Q2 2020 Casper Sleep Inc Earnings Call

Good morning, and welcome to Kasper second quarter 2020 earnings Conference call. Today's call is being recorded and we have allocated one hour for prepared remarks and Q any at this time I'd like to turn the conference over to Jeff Grossman Investor Relations for Casper. Mr. Grossman you may begin.

Thank you operator, I'd like to welcome everyone to cost for a second quarter 2020.

Earnings Conference call.

Before we again I'd like to remind everyone that this call will contain forward looking statements with them within the meaning of the private Securities Litigation Reform Act 1995, all statements made in this call that do not relate to matters of historical fact should be considered forward looking statements, including statements regarding management's plans and strategies goals and objectives or anticipated financial performance and the expected them.

Act of novel current virus on our business.

These statements are neither promises or guarantees, but 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.

Factors discussed at our annual report on form 10-K for the year ended December 31st 2019 as updated by the risk factors section of our quarterly report on form 10-Q for the quarter ended June Thirtyth 2020, and our other filings with the Securities and Exchange Commission could cause actual results could differ materially from those in indicated.

By the forward looking statements made on this call any such forward looking statements represent management's estimates as of the data. This call. While we may elect to update such forward looking statements at some point in the future. We disclaim any obligation to do so even if subsequent events cause or is that our views to change. In addition, we may also reference certain non-GAAP metrics, which are reconciled to the.

Nearest got metric and the company's earnings release, which can be found on our Investor Relations website at <unk> Dot Kasper Dot com.

Today is Philip Crim, Chief Executive Officer, Emily <unk>, President and Chief Commercial Officer, and Stuart Brown interim Chief Financial Officer.

Philip will provide a brief update in the second quarter results and recent trends in the business I know, we will provide an operational update including the status of the retail reopening plans and finally Stuart will provide detail around the financial performance in the quarter as well some color around how the company's thinking about second half the year. Following prepared remarks, we open the call for question and answer session.

I would now let's turn the call over to Caspers, Chief Executive Officer, Philip Kranz.

Thank you and good morning, everyone before I discuss our second quarter performance I want to take a moment to acknowledge the challenging times.

Against the backdrop of a global pandemic, we are witnessing a historic moment of racial reckoning in our country and believe it is critical for Kasper as a company to support our employees and communities in the fight against systemic and structural racism.

Our internal diversity equity and inclusion work, we're committed to hiring and fostering the development of diverse talent and amplifying diverse perspectives.

We know our current efforts our justice start and during a time in which the won't faces more uncertainty than ever we must examined the standard to which we hold ourselves accountable.

For those who are struggling or marginalize and take care of our collective health and wellbeing.

I am extremely grateful to our employees for their hard work dedication and tireless efforts to can you just continuously take care of our customers. During this challenging time, our number one priority remains a health and safety our employees and our customers and the Kasper team has worked around the clock to keep up with unexpected demand as consumers emphasized.

A better night asleep at the key to their health and wellness now more than ever.

Despite the challenging macro environment I'm very pleased to say, our second quarter results with record North American E Commerce revenue and significant progress towards profitability are well ahead of our expectations.

We have quickly adapted our unique multichannel business to a difficult market to meet the needs of more consumers, while capturing market share.

Globally, we delivered revenue of $110 million is 16% increase over the second quarter of 2019, and adjusted EBITDA loss of 11.4 million, a 50% improvement from the prior year.

Excluding Europe, which we wound down in the second quarter, North American Q2 performance track, even better at 18% revenue growth and approximately 8 million dollar adjusted EBITDA loss I.

I'm pleased with our strong topline performance, where our retail partnership channel delivered 61% growth and our direct to consumer channel delivered 5% growth. Despite the fact that our retail stores had only very modest sales due to closure and limited service offerings.

As we announced yesterday, we're very excited to welcome Sam's Club Ashley home store, Denver, Mattresses, and Mathis brothers as new retail partners. We're now partnered with five of the top 10 national mattress retailers and these additions expand our national footprint, while providing geographic expansion into key regions across the west Midway.

And southwest Kasper continues to be a desired brand partner for leading retailers and we look forward to additional growth in this channel in the future.

Our strong performance in the quarter exceeded our expectations across the board and shows that we can continue to take market share.

Furthermore, our brand products and multi channel distribution continue to work well providing increased confidence in our ability to take advantage of the positive trends in consumer behavior in an industry that is experiencing an acceleration in demand coming out of the quarter.

With strength in mattresses, and pillows, we're well positioned for the back half of 2020.

With this quarter's performance, we're achieving improvements earlier than we expected as we deliver gross profit growth.

Gross profit margin expansion and continued leverage against our sales and marketing and DNA investments. These results reflect that our model is working and we expect to deliver continued progress on our growth and profitability goals.

I'll now turn it over to emulate to share an update on channel performance and retail reopening status.

Thanks, as Phil mentioned, we're very pleased with our performance this quarter.

Our direct to consumer channel performed well driven by record ecommerce results as our owned retail stores were closed for almost the entirety of the corridor.

Our ecommerce performance accelerated during the second half as much and that strength continued through the quarter as we moved into the summer selling season.

Compared to last year, we saw significant increase in traffic as well it's stronger.

We also saw growth in both our mattress and pillow category, particularly during the Memorial day and fourth of July weekend.

On the owned retail side at the ended the quarter 57 about 59 on retail stores were opened.

We have taken a measured approach to reopening with four phases first virtual no contact appointments.

Curbside pickup.

One on one private appointments.

Most recently limited walk ins the key management.

Our stores are in varying phases of reopening based on the public health guidance and government regulations for each location.

The health and safety of our customers and employees remains our number one priority we continuously monitor developments related to cover 19 and locations, where we have retail stores.

And have developed procedures to enable us to responsibly and efficiently open or close our stores and adjust our service offerings as needed in response to changing covert 19 conditions.

Moving on to retail partnerships the robust growth in this channel is largely due to our key retail partners, including Cosco target and Amazon remaining open during the pandemic and performing extremely well.

In the latter part of the second quarter and into July. We've also started to see some of our specialty a regional furniture partners reopening.

We've been pleased with performance a means to go and remark plan again as their store fleet have begun to reopen.

In addition, we're very excited to have announced for new retail partners, bringing our total to 21 retail partnerships today.

The recent addition of actually home store in Sam's club to the top 10 national mattress retailers will significantly broaden our reach in the North American market I.

And the addition of Denver mattress and methods by others will expand our regional footprint.

These new partners want even more consumers across the country to experience our sleep products in person. We expect people began to contribute modestly to our growth in the fourth quarter of this year.

We will continue to expand retail partnerships as it is a key component of our multichannel strategy.

We continue to be proud of the performance of our new matches portfolio launched in March.

As our owned retail and partner stores began to reopen we're excited about the traction with our new model to Nova.

As Phil mentioned, we're also seeing fantastic performance and other products in our portfolio led by pillow sales, which increased over 50% from last year.

Well, we continue to see significant demand for cost for products like many in the industry. We are seeing some broader based industry wide supply chain and logistics constraints cause they coker 19, leading to some near term challenges on order fulfillment.

We've been experience team focused on managing our supply chain and logistics network and are actively qualifying and onboarding, new suppliers, which we expect will help to significantly mitigate any inventory constraints leading into Q4.

With that I'll turn it over to Stuart to walk through a more detailed financial update.

Thank you Emily and welcome everyone.

Yeah, Michael earlier comments, we're very pleased with our performance in the second quarter, which demonstrates our ability to continue growing and taking market share.

While improving gross margins and leveraging marketing and operating costs.

Further I will talk about a clear path to positive adjusted EBITDA as we wind down losses in Europe ramp up retail sales and execute additional earnings growth initiatives already underway.

Starting with second quarter results revenue grew 16% $210.2 million driven by the record revenue in our ecommerce channel.

And the strength in our retail partnerships channel.

Direct to consumer revenue was $81 million in the quarter, a 5% increase from the prior year.

The increase in direct to consumer revenue was mostly driven by E commerce as her kasper retail stores that only very modest sales.

Regional partnership revenue was $29.2 million in the quarter, 61.1% increase from last year.

Looking at channel mix.

Direct to consumer was 73 and a half percentof total revenue in the quarter.

With retail partnerships, increasing to 26.5% from 19.1% a year ago through the increase in new retail partners and strong growth, which I'm we discussed.

With regards to Europe, we completed the planned wind down of operations by the end of June was reported second quarter revenue of $5 million supported by discounting to sell through local inventory.

Gross profit increased over 22% to $57.1 million, which resulted in a gross margin of 51.8%.

280 basis point increase year over year.

The pace of margin expansion was ahead of our expectations and was achieved despite the discounting in Europe and the increased mix of retail partnership revenue, which has a <unk>, which has lower margins than direct to consumer.

As discussed last quarter the change in our primary logistics provider late in Q1 meaningfully reduced transportation cost in the second quarter contributing to the gross margin improvement.

The positive performance of the new 2020, mattress collection, which I'm. We discussed has also benefited gross margin.

We expect gross profit to continue growing at a faster rate than revenue in the second half the year for the number of supply chain mix and other initiatives underway.

Sales and marketing expense as a percentage of revenue was 30.1% in the second quarter down from 41.8% a year ago, a quarter, when we invested more heavily and marketing support the landscape or hybrid mattresses.

In the second quarter of 2020, we leverage for digital expertise to capitalize on decreased advertising costs and drive efficiency of media spend.

Well also still delivering growth in taking share.

Our general and administrative expenses for the quarter were $42 million, an increase of $8.8 million due mainly to new public company expenses, such as stock options and insurance as well as a cost associated with our larger retail presence primarily rent.

We recorded a restructuring charge in the quarter $4.1 million related to our previously announced closing of European operations and severance related to the reduction of our global corporate workforce by over 20%.

Adjusted EBITDA in the second quarter was a loss of $11.4 million compared to a loss of $22.7 million last year.

When you consider the closing of Europe, which had an adjusted EBITDA loss of about $3 million in the quarter.

The benefits from retail reopening.

The expansion of our retail partnerships in a number of initiatives under way to improve gross margin and leverage our operating costs. You can understand why we feel very comfortable reiterating our outlook to achieve positive adjusted EBITDA by the middle of next year.

Turning quickly to the balance sheet, we ended the quarter with $98 million of cash providing strong liquidity relative to our cash flow outlook in capital expenditure plans.

Year to date or capital expenditures totaled about $11 billion in our outlook for the years unchanged with investments below $15 billion.

This contemplates our planned opening of eight new stores in two relocations in the second half of the year for leases signed prior to the pandemic.

With regards to debt maturities, we're in the process of refinancing or 25 million dollar senior subordinated facility, which is due to expire December onest. Following a 90 day extension signed subsequent to quarter end.

Looking ahead trying to predict sales for the second half of the year remains of course the challenge.

Govan 19 continues to impact consumers and thus retail in ways that are hard to predict.

We continue to prioritize the safety of our customers and team members as well as monitor the impact of cobot 19 on the supply chain across the industry.

We currently we currently believe our business will continue benefiting from stronger than expected ecommerce sales.

And that our regional partnership business will remain strong.

But the sales in owned retail stores will be lower than originally expected.

For modeling remember that Europe contributed about $14 million revenue in the back half of 2019, which should come out of the baseline.

Well, we expect this fourth quarter revenue growth might be more challenged than we had expected at the start of the year.

The second half adjusted EBITDA loss should be less than expected and improved further from our second quarter results.

I'd now like to turn the call back over to fill up to wrap up before we open the line for doing it.

Thanks, Stuart as you've heard today, we're taking many proactive steps to grow our market share while executing against our goal of achieving profitability.

We've been focused on four key drivers to get us to profitability and we've made substantial progress during the quarter.

First is continued growth.

Despite our owned retail stores being closed we reported a 16% improvement in revenue year over year, which demonstrates our ability to nimbly drive growth from our multichannel business to gain market share our ecommerce channel remains strong and we're continuing to expand our wholesale business with strong retail partners.

Second is gross profit margin expansion.

Gross margins grew by 280 basis points year over year, and we believe we can continue to make gains throughout 2020 and 2021.

Third is sales and marketing leverage we're benefiting from improved customer acquisition costs in our ecommerce segment. Thanks to wider E commerce adoption and lower media costs, while also rapidly expanding our wholesale channel, which is up 61% year over year and requires minimal incremental marketing spend.

And fourth is DNA leverage we have demonstrated a focused approach to capital allocation and investment decisions with the decisive actions. We took at the beginning of a pandemic.

We are well ahead of expectations on a path to profitability and are optimistic about our trajectory heading into the second half of the here the third quarter, which is typically the industrys stronger seasonal quarter is already off to a great start.

In closing, we're pleased with our strong performance in the second quarter and the significant progress. We've made in spite of ongoing challenges in the market. We look forward to updating you on our progress on next quarter's call we'd like to now open it up to QNX, operator, I'll turn it back to you.

Thank you.

If you'd like to ask a question you want me to press Star one on your telephone to withdraw your question press the pound or hash key please standby, we compile acumen a roster.

And our first question comes from the line of Peter Keith from Piper Sandler Your line is open.

Hi, good morning, everyone and congrats on those new retail partnerships.

Philip I was hoping you could talk about the pace of sales growth.

Through the quarter a number of industry players have seen notable acceleration from April.

To June and the continuation into July if I'm, just checking backup I know, it's it looks like your April sales growth was up a little bit more than 15% I think is what you said the new you finished the quarter at about 16%.

But you got several moving pieces. So hope you can kind of that break that apart for us and help us understand the overall trend.

Sure Good morning, Peter.

Yeah. So we saw consistent strength starting in about mid to late April through the rest of the quarter and a good positivity going into Q3, what we saw the ones that are retail stores really didn't contribute much to the quarter. Overall. So they are obviously, a big part of our business and were slow to.

Reopened just given that we were emphasizing the safety and understanding the protocols on a regional basis for each of our retail stores, but the retail partnership business was strong throughout the quarter in E commerce with strong throughout the quarter really starting I think kind of in mid to late April and then showing growth a consistent growth from there.

Throughout the quarter and into Q3.

Okay, and how do you feel about York they've been to advertising with the the back half the year. It does seem like the industries in a pretty good spot right now with consumers shifting spend towards the home Oh, we do hear about broad based strength are you finding that the advertising to be a bit more can.

Additives or do you want to accelerate the pace of spend into the back half any any color there would be helpful.

Sure. So I think now is a great times would be the mattress industry and we think that the macro trends that we see will continue meaning strong moving of homes the out of urban areas into suburban areas and just strong housing trends that will continue to make the mattress industry, a very strong industry as far as we can see.

That said, we do believe that our business is well positioned given the overall industry strength and that includes the ability to continue to spend to capture market share I'm. So we've been been spending more aggressively than we worked to our Q2 and I think we provided some intra quarter commentary about how we were very conservative that started Q2.

Started to spend more towards the end of the quarter and we will continue that spending strain I would say that the back half of the year one of the cautions. It's just it's an election year. So that will will provide some volatility to media rates, but overall, we still see media rates below historic trends and averages and we see E commerce adoption continuing to.

To be strong and so we think it those two games hold up that it's going to be a good time for us to be spending on advertising to drive overall growth for the business.

Okay. That's great. Thanks, very much and good luck.

Thanks Peter.

Our next question comes from the line of Alex while the from Goldman Sachs. Your line is open.

Good morning. Thanks, so much for taking my question I had my first questions about the gross in the retail partnership truck channel I'm very strong growth here in the quota is there anyway that you can break that down by new partners and those that you've been with for a while <unk> <unk> and then within a second bucket which types of.

Wholesale partners driving most of that growth where are you seeing particular strength.

Sure I'll turn it over to emulate to talk a little bit more about what we're seeing within our retail partnership channel.

Yeah, Hi, good morning, as noted in my remarks, what we're really excited about as the majority of our.

Partnership revenue in Q2 still came from partners, who we've had strong partnerships with for a while target Cosco Amazon and alike that were opened during all the time during the pandemic. So we're really excited about the business. There as we noted Nissan and press released yesterday, where Onboarding new partners, bringing our total to 21 retail.

Partnerships and so we see then contributing modestly to growth in Q4, but we do expect that we continue to see the balance of our retail partnership revenue come from our current partner in the near term.

Great and then my second question that high level question about channel exposure of the of the business that the the disruption that we've seen in the marketplace has led to an acceleration in your E Commerce business and indeed ecommerce across America I Wonder if you're thinking any differently about the.

Optimal terminals channel mix of the business in light of if some of the things you already mentioned on this call like more attractive immediate rates to drive your online business.

And the increased restrictions of of opening stores.

Yes, it's a great question, Alex and one we enjoyed talking about a cast for quite a bit.

I would say this this accelerated or what we believe was going to happen in the industry, which is basically be convergence of online and offline shopping instead of viewing them as kind of traditional channels or silos that were separate in shopping journey.

I think just how most of the industry traditionally things and operates our multichannel approach a exists because we believe that any high consideration purchase like a mattress and especially one that impacts your health and wellness that consumers are increasingly going to leverage both online and offline shopping channels in order to draw.

The right decision and so we believe that our model is the right model for the future and that more and more consumers are going to leverage ecommerce and digital as part of their overall shopping experience, but that retail and offline is still hugely important given the consideration nature of this purchase and so we just think they're going to become more and more intertwined and that consumers are going to increasing.

Really traverse online and offline often at the same time, that's how we built our business from the ground up when we think thats well position for the future of the consumer in this industry.

Excellent. Thanks, so much fill the cardinal about.

Thanks, Alex.

Our next question comes from the line of Randy Konik from Jefferies. Your line is open.

Ah Thanks, a lot good morning, everybody.

I see a retail partnerships is there any kind of color on how many of the partners had significant closures I think you mentioned anymore and Flanagan during the quarter.

I am asking is it would suggest that the partners that were open saw significant sell through improvement and I'm just wanting to get some perspective from you on why do you think that that occurred or are you doing anything different with those partners in terms of floor set up for signage anything like that just give us some perspective on things you're doing.

With your channel partners that are suggesting.

Bruce sell through with those partners.

Sure and when do you want to tackle Yep.

Yeah. Thanks, Randy for your question and so you're right that our trial partners, specifically remark plan again, just starting to open rents to go opening a little bit earlier, but for the trial partners. The majority of them are close for most of the corridor and so we did see the lions share of our growth coming from partners like target Cosco and Amazon.

We did have some change in strategy, we expanded distribution of our pillar products within target, which are really excited about but overall saw the strong gains that you know Peter and others have talked about from the industry in home product mattress and pillow, specifically across all three of those partners inside incredible growth throughout the quarter, which we're super excited about.

As it continues into Q3.

Got it helpful. And then just thought Stuart can you remind you gave us perspective on.

Yeah, the losses that were attributable to Europe, I think 3 million.

EBITDA in the second quarter can you just give us perspective of what the losses were in the back half of last year, just we can get a bearing on how we think about normalizing profitability going into the normalizing the business into the back half the year.

For this year.

Yeah, I think again the business was still growing last year, but was still a generating EBITDA losses, but I think Randy it's probably better early use Q. The second quarter results as a run rate going forward in monitor EBIT dollar for that just given the changes of the mix of the core business. Overall, so if you start with the second quarter and try to model forward and if you adjust.

For the the revenues of $5 billion revenue that so that we had in Q2, another $3 million EBITDA loss, you should build to get there.

Got it. Thank you and then my last question would be on you had really good.

Marketing leverage or.

I mean efficiency in the second quarter are we to think that that kind of efficiency trend line or is it is kind of the way to go into the back half the year and then when you look at the Gionee side of things Jeannine was lifted by.

More store openings can we assume that gets going into next year, how do how should we think about your store opening plans given the pandemic would they be slower than initially thought.

You know contemplated a it from the past like meaning you have less store openings than you. Initially rich initially thought the gionee pressure would be less combined with.

The marketing expenses going down helps you kind of really accelerate towards that path to profitability I'm. Just curious on how you think about these different moving buckets within the expense line.

Sure.

So on the sales and marketing.

We had commented that we believe we under spent early in the pandemic because we were being very conservative in what we view the overall macro environment to be I mean, we increased that spend kind of throughout the quarter. So I would say Q2 is not quite the run rate that I would take forward because we see good opportunities to continue to spur.

And profitably.

She is how we manage our marketing spend and so as we see opportunistic ways to profitably acquire customers, we're going to continue to do that.

On the store side, you know we've talked about our opening plans for 2020 and haven't talked about our specifics into 2021, but we do believe we will continue to expand our store footprint and that's going to be a meaningful part of our overall business and the opportunity ahead of us on but we are also continuing to watch how swords reopen and.

The ramping up sales and what formats are performing to drive the overall store count and how we think about that going forward.

So still very much in kind of learn mode without regard to how retail is performing but no doubt that we'll continue to expand our stores overtime.

That's a going to continue to be a key part of our overall strategy and so that is part of the gionee growth beyond the store side, though we have been keeping a gene expenses flat or declining in some instances with regard to head count, which we've talked about as well.

Very helpful. Thanks, guys.

Thanks Randy.

Our next question comes from the line of Michael Lasser from you B.S. Your line is open.

Good morning, Thanks, a lot for taking my question, Phil if we compare the results of you were ecommerce sales or implied ecommerce sales, which were backing into in the quarter versus the others in the industry. It appears that you lost market share during the quarter why do you think that would do you think it with the sale.

Marketing issue, we ramped up to Lee.

So I don't think you can look at each channel and decide market share because the businesses that you're comparing have very different business fundamentals, we saw a 61% growth in our retail partnership business and we saw that the retailers that stayed open and were able to drive traffic.

Their stores them through their dot com were great partners to US we have 60 doors that were close throughout Q2, and so that drove different physics for our business.

I don't think we look at it as you know here's our ecommerce marketshare and here's our.

You know here's our wholesale market share overall, we were up as we reported 16% globally, 18% in North America I think that compares to some of our peers, who were down 20% in North America or 10% in North America. So when we benchmark ourselves against most of the industry players, we feel pretty good and when we look at industry data overall, we see that the industry.

Contracted in Q2, and so overall, we think we took market share and the way that we took market share is gonna be different than some of our other companies competitors just given that the physics of our business in the multi channel scale that we've achieved.

With that being said Bill could you quantify the sales growth of the strong sales growth that you've seen quarter to date so far.

So we're not going to break out the Q3 performance, but we see continued sales growth throughout Q3, and I've been pleased with how the quarter have started.

My last question is still as you expand into more traditional mattress channels.

How do you plan to maintain the authenticity and distinction of the Kasper brand that you've worked hard seagate.

The great question, Michael and for US that's table Stakes when we negotiate with a potential retail partner for first question. We ask is how is our brand going to show up and how are we going to make sure that our brand comes through in the exact with it that is important to us.

And you know the good news is that the retail partners that were talking to and working with sees the value of our brand see the value and quality of our products and want to showcase that appropriately and drive the value for that so it hasn't been a friction he joining with great partners, who appreciate the value of brands in the space and.

It's going to be a key driver for the business to continue to grow and as you can see we still have a ton of white space to capture when you look at the addressable market size those trial doors represent the largest part of the industry by far and we're really just starting to penetrate that segment within the overall industry and we're seeing a lot of success with the partner doors, where we do.

You bring trial experiences in the Kasper branded way to their their footprint and so we're really excited about that early signs there and I think that theres huge growth potential ahead of us.

Thank you and good luck.

Thanks, Michael.

Our next question comes from the line of Bob Drupal. Your line is open.

Okay. So yeah, a couple of questions for me on ecommerce side.

Can you just talk a little bit about the trends of average order value versus orders and can sort of piece the.

I mean break into the cost of obtaining new customers and how you're thinking about that going for.

Sure Emily do you want to just talk about average order values and what we've seen within the different channels.

Sure what I think we're really excited about as you look at our new portfolio that we spoke about previously that launched in March as we see a nice upward trend in average order value, especially as we see more adoption into our Nova mattress, which is a new price point for us. It sits in the middle of our original and Airwave.

And so we continue to test into at the right assortment as far E com customer our partners and for owned retail stores and are excited about the trend we're seeing an elite and also an attachment rate with other products outside of mattress.

Got it and.

The other question have is just on on the wholesale within new partnerships, you know announced yesterday I think it wasn't.

Should we expect any additional partners this year or is that going to be it for 2009 can just trying to understand that piece of it and maybe you could just talk about the pace of the rollout of the new guys I think versus the one of the fastest once you had was with Costco previously it would be helpful. Thanks.

Yeah, I guess, all we would tell you.

There's still a lot of time on the clock for 2020 so.

More to come there and then on the pace.

He just try to work with a retail partners and make sure that we set ourselves up for long term success. So we're not trying to optimize for you know any specific timelines items, some retailers can move more quickly than others and especially.

Post or during a pandemic, we see a different pace of operations.

But we're working with each partner to make sure that we represent our branded products correctly in that we rollout.

In the right fashion to set ourselves up for long term success not hit kind of any short term metric.

Great. Thanks.

Thanks, Bob.

Our next question comes from the line of Curtis Nagle from Bank of America. Your line is open [noise].

Good morning, Thanks, very much for taking my.

Question, So yeah, I guess just.

First one on.

Our product mix.

On the quarter.

So.

How does the launch of the know about.

Wave what were at all this I guess dynamics I work out into Q.

Sure I do want to talk with a product mix that we thought.

Yes, Hi, Curtis the morning, So are we talking about this a little bit on the last call, but with the launch of the new.

Mattresses, we're just starting to see their performance in owned retail stores and partner stores, obviously as if you want to reopen across the country and as I said in my commentary. What we're excited about is that we're seeing the mix and really the uptick from the original into Nova which is has that is a great mattress. It's very comfortable it also has great margins and as a new price points.

New bad for Us. So we're really excited about that and we're seeing that across all the channels, where the nobody's represented and then we also spoke about on strong pillow sales. So you know at 50% year over year, and really seeing a lot of new customers and repeat customers grow into other categories outside the mattress, which we're really excited about.

Okay, Great and then this is a related question yeah, how do you guys thinking about.

Product mix for some of your new specialty retail partners, which tend to show you know a higher price points and some of your original partners like Costco and.

Good will you be making damage due to higher beds or.

What does that kind of look like.

When they launch.

Yes, the part of this goes back to the Anthrax and gave the couple of questions ago, which is what's important to us that we established a really strong brand connection with our partners and that were showcasing our brand and the right way for us as Kasper and the right way for the retail partner and the customer that shops in there I location, whether it be E commerce and an in store.

Environment and so our assortment as they are now we'll continue to be varied by partners based on what their customers looking for what they're looking to fill in their assortment and until we really look at it is a one by one basis and work with our partners.

Individually to find the best assortment for them and track.

Okay. Thanks very much appreciate.

And again, if he'd like to ask a question that star one on your telephone keypad. Our next question comes from the line of Lauren Castle from Morgan Stanley. Your line is open.

Great. Thanks, so much I guess just following up on a few of the earlier questions. You know understanding that the retail partnerships yeah, we're much better than expected in the stores opened a little bit.

Slower than you might have expected getting into quite or you know what what specifically would you attribute to serve the E. Commerce de celebration the quarter you know what's that youre sort of original expectation just any any additional color. There would be really helpful. And then just on gross margin really nice results there anyway to quantify how much.

Our logistics cost benefited gross margin and then would you expect to see roughly the same magnitude of benefit through the end of year. Thanks.

Sure It maybe a and when do you want to tackle. The first question just about you commerce and overall sales mix between channels and then Stuart.

Can tackle the second question excellent.

Yes, Hi learned good morning, and as we indicated in the commentary our stores were closed for the majority of the quarter and we continue to see you know a ramp in on retail stores and partner opening as it a pot affect different geography that the country differently and we were very happy with our retail partnership growth as.

I said the majority of that really coming from partners, who stayed open during the course of Q2 and a strong sales in both mattress and not a mattress as Phillips said earlier, we're really taking a balanced approach to media spend really leaning into the spend or we see value and are driving profitable growth.

But really ensuring we're continuing on our path to profitability in that that is a focus for the business. So we're confident that the channels and we'll continue to work together as Phil It did earlier and we all know consumers don't shop in one place there really shopping cross channel and so our model, that's having our own retail stores.

Our partnerships and our E com and partnership E Com business really seems to be working in this current environment.

And on the gross margin change year over year, so the lower logistics costs, mostly is a little bit to the fuel, but the most of the due to our new a primary supplier logistics a buyer is the biggest single item, but by far not the majority of the improvement but was the biggest single item you got a rather work.

Number of improvements flowing through from some product costs that we've been a product teams and working over a long time, we've touched on the margin improvement really driven by mix and the impact to the new products. We've had so it's really a combination of things and you should continue to have the expect most of that to continue to drive so to flow through for the rest of the year.

And that's really what drove the significant EBITDA performance in a quarter that we had.

Great. Thank you.

And our next question comes from the line of Seth Basham from Wedbush. Your line is open.

Thanks, a lot and good morning on my first question, it's just making sure I understand some of the trends business recently, you mentioned that you start and more aggressively spring on advertising I presume that's direct response advertising, but it doesn't seem like you've got a commensurate improvement in sales growth rates.

Correct me, if I'm wrong, and if not can help us understand what's going on there.

So a good morning, so we we have seen.

Consistently strong business to the second half of Q2, and we've seen that strength continue into Q3, and that's tied with about when we started to spend up on the.

Advertising and with the emphasis on on a response and performance advertising.

We think that the overall the business has continued to perform consistent growth since we've increased that and like we said Q3 is off to a good starting in Q2 overall, we felt was a good consistent strength starting after mid to late April.

Got it except for your direct consumer online business, you're not seeing any increases in customer acquisition costs.

Are they they've been fairly consistent.

You know since kind of mid Q2.

With some fluctuations around seasonality. So we've had really strong holiday periods with strength around.

Memorial Day weekend, and then July 4th weekend, we're excited about labor day weekend and think we're well positioned there. So there's some fluctuations there, but that's kind of normal seasonality driven performance and customer acquisition costs fluctuations other than that when you kind of zoom out a little bit more nothing it feels very consistent.

Got it and my last question is just around the supply chain constraints that you mentioned can you give some insight into how many sales you left on the table I'll, let out you have a different screen your order growth and your sales growth for the quarter and when you expect some of this might normalize.

Yeah, you know, it's it's hard to quantify or you know we have shipping times outlined on our website and we talk about shipping times with our various retail partners and delayed shipments. We know a can correspond to the slightly lower conversion rates because some consumers need product immediately I'm. So it's hard to get our hands around exactly.

What we're leaving on the table with just a longer ship times.

But that said, we're working diligently across the supply chain, we're standing up new suppliers. We think this is a key benefit of having a third party manufacturing base that we have and business model that we have for our business is that we can respond quickly to this and so we're looking to ameliorate the the stress that that the unexpected demand is having on our supply chain quickly.

Got it thank you very much and good luck.

Thank you so.

We have no further questions in queue I'll turn the call back to the presenters for closing remarks.

Excellent. Thank you all for the time today, an interesting Kasper, we hope you and your family's stay healthy and safe Ah. Thank you everyone for the time whereby.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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