Mr. Stewart Schaefer reports

SLEEP COUNTRY DELIVERS STRONG TOPLINE REVENUE WHILE INTEGRATING STRATEGIC ACQUISITIONS

Sleep Country Canada Holdings Inc. has released its financial results today for its third quarter ended Sept. 30, 2023.

All financial results are reported in Canadian dollars unless otherwise stated.

Third quarter financial highlights

• Revenues increased by $4.7-million or 1.9 per cent to $255.7-million in Q3 2023 from $251.0-million in Q3 2022;
• Same store sales (SSS) decreased by 5.5 per cent in Q3 2023 from Q3 2022;
• Revenues attributed to e-commerce increased to 20.4 per cent in Q3 2023 from 18.5 per cent in Q3 2022;
• Gross profit increased by $4.8-million to $101.4-million in Q3 2023 from $96.6-million in Q3 2022;
• Gross profit margin increased to 39.7 per cent in Q3 2023 from 38.5 per cent in Q3 2022;
• Operating EBITDA (earnings before interest, taxes, depreciation and amortization) decreased by $5.8-million or 8.8 per cent to $59.8-million in Q3 2023 from $65.6-million in Q3 2022;
• Operating EBITDA margin decreased to 23.4 per cent in Q3 2023 from 26.1 per cent in Q3 2022;
• Net income attributable to the company decreased by $4.2-million or 14.6 per cent to $24.7-million in Q3 2023 from $28.9-million in Q3 2022;
• Adjusted net income attributable to the company decreased by $5.7-million or 17.5 per cent to $26.8-million in Q3 2023 from $32.5-million in Q3 2022;
• Diluted earnings per share (EPS) decreased by nine cents or 11.4 per cent to 70 cents in Q3 2023 from 79 cents in Q3 2022;
• Diluted adjusted EPS decreased by 13 cents or 14.6 per cent to 76 cents in Q3 2023 from 89 cents in Q3 2022;
• Repurchased for cancellation 165,192 common shares (Q3 2022 -- 527,576 common shares) in Q3 2023 for $3.8-million (Q3 2022 -- $13.8-million) against the company's NCIB (normal course issuer bid);
• Subsequent to quarter-end, on Nov. 9, 2023, the board declared a dividend of 23.7 cents per share payable on Nov. 30, 2023, to shareholders of record at the close of business on Nov. 24, 2023;
• Subsequent to quarter-end, the company repurchased for cancellation 445,938 shares (YTD -- 910,649 common shares) for $9.9-million (YTD -- $21.0-million) in the month of October.

Third quarter business highlights

• Opened a new Sleep Country store in Edmonton, Alta.;
• Silk & Snow was recognized for the third consecutive year as one of the top 50 fastest-growing businesses in The Globe and Mail's 2023 Report on Business;
• Acquired an additional 16 per cent of the common shares of Hush Blankets Inc. increasing the company's ownership interest to 68 per cent.

President and chief executive officer commentary

"We are pleased with our strong performance this quarter amid this evolving environment, as high interest rates and inflation continues to have an impact on consumer confidence. We are seeing pockets of softness in consumer demand, particularly on larger ticket items, resulting in a deferral of discretionary purchases. As we navigate through this macroenvironment and geopolitical uncertainty, we remain cautiously optimistic on our medium-term outlook, and we are very positive on our long-term strategic positioning," said Stewart Schaefer, president and chief executive officer of Sleep Country.

"We are focused on building and strengthening our sleep ecosystem while investing in the growth of our brands. In the upcoming month, we are very excited that Endy and Silk & Snow, two of our highly recognized e-commerce brands, will open their very first brick-and-mortar locations. These tactile environments will provide customers with a new opportunity to discover, trial, and purchase innovative and premium sleep products with the help of our trusted sleep experts," said Mr. Schaefer.

"We are also very pleased with the progress that we are making with our newest acquired banner, Casper Canada. Over the last five months our team has invested a significant amount of time and talent in this latest acquisition and we are excited to see the fruits of our labour in 2024 and beyond," said Mr. Schaefer.

"Later this month, we will be launching our new and exciting luxury sleep banner, 'the rest,' with its first store opening in Yorkdale Mall, Toronto. The rest will offer a uniquely elevated experience, bringing customers the world's finest collection of luxurious mattresses and premium bedding as we redefine luxury and sleep," added Mr. Schaefer.

"As we execute against our strategic growth initiatives, we are also doubling down on our efforts to drive efficiency throughout our house of brands, while working to build the best-in-class synergies and invest in the scalability of our sleep ecosystem," concluded Mr. Schaefer.

Revenues increased by $4.7-million or 1.9 per cent from $251.0-million in Q3 2022 to $255.7-million in Q3 2023 mainly due to incremental revenue earned from new stores, wrap stores opened in 2022, and the acquisitions of Silk & Snow and Casper Canada completed in January, 2023, and April, 2023, respectively. This increase was partially offset by a decrease in SSS by 5.5 per cent.

Gross profit margin increased by 120 basis points from 38.5 per cent for Q3 2022 to 39.7 per cent for Q3 2023 mainly due to higher average unit selling prices and lower product costs, partially offset by higher sales and distribution compensation costs, and deleveraging of occupancy costs which were also impacted by the company's nine new stores of which six locations were added as part of the acquisition of Casper Canada.

Total G&A (general and administrative) expenses increased by $10.9-million or 22.0 per cent from $49.8-million in Q3 2022 to $60.7-million in Q3 2023 mainly driven the acquisitions of Silk & Snow and Casper Canada as well as increases in advertising, compensation and information technology costs incurred in the normal course of business.

Operating EBITDA was $59.8-million for Q3 2023, or 23.4 per cent of Revenues, compared with $65.6-million for Q3 2022, or 26.1 per cent of Revenues, representing a decrease of $5.8-million or 8.8 per cent mainly due to an increase in G&A expenses, partly impacted by incremental G&A expenses incurred by Silk & Snow and Casper Canada; partially offset by an improved gross margin in Q3 2023.

Finance-related expenses increased by $1.7-million from $6.3-million in Q3 2022 to $8.0-million in Q3 2023 mainly due to an increase in interest expense on the company's lease obligations and its senior secured credit facility, impacted by the higher interest rates and debt levels in addition to a decrease in the unrealized gain on the company's interest rate swap. This increase was partially offset by a decrease in accretion expense as a result of lower redemption liabilities related to the Hush acquisition.

Other expenses (income) decreased by $1.2-million from expenses of $200,000 in Q3 2022 to income of $1.0-million in Q3 2023 mainly due to foreign exchange gains and interest income earned on investments in Q3 2023.

Income taxes decreased by $2.2-million from Q3 2022 to Q3 2023. This change is driven by the decrease in net income before taxes of $6.5-million from $40.3-million in Q3 2022 to $33.8-million in Q3 2023, and a decrease in the company's effective income tax rate by 110 basis points from 28.1 per cent in Q3 2022 to 27.0 per cent in Q3 2023.

Net income attributable to the company for Q3 2023 decreased by $4.2-million from $28.9-million (80 cents per share) in Q3 2022 to $24.7-million (71 cents per share) in Q3 2023.

Adjusted net income attributable to the company for Q3 2023 decreased by $5.7-million from $32.5-million (90 cents per share) in Q3 2022 to $26.8-million (77 cents per share) in Q3 2023.

Summary of year-to-date financial results

Revenues decreased by $6.2-million or 0.9 per cent from $685.6-million in YTD 2022 to $679.4-million in YTD 2023 mainly due to a decrease in SSS by 7.5 per cent, which was partially offset by incremental revenue earned from new stores, wrap stores in 2022, and the acquisitions of Silk & Snow and Casper Canada.

Gross profit margin increased by 50 basis points from 36.5 per cent in YTD 2022 to 37.0 per cent in YTD 2023 mainly due to higher average unit selling prices and lower product costs, partially offset by higher sales and distribution compensation costs, and deleveraging of occupancy costs which were also impacted by the company's nine new stores of which six locations were added as part of the acquisition of Casper Canada.

Total G&A expenses increased by $25.0-million or 18.0 per cent from $138.6-million in YTD 2022 to $163.6-million in YTD 2023 mainly driven by the acquisitions of Silk & Snow and Casper Canada as well as increases in advertising, compensation, information technology costs incurred in the normal course business.

Operating EBITDA was $145.4-million for YTD 2023, or 21.4 per cent of revenues, compared with $165.6-million for YTD 2022, or 24.1 per cent of revenues, representing a decrease of $20.2-million or 12.2 per cent mainly due to an increase in G&A expenses, partly impacted by incremental G&A expenses incurred by Silk & Snow and Casper Canada; partially offset by an improved gross margin in YTD 2023.

Finance-related expenses increased by $6.5-million from $14.6-million in YTD 2022 to $21.1-million in YTD 2023 mainly due to an increase in interest expense on the company's lease obligations and its senior secured credit facility impacted by the higher interest rates and debt levels, in addition, to a decrease in the unrealized gain on the company's interest rate swap. These changes were partially offset by a decrease in accretion expense as a result of lower redemption liabilities related to the Hush acquisition.

Income taxes decreased by $8.8-million from YTD 2022 to YTD 2023. The change is driven by the decrease in net income before taxes of $30.0-million from $97.0-million in YTD 2022 to $67.0-million in YTD 2023, and a decrease in the company's effective income tax rate by 70 basis points from 28.0 per cent in YTD 2022 to 27.3 per cent in YTD 2023.

Net income attributable to the company for YTD 2023 decreased by $21.3-million from $70.0-million ($1.91 per share) in YTD 2022 to $48.7-million ($1.40 per share) in YTD 2023.

Adjusted net income attributable to the company for YTD 2023 decreased by $24.2-million from $79.0-million ($2.16 per share) in YTD 2022 to $54.8-million ($1.58 per share) in YTD 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 Nov. 10 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 Nov. 17, 2023, 11:59 p.m. ET. To listen to the replay, please dial 416-764-8677 or 888-390-0541 and use pass code 483452 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, Silk & Snow, Hush, and, most recently acquired, Casper Canada. The company has omnichannel and e-commerce operations, including 298 corporate-owned stores and 19 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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