Mr. Stewart Schaefer reports

SLEEP COUNTRY CONTINUES TO EXECUTE WELL IN THE FIRST QUARTER, COMPLETED ACQUISITIONS OF SILK & SNOW AND CASPER CANADA AND INCREASES DIVIDEND BY 10.2%

Sleep Country Canada Holdings Inc. today released its financial results for the first quarter ended March 31, 2023.

All financial results are reported in Canadian dollars unless otherwise stated (as always in news releases displayed on Stockwatch).

First quarter financial highlights

• Revenues decreased by $500,000 or 0.3 per cent to $206.5-million in Q1 2023 from $207.0-million in Q1 2022;
• Same-store sales (SSS) decreased by 6.2 per cent in Q1 2023 from Q1 2022;
• Revenues attributed to e-commerce channels increased to 22.3 per cent in Q1 2023 from 20.8 per cent in Q1 2022;
• Gross profit margin decreased to 34.3 per cent in Q1 2023 from 34.6 per cent in Q1 2022;
• EBITDA (earnings before interest, taxes, depreciation and amortization) decreased by $4.5-million or 10.3 per cent to $39.7-million in Q1 2023 from $44.2-million in Q1 2022;
• Operating EBITDA margin decreased to 20.0 per cent in Q1 2023 from 22.6 per cent in Q1 2022;
• Net income attributable to the company decreased by $7.1-million or 38.5 per cent to $11.3-million in Q1 2023 from $18.4-million in Q1 2022;
• Adjusted net income attributable to the company decreased by $7.6-million or 36.3 per cent to $13.2-million in Q1 2023 from $20.8-million in Q1 2022;
• Diluted earnings per share (EPS) decreased by 17 cents or 34.7 per cent to 32 cents in Q1 2023 from 49 cents in Q1 2022;
• Diluted adjusted EPS decreased by 19 cents or 33.9 per cent to 37 cents in Q1 2023 from 56 cents in Q1 2022;
• In Q1 2023, the company repurchased for cancellation 299,519 common shares for total consideration of $7.3-million against its NCIB;
  • Subsequent to quarter-end, on May 8, 2023, the board declared a 10.2-per-cent increase in the quarterly dividend to 23.7 cents per share payable on May 31, 2023, to shareholders of record at the close of business on May 24, 2023. The dividend was designated as an eligible dividend for Canadian tax purposes.

First quarter business highlights

• The company acquired substantially all of the net operating assets of Silk & Snow Inc., one of Canada's top-growing direct-to-consumer e-commerce retailers, for cash consideration of $25.1-million and up to $19.5-million in contingent consideration based on specified earnings levels achieved during the three-year period beginning fiscal 2023.
• Subsequent to quarter-end, the company acquired the Canadian operations of Casper Sleep Inc., paying $27.5-million ($20.6-million (U.S.)) in cash at close.
  • The company invested in a $27.3-million ($20.0-million(U.S.)) five-year convertible note which will have the option of converting into about 5 per cent of Casper Sleep's shares, in addition to receiving a three-year warrant with a strike price of one cent that converts into about 1 per cent of Casper Sleep's shares.
  • The company will receive a cumulative $6.1-million ($4.5-million (U.S.)) marketing transition fee from Casper Sleep over the next four years.
• Opened two new Sleep Country/Dormez-vous stores and closed one in Q1 2023 bringing the national store count to 290.
• Celebrated Sleep Awareness Month and World Sleep Day with the 248-hour sleep challenge and generated 12-million-plus social media impressions on its five-week digital campaign to raise awareness for the importance of sleep for health and well-being.
• Endy won Best Workplaces for Women by Great Places to Work for the second year.

President and chief executive officer commentary

"For the first quarter of the year, despite ongoing tightening in consumer spending and macroeconomic uncertainty, the company's results remain solid," said Stewart Schaefer, president and chief executive officer of Sleep Country.

"If we compare it to Q1 2022, which was our best Q1 in the company's history, we were pleased to maintain steady revenues, while continuing to drive our business forward, deliver on our strategic plan and maintain our position as Canada's leading omnichannel sleep retailer," added Mr. Schaefer.

"As a spotlight on the quarter, we continued to see strong contributions from brick and mortar, while experiencing softer online sales, as consumers lean more towards in-person shopping," said Mr. Schaefer.

"With our strategic plan in place and the strength of our balance sheet, we continued to execute well with a focus on building the country's best sleep ecosystem of innovative products and channels, as well as exceeding our customers' expectations. We kicked off Q1 2023 with the closing of the acquisition of Silk & Snow in the first week of January, followed by the opening of two new Sleep Country/Dormez-vous retail stores. Subsequent to quarter-end, we were excited to acquire Casper Sleep's Canadian operations, adding one of North America's leading sleep brands to our growing family," said Mr. Schaefer.

"We are also incredibly proud of our winning team, who helped elevate the importance of Canadians' health and well-being, by driving awareness around the importance of sleep through the launch of Sleep Awareness Month and World Sleep Day in March with our digital and influencer campaigns," Mr. Schaefer added.

"Looking ahead, while focusing on our multiyear strategic plans, investing in our family of brands, innovative products and delivering a best-in-class experience for our customers, we remain cautiously optimistic for the back half of 2023," concluded Mr. Schaefer.

Revenues decreased by $500,000 or 0.3 per cent from $207.0-million in Q1 2022 to $206.5-million in Q1 2023, mainly due to a decrease in SSS by 6.2 per cent, which was partially offset by incremental revenue earned from Silk & Snow acquired on Jan. 1, 2023, net one new store opened in Q1 2023 and wrap stores opened in 2022.

Gross profit margin decreased by 30 basis points from 34.6 per cent for Q1 2022 to 34.3 per cent for Q1 2023, mainly due to deleveraging occupancy expenses and higher product and delivery costs, which were partially offset by an increase in average unit selling prices.

Total G&A expenses increased by $5.0-million or 11.6 per cent from $43.1-million in Q1 2022 to $48.1-million in Q1 2023. This change was mainly driven by an increase in media and advertising, impacted by the incremental spend by Silk & Snow acquired in Q1 2023, as well as increases in credit card and finance charges, compensation, and intangible depreciation expenses.

Finance-related expenses increased by $3.5-million from $3.0-million in Q1 2022 to $6.5-million in Q1 2023. This change was mainly due to an unrealized loss on the interest rate swap in Q1 2023 and an increase in interest expense on the company's senior secured credit facility, as a result of higher effective interest rates and an increase in the company's debt.

Operating EBITDA was $41.4-million for Q1 2023, or 20.0 per cent of revenues, compared with $46.7-million for Q1 2022, or 22.6 per cent of revenues, representing a decrease of $5.3-million or 11.5 per cent. This change was mainly due to lower revenues in Q1 2023, combined with a lower gross profit margin and an increase in G&A (general and administrative) expenses, impacted by incremental media and advertising spend by Silk & Snow acquired in Q1 2023.

Income taxes decreased by $2.5-million from Q1 2022 to Q1 2023. The change was driven by the decrease in net income before taxes of $9.7-million from $25.4-million in Q1 2022 to $15.7-million in Q1 2023, partially offset by an increase in the company's effective income tax rate by 70 basis points from 27.2 per cent in Q1 2022 to 27.9 per cent in Q1 2023.

Net income attributable to the company for Q1 2023 decreased by $7.1-million from $18.4-million (50 cents per share) in Q1 2022 to $11.3-million (33 cents per share) in Q1 2023.

Adjusted net income attributable to the company for Q1 2023 decreased by $7.6-million from $20.8-million (56 cents per share) in Q1 2022 to $13.2-million (38 cents per share) in Q1 2023.

Conference call

Sleep Country's president and chief executive officer, Stewart Schaefer, and chief financial officer, Craig De Pratto, will host a conference call for analysts and investors on May 9 at 8 a.m. ET. The dial-in numbers for the conference call are 416-764-8659 or 888-664-6392. This conference call will be recorded and available for replay until May 16, 2023. To listen to the replay, please dial 416-764-8677 or 888-390-0541 and use passcode 973341 followed by the pound key.

About Sleep Country Canada Holdings Inc.

Sleep Country is Canada's leading specialty sleep retailer with a purpose to transform lives by awakening Canadians to the power of sleep. Sleep Country operates under the retailer banners Sleep Country Canada, Dormez-vous, Endy, Hush, and most recently acquired, Silk & Snow. The company has omnichannel and e-commerce operations including, 290 corporate-owned stores and 20 warehouses across Canada. Recognized as one of Canada's Most Admired Corporate Cultures in 2022 by Waterstone Human Capital, Sleep Country is committed to building a company culture of inclusion and diversity where differences are embraced and valued. The company actively invests in its sleep ecosystem, innovative products, world-class customer experience, communities and its people.

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