Q4 2020 Casper Sleep Inc Earnings Call
[music].
Good morning, and welcome to Casper sleep sleep fourth quarter 2020 conference call. Today's call is being recorded I would like to turn the conference over to Norberto <unk> Investor Relations for Casper. Mr. <unk> you may begin.
Thank you operator, and good morning, everyone.
Thank you for joining the Casper sleep, 2024th quarter and full year of conference call. We will get started in just a minute with management's comments on your questions, but before doing so let me take the minute to read the safe Harbor language.
This call will contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
All statements made on this call do not relate to matters of historical fact should be considered explore looking statements, including statements regarding management's plans strategies and goals.
And objectives, our anticipated financial performance and the expected impact of the novel Coronavirus on our business.
These statements are neither promises nor guarantees on them.
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.
<unk> implied by the forward looking statements.
Factors discussed on the annual report on form 10-K for the year ended December 31, 2020, and other filings with the Securities and Exchange Commission sort of cause actual results to differ materially from those indicated by the forward looking statements made on this call.
Any such forward looking statements represent managements estimates as of the date of 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 caused our views. The change. In addition, we may also reference certain non-GAAP metrics, which are reconciled to.
Of the nearest GAAP metric in the company's earnings release, which can be found on our Investor Relations website at IR Docs Casper dotcom.
With me on the call today is Philip Krim co founder and Chief Executive Officer of Casper, Emilie Arel, President and Chief Commercial Officer, and Mike Monahan, Chief Financial Officer.
Following their prepared remarks, we will open the call for a question and answer session with that I would now like to turn the call over to Philip Krim Casper as Chief Executive Officer. Please go ahead of Philips.
Thank you Norberto and good morning, everyone welcome to Casper as fourth quarter Conference call.
Casper as outstanding fourth quarter financial performance marked a strong finish to 2020 as we establish new records for revenue grew market share and significantly improved our bottom line results in the fourth quarter, our North American revenue grew 26% gross margins were above 50% representing a P.
Over a period of improvement of over 250 basis points and adjusted EBITDA improved 80% period over period during.
During the quarter, we address the supply chain challenges, we experienced earlier in the year and with our product in stock we were able to successfully meet the strong demand for our innovative sleep products.
This April will Mark our seventh birthday since launching Casper back in 2014, and I could not be more excited about our future.
At the beginning we have remained steadfast in our vision to become the sleep destination within the broader sleep economy.
At our core we strive to provide solutions that improve people's overall wellness through better sleep changes in consumer behavior accelerated by the pandemic, including increased suburbanization and a heightened focus on health and wellness are only strengthening the demand for our products.
And of large market Casper is ideally positioned to continue to take share we have built a powerful brand around our innovative mattress designs and sleep products and have created a seamless shopping experience that inspires loyalty among our growing customer base. As a result, we have a solid foundation for accelerated growth in 2021.
In 2021, we will be focused on three core strategic priorities.
To increase our brand awareness.
Expanding our product offerings and growing our points of distribution.
Starting with brand awareness since founding Casper, we have invested over a half of $1 billion to drive awareness of our brand and build a loyal customer base. We started with subway ads, the New York City, which have grown into the national targeted online and offline campaign debt leverage detailed data and analytics for decision, making as we continue to grow and extend our reach.
We are gaining marketing efficiency for.
For the full year 2020 versus 2019, we increased our overall marketing investment, while lowering marketing as a percentage of revenue by over 360 basis points.
With favorable and growing awareness, we believe we will continue to gain leverage on our marketing spend while capturing greater market share into 2021.
Second we are expanding our product portfolio.
Since the launch of the original Casper mattress in 2014, we've continuously improved and expanded our selection and now offer of full line of mattresses that appeal to consumers with different preferences at different price points. Additionally, we continued to diversify our revenue streams with the successful introduction of sleep products, such as pillows sheets and.
Other accessories, we are particularly pleased with the success of our pivotal line. The North America Pillow revenue up with North America Pillow revenue up 35% year over year in 2020 further highlighting our ability to leverage our brand be on mattresses in 'twenty and 'twenty. One you should expect us to continue to help our customers sleep better with the introduction of new.
And innovative products.
Finally, growing our points of distribution.
Despite the impact of the pandemic, we saw growth across our multi channel distribution network in 2020, and the fourth quarter, Our North America direct to consumer channel grew 19, 1% year over year with significant traffic to our website and on North America retail partnership channel grew 42 eight per cent year over year, reflecting healthy performance.
Across our growing network.
During 2020, we made significant progress in expanding our distribution through new partnerships, including Sam's club actually home store, Denver, Mattress Mathis brothers and Nordstrom.
To support the success of these partnerships. We also added of professional sales team responsible for ensuring the differentiated Casper experience is represented in our partner stores and drive increased customer conversions. In 2021, you should expect to see us expand our reach through our multichannel distribution network positioning us for accelerated profitable growth.
In closing I would like to thank the entire Casper team for their hard work and determination. During 2020 together, we took significant steps towards achieving our long term vision. However, we are still on the early stages of growing Casper into a world class sleep platform.
The experience of our team and the strength of our products on brand combined with the steps we've taken to improve operating efficiencies position Casper well for near and long term profitable growth and the creation of significant shareholder value.
I will now turn the call over to Emily Emily.
Thank you Philip and good morning, everyone.
We made significant progress on 2020, and we are just getting started this past year, we reach more consumers do on marketing distribution of new product introductions than any year in our history and.
In 2021, we have exciting plans to build on that momentum.
Our near term goal and focus on making our sleep products accessible to a larger market and we continue to make strides towards that goal on.
The seven years ago, we sold one mattress in one place Casper Dot com now, we kind of more than 40 sleep products across all of our channel with hundreds of trial locations.
We will continue to reach a wider audience leveraging both our direct to consumer channel and retail partnership.
As we mentioned on last quarters call trial remains an important aspect of the purchase decision.
We ended the year with over 20 retail partnerships, adding new national and regional brands.
As a result, North America retail partnerships revenue grew 55, 4% over 2019 out of relatively low cost.
Within this channel we are specifically focused on focused on increasing the consumers the ability to try our products.
Consumers love, the comfort and quality of Casper it differentiated mattress designs and the data consistently shows that trial opportunities drive higher rates of the conversion.
In addition to adding new partners product education remains a key component of our strategy.
We know how important sleep education is at the point of purchase and that Theyre spending a great deal of time and effort with education, and our owned Casper doors and strengthening the relationships that we have with retail partners to further their understanding of the Casper value proposition.
Philip mentioned, we have of Newfield team in place who are actively working alongside our retail partners to educate the sales staff about the benefits from key differentiators of our products and to ensure our products on merchandise in a manner consistent with our uniquely joyful approach to sleep and our brand.
You should expect us to continue on boarding new leading retail partners with more Casper sleep products and more doors across more markets in 2021.
Through our direct to consumer channel Casper delivered record North American revenue in the fourth quarter, primarily driven by strong E Commerce sales.
Leveraging data and analytics, we optimize our product portfolio of media spend to drive sales and acquire customers.
Our E Commerce sales growth was the result of both increased traffic year over year, along with increased average order values.
As we continue to diversify our product portfolio, we are broadening our appeal across consumer segments, both in mattress and non mattress categories.
By year end 2020, we operated 67 Casper sleep shot strategically located throughout North America.
I'm pleased to report the nearly all of our locations are now open for business, while remaining in line with local public health guidance power.
However, in many areas traffic restrictions related to the pandemic still remain although we generated a quarterly sequential improvement in sales during the fourth quarter.
We continue to adapt our retail store strategy from the yogurt are all designed to product placement and accessibility. So customers can safely visit our stores and have an overwhelmingly positive experience with our people our brands and ultimately our products.
Things like customer outreach individual appointments and curbside pick up of performing well and maximizing our revenue per customer in store as we navigate through the pandemic and the decline in foot traffic.
Broadening our product portfolio will also be of focus in 'twenty and 'twenty. One the launch of any new cost of a product is driven and supported by a comprehensive research design and development process led by Casper labs are new product always start with the consumer.
During 'twenty and 'twenty, one we will be launching new items that have been on development over the course of 2020.
In the first half of this year, we plan to launch of new suite of products, including mattresses that are specifically designed around keeping your cool all night long because we know temperature is one of the key factors and a good night's sleep.
'twenty 'twenty, one will be an exciting year of new products, including blankets throws pillows sheets and more all designed to make your bedroom of your favorite room in your home and help you get a better night sleep.
This continued shift from a singular product strategy to a comprehensive focus on sleep and wellness further supports our authority as of sleep destination and provides additional entry point into the brand.
We are confident the new products and initiatives combined with our multichannel distribution network will help us continue to capture market share both within the mattress industry as well as in the home and wellness space as we continue to evolve into a sleep company.
Casper, who will provide the comfort of design quality and innovation that consumers are searching for with the brand that continues to be obsessed with getting you. The best Night's sleep in order to provide you a better tomorrow.
With that I would like to turn the call over to Mike Mike.
Thank you Emily Hi, everyone I'll provide some specifics around our financial results in the fourth quarter, we continued to grow revenue and capture market share, while making meaningful progress on our path towards achieving profitability consolidated global revenue increased by 18, 4% to $150 3 million compared to 120.
$6 9 million in the fourth quarter of 2019, and by 13, 1% to $497 million for the year of.
Our adjusted EBITDA loss narrowed to $3 5 million in the fourth quarter of 2020, representing an 80% year over year improvement and of 55% improvement sequentially versus the third quarter of 2020.
Despite the ongoing challenges brought on by COVID-19 year over year, North American revenue grew by 25, 8% for the fourth quarter and 17, 4% for the full year of 2020.
Our retail partnership and direct to consumer channels. Each contributed to this gross retail partnership revenue grew 42, 8% and 55, 4% for the fourth quarter and full year respectively.
Our direct to consumer channel grew 19, 1% and seven 5% for the fourth quarter and full year respectively.
It is important to note that our top line results were achieved despite of period, where our supply chain was disrupted.
Additionally, in 2020, we had less than $12 million of revenue from our discontinued European operations, which contributed $26 2 million in revenue in 2019.
Our performance highlights the success of the various operational initiatives, we implemented throughout 2020, and the powerful growth trajectory of our business model.
As Philip mentioned, we believe Casper as in the in its early stages of capturing market share our ability to grow via the expansion of our product offering as well as through the expansion of our Casper retail stores and retail partners creates a powerful tailwind that supports our near and long term financial goals.
Year over year gross profit increased by 24, 7% or $14 9 million to $75 3 million for the quarter and by 17, 9% to $253 9 million for the full year.
Gross margin continued to be above 50%, improving by 252 basis points year over year to 51% for the fourth quarter and 51, 1% for the full year the.
The increase in gross margin was primarily driven by improved product mix favorable shipping terms and more efficient management of our cost of goods.
Moving down the income statement sales and marketing expense increased year over year by $3 million or seven 4% to $43 6 million for the quarter, representing 29% of revenue and increased by $2 2 million or one 4% to $156 8 million on a full year basis.
More importantly sales and marketing for the full year, representing 31, 6% of total 2020 revenue favorably comparing to 35, 2% per 2019, and reflecting the success of changes to our marketing spend and our ability to leverage our robust customer database to enable increase long term value through more customer.
Touch points and our expanded product portfolio.
General and administrative expenses, including store open operating costs, but excluding depreciation were $42 million or three 7% or three 7% increase compared to $45 million in the fourth quarter of 2019 and of $165 5 million or an increase of 16, 7%.
<unk> compared to $141 8 million for the full year 2019.
G&A expenses, excluding depreciation as a percentage of revenue decreased from 31, 9% to 27, 9% from Q4 2019 to Q4 2020 and increased from 32, 3% of revenue in 2019 to 33, 3% of revenue in 2020.
The increase was largely driven by onetime restructuring costs due to the exit of our European operations.
Depreciation and amortization of $3 9 million for the fourth quarter of 2020 increased approximately 900000 versus the fourth quarter of 2019 and by $6 7 million to $14 5 million for the full year 2020 compared to the full year 2019.
Interest expense was $1 9 million for the fourth quarter of 2020, and $8 4 million for the full year 2020.
This led to a net loss for the fourth quarter of 15 million the significant improvement from a net loss of $25 6 million in the fourth quarter of 2019, while on a full year basis. We saw a net loss improvement of three 5 million two of net loss of $89 6 million for the full year 2020.
Earnings per share was the net loss of 37 cents in the fourth quarter and $2 42 for the full year 2020 <unk>.
Compared to a net loss of $2 41 in the fourth quarter of 2019, and a net loss of $8 86 for the full year 2019.
We had an adjusted EBITDA loss of $3 5 million in the fourth quarter of 2020 on 80% improvement compared to the adjusted EBITDA loss of $16 9 million in Q4 of 2019, and the 36% improvement to an adjusted EBITDA loss of $45 3 million for the full year 2020 compared to an adjusted EBITDA loss of.
$70 7 million for the full year 2019.
While we are pleased with these results and the overall trends across most lines, including adjusted EBITDA, We remain laser focused and committed to growing our top line and doing so while achieving our profitability goals as we become more effective and efficient across all facets of our business.
Moving to the balance sheet and our liquidity position as.
As of December 31, we had cash and cash equivalents of $88 9 million compared to $67 4 million as of December 31, 2019.
To further strengthen our liquidity position, we obtained the 30 million dollar asset based facility with Wells Fargo in late 2020.
Affording us the an additional $15 million accordion feature that will enable us to scale in the future.
For the first quarter of 'twenty 'twenty, one, we expect to deliver $118 million to $125 million of revenue.
We expect the first quarter to be the slowest quarter of 2021, consistent with our historical pre pandemic trends.
We anticipate Q1 'twenty 'twenty, one we'll have.
The higher adjusted EBIT of loss compared to the seasonally stronger fourth quarter of 2020, we.
We expect on adjusted EBITDA loss for Q1 to be in the range of negative $16 million to negative $13 million.
For the full year 'twenty 'twenty, one we expect revenue growth to accelerate over 'twenty and 'twenty M.
Can be within the range of 570 million to $600 million.
We believe put traffic trends in our retail stores will continue to be challenged. However, we expect continued growth in our E Commerce channel along with growth in retail partnerships.
As communicated on our Q3 2020 earnings call, we expect to achieve adjusted EBITDA profitability, beginning mid year of 2021.
We expect capital expenditures to be below $10 million in 2021 with plans to open fewer than 10 stores.
We have made meaningful progress on our first year as a public company and are confident that we are on the right path to grow Casper into a world class sleep platform, our operating momentum heading into 2021 and growing demand for our differentiated sleep and wellness products supports the sentiment and we are confident that we are positioning casper to deliver ongoing growth.
I would now like to turn the call back to Philip.
Thank you for everyone's time. This morning Casper is at an exciting point in our history. During our first year as a public company. We remain focused on the fundamentals needed to achieve our vision of becoming a sleep destination.
To recap we remain focused on three core strategic priorities.
First continue to grow brand awareness, we are building a generational brand the consumers' love and share and we will continue to extend our reach and residents.
Second continue to bring innovation and convenience to consumers by expanding our product portfolio. We are excited to launch new products that are designed engineered and curated based on rigorous consumer insights and feedback.
And lastly, expand distribution, we will continue to make it easier for consumers to discover research and ultimately purchase our products through more and more points of distribution by focusing on these priorities, we expect to drive accelerated growth in 2021, while making progress on our profitability goals.
I'll now turn the call over to the operator, so we can take questions operator.
Thank you at this time, if anybody would like to ask a question. Please press star one on your telephone keypad that is star one on your telephone keypad. Your first question comes from Peter Keith from Piper Sandler Your line is open.
Hi, Thanks, good morning, everyone.
Congrats on the sales growth acceleration with the fourth quarter.
You had mentioned briefly around the supply chain challenges.
I guess I wanted to confirm are those now in the rearview mirror have you gotten through.
On the the supply chain issues, and maybe play that out to Q1, as well where you're guiding for some sales of celebration.
<unk> up 7%.
Some of your peers have talked about continued strong trends in Q1, so anything to call out specifically about the Q1 guidance.
Sure. So good morning, Peter the.
The supply chain issues I, you know I would not say that they are squarely in the rearview mirror I think we've taken steps to be more responsive to the supply chain, that's going to remain dynamic in our opinion.
We talked about on our last call. We think Casper has the unique we strong business model in this environment, because we can stand up more manufacturing partners, we can expand our supply chain capabilities by by bringing on more capacity and that will allow us to absorb more of the dynamic nature of what's going on in on the overall map of <unk>.
Apply chain.
It's going to continue to be an issue.
For the industry potentially but I think casper as well positioned thanks to our business model too.
Worked through that I think that's why you saw us be able to fix the supply chain issues fairly quickly in my opinion and just kind of you know the they became acute in mid to late Q3 and by mid Q4, we felt like we were in a much better position and we're able to fulfill the demand which remains strong from the demand signals we saw on Q3.
During Q4.
Based on the ability to kind of flex up with more suppliers and add more distribution partners to the mix.
On the Q1 demand.
Talked about last call and have said you know pre pandemic Q1 is always our seasonally slowest quarter. We agree that there is kind of overall good demand backdrop in the industry and that it continues to be a good time to be in the mattress industry and we highlighted some of those macro trends.
Earlier around suburbanization on the focus on health and wellness, but just the the way our business works is Q1 has always been seasonally the slowest.
It allows us to kind of reset some of the products that we have out there and.
Set us up for seasonally stronger demand coming out of Q1 for the rest of the year, which we're excited about.
Oh, Thank you very much so in Philadelphia.
The other issue with debt you didn't bring up it's just the rising input costs and so we know that's pretty rampant with with chemical costs continuing to inflate.
How are you guys managing through that and should we expect maybe some price increases as the year progresses.
Yeah, we've been talking about at certain price increases are on the horizon for us, although we're trying to be pretty light with those again.
Again, the the way that we believe with our business model. The we can best comeback from rising input cost is just to build capacity with our supply chain. So that we can shift demand from supplier to supplier and that allows us to mitigate some of this we do think there is an environment of rising kind of feedstock and input costs, but.
We think given our supply chain set up with capacity and giving having multiple vendors bid on our business and also our ability to control pricing at the end destination. We can navigate that successfully I think that's one of the the virtues of having the majority of our business be DTC and working very closely with our retail partners is that we can navigate.
If there are changes in the input costs in a substantial way.
Okay. That's helpful. Thank you Philip and good luck with this coming year.
Thanks Peter.
And your next question will come from Randy <unk> from Jefferies. Your line is open.
Yeah. Thanks, good morning, everybody.
So I just wanted to ask more about the out of the retail partner.
Segments, So you've done a good job of increasing the penetration of that segment. It looks like it's gone up about.
2000 basis points in the in the last eight quarters to about over 30% of the revenue base and how.
How do you think about where that that kind of penetration should sit over the next couple of years.
And then talk about.
You've had some very early success of good success with these different traffic winners whether its Costco Sam's club of what have you. How you think how are you thinking about incremental partners from here what type of partners are you looking at to expand on that that are in that segment.
Yeah, Good morning, Randy and thank.
Thank you I agree we've had good success with our retail partner business.
Believe we're in the earliest days of building that out if you look at it from an addressable market standpoint, our retail partnerships are by far the biggest addressable market. The Casper has to play in.
And we've only been focused on standing that up over the last couple of years as you highlighted so we believe that it has a long way to continue to grow at a pretty rapid clip.
And I would also highlight that our retail partners of base looks very different than pretty much any of our peers and we think that was a benefit to us and one of the reasons that it drove.
Such strong growth.
For the year 55, 4% growth in 2020 and over 40% growth in Q4.
And it's because of our partners had navigate of 2020 successfully with partners like Costco and Amazon of target et cetera.
You know as we've talked about kind of towards the end of of last year and into this year. We are very focused on expanding our trial presence and I think bringing more trial opportunities for our consumers is going to be key to our cash.
<unk> more market share within the mattress side of things.
And in particular on the high end of the mattress side of things. So you'll see us continue to focus on bringing more partners on line with.
With an emphasis on trial opportunities where consumers can lay on our products compare our products.
That's why we highlighted that we brought on our professional sales team to work with those partners to make sure that we're standing up the brand on the right way delivering a unique and differentiated experience to consumers and we think overall that the key for us to capture share in that channel.
And then just to the extent upon that.
With the sales team you just mentioned that you hired.
Is it fair to say that you've seen a meaningful increase in sell through rates on earth.
Those retail partners and then on top of that is it also fair to say that.
Inventories on hand at the channel partners of retail partners.
Is kind of below where it maybe normally is because of inventories that have been pretty lean across all areas of retail how do you. How do you think about that.
Sure. So on the sales team side I would say the sales team has had a fairly immediate measurable and meaningful impact on conversion rates, which we mentioned in the sell through so we're really pleased by that and it's been a great unlock for us and I think of key part of operating within that channel. So youll continue to see us investing.
On that.
And then on the inventory levels, we understand that our retail partners are keeping lean inventory levels.
We don't have a long track record of understanding kind of what normal looks like with some of these partners because most of them were stood up fairly recently.
But we work with our partners and again. This is I think the nice part about our DTC heritage and our business model is that we can flow goods to our partners very quickly. We can do dropship or then we have a very nimble omni channel infrastructure in place. So that we can provide our partners. However, they want to manage their.
Tori and we think that's one of the reasons why.
Some of the retail partners are really excited at the sign up with us and why they see us of the flexible partner of moving through a dynamic consumer landscape.
Thanks, and my last question is on your raw retail stores, you said debt.
<unk> business was down but it looks it sounded like it improved on a sequential basis you are talking about are.
Expecting subdued traffic, but how do you think about when the return to a little bit more.
I guess, an inflection potential in traffic or <unk> sales patterns could occur in that channel of our of the of the business.
Sure Emily do you want to talk about what we're seeing within our retail store channel.
Yeah, Hi, good morning, So you know as we said nearly all of the markets are open today, and we've really seen markets with more relaxed COVID-19 restrictions, having higher foot traffic. So traffic is a challenge of predict and we know that but we are optimistic about the back half of the year when it comes to traditional retail.
We do think foot traffic will continue to began to return to normal levels as widespread vaccine distribution happens and we're really proud of our team for as we mentioned things like virtual appointments and curbside pick up and really innovating within this environment to make the most of the every customer that walks through the door.
<unk>.
Got it thanks helpful guys. Thank you.
Thanks Randy.
And your next question will come from a tool.
The Hess foray from UBS Your line is open.
Good morning, Thanks, a lot for taking my question.
Phil I wanted to circle back on the first quarter why is it going to see a sequential slowdown in revenue growth compared to the fourth quarter.
Excuse me, especially.
Considering that the industry backdrop is still pretty supportive is there any specific call out that you have that's limiting the revenue growth this quarter.
If you recall the tool.
We mentioned this on the last call as well the Q1 is going to be a slower quarter for us and it just has to do with how.
We're managing our partners with how.
Our business works is Q1 is always a seasonally slower and we understand its a step back from the Reacceleration, we've seen on a sequential basis with quarterly growth, but this was something that we talked about on the last call that we have known as you know just how we manage our business and it gives us a chance to kind of reset.
Some of the product and distribution opportunities that we have in order to the.
<unk> set up for success.
Throughout the rest of 2021.
Got it.
And then as you look forward past the first quarter all of them that would suggest that you'd need like around the 22, 3% of revenue growth to achieve your sales guidance. So at this point, what's giving you confidence that revenues will accelerate the.
Following the first quarter.
Given that there could probably be some challenges in the second half of the Crs one of the chair ships back to travel the entertainment and away from home.
Yeah. So when we look at the data and when we look at 2020, especially if you zoom out.
2020 played out very different than we expected, but stepping back we still delivered 17, 4% for the year in the North American business.
Growth versus the previous year and as we talked about we're early days of building out distribution that distribution is working well we continue to see growth in our e-commerce as well as our overall digital business with partners like Amazon Dot Com and other dot Com partners that we work with and when we look at how the the year will play out we built.
Leave that.
We do have the opportunity to take share and grow in an accelerated fashion even beyond what we saw in 2020 of which we were proud of to be the.
Be able to deliver over 17% growth last year.
So we just did a bottoms up build on the opportunities in front of us that we've seen based on on the performance to date and the that's how the forecast came together.
Got it very helpful and good luck with this upcoming year. Thank you.
Thank you the tool.
And your next question will come from Bob Turbo from the.
Cookingham Securities Your line is open.
Hey, good morning.
Couple of questions from me. The first one of those can you talk a little bit on return rates, you know product return rates either on cash per dot com or partners like how that has influenced the business sort of 'twenty versus <unk> 19 in your expectations. In this 21 embedded guidance like the giving US and then the the second question is.
Can you talk a little bit about just the outlook, specifically shipping expense in the fourth quarter, but the outlook for shipping and delivery expense.
Even in the first half of this year those two topics would be helpful. Thank you.
Sure Good morning, Bob.
Mike do you want to talk a little bit more about returns in shipping expense.
Sure Good morning, Bob on.
On the returns piece, we are seeing.
We're consistent with prior years and what we're seeing so in general we've talked about we believe were lower than the overall industry average, we havent given out specifics around that percentage.
But we haven't seen material.
The changes to what we've seen in the past on the shipping as you think about gross margins going forward, you'll remember we redid our shipping contract at the beginning of April of 2020, and so and specifically in Q1 on a year over year basis, we expect to see improvement as a result of that renegotiated contract.
And we're and we saw improvements in Q4 as well so I would expect to.
Over the next over Q1 to show improvement there in.
And continued improvement from that on the year over year basis, just a little bit less as we comp that net new contract.
Great. Thank you.
And your next question comes from Matt Koranda from Roth Capital. Your line is open.
Hey, guys. Thanks, just on the of the very near term wanted to understand how we're thinking about how gross margins sequentially flow into the first quarter on how that's built into the first quarter guidance and then maybe if you could talk a little bit of about the cadence of gross margin improvement through the remainder of the year that would be helpful.
Hey, Matt Good morning, Mike do you want to take the margin.
The margin question.
Yeah, Hello, there are if you look year over year on Q1 2020, we did our gross margins were roughly 46, 9%. So I would anticipate seeing.
Yeah.
The full improvement in that year over year is largely driven by two things one of the first is the.
The shipping terms that we talked about.
The second thing is the overall product mix, we continue to see improvements in terms of.
Our product mix portfolio and some of the pricing we've been able to push through.
The helped gross margins throughout the year. So as you think about it on a on a year over year basis, we didn't give specifics, but bolt for the first quarter and through the the <unk>.
Full year.
I would expect to see.
A decent amount of improvement vs versus the full year of 2020.
Okay helpful. And then one other clarifying question.
I don't know if I saw the positive EBITDA for the second half guidance reiterated but just wanted to clarify is that still on the table for 2021.
Yes.
We are reiterating what we can say, what we said on the third quarter call.
Okay, Great and then lastly, just in terms of the the 2020 of the outlook, it's been covered a little bit, but maybe I just wanted to put a finer point on it.
On the retail partnership sales is there anything quantifiable in terms of number of new retail partners, we should expect of 2021.
Maybe you could talk a little bit about sort of sell through at existing retail partners on how that's going.
Relative to kind of sell at expectations on the retail from for 2021.
Sure Emily do you want to talk about that one.
Yeah, Hi, So we don't have an exact number of partners that that we're going to talk about today, but I would say we continue to partner with brands that understand the value proposition of Casper and can really help us.
Bring our brand Kenmore consumers across North America, and we as Phil had mentioned on boarded some new partners in Q4 and are starting to see those take off which we're very excited about it and I would just put a finer point in time with Philip had mentioned that I had mentioned earlier about the professional sales team that we on boarded in.
The fall and really you know their role is to be in the stores to spend time with the retail partners to make sure. They understand how we think of that sleep. The key differentiators in our products and how we really want to work directly with the consumer to get them in the best guide for the back nicely and so we can we are.
We are excited to continue to strengthen those relationships with the partners as we go of throughout this year.
Great. Thanks, guys I'll jump back in queue.
Your next question comes from Curtis Nagle from Bank of America. Your line is open.
Good morning, Thanks very much.
I was wondering if you could talk about your average rents of plans for the year.
I guess, just how to think about it from a dollar on the rate basis, just thinking about.
I guess the industry at large some of them.
To your larger competitors are.
Investing a good bit more.
So how do you guys fit into that.
Yes, good morning.
Going back from what we mentioned we continued to be of very data driven marketing organization and so we'd love to kind of the data drive how we think about it and we do believe that there's room to expand our overall marketing budget for the year.
But also focus on driving more sales and marketing leverage for the business. So we think that trend can continue into 2021 and in part that's because we believe that E. Commerce will be a robust channel for us, but also using our dollars to drive the omni channel presence of our business.
Okay makes sense.
And yeah.
I think we touched on the spot.
I guess any commentary on.
On the performance of the revenue contribution from your existing versus new partners or we can wholesale.
So we don't break that out specifically, but we're very pleased that our revenue and growth continues to build with our existing partners and the.
What's driving the majority of dollars in the channel.
So that business continues to comp very nicely and we're pleased with building a new business with new partners, which you know theres a ramp when we stand those up so we think those are ramping nicely as well.
And then maybe just one last quick one.
So I understand youre not building.
Putting out to the stores is terrific.
Why not just invest more generally.
Capex.
At least just looking at.
The dollar amount of gave relative to the sales, it's only about 2%, which I don't know it seems a little light for sure of growth company. So.
Yeah, I mean, just kind of how do you think about.
Our capital allocation kind of the sheer and going forward.
Yeah. It's a good question and it doesn't change our long term desire to build out stores, but we're just going to be kind of data driven on timing you know which is in large part informed by what we believe.
Covid vaccines distribution plays out for the year.
So this year, we're gonna be pretty flow to add new doors, but long term. We believe that's a core part of our strategy.
And you know Capex, obviously as needed to standup stores, but it is not needed to drive growth through our E Commerce channel and it's not needed in a big way to drive growth on our retail partnership channel.
So it's really just the question of how retail evolves and how we come out of the pandemic of how we get the vaccines distributed our view is that that will drive increases in retail store.
Sales in foot traffic and when we see that happen, we'll get back the opening up doors down the road.
Okay. Thanks very much appreciate it.
Thank you Sir.
And your next question will come from Nick Jones from Citi. Your line is open.
Great just the two questions.
First on the product launches expected. This year. These are some of the products of the new products that arent in kind of the the offerings today or are they largely upgrades to what's out there.
Already and then the second question is on the day to see channel.
Could you give us some color on how much of it.
Of the conversions are driven by our performance marketing and how that might be impacted by idea of FAA deprecation.
I guess, the looming third party cookie deprecation on Crump. Thanks.
Hey, Nick both great questions. So on the product side of things, we're going to continue to.
Increased products in categories that we operate in including our mattress category. So we're really excited about some of the innovation that we'll be taking to market and that and we will also bring new products and new categories to market as well so more to come on both those fronts.
On the marketing fronts.
We definitely have been talking about for some time now the changes in data privacy and some of the deprecation that we're gonna see later this year.
We do think that it's going to impact the kind of the industry of large from a direct marketing standpoint, but that we've.
We've had a good advance notice on it and have been working on other ways that we think we can drive performance in the channel and we don't think debt.
Performance media at large is going on.
I'll take the material hit I, just think we're gonna have to rely on different data points of different tools to drive optimization and we've been working on those and that includes the bigger lifts like.
Multi touch attribution platforms in media mix modeling platforms as well as you know.
Different ways to measure and user engagement and quantify the impact of our marketing is having on conversions and driving traffic et cetera.
This is an area, where we think we do have some real core competencies and expertise and so we think are kind of having a dynamic landscape there will actually play to our strength of long term.
Great. Thank you.
Thanks. So on your next question will come from Lauren Schenk from Morgan Stanley. Your line is open.
Great. Thanks, I just wanted to ask about the longer term real estate strategy Embassy 10 stores in in 'twenty one.
Which I think is prudent but are you still thinking about of store fleet of 200 plus store.
<unk> long term or is that sort of evolved.
Over the past 12 months of yourself.
Hello, and good morning, no. We still think we can easily support 200 plus stores. So.
In our view no matter, how bullish of an expectation you have on how e-commerce skills over the next several years of this industry.
Offline on retail is going to be really a big part of the industry of big part of the consumer experience and we don't think that goes away and we think the best way to learn about and Tricast from products within the cost per store and so we're pleased with how those stores have performed despite foot traffic declines due to COVID-19 and long term, we think the that can be a very.
Large profitable channel for us and when we see you know some of our peers like sleep number of offer I think of 600 or something of that ballpark. We think we have a long way to go to kind of fill out distribution geographies with our stores. So that we can bring the best experience to more and more consumers throughout North America.
Okay, Great and then just one follow up on the on the new product launches just just curious from sort of the mattress SKU count perspective, what you think the right number is.
Over the medium to long term I think you know in the past maybe.
You had talked about having too many choices with the overwhelming to the consumer so.
So just kind of wondering what you think the right the range of SKU count is from from actually specifically.
Yes, it's a great question and we definitely don't believe in kind of SKU proliferation for the sake of SKU proliferation, which we think it was kind of of legacy way of thinking of this industry, where you just launch the different skews and different mattresses for different price points for us we take more of an innovative Ah.
Linda to how we can launch new products and more of our approach on how do we bring more solutions to satisfy more people's preferences to market. So you'll see some real innovation with the products that we're going to take to market within our mattress category. We're really excited about that we think it's kind of a next level opportunity for us when it comes to sleep.
Quality.
In particular these are on the higher end side of of the overall line and.
And we think there's a really compelling reason for needs to be of part of our overall mattress Max So we'll be very judicious with how we bring new products to market and we think there's still plenty of room to fill out additional consumer preferences within our lineup and we will do that overtime.
Thanks, so much.
Thanks, Lauren and your next your next question will come from Seth Basham from Wedbush Securities. Your line is open.
Thanks, a lot and good morning. My first question is around the retail partner revenue and gross in the fourth quarter could you provide some color on how much of that growth driven by sell in versus sell through.
Sure the the vast majority of it was sell through.
You know theres, some timing with retail partner, so it's always with the end of the quarter.
But overall you know as we talked about earlier on the call of retail partners. In this category in this industry take pretty lean inventory positions. So the majority of it of sell through.
But there there is some timing around selling herself.
Gotcha, and then as we think about the guidance for Q1 as well as 2020 line can you go back from color around.
How much growth you're expecting on what the growth rates are indifferent from channel because of the retail partner count.
Sure Mike do you want on talk about how we've thought about that one.
Sure we haven't give the specifics between the two channels, but I can give a little color around that as we think about the DTC channel, we've largely modeled in that modest growth for our retail stores in the back half of of the year.
That's the one factor that is difficult for us the judge when the stores will open up so we leaned into our expectation as the E com will grow a little bit faster than the than the retail stores and certainly if we have the ability to see foot traffic come back.
That would be the.
That would be helpful to the DTC channel on the retail partnership side.
As we continue to we continue to see improvement from our sell through with the existing partners.
And we've also been in talks with a number of different potential partners that we're really excited about.
And so we're expecting to see growth.
In the back half of the year from the combination of those two drivers.
Got it so for the the first quarter on the full year would you expect that the retail partner channel will outgrow the DTC channel.
Where we sit today I'd, rather not give specifics around that but as we sit.
From where we sit.
I would anticipate to see retail partnerships.
Grow a little bit more than on the DTC channel share correct.
Got it thanks, and the last thing as it relates to the guidance just thinking about some of the components within SG&A, where should we be expecting more of the operating leverage you're going to be an advertising or G&A in the first quarter on 2021.
We've modeled in.
I would expect to see more on the G&A side just for the first quarter then.
Then on the sales and marketing.
And for the full year.
For the full year, we expect contribution we don't get the specifics between the two but I would expect to see leverage on both of those lines on.
On a year over year basis, as we look at the volume.
Thank you very much.
I have no further questions in queue I turn the call back over to Philip Krim for closing remarks.
Thank you operator, and thank you all for the time today and for your interest in Casper, We hope you and your families stay healthy and safe and have a good day. Thank you.
Thank you everyone. This will conclude today's conference call you may now disconnect.
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