Q4 2019 Earnings Call
Ladies and gentlemen, this is the operator.
This conference is scheduled to be getting momentarily until that time, you will again be placed funneled. Thank you for your patience.
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Today's call is being recorded and we've allocated one hour for prepared remarks and QNX.
At this time I'd like to turn the conference over to Jeff Berson Investor Relations for Casper. Mr. Gross me you may begin.
Thank you operator, I'd like to welcome everyone to Kashmiris fourth quarter and full year 2019 earnings conference call.
Before we begin I'd like to remind everyone that this call will contain forward looking statements within the meaning of the private Securities Litigation Reform Act 1990 Fives. All statements made on this call that do not relate to matters of historical Soc should be considered forward looking statements, including statements regarding management's plans strategies goals and objectives art shred it.
Financial performance and the expected impact.
Yes.
We'll go quarter by this line of business.
These statements are neither promises nogales use but that involve known and unknown risks uncertainties and other important factors that may cause our actual results performance or achievements to be materially different from any future results performance or achievements expressed or implied by the forward looking statements.
Dr. Disgusting I know report on form 10-K.
And our other filings with Securities Exchange Commission could cause actual results could differ materially from those indicated by the forward looking statements made in this call.
Any such forward looking statements represents managements estimates as of the data this call.
While we may elect to update such forward looking statement to support in the future. We disclaim any obligation do so even if subsequent events, causing this church. In addition, we may also reference a number of non-GAAP metrics, which are reconciled the nearest GAAP metrics. The company's earnings release, which can be found on our investor Relations website at <unk> IR Dock Hospital accounts.
Now, let's turn the call, though what accounts for Chief Executive Officer, So Chris.
Thank you and good morning, everyone.
With me on the call today, it's Emily ROE, President and Greg Macfarlane, our chief financial and operating officer.
Following our prepared remarks, we'll be happy to take your questions.
Today, we're reporting on our financial results for the fourth quarter and full year, which ended on December 30, Onest 2019.
Providing an update on how coping 19 is impacting our business and discussing guidance.
2019 results before we get into our results I would like to address the topic that is on all of our minds cobot 19, and how it is impacting all about.
The health and safety of our employees and customers is our top priority.
We're continuing to monitor developments and we'll provide more details later in the call on how we are adapting our business in this challenging environment.
Moving to 2019 results. We're pleased to report the 2019 was a good year for sleep and a strong year and fourth quarter for Casper.
Our results were within the ranges provided as preliminary estimates for 2019 results in our IPO registration statement.
In the fourth quarter and full year 2019, we saw positive progress on each of the leverage driving our path to profitability.
Continued topline revenue growth.
Improving gross margins.
Disciplined marketing with natural leverage.
And scalable general and administrative infrastructure.
Fourth quarter highlights include.
Overall net revenue was $126.9 million for the fourth quarter, our highest avenue excuse me, our highest revenue quarter ever. This represented period over period growth of 29.3% for this quarter marketing. It continued reacceleration of growth in our overall business.
Our direct to consumer revenues were up 13.2% period over period in the fourth quarter at $92 million and we opened 12, new retail stores in the quarter.
Our retail partnerships revenue were up 106.1% period over period in the fourth quarter at $35 million and we launched three new retail partners.
It's mark to our highest ever retail partner revenue quarter.
Gross profit margin in the fourth quarter was 47.6% a 520 basis point period over period improvement.
Net losses improved by 8% to 25.6 million for the fourth quarter 2019 compared to the prior year period.
Full year 2019 highlights include.
Net revenue was $439.3 million for 2019, representing 22.7% growth from the prior year.
Our direct to consumer revenues were up 13% year on year in 2019 at $350.5 million and we opened 37 net new stores in the year, bringing our total store fleet count to 60 stores at year end.
Our retail partnership revenues were up 86% in 2019 at $88.8 million and we launched with seven new partners in the year with 18 total partners.
Gross profit margin for 2019 was 49% a 500 basis points year over year improvement driven by supply chain initiatives to reduce product unit costs and the introduction of new higher margin products, which had a favorable impact on our cost of goods sold.
We held net losses for the year nearly flat with a 1% increased to $93 million for the full year relative to 2018.
And our products continue to shine and be highlighted the castle glow was named one of times Baskin bench into 2019 and consumer reports recently named the original Kasper mattress as one of the decades most influential products.
I'd like to now move into Kogan 19 updates for our business.
The cobot 19 situation is rapidly evolving and while there's still a great deal of uncertainty on the overall impact around the globe, we'd like to provide an update on our observations of our business today and the actions we've taken.
First our top priority is the health and safety of our employees and customers.
Starting last week, we shifted to optional remote worked for employees at our headquarters and over the weekend, we updated our policy to mandatory remote work from March 16th through March 27.
Over the past weekend, we reduced.
The operating hours of our retail stores and on Monday. This week, we announced a temporary closure of all Kasper sleep shops for March 17 through March 27.
Second we do not currently have any material issues with respect to our supply chain.
We manage a diverse global supply chain and this provides not only the cost in infrastructure advantages, we have outlined but also flexibility should we need it.
Over the past several weeks, we have worked with our manufacturing and logistics partners to build communication monitory processes for all aspects of our product into liberate supply chain.
This work includes a full inventory assessment of all commodities subcomponents work in processing finished goods.
Monitoring shift level labor and output rates for key vendors daily tracking of shipping rail and truck logistics and receiving flows.
This point, we're not seeing any specific issues with inventory availability and delivery.
Third while the quarter started off strong in January and into February we have seen consumer caution in recent weeks impacting our retail stores with a measurable slowed down in retail traffic.
Like many other retailers, we announced earlier this week the closure of our retail stores from March 17th through March 27.
As a result, we expect to see an impact on our retail store sales for the first quarter.
In terms of E. Commerce, we also began seeing shifty performance Oncaspar dot com within initial slow down over the past few weeks, but a pickup in performance over the weekend and into this week.
We're carefully monitoring shifts by consumers from retail to our online sales channel.
We believe our multichannel platform and the strength of our brand leave us well positioned to capture market share if demand shifts online.
We've not seen a material impact on our retail partnerships to date, but we will continue to work closely with our retail partners is conditions of all.
As we continue to monitor the developing situation, we're managing the business with a focus on cash management.
We finished 2019 with approximately $68 million in cash and then successfully raised an additional $88 million in net proceeds from the IPO earlier this year.
We would like to reaffirmed that the business is fully capitalize and that we will manage the business with a focus on working towards EBITDA breakeven by mid year 2021.
We are a fast moving and flexible organization with extensive data and analytics capabilities and a mostly variable cost structure.
Both of which enable us to quickly and thoughtfully reacted changing circumstances.
Today, we have already taken action in a number of areas, including labor management marketing investment pricing and promotions company travel and inventory levels and we have shifted our resource says focus towards cost in cash management activities.
We will continue to monitor the business closely and adjust accordingly.
Well, there's still uncertainty about the evolving landscape and we have not yet completed the quarter. We wanted to share that our first quarter estimate for net revenue is between 108 million and 112 million and for adjusted EBITDA is between a loss of $30 million to a loss of $27 million.
As a reminder of the first quarter has historically been our seasonally slowest quarter, and we expect quarterly losses to be lower throughout the rest of the year.
This is a complicated situation for all of US which is evolving daily.
We continue to follow the latest guidance from public health authorities and state local authorities and adapt our business accordingly.
We plan to provide a full year update and 2020 watt guidance on our first quarter 2020 earnings call, which we expect to be in early may.
I'll now turn it over to emulate to share an update on our multichannel strategy and performance as well as product and brand update.
Yeah.
Thank you for that and thank you all for joining the call today.
I'd like to start by discussing our multichannel strategy.
We have developed our multichannel strategy to support the consumer passed the purchase across a range of sleep.
Which typically include multiple touch points across both physical and online sales channel.
Our sales channels consists of direct to consumer which includes on my.
And sales and not on retail location.
And retail partnerships, which includes online in store sales.
Retail partner.
We believe both channels an integral part of the consumer experience.
In the fourth quarter 2019, our store it combined with our online pipeline direct to consumer sales increased 13.2% year over year to 92 million.
We had a strong black Friday, cyber Monday Monday shopping window, and we were excited to offer seasonally curated gifting products, both online and whenever we talk stores, which grew transactions in the quarter.
We opened 12, new retail locations in the fourth quarter.
Simon on budget and into here with a total store count at ICSI and expanding our footprint with a number of new two cats for cities like Calgary, Charlotte, Cincinnati and Kansas City.
The continued growth and strength of our retail partnerships.
I'm going to 6.1% period over period growth in revenue to 35 million in the fourth quarter 2019.
Retail partnership revenue accounted for 20% that fourth quarter revenue in 2019.
Compared to 17% total revenue in the fourth quarter of 20.
The growth of this channel is important.
Hi, retail partners for care, less marketing general and administrative side and direct to consumer which drives operating leverage.
We launched our products with southern your partners in 2019, adding Wayfair, Nebraska furniture Mart and then go into fourth quarter and ended the year with 18 kill partnership.
Retail partnership presents a unique.
The cat experience tailored to the shopping environment about retail partner.
This balance is important because we're aligning with consumers' expectations and how they shop in a variety of environment.
Remaining true to what make Casper Sasha.
I, just I'm brand and its distinctive the crowds attracts new retail partners looking to diversify their consumer profile, an increase in dark foot and web traffic, while we benefit from the expanded reach of our partner large storm suppressed.
Drive growth in awareness and transaction.
In February 2020 time magazine published an entire special edition, which is dedicated to the scientifically.
I think that's a wellness equation is evolving to include sleep.
Our view is that the focus on fleets as a part of wellness continues to increase.
In 2018, we added 11, new products to our portfolio I know, we introduced our first methods like products with the glow bedtime light expanded our mattress offerings beyond phone only with hybrid option.
Launch, new pillows seat and bedroom furniture to complete our sleep offerings.
These products well designed in and other research and development sincerity cost so.
Later this month, we will be introducing our 2020 mattress collection.
New collection reflects our response to consumer retail partner demand for more Kasper mattress.
And Mark I find that provides a great refresh about continued improvements to the come person performance Our award winning mattresses.
Of note. Our you know the hybrid mattress offer their consumer I knew entry price point and 1995 for Queen side fitting nicely between our cat from actor at the approximate a thousand dollar price trades and the wave matter that cost and $2500.
Consumers will be able to Steve and buyer collection, starting later next week.
With that I'll turn it over to Greg Macfarlane.
Thanks, Emily and moving on let's jump into gross margins.
We believe a key measure of our performance is there a success and continuing to deliver margin expansion across the business.
We've invested significant leadership effort into product immaterial reengineering take costs out of the underlying products driving improvements in gross margins in 2019.
Our decision to utilize third party manufacturers as a strategic one that's allowed us to grow the business quickly expanded a new products easily and avoid large fixed cost investment typical in the bedding industry.
We have built internal expertise through the entire bill of material sub components and raw material cost it smells manufacturing techniques and have shown measurable ability to reduce costs.
We made excellent progress you qualify new suppliers.
Creasing sourcing capabilities, you, putting a large number of productivity programs that benefited 2019 and sets up 2020 for further expected cost savings.
Kasper earned $60.4 million.
Gross profits.
In the fourth quarter of 2019, an increase of 45.2% from last year's fourth quarter $250.4 million gross profits in 2019, an increase of 36.6% from the prior year.
Gross margins were 49% in 2000, 1980, 496 basis point improvement year over year, any 47.6% gross margins in the fourth quarter, the 523 basis point improvement year over year.
Importantly, we had been able to improve our overall company gross margins, even as retail partnerships that has lower margins has increased from 70% of total revenues in the fourth quarter, 18% to 28% in the fourth quarter of 2019.
Gross margin percentage in the fourth quarter was impacted by year end accounting adjustments for annual inventory count its valuation adjustments.
It was these though these entries were booked in the fourth quarter, they actually applied to the full year.
These adjustments resulted in a fourth quarter gross margin percentage that was slightly lower than our third quarter margin of 50.7%.
The fourth quarter margins does not represent any differences in underlying gross margin performance.
We remain confident in our gross margin profile as we're here now and 2020.
Sales and marketing expense.
He also marketing expense as a percentage of sales was essentially flat year over year.
Flexing, our disciplined approach to the efficiency of our spend.
Even as we increased our overall investment in sales and marketing expense year over year.
Importantly performance marketing, which represents the vast majority of our marketing dollars continues to be spent to profitably acquire ecommerce customers.
Additionally, there was relatively minimal incremental investment needed to support our owned retail stores in a retail partnerships driving natural leverage in sales and marketing as a percentage of revenues.
Contribution margin.
Contrition margins a metric that we used to evaluate our business, which defined as gross profit less sales and marketing expense. It's effectively the profit after we acquire a customer and sell them or product.
Contribution margin dollars increased 143.8% in the fourth quarter 2019, 92.7% for the full year 2019.
This is driven by improved gross margins and discipline marketing spend.
Contribution margin as a percentage of net revenue increased 734 basis points in the fourth quarter of 19 compared with the prior year and 503 basis points for the full year 19 compared to prior year.
<unk> expenses.
<unk> expense for 2019 was $149.6 million in for the fourth quarter of 19 was $43.4 million.
In 2019, we continued to invest in key areas that drive growth, particularly retail product development.
We introduced 11, new products, including our award winning glow light or hybrid mattresses and are down in phone telo offerings.
We don't our business to scale investing at a gross and we believe the majority of our overhead infrastructure is now largely in place.
If strides operating leverage as we continue to grow as demonstrated by the improvements and she they spend as a percentage net revenues, which was down year over year in 2019 and for the full year 2019.
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I'm going to move to adjusted EBITDA.
For a few minutes adjusted EBITDA margin increase for the full year 2019 compared to the prior year due to strong revenue growth.
Gross margins lower sales and marketing spend as a percentage of sales and lower DNA spend as a percentage of sales.
Good EBITDA margin improved by 1210 basis points in the fourth quarter of 19 compared to last year and 693 basis points for the full year of 19 compared to last year.
We expect to continue driving material cost savings from our supply chain be disciplined about marketing spend and we'll realize the benefits of operating leverage from the prior investments that we've made into our organization.
With that let me turn it back over to fill up please.
Thank you Greg.
In closing Kasper had a strong fourth quarter and a strong year.
Thanks to the recent process of going public we have had a chance to me directly with many investors leading to a shared understanding of the power and uniqueness of our brand.
The utility of our multichannel approach.
And in particular, our strengthen ecommerce and digital.
Broader opportunity in serving a sleep economy and the positive impact on our margins from outsource manufacturing operational leverage and disciplined spent.
We're committed to creating durable long term value and our investment thesis and overall strategy remain intact.
Due to the evolving cobot 19 situation, we are in a period of uncertainty.
However, with our IPO behind US we now have a strong balance sheet and cast is cash position and we'll monitor and adapt to the evolving landscape.
We believe that our successes will continue into 2020 and beyond.
I didn't the formal remarks for today, we'd like to now open it up to questions and answers operator, I'll turn it back to you.
Thank you.
Order to ask a question you'll need to press star one on your telephone we ask that you limit yourself to one question and one follow up.
Withdraw your question please press the pound or hash key.
Our first question today comes from Peter Keith from Piper Sandler. Please go ahead.
Hey, good morning, everyone and congrats on your first earnings call in a tough environment.
I did want to dig into a little bit on the comments or fill up that you beat around E. Com sales I think you said slowing a little bit a few weeks ago, but now we are accelerating.
Certainly there is that a view that maybe sales will be shifting to more of an E. Commerce format in away from stores and you guys would seem prepared to benefit from that so maybe on ecommerce specifically are you seeing like a large jump in traffic maybe a reduction in competitive AD rates, just give us a little sense of what you think is driving that.
The the sales growth in that E com channels in the recent days.
Yes, great questions. Thank you Peter <unk>. So what we have seen is that as coping 19 really started to gain widespread.
Impact across the globe, our view is that consumers she's got a little cautious in particular on got more cautious with a more expensive purchases like buying a mattress. So we saw conversion rates start to slot slow a little bit I'm, starting really three or four weeks ago, and so that's where we saw a bit of a dip to X.
Spectators and on our ecommerce business this week and over the weekend, we saw conversion rates pick back up and we think in part it's consumers now avoiding traditional retail experiences within this category and more broadly and moving more aggressively online what one of the things that we're tracking very close.
We will be the recapture rate of sales that would have happened in our retail stores, but are now going to go to Kasper dot com.
To transact to make their purchases, we do think to your point to Kasper is uniquely positioned in this changing consumer environments to be successful.
We are the original DTC, Brandon and that's what a lot of consumers know what says and I I think as more consumers go online to do retail purchasing overall, but certainly do more reset retail purchasing and research within this category.
Passwords is going to do well in that environment and so we're continuing to look at things in real time and make adjustments to marketing spend but overall, we have seen a slight pullback in ad rates.
You know this thing is playing out in real time, so it's literally a day by day story, that's evolving quickly and so we think we're well positioned with how this might play out for the rest of 2020, we did see a bit of conservatism I think from consumers over the last few weeks.
And we'll see how that plays out going forward.
Okay. That's that's very helpful.
Maybe a question either for Greg or few Philip is just on managing a the cash flow and I think you laid out a number of things that you're beginning to look at maybe could you give us a prioritization. What do you think are sort of the easiest levers to pull back on a in order to preserve cash if we go through a prolonged period of some sales sluggishness.
You know I would say, we're looking at the entire business and and working through different scenarios. Obviously I don't think anyone has an idea about how cold it will impact.
Consumer spending broadly throughout the year I do think.
After his category can be fairly durable during kind of choppy economic times and we're now scenario planning on what this does to the industry until he said the category and our business, but no given the comments, we made earlier about having a business it's largely variable cost weekend, we can control things too.
We are pretty find degree we've mentioned that we've been looking at LIBOR rates, we've been looking at sales and marketing spending, but we're looking at every line on our PML to see what we want to do in different scenarios.
From store openings, how we're investing long term into the brand.
There are a number of levers within our business given the business model that we have.
Peter maybe I could vary a little bit as well just some color I'm specifically so as we mentioned the prepared remarks. We finished last year was $60 million and cash. We then raising an additional $88 million and you know IPO proceeds that we have a healthy cash balance at this point in time.
I really think about where we spend cash it's really right now it's an operating losses in its on Capex and so that's where the two conversation start in Capex for us as everyone knows is really for new new retail store openings. We have an active pipeline of places we want to put those stores, but the dependent some caution we just put that on pause for now I'm just as we see how the next few weeks.
Open up and each door for US I think has also people that was about $250000.
After that in the operating losses Phillips said, we it's mostly variable cost structure at that point, and we understand how to manage that quite well.
Okay. That's very helpful guys. Thanks, a lot and good luck.
Thanks Peter.
Our next question comes from Alexander <unk> from Goldman Sachs. Please go ahead.
Good morning, guys. Thanks, so much for taking the question here I'm a few follow ups on the impact of 'cause. It 19. So first question here any thoughts at this stage on how a prolong disruption from this might affect margins I'm thinking here that the shift from that.
The retail stores, which have certain fixed cost associated to the more variable E. Commerce channel on how you would expect that to impact profitability for the full yeah.
So I was a we've been looking at as you know the margin structure for our DTC business, it's fairly consistent between E commerce and the retail channel. So if there's a shift in sales from retail to E. Commerce. The gross profit margin profile stays.
Sense opening up stores as Greg mentioned is the use of capital and the use of operating expense to get those stores up to maturity.
We don't have that investment if they do shift into E. Commerce and then the real question will be what does it due to the ecommerce business from a traffic and conversion standpoint, and then how does that impact the overall kind of sales and marketing standpoint.
You know as Peter mentioned, the AD rates could drop in and we could see overall ecommerce business get more efficient, but these are the levers that are kind of playing out in real time, which we would expect to shift as business goes from offline and retail source to our E Commerce channel, but we'll have to see how each of the variables starts to get.
Impacted by that changing consumer.
Preference.
And maybe Alex I can add on as well the gets you to kind of I guess, if you think of a silver lining here is that the based commodities in which ultimately work our way to our gross margin cost structure and the cost of goods sold have all dropped fairly dramatically just to be things like the price of oil diesel feedstock somebody get their primary materials and so that's not lost an awesome, we've probably shouldn't.
Hi, good about our execution around those programs for us. This represents additional ability to to find more cost savings for cost of goods sold which I think can be material for 2020.
That's really helpful. Thanks for the color that second question I was on the retail partnerships you mentioned that those yet to be affected by some of this disruption I'm can you comment on that in a little bit more detail. What are you seeing in terms of wholesale sell through any reticent.
A rising and you know cuts in your conversations with partners about potential plants. The orders later into the yeah, and then any thoughts on how you might be managing that set us wholesale channel inventories in this environment.
Yeah. It's.
It's interesting because detached rise a bit of a difference retail partners a pace than.
Most of our kind of mattress peers. So our biggest partners our folks like Costco, Amazon target et cetera, and their business as you've seen has stayed pretty strong. So we haven't seen it impact here. We have some newer partners that are more focused on the furniture side of retail like Raymark plant again.
So you go and we continue to have active conversations with how each retailer is managing the Coca 19.
Situation and so that it's also a very fluid conversation.
With broadly speaking just people not knowing how it's going to play out and so you know not not making longer term full year commitment.
But given where are the majority of our regional partnership business comes from.
We've actually seen a robust business with Amazon and the business with our other partners has stayed strong throughout Q1 and I think for the rest of 2020, what we'll have to see how could that 19 impacts retail more broadly.
Interestingly as well you know as Phil said, we could even with those retail partners very dot com focus even framework Flanagan was a trial partner for us, but they still are open on their dot com.
And so we can she just see overall, because even if that in a box category that delivery flexibility that can be deliberate through our retail partners dot com, it's actually an important part of our of our current profile. So we feel actually okay.
Great. Thanks, so much older color guys and all the best.
Thank you.
Our next question comes from Randy Konik from Jefferies. Please go ahead.
Yeah, Thanks like guys.
Just I guess, Greg first question, the you talked about pausing.
Current pause on the retail stores or give me a the cobot 19, just give us or remind us what do you locked into in terms of leases and what are you not for the next let's take 12 to 18 months just so we get some perspective there 'cause it's sounds like you do have some ability to have some flexibility.
Kind of preserve expenses or reduce capex over the near terms is curious there.
Yeah, I'm happy to so as we mentioned in the prepared remarks, we finished the year at 60 stores. We've added a few here in the first quarter. Those are really the lease obligations and actually if you looked at our S. One and we'll be filing our 10-K here shortly you'd be able to get a very specific breakdown by <unk>.
Obligation here, we typically are signing those leases five to 10 years, but we know how they.
Maturing vintages within that so it's not really a five year plus obligation.
By pausing as a side note parties about where because obviously, we're still interested if anything we think with me, but we'll get a better deal at a landlord to this point in time. So that's part of the strategy here.
Which I do think is something also should be thought about from a down the road here and how we're able to get on potentially better productivity there.
But overall those leases are really are only fixed obligation besides our debt to talk about.
And they're pretty straightforward, but that it's your question Randy.
Sure.
And then.
Did you give us a little perspective on the flexibility on the supply chain weeks to supply you have on hand or with your partner in manufacturing partners to give us a sense of how.
Easy it is for you relative to other types of companies to kind of flux up and down production levels in inventory manager inventory or in a better way et cetera, you know with the uncertainty around the virus to give us some perspective there. Please.
Yeah happy too. So we typically maintain about six to eight weeks of safety stock and as we this this program is this a current a virus didn't just happened in last couple of weeks, it's really been underway in China, particularly back earlier in the first quarter and so we were pretty much because we have some of our products which is really.
Pillows and some of the bed frames, primarily out of China or supply and operations teams were focused on that and then that that has built expertise and processes that were then able to leverage into now.
The U.S. in Canada, and the you, which is where we produced must for mattresses.
We actually already decided to increase our safety stock to several weeks back so at that point, it's it's kind of it depends on which skew which sizes, but we were looking at adding another week or two sometimes three or four what the safety stock.
As we stand here today all of our partners are producing we are as Phillips said earlier monitoring labor rates at a ship level and I'll put rates at the shift level and everything seems to seem to be green across that so at this point really don't see any issues within our supply chain.
There are a lot more smaller detail things that we've taken actions on but that's the summary kind of what we're looking at.
And Randy this is more helpful.
The nice part of having the outsource manufacturing and supply chain that we do you know we don't have to keep manufacturing lines going and we can flex up and down very flexibly and that's a big difference from you know a lot of other companies in our category.
Really helpful. Thanks, guys.
Thanks Randy.
Our next question comes from Lauren Cantel from Morgan Stanley. Please go ahead.
Great. Thanks for taking my question. Your your once your revenue guidance was within line with with the Street was expecting but the EBITDA loss was with a bit below maybe talk about the drivers of that and as part of that how are you thinking about the first quarter gross margin.
Sure I'll turn over to grants also coming on this as well but.
You know we mentioned that we started Q1 will strengthen our business really throughout January and February and then we saw a little consumer softness.
In our view in the category Startek are really in March and so that's where the impact to.
Topline came out we actually were trending for a bigger.
In Q1, but given where we think mark is going to come out that's why we're providing guidance about being in line to top line and then having to close the entire or 62 stores that we operate this week and brought really all of March is where we've seen some incremental losses impact the business and took our EBIT.
Our projections down a bit we are looking at again, how coded 19 will impact our our business into ends and in Q1, we know that that's going to impact retail. We've also announced that we are are continuing to cover the cost of our retail team and pay those salaries and so all of that will drive a bit of an incremental law.
Beyond what we had expected for cooking 19.
Started to impact the world.
Okay, and then just a follow up on on Randy's question around the stores just to clarify is there any flexibility with landlords on the 2020 opening that you already committed to or is this sort of and an opportunity as you move into 21.
No. This is something that will impact 2020, we're not committed to the to the number of locations that we had identified in 2020 and so it's fluid and we can provide more guidance on that at the Q1 earnings call but.
There is absolutely ways that will impact 2020 retail rollout as we monitor the situation.
Even Lauren what the 60 leases that we had signed at the end after the end of 2019, plus the incremental few that we signed so far this year.
Each contract is spoken there's specific things that are unique to that but in many cases. They are a variety of clauses that may be of interest here that allow us to potentially.
Cancel renegotiate and things like that that like obviously comment on specifically, but as it as a general rule, there's things like that that we're looking at as well here at because every every company is in total.
Great. Thank you.
Our next question comes from current as Nigel from Bank of America. Please go ahead.
Great. Thanks, so much for taking my question I.
I mean as Mr. <unk> in the release, but would you got to be able to breakout.
A composition of DTC between online and store growth in for Q.
Hey, Curtis so we're not going to break out DTC between you common retail at this point.
But that's something we'll see in perhaps the other filings or.
Provide going forward.
The reason why we bring DTC together is because our view and this has been part of our view of being kind of an omni channel leader within this industry is that the consumer.
Sentiment the consumer preferences, the consumer way that they traverse online and offline is going to continue to be very fluid and it's actually playing out exactly that way right now and so that's why we thought it was a better to characterize our DTC business as the combination of E. Com in retail we've seen how consumers are navigating both channels even off.
And at the same time to drive their purchases and so we think it's best to continue to bring those together and how we characterize the strength of our DTC business.
Okay, I guess moving in the next one.
So yeah, I mean, I think you'll understand why.
Sure closures whenever the impact on both your sales and EBITDA.
But I guess why is there a disproportionate impact to EBITDA relative to sales like maybe is that due to some kind of talked about some show some shift to online you know for retail or could you go into that would have more detail.
Sure part of that is the point that we made earlier about recapture rates. So we know that some of the customers that were planning to buy at retail are now going to our ecommerce channel Kasper dotcom and making their purchases. There. So we're recapturing some of the revenue that would have gone into the retail chain.
Panel, but the cost basis doesn't change on the retail channel and it's not we don't know the exact percentage of the recapture and as we've mentioned we've seen weeks now where retail foot traffic has come down. So we do think it's going to have a marginal impact on topline, but the cost basis is something that is fix throughout Q1, and that's why it's been.
I think EBITDA a bit more.
Okay.
Thanks very much.
Thanks Curtis.
Our next question comes from Michael Lasser from you'd be at please go ahead.
Good morning, Thanks for taking my question, Phil How do you expect customer acquisition costs across the industry to flow over the next few months, particularly if it is.
Shelter in place shutdown last for an extended period of time it would seem like okay industry, you had a lot of money flowing into the DTC channel, which pushed up customer acquisition.
<unk> through that channel and then along with a lot of players and into the retail channel to help on the economic pressure on customer acquisition costs. So now it's more the advertising in more of the focus is put back on the DTC channel won't that push off.
Customer acquisition costs and meaningful way.
Hey, Michael Good morning.
Great question, and we've been working through how this will play out.
A lot of different ways and it's Super interesting. So my view is that you will see volume and and ecommerce transactions and conversion and traffic all lift as more people go into the online you online world as opposed to shopping offline.
But this overall Coca 19 impact I think is going to have a very different impact on on kind of company by company and we don't think any other company out there is really well positioned to kind of continue to have brought exposures that kasper is the most search for brand. It's the most well known brand, it's the DTC pioneer and so as.
Consumers, who are otherwise planning to buy off line are going to start their online purchase we think Catholic at the top of that.
Kind of purchase consideration set.
Acquisition costs might go up in some of the more auction based models like Google and Facebook, Although we think broad based advertising is going to pull back and so we think broadly speaking acquisition costs could come down because we think retail in general is going to pull out of a lot of these auction based models, they're going to pull out of a lot of their offline commitment and we.
There is going to be a lot of opportunistic ways to five performance in response based media at will then drives us to capture more sales. So my my best view is that this its broad retail pulled back on marketing spend and acquisition spend could be beneficial to Casper.
And that there's going to be a lot more volume shifting into the E commerce and given the strength of our brand, which we broke out is having over 30% aided awareness that puts caps for as the best position company to capture this increasing share in the ecommerce channel.
Hi, My follow up question is on your product pipe development pipeline should we expect to see disruptions. Your flows new products. If this last a couple of months or even longer given that your processes, so collaborative and presumably with most of your part.
Designers working from home that would cause some interference with that process.
So you know one on the way we work.
It's actually interesting that I think Casper was well positioned to transition to this work from home environment, just given that weve always relied on tools like slack and zoom et cetera. So it has felt pretty seamless for us to transition to the work from home model and on the new product development, specifically, we are on track.
Rack with the masses 2020 launch that we previewed with you that we had at the Las Vegas trade show in January.
And so that's a big moment for us and we're excited about unveiling those products to consumers and that remains on track and that's going to be the biggest product launch that we have in 2020 and and everything remains moving forward there.
Thank you and Stacey.
Thank you Michael you too.
Our next question comes from Bob drone from Guggenheim. Please go ahead.
Hi, Good morning, guys I was just wondering if it can you talk about fulfillment you know generally in terms of how you you know what you're seeing in terms of fulfillment trends in delivery trends both on your own internal website as well as partners and then the second question is just you know with.
The supply demand on the glow light or you are you back in terms of like in stock or your ability to sort of meet the demand are you seeing a major change you know in demand for that product as well. Thanks.
Hey, Bob Good morning, Greg you wanted just talk about the logistics that we're seeing on oriented as well as our partners.
<unk>.
And good morning to Bob So the.
The answer to the first part of the question is that we of course Argus Shaleen specific shipping labels for every customer and at that point, our partner or third party partner, which is typically right now Fedex.
Handles the vast majority of that we then get confirmation along the way, where it's out and we get final customer acceptance. So we know what a shipment level. How the system is performing in for all intents and purposes. There is zero issues that we're seeing the only area right now that seems to be somewhat we see a bit of noise in is the San Francisco City, which is in has some disruptions.
Because the way they are handling.
Local citizens, but thats fairly isolated still there's still deliveries happening.
One of your that's developing quickly is really our ability to fulfill returns.
That's really because that requires the third party compete actually going People's homes. So there's some ongoing conversation, but handle that so that that theres no specific issue there and just for the things that developing quickly here.
In terms of the glow light it is a product it's got a longer lead time, it's important product from us from a PR perspective.
We have you know right now that's the one product it's been a little bit short on but in the Grand scheme of things fairly immaterial to us but that that's should these results here in the next week or so.
Got it and maybe just follow up you know in terms of your wholesale partnerships or your retail partnerships you. There's a lot to talk about Costco and target. You know are you seeing your product pull through in those stores pick up at all given some of the trends that are materializing or has that been pretty stable.
Our study.
I would characterize it is pretty steady, but but strong we've seen good demands with all of our partners for our products.
And I'll be curious to continue the crack is as more and more people are working from home how that drives kind of continued focus on Casper and just making up the home and the bedroom as comfortable as possible.
But so far I would characterize it as kind of strong sell through.
With our partners broadly speaking.
Got it okay. Thank you very much hanging a good luck on.
Thanks, Bob you too.
Yes.
Our next question comes from next Jones from Citi. Please go ahead.
Hi, Thanks for taking my questions. Just two quick ones that have you seen any impact to lv or attach rates over the past few weeks as it relates to co bid and then the quick follow up there would be.
How do you think about your gross margin in an environment, where consumers sensitivity to price maybe persist because it seems like this may.
Certainly impact Q2, and maybe even into Q3 and we're not sure what is going to look like on the other side are you willing to maybe lower prices a little bit to accommodate.
That type of environment sacrifice gross margin.
[noise] yeah. Thanks, both good questions on the it'll be side, we really haven't seen much shifts there. We're seeing so good attachment rate and really I would say just consistency on how that was trending before coping Nike and.
And then to your point on that kind of gross margin than just where price point.
I think will be impacted from a consumer standpoint. This is another one where I think catheter is actually a well positions.
When I think it about ways to covert 19 could play out from the consumer standpoint.
I'm I get a little bit worried about the the low end of the industry, just given what might happen to be employment base.
For that side of the economy, and then I think naturally people are going to get a little bit more reluctant on on high end purchases into being at the very high into the category and that's where I think kasper really satisfies a great sweet spot of still being a value oriented option getting the most bang for your Buck, having the highest quality sleep products.
You know the highest rated mattresses by consumer reports, but at a price that is compelling and so we purposely not played at the lower end range the industry and not played at the highest and ranges the industry and so to me depending on how this plays out with a broader consumer economy, I think we're well positioned.
For a kasper to be the rights solution for the majority of consumers in the U.S. and globally.
And let me add on Nick as well that Caspersen data driven company in our tool set around pricing is fairly advanced so our ability to eat the testing real time decision, making up a bunch of strategies that we use that's one of the benefits the E com direct to consumer Native company. So that's it that's a muscle that we'll continue to exercise and if things change, we'll be able to pick that up and react to a pretty quickly.
We have a very well understood pricing promotion strategy and then the offset to that of course also and we mentioned earlier is that what that maybe treatment not be true, but what is certainly true as we have additional opportunities to lower our cost of goods sold that would help you know at a minimum absorb that if not which is my base case have the ability to expand margins during this timeframe.
Great. Thanks, a follow up.
I just wanted to add Greg mentioned, the price of oil earlier in the call.
Robin prices coming down is a good tailwind for our business kind of across the board and so that will have a meaningful impact on cost base that we're we're looking at.
Got it thank you for taking my questions.
Thanks, Nick.
[noise] securing a portion of our call I would like to turn it back to fill up cram for final comments.
Thank you everyone for the time today and interesting Casper, we look forward to updating you on our first quarter results in sharing 2020 full year guidance on our earnings call, which we currently expect to be in early may.
In these uncertain times, we hope you and your family stay healthy and stay safe.
We appreciate everything thank you everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
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