Sleep Number's (SNBR) Q4 sales declined as demand trends weakened and the company reduced media spending, raising concerns about market share risk, UBS Securities said in a note emailed on Thursday.

UBS expects a double-digit percentage sales decline in Q1, with major sales events already behind the company, making a near-term recovery unlikely.

The firm noted that Sleep Number cut media spending by 18% year-over-year in Q4, which helped profitability but raises questions about sustaining demand if spending remains low.

Despite weak unit sales, Sleep Number expanded gross margins by 330 basis points in Q4, aided by product mix and cost efficiencies, and some of these benefits could support profitability in the near term, UBS said.

Roughly one-third of Sleep Number's input materials come from Mexico, and potential tariffs could reduce margins by about 230 basis points if the company is unable to offset higher costs, UBS said. The firm noted that Sleep Number may seek to mitigate the impact through alternative sourcing, vendor negotiations, and selective price increases.

The firm also said that incoming CEO Linda Findley's background in digital businesses may help improve customer engagement and conversion. While the company remains committed to a direct-to-consumer model, UBS said the new leadership could explore strategic options, including potential partnerships.

The brokerage reduced the price target on Sleep Number's stock to $12 from $13 and maintained its neutral rating.

Shares of Sleep Number were down nearly 40% in recent trading.

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