Sleep Number, the 39-year-old Minneapolis-based mattress and sleep technology retailer, has issued a stark going concern warning, disclosing in its annual 10-K filing that there is "substantial doubt" about its ability to continue operating as a going concern. The company says it may be forced to file for Chapter 11 bankruptcy protection within the next 12 months if it cannot secure new financing or complete a successful debt restructuring.

The disclosure, reported by Retail Dive and Chain Store Age, marks a dramatic escalation for a brand that once commanded premium pricing in the specialty sleep category. Sleep Number operates more than 600 stores nationwide — but that footprint has been shrinking fast, with nearly 40 locations shuttered since the end of 2024 and additional closures expected throughout 2026.

A Financial Freefall

The numbers tell a harsh story. According to Yahoo Finance, Sleep Number's net sales fell 16% year-over-year in fiscal 2025 to $1.4 billion, while its net loss widened more than sixfold to $132 million. Gross margin contracted by 60 basis points to 59%. The company now expects to violate financial covenants tied to its credit agreement within the next 12 months — a tripwire that, if triggered, would allow lenders to demand immediate repayment of all outstanding debt and cancel remaining credit lines.

To address its balance sheet, Sleep Number has hired Guggenheim Securities as a financial advisor. That engagement alone signals the company is weighing options typically associated with distressed debt situations: debt refinancing, asset sales, or a formal restructuring.

Turnaround Efforts Haven't Been Enough — Yet

CEO Linda Findley, who joined the company in April 2025, has moved aggressively to right-size the business. Sleep Number has already implemented $185 million in annualized cost reductions, cutting across general and administrative expenses, corporate headcount, technology spending, and store leases. An additional $50 million in cuts is targeted for 2026.

"We have radically reset the business by lowering our fixed cost structure and built a leaner, more nimble organization," Findley told analysts, according to The Street. She also highlighted new product launches — the company is actively rolling out its latest smart bed lineup — but acknowledged that weakening consumer sentiment and broader economic pressures continue to suppress demand for big-ticket discretionary purchases like $3,000 mattresses.

Sleep Number's stock has fallen 63.5% year-to-date as of mid-March, per CoStar. The market clearly believes that cost cuts alone may not be enough.

The Broader Context: Home Retail Is Under Pressure

Sleep Number's struggles don't exist in a vacuum. The specialty home furnishings sector has been under sustained pressure since the pandemic-era furniture and home improvement boom faded. Consumers who splurged on home upgrades during 2020–2022 are not buying again, and rising mortgage rates have kept housing turnover — historically a strong trigger for bedding purchases — near multi-decade lows.

The mattress category broadly has been challenged: manufacturers and specialty retailers alike have struggled to maintain volume as consumers trade down to lower-priced alternatives or simply delay replacement cycles. Sleep Number's tech-forward, premium positioning — its beds start around $1,200 and run to over $10,000 — makes it particularly vulnerable in an environment where consumers are tightening discretionary spending and hunting for value.

What Comes Next

Sleep Number has until its credit covenant deadlines to demonstrate a viable path forward. The most likely outcomes — short of a miraculous revenue recovery — are a debt refinancing deal, a sale of the business to a private equity acquirer, or a pre-packaged Chapter 11 restructuring designed to shed lease obligations and emerge with a smaller, more profitable footprint. The company still has a recognizable brand and proprietary smart-sleep technology, which could attract buyers if the process moves toward M&A rather than outright liquidation.

For retail landlords, the more immediate concern is the company's 600+ stores. A large-scale Sleep Number closure would ripple through malls and strip centers across the country, hitting property owners already navigating elevated vacancies in the home goods and specialty categories. Bedding News Now notes that even suppliers in the sleep products space are closely watching developments given Sleep Number's size in the category.

What's clear is that the window for a self-funded turnaround is closing. Sleep Number needs outside capital or a strategic transaction — and it needs one soon.