Management’s Discussion and Analysis of Financial Condition and Results of Operations of Sleep Country Canada Holdings Inc. 1 Basis of Presentation ............................................................................................................................................................1 2 Forward-looking Information ................................................................................................................................................1 3 Overview .................................................................................................................................................................................3 4 Impact of COVID-19 Pandemic on the Company ................................................................................................................4 5 Dividends and Share Purchases ..........................................................................................................................................5 6 Factors Affecting the Results of Operations.......................................................................................................................7 7 Second Quarter Operational Highlights.............................................................................................................................11 8 Second Quarter 2020 versus Second Quarter 2019..........................................................................................................16 9 YTD 2020 versus YTD 2019 .................................................................................................................................................18 10 Summary of Quarterly Results ...........................................................................................................................................20 11 Segment Performance .........................................................................................................................................................21 12 Liquidity and Capital Resources........................................................................................................................................21 13 Risk Factors .........................................................................................................................................................................23 14 Critical Accounting Estimates ............................................................................................................................................24 15 Financial Instruments ..........................................................................................................................................................25 16 Internal Controls Over Financial Reporting.......................................................................................................................25 17 Current and Future Accounting Standards .......................................................................................................................25 18 Outstanding Share Data ......................................................................................................................................................25 19 Non-IFRS Measures .............................................................................................................................................................25 20 Additional Information.........................................................................................................................................................28 The following Management’s Discussion and Analysis (“MD&A”) is prepared as of August 6, 2020 and is intended to assist readers in understanding the financial performance and financial condition of Sleep Country Canada Holdings Inc. (“SCC” or “Sleep Country” or the “Company”) for the second quarter ended June 30, 2020 and should be read in conjunction with the unaudited condensed interim consolidated financial statements of SCC and the accompanying notes for the second quarter ended June 30, 2020 and the audited consolidated financial statements of SCC and accompanying notes for the year ended December 31, 2019 and the related MD&A. 1 Basis of Presentation All references in this MD&A to “Q2 2020” are to SCC’s fiscal quarter ended June 30, 2020, “Q2 2019” are to SCC’s fiscal quarter ended June 30, 2019 and “Q2 2018” are to SCC’s fiscal quarter ended June 30, 2018. All references in this MD&A to “YTD 2020” are to SCC’s six-month period ended June 30, 2020, “YTD 2019” are to SCC’s six-month period ended June 30, 2019 and to “YTD 2018” are to SCC’s six-month period ended June 30, 2018. The Company’s Q2 2020 unaudited condensed interim consolidated financial statements and accompanying notes have been prepared in accordance with the International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS”) using the accounting policies described therein. All amounts are presented in thousands of Canadian dollars, except number of stores, per share amounts or unless otherwise indicated. The unaudited condensed interim consolidated financial statements of SCC and the accompanying notes for the second quarter ended June 30, 2020 and this MD&A were reviewed by the Company’s Audit Committee and were approved by its Board of Directors (“The Board”) on August 6, 2020. 2 Forward-looking Information This MD&A, including, in particular, the sections below entitled “Factors Affecting the Results of Operations”, “Outlook”, “Liquidity and Capital Resources” and “Risk Factors”, contains forward-looking information and forward-looking statements which reflect the current view of management with respect to the Company’s objectives, plans, goals, strategies, outlook, results of operations, financial and operating performance, prospects and opportunities. Wherever used, the words “may”, “will”, “anticipate”, “intend”, “estimate”, “expect”, “plan”, “believe” and similar expressions identify forward-looking information and forward-looking statements. Forward-looking information and forward-looking statements should not be read as guarantees of future events, performance or results, and will not necessarily be accurate indicators of whether, or the times at which, such events, performance or results will be achieved. All of the information in this MD&A containing forward-looking information or forward-looking statements is qualified by these cautionary statements. Forward-looking information and forward-looking statements are based on information available to management at the time they are made, underlying estimates, opinions and assumptions made by management and management’s current good faith belief with respect to future strategies, prospects, events, performance and results, and are subject to inherent risks and uncertainties surrounding future expectations generally. Such risks and uncertainties include, but are not limited to, those described below under the heading “Risk Factors” and in the Company’s 2019 annual information form (the “AIF”) filed on March 4, 2020. This MD&A, in addition to the MD&A filed on May 4, 2020 (“Q1 MD&A”), also includes forward looking statements with respect to the expected impact of the recent novel coronavirus (“COVID-19”) pandemic, which has a direct and material impact on the Company’s financial outlook and expectations for future performance. A copy of the AIF and/or Q1 MDA can be accessed under the Company’s profile on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com. Additional risks and uncertainties not presently known to the Company or that the Company currently believes to be less significant may also adversely affect the Company. In these unprecedented times, the Company believes that the COVID-19 pandemic creates a number of additional risks and uncertainties for the Company's business, which could impact the results of operations going forward and the forward-looking statements made herein. These include: (a) a material reduction in revenue and/or profitability as a result of: • another partial or complete closure of the Company’s retail stores and/or distribution centres; • significant economic challenges that lead to financial constraints on customers; • decline in product demand causing the need to discount products to drive revenue; and • additional legislation, regulation and other government intervention measures impeding normal operations. 1 (b) uncertainty associated with the costs and availability of resources required to provide the appropriate/required levels of service to the Company’s customers including the availability and cost of training the Company’s sales, warehouse, customer service, and delivery associates; (c) issues in the Company’s ability to offer certain products due to another partial or full closure of its retail store and/or distribution centre closures and possible supply chain disruptions; (d) uncertainty associated with potential increased costs, delays and availability of resources required to complete major projects on time and budget; (e) the uncertainty around the shift in consumer behaviour in the long term, such as increased online purchases compared to retail store purchases, which could have a material adverse effect on the Company’s business, operations, capital resources and/or financial results of operations; (f) the negative impact on debt and equity capital markets, including the ability to access capital at a reasonable cost and the trading