Mattress seller Sleep Number has sounded the alarm that it may be forced to file for bankruptcy, possibly joining the growing number of retailers that have sought Chapter 11 protection this year.
The Minneapolis-based company, with a fleet of 600 stores, issued the warning in a recent securities filing after reporting fourth-quarter earnings. The retailer said in its 10-K that if it can't secure sufficient financing, it "could be forced to terminate, significantly curtail or cease our operations, pursue strategic alternatives or commence a case under the U.S. Bankruptcy Code."
Sleep Number, operating in an increasingly competitive environment, added that "there is substantial doubt about the company’s ability to continue as a going concern." The retailer has already closed several dozen stores and said it expect to shutter even more of them.
There has already been a string of Chapter 11 filings this year, with the most notable being that of New York-based Saks Global, the luxury retail conglomerate that owns Saks Fifth Avenue, Neiman Marcus and Bergdorf Goodman. Some of the others include Eddie Bauer, Francesca's, American Signature, and Fat Brands and its affiliate, Twin Hospitality.
Sleep Number has been attempting to mount a turnaround under the helm of Linda Findley, who joined the retailer as CEO in April last year, but its debt and liquidity challenges remain. Sleep Number has been cutting costs, but a decline in industry demand and the impact of less store traffic contributed to a 16% drop in net sales last year to $1.4 billion, according to the company. Its net loss for 2025 was $132 million.
Direct-to-consumer competition
Sleep Number detailed the reasons for its financial woes, including the fact that its growing group of competitors now includes regional and local specialty bedding retailers, bedding manufacturers, home furnishing stores, mass merchants, national discount stores and online direct-to-consumer marketers.
"There is a high degree of concentration among manufacturers who produce innerspring, memory foam and hybrid beds under nationally recognized brand names, including Tempur-Pedic, Sealy, Stearns & Foster, Serta and Beautyrest," Sleep Number said in its filing.
"National manufacturers still dominate the bedding industry," Sleep Number said. "There has recently been market consolidation, with Somnigroup owning the Tempur-Pedic, Sealy and Stearns & Foster brands, and also owning the Mattress Firm brand and stores. Brands including Saatva, Purple, Casper and Nectar, which started online have now moved into traditional retail channels for growth."
Somnigroup was formed in the wake of Tempur Sealy's acquisition of Houston-based Mattress Firm, which was announced in May 2023. Somnigroup bills itself as the world's largest bedding company.
In additional industry consolidation, this past December Somnigroup made a roughly $1.6 billion offer to buy Leggett & Platt, the 142-year-old manufacturer that was the first company to patent spiral coil bedsprings. Leggett rejected the offer, but it and Somnigroup entered into a six-month standstill and nondisclosure agreement to explore if a deal can be reached.
Sleep Number's stores carry significant fixed costs, according to the company, and the firm has made significant capital expenditures on its brick-and-mortar footprint.
Looming store closings
"As a part of the company's cost savings and operational efficiencies, select stores have been closed and additional stores are expected to be closed, and store remodels have been delayed," Sleep Number said in its filing.
"These closures and older retail store designs have resulted and may continue to result in higher-than-expected costs, charges, continued rent liability, lost sales, lower brand awareness, weakened customer experience, deteriorated reputation, or otherwise negatively impact the company's sales, profitability, cash flows, availability of credit, and financial condition," Sleep Number said.
Some of Sleep Number's stores are mall-based, which can be a liability, according to the retailer.
"Any decrease in mall traffic, including due to increased online shopping, could adversely affect the company's sales, profitability, cash flows, availability of credit and financial condition," Sleep Number said in its filing.
Sleep Number has slashed costs, Findley said on the earnings call.
"We removed more than $185 million of annualized costs and have identified another $50 million of annualized fixed costs that we are executing on now," she said. "We are still in full turnaround mode, and our progress in 2025 doesn't change the fact that we still have hurdles to clear in 2026."
But those steps may not be enough, according to the retailer.
"While these actions demonstrate a series of material steps taken to improve the company's financial condition, the company has a history of net losses over the past three years and expects to continue to incur additional losses in the near future," Sleep Number said in its filing. "In addition, the company anticipates that it will not remain in compliance with the financial covenants of its credit agreement for the next 12 months."