OurSleep Number’s social impact extends beyond philanthropic partnerships. We announcedAt the beginning of 2022, Sleep Number began a long-termmultiyear partnership with the AMERICAN CANCER SOCIETYAmerican Cancer Society (ACS) to enable cancermeaningfully support the fight against cancer. Over the next six years, ACS will conduct research with data and prevention tied explicitlyexpertise from Sleep Number’s proprietary smart beds to identify the impact of quality sleep as well ason cancer prevention and recovery. Leveraging Sleep Number's 18 billion hours of highly accurate sleep data in conjunction with historical and ongoing cancer prevention studies, ACS will study the effects of cancer on patients’ and survivors’ nighttime sleep and biometric patterns. Informed by this research, the goal is to develop the first-ever sleep guidelines for cancer prevention and treatment and improve sleep outcomes for cancer patients and survivors. Sleep Number was recently honored with the American Cancer Society’s 2022 Corporate Partner of the Year award in recognition of its support in the fight against cancer and its meaningful impact to ACS’s mission.

Through Sleep Number’s collaboration with MAYO CLINIC, Sleep NumberMayo Clinic, the Company continues to advance sleep science research and enhance ourits understanding of sleep's impact on cardiovascular health. In 2021, we2022, the Company provided funding for Mayo Clinic to conduct several multi-year studies, two of which particularly demonstrated ourSleep Number’s societal impact:

As part of ourSleep Number’s commitment to team member wellbeing and community health, the health of our communities, Sleep NumberCompany also encourages team members to become involved in their local communities by volunteering their time and talents in support of causes or organizations that inspire them. OurIn 2022, the Company’s leaders who participateparticipated on the board of directors of a qualified nonprofit areorganization were eligible to apply for a grant of up to $1,500 per calendar year that benefits the organization.

Through strategic partnerships, team member involvement and support for sleep science research, combined with the continued advancement of ourSleep Number proprietary innovations, Sleep Numberthe Company is fulfilling ourits purpose to improve the health and wellbeing of society through higher quality sleep.

OurSleep Number’s Corporate Responsibility and Sustainability Report, posted within the Investor Relations section of our Companythe Company’s website, provides additional information about ourits commitment to talent management and human rights at Sleep Number, including strategy details, performance metrics and ourits engagement. The report highlights our commitments:the Company’s priorities and progress related to environmental, social and governance (ESG) initiatives and its integration with consumer innovation strategy and pursuit of profitable growth. 2022 milestones include:

This report may be accessed at www.sleepnumber.com by clicking onwww.sleepnumber.com: select the “INVESTORS”“Investors” link, then click on the “ESG” link and then “Sustainability Reports.” The information contained on ourthe Company’s website or connected to ourits website is not incorporated by reference into this Form 10-K and should not be considered part of this report.

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

OurSleep Number’s corporate website is www.SleepNumber.com.www.sleepnumber.com. Through a link to a third-party content provider, ourthe corporate website provides free access to ourits annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after wethe Company electronically filefiles such material with, or furnishfurnishes it to, the SEC. These documents are posted on ourthe corporate website at www.SleepNumber.com —www.sleepnumber.com: select the “Investors” link, the “Financials” link, and then the “SEC Filings” link. The information contained on ourthe Company’s website or connected to ourits website is not incorporated by reference into this Form 10-K and should not be considered part of this report.

WeThe Company also makemakes available, free of charge on ourits website, the charters of the Audit Committee, Management Development and Compensation Committee and Corporate Governance and Nominating Committee, as well as ourits Code of Business Conduct (including any amendment to, or waiver from, a provision of ourits Code of Business Conduct) adopted by ourthe Company’s Board. These documents are posted on our website —the Company’s website: select the “Investors” link, the “Governance” link and then the “Governance Documents” link. The information contained on ourthe Company’s website or connected to ourit website is not incorporated by reference into this Form 10-K and should not be considered part of this report.

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

OurThe Company’s success depends significantly upon discretionary consumer spending, which is influenced by a number of general economic factors, including without limitation economic growth, consumer confidence and sentiment, the housing market, employment, income and incomedebt levels, interest rates, inflation, taxation, consumer shopping trends and the level of customer traffic in malls and shopping centers, political conditions, civil unrest and disturbances, terrorist activities, war and fears of war, including the war in Ukraine, as well as health epidemics or pandemics, such as the COVID-19 pandemic. Adverse trends in any of these general economic factors have and may continue to adversely affect ourthe Company’s sales, profitability, cash flows and financial condition.

Inflationary pressures stemming fromInflation, which increased significantly during 2021 and remained at historically high rates throughout 2022 due to supply chain disruptions, increased demand or other economic factors, have resulted in increased fuel, shipping, raw material, labor and other costs, which havehas adversely affected and may continue to adversely affect, ourthe Company’s business operations and financial results especially if continued for a prolonged period. If ourby increasing the costs rise dueof fuel, shipping, raw materials, labor, commodity, and other costs. While the Company has historically been able to continuing supply chain disruptions or inflationary pressures, wepass along some cost increases to its customers, it has not and may not be able to fully offset such higher costs through price increases.increases in a persistent inflationary environment, and its margins have and could continue to decrease.

A reductionIn order to combat recent high rates of inflation, the Federal Reserve significantly increased the federal funds rate beginning in 2022 and has indicated that further rate increases may be announced to combat rising inflation in the availabilityUnited States. Such rate increases have and may continue to negatively affect customer purchasing behavior, which has and may continue to adversely affect the Company’s sales.

Additionally, on January 19, 2023, the U.S. reached its debt ceiling, requiring the U.S. Treasury to take extraordinary measures to avoid default. However, the U.S. Treasury expects to exhaust these measures by early June 2023, and if U.S. lawmakers do not pass legislation to raise the federal debt ceiling by such time, it is possible that the U.S. could default on its debt obligations. Whether or not a U.S. sovereign default occurs, growing uncertainty due to the unprecedented nature of creditsuch a default may trigger recessionary conditions, further reduce consumer confidence and increase levels of unemployment, all of which may reduce demand for the Company’s products, causing harm to consumers generally or under our existing consumer credit programs could harm ourit sales, profitability, cash flows and financial condition.

The Company’s credit programs through third parties. The amountfacility currently bears interest at a variable rate based on its leverage ratio. Sleep Number bears the risk that the rates charged by the Company’s lenders will increase faster than the earnings and cash flow of credit availableits business, which has reduced profitability and is expected to consumers may becontinue to reduce profitability, adversely impacted by macroeconomic factors, including those relatedaffect its ability to service its debt, or resulting fromcause the COVID-19 pandemic, thatCompany to breach covenants contained in its Credit Agreement, which could materially adversely affect the Company’s business, financial positioncondition and results of consumers, and as suppliers of credit adjust their lending criteria.operations.

Synchrony Bank provides credit to ourthe Company’s customers through a private label credit card agreement that is currently scheduled to expire on December 31, 2023,2028, subject to earlier termination upon certain events. Synchrony Bank has discretion to control the content of financing offers to ourthe Company’s 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 ourthe Company’s private label credit card program or changes in regulatory requirements, or the termination of ourits agreement with Synchrony Bank, could harm ourthe Company’s sales, profitability, cash flows and financial condition.

A significant percentage of ourthe Company’s products are assembled after we receiveit receives orders from customers utilizing manufacturing processes with minimal levels of raw materials, work-in-process and finished goods inventories. Lead times for ordered components may vary significantly, and some components used to manufacture ourits products are provided on a sole source basis. We haveThe Company has experienced lengthened lead times throughout ourits supply chain as a result of supply chain constraints and material shortages that occurred in 2021, continued in 2022, and may continue in 2022. Our2023. The Company’s efforts to mitigate supply chain weaknesses may not be successful or may have unfavorable effects. For example, efforts to purchase raw materials in advance for product manufacturing has resulted in, and may continue to result in, increased storage costs or excess supply. In addition, with the increasing prevalence of and consumer demand for electronic products, along with COVID-19’s impact on the global supply chain over the past three years, the global supply of electronic componentry is increasinglyhas been strained, which has led to shortages in supply and increased prices, and has adversely affected, and we expect may continue to adversely affect, ourits operations, costs, production capacity, delivery timeframe, product development, sales, profitability, and financial results. Any shortageShortage of materials caused by any disruptiondisruptions or unavailability of supply or an increase in the demand for ourits products, has harmed and could continue to harm ourthe Company’s ability to satisfy customer demand, delay deliveries of ourits products to customers, lead to customer cancellations and returns, delay the development and launch of new products, orand increase ourits costs. Any such impacts or delays could adversely affect ourthe Company’s sales, customer satisfaction, profitability, cash flows and financial condition.

WeSleep Number currently obtainobtains all the materials and components used to produce ourits smart beds from outside sources including some that are located outside the United States. In several cases, including ourits air chambers, integrated non-adjustable foundations, adjustable foundations, various components for ourits Firmness Control and Smart Control systems, certain electronic componentry, certain foam formulations, as well as ourits fabrics and zippers, we obtainthe Company obtains these materials, components and products from suppliers who serve as the only source of supply, or who supply the vast majority of ourthe Company’s needs of the particular material, component or product. While we believethe Company believes that some of these materials, components and products, or suitable replacements, could be obtained from other sources in the event of a disruption or loss of supply, weit has not been able to, and in the future may not be able to, find alternative sources of supply or alternative sources of supply on comparable terms, quantities and timelines. If ourthe Company’s relationship with the primary supplier of ourits air chambers, adjustable foundations, or electronic components is terminated or significantly disrupted, wethe Company could have difficulty in replacing these sources since there are relatively few other suppliers presently capable of manufacturing these components and products. Constraints on the ability of certain of ourits suppliers to timely meet commitments, including in an environment of increased demand for consumer products and reduced labor during the COVID-19 pandemic, whichchallenges, has, and may continue to, adversely impact ourthe Company’s ability to meet ourits product demand, result in additional costs, or may otherwise adversely impact ourthe Company’s business, operations and financial results.

Similarly, we relythe Company relies on third parties to deliver some of ourits products to ourits facilities and customers on a timely and cost-effective basis. These third-party providers could be vulnerable to labor shortages,challenges, liquidity concerns, the impacts of COVID-19 or other pandemics,global health conditions, or other factors that may result in delays in deliveries or increased costs of deliveries. Any significant delay in deliveries to ourits customers could lead to increased cancellations or returns and cause usthe Company to lose sales

OurThe Company’s business is subject to significant increases or volatility in the prices of certain commodities, including but not limited to electronic componentry, fuel, oil, natural gas, rubber, cotton, plastic resin, corrugate, steel and chemical ingredients used to produce foam, as well as third-party logistic costs. Increases in prices of these commodities or logistics costs or other inflationary pressures have resulted, and may continue to result, in significant cost increases for ourthe Company’s raw materials and product components, as well as increases in the cost of delivering ourits products to our

customers. To the extent we areThe Company has been, and may continue to be, unable to offset any such increased costs through value engineering and similar initiatives, or through price increases, ourand, as a result, the Company’s profitability, cash flows and financial condition have been, and may continue to be adversely impacted. If we choose to increase pricesPrice increases to offset the increased costs, ourhave, and may continue to, adversely impact the Company’s sales volumes could be adversely impacted.volumes.

OurSleep Number’s air chambers, certain electronic components, and some of ourits other components are manufactured outside the United States, and therefore are subject to risks associated with foreign sourcing of materials, including but not limited to:

WeThe Company cannot predict whether the countries in which some of ourits components are manufactured, or may be manufactured in the future, or where we contractthe Company contracts for labor will be subject to new or additional trade restrictions imposed by the United States or other foreign governments, including the likelihood, type, or effect of any such restrictions. The United States government has implemented certain trade policies, including imposing tariffs on certain goods imported from China and other countries and imposing sanctions against Russia as a result of the war in Ukraine, and may take further actions with respect to these policies in the future. Additionally, although the Company does not have operations in Russia, Belarus, or Ukraine, have not had a material amount of sales into these countries, and have not been directly impacted by the war in Ukraine, some of the Company’s third-party suppliers have disclosed that they may source, directly or indirectly, a portion of their supply chain requirements of gold, tantalum, tin, tungsten, and birch plywood from Russia. These factors have, and could continue to, increase ourthe costs of doing business with foreign suppliers, lead to inadequate inventory levels or delays in shipping bedsproducts to our customers, which could harm ourthe Company’s sales, customer satisfaction, profitability, cash flows and financial condition.

The locations where weSleep Number and ourits suppliers and global contractors operate have experienced, and may experience in the future, adverse regional events such as extreme weather conditions and other natural and man-made disasters, which could have a materialsignificant adverse effect on us, ourthe Company, its ability to source necessary materials, components and products, and ourits ability to develop, launch, sell and deliver ourits products to customers. Climate change may increase the frequency and severity of adverse weather conditions and other natural disasters. All regions of the U.S. and warmer climates globally may be particularly impacted by extreme weather, such as hurricanes, natural disasters, droughts, wildfires and rising sea levels. These events have disrupted, and may continue to, disrupt ourthe Company’s operations and ability to source components and products.

We areThe Company is highly dependent on the effectiveness of ourits marketing messages and the efficiency of ourits advertising expenditures in generating consumer awareness, consideration and conversation leading to sales of ourits products. We continueSleep Number continues to evolve ourits marketing strategies, adjust ourits messages, and review the amount we spendit spends on advertising and

The Company relies in part upon third parties, such as social media influencers and athletes, to market ourits brand, and we are unable to fully control their efforts. Influencers and athletes with whom we maintainthe Company maintains a relationship could engage in behavior or use their platforms to communicate directly with ourSleep Number’s customers in a manner that reflects poorly on ourits brand, and these communications may be attributed to usthe Company or otherwise adversely affect us.the Company. It is not possible to prevent such behavior, and the precautions we takethe Company takes to prevent or detect this activity may not be effective.

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

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

The vast majority of ourthe Company’s sales occur through Total Retail, including ourits retail stores and our website. Total Retail represents ourthe Company’s largest opportunity for growth in sales and improvement in profitability. OurThe Company’s retail stores carry significant fixed costs. WeSleep Number also makemakes significant capital expenditures as weit open new stores and remodel or reposition existing stores. We areThe Company is highly dependent on ourits ability to maintain and increase sales per store to cover these fixed expenses, provide a return on ourits capital investments and improve ourthe Company operating margins.

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

OurThe Company’s Total Retail distribution strategy results in relatively few points of distribution, including 648670 retail stores in 50 U.S. states as of the end of 2021,2022, Online, Phone and Chat. Several of the mattress manufacturers and retailers with which we competethe Company competes have significantly more brick-and-mortar points of distribution than we do,it does, which makes usthe Company highly dependent on ourits ability to drive consumers to ourits points of distribution to gain market share.

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

OurThe Company’s 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, ourits

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 ourits products or result in negative media and Internet reports or owner dissatisfaction that could negatively impact ourthe Company’s 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 ourthe Company’s warranty reserves. An unexpected increase in return rates or warranty claims could harm ourthe Company’s sales, profitability, cash flows and financial condition.

As a consumer innovation Company with differentiated products, we facethe Company faces an inherent risk of exposure to product liability claims or regulatory actions if the use of ourits products is alleged to have resulted in personal injury or property damage. If any of ourthe Company’s products proves to be defective or non-compliant with applicable regulations such as the federal Consumer Product Safety Commission flammability standards, wethe Company may be required to recall or redesign such products. We haveThe Company has 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 ourit products to develop mold. WeThe Company may experience additional adverse impacts on sales and additional litigation if any similar media reports were to occur in the future. We maintainThe Company maintains 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 usthe Company outside of, or in excess of, available insurance coverage, or any claim or product recall that results in significant adverse publicity about us,the Company, may have a material adverse effect on ourthe Company’s 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 ourthe Company’s ability to compete effectively and to profitably grow ourits market share depend in part on ourits ability to continue to improve and expand ourthe Company’s product line of adjustable firmness air beds, SleepIQ technology and related accessory products. We incurThe Company incurs significant research and development and other expenditures in the pursuit of improvements and additions to ourits product line. If these efforts do not result in meaningful product improvements or new product introductions, if we arethe Company is not able to gain widespread consumer acceptance of product improvements or new product introductions, or there are delays or production limitations with respect to ourits product improvements or new product introductions, ourthe Company’s sales, profitability, cash flows and financial condition may be adversely affected. If the Company offers products or services in other countries, the Company’s business may be exposed to additional risks, such as additional and varied legal/regulatory requirements, complexity and cost to maintain operations in multiple countries, adapting and localizing products for enhanced market acceptance, ability to enforce intellectual property rights, tariffs and non-tariff barriers, fluctuation in and barriers to currency exchange, and political or social unrest, and economic instability. In addition, if any significant product improvements or new product introductions are not successful, delayed, or constrained ourthe Company’s reputation and brand image may be adversely affected.

We ownThe Company owns various U.S. and foreign patents and patent applications related to certain elements of the design and function of ourthe Company’s beds, biosignal monitoring and related products. We ownThe Company owns numerous registered and unregistered trademarks and trademark applications, including in particular ourthe Sleep Number, Sleep Number 360, 360, Climate360 and SleepIQ trademarks, as well as other intellectual property rights, including trade secrets, trade dress and copyrights, which we believe haveit believes has significant value and areis important to the development, function, and marketing of ourits 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 ourSleep Number beds, biosignal monitoring or other products, and may be costly and time-consuming to protect and enforce. OurThe Company’s patents are also subject to varying expiration dates. In addition, the laws of some foreign countries may not protect ourits intellectual property rights and confidential information to the same extent as the laws of the United States. If we arethe Company is unable to protect and enforce ourits intellectual property, wethe Company may be unable to prevent other companies from using ourthe Company’s technology or trademarks in connection with competitive products, which could adversely affect ourthe Company’s sales, profitability, cash flows and financial condition.

The Company is from time to time subject to claims that ourits 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 arethe Company is not successful in ourits defense, weit could be subject to injunctions and liability for damages or royalty obligations, and ourthe Company’s sales, profitability, cash flows and financial condition could be adversely affected.

Because of the vertical integration of ourthe Company’s business model, ourits products and distribution face significant competition from both manufacturers of different types of mattresses and a variety of retailers. OurThe Company’s 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 increased the costs of search terms and digital advertising.

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

These manufacturing and retailing competitors, or a combination of these 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 haveThe Company has limited ability to anticipate the timing and scale of new product introductions, advertising campaigns or new pricing strategies by ourits competitors, which could inhibit ourits ability to retain or increase market share, or to maintain ourthe Company’s profit margins.

If we arethe Company is unable to effectively compete with other manufacturers and retailers of mattress and sleep tracking and monitoring products, ourthe Company’s sales, profitability, cash flows and financial condition may be adversely impacted.

We have two mainSleep Number has manufacturing plants which are located in Irmo, South Carolina and Salt Lake City, Utah, and a networkeach of severalwhich is combined with an assembly distribution centerscenter (ADC). The Company has six additional ADCs across the county. A significant percentagecountry. The eight ADCs leverage component inventory to pre-assemble 100% of our products are assembledsmart mattresses to fulfill ordersorder rather than stocking finished goods inventory in our plants, assembly distribution centers, or stores. We havegoods. The Company has home delivery operations and contractors that deliver ourits products to customers across the country as well as a bedding fulfillment center that ships bedding products to consumers via third-party services. OurThe product development and testing operations primarily occur in ourthe Company’s corporate headquarters in Minneapolis, Minnesota and Sleep Number Labs facility in San Jose, California. OurSleep Number’s customer service operations are located in New Orleans, Louisiana and Minneapolis, Minnesota and we havethe Company has retail stores across the country. DisruptionWhile we can shift demand among our eight ADCs, disruption to any of thesethe ADCs or other operations, facilities, workforce, or ourthe Company’s nationwide logistics network could harm or delay ourits ability to satisfy customer demand, develop, test and launch new products, service ourits products and customers, and increase ourits costs. Such impacts and delays could adversely affect ourthe Company’s sales, customer satisfaction, profitability, cash flows and financial results.

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

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

As we workthe Company works to develop innovations with enhanced health capabilities, including possible capabilities of providing advanced monitoring and health risk evaluations, depending on the features that ultimately become commercially available, some features may require regulatory requirements or approvals beyond those that apply to ourSleep Number’s current products or features. These additional regulatory requirements or approvals may be prohibitively expensive or otherwise delay or prevent certain features, innovations, or product from being commercialized.

We areThe Company is involved from time to time in various legal proceedings arising in the ordinary course of ourits business, including primarily commercial, product liability, employment and intellectual property claims. WeThe Company currently dodoes not expect the outcome of any pending matters to have a material effect on ourthe Company’s 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,the Company, or claims that may be asserted in the future that we arethe Company is currently not aware of, or adverse publicity resulting from any such litigation, could adversely impact ourthe Company’s business, reputation, sales, profitability, cash flows and financial condition.

We dependThe Company depends on ourits information systems for many aspects of ourits business. Sleep Number has and may continue to have disruptions or outages to its information systems that negatively impact its business and systems. If ourthe Company’s information systems are disrupted in any material way, or maintenance, improvements or upgrades are required to meet the evolving needs of ourits business, cybersecurity needs, and existing and emerging regulatory requirements, wethe Company may be required to incur significant capital expenditures in the pursuit of improvements or upgrades to ourits 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 ourthe Company’s existing systems and our business. Any of these outcomes could impair ourthe Company’s ability to achieve critical strategic initiatives and could adversely impact ourthe Company’s sales, profitability, cash flows and financial condition.

As a vertically integrated manufacturer and retailer, ourthe Company’s future growth and profitability will depend in part upon ourits ability to attract, retain and motivate qualified personnel in a wide variety of areas to execute ourits growth strategy, including qualified management and executive personnel, retail sales professionals and managers, and manufacturing, home delivery and technical personnel. The current labor shortage,challenges, the world-wide trends of corporate resignations, COVID-19 or other economic factors may prevent us,the Company, and ourits suppliers and vendors, from successfully hiring and retaining

qualified personnel. The failure to attract, retain and motivate qualified personnel may hinder ourthe Company’s ability to execute ourits business strategy and growth initiatives and may adversely impact ourthe Company’s sales, profitability, cash flows and financial condition.

As of December 31, 2021, we believe2022, the Company’s ten largest holders of common stock were institutional investors who held approximately 58%62% of ourthe outstanding shares of common stock in the aggregate, with BlackRock Fund Advisors being ourthe largest shareholder with approximately 14%16% of ourthe Company’s 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 ourthe Company’s common stock, which could cause investors to lose all or a portion of their investment in ourits stock. In addition, any such sales of ourthe Company’s common stock by these entities could also impair ourits ability to raise capital through the sale of additional equity securities.

The Company’s 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 wethe Company or third parties may provide to the public or ourthe Company’s failure to meet these projections; actual or anticipated changes in ourits growth rate relative to that of ourits competitors; failure of securities analysts to maintain coverage of us,the Company, changes in financial estimates by any securities analysts who follow ourthe Company or ourits failure to meet these estimates or the expectations of

Companies are facing increasing scrutiny from consumers, regulators, investors and other stakeholders related to their environmental, social and governance (ESG)There has been an increased focus on the Company’s ESG practices and disclosures.within the general markets. 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, equity and inclusion, labor conditions and human rights, both in ourits own operations and in ourthe Company’s supply chain. Increased ESG-related complianceSleep Number has established and plans to further establish priorities related to ESG matters. These priorities reflect the Company’s plans and aspirations and are not guarantees that it will be able to achieve them. The Company’s efforts to accomplish and accurately report its progress present numerous operational, reputational, financial, legal, and other risks, any of which could have a material adverse impact, including on the Company’s reputation, stock price, and results of operation. Sleep Number could also incur additional costs could result in material increasesand require additional resources to our overall operational costs.implement various ESG practices to make progress against its priorities and to monitor and track its performance with respect to such priorities.

The standards for tracking and reporting on ESG matters are relatively new, have not been formalized and continue to evolve. Collecting, measuring, and reporting ESG information and metrics can be difficult and time consuming. While we haveSleep Number has taken steps to evolve ourits ESG strategypriorities and related disclosures, including through implementing enhanced data collection methods and reporting certain data under recognized ESG reporting frameworks, ourthe Company’s ESG practices may not meet the standards of all ourits stakeholders and advocacy groups may campaign for further changes. AAdditionally, the Company’s selected disclosure framework or standards may need to be changed from time to time, which may result in a lack of consistent or meaningful comparative data from period to period. In addition, the Company’s interpretation of reporting frameworks or standards may differ from those of others and such frameworks or standards may change over time, any of which could result in significant revisions to the Company’s ESG priorities or reported progress.

The Company’s ability to achieve any ESG-related objective is subject to numerous risks, many of which are outside of its control, including: the availability and cost of low-or non-carbon-based energy sources and technologies, evolving regulatory requirements affecting ESG standards or disclosures, the availability of vendors and suppliers that can meet its sustainability, diversity and other standards, and the availability of raw materials that meet and further the Company’s sustainability objectives. If its ESG practices do not meet evolving standards or the Company’s priorities, then the Company’s reputation, its ability to attract or retain employees and its competitiveness, including as an investment and business partner, could be negatively impacted. Furthermore, if Sleep Number’s competitors’ ESG performance is perceived to be better than the Company’s, potential or current customers and investors may elect to do business with its competitors instead, and the Company’s ability to attract or retain employees could be negatively impacted. The Company’s failure, or perceived failure, to adopt topursue or comply with regulatory requirementsfulfill its priorities and objectives or to respondsatisfy various reporting standards within the timelines the Company announces, or at all, could also expose the Company to investor or stakeholder expectationsgovernment enforcement actions and standards could negatively impact our business and reputation.private litigation.

Climate change presents various near and long-term risks that may adversely impact ourthe Company’s business. The enactment of new laws and regulations to address or limit the effects of climate change, or changes to existing laws and regulations, could mandate more restrictive standards or require such changes on a more accelerated time frame. The consequences of climate change and the ensuing governmental regulations could disrupt ourthe Company’s operations or harm ourits ability to source necessary materials and components and manufacture ourits products, which may adversely affect ourthe Company’s financial condition. If public perception of ourSleep Number’s compliance with laws and regulations related to climate change is negative, it could adversely affect ourthe Company’s business, reputation and shareholder perception. Adverse publicity or climate-related litigation that impacts usthe Company could also have a negative impact on ourits business.

Extreme weather, natural disasters, power outages, or other unexpected events could result in physical damage to and complete or partial closure of one or more of ourthe Company’s manufacturing, distribution centers or other facilities or those of ourits suppliers, temporary or long-term disruption in ourits supply chain or logistics, disruption of or harm to the Company’s workforce and/or disruption of ourits ability to deliver products to customers. Current or future insurance arrangements may not provide protection for costs that may arise from such events, particularly if such events are catastrophic in nature or if multiple such events occur. Climate change may also subject ourthe Company’s business to significant increases or volatility in the prices of certain commodities, including but not limited to electronic componentry, fuel, oil, natural gas, rubber, cotton, plastic resin, corrugate, plywood, steel and chemical ingredients used to produce foam, as well as third-party logistic costs. Further, the long-term effects of climate change on general economic conditions and ourthe Company’s industry in particular are unclear, and changes in the supply, demand, or available sources of energy and the regulatory and other costs associated with energy production and delivery may affect the availability or cost of goods and services, including natural resources, necessary to run ourits business. Any long-term disruption in ourthe Company’s ability to service ourits customers from one or more manufacturing, distribution centers or other facilities could have an adverse effect on ourthe Company’s operations.

None.

WeSleep Number currently leaseleases all of ourits existing retail store locations and expectexpects that ourits policy of leasing stores, rather than owning stores, will continue. We lease ourThe Company leases its 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. OurThe Company retail store leases generally provide for an initial lease term of five to 10 years. In addition, ourthe 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 648Sleep Number’s 670 retail stores as of January 1,December 31, 2022: