Q2 2021 Sleep Country Canada Holdings Inc Earnings Call
I would like to welcome everyone to the sleep country.
Call.
Yesterday sleep country.
The second what each 1 of you want.
A copy of the earnings.
The website.
Language about forward looking statements risks and uncertainties, which also applies for the discussion during today's call I would now like to turn the call for today.
My Chief Executive Officer. Please go ahead.
Thank you very much.
Welcome everyone and thank you for joining us today I Hope you are all staying safe and healthy.
Joining me today are Stewart Schaefer, our president and Craig the Prato, our Chief Financial Officer.
We are pleased to share the results of another successful quarter during which we help roughly 200000 Canadians transform their lives through the power of sleep.
Off the top I would like to sincerely. Thank our teams at sleep country, Canada Domingo and Andy as well as our valued vendors and partners for their continued dedication commitment and hard work.
Expanding on our announcements subsequent to quarter end I am formally introducing Stuart or SKU shafer as the incoming chief Executive officer Upon my retirement and departure from sleep country at the end of fiscal 2021.
Excuse vision determination and leadership to see sleep country's family of brands through the through to their full growth potential had been driving forces behind our success over the past 15 years, and we will continue to play a pivotal role as we enter the next chapter of our growth story.
I will now turn the conversation over to you Steve to discuss our strategy and performance and the quarter.
Thanks, Dave and good morning, everyone.
Guided by our strategic growth roadmap, we drove solid and sustained performance across every key metric this quarter, while continuing to optimize our sleep ecosystem across all of our stores digital footprints and brand partnerships. As a result, we achieved significant growth in Q2 and seamlessly serve the sleep needs the new.
And the oil Canadians despite ongoing pandemic related challenges, we are very pleased to share our strong Q2 financial highlights revenue increased by 67, 3% to $192.2 million with retail stores closed for 32, 7% of normal operating days compared to <unk>.
The 54% in Q2.2020.
Net income rose by $17.5 million and Q2, 2020.1 from a net loss of 500000 in Q2.2020 adjust.
Adjusted diluted EPS grew 269, 2% from the 13th and Q2.2020 to 48 in Q2.2021.
In addition to these achievements and the face of supply chain challenges, we expanded our gross profit and operating EBITDA margins the.
Power of our Omnichannel sleep ecosystem and differentiated service model was more apparent this quarter than ever before with these results showcasing the unique ability of our brands to adapt excel and capture market share in this demanding environment.
While our industry has benefited from the customer's investment and health and at home. We believe our strong performance at significantly outpacing the market due to the added trust in our brand and our disciplined execution of our strategic initiatives, which in turn has expanded our reach the target and serve more customers across.
Multiple platforms and channels. These initiatives include growing our profitable store network. The significant expansion of our digital platforms, starting with the acquisition of Andy and the launch of our revamped sleep country and door and maybe the websites are highly visible marketplace relationships with Walmart and best buy.
And our exclusive partnerships with the world's most exciting sleep brands like Tempur, Simba purple and blue.
In the past 27 years I cannot imagine at a time when the agility and resilience of our business and our team was tested as much as we've been throughout this pandemic to.
And to try to cancel out some of the noise and illustrate the growth and strength of our strategic initiatives considered the fact that was 32, 7% of our store operating days closed in Q2.2021, we were still able to drive meaningful revenue growth of 15, 4% over Q2.
2019, when our entire store network was open.
Another way to look at this is on a year to date basis for our stores were closed for 33, 3% of abnormal operating days for the first 6 months of this year compared to the same period last year. When our stores were closed for a similar 33% of store operating days. This year, we delivered 41% Rev.
The new gross and 44% operating EBITDA growth versus the same period last year. These powerful results highlight the relevance and efficiency of our growing omni channel ecosystem.
Our strong results are fueled by our disciplined execution, which have propelled us into the next phase of our success story as ever we continue to charter business against 3 strategic platforms to achieve sustainable and customer centric gross 1 providing world class customer experience across all our channels.
And to delivering relentless channel and product innovation and 3 helping Canadians improve their lives through sleep as at pillar of wellbeing.
We made important progress against several transformative milestones in Q2.
Highlighting our elevated customer experience Canadians continue to respond favorably to our sleep ecosystem, which allows the customer to learn trial purchase and deliver on their own terms during their journey.
Our E Commerce channel drove almost 30% of revenue in Q2 with many digital customers visiting our stores and their journey to by demonstrating the relevancy of our digital platforms and the elevated experience of our websites provide to todays omni channel customer.
Our impactful Dreamliner digital chat staffed by our sleep experts has continued to be of trusted resource for Canadians and has helped raise the average ticket substantially for our online business the.
And the team has done an amazing job and continues to exceed all of our metrics and expectations, having now surpassed 23000 customer reviews. This quarter with an average rating of 4.9 out of 5.
This quarter. We were also very pleased to welcome and best buy Canada into our family of distribution channels with the launch of our newest innovative marketplace partnerships. This exciting partnership includes retailing and all of our Fabulous brands on bestbuy marketplace and positions sleep country as the exclusive supplier of traditional match.
And on best buy dossier.
And with over 400 million customer visits to the best buy website and stores each year. This partnership builds on our strategic initiatives to grow our marketplace relationships, while exposing our sleep country brand to a broader segment of customer and offers yet another attractive easy to use digital touch points for Canadians to engage with our <unk>.
Sleep assortment.
Beyond partnerships, we continue to expand our very profitable retail store network with for new stores and renovated 5 this quarter. This brings our total footprint to 200, and the 87 stores of which 82% had been renovated to our enhanced design. Each of these new locations have outperformed our expectations we were at.
Extremely pleased to be warmly welcomed by these new communities shift.
Shifting from channel to product revenue growth for mattresses, and accessories increased by 66, 6% and 69, 8% at 69, 8% respectfully demonstrating that our product assortment and important brand partnerships like Tempur, Simba purple and maloof and many more continue to.
Resonate with Canadians across the country.
Additionally, we're thrilled over the early success at success at the end these latest innovation and first foray outside the bedroom with the N D Sofa, which has received a great response in the first months as we test the market. These are still very early days for the exciting innovation and we look forward to watching the end.
And the team expand on 1 of Canada's most successful digital brands.
In Q2, we shared at another exciting and glimpse into our company's roadmap with the announcement of our 2 new storage hubs in Belleville and Calgary combined these will expand our warehouse capacity by 65% increasing operational efficiencies improving the opportunity for margin expansion and support future years.
And our planned growth the new stores hubs will drive meaningful improvements to our customers' experience included expanded assortment improve stock availability and faster fulfillment options I'm delighted to share that the first of the 2 hubs and Calgary opened in July with the second and plan to open later.
This month, we remain committed to our purpose of transforming lives through sleep each of the initiatives I've outlined about help Canadians achieve their best sleep as at pillar of the overall physical and mental and emotional well being to that end. We are very proud to announce at our first well in this.
Because the brand Ambassador campaign with tennis Grand Slam champion Bianca Andreescu during this quarter art inspiring Theres no dream without sleep campaign, and it's been a popular success with over 95 million TV impressions and 18 million social impressions to date and we look forward to serve.
And as Canada as champion of sleep for wellness in the months and years to come good luck and the Canadian open and beyond that thank you over to you Craig to discuss our financials.
Thank you Stuart and good morning, everyone.
Like to reiterate that we are extremely pleased with our very strong Q2 results as noted earlier and the call. A reminder, that in Q2.2021, our retail store network was impacted by the the mandated government closures, and Ontario, Quebec, and Nova Scotia.
And Q2, 2020.1 of our store network was temporarily closed for 32, 7% of its normal operating days compared to 54% and Q2.2020.
On a year to date basis, our store network due to the mandate of the government store closures was temporarily closed for 33, 3% of its normal operating days versus 33% and year to date of 2020.
Even with this with the challenge of our store closures the approximate 1 third of the quarter.
We produced strong Q2 results demonstrating the strength ever growing sleep ecosystem differentiate differentiated business model.
And strategic investments and our associates continuous hard work and commitment.
Our Q2 revenue net revenues increased by $77.3 million of 67, 3% from $1014.9 million and Q2.2020.
The 191 hundred $92.2 million and Q2.2021.
This increase was mainly driven by 65, 5% increase and same store sales for new stores and our wrap stores.
We continue to see a significant component of our revenues generated from our e-commerce platforms.
And Q2, 2021 'twenty 9.6% of our revenues were generated from our e-commerce platforms. We.
We saw at the 67, 3% revenue growth quarter over quarter came from both our mattress and accessory categories.
Mattress revenue increased by $60 million of 66, 6% from $90.1 million and Q2, 2020 to $151, 1 Oh, sorry, $150.1 million and Q2.2021.
Accessory and <unk>.
Revenues increased by $17.3 million or 69.8 from $24.8 million and Q2.2020 to $42.1 million and Q2.2021.
Our gross gross profit increased by $29.4 million from $37 million and Q2, 2020 to $66.4 million and Q2.2021 the.
The gross profit margin increased by 2.3% from 32, 2% and Q2.2020 to 34, 5% and Q2.2021.
This is primarily due to an increase in average unit selling prices lower product costs, and leveraging our fixed distribution and occupancy and depreciation costs.
These efficiencies were partially offset by higher Covid, 19, pp and E delivery and inventory adjustment costs. In addition to higher compensation costs that were favorably impacted by wage subsidies under the Canadian emergency wage subsidy program and Q2.2020.
We did experienced pressures on the freight on a freight car owner of freight costs, probably primarily from our container imports.
Regarding G&A expenses costs for Q2, 2021 increased by $11.3 million or 44% from $27.8 million and Q2.2020 to $39.1 million and Q2.2021as the percentage of revenue our G&A expenses decreased from 24, 2% of revenue and Q2, 2020.2.
93% of revenue in Q2.2021 the.
The $11.3 million dollar change and G&A G&A expenses was mainly driven by an increase and media and advertising compensations I was at its compensation costs that were favorably impacted by wage subsidies by $1.5 million under the AWS program and Q2 of last year.
Moving on from G&A operating EBITDA was $43.7 million and Q2, 2021, or 22, 7% of revenue compared to $24.5 million and Q2.2020.
Yeah.
Or 21, 3% of revenue, representing an increase of $19.2 million or 78, 6%, mainly tied to strong revenue growth and Q2, 2020.1.
And when combined with the improved gross margin and partially offset by increases and G&A expenses.
Our Q2 net income increased by $17.5 million for a net loss of <unk> 5 million or negative ones the per share and Q2, 2020 to $17 million of 46 cents per share and Q2.2021.
Turning our attention to our year to date results. Our year to date result of revenues increased by $108.7 million or 48% from $266.5 million and year to date of 2020 to 375.2 and year to date at 'twenty 'twenty..1 the increase was mainly driven by at 39, 4% increase and same store sales 6 new stores and.
And our App stores.
Similar to the quarterly results, we continue to see of significant Ponant of our revenue is generated for E. Commerce platform on a year to date basis 29, 4% of our year to day revenues were generated from our e-commerce platforms and we saw at 48% of revenue growth year over year came from both of our mattress and accessory categories mattress revenue increased.
By $83.3 million or 39, 3% from $212.1 million and year to date, 2020 to $295.4 million and year to date at 'twenty 'twenty 1.
The accessories revenue increased by 25 for $4 million or $46.7 million from $54.4 million and year to date, 2020 to $79.8 million and year to date at 'twenty 'twenty 1.
Gross profit increased by $38.5 million from $78.1 million and year to day, 2020, $2.116.6 million and year to date 2021.
Gross profit margin increased by 1.8% from $28.3 and year to date 20, and 20 to 31.1 and year to date at 2020, 1 primarily due to product leveraging product costs fixed distribution and occupancy and depreciation costs.
Again, these decreases were partially offset by higher delivery and inventory adjustment costs. In addition to higher wage compensation costs that were favorably impacted by the wage subsidy of $13.4 million under the sea AWS program and year to day 2020.
Moving onto our G&A expenses for year to date, 2020, 1 increased by $16.3 million or 28, 7% from 60, $56.8 million and year to date 2020 to $73.1 million and year to date 'twenty 'twenty 1.
As a percentage of revenue our G&A expenses decreased from 21, 3% of revenue and year to date, 2020 to 19, 5% and year to date are at 'twenty 'twenty 1.
Again. These at these increases were mainly driven by an increase and media and advertising expenses compensation expenses that were favorably impacted by the wage subsidies of $1.5 million from the AWS program and year to day 2020. In addition to telecommunication and information technology and occupancy expenses.
Operating EBITDA was $75.2 million for year to date, and 'twenty, 'twenty, 1 or 20% of revenue compared to $52.3.
Million for you to say 'twenty, and 'twenty or 19, 6% of revenue, representing an increase of $22.9 million or for 3.6%.
Present, mainly driven by strong revenue growth.
And year to date 2021 combined with improved gross profit margin and partially offset with an increase and G&A expenses.
On a year to date and net income basis, we increased by $21.2 million from $4.5 million and your stay at 2020 to 25.7 million and year to date 2021 are.
Our basic earnings per share increased by 58 cents from the 12 cents year to date 2020 to 70 cents of year to date 2021.
And year to date basis, we experienced and net increase and cash of $50.6 million net cash flow provided from operating activities came in at $23.5 million cash flows used in and invest investing activities was $28.5 million and lastly, cash flows provided for financing activities for $17.3 million.
On our capital allocation on August the 2021 and the board declared a dividend of $19.05 per share on the company's common shares the can.
And also has the NCI V program in place at.
That completes the overview of my finance of our financial results over the you day for closing remarks.
Okay.
Thanks, Craig and Stu this quarter I had the pleasure of sharing the important milestones of our brands have made towards our environmental and social responsibility of commitments.
We diverted over 35000, mattresses, and foundations and Q2 to recycling and donation as part of our comprehensive recycling program. The only program of its kind from a national sleep retailer.
We also expanded our donations to new communities, including at our recently opened location and Cornwall, where we donated sleep solutions to local shelters to help those in need.
And these ongoing efforts to support frontline workers to the health care Heroes campaign has helped transform call rooms at 35 Canadian hospitals with new mattresses.
As we emerge from the pandemic, we are seeing Canadians prioritize and investing and their sleep and the pillar of personal health and wellbeing of.
Our powerful sleep ecosystem differentiated service model and commitment to helping every Canadian and achieve better tomorrows through better Tonight positions of our brands to capture these investments for years to cash.
And all the while driving sustained and profitable growth through multiple avenues of revenue.
We are more excited than ever for the future as we execute against our growth strategy with passion focus and discipline and the moat around our business is the deepest at has been and our nearly 30 years with a full pipeline of initiatives. The industry's most talented team enormous storage hubs to facilitate future demand.
And compelling product and marketplace partnerships at.
And a clear purpose of transforming lives through sleep.
We've only just scratched the surface excuse me, we have only just scratched the surface of the full value of our sleep ecosystem and look forward to many years of sustained profitable growth.
With that we conclude our remarks and open the floor for questions.
Thank you ladies and gentlemen.
And the question and answer session should you have any questions. Please press star followed by you want on your Touchtone phone.
The only at 3.
The request of your question.
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1 moment for you for some questions.
Your first question comes from John Zaro, which the.
Please go ahead.
Yeah.
Hi, good morning.
Just want to say congratulations to both of you on the recent announcement.
And maybe we could start with the N. The seltzer you've called this out in.
In the press release instead, it was sort of a strong start for the product.
The end a bit more color here are these new customers entirely or are they adding to their basket.
So the way my dog is very excited about the product.
Yeah.
And when you think about product extensions should we view that primarily is from Andy or from other brands as well.
Well I would say that for just to start off. This is very early days for that and so while we're very excited we also just want to highlight its early days I will say that it is a very good mix of new customers and existing customers that we're seeing at from which is what we were hoping for.
And would say that Andy will continue to be innovative with their products, but I would also like to say the sleep country has been innovative as well like we add new products of all the time.
So I think it's going to continue to be of mix on that front.
If you were to say I don't know if you had anything else at the only thing I would add is that at.
Early stats and to Dave's point. This is very early days and they are just testing this new product as well as incredibly successful headboard that they launched.
Is that on the sofa at 60% of the sales to date are new customers. So that broader customer segmentation is very exciting to us.
Okay. That's helpful. Thanks.
And then I wanted to move to the capital allocation and I'd like to get a sense of how the company ranks priorities here.
It's a relatively under levered balance sheet resulted and quite strongly at least so when you think about growing the business organically M&A debt reduction of the dividend buybacks, how do you rank those priorities and in terms of importance.
And what.
And do you feel comfortable with.
Yeah. So so John we are looking to come out.
Over the next few quarters and communicate of more more formal plan around some of the the bookends on our debt side of things and how we view leverage.
And as well and the dividend from at yield perspective, and then how we think holistically around at the NCI D program.
In addition to our capital investments are strategically to drive growth going forward.
In terms of where we're at today, we're very pleased that we've been able to reinstate the dividend given the noise of the pandemic and on the <unk> program, what we're our thoughts around that as we do have and in place, but we've had.
Store closures interrupt the last few quarters and.
And so we wanted to get that behind US now that thats behind Us in addition.
With our of our ERP investments and Thats starting to rollout. We now are and are better positioned to be able to.
Execute against some of those other allocations that you've seen the sleep country do historically so.
In terms of priorities and I'm going to probably defer that to the next quarter to give it up a little bit more of a broader update.
But I hope that addresses your question.
Yeah understood understood. Okay, 1 more for me and then I'll pass it on and we've heard south of the border lots of your peers talked about supply chain disruptions and the ability to get products to market. How would you describe your supply chain and Q2 and Q3 of you seen disruptions, but it's just that you're able to to direct customers to us.
Other products or other brands or you just haven't seen this level of the interruption versus some stuff at the border.
So and we're.
We're not at a we are a part of the same system that everyone is and so John you're correct. What 1 of the beauties of our business is the diversification of our lineup. So and there are certain of our brands and have had more challenges and interruptions and the normal supply chain and we are or will this.
Split into we have our just in time local manufacturers as well as our imports on the just in time local manufacturers theres been some disruptions from some of our U S partners, but we have always been privileged by having a priority of relationship with them and we.
Support Venezuela, they support us.
And the greater challenge for us.
In the second and and into the third quarter is the imports at snow. It's I'm not telling you anything that you don't know at cost of containers are all over the map has gone from as low as what traditionally was $3500 for us to as high as 27.
And dollars and somewhere in between and we work very closely with our partners at.
To find an amicable relationship in terms of trying to achieve.
Achieve those price increases and there has been delays at a lot of the ports.
And Theres high demands and there's delays of containers getting at so that's definitely been a bit of a challenge, but that is really primarily and our accessory business is the bulk of our imports and we carry 30 different pillows. So if 1 pillow is out of stock, it's very easy for us to shift our customer.
For us to another pillar of so we haven't seen and interruption on our floors because our teams have been fabulous to be able to shift for the customer, but yes, we've seen some challenges within the supply chain, both locally and internationally.
Okay I appreciate the color. Thank you very much.
Youre welcome.
Thank you <unk>.
Next question comes from much of Landry with Stifel. Please go ahead.
Good morning Martin.
Hi, good morning, everyone and congratulations steward on your appointment.
Thank you Martin.
My first question is is the just looking at your sales growth.
Very impressive given that the stores have been closed during the quarter and it looks like when the stores reopen the they quickly and make up lost ground and.
But that squeezing a significant amount of volume and the short period of time and I'm wondering did you incur overtime expenses.
The cope with what the logistical challenge.
So I would say that our business is always cyclical and a sense. So you know the summers are busier. So what we really kind of experiencing right now is kind of like summer busy like the busiest time, but over a longer period of time. So we do experience some overtime, but at.
It was not something that I would call out as.
Outside the norm.
I will say, though there's 1 area that we may be had additional pressure or increased cost, but it was planned Martin and we were proactive in terms of that.
Building up our inventories as we go into busy and some of our distribution centers were overflowing and so we had additional freight cost emerged cost container cost of sitting out and our parking lots.
And obviously, the Belleville and Calgary Super hubs are going to help with that but that was planned and.
And because there's a lot more important for us to have the product and stock available for our customers. So we had additional costs related to that.
And especially considering.
And the challenges with supply chain now it was and even in hindsight it was even better decision.
Okay.
And can can you quantify the impact on gross margin or is that not material no I would say, it's not material enough to.
Okay.
And the switching gears, you're you're you're you're obviously gaining market share and and.
I'm wondering are you monitoring new customers versus returning customers and and if you do it.
It would be very interesting to see what's the proportion of your new customers in the quarter versus returning customers and the how that's fluctuated.
Most of the historical levels.
So I'll start that off and see just just at a market share point of view.
As you know we track our market share.
Using the stat scan data and that is a backward looking so we kind of have a view of our year to date through may so it's not up to date, but.
Our indication is that our market share has gone from.
And just under 35 for just under 38% and year over year. So we feel really good about that I will also tell you that.
And 1 of the reasons, we're rolling out of new ERP is that we don't historically had a great point of view on new versus old customers.
And so.
I'm not going to be able to give you a satisfactory answer for the second part of your question, but hopefully in the years to come we will be able to give a better answer to that I will also add Martin the partnerships that we've created over the last couple of years, specifically with the brands like purple and Simba as well as the relationship.
At we created with our marketplace and best buy and Walmart has broadened our customer segmentation. So we know just based on certain categories of our business that we were targeting to grow spin.
Specifically for that demographic that the customer has been working very well for us. So definitely there has been and expanded reach.
And that we've had traditionally from our existing stores.
Okay. Thank you and my last question is is going back to your capital allocation as well sorry to.
And our focus on that but you know your financial leverage when Youre looking at your bank debt over EBITDA is probably the lowest level since you've been public I'm wondering what's the hold back to the to not return capital to shareholders right now.
Again, you know Martin and I'll, just kind of just go back to some of the the pressures that have.
And I've been on our business and so we do want to make sure that some of the events and the store closure of pressures were behind us and and the ERP was rolled out to that we understood how how.
The effect of it was in and how we're going to have the schedule, it's rolled out over the rest of the year.
I would just go.
Go back we agree we feel that we're in a and a healthy from a leverage perspective and very conservative.
And it just more to come on that over the coming quarter at is 1 of those things where and when you take a step back we have we've had very strong results, but there has been a lot of pressures from a store closure perspective, and and and we wanted to make sure to be conservative on that front and then we will come out with the more exact plans.
Because of something that we've been discussing with investors for some time and and we're happy that our store network is back open.
Okay. Thank you.
Thank you Martin.
Thank you. Your next question comes from Stephen Macleod with BMO Stevens. Please go ahead.
Good morning, Steve and I think.
And good morning, Dave Good morning, Stuart Good morning, Craig.
Just a couple of questions to follow up.
Just on the gross margin very strong performance and the quarter.
And the 34, 5% was there anything sort of onetime and there maybe wouldn't repeat in future quarters I'm just curious if.
If we can.
And maybe represents a new run rate and terms of any.
And any structural changes and the business.
So I'll start off and then Dave.
David do feel free to add but 1 thing that you will see is at so nothing onetime in nature in the quarter, we did have.
Strong sales mix.
And and that did fall through to gross profit. The 1 thing I will just point out in Q1 and.
And year to date, we did have.
Compensation costs, when we did off for curbside pickup and incur that was more 1 time and that was pointed out in Q1. So that did have a little bit of pressure follow through on the year to date results.
And we're pleased with the way.
We were able to have a good sales mix dropped the more dollars to the the gross profit line.
And I'd say the only other pressure that we did see this quarter was around the container cost is to Stuart indicated on the income.
The incoming freight.
But overall you know.
And very very pleased with how gross profit performed this quarter.
Okay, that's great.
And then in the past you've talked about when the when stores of reopening.
Or I guess, when you get and in store sales.
And in store sales of our opportunities to drive higher ASP and I'm. Just curious if you could talk a little bit about sort of what you saw in terms of sales demand trends are.
And with with the recent reopening and I guess I guess most of it happened right at the end of the quarter and I'm. Just curious if you have any commentary around that.
So definitely Steve and we see when our stores are open.
Our higher end of our category and transact at much better than it does online and our partners like Tempur and purple and Simba and all of the higher end of our category that debt.
Finally at does much better in the times when our stores are open and our sales associates for being able to explain at.
The benefits of the higher end products. So we definitely saw that in this past quarter.
And then the only thing I'd like to add to that at all of those we really of 3 different avenues. We have online direct we have our sleep chatter dreamliners and the we have in store and so and we do that because customers can self select how much service they want and we do see the people that go directly online and are generally the lower AOSP.
And that generally they are.
The in store at the highest but Dreamliner has done a great job of giving people the assistance that they require and generally speaking when people get that assistance they invest more.
Okay. That's that's great that makes sense.
And then maybe just talking about the new the new hubs.
Which are which are increasing your capacity.
You mentioned and your commentary that you also expect there to be of positive.
Gross margin positive margin impact from the new hubs can you just talk a little bit about where where that positive margin impact would be coming from.
Sure so.
A good portion of our accessory business and Martin and as you as you know is imported and as over the over the last few years, we have shifted some of our business from local suppliers to importing directly ourselves and.
And we see and expanded gross.
Profit margin on collections that we are going to be sourcing ourselves directly.
And that should probably continue.
With the a variety of different products and at the same time.
We believe the ability to stock the merchandise being able to service our customers quicker and faster and always be and stock is a huge competitive advantage advantage for us although the difference between the super hubs as and our distribution centers and.
They are at the 17th for sale.
Distribution centers that we have our fulfillment centers and we've always prided ourselves on the quick turnaround of the in and out of that delivery. So freeing up our fulfillment centers from storage, which is what's been happening over the last few years, we will grow the efficiencies.
And in those facilities and that last mile is becoming more and more important with speed.
Okay.
That's great. Thank you very much guys.
Thank you Steven.
Thank you.
Your next question against and Patricia Baker with Scotiabank. Please go ahead.
Oh, Thanks, good morning, good morning.
Good morning to all of you I have floor for questions I want to follow up on the supply chain discussion just curious what your outlook is for 2022 with respect to the both higher costs do you think of you Mike.
And your outlook is on product price inflation.
And we come around the January of 2022 and look at the pricing for the year do you think we'll see higher the normal inflation on the product.
And I will say to you Patricia that we don't have a better crystal ball than you, but I, but it seems as though January is right around the corner and were not seen and ease of pressure on those container prices. So this.
This is unprecedented times and 27 years I've never seen at.
And the inflation and the the the volatility.
The volatility and pricing like this so I anticipate at the.
The first quarter of will probably continue this way hopefully there'll be some pressure that will be alleviated.
As for inflation.
Traditionally for 27 years as long as the entire market is experiencing inflation and the competitive intensity of our competitors.
Competitors is growing and the same way is that in terms of inflation and inflation has been a good thing for us, especially with the variety of products that we carry because we can service customers at every single different price points based on all of the different vendors that we carry and.
So we don't necessarily look at that as.
A bad thing the there is a lot of positivity around that the volatility component is just a little bit more difficult to be able to manage quarter by quarter and that probably will continue but I will say that our teams have done an exceptional job and our partners.
And had been amazing and also through these difficult and the turbulent times.
Okay. Thank you for that and then just another possible pinpoint here, what's been your experience with being able to get the labor and particularly the drivers are.
What part of the vehicle.
And those are the mattresses and the call.
Sorry.
So Chris.
Appreciate it and I think as Stuart highlighted before we are going to experience what everybody experiences. So if we're having a more difficult time getting.
People and drivers and in our warehouse and we have historically, having said that we.
We're doing okay. We've built in the system that allows us to have our own people, but it also allows for 3 PL to help pick ups at when we have a challenge so we're managing it well.
And I will also just add on the store fronts.
Our teams are we at.
Much lower problems there.
And where people are making commissions and and we're doing well so the pay as well there and and people are looking forward to coming back to work when we reopen.
As I say a lot of these things that we're talking about as far as freight and as far as cost expenses.
And we're experiencing what everybody is experiencing but and a lot of these ways. We feel that we're advantaged because we have some other things in place that allow us to to work around it and and we will continue to be proactive.
Okay excellent and then just back of the discussion on the debt.
Performance of the gross margin and the quarter and 1 of the things that you are true.
The debt to the better gross margin was at higher average unit selling price and.
Is that primarily attributable to what Green line is doing for you.
Okay.
Yes, it would be a combination of 1 the continued.
The strength strong firms and dream mind, but also other stores did open we did have.
Less pressure because we were having more customers go to those higher ticket priced items as we as we opened if we go back on the quarter.
Back did open up fairly early in the quarter. So there's a limited impact there as.
As well as at East that also opened up fairly.
The early in the quarter, so the real pressure was.
And Ontario, but they opened up on June 11th which is earlier than we had expected we saw a good return and and.
And an uptick on the in store performance and the margin getting driven on that front from average unit selling price being higher.
Okay, we will add at the Dreamliner, Patricia not only supports our online business, but it also drives customers into our stores because it is this is not of call center. These are our sleep experts from our floors that had been trained and if they if a customer is looking for a quick solution.
Easily done online if the customer requires additional help and service and at.
In the store. This the Dreamliner team is very capable of setting that up and that's definitely driven and.
More customers into our stores than ever before.
And then the land.
The last thing Patricia I'd like to add too is I think we also need to look and say how proactive we were at being flexible on our pricing.
And when prices started going up we were very quick to act and.
And so we are in front of that curve rather than behind it which helps.
Okay understood. Thanks for all of that color and then my last question just wanted to follow up on store introductory remarks, and discussing the the strategic overview.
Newmont and Stuart.
<unk> 3 pillars of the customer experience channel and product innovation and that's it.
And I just would.
We'd like a little bit more discussion around the same thing and specifically.
Which of which of those 3 do you think has the biggest opportunity and then secondly, where are you in the journey for them.
And each of these strategies because you know for for example, I know the customer experience can always improve but sleep country does provide and.
<unk> customer experience already so I'm, just wondering whether the the bigger opportunities are in the.
The other 2 pillars.
And I'd like to hear you speak about them a bit more.
And I appreciate very much your saying that we provide excellent customer experience. Thank you, Patricia and but we could always do better.
I would say the 1 area that to focus on and Dave alluded to at or mentioned.
Earlier, and we have never been Fabulous at harnessing our data and the pathway of 27 years of millions of satisfied customers that we hope that this investment and our ERP and CRM technologies, we'll be able to service our customers in ways that we haven't done before and serve up.
Products that they haven't already bought from us from our loyal customers as well as new customers. So that is a huge component of it I would also say that the delivery side of the business.
Most times, we focus around the sales side of this company, but the execution and.
And and that last mile component of SaaS find customers is a very important part.
And you'll see more investment that we're going to make to make sure that that always in stock and always on time and 1 delivery always with our customers. That's key to the importance of plus or so many other areas within the way that we do things the efficiencies that we could drive into this organization the importing.
Correct in terms of our containers and.
And at the list goes on and on and it's always evolving and our teams are always thinking about that on the product innovation. Those partnerships are key to us at and we want to be selling the most relevant sleep brands in the world. So that we always are front and center and the consumer's mindset.
And on the most innovative product and that relationship and behavior has been our motto for the last 27 years. So we're still very excited about that because there is exciting new brands that are emerging.
More than ever before and we think that we are early in those days as well as the accessory part of the business, which is a strong component and growing exponentially every single year.
But I do believe that we have market share wise compared to our mattresses were still also early days of that and finally on just the improving the sleep is a pillar of wellbeing, we want Canadians to appreciate sleep and look at sleep and the same regard as they do exercise and die.
The it just sleep is a lot easier the egg.
Exercise and diet, and if we could raise that mindset and shift the average consumer from changing and their mattress every 10 to 12 years to 8 to 10 years or shaved 6 months off of at a year off of it.
And it moves the needle quite a bit so again at every single year. This company is trying to innovate and do something different the Sleepy Little company has have been far from sleep and the teams that were bringing in are coming up with AB fab as creative ideas and we're just focusing on executing flawlessly.
Thank you very much I appreciate the comments thanks Patricia.
Thank you.
Next question comes from again and with TD Securities.
Please go ahead.
Hi, Maggie.
Hi, good morning, and.
And just had a few more so a follow up question. So just with regards to the outlook.
And for new stores, specifically sort of you've already seen 6 store openings. This year and that's that's kind of been the minimum debt you've set out. So can you just update your thoughts for the remainder of the year.
And so our.
At our store count slowed this year re opening at not because.
Of our love for our brick and mortar because of our brick and mortar is performing exceptionally.
In fact, it's performing at.
Better and we were doing some comparison and I saw 1 of the analysts I think it was Martin and put something out of from 2019 and he was dead on with those numbers.
It was more of the pandemic related and construction delays, Quebec, and Ontario, 2 of the biggest markets for us.
Some of our store openings.
And were pushed off into 2020 to also keep in mind being closed for weeks on end.
Once we get to reopen we don't necessarily want to close down that store is generating and this type of revenue and these type of growth.
This type of growth that we're seeing so we rather push it off into the quieter times of the year, which is usually traditionally and the first quarter I will also say that and as.
As we are looking to expand and improve on the customer experience, 82% of our stores have now been renovated except that there is at.
The sleep country for point O already on the drawing board in terms of that next level of customer experience. So as we finalize on some of our ideas. There in 2022, you should probably see a sneak peek of what what's to come for our store base.
Okay, great. Thank you and then.
Just a question with regards to advertising spend and and where you see that trending as a percent of revenue for the full year. So was there any spend year to date that that we can think of that as maybe 1 off given some of the partnership's debt that were announced or is that going to continue.
Less so of partnership 1 offs, because usually at the relationship and the support that we have from all our partners has.
Traditionally been exceptional.
More so on the volatility of the market and what the pandemic did.
At 2 radio TV and print shifts within the digital space.
Changing with Facebook and Google at at the.
The last 12.
And the months have been.
Changing probably every single month, we definitely benefited from lower advertising costs and in the depths of the pandemic when the world just shut down at we never turn off our advertising. So our partners were very accommodating for us to continue on that and in many cases right.
Have returned and some cases inventory is even less than it was before because of certain parts of the industry is doing very well and there is some premium to it so.
It's been it's been traditionally easier to budget, but definitely more volatile than that than in the past.
And the.
The address the the percentage kind of revenue when we look back at 2019 as of as a proxy at the end of the year. We felt that was a fair kind of estimate of what we would have on and more normal year. So.
At about 7.5% range. So and then if you look year to date.
We did tick up a little bit higher in Q2 at around 8%, but year to date, we fall back into 7.3%, which is kind of consistent with what we've been tracking.
Shortly so just want to save run out of full year buying at 7.5 range of is a fair range.
Okay. Thank you and then just last question, maybe a bit more of a broader question here. So we've seen some really great progress being made and <unk>.
Areas, such as partnerships be at with brands or the third party marketplaces and and.
The spoken a bit about the strategic pillars here. So I'm just wondering you know at least potentially become an increasingly relevant part of the business can you talk about how you continue to really uphold.
Sleep country's industry, leading customer service in particular.
Great question.
First off the partners that we choose.
We are very selective in terms of teaming up with the best of the best though.
And companies that put the customer first as we have always done best buy and Walmart 2 leaders within the industry and.
And.
And it wasn't by chance that we chose those 2 leaders or they chose us and the.
It's a partnership.
In terms of brands relevant brands are very important for us at the end of the day. Our belief is is that the customer experience and the ease of shopping.
That is the priority for us and we are channel agnostic and want to make sure that we are able to service the customer the fastest way the best way with the best customer experience and something that we're constantly focused on internally and with our partners.
Does that answer your question Megan.
That's great. Thank you.
Thank you thank you Megan.
Thank you. Your next question comes from some of the hard Kahn with RBC. Please go ahead.
Okay, great Thanks, and good morning.
Yes.
In terms of the customer that you mentioned that are interacting with you online and then coming at the store, just curious which products of which brands are they coming at the store for the traditional.
Additional mattresses is that they look at idea online and come and store just want to understand of what theyre looking at and how that sort of impacting the mix you are offering and store.
I think the I think the first of all I think we do really need to separate Andy from sleep country and <unk>.
We don't have any on the stores and our stores and so that is separate I would say at the 1 thing that we're very happy about is at most people that come into our stores are coming to see sleep country, and <unk> and not a particular product or brand is what really is carrying the day and then we have all of the relevant.
Branch will not all of them at this point in time, but we have most of the relevant brands to show people and and people come in for a lot of different reasons, both accessories as well as mattresses, but the main thing is that they're coming to get our experience and I will also add debt when we choose our partners.
And we have some fabulous partners as Dave was mentioning a lot of the new customers New partners that we brought in are very strong on the digital acquisition side.
And the show rooming component is a very important part of the journey, especially as you drive more of a premium.
Quality bed I will say that some of the best in the industry that we've learned from them and and and have been able to grow our businesses together temper purple Simba all of excellent within the digital space, all reaching a broader customer.
The segmentation or a different customer segmentation and.
And that we see that journey begin online and continue into our stores sometimes at <unk>.
<unk> Act and be completed and in our stores and then sometimes they continue the journey and transact on their phone and so it's been a very interesting learning experience for us and our partners.
Okay, and then just I guess the comment earlier on.
The ending up being in stores.
You know the have the standalone locations and I think.
And I think there's at least 1 special to ensure that has that has the potential to do sort of a shop and shop or something at some point or is it really the strategic focus to keep those 2 business on separate paths to some extent.
So first of all we said right the.
And when we did the acquisition of N. The that we are going to let the leadership team of.
And the who do work closely with us decide and collaborate with us in terms of direction, where they want to go and how they want to do it I will say we've had many conversations around the benefits of putting Andy in our stores or.
Or not and he has done an incredible job the number 1 online mattress in a box player in Canada and continue to grow their business beautifully the in store presence at the at <unk>.
And some selected retailers and they have done pop up stores have worked very well, but more about exposing the brand again in different customers, but they are a digital first acquisition model and they continue to focus mainly on that what the future will bring will be at.
The discussion that we will have with them all the Yahoo is the president of MD, who doesn't amazing job.
And her team are very excited that we are still early days and driving acquisition online.
Alright, great. Thanks for the color and then.
The the margin commentary around the new hubs and you mentioned that buying direct will help margin I guess does that translate down to the EBITDA line as well and I'm, assuming that's the higher gross margin and I guess is that enough to offset the incremental I guess the SG.
And at what are the new hubs.
And yes, and yes first of all I want to say that.
Our real estate team led by Phil Bezner did an exceptional job in the in and the depths of the pandemic. He convinced us and negotiated 2 amazing deals for us and Calgary and Bell Belleville and 1 of the purposes of.
Of that besides the ability to turn our fulfillment centers back into fulfillment centers and differentiate our stores centers.
But 1 of the main reason of that as cap rates as as most of you. All know are at the lowest level that I've seen and 27 years also since we're in business and.
It's a normal course of our business to continue to expand our distribution centers.
And as our business grows this.
Move that we may position at us at substantially lower rates and.
So that we don't have to expand in the markets that we normally would've expanded at substantial premium rates and the offset you're 100% right.
Is the benefit of the gross profit margin that we should be able to achieve that we're already achieving on our accessory category, but that will translate into higher gross profit that will contribute obviously.
And to the EBITDA.
Okay, and then just 1 last 1 for me any color you can share on what you saw during Q2 of the restrictions and use that to the various region, but some of the provinces seem to be at different stages of the reopening just curious on what the in store tons of been across different regions.
Yes, sorry, you said that we've seen at very similar through all of our opens and our closures and reopening and so which is when we when we reopen we start getting people back of the store quite of bit quickly and making up for lost ground and this is no change to that and we will continue to be very careful.
And our stores will be very careful in our distribution centers, but we're going to continue to push forward and try and keep our business as open as possible forever throughout whatever happens I'd like to say that this is the first time and a while debt.
Craig and I have been able to make this call all of the same room, we're being very safe and we're being distance, but it's a nice feeling and hopefully we can continue to <unk>.
Move down that continuum.
And and continue on this reopening.
Great. Thank you.
Thank you.
Thank you there and.
And no further questions at this time you May proceed.
Well, we just wanted to thank you all very much for the continued support don't hesitate to reach out if you have any other questions or comments and we will talk in the very near future. Thank you and stay safe.
Ladies and gentlemen, this concludes your conference call for today and we thank you for participating you Didnt ask you. Please disconnect your lines.
Yeah.