Q3 2021 Sleep Country Canada Holdings Inc Earnings Call

Good morning. My name is Pam, and I will be your conference operator. Today at this time. I'd like to welcome everyone to sleep countries, Q3 2021 results conference. Call all lines have been placed on mute to prevent any background noise. After the speakers remarks. There will be a question-and-answer session. If you'd like to ask a question during this time simply, press star. Then the number one on your telephone keypad to withdraw your question, please. Press star. Then the number two. We ask that you limit your time to one question Plus.

Follow-up question. Before cycling back to the Q yesterday, Sleep Country.

Release their financial results for third quarter of 2021, a copy of the earning disclosure is available on their website and includes cautionary language about forward-looking statements risks and uncertainties, which also apply to the to the discussion during today's conference call. I would now like to turn the conference. Call over to David friesema CEO, please go ahead.

Thank you Pam. Thank you. And welcome everyone. We appreciate you taking the time to join us this morning. I hope you're keeping well with me today. Is Stewart, Schaefer our president, and Craig de Prado. Our CFO. I would like to start today's call by taking a moment to thank everyone who's been part of our journey for the past, 27 years, as many of, you know, I will be retiring at the end of this year and Stuart or Stu Schafer will assume the role of CEO on January 1st. 2022, today marks.

My twenty Sixth and Final Call is your host. Since we completed our IPO in 2015. Thank you to the investors and analysts Community for joining us. Each quarter to our employees, for their, unwavering dedication, to our business, and to our customers for, for your continued. Trust in us, when we first launched the country in 1994. We set out to transform the way Canadians shop for mattresses along the way. We have evolved pushed the boundaries and differentiated ourselves and the Canadians sleep space to become can

Has leading omni-channel and direct-to-consumer specialty, sleep retailer. It has been an honor and a pleasure to serve our team, our investors and our customers over the last 27 years, seven of which I had the privilege of to lead as the company as CEO. I look forward to watching this company continued to grow and succeed under stews exceptional leadership. As you all know, Stu has been instrumental in our company's success, over the past, two decades, and he is the right person to guide Sleep Country into our next chapter of growth. Thank you. All. I will now.

And the conversation over to Stew to start us to start us off with our key highlights for the third quarter. Thank you, Dave. It's been an absolute privilege working with you. Your legacy goes far beyond the bottom line. We thank you for your commitment to serving Canadians transforming lives through the power of sleep and your invaluable contributions to sleep, country's success over the past 26 years. We wish you the very best the best in your well-deserved retirement.

We are pleased to share the results of another strong quarter. In fact, we delivered the strongest results in our company's history. We achieve growth across several key metrics from Q3 2022, Q3 2021, including increases in Revenue by 13 percent gross profit. Margin by 2.8% adjusted, net income by 19.5% and diluted adjusted EPS by 18.9% are

Men's was a result of solid execution of our strategic roadmap across our entire sleep ecosystem bar by our best-in-class. Team. We continue to solidify our position as Canada's leading, omni-channel, and direct-to-consumer retailer, as the economy, continue to reopen in the third quarter. We Welcome to our customers. Back to our retail stores, with no store closures for throughout the corridor. For the first time since Q3.

20/20 are same store, sales increased by ten point six percent and our investments in our e-commerce platforms continued to deliver strong results. Representing 17.9 percent of revenues. These results, indicate the power of our growing retail store, presence and digital expansion. That provide us with more opportunities to serve our existing customers and attract new ones as well.

I sleep experts in our retail stores, and

Our online dreamline chat service continued to be a trusted resource for our customers at and we continue to be impressed by our Endy. Steams ability to drive exceptional results and exceed our customers expectations. I'd like to take a moment to congratulate our Endy team for reaching 500,000 customer transactions and all of our Sleep, Experts, who are truly dedicated to making sure our customers have their best night's sleep.

Great work team as Canada's leading, omni-channel and direct-to-consumer retailer. We are committed to channel and product Innovation. We are always looking for new ways to build our sleep ecosystem and make our Brands more accessible to customers. In ways that that meet their evolving needs to that end. We have forged new Partnerships with Walmart, Canada and caspers.

An agreement to launch Sleep Country, Express and dormez, Vu. Express a brand new pilot concept that will see our Sleep Country Canada and dormez. Boo Brands prominently situated, select Walmart, Canada. Supercenters. This development will increase our visibility with new customer segments and allow us to deliver the exceptional customer service for which we have become known for at Walmart. We have just begun rolling out the first ten.

Pilot stores in the last week and we look forward to exploring how this New Concept will deliver our best-in-class, flea products to more Canadians in the years to come in. Q3. We executed a new and exciting partnership with caspers.

New product designed exclusively to meet Canadians sleep. Needs, we are incredibly proud to build on our Walmart partnership and to add caspers.

Subsequent to the quarter ends. We are very excited to have. Welcome hush blankets into our family of sleep Brands and Innovative product lines, hush Isabel of canadian-based direct-to-consumer, sleep retailer, specializing in temperature rate, regulating weighted blankets. I schooling sheets their famous pillow and just recently launched. Their first hush mattress in a box started by two Dynamic. Entrepreneurs.

Lior and Aaron, the hash team has built.

Believable brand and attracted a highly engaged and fiercely loyal. Customer base. In just three years. We closed the acquisition with a 52 percent majority for an initial amount of 25 million dollars and will acquire the residual. 48% of hush in annual 16% Stakes. Increments on March, 31st, 2023 together with their products and digital team and our market knowledge infrastructure and Logistics.

Capabilities. We will continue to drive our digital Evolution and expansion of our accessory. Assortment. They're aggressive and dynamic direct to Consumer model within Canada and the US perfectly aligns with our growth roadmap. As we explore opportunities in New Markets with differentiated customer segments. Amidst the backdrop of amidst, the backdrop of the ongoing Global Supply supply chain disruptions. We have not

Been immune by the multiple challenge at all retailers have face, but believe we are well, positioned to realize our recent infrastructure investments from the two new distribution hubs, which opened in Q3 to our digital and Supply Chain management improvements. We have been able to shift proactively and adapt in these uncertain times and continue to provide our customers with the best solutions to meet their sleep needs. As you look ahead to Q4.

2021 and Beyond. We remain focused on driving the next generation of our company's growth. The pillars of our strategic plan to provide world-class customer experience across. All our channels deliver Relentless channel in product Innovation and help Canadians improve their lives through the power of sleep will kill will continue to serve as well as we chart. Our course, for the next phase of growth story with that. I will now turn the conversation.

Over to Craig to discuss our financials.

Thank you, Stewart and good morning everyone. I like to reiterate that. We were very pleased with our strong Q. Three results. We continue to see Canadians, make their health and well being a key priority driving demand for Sleep Solutions. Are differentiated business model Brands Strategic investment growing sleep. Ecosystem has allowed us to meet Canadians. Leave needs as an odor noted earlier in the call and Q3 2021. The company was not impacted by government-mandated store closures.

We're to Q3 of 2020. This is the first quarter since the start of the pandemic, where we did not experience mandated closures in both, the current period and the comparative prior year period.

Our Q3 revenues increased by Thirty one point four million or 13 percent from two hundred forty. Two point four million in Q3 2022, 270 3.8 million in Q3 2021. This increase is mainly driven by a 10.6% increase in same store sales. Six new store, open openings, and fiscal 2021 and our rap stores.

In Q3 2012.

One 17.9 percent of our revenues were generated from our e-commerce platforms. We continue to see Revenue growth in both mattresses and accessories, categories mattress, revenues, increased by twenty three point, nine million or 12.5 percent from 190 1.7 million in Q3, 2022, two hundred and fifteen point six million in Q3 2021 accessories revenues, increased by 7.5 million or 14.8% from fifty point seven million and Q3 twenty. Twenty two fifty eight point two.

Lien and Q3 2021.

As a reminder in fiscal 2020 upon upon the onset of COVID-19. Pandemic in Canada. The company was mandated to close its entire store Network for an extended period time period of time. During this time in queue to 2020 many Canadians deferred their sleep purchases purchases into the future. Creating pent-up demand this resulted in strong quarterly growth in Q3, 2020, 15.4% and Q4 2020 of 33.4%. We were very pleased that

we're very pleased to see that while we lapsed over these strong results. The prior year. We continue to see some solid results in Revenue. Growth of 13%, resulting in a two-year stacked, Revenue, growth of 30.4%

Our gross profits increased by 18.5 million from eighty. Four point two million in Q3 2022. 102.7 million in Q3 2021, the gross profit margin increased by 2.8 percent from 34.7% Q3 2020 to 37.5% in Q3. 2021. This increase was probably merrily due to an increase in average unit, selling price, as well as lower inventory, adjustments COVID-19, pp&e costs and leveraging our occupancy and depreciation costs.

These efficiencies were partially offset by higher sales and commissions and and distribution operations costs. The increase in compensation costs were attributable to a higher sales, salaries bonuses, and related payroll taxes. Additionally. We saw a shift in Revenue earned from our e-commerce platforms into our retail stores, which increase commission costs.

We continue to experience pressures on our freight cost primarily from the container Imports and we have been able to successfully passed on much of these costs to the customers here today regarding sgna expenses. Cause for Q3 2021 increased by fourteen point three million or 41.7% from 34.5 million and Q3 twenty. Twenty two forty, eight point eight million in Q3 2021 as a percentage of Revenue or GNA expensive, increased from 14.2 percent of Revenue and Q3 2022.

0.8 percent of Revenue in Q3 2021, the Fourteen point, three million dollar change in DNA. Accepts, as was mainly driven by an increased media and advertising costs, compensation costs and professional fees, 3.2 million of the Fourteen point. Three million dollar increases in Jane a expenses, were related to the acquisition of hosh as well as the majority being due to Erp implementation costs.

When you normalize sgna for these costs sgna would have reduced approximately 16 percent of sales.

Moving on from DNA.

Operating even though is seventy three point seven million for Q3 twenty. Twenty one or twenty six point, nine percent of Revenue compared to 60 5.3 million and Q3 twenty twenty or twenty six point. Nine percent of Revenue representing an increase of 8.4 million or 12 point eight, two eight percent melee tied to strong Revenue growth in Q3 2021 combined with improved gross profit margins and partially offset by G and expenses adjusted. Net income increased by six point five million from thirty. Three point two million.

Or 90 cents, diluted adjusted earnings per share and Q3 twenty. Twenty to thirty nine point, seven million, or $1.07 diluted adjusted earnings per share and Q3 2021.

And here today based on a year to day basis on cash flows. We experienced a net decrease in cash of Point 1 million net cash flows provided by operating activities came in at 111 Point 1 million cash flow is used in investing activities of thirty six point five million. And lastly, cash flow is used in financing activities of seventy five point five million.

As previously mentioned subsequent to the quarter end on October 22nd 2021. We acquired 52% of the issue. No Sandy common shares of hush. Blanket sang for cash consideration of 25 million. We will acquire the remaining 48 percent of the outstanding common shares in three equal installments of 16 percent over a three-year period starting. March 31st, 2023. The consideration. Paid for each incremental, purchase will be calculated based off a specified earning level achievements during the

Your period also subsequent to court around our senior credit agreement for a credit facility of 260 million was amended. The amendment includes negotiate interest rates to pre COVID-19 levels. Thereby reducing our interest expense.

On the capital, allocation side on November 11, 2021 the board declared a dividend of nineteen point five cents per share on the company's common, common shares, which will be paid in later in November. This completes the overview of our financial results results over to you, sue for closing remarks.

Thanks, Greg, a strong performance. This quarter was was the result of exceptional execution and across all Our Brands and channels by our fabulous, team to provide customers with a world-class portfolio of products. Wherever and however, they choose to shop. Thank you to our Sleep Country. Dormez, Vu and Endy teams along with all our partners, who contributed to our success has quarter and for your incredible resilience over the last 20 months building on our 27 years.

History of delivering the best sleep solutions to our customers. We remain focused on driving long-term profitable growth. While seeking out the most Innovative sleep assortments and Partnerships to broaden our reach and product selection. As we recover from the pandemic and customers continue to prioritize sleep, as a core pillar of their overall well-being are powerful, sleep, ecosystem differentiated service model and commitment to sleep exit.

Excellence will.

You to strengthen our position as Canada's leading sleep partner on a final personal note. I want to thank my dear friend day for the last 17 years of a fabulous partnership, your leadership mentorship guidance and most important friendship to me has changed and improved my life and the lives of so many around us. Thank you D. With that. We conclude our remarks and open the floor for questions.

Thank you. Ladies and gentlemen, we will now open the call for questions. If you do have a question, please press star. Followed by 1 on your touch-tone phone. You will hear a three-tone prompt acknowledging your request and your questions will be pulled in. The order. They are received. Should you wish to decline from the polling process, please press star followed by two, if you're using a speakerphone, please lift your hands up before pressing any keys. And we do ask that you limit your time to one question plus one follow-up before cycling into the Q. One moment for your first question.

Your first question comes from Martin laundry, which do you feel GMP, please, go ahead morning, Martin. Hi, good morning, everybody and Dave. Congratulations on your impressive, track record and and good luck in your future endeavors. Thank you. I was reading your mdna and there's no discussion on inflationary pressures and no discussion on supply chain issues and I have to say it.

It's quite refreshing to see a nowadays. But, but given that, you know, I'd love to hear you talk about little bit. See how you're navigating, the current Edwin's. You've alluded to being able to pass on some of the freight cars. But, you know, if you could, just give us a, you know, a broad overall view of what's going on and how you're coping with it. Good morning, Martin. Well, so I'll start by saying we're not immune to the supply chain glow.

Logistic issues, but we have been incredibly proactive in our approach earlier this year because we saw some tail winds shifting in the tape, the end of last year and the beginning of this year. First off, the introduction of our new super hubs for storage capabilities. Was a big part of our import program as well as trying to get ahead of these potential increases. And

we've been able to load up inventory, over the past summer and taking us into our busiest quarter, traditionally the third quarters, our busiest quarter of the year. That being said, some of those costs. We see are coming through. And in most cases, we are fortunate enough to be able to pass on to some of those costs onto our mid and high-end collection of goods and it's a little bit more obviously sensitive on our lower end.

Okay, that's helpful in and maybe just follow up, you know, your gross margin reached a record level. It's up to 275 basis point. I was wondering if it'd be possible to quantify that puts and takes do to Bridge from from last year to this year.

Yeah. Hi Martin. See, we kind of break it out a little bit more details within the md&a. But the main areas we've been able to pass on certain amount to the customers. And what we've seen is a, a higher ticket in terms of our sales mix. So there's been some efficiencies there over the product cost. So, well, a product cost year-to-date of largely, you know, stayed intact. We've seen some higher sales mix, which is pushing some efficiency to

As profit in addition to that our COVID-19 pp&e costs or much heavier in the prior year as we were just rolling out of mandated closure periods and Q. Two coming into Q3 of last year. So there was some good efficiency there about 0.6%, Levering impact in that area of that other other costs bucket. In addition to that, with the sauce with the, the sizable increase in sales year-over-year. We also were able to Leverage

ever are on our occupancy costs and depreciation. That is recognized down to the gross profit. So, you know, one is that larger sales? Mix and a, in average, ticket over some, you know, some, some good costing year-to-date. We do. See the pressures with the container business, which is something that we do see flowing through and future quarters. And then you've got your occupancy, lower COVID-19, I COVID-19 costs and and that's what we're seeing the main kind of puts and takes year-over-year and Martin. I

I also want to add that I always keep in mind too that over 80% of our mattresses are manufactured in Canada. So the container of component is only for our accessory business.

Okay, that's helpful. Thank you and congrats. Thank you. Thank you.

Your next question comes from John zamparo with CIBC, please. Go ahead. Good morning, John.

Thanks. Good morning, and Dave all Echo by congratulations on a storied career and and all the best miss you on these calls. Thank you. My first question is a follow up to the last one. You mentioned the increase in the average sell price. Is there anything you can say to help us differentiate between inflation, on like-for-like items but also customers who are skewing towards buying higher ticket items and can you talk about unit sales or customer accounts versus Q3, 20 or 23?

Sure, Jon Stewart. I will say that the customers Focus around health and wellness and a better sleep is definitely shifted. Also to a higher better quality product. As you as we might have seen more pressures on the lower end, the mid to high end of our business grew very well. This quarter the

Action of caspers.

As well as purple and our number one selling high-end brand Tempur Pedic was definitely strong in this quarter and that just helps our overall profitability and growth too.

Okay, that's helpful. Thanks. And then my second question is on the balance sheet and capital allocation. He's talked about this in the past and you've seen a Year's worth of strong results. The balance sheets in better shape than it's ever been. So should we interpret the lack of an increase, the dividend or use of the ncib, or announcement of something incremental, as a product of maybe a more attractive ma a pipeline or maybe more interest in MMA on your part? Or is there something you're waiting to see before announcing something like that, but returns?

Yep. No, thanks. Thanks. John. Is Craig here? So on, you know, when we, we've held the dividend and at this point in time, but we, you know, investors can expect that. We will get back to our regular Cadence of increases, which comes in the New Year. In addition to that when we take a step back of where we've been allocating Capital this year. We want to just remind that you, since the last update to this update. We have closed on the acquisition of

Hush, so that was 25 million which, you know, typically could have been earmarked for something like it, ncib would have been in that range on our under our current program. That's approved. Would be in that range of dollars allocated. So we have, you know, put that 2 EPS accretive use with the hush acquisition. In addition to that when we take a step back to quarter one. We also had a 25 million dollar payment to Endy as part of the earnout. So, over the year, we have allocated.

You know, Capital towards strategic Acquisitions of about 50 million dollars. And when we take a step back, that's the second largest, you know, commitment from a capital perspective in the company's history outside of 2018 when we made the initial payment to Hajj. So, where we're at? At this point is we feel that we've allocated since the last update in the last call 25 million towards an investment. That's EPs accretive, and we're very happy with and pleased with, they'll be more to come.

In the new year round updates and and then investors can expect the regular Cadence of dividend, increases to fall back in line, Photon, historically.

All right. Understood. Thank you very much.

Your next question comes from Steve in the cloud with BMO Capital markets, please go ahead. Hi Stephen. Hi Dave morning guys, and I'll chime in here as well. Congratulations, Dave on a great. Great run with see country, and it's been a pleasure pleasure working with you. So thank you for everything. Thank you. I feel the same way.

So I guess I just had a couple of questions. I just want to follow up on the gross margin, you know, there was a very strong record record growth and record level I think. And I'm just curious, is this a, you know, just a new Step Up in the gross margin or is it more a function of, you know, some of the things that you saw at it being added as a gross. Margin that maybe won't repeat in the future. So Year, too.

Eight is different than what will.

Coming down the pipe. So because of the container pressures and the proactive ordering of inventory, previous to kind of coming into Q4. We've been able to keep the costs in the end, the container pressure increase largely, you know kind of at Bay as we come into Q. Four. We are seeing some of those purchases that will can start to roll in where they are at the higher Freight at the freight cost, or there will be pressure in the quarters in quarter for and into the new year around.

Round product cost tied to the increase container costs. You can see that is if you look at our revenue or sorry, our year-over-year inventory, balance growth, you know, it's in excessive, you know, 11 million dollars and woods even to show the magnitude of the orders. If you look at our Revenue growth, even sequentially from Q2 and Q3, it's quite significant. So we've been able to keep up with higher demand from our customers year over year. But in addition we've been able to also hold, you know, very healthy inventory, balances.

Is that kind of proactive ordering in the magnitude of what we have been ordering, you know, in quarters leading up to the busy, Q3 Q4 season, so we feel very good in position from a inventory perspective, in terms of in terms of being able to serve our customers, but we do want to know that there will be pressure on that gross profit in the subsequent quarters because now we're starting to see those increase container cart cause that will be rolling rolling through. I would add. Okay. I'm sorry Stephen and I was going to add one thing that

At the Thirteen percent. Growth was a mix of a balance of 12 and a half percent growth on our mattresses and, and an accelerated growth of 14.8% on our accessories, which, you know, comes at a higher gross margin. So we saw a little bit of that too.

Okay, that's not good color. And when you talk about pressure and Q4 and q1, which is a completely reasonable to expect, are you talking more about? Do you mean year-over-year pressure or sequential pressure from what you saw in Q3? It would be sequential sequential. So you will continue to see a little bit of pressure in that in that area. Again. We've been able to increase basket size and pass on a portion to the customer. So we we've been

Music on that front as well to get ahead of that. And again, you just a reminder we do when we're our products do tend to be less price sensitive, and the notices of slight increases aren't as aren't as heavily felt as it would be with, you know, a day-to-day item, that's transacted daily at a lower ticket. So but there will be sequential pressures the way to look at it. Okay, great. And then and then when you think about, when you think about heading into next year,

Here, I think you would have already gone through your pricing, your pricing exercise for your mattress lineup for 2022. Is there any reason to think that, you know, prices in the supply chain issues and inflation, you know, would be like, material a material to hire that it could potentially impact consumer purchasing decisions. Is that anything that we should be concerned about heading into next year?

I will say.

Stephen that we're right in the final. Part of that. There's definitely been some of our vendors have put forward, certain price increases that were a little higher than usual. But to Craig's point, the entire Market shift is I don't think will be noticeable to our consumers because the beauty of our business is is the diversification of our floor, a bad.

Ed that goes up in price is not like we're only sell one bed unit. We could always find another bad for the same price with a thousand dollar bed that may go up two thousand and fifty dollars. There will be a step down from that for a thousand dollars. So we strategically look at our pricing and our floor like a chess board to make sure that we meet our customers needs at every single range in terms of pricing. And I think we're with that, I could tell you with certainty were

Comfortable that we've done the same thing for our for our floors, for next year. And I just like Dad. That's just a one. Another example of, you know, our high-touch service, and our stores will pay dividends on that front as well.

It's okay. Well, that's great color. Thank you guys. Thank you Stephen. Your next question comes from Megan and net with TD Securities, please go ahead. Good morning Megan. Good morning. Thank you Dave. I will add my congratulations here and wish you all the best with regards to be expressed or concept of in Walmart. How significant do you see that partnership becoming the context of Walmart's 400 locations in Canada?

And also, what are your thoughts on? I may be taking that concept outside of Walmart. You could just touch on you how you evaluate potential cannibalization there as well. That would be helpful.

So, let me just start by saying Meghan. It's, it's still very early days. Like we're we've been open a few stores only for about a week and two, ten Pilots torso over the next week or two. The first ten Pilots stores are going to be rolling out and I stress the word pilot because we're going to watch and learn and evaluate. But we are very excited about this and we're not worried about the cannibalization because there's a component.

Into this, that will push. We believe our customers that are looking for a broader selection than the Sleep Country Express stores to our larger stores. So it's a great introduction to a broader customer segmentation millions of eyeballs that will see us every single day. And in terms of the opportunity to your point 400 stores that they have, I can't tell you that it would be a 400 store expansion but we do

See a path, the runway comfortably, if all goes well and the pilot is what we think it could be that over the next 12 months. We could open 30 to 40 stores and probably grow to 100 stores within two years, two to three years.

And this.

So as a follow-up, a broader question here, the financial performance have been really exceptional throughout the pandemic as we touched on here. Can you just talk about the the top-line drivers that you see that really keep that growth profile going in the near term, you know, as you continue to lap those comparable periods mean we've seen solid execution against strategic agenda, but it would be helpful. If you could just lay out how you envision, those initiatives will contribute to growth in 2022.

To and Beyond thank you. So, our plan, our strategic plan that we've been laying out over the last few years, broadening out our product Innovation, expanding our Channel distribution, within our own brick. And mortar stores is new. Walmart, Express Sleep, Country Express partnership are marketplaces with Best Buy and Walmart are new Partnerships with caspers.

On our business, excluding any potential changes or shifts in the economy. There's no question that there's still some form of pandemic uncertainty, which is why we are probably prudent in terms of our Capital allocation, and we would like to see the next two quarters or comping off a huge queue for, from last year of 34 percent growth, which was really a buildup of Q, two shutting down and rolling into that.

Into that quarter consumers, habits are going to be we're watching very closely. They seem to be still confident. There's definitely a fair share of their wallet that has been invested in their home. And we believe that the focus and changes of what the way customers think of health and well-being as a pillar similar to diet and exercise. We think that will continue so unit

I'm not going to comment on because it's hard for us to predict that, but we have seen during the pandemic, over the last two years, a shift to a higher ausp, as people invest more in their sleep. And I would just like to add one small thing to that, which is, you know, the market has been favorable to us when our stores were open over the last couple of years, but we've also done a very good job of taking market share. And so, you know, as we talked about market share, which we use stats can data.

Before we've always said that, you know, 1/4 worth of information, doesn't, you know, you have to look at it over a longer period of time, but our market share in, Q3 went up significantly based upon the way we measure it and just a little bit below, 40 percent. So we really are also performing very well within our industry.

Your next question comes from Patricia Baker. With Scotia Bank, please, go ahead. Good morning. Good morning. I'm dr. Dave. I would be remiss if I didn't comment on the fact that you will be missed and I wish you all the best with your future and it's been a pleasure working with you. Just wanted to follow up on the Walmart discussion and the discussion of your Partnerships, Marketplace Etc. Are there are other implications as you.

You know, World more of the of he's out.

You know, the, the Sleep Country brand across so many more doors in in Canada. Ultimately. What are the implications for your thoughts about, you know, growing your own brick, and mortar Sleep Country. Dormez blueprint, great question. I will tell you that we've been opening up stores during the pandemic and the stores that we continue to open our performing above expectations. So our, our plan,

Lands and trajectory, in terms of our expansion model. It's still rest the same. There's no change in our philosophy. In fact, we are paying close attention to AAA real estate of some of the opportunities that have popped up and some of our satellite markets that we recently opened Windsor. And, and most more recently, Cornwall of all performed really well, and we still see a nice opportunity.

These are the expansion of marketplace, the expansion of the relationship with Walmart. We Believe will only broaden the awareness of our brand of multiple touch points, which is what we're trying to achieve and make it easier for our consumers to shop. Anyway. Anyhow, they want to through Sleep Country. So for the moment for at least the foreseeable future Patricia, we are bullish on our

Growth of a brick-and-mortar. We're bullish on our digital expansion and we're and we're quite excited about our new relationships in terms of our Marketplace.

Okay, that's great to hear Stewart just in the opening remarks referenced the the caspers.

Do with all our vendors tempers. Do you Lee Simmons Serta? We've always had a deposition with them to work very closely with our sales teams and our merchandising teams here with the manufacturers. Because being in the business for 27 years, we have a very good sense of our customers sleep needs caspers.

Creating components within the Canadian landscape compared to the American landscape. There are some small settle differences and uniqueness that we have been working with them and discussing that we like to shift. But more importantly it's making sure that caspers well with the blend of other products on our floor. So the floor Works in a very harmonist, harmonist Way Part harmonies way and I think

There's going to be opportunities.

Expand. Not yet about some other sleep accessories as caspers. Definitely interested. Is it on the accessory side? And the success that we've had on our accessories? And we do believe the brand cachet with caspers May accelerate, some of those opportunities. Okay. That's, that's great to hear. I just want to follow up on a comment that Dave just made about the market share being just, you know, hovering around 40 percent and

That's that's been one of the big success stories at Sleep Country over the course of the last decade or so is just the rapid growth in market share. And when you think about market share their, there is no real impediment to. Do you think that the market share to continue to go much higher than that? And that the company ultimately could command and even greater market share in around. 40 percent is pretty significant, but, you know, I assume that you do,

There's a lot more room to grow.

Yeah, I think I think there is we don't even focus on 40, we focus on the 60, we don't have. And that's where we put our attention and even faster.

Your next question comes from on with RBC Capital markets, please. Go ahead. Good morning. Good morning. Thanks very much and good luck with the next step of our journey. Dave. Just I guess following up on some of the conversation on caspers here. I guess I'll release announced in September talked about the exclusivity. Can you maybe share some color on? You know, what is that exclusivity mean? Does it, you know some of the other Retail Partners they have may no longer exist. Like how are you sort of going to fit?

And into the broader caspers distribution in Canada.

De our agreement is exclusive distribution of their core mattresses, so I can't comment on the relationships that they had before, but this is a full exclusive in terms of the caspers brand throughout Canada, including a an agreement and partnership in terms of their website as well as or caspers stores to a, to a smaller extent, but you should consider Sleep Country.

The exclusive partner for the country. Okay, and then it said that excludes their own caspers website or as you said, there's like a small part You'll Play in that as well. There's a small part that so the caspers website will continue the six stores that they have will continue and we'll play a small part in that. Okay, and then I guess, just on the, the hush transaction given just their product offering, should we assume that business will be Consolidated and then rolled into your accessories?

He's Revenue line.

No, not for not for now. First of all, the the deal just happened. So we're very excited about their trajectory of growth. They're still very early days. Only 3 years old. We do see some future opportunities with the hush brand to expand or accessory, assortment, but for now, their focus will be on some of their new products that they've already recently rolled out. They've been seeing some good traction on that. And

We will focus on immediately is helping them with our buying capabilities, our supply chain, our infrastructure, the finance and components, the backend more. So and let them do the magical things that they do, which is the front and, and, and the marketing. So, sorry. I just want more from our reporting perspective like eventually when the transaction does close and you sort of reported. I guess will that be split across mattress?

And accessories depending on where the sales are. Just trying to figure out where we should kind of reflect. Yeah. Yeah. Yeah, sub. I was going to just type in there cuz I think I thought that's where you're also getting as well. So yeah, you're correct for the mattress component. It would be in the mattress sales and then, and then the accessories be an accessory. So, that's that's the way to think about it. Okay, great. And then just a comment earlier, earlier around the market share discussion. I guess, you know, is that when you talk about your current estimate of market share, is that sort of brick and

Sorry, this for of taking all your bed in a box offering and just taking what percentage sort of call it Total Sleep Country revenues of the you know, all mattress and sleep early stuff in Kansas. When you get some context around whether that's just sort of a brick and mortar and Sleep Country online or sort of all kind of offerings. So when we talk about market share, it's mattresses. We believe the opportunity and accessories is much bigger and we are much smaller.

Our, our, our estimates, are our guests them as are between 8 to 10%, share that we currently have. So that is a focus for us. And we do think that the potential for growth in that category is still very early days. I'm sorry. And you only allowed to the other part of your question. Is, it does include all of our channel? So it's our online business. Plus our bricks and mortar is cut just bricks and mortar, correct?

Okay, great. And then just sort of one, last one. I think we talked about a couple of quarters ago, but she was still kind of assumed just given the amount of online and different brands that you're involved with that does kind of the same store sales numbers still kind of closer to a total revenue or is it you know, given that stores are now open. Is it more refined to maybe stores only just trying to compare? You know, this number sort of going forward. I'm just giving all the additional Brands and Partnerships and Marketplace agreements that you have. If that's, you know, if that's closer to sort of a total revenue number or still more reflective of

Kind of the store based at Sleep Country operates. Plus somebody come. Yeah. So they, the way to think about it is that, yes, they will continue to be fairly close but with some of the additional channels and and how those will roll in between same store or total sales, you know, there's probably a one and a half-ish 22 percent variance between the two and it will report some more clarity around that as it as we see things continue to

These Partnerships continue to become, you know, more mature.

Um, but yeah, it's going to be very close like within one to two percent is a fair range between same store and and your total and just to clarify that the e-commerce channels of our business. Do RN dark included in the same store sales metric is in addition to the brick and mortar. So both are included. I will say if I could add also Sabbath at we've become over the last couple of years. Very much Channel agnostic in terms of our business.

we are still in the learning phase of e-commerce and our whole omni-channel Evolution and watching the Journey of the customer make, which may start on their phone, walk into our stores and then conclude the transaction back on their phone, the lines of same-store sales or how we consider overall growth are becoming a little bit blurrier because our Focus,

Is to serve our customers anyway, and anywhere they want to shop. And that is a driver that I think is also making us incredibly successful.

I'm great. Thanks for that color in just one clarification. I guess. Just on how we should think about Revenue going forward, you know, between the marketplace agreements. And I guess some of these shop and shops in Walmart. Is it that you're you're collecting the revenue and all those sales and Walmart get some sort of a royalty. Is there a difference between the two? Or is there a case where you're getting the world? How should we think about? And whether it's a Best Buy or Walmart online and the Walmart in stores. The first thing that you said was exactly. It's so it's

Our is our POS machines, it's our, it's our Revenue, but there's a royalty component to its exactly how you should look at. Thanks very much for the color. Thank you. Thanks so much.

Your next question comes from Vishal shreedhar with National Bank, please go ahead morning, Michelle. Good morning, and I'd like to wish you the best in your future endeavors. Okay, so regarding the the market share, obviously, very strong performance, its IPO. And if, and if you continue at this rate that you've been at, you know, your Market opportunity to future will be much less than it was when your IPO

So I presume the board and management or thinking about growth beyond Canada and correct me if I'm wrong. So if that's the case, you see opportunity with your econ platform to test the waters of the US or or maybe the acquisition or or is that even on the cards at the moment? Good morning, Miss. Shall. I will tell you that we built. We still believe that we have a long runway in Canada on my on multiple fronts. So let me start by saying that.

That being said, I would be remiss to say that the fact that our recent acquisition of hush and a portion and not a large portion, but a portion of their business is in the UK. In the u.s. Aligns very much in terms of some of the conversations that we management and the board has been having the opportunity to be able to expand beyond our borders, through a digital entry.

Is definitely in.

Reading to us with a low capital expenditure and we will be exploring and watching very closely with our newest Partners, hush in 2022.

Thank you, and with respect to the Partnerships, you know that peculiar that's your competitors continue to team up, team up with you at least in my experience. It doesn't happen all that often and wondering why from your standpoint. Why did these companies come to Sleep Country and partner with Sleep Country? Why don't they go it alone? And should we look forward to more of these types of Partnerships in the future?

So great. Great, great question. And I think, first of all, the power of the brand is very important on both sides, by the way, some were very selective and I'm sure our partners are very selective in terms of who they're partnering up with Walmart BestBuy, Sleep Country. We all think we're talking class with the same focus on our consumer and the living delivering exceptional customer service. That being said, I think

We both recognize what our core value. Propositions are there, certain things that we bring to the table that we may be, and believe that we're more effective on and there's certain things that they bring to the table. So and I guess in essence. That's what true Partnerships are, is recognizing that both wind and and we've all concluded that together. We're stronger than apart.

Okay, are there any particular the Walmart relationship? Are there any penalties or if you don't hit certain sales thresholds, no, no penalty. And right, and I'll be Ellie. Sleep Country trained staff selling in the Walmart partnership, what 100%. It is a Sleep Country. Experienced the moment you cross that leased line into one of our Express stores trains. Exactly.

Same way from our leaders that run our Sleep Country regular stores. In fact, a lot of our teams were very excited about these new Express stores and quickly jumped into and volunteer to work at some of these at least doors. Plus, there's a component within the stores. If you visit, any one of the Walmart Express stores, there's a partnership on the flip side where our teams have the ability to

give out a Walmart co-branded Sleep Country VIP card. That gives Walmart customers a special discount within our stores of which there, which is, which encourages customers if they can't find what they need at the Walmart Express store to go into our larger stores.

Thanks for calling.

Thank you. Ladies and gentlemen, as a reminder. If you do have a question, press star one. You do have a follow-up from Stephen MacLeod with BMO Capital markets, please go ahead.

Ed. Thank you, actually. All my questions have been answered.

Heard you have another follow-up from John's a know with CIBC, please. Go ahead.

Ed. Okay. Thanks for taking the the follow-up. I don't know that we've asked about this before, but you in the industry are increasingly using the services like pay bright and other buy now, pay later Services directly on your website. It seems like this is an advantage. It gives you over some Independence, but I wonder if there's anything you can say, on the impact of that feature and whether there's any measurable impact on custard of customer demand, or conversely on collection, right?

Yes, we do partner with with like the pay rates of the world, and flex cities of the world, to provide our customers different options around financing and you know the benefit to it is that it can drive, you know, a larger basket because it allows customers to pay over a period of time that suits their budget and their lifestyle. So we think that there they are a good benefit to for us to provide our customers.

As you know that option we and we've seen you know, good pick up with it on both online and and with within store. So it's something that we do offer because we want to ensure that our customers are able to you know, finance things in a flexible way that fits their fits their needs as well and John financing isn't new. It's been something we've been doing for years and pay rate is obviously new word to us, but on a big ticket items it is definitely some

An important tool to have.

Okay, thank you. There are no further questions at this time. Please proceed.

Well, thank you very much. Everyone. This wraps up our conversation, and we look forward to keeping you updated throughout the remainder of the Year. Thank you for joining us today. Sleep well, and once again Dave just want to thank you for everything. It's been a fabulous career, 27 years and an unbelievable partnership, and we're going to miss you terribly, buddy. Thank you, and I'm going to miss everybody to have a great day everybody.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you, please disconnect your lines. Have a great day.