition select mall stores to
non-mall for visibility and
accessibility

Remodel, expand and/or
reposition select mall stores for
improved brand experience

•

Optimize existing locations

•

2 Sleep Number stores, ~$2-3M per store

6-8 competitor stores, <$1M per store

vs.

Sleep Number will be easy to find

Add 5-8% annually

Disciplined approach to real
estate selection

Leverage national presence

Deliver year 1 sales of an
average of $2M

•

Fill-in gaps with new stores

Destination retailer

•

Sleep Number will be easy to find

Relationship-based selling
process

Experiential store design

Lifetime relationship with
customers

Robust store training program;
consistent with selling process

High Sleep Professional
engagement and lower turnover

High Sales productivity

•

Unique and exclusive store
experience

•

Sleep Number will be easy to find

Average sales per comp store …
$1.9M

Consistent comp growth - exclusive
distribution

Highest volume stores achieving top-
tier comps

Significant profit leverage with higher
sales per store

•

Retail distribution strategy
produces high store productivity
and profitability

•

< $1M

$1.0-1.5M

$1.5-2.0M

>$2.0M

2009

2012-Q1 TTM

36% of stores

over $2M

Avg profit*
$300k

Avg profit*
>$600k

*4-wall profit excluding national media and customer service

Sleep Number will be easy to find

National premium brand retailer

Exclusive company-controlled distribution

Unique, relationship-based customer experience

•

Key advantages

Kathy Roedel

Chief Technology & Services Officer

Everyone will love their Sleep Number Experience

and will enthusiastically recommend to their family and friends

Product R&D

& Mfg

Marketing

Sales

Services

Lifetime

Engagement

Everyone will love their Sleep Number Experience

Only Sleep Number can innovate for customers at every touch point

Everyone will love their Sleep Number Experience

Sleep Number Field Service controls the experience…right to the bedroom

Sleep Number technicians connect
in the most private area of the
home

Comfort support - helping
customers find their perfect level
of comfort

Seals the deal…best bed-buying
decision

•

Individualized delivery service

“Our delivery person set up the bed … and was unbelievably knowledgeable and helpful. It's great to deal
with a company where everyone believes in the product, uses the product, and can express that well.
Thanks for a great purchase experience.” staylor via email

Everyone will love their Sleep Number Experience

Individualized customer service team listens and re-engages owners

Service where, when and
how she wants

Transforming service with
engaging Sleep Service
Professionals

Reconnecting with “Insiders”
with every contact

•

Your customer service people are amazing. I have found them to be very helpful and courteous...
I have already recommended Sleep Number to several people…” Tanya D., Chicago

Everyone will love their Sleep Number Experience

Sleep Number advances the relationship with a differentiated ownership experience

7.5 million “Insiders”…
1:1 marketing

Reasons to re-engage… Bedding
Collection, InnerCircle, Services

Sleep Number loyalty communities
…Online - web, social, mobile

•

Lifetime Engagement

I already have seven sleep number beds and I have had an additional 10 - 12 friends and family buy at
least one or two…“ Chris K., Denver

Everyone will love their Sleep Number Experience

Unparalleled customer service creates loyalty and drives repeat and referral growth

Repeat & Referral fuels our growth

2009

2012

~$200M Growth in

Repeat & Referral

Repeat

Referral

• Investing and innovating our

customer’s experience

• Creating communities of

passionately loyal owners

• Repeat and referral sales

fueling our growth

Only Sleep Number owns the
entire end-to-end customer
experience

Only Sleep Number can innovate
across every touch point to benefit
our customers

Only Sleep Number can deliver an
unparalleled brand experience to
drive repeat and referral sales

•

Everyone will love their Sleep Number Experience

Key Advantages

“Starting with the experience of purchasing the bed at the store; the
manager listened to my concerns and needs and he made excellent
suggestions to help me make the best decision and selection. No pressure
but extremely helpful. This was a big purchase for me and I appreciated the
very knowledgeable and professional salesperson. Then the actual
sleeping experience, well, let's just say, I LOVE MY BED. The sheets are
luxurious, the pillow is perfect and best of all, the bed itself is providing the
best sleep experience ever! And I do tell EVERYONE about it! I think that
knowing I can adjust the number depending on my needs is so cool!

I love it. Did I say that already?” Valerie R.

Sleep Number setting 30

Wendy Schoppert

Chief Financial Officer

Leveraging our Unique Business Model

Investment proposition

•Compelling sales growth → $1.5B+ by 2015

•Accelerating margins→ 15%+ by 2015

•Self funding, strong balance sheet, no debt

Leveraging our Unique Business Model

Proven formula drives growth

2011

(11%)

11%

23%

2011

2010

2009

1-Yr Comp

(4%)

19%

26%

8.6%

12.2%

2011

2010

2009

GM%

SM Exp%

61.6%

62.5%

63.3%

47.6%

44.6%

42.7%

4.4%*

$0.57

$1.07

2010

2009

$0.24*

*Pro Forma EPS

*Pro Forma Operating Margin

Q1 ’12

+36%

EPS

Net Sales Growth

Operating Margin

2011

2015

$743M*

Open new
stores

$1.5B+

• Build awareness

• Remodels/Repositions

• Product Innovation

12%

Operating

Margin

15%+

Operating

Margin

• 5-8% annual store
growth

• Year 1 new stores
average $2M in sales

Leverage

existing stores

$400M+

* Net Sales

Leveraging our Unique Business Model

Growing sales through new and existing stores

$140K

average sales per store

$50M+ total sales

1 Customer

per store per week

$1M

$1.3M

$1.7M

$2M+

2009

2010

2011

2012E

2015E

$3M+

Average Sales per Store

Leveraging our Unique Business Model

Continue to enhance store profitability

• Pricing & operational efficiency

• Investment in customer experience

• Quarterly variability

2009

2010

2011

2015E

61.6%

62.5%

63.3%

65%+

• Focus on gross profit $s

• Sourced product has lower gross
margin rate, yet accretive to profit $s

Q109

Q110

Q111

Q112

Leveraging our Unique Business Model

Strategy supports gross margin rate and $ growth

Gross Margin Rate

Gross Profit $/Unit - Q1 Comparison

EBITDA ttm ($ in millions)

$ in millions

Record EBITDA

Cash Balance

• Maintain $125M minimum balance

• Priority #1: Self-fund profitable growth - fast growing ROIC

• Initiated share buyback in April

Leveraging our Unique Business Model

Strong cash flow generation

• Integrated customer-centric strategy

• Proprietary product and exclusive distribution

• Unique business model

Sleep Number Overview

Advantaged Growth Opportunity

On path for $1.5+ billion in sales and 15%+ operating margin by 2015

Q & A

Appendix

Non-GAAP Financial Measures Reconciliation

EBITDA for 2009, 2010, 2011 & Q1-2012 (trailing-twelve-month basis)

Non-GAAP Financial Measures Reconciliation

EBITDA for 2009, 2010, 2011 & Q1-2012 (trailing-twelve-month basis)