Why Sleep Number Stock Exploded Higher This Week

What happened

Week to date, shares of Sleep Number (NASDAQ:SNBR) were up 26% as of 11:17 a.m. ET on Friday, according to data provided by S&P Global Market Intelligence. Analysts at Wedbush raised the price target on the stock from $27 to $33, citing potential upside to the consensus second-quarter estimates for sales and margins.

So what

Sleep Number hit a bump in its growth path last year due to rising inflation and supply disruptions. The company regularly delivered double-digit revenue and earnings growth leading up to the pandemic, but weakening sales trends sent the stock down with the broader market.

While sales were flat in the first quarter of 2023, management felt good about its execution. Specifically, the microchips used in the company's mattresses are in better supply now, which could improve sales and profitability.

Indeed, net operating profit improved to $26 million last quarter, up $22 million over the year-ago quarter. This reflected higher selling prices, a favorable sales mix, and the benefits of an improved microchip supply.

Now what

The company kept its full-year earnings-per-share guidance in a wide range between $1.25 and $2, which allows for a lot of variance, considering the choppy consumer spending environment.

However, the number crunchers on Wall Street have started to raise their earnings estimates in the last month, which could signal the potential for better-than-expected financial results when the company announces second-quarter results.

Sleep Number will announce second-quarter earnings on Thursday, July 27, after the market close. The stock is selling at its lowest valuation in a few years, which explains why it was moving higher on the bullish call by Wedbush.

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John Ballard has no position in any of the stocks mentioned. The Motley Fool recommends Sleep Number. The Motley Fool has a disclosure policy.