Mattress retailer Sleep Number has filed for bankruptcy, with plans to review its remaining fleet of nearly 600 U.S. stores and be acquired by stalking-horse bidder Sleep Country Canada.

Minneapolis-based Sleep Number on Friday sought voluntary Chapter 11 protection in U.S. Bankruptcy Court for the District of New York. The company said Brampton, Ontario-based Sleep Country has offered $415 million in cash and would assume certain liabilities to acquire its assets in a court-supervised sale.

The combined entity stands to create a leading North American mattress and bedding company, according to Sleep Number. The chain has 572 U.S. stores, Chief Financial Officer Amy O’Keefe said in an affidavit filed with the court. Sleep Country, part of Fairfax Financial, has over 300 corporate-owned stores in Canada.

“As is common with retail-debtors, the company is evaluating its retail footprint and may close additional stores during the bankruptcy,” Sarah Foss, global head of legal at Debtwire, said in a note Friday.

There have been a number of U.S. retail bankruptcies this year, most notably that of luxury retail conglomerate Saks Global. That Chapter 11, as well as several others, entailed retailers downsizing their brick-and-mortar footprints to cut costs and to reorganize. And it appears that Sleep Number, plagued by tougher competition and consumers cutting spending, will be taking that route, as well.

As part of a turnaround effort that kicked off last November, Sleep Number already began closing underperforming stores and that store-fleet evaluation will proceed with the help of A&G Real Estate Partners, according to the retailer.

“In connection with this process, the company will continue this work with the intention of maintaining as many retail locations as possible based on profitability,” Sleep Number said.

As part of the bankruptcy, Sleep Number is asking the court for permission to reject the leases of 44 stores that it’s already closed.

O’Keefe described Sleep Number’s national portfolio of stores in her affidavit.

“The company targets high-quality, convenient and visible store locations based on several factors, including each market’s overall sales and profit potential, store geography, demographics and proximity to other brand experiences,” she said. “Since 2010, the company has invested to reposition a large percentage of its mall stores to stronger, optimally sized, non-mall locations, adding stores in both existing and new markets.”

Sleep Number’s stores accounted for 88% of its net sales in 2025, while sales made through online, phone, chat and other sales accounted for 12% of net sales, according to O’Keefe.

Sleep Number has been struggling financially for some time and in March warned that it might be forced to file for Chapter 11 or pursue strategic alternatives.

“While we have made meaningful progress advancing our turnaround efforts and strengthening our operations, our capital structure remains unsustainable,” Sleep Number President and CEO Linda Findley said in a statement on Friday.

Sleep Number has roughly $672.5 million in debt obligations, according to court filings. The chain expects to secure up to $260 million of debtor-in-possession, or DIP, financing, including up to $65 million in new financing. Following court approval, the DIP funds, combined with cash generated from Sleep Number’s ongoing operations, is expected to support the business during the court-supervised process.

O’Keefe detailed Sleep Number’s financial woes, which went beyond just coping with tariffs.

“Like many of Sleep Number’s competitors and peers, the last several years have been extremely challenging,” she said. “The cumulative effect of increased competition within the mattress industry, reduction in discretionary consumer spending, unpredictable regulatory environment, increased inflation and interest rates, a less dependable global supply chain ecosystem and resulting increases in operating costs had a significant impact on the company’s bottom line.”

Neil Saunders, retail analyst and managing director of GlobalData, in a note on Friday said Sleep Number “has been on a path to failure for some time” and that a sale of the business to Sleep Country makes sense.

Its competitors like Mattress Firm offer “a much better lineup of products that span multiple price points and so can fish in more consumer pools,” according to Saunders.

“There is also a point to be made about the business model Sleep Number employed,” he said. “When the market is robust, having your own stores as a sales channel is sensible and allows share gains to be maximized. However, when the market turns sour, those stores become a burden because their costs are not being covered by the sales volumes they deliver.”

In January, Sleep Number announced a strategic partnership with three-time Super Bowl champion Travis Kelce of the Kansas City Chiefs. As part of that deal, Kelce committed to acquire common stock in the company on the open market and to be granted compensatory restricted stock units that will vest over the initial three-year term of the relationship, according to O’Keefe.

Kelce also committed to participate in future Sleep Number marketing efforts. “His equity in Sleep Number is at significant risk, as shareholders rarely retain their equity in Chapter 11 cases,” Foss said. “Further, there could be changes to his partnership and endorsement deal, or it could be assumed by Sleep Country Canada as is, depending on the priorities of the new owners.”

Sleep Number declined to comment on both Foss and Saunders’ remarks.

Sleep Number is advised by Davis Polk & Wardwell as legal adviser, Guggenheim Securities as investment banker, AP Services, an affiliate of AlixPartners, as interim management and Joele Frank, Wilkinson Brimmer Katcher as strategic communications adviser. Sleep Country Canada is advised by Goodwin Procter as legal adviser and PwC as financial adviser.