Our fiscal year ends on the Saturday closest to December 31, and, unless the context otherwise requires, all references to years in this Form 10-K refer to our fiscal years. Our fiscal year is based on a 52- or 53-week year. All years presented in this Form 10-K are 52 weeks, except for the 2020 fiscal year ended January 2, 2021, which is a 53-week year.

This Annual Report on Form 10-K contains or incorporates by reference certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. For this purpose, any statements contained in or incorporated by reference into this Annual Report on Form 10-K that are not statements of historical fact may be deemed to be forward-looking statements, including but not limited to projections of revenues, results of operations, financial condition or other financial items; any statements of plans, strategies and objectives of management for future operations; any statements regarding proposed new products, services or developments, including potential features of our products that may be developed in the future; any statements regarding future economic conditions, prospects or performance; statements of belief and any statement or assumptions underlying any of the foregoing. In addition, we or others on our behalf may make forward-looking statements from time to time in oral presentations, including telephone conferences and/or Webcasts open to the public, in press releases or reports, on our website or otherwise. We try to identify forward-looking statements in this report and elsewhere by using words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “project,” “predict,” “intend,” “potential,” “continue” or the negative of these or similar terms.

Our forward-looking statements speak only as of the date made and by their nature involve substantial risks and uncertainties. Our actual results may differ materially depending on a variety of factors, including the items discussed in greater detail below under the caption “Risk Factors.” These risks and uncertainties are not exclusive and further information concerning the Company and our business, including factors that potentially could materially affect our financial results or condition, may emerge from time to time, including factors that we may consider immaterial or do not anticipate at this time.

We wish to caution readers not to place undue reliance on any forward-looking statement and to recognize that forward-looking statements are predictions of future results, which may not occur as anticipated. We assume no obligation to update forward-looking statements to reflect actual results or changes in factors or assumptions affecting such forward-looking statements. We advise you, however, to review and consider any further disclosures we make on related subjects in our quarterly reports on Form 10-Q and current reports on Form 8-K that we file with or furnish to the Securities and Exchange Commission.

InOur 2021 fiscal year included 52 weeks, compared with 53 weeks in fiscal 2020. Adjusting to exclude the estimated impact from this additional week in 2020, we increased annual 2021 net sales by 9%20% to $1.9$2.2 billion, grew 2021 earnings per diluted share (EPS) by 81%34% to $4.90$6.16 and generated cash from operations by 48% to $280of $300 million. Return on invested capital (ROIC) was 27.6%, a 260 basis point improvement from 2020. Our 2020 fiscal year included an extra week which we estimate benefited net sales in the fourth quarter of 2021 were constrained by $41delayed receipt of critical semiconductor components, preventing deliveries and shifting more than $125 million of net sales to future periods. 2021 costs were also significantly impacted by inflation and EPS by $0.30. These results reflect the acceleration of three structural consumer shifts we anticipated at the inception of our consumer innovation strategy in 2012:inefficiencies arising from supply disruption and other global COVID challenges.

EachAs we navigate the current complexities of these shifts is enduring, fueling permanent changesthis global-business environment, we are unwavering in consumer purchasing behaviorretaining our long-term perspective. For the five-year period ending with fiscal 2021, our compound annual growth rate (CAGR) for EPS was 41 percent and propelling our profitable growth.

In 2020, we also announcedArtificial intelligence (AI) and data science enable the automatic adjustments to improve sleep and provide actionable insights for our forthcoming Sleep Number Climate360™Smart Sleeper℠ community, connecting quality sleep to sleep health through highly accurate, comprehensive, longitudinal biometric data collected during each sleep session. Ongoing advancements to the 360 smart bed platform via over-the-air updates enable real-time, effortless data collection and the first-ever bed that uses advanced temperature technology to create a personalized, responsive microclimate with automatic firmness adjustability. Unveiled at CES 2020, both the Climate360delivery of sleep and new 360 smart beds won prestigious awards,wellness insights including the CES 2020 “Best of Innovation” award.Sleep Circadian Analytics, Sleep Wellness Reports, Heart Rate Variability, My Daytime Alertness and My Sleep Health.

Sleep Number also offers a full line of exclusive FlexFit™ smart adjustable bases that allow customers to raise the head or foot of the bed. These industry leading FlexFitindustry-leading bases seamlessly integrate with SleepIQ technologythe 360 smart bed to deliver features like our Partner Snore™ technology, which allows a sleeping partner to temporarily relieve mild snoring by raising theirthe companion’s head at the touch of a button.

We also offercollaborate with renowned physicians and clinicians as part of our Scientific Advisory Board, an interdisciplinary group of physicians, clinicians and researchers with expertise in sleep science, research and health.

In 2020, we announced a varietycollaboration with Mayo Clinic. Our collective goal is to further sleep science and improve health care quality and clinical outcomes. We established foundational data sharing capabilities, which are being utilized by Mayo Clinic. The scalable data sharing infrastructure will allow us to expand data sharing to other research communities this year.

In 2022, we formed a landmark partnership with the American Cancer Society to study the connection between cancer and quality sleep, with the goal of temperature-balancing products includingdeveloping the DualTemp™ layer. Thisfirst-ever sleep strategies and guidance for cancer patients and survivors. Over six years, American Cancer Society will conduct research with contributions from Sleep Number’s proprietary sleep innovation features active air technologydata, leading to improved sleep outcomes for cancer patients and survivors. Our partnership will advance not only the fundamental understanding of the science of sleep but also the translation of that allows each sleeper to select their ideal temperature at the simple touch of a button and can be used with any mattress brand or adjustable base.knowledge into practical actions that provide meaningful outcomes.

Our Minneapolis, MN-based R&D team leads the innovation of our smart mattress,bed, adjustable base design and bedding solutions and is comprised of experts in mechanical engineering, comfort, adjustability, temperature, anthropometrics and test systems. Our Sleep Number Labs team in San Jose, CA supports the evolution of SleepIQ technology with leading experts in sleep research, data science, analytics and full-stack Internet of Things platform development.

We have accelerated our investments in R&D to enhance our competitive advantage. We continue to enhance our expertise and capabilities specific to the healthcare industry, forming an internal SleepIQ health team, advancing Sleep Number’s leadership in connected sleep health and further underscoring the commitment to innovation in health and wellness. As a result of our R&D and strategic efforts, we have continued to grow our patent portfolio, with a particular focus on smart features that improve sleep quality, and thermal solutions to solve temperature disruptions to sleep. Our world-wide patent portfolio now contains more than 350380 patents, which enhances our protection of our exclusive and proprietary technologies. Our research and development expenses were $59 million in 2021, $41 million in 2020 and $35 million in 2019 and $29 million in 2018.

Our exclusive, direct-to-consumer distribution model buildssupports lifelong relationships with our customers. We employ technology acrossAcross our customer touchpoints towhich include Stores, Online, Phone and Chat, we deliver a value-added retail experience that seamlessly integrates our digital and physical touchpointsexperiences to meet customer needs, and our mission-driven, highly-trained sleep experts use our best-in-class relationship-based selling process, which is continually tested and refined, to deliver high conversions.needs. We offer an engaging and dynamic online experience which was heavily optimized in 2020, to educate consumers and advance their purchase path, driving highly-qualified traffic to all our retail touchpoints: Stores, Online, Phonetouchpoints. Our mission-driven, highly-trained sleep experts use digital technology and Chat.our best-in-class relationship-based selling process, which is continually tested and refined, to find the right sleep solutions for our customers — wherever and whenever they want to shop. This “sell-from-anywhere” model supports our customers’ shopping preferences and results in new customer acquisition, sustained repeat and referral, high conversion and strong revenue per smart bed unit — all of which drive continued sales and profitable growth.

Relevant, engaging and individualized communications have helped Sleep Number tohas become a beloved brand, which was built on a foundation of individuality and wellbeing. Our relevant, engaging and individualized communications help to drive sustained demand and market share gains for our award-winning 360 smart beds. Our consumer innovation strategy — which has guided us since 2012 — enables a deep understanding of, and insights about, our target customers, includingcustomers. These insights give us the perceptual acuity to see ahead of structural consumer-behavior shifts in consumer behavior that we have anticipated sinceand helps us pivot when necessary, such as during the inception of our consumer innovation strategy in 2012 – and which were accelerated by therecent global pandemic – have guided our brand marketing strategies. To drive both new customer acquisition and retention (Insiders) business, ourpandemic.

Our brand communications strategies are designed to emotionally connect consumers with high-quality content about the benefits of life-changing sleep and the value of our 360 smart bed: (i) webeds. We leverage and amplify our brand through highly-visible strategic partnerships; (ii) we engage consumers seamlessly across multiple touchpoints with an emphasis on digital; and (iii) we create lifelong customer relationships and brand advocacy by delivering an unparalleled sleep experience. Together, these actions result in driving strong brand health, increased brand interest, heightened consumer consideration, andcustomer engagement high-quality traffic, and authentic advocacy for Sleep Number’s brand, productsinnovations and services.

Strategic partnerships amplify the effectiveness, impact and scale of our brand and marketing efforts:

We leverage a sophisticated media mix to drive our performance-marketingperformance marketing and advertising, communicationswith emphasis on a localdigital and national scale,aligned with consumer consumption, contributing to improved media return on investment (ROI). High-profile video, including television and online streaming, is our most efficient media, followed by digital and social platforms. Our world-class, in-house digital capabilities, content marketing, online user experience and data-driven tools give us the

flexibility to pivot quickly and optimize media investment, messages and audience by platform in real-time. Our promotional strategy focuses on simplicity and relevance, driving consumers to the brand at the exact time when they are seeking a smart bed. In 2020,2021, media expense represented 13.6%14.8% of net sales.

We leaned into customer acquisition in 2019 and rapidly acceleratedcontinue to strengthen our digital capabilities in early 2020. We strengthenedinteractions with a new “sell-from-anywhere” model which makes it easy for our digital engagementcustomers to select the best Sleep Number solution for their needs, however they want to interact with us. And by delivering a superior, personalized customer connection with our highly-knowledgeable sleep professionals. A new platform featuring modern, cloud-based architecture accelerated our “sell-from-anywhere” capability that makes it easy for our customers to get the exact Sleep Number solution theyprofessionals, we are looking for, on their own terms. By the third quarter of 2020, our digital traffic had surpassed all of 2019 and we delivered 80 basis points of leverage in our media spending in that quarter.building lifelong relationships. Overall, 20202021 represented our thirdfourth straight year of double-digit, digital-traffic growth.

Sleep Number’s integrated supply chain is a competitive advantage. Our commitments to innovation and continuous improvement are employed to leverage our vertical-businessvertical business model by optimizing culture, processes and technology. In addition to a network of global suppliers, we currently operate two component manufacturing plants (Irmo, SC and Salt Lake City, UT) and fourfive assembly distribution centers (Irmo, SC; Salt Lake City, UT; Ontario, CA; and Baltimore, MD) with two additional locations (Dallas, TXMD; and Tampa, FL) with three additional assembly distribution centers (Dallas, TX; Cincinnati, OH; and Minneapolis, MN) opening in early 2021.2022. Primary operations at the manufacturing sites, which have consistently won awards for safety and manufacturing excellence, include cutting and sewing of the fabric covers for our beds and final assembly and packaging of mattresses and bases. Webeds. In our Utah plant, we also assemble our electrical Firmness Control™ systems insystems. Teams at our Utah plant. Our plants have consistently won awardsassembly distribution centers fulfill customer orders that are made-to-order daily and assemble final mattress and order kitting with bases and accessories for safety and manufacturing excellence.shipment. We also operate a national bedding fulfillment center in Minneapolis, MN.bedding-fulfillment center.

We source the raw materials and components used in our products from third parties. Various components are sourced from suppliers who currently serve asThroughout 2021, we encountered temporary disruptions in our sole or primary sourcesupply of supply. We believe we can obtain these rawvarious materials and components from other sources of supply, although we could experience short-term disruption in order fulfillmentdue to well-documented shortages and constraints in the event of an unexpected loss of supply.global supply chain. We have taken, and continue to take, various measures to mitigate the potential impact of an unexpected supply disruption from any sole-source ordisruptions, including strengthening relationships with primary suppliers, includingidentifying new alternate suppliers, redesigning products, exploring alternative components and maintaining safety stocksstocks. While we expect some supply constraints to persist through 2022, we are leveraging the flexibility, visibility and identifying potential alternate suppliers. Our key suppliers have in place either contingency or disaster recovery plans or redundant production capabilitiesresilience of our vertically-integrated model to minimize any unforeseen disasters.respond nimbly as conditions change and communicate clearly with customers regarding their delivery experience.

At the end of 2020,2021, approximately 50%60% of our smart beds were pre-assembled forin our assembly distribution centers prior to delivery to customers’ homes while the remaining deliveries wereversus being assembled in customers’ homes.homes by Sleep Number technicians. We are pursuingexpect to complete a multi-year evolution of our supply chain distribution network to pre-assemble 100% of our smart beds by the end of 2022. Additionally in as many as eight planned assembly distribution centers around the U.S. by 2022.2022, we will move our bedding fulfillment center from Minnesota to Ohio to be closer to our customers. We are advancing our outbound logistics network by adding full truckload carriers and dedicated cross docks to reduce product handling, hand-offs, damage and costs while in transit to customers’ homes. We see these initiativesThis new network design enables scale and agility to support volume spikes and disruptions, providing a superior and reliable experience for customers with lower costs for the business.

Our home delivery teams are another direct touchpoint with our customers. Since 2018, 100% of our 360 smart beds sold are delivered and installed by our home delivery technicians or by our third-party service providers.

Our home delivery teams across the nation embracedovercame the challenges of the COVID-19 pandemic in 2020,throughout 2021, adopting measures to safeguard customer and team member health while ensuring that customers were still able to receive the quality sleep they needed.

Serving our customers remains a strong focus. Through our U.S.-based, in-house customer service team locatedbased in Minneapolis, MN and New Orleans, LA, we provide direct post-purchase support that improves the customer experience and drives our business. Through frequent service and support interactions with customers via phone, email, live chat and social media, these team members also provide a unique opportunity to gather insights that help us continuously improve our products, strengthen our service quality and advance our innovation. This integration enables operational synergies and drives organizational efficiencies.

We use information technology systems to operate, analyze and manage our business, to reduce operating costs and to enhance our customers’ experience. Our major systems include an in-store order entry system, a retail portal system, a payment processing system, in-bound and out-bound telecommunications systems for direct marketing, delivery scheduling and customer service systems, e-commerce systems, a data warehouse system and an enterprise resource planning (ERP) system. These systems are primarily comprised of packaged applications licensed from various software vendors plus a limited number of internally developed programs.programs and digital solutions.

We hold various U.S. and foreign patents and patent applications regarding certain elements of the design and function of our products, including air control systems, remote control systems, air chamber features, mattress construction, foundation systems, sensing systems, automated adjustments, in-bed temperature control, as well as other technology. We have numerous U.S. patents, expiring at various dates between July 2021January 2022 and April 2039,August 2045, and numerous U.S. patent applications pending. We also have numerous foreign patents and patent applications pending. Notwithstanding these patents and patent applications, we cannot ensure that these patent rights will provide substantial protection or that others will not be able to develop products that are similar to, or competitive with, our products.

Several of our trademarks have been registered, or are the subject of pending applications for registration, in various foreign countries. We also have other intellectual property rights related to our products, processes and technologies, including trade secrets, trade dress and copyrights. We protect and enforce our intellectual property rights, including through litigation as necessary.

Sleep disorders have been declared a public health epidemic by the U.S. Center for Disease Control. One in three adults suffer from a lack of adequate sleep. Sleep Number is focused on producing products to address this growing problem. The total U.S. sleep-health economy was estimated to be $30 billion to $40 billion in a 2017 report published by McKinsey & Company. This reflects the traditional view of the bedding industry which includes the sales of mattresses and foundations, as well as emerging solutions for insufficient sleep such as routine modification and therapeutic treatment. We believe the sleep economy will continue to evolve and grow as consumers look for products and reliable data sources to address sleep deprivation challenges.

The traditional view of the U.S. bedding industry, including mattresses and foundations (static and adjustable), is measured through data provided by the International Sleep Products Association (ISPA). According to ISPA, the industry has grown by approximately 4%5% annually over the last 20 years, including 4%6% annually, on average, over the past five years. According to ISPA and our estimates, industry wholesale shipments of mattresses and foundations (including imported products and adjustable bases) were approximately $10.9$13 billion in 20202021 (approximately $22$26 billion at retail).

The retail bedding industry is commoditized and highly competitive. Sleep Number competes against regional and local specialty bedding retailers, home furnishing stores, mass merchants, national discount stores and online marketers. Furniture/Furniture Today, a furniture industry trade publication, has ranked Sleep Number as the 5th largest mattress manufacturer and 2nd largest U.S. bedding retailer for 2019,2020, with an estimated 8% market share of industry retail revenue. Our consumer innovation strategy with proprietary sleep innovations and exclusive direct-to-consumer distribution is highly differentiated, resulting in lifelong customer relationships and contributing to our continued profitable growth.

Manufacturers in the bedding industry compete through retail partners on price, quality, brand name recognition, product availability and product performance, including the perceived levels of comfort and support provided by a mattress. There is a high degree of concentration among manufacturers, who produce innerspring, memory foam and hybrid beds, under nationally recognized brand names, including Tempur Sealy, Stearns & Foster, Serta and Simmons. In recent years, numerous direct-to-consumer companies and low-cost importers have entered the market, offering “bed-in-a-box” products to consumers, primarily through online distribution though many now partner with traditional mattress retailers. Their products are generally foam-based and undifferentiated in terms of sleep benefits.

As a vertically integrated manufacturer and retailer, we are subject to extensive federal, state and local laws and regulations affecting all aspects of our business.

As a manufacturer, we are committed to product quality and safety, including adherence to all applicable laws and regulations affecting our products and services. Compliance with health, safety and environmental laws and regulations, including the federal fire retardant standards developed by the U.S. Consumer Product Safety Commission, which requires rigorous and costly testing, has increased the cost and complexity of manufacturing our products and may adversely impact the speed and cost of product development efforts. Further, our manufacturing, distribution, delivery and other business operations and facilities are subject to additional federal, state or local laws or regulations including supply chain transparency, conflict minerals sourcing and disclosure, end-of-life disposal and recycling requirements, transportation and other laws or regulations relating to environmental protection and health and safety requirements, including COVID-19 safety and prevention.

As a retailer, we are subject to additional laws and regulations that apply to retailers generally and govern the marketing and sale of our products and the operation of both our retail stores and our e-commerce activities. Many of the statutory and regulatory requirements that impact our retail and e-commerce operations are consumer-focused and pertain to activities such as our promotions, advertising claims, pricing, credit-based promotional offers, truth-in-advertising, privacy, “do not call/mail” requirements, text messaging requirements, warranty disclosure, delivery timing requirements, accessibility and similar requirements.

Our operations are subject to federal, state and local labor laws including, but not limited to, those relating to occupational health and safety, employee privacy, wage and hour, overtime pay, harassment and discrimination, equal opportunity and employee leaves and benefits. We are also subject to existing and emerging federal and state laws relating to data security and privacy.

It is our policy and practice to comply with all legal and regulatory requirements and ourrequirements. Our procedures and internal controls are designed to promote such compliance.

Our business is modestly impacted by seasonal influences inherent in the U.S. bedding industry and general retail shopping patterns. The U.S. bedding industry generally experiences lower sales demand in the second quarter of the calendar year and increased sales demand during selected holiday or promotional periods.

We are able to operate with minimal working capital requirements because we sell directly to customers, utilize a primarily hybridboth “make-to-order” and “make-to-stock” production processprocesses and operate retail stores that serve mainly as showrooms. We have historically generated sufficient cash flows to self-fund operations through an accelerated cash-conversion cycle. Our Credit Agreement provides a revolving credit facility for general corporate purposes with net aggregate availability of $450$825 million. The Credit Agreement contains an accordion feature that allows us to increase the amount of the credit facility from $450$825 million up to $600 million$1.2 billion in total availability, subject to Lenders’ approval. The Credit Agreement matures in February 2024.December 2026.

Qualified customers are offered revolving credit to finance purchases through a private-label consumer credit facility provided by Synchrony Bank. Approximately 52%50% of our net sales in 20202021 were financed by Synchrony Bank. Our current agreement with Synchrony Bank expires December 31, 2023, subject to earlier termination upon certain events. We pay Synchrony Bank a fee for extended credit promotional financing offers. Under the terms of our agreement, Synchrony Bank sets the minimum acceptable credit ratings, interest rates, fees and all other terms and conditions of the customers’ accounts, including collection policies and procedures. As the receivables are owned by Synchrony Bank, at no time are the receivables purchased or acquired from us. We are not liable to Synchrony Bank for our customers’ credit defaults. In connection with all purchases financed under these arrangements, Synchrony Bank pays us an amount equal to the total amount of such purchases, net of promotional related discounts, upon delivery to the customer. Customers that do not qualify for credit under our agreement with Synchrony Bank may apply for credit under a secondary program that we offer through another provider.

Our culture embraces the shared valuesAt January 1, 2022, we employed a total of passion, integrity, innovation, courage5,515 team members, of which 145 were classified as part-time and teamwork. These values are central to who we are110 were employed on a temporary basis. The breakdown of team members by area was as a teamfollows: 2,487 in retail sales and our ability to attract, engage, motivatesupport, 1,054 in field services, 415 in customer service, 642 in manufacturing and retain talent. logistics, and 917 in technology, corporate, management and administrative positions.

Our holistic approach to talent management, as described below,designed to attract, motivate, develop, reward and retain the right talent is critical to the execution of our consumer innovation strategy. Talent management at Sleep Number is not a cyclical process but instead is a continuous lifecycle centeredWe sustain our inclusive culture built on individuality and wellbeing by providing an exceptional team member experience, offering ample opportunities for professional learning and development. It comes to life through a 70/20/10 learning philosophy: (i) 70% of learning is on-the-job; (ii) 20% happens through managers, peers and others; and (iii) 10% is formal training or development.advancement. Our leaders have a strong commitmentare deeply committed to seeing that this approach tothe success of our talent management is successfully carried out every day. Some of the metrics thatapproach and we use to gaugehold ourselves accountable by routinely measuring our progress include:on a variety of elements and metrics including:

In 2018, weOur social impact extends beyond philanthropic partnerships. We announced a sociallong-term partnership with the AMERICAN CANCER SOCIETY to enable cancer research and prevention tied explicitly to quality sleep, as well as to provide support for patients and caregivers who need sleep to bolster their physical, mental and emotional resilience. And through our collaboration with MAYO CLINIC, Sleep Number continues to advance sleep science research and enhance our understanding of sleep's impact on cardiovascular health. In 2021, we provided funding for Mayo Clinic to conduct several multi-year studies, two of which particularly demonstrated our societal impact:

As part of our commitment to help one million young people achieve life-changing sleep throughteam member wellbeing and the health of our products and sleep expertise by 2025. In 2020, we expanded our focus to broadly support children, families and communities, especially those who were deeply affected by the COVID-19 pandemic and social injustices. Our 2020 cash donations totaled over $600,000, and ourSleep Number also encourages team members donatedto become involved in their local communities by volunteering their time and effortstalents in support of causes or organizations that inspire them. Our leaders who participate on the board of directors of a qualified nonprofit are eligible to support individuals and families in need in their surrounding communities.

positive impact. On Giving Tuesday 2020, we announced a year-long partnershipThrough strategic partnerships, team member involvement and support for sleep science research, combined with Make-A-Wishthe continued advancement of our proprietary innovations, Sleep Number is fulfilling our purpose to help critically ill Wish kids across the United States receive the quality sleep they need by providing new 360 smart beds. We also made a financial contribution to the National Urban League to support its important work to improve equality for Black Americans. In addition, because the health and wellbeing of our team members is a high priority, we provided all 4,700 Sleep Number team members with the gift ofsociety through higher quality sleep in 2020, presenting each with a new Sleep Number 360 smart bed.

Our Corporate Responsibility and Sustainability Report, posted within the Investor Relations section of our Company website, provides additional information about our commitment to talent management and human rights at Sleep Number, including strategy details, performance metrics and our engagement, beginning in 2020, with the United Nations Global Compact.engagement. The report highlights our commitments:

We are subject to the reporting requirements of the Exchange Act and its rules and regulations. The Exchange Act requires us to file reports, proxy statements and other information with the Securities and Exchange Commission (SEC).

Copies of any of the above-referenced information will also be made available, free of charge, upon written request to:

Investor Relations Department

1001 Third Avenue South

Minneapolis, MN 55404

With temporary closures to our retail store locations acrossSince the country at various points during 2020 and our delivery operations adversely impacted,beginning of the COVID-19 pandemic, we scaled our digital and “sell-from-anywhere” capabilities including: remote retail selling, customer service, private appointments, flexible work schedules, solutions for contactless delivery, and remote access for team members across the country. This shift to our team members working remotely has amplified certain risks to our business, including increased demand on our information technology resources and systems and increased risk of cybersecurity breaches and IT outages. In addition, as recommendations and/or mandates have been modified, eased, or lifted, and in some cases re-implemented across the country, we have implemented newand evolved our health and safety policies at headquarters, stores, and our manufacturing and assembly locations as well as for our home deliveryoperations, facilities and teams across the country, which are intended to ensure the safety of our team members and customers and reduce the risk of contracting or spreading the coronavirus for team members, contractors, and customers who are unable to perform their roles or transact business remotely. The return to working in-person presentscustomers. As the riskcoronavirus variants have changed and presented different risks, it is possible that our new health and safety policies may not adequately protect our team members, contractors, and customers from contracting or spreading the coronavirus.coronavirus, which may have an adverse effect on our business operations or financial results.

In response to the COVID-19 pandemic, including the significant reductionchanges in customer visits to,purchasing patterns, supply chain constraints and spending at, our stores caused by COVID-19,workforce considerations we did, and in some situations continue to, take decisive actions to maintainstrengthen liquidity and reduce costs. It is possible that our cost reduction efforts may be insufficient to maintain adequate liquidity if our operations are further restricted or disrupted due to the COVID-19 pandemic or governmental recommendations or mandates, including vaccination or testing mandates that may be imposed in jurisdictions in which we operate, that may result in material impact on our sales and profits.

Additionally, if we do not respond appropriately to the pandemic, or if customers do not perceive our response to be adequate for a particular region or our Company as a whole, we could suffer damage to our reputation and our brand, which could adversely affect our business and financial results in the future.

We are highly dependent on the effectiveness of our marketing messages and the efficiency of our advertising expenditures in generating consumer awareness and sales of our products. In light of our adjustments due to COVID-19 and the overall fluid

nature of the pandemic and the consumer environment, we may not be as successful in developing effective messages and achieving efficiency in our advertising expenditures.

Our temporary reduction of discretionary spending across the Company and theThe inability or limitations of certain suppliers, both domestic and foreign, to ramp production to meet growing or surging global demand or to operate due to the COVID-19 pandemic, governmental mandatesrestrictions or recommendations, staffing or supply shortages, or a reluctant workforce has delayed and may continue to delay the introduction of new innovations and product lines.

The situation surrounding COVID-19 remains fluid, and the potential for an adverse effect on our business and our financial results increases the longer the virus impactsand new variants impact activity levels in the United States and globally. For this reason, we cannot reasonably estimate with any degree of certainty the extent of the impact COVID-19 will have on our business. The extent and duration of the impact of COVID-19 on our business, operations, and financial results will depend on future developments, including the duration and spread of the outbreak,pandemic, new variants, the availability, administration, and efficacy of vaccines, governmental mandates and recommendations, business and workforce disruptions, and the related impact on global and domestic supply chain and consumer confidence and spending, all of which are highly uncertain and unpredictable.

Our success depends significantly upon discretionary consumer spending, which is influenced by a number of general economic factors, including without limitation economic growth, consumer confidence, the housing market, employment and income levels, interest rates, inflation, taxation, consumer shopping trends and the level of customer traffic in malls and shopping centers, civil unrest, as well as the COVID-19 pandemic. Adverse trends in any of these economic factors may adversely affect our sales, profitability, cash flows and financial condition.

A significant percentage of our sales are made under consumer credit programs through third parties. The amount of credit available to consumers may be adversely impacted by macroeconomic factors, including those related to or resulting from the COVID-19 pandemic, that affect the financial position of consumers, and as suppliers of credit adjust their lending criteria.

Synchrony Bank provides credit to our customers through a private label credit card agreement that is currently scheduled to expire on December 31, 2023, subject to earlier termination upon certain events. Synchrony Bank has discretion to control the content of financing offers to our customers and to set minimum credit standards under which credit is extended to customers.

Reduction of credit availability due to changing economic conditions, including rising inflation, increased interest rates, changes in credit standards under our private label credit card program or changes in regulatory requirements, or the termination of our agreement with Synchrony Bank, could harm our sales, profitability, cash flows and financial condition.

We are highly dependent on the effectiveness of our marketing messages and the efficiency of our advertising expenditures in generating consumer awareness, consideration and conversation leading to sales of our products. We continue to evolve our marketing strategies, adjust our messages, and

where we spend it. We may not always be successful in developing effective messages, as the consumer and competition change, or in achieving efficiency in our advertising expenditures.

We rely in part upon third parties, such as social media influencers and athletes, to market our brand, and we are unable to fully control their efforts. Influencers and athletes with whom we maintain a relationship could engage in behavior or use their platforms to communicate directly with our customers in a manner that reflects poorly on our brand, and these communications may be attributed to us or otherwise adversely affect us. It is not possible to prevent such behavior, and the precautions we take to detectprevent or preventdetect this activity may not be effective.

Consumers are increasingly usinghaving digital toolsexperiences and interactions as a part of their shopping experience. As a result, our future growth and profitability will depend in part on (i) the effectiveness and efficiency of our online experience, including without limitation advertising and search marketing and optimization programs, in generating consumer awareness and sales of our products; (ii) our ability to prevent confusion among consumers that can result from search engines that allow competitors to use our trademarks to direct consumers to competitors’ websites through confusing or misleading advertisements; (iii) our ability to prevent Internet publication of false or misleading information regarding our products or our competitors’ products; (iv) reviews of our products; (v) the nature and tone of consumer sentiment, including those published online or elsewhere; and (vi) the stability of our website. In recent periods, competitor spending on Internet-baseddigital marketing programs has increased, including without limitation from a number of direct-to-consumer, Internet-baseddigital retailers and omnichannel retailers, which has and may continue to increase the cost of basic search terms and the cost of our Internet-baseddigital marketing programs.

If our marketing messages are ineffective or our advertising expenditures and other marketing programs, including digital programs, are inefficient in creating awareness and consideration of our products and brand name, and in driving consumer traffic to our website, call centers, or stores, our sales, profitability, cash flows and financial condition may be adversely impacted. In addition, if we are not effective in preventing the publication of confusing, false or misleading information regarding our brand or our products, or if there is publication online or elsewhere of significant negative consumer sentiment regarding our Company, brand or our products, our sales, profitability, cash flows and financial condition may be adversely impacted.

The vast majority of our sales occur through Total Retail, including our retail stores and our website. Total Retail represents our largest opportunity for growth in sales and improvement in profitability. Our retail stores carry significant fixed costs. We also make significant capital expenditures as we open new stores and remodel or reposition existing stores. We are highly dependent on our ability to maintain and increase sales per store to cover these fixed expenses, provide a return on our capital investments and improve our operating margins.

Some of our stores are mall-based. We depend on the continued popularity of malls as shopping destinations and the ability of mall anchor tenants and other attractions to generate customer traffic for our mall-based retail stores. Any decrease in mall traffic, including due to governmental recommendation or mandates related to COVID-19, could adversely affect our sales, profitability, cash flows and financial condition.

Our Total Retail distribution strategy results in relatively few points of distribution, including 602648 retail stores in 50 U.S. states as of the end of 2020,2021, Online, Phone and Chat. Several of the mattress manufacturers and retailers with which we compete have significantly more brick-and-mortar points of distribution than we do, which makes us highly dependent on our ability to drive consumers to our points of distribution to gain market share.

Our longer-term Total Retail distribution strategy is also dependent on our ability to renew existing store leases and to secure suitable locations for new store openings, in each case on a cost-effective basis. We may encounter higher than anticipated rents and other costs in connection with managing our retail store base. We may also be unable to find or obtain suitable new locations.

Our products are highly differentiated from traditional innerspring mattresses and from viscoelastic and other foam mattresses, which have little or no technology and do not rely on electronics and air control systems. As a result, our

beds may be susceptible to failures that do not exist with traditional or foam mattresses. Failure to achieve and maintain acceptable quality standards could impact consumer acceptance of our products or result in negative media and Internet reports or owner dissatisfaction that could negatively impact our brand image and sales levels.

In addition, a decline in product quality could result in an increase in return rates and a corresponding decrease in sales, or an increase in product warranty claims in excess of our warranty reserves. An unexpected increase in return rates or warranty claims could harm our sales, profitability, cash flows and financial condition.

As a consumer innovation Company with differentiated products, we face an inherent risk of exposure to product liability claims or regulatory actions if the use of our products is alleged to have resulted in personal injury or property damage. If any of our products proves to be defective or non-compliant with applicable regulations such as the federal Consumer Product Safety Commission flammability standards, we may be required to recall or redesign such products. We have at times experienced increased returns and adverse impacts on sales, as well as product liability litigation, as a result of media reports related to the alleged propensity of our products to develop mold. We may experience additional adverse impacts on sales and additional litigation if any similar media reports were to occur in the future. We maintain insurance against some forms of product liability claims, but such coverage may not be applicable to, or adequate for, liabilities actually incurred. A successful claim brought against us outside of, or in excess of, available insurance coverage, or any claim or product recall that results in significant adverse publicity about us, may have a material adverse effect on our sales, profitability, cash flows and financial condition.

As described in greater detail below, the bedding industry, as well as the market for sleep monitoring products, are both highly competitive, and our ability to compete effectively and to profitably grow our market share depend in part on our ability to continue to improve and expand our product line of adjustable firmness air beds, SleepIQ technology and related accessory products. We incur significant research and development and other expenditures in the pursuit of improvements and additions to our product line. If these efforts do not result in meaningful product improvements or new product introductions, or if we are not able to gain widespread consumer acceptance of product improvements or new product introductions, or there are delays or production limitations with respect to our product improvements or new product introductions, our sales, profitability, cash flows and financial condition may be adversely affected. In addition, if any significant product improvements or new product introductions are not successful, delayed, or constrained our reputation and brand image may be adversely affected.

We own various U.S. and foreign patents and patent applications related to certain elements of the design and function of our beds and related products. We own numerous registered and unregistered trademarks and trademark applications, including in particular our Sleep Number, Sleep Number 360, 360, and SleepIQ trademarks, as well as other intellectual property rights, including trade secrets, trade dress and copyrights, which we believe have significant value and are important to the development, function, and marketing of our products. These intellectual property rights may not provide adequate protection against infringement or piracy, may not prevent competitors from developing and marketing products that are similar to or competitive with our beds or other products, and may be costly and time-consuming to protect and enforce. Our patents are also subject to varying expiration dates. In addition, the laws of some foreign countries may not protect our intellectual property rights and confidential information to the same extent as the laws of the United States. If we are unable to protect and enforce our intellectual property, we may be unable to prevent other companies from using our technology or trademarks in connection with competitive products, which could adversely affect our sales, profitability, cash flows and financial condition.

We are from time to time subject to claims that our products, processes, advertising, or trademarks infringe the intellectual property rights of others. The defense of these claims, even if we are ultimately successful, may result in costly litigation, and if we are not successful in our defense, we could be subject to injunctions and liability for damages or royalty obligations, and our sales, profitability, cash flows and financial condition could be adversely affected.

Because of the vertical integration of our business model, our products and distribution face significant competition from both manufacturers of different types of mattresses and a variety of retailers. Our SleepIQ technology also faces significant competition from various manufacturers and retailers of sleep tracking and monitoring products.

The mattress industry is characterized by a high degree of concentration among the largest manufacturers of innerspring mattresses and foam mattresses and one dominant national mattress retailer. In recent years, numerous direct-to-consumer companies and low-cost importers have entered the market, offering “bed-in-a-box” or similar products primarily through online distribution directly to consumers though many now also partner with traditional mattress retailers. The emergence of these new competitors has significantly increased the costs of search terms and digital advertising.

A variety of sleep tracking and monitoring products that compete with our SleepIQ technology have been introduced by various manufacturers and retailers, both within and outside of the traditional mattress industry.

Some of our competitors have substantially greater financial, marketing and manufacturing resources and greater brand name recognition than we do and sell products through broader and more established distribution touchpoints. Our national, exclusive distribution competes with other retailers who generally provide a wider selection of mattress alternatives than we offer. A number of these retailers also have more points of distribution, greater marketing resources, and greater brand name recognition than we do.

These manufacturing and retailing competitors, or new entrants into the market, may compete aggressively and gain market share with existing or new products, and may pursue or expand their presence in the adjustable firmness air bed segment of the market as well as in the market for sleep tracking and monitoring products. We have limited ability to anticipate the timing and scale of new product introductions, advertising campaigns or new pricing strategies by our competitors, which could inhibit our ability to retain or increase market share, or to maintain our profit margins.

If we are unable to effectively compete with other manufacturers and retailers of mattress and sleep tracking and monitoring products, our sales, profitability, cash flows and financial condition may be adversely impacted.

We have two main manufacturing plants, which are located in Irmo, South Carolina and Salt Lake City, Utah. We haveUtah, and a network of several assembly distribution centers which assemble the final mattress product before delivery to the customer, across the US.county. A significant

We are subject to a wide variety of laws and regulations relating to the bedding industry or to various aspects of our business. Laws and regulations at the federal, state and local levels frequently change and we cannot always reasonably predict the impact from, or the ultimate cost of compliance with, future regulatory or administrative changes. Changes in

law, the imposition of new or additional regulations or the enactment of any new or more stringent legislation that impacts employment and labor, trade, advertising and marketing practices, pricing, consumer credit offerings, “do not call/mail” requirements, text messaging requirements, product testing and safety, transportation and logistics, health care, tax, accounting, privacy and data security, health and safety or environmental issues, warranty disclosures, delivery timing requirements, accessibility requirements, among others, could require us to change the way we do business and could have a material adverse impact on our sales, profitability, cash flows and financial condition. New or different laws or regulations could increase direct compliance costs for us or may cause our vendors to raise the prices they charge us because of increased compliance costs. Further, the adoption of a multi-layered regulatory approach to any one of the state or federal laws or regulations to which we are currently subject, particularly where the layers are in conflict, could require alteration of our manufacturing processes or operational parameters which may adversely impact our business.

Legislative or regulatory changes that impact our relationship with our workforce, such as minimum wage requirements or health insurance or other employee benefits mandates, could increase our expenses and adversely affect our operations. While it is our policy and practice to comply with legal and regulatory requirements and our procedures and internal controls are designed to promote such compliance, we cannot assure that all of our operations will comply with all such legal and regulatory requirements. Further, laws and regulations change over time and we may be required to incur significant expenses and/or to modify our operations in order to ensure compliance. This could harm our profitability or financial condition. If we are found to be in violation of any laws or regulations, we could become subject to fines, penalties, damages or other sanctions as well as potential adverse publicity or litigation exposure. This could adversely impact our business, reputation, sales, profitability, cash flows or financial condition.

We are involved from time to time in various legal proceedings arising in the ordinary course of our business, including primarily commercial, product liability, employment and intellectual property claims. We currently do not expect the outcome of any pending matters to have a material effect on our consolidated results of operations, financial position or cash flows. Litigation, however, is inherently unpredictable, and it is possible that the ultimate outcome of one or more pending claims asserted against us, or claims that may be asserted in the future that we are currently not aware of, or adverse publicity resulting from any such litigation, could adversely impact our business, reputation, sales, profitability, cash flows and financial condition.

action and attacks, team member error, access to our data and systems, malfeasance or otherwise, could compromise the security of our data and customers’ and team members’ personal information. Like many other businesses, we have and will likely continue to experience cyber-based attacks and incidents from time to time. As the techniques used to breach such security measures change frequently and may not be recognized until launched against a target, we may be unable to anticipate these techniques or to implement adequate preventive measures. Any failure of our systems and processes or our third-party vendors’ systems and processes to adequately protect our data or customer or team member personal information from exposure, theft or loss could adversely impact our business, reputation, sales, profitability, cash flows and financial condition.

We depend on our information systems for many aspects of our business. If our information systems are disrupted in any material way, or maintenance, improvements or upgrades are required to meet the evolving needs of our business, cybersecurity needs, and existing and emerging regulatory requirements, we may be required to incur significant capital expenditures in the pursuit of improvements or upgrades to our information systems. These efforts may take longer and may require greater financial and other resources than anticipated, may cause distraction of key personnel, and may cause short-term disruptions or security vulnerabilities to our existing systems and our business. Any of these outcomes could impair our ability to achieve critical strategic initiatives and could adversely impact our sales, profitability, cash flows and financial condition.

As of December 31, 2020,2021, we believe the nineten largest holders of common stock were institutional investors who held approximately 53%58% of our outstanding shares of common stock in the aggregate, with BlackRock Fund Advisors being our largest shareholder with approximately 14% of our outstanding shares of common stock. These investors may sell their shares at any time for a variety of reasons, and such sales could depress the market price of our common stock, which could cause investors to lose all or a portion of their investment in our stock. In addition, any such sales of our common stock by these entities could also impair our ability to raise capital through the sale of additional equity securities.

The stock price of our Company may fluctuate significantly in response to numerous factors such as: the overall performance of the equity markets and the economy as a whole; changes in the financial projections we or third parties may provide to the public or our failure to meet these projections; actual or anticipated changes in our growth rate relative to that of our competitors; failure of securities analysts to maintain coverage of us, changes in financial estimates by any securities analysts who follow our Company or our failure to meet these estimates or the expectations of

investors; and sales of share of our common stock by us or our shareholders particularly sales by our directors, executive officers and significant shareholders or the perception that these sales could occur.

As a vertically integrated manufacturerCompanies are facing increasing scrutiny from consumers, regulators, investors and retailer,other stakeholders related to their environmental, social and governance (ESG) practices and disclosures. Investor advocacy groups, investment funds and influential investors are also increasingly focused on these practices, especially as they relate to the environment, climate change, health and safety, supply chain management, diversity, labor conditions and human rights, both in our future growthown operations and profitability will depend in part upon our abilitysupply chain. Increased ESG-related compliance costs could result in material increases to attract, retainour overall operational costs. While we have taken steps to evolve our ESG strategy and motivate qualified personnel in a wide varietyrelated disclosures, including through implementing enhanced data collection methods and reporting certain data under recognized ESG reporting frameworks, our ESG practices may not meet the standards of areas to executeall our growth strategy, including qualified managementstakeholders and executive personnel and qualified retail sales professionals and managers. Theadvocacy groups may campaign for further changes. A failure, or perceived failure, to attract, retainadopt to or comply with regulatory requirements or to respond to investor or stakeholder expectations and motivate qualified personnel may hinder our ability to executestandards could negatively impact our business strategy and growth initiativesreputation.

None.

We currently lease all of our existing retail store locations and expect that our policy of leasing stores, rather than owning stores, will continue. We lease our retail stores under operating leases which, in addition to the minimum lease payments, may require payment of a proportionate share of the real estate taxes and certain building operating expenses. Our retail store leases generally provide for an initial lease term of five to 10 years. In addition, our mall-based retail store leases may require payment of contingent rent based on net sales in excess of certain thresholds. Certain retail store leases may contain options to extend the term of the original lease.

The following table summarizes the geographic locations of our 602648 retail stores as of January 2, 2021:1, 2022:

We lease our 238,000 square-foot corporate headquarters in Minneapolis, MN. The lease term commenced in November 2017 and runs through October 2032. The lease includes three five-year renewal options.

We lease two manufacturing assembly and distribution centersfacilities in Irmo, SC and Salt Lake City, UT of approximately 151,000 square feet and approximately 101,000 square feet, respectively. The Irmo facility lease runs through June 2026, with two five-year renewal options. The Salt Lake City facility lease runs through July 2025, with one five-year renewal option.

We also lease one storage facilityhave five distribution centers and four other distribution-related facilities located in Brooklyn Park, MN; Redlands, CA; Dallas, TX; Tampa, FL; Cincinnati, OH; Baltimore, MD; Salt Lake City, UT and Irmo, SC, with a total square footage of approximately 57,0001.0 million square feet and lease terms ending in July 2023 through April 2023.

Not applicable.

Our common stock trades on The Nasdaq Stock Market LLC (Nasdaq Global Select Market) under the symbol “SNBR.” As of January 30, 2021,29, 2022, there were approximately 206192 holders of record of our common stock.

We are not restricted from paying cash dividends under our Credit Agreement so long as we are not in default under the Credit Agreement, our leverage ratio (as defined in our Credit Agreement) after giving effect to such restricted payments (as defined in our Credit Agreement) would not exceed 3.75:1.00 and no default or event of default (as defined in our Credit Agreement) would result therefrom. However, we have not historically paid, and have no current plans to pay, cash dividends on our common stock.

Information concerning share repurchases completed during the fourth quarter of fiscal 20202021 is set forth below:

The graph below compares the total cumulative shareholder return on our common stock over the last five years to the total cumulative return on the Standard and Poor’s (S&P) 400 Specialty Stores Index and The Nasdaq Stock Market (U.S.) Index assuming a $100 investment made on January 2,December 31, 2016. Each of the three measures of cumulative total return assumes reinvestment of dividends. The stock performance shown on the graph below is not necessarily indicative of future price performance. The information contained in this “Comparative Stock Performance” section shall not be deemed to be “soliciting material” or “filed” or incorporated by reference in future filings with the SEC, or subject to the liabilities of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that we specifically request that it be treated as soliciting material or incorporate it by reference into a document filed under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.

We define earnings before interest, taxes, depreciation and amortization (Adjusted EBITDA) as net income plus: income tax expense, interest expense, depreciation and amortization, stock-based compensation and asset impairments. Management believes Adjusted EBITDA is a useful indicator of our financial performance and our ability to generate cash from operating activities. Our definition of Adjusted EBITDA may not be comparable to similarly titled definitions used by other companies. The table below reconciles Adjusted EBITDA, which is a non-GAAP financial measure, to the comparable GAAP financial measure:

Our “free cash flow” data is considered a non-GAAP financial measure and is not in accordance with, or preferable to, “net cash provided by operations,” or GAAP financial data. However, we are providing this information as we believe it facilitates analysis for investors and financial analysts.