Q4 2021 Sleep Country Canada Holdings Inc Earnings Call
I would like to welcome everyone to the sleep country's Q4 2021 results conference call.
Yesterday sleep country released their financial results for the fourth quarter of 2021.
A copy of the earnings disclosure is available on their website and includes cautionary language about forward looking statements risks and uncertainties, which also applies to the discussion during today's conference call.
I would now like turn the conference call over to Mr. Stewart Schaefer CEO and President. Please go ahead.
Thank you Kelsey and good morning, everyone I hope, you're all healthy and well with me today is Craig the prior to our CFO . We are very pleased to share our outstanding results for the quarter rounding out the strongest performance in our company's history guided by our purpose vision and strategic roadmap.
We have built sleep country into Canada's leading sleep partner I'm incredibly grateful to our 1500 50 associates at sleep country, Dormie, though and he and Hush, who have demonstrated agility resilience and determination to exceed our customers' expectations one customer at a time.
2021 was an exceptional year with the fourth quarter delivering above our expectations with Q4 revenue growth of 9% and record revenue growth of $162 5 million or 21, 4% in 2021.
This quarter had a two year stack growth from Q4 of 2019 of 45, 4%.
The strong quarter was driven by our relentless pursuit to expand our market share by driving new customers as well as our loyal ones into our sleep ecosystem that expanded channels with innovative products and brands. We continue to deliver on a multiyear journey to transform and improve upon our customers experience.
With the expansion of our physical and digital touch points, where our customers can discover learn test trial and seamlessly purchase our sleep products any way and anywhere they want to shop.
Despite COVID-19 concerns our same store sales grew 232% and by adding by 18, 3% for the entire year, which is further confirmed our bullish outlook for bricks and mortar in an omni channel World. We continue to build our retail network by adding six new locations. This year.
To finish up with 285 stores from coast to coast, our retail stores still remain the key sleep destination of choice, where our trusted sleep experts are dedicated to making sure our customers have the right and the best Night's sleep.
We increased our footprint and visibility to new customer segments with our pilot openings of our newest concept of sleep country and Dormie, who express stores. This new concept is being tested in 10, Walmart Supercenters in Ontario, and Quebec, we are thrilled to deepen our relationship with Walmart.
Canada and position ourselves alongside the worlds, leading retailer that attracts millions of shoppers to each of their stores every year. It is still very early days with this new concept with our 10 store that opened in mid December but we are very excited to test learn and gather the data to do.
Determine our path and trajectory to open up more stores.
Our investment in our digital transformation and e-commerce platforms, along with our online market marketplace partnerships fueled a growing share of sales representing 29% of our total revenues in Q4, Our award winning Andy business Canada's number one.
Non bed in a box retailer continue to surpass expectations with more than 520000 online transactions in the year.
We were excited to finalize the acquisition of Hush blankets in Q4, and we're thrilled to welcome their expertise into our digital transformation, while growing and building our expanded online communities.
Over the last year, we extended our online presence to millions of more customers building on our strategic plan to grow our marketplace relationship with candidates top retailers with our exclusive relationships with Walmart best buy and now Loblaw is that we announced subsequent to the.
Quarter end, we are reaching millions of more new and loyal customers through our sleep country Indoor me too elevated online shopping shops with a full assortment of sleep products.
Also in the fourth quarter, we expanded our product portfolio with how she is innovative wellness accessories their temperature regulating weighted blankets ice cooling sheets famous pillow and recently launched mattress in a box.
We were also excited to announce our investment in sleep out of Canadian startup specializing in portable blackout curtains for the bedroom, who started shipping the orders last month and supplied team Canada Olympic athletes with their blinds.
With these additions to our sleep collection, we all continue to grow our digital sleep ecosystem and accessory assortment as a profitable extension of our product mix, our harsh acquisition and sleep out investment capped off a year in which we became the exclusive retail and digital partner of Casper.
Celebrated core collection of mattresses in Canada and continued to differentiate ourselves in the Canadian retail marketplace with the worlds most relevant sleep brands, such as Tempur Pedic Sealy Simmons Serta, Kingsdown purple Simba and now Kasper.
We continue to be guided by our North star with our purpose of awakening all lives through the power of sleep with some of our new partnerships like well dossier, which was announced in Q4, our celebration of World Sleep day, our first ever wellness Ambassador Bianca Andreescu all of what.
It has helped us build upon the importance of sleep is an important pillar in our lives like diet and exercise as an essential part of health and wellbeing.
Throughout the year as we have done for almost 28 years. We are very proud to continue to support communities a gras across this great country with donations that helped thousands of families in need to get a better night sleep, we look forward to marking world sleep day 2022 in the coming weeks and we are.
Reminding Canadians and the importance of a good night's sleep.
The success of this quarter goes to our teams and partners, who could who continued to be resilient in these turbulent and ever changing times, our results demonstrate our proactive measures as well as our ability to quickly shift our plans, but that does not mean that we are immune to the challenges around the rippling.
The effects of the pandemic, which deepened once again by the resurgence of Covid later in the fourth quarter, the ongoing supply chain challenges, both internationally and now domestically the volatile lately and impact of inflationary pressures that are real and in some cases transitory, but in other cases more per.
I'm in it and the potential macro concerns and consumer confidence.
Confidence with a volatile stock market rising oil price prices in a war in Ukraine, and rising interest rate environment, while we have no control on the macroeconomic environment, we are feeling more confident and stronger than ever before with our long term strategic initiatives.
And sleep ecosystem that we're building that have clearly positioned as separately from the pack of other retailers our strategic investments in people partnerships distribution inventory innovative product assortment retail and digital customer experiences combined with outstanding.
Execution by our best in class teams have built a resilient sleep ecosystem, that's enabled us to deliver for our customers wherever and whenever they choose to shop.
As we close out our most successful year and look forward to the year ahead, we are positioned better than ever before to continue to lead candidate asleep space and differentiate our brands with the best assortment of mattresses and sleep accessories across the most relevant distribution channels in the country. We are.
Committed to accelerating our growth and investing in our strategic plan to drive digital innovation grow our touch point and expand our portfolio of products all to deliver the best Frictionless Omnichannel sleep experience for our customers.
Thanks, again to all our sleep country dorm Evo Andean Hush teams, along with our market partners footprint for all your contributions to our success in the quarter and last year and for your continued determination to deliver for our customers I am so proud to lead such a diverse group and feel fortunate to be long.
Due to this great organization.
With that I'll now turn the conversation over to Craig to discuss our financial results.
Thank you Stuart and good morning, everyone. We are extremely pleased with our Q4 and fiscal year 2021 results.
And full year 2021, we earned a record breaking revenues of $922 million, which is an increase of $162 5 million or 21, 4%. This increase was mainly driven by our same store sales growth of 18, 3% for net new store openings and post acquisition revenue from harsh which was acquired on October <unk>.
22021.
Our brick and mortar stores continue to perform extremely well generating 76, 5% of our revenues with our e-commerce channels generating a remaining 23, 5% of revenues for the year. These exceptional results were achieved despite similar operating days being closed in fiscal 2021 as compared to fiscal 2020 at 17% and two.
One 2% respectively.
For the full year, our gross profit margin increased by 220 basis points from 32, 3% in 2020 to 34, 5% in 2021, our EBITDA increased by $33 1 million or 19, 9% from $166 4 million in 2020 to $199 5 million in 2020 one.
Net income attributable to the company increased by $25 3 million or 40% from $63 3 million in 2020 to $88 6 million in 2021 basic earnings per share increased by six eight cents per share or 39, 3% from $1 73 in 2020 to $2 41 in 2021 and <unk>.
Lastly, our diluted adjusted earnings per share increased by 17 or $36. One from 194 to 264 in 2021.
Taking a look at our Q4 results revenues increased by $22 3 million or 9% from $248 9 million in Q4 2020 to $271 2 million in Q4 2021. This increase was mainly driven by a three 2% increase in same store sales for net new store openings and post acquisition revenue from <unk>.
Harsh.
A two year stack perspective, as you mentioned before revenues increased by $84 7 million or 45, 4% from $186 5 million in Q4 2019 to $271 2 million in Q4 2021, our E. Commerce sales represented 29% of revenues in Q4.
Our gross profit margin increased by 300 basis points from 33% in Q4, 2020% to 36% in Q4 'twenty 'twenty. One this increase was mainly due to higher average unit selling prices and leveraging occupancy and depreciation expenses.
These efficiencies were partially offset by higher transportation and delivery costs sales commissions and higher freight costs tied to our container imports.
Our EBITDA was impacted by higher SG&A costs, mainly driven by an increase in media and advertising spend compensation professional fees depreciation and <unk> expenses two items to point out within SG&A for the quarter, our compensation expense was higher due to our L. Tip meeting over performance for our 2019 PSU plan. This adjustment was made.
Within the quarter. In addition, our it professional fees line was higher by approximately $2 million of nonrecurring spend tied to the ERP project.
Our EBITDA increased by $4 5 million or eight 5% from $52 8 million in Q4, 2020 to $57 3 million in Q4, 2021 as noted above when normalized SG&A costs for the L tip any art E. ERP costs, our adjusted EBITDA shows an increase of $8 2 million or 15, 3%.
And I have to note for the quarter that put pressure on our net income was our effective tax rate rate, which increased by 7% from 21% in Q4, 2020% to 28% in Q4 2021. This change in rate was due to a change in the company's tax position in Q4 2020 on the deductibility of adult type expenses, which resulted in a lower effective tax rate in Q4.
For 'twenty, and 'twenty and 2021 our effective tax rate has returned to a normal range.
Net income attributable to the company decreased by <unk> 2 million to $26 4 million in Q4, 2021 or 2021 from $26 6 million in Q4 2020. The decrease is mainly tied to the income tax swing.
Discussed above.
Our adjusted net income attributable to the company increased by $3 6 million or 13% to $31 million in Q4, 2020 one.
From $27 4 million in 2024 or in Q4 2020.
Basic earnings per share remained unchanged at 72 cents in Q4 'twenty 'twenty. One however, if we apply the 2021 and income tax rate to our 2020 results. The increase in our basic EPS in Q4, 2020 to Q4, 2021 would've increased by six or eight 7%.
And the other items for the for the quarter and Q4, we amended our existing credit facility of $260 million to include an additional $100 million accordion and extend its maturity date to October 22026, or 23 six.
Subsequent to the quarter end on February eight 2022, the board declared a dividend of $19.05 per share payable on February 28, 2022 to shareholders of record at the close of business on February 20, <unk> February 18th 2022.
Now onto our framework for capital allocation.
We remain confident in our business is our ability to generate strong free cash flow and have seen leverage declined from historical highs of two eight times on a postpaid for S basis at the end of 2019 to our current leverage of one six times at the end of 2021.
With regards to our leverage we intend to maintain a strong balance sheet, while being comfortable with a long term leverage in the two times leverage area.
We'd also feel comfortable temporarily exceeding two times leverage for a period of time provided we see a path of getting down below this level within a reasonable time frame.
We intend to have a balanced approach towards returning capital to shareholders via dividends deploying our N CIB, while also investing in our business and growth all largely funded from free cash flow.
Our our framework for capital allocation is as follows.
The recent market volatility given the strength of our balance sheet and a resilient cash flow profile, we felt comfortable increasing our dividend at our next payout in may 22 by a minimum of 10%.
We intend to grow our dividend at a rate of at least 10% annually in the near to medium term.
Turning to our N C. A D. We believe our shares are trading at a discount to peers and a historical average it will be opportunistic in its deployment.
I submitted a notice of intention to the T. S acts to increase our NCI V from 25 million to $50 million.
In terms of our capital expenditure plans, both from a growth and maintenance perspective, our baseline investment program will target the following areas.
It's a minimum of six store openings per year between 20 to 30, new store renovations to our latest format.
Ongoing maintenance to our store and DC network in the range of 1% of revenue.
And investing in our ERP and technology to further enhance our Ami our omnichannel experience to our customers.
Lastly, we'll be mainly maintaining a disciplined filter around assessing potential M&A targets, we will evaluate M&A transactions against alternative uses of cash and plan to communicate a more detailed framework in the future around M&A.
Thank you and I will now pass the call back over to Stuart for closing remarks.
Thank you Craig our outstanding results in the fourth quarter and the full year demonstrate the power of our omni channel experience and differentiated service model building our on our deep foundation of sleep expertise, we will continue to expand our reach to more customers across.
Our multiple platforms channels and partners and grow our product assortment to offer the country's best and most innovative sleep selection as I look ahead, I see incredible opportunities for sleep country in our brands as we build our sleep ecosystem attract new customers and help our existing ones achieved.
Your best lives through a great night's sleep, we are in a fabulous position to drive long term profitable growth as we continue to lead candidates sleep space with that we conclude our remarks and open the floor for questions.
Thank you.
Ladies and gentlemen, we will now begin the question answer session C. Do you have a question. Please press the star followed by the one on your Touchtone phone.
You'll hear two pronged acknowledging your request and your questions will be pulled in the opposite the Army C.
Thank you Alicia declines on the polling process. Please press star followed by the two and.
And if you are using a speaker phone please lift the handset before pressing any keys one moment. Please for your first question.
And your first question comes from Martin Landry from Stifel G. N. P. Please go ahead.
Okay.
Hi, good morning, Stuart and Craig.
Good morning, Martin how are you.
I'm good thank you.
My first question is on is on I'm looking at 2021 the full year.
Your same store sales increased by 18% that's the fastest pace since going public back in 2015 and I was wondering.
You know if you could break down volume versus pricing for us I know historically you have not done so but you know inflation is at very high levels right now and kind of blurring the picture a little bit for US you know a bit of color would be amazing.
And so I'll tell you Martin as you know for competitive reasons, we don't break it out, but you're you're right on the money in the sense that this has been a mix of unit growth as well as the inflation in us passing some pricing off on the higher premium lines of our our bedding.
I can tell you that throughout the year that we saw strong unit growth of our business.
The last two weeks of this year and really starting around December 10th when Army Kron aired its ugly head, we saw our units start to drop off slightly.
Yeah, and you know.
Could could could you maybe.
Give us some color on the volumes versus historical levels, because there's some concerns that there's been a bit of pull forward of demand.
In 2021, so are your volumes in 2020 , one higher or in line with historical levels that you've achieved.
Oh no no historic historically, they were the highest that we've ever it ever achieved.
And if there was any type of pull full forward and again, we don't have a crystal ball Martin, but if there was any type of pull forward I will tell you that in October and November and I think it was media driven an advertising driven because everyone was talking and worried about empty shelves in.
The month of December .
We saw a really strong growth in October and November and a little bit lighter in December maybe partially because of balmy kron maybe.
Maybe partially because there was a maybe a pull forward from December because people wanted to make sure that they were getting doing their Christmas shopping a little bit earlier, but that's the only signs that we've seen so far.
Okay, Okay, and maybe last question for me I'm wondering if you could discuss you know traffic trends recently.
You know you you've mentioned a lot of macro economy, you know impacts on consumer confidence and I'm wondering if.
If you're seeing a you know what what youre seeing from the consumer right. Now in terms of behavior are you are you seeing an impact for rising rates and rising inflation.
So we traditionally do not give guidance nor do we plan to start on giving guidance, except that we are in some unusual circumstances I will save the the last two weeks since the war broke out in U U Ukraine and all of the atrocities that had been happening we've seen.
In a slow down in the last two weeks that had been slightly unusual for us.
Okay. Okay. That's helpful. Thank you.
Thanks Martin.
Thank you.
And your next question comes from it.
John <unk> from CIBC. Please go ahead.
Thank you good morning, great job.
Morning, John .
I wanted to ask about consumer behavior.
And in particular, what are your U S peers. It said there were greater challenges on passing through pricing on lower ticket items and an introductory price points I'm curious if you're seeing that and just generally what are or how would you describe our consumers' reception to seeing higher prices.
Yeah, sure John I, I think and I know, which peers, you're referring to and it would be similar to what we're seeing in Canada.
Usually on any times of inflation that maybe there's even adds color to Martin's earlier question in times of inflation conversations around interest rate hikes.
Disposable income and the higher gas prices at the pump.
It is usually are price sensitive customers that seem to slow down a little bit in terms of their purchases, which we have seen that being said we've always been in a.
A very strong position in the most enviable position of the mid to high end of our market and some of our strategic relationships that we built up over the last few years Tempur pedic being one of our strongest.
Purple Kasper, just recently and we seem to see nice acceleration on our mid to high end, so offset by R. R. R. A decrease in our lower end, but that is definitely there.
A shift in the consumer.
Okay understood.
And then my second question.
On the E Commerce business, you've mentioned in the past the success you'd get from having customers used the dream on chat function versus those who don't there is a significantly higher average spend there have you seen an uptick in the usage rate of that of that feature and are there ways you can incentivize customers to use it.
And so it continues to grow every single quarter and experience.
Still very early days and the team is doing an amazing job, but as we get better at it we're actually starting to see more of an uptick on it, especially as it starts to shift to a little bit more premium bedding, where our sleep experts are manning the phones definitely make a.
And a big difference for the consumer when they're when they're purchasing so we're seeing a higher a USP and that's very much driven by our sleep experts on the phones.
Okay. That's helpful I'll pass it on thank you.
Thanks, John .
Thank you.
And your next question comes from Stephen Mccleod from BMO capital markets. Please go ahead.
Thank you good morning, guys.
Hey, good morning.
So thanks for giving me a little bit of color there around the Q4 drivers and.
I just wanted to make sure I understood correctly I think I think what you were saying was that you did see a slowdown at the lower end in terms of demand just given some of the macro impact but did you say that that's been offset by ongoing strength in the mid to high end is that the way to interpret that.
Yeah, exactly Steve we have not seen.
A slowdown in our mid to higher end. So if you want me to even break out even further below our thousand dollar price points, we we've seen a drop off above our thousand dollar price points, it's continues to accelerate.
Okay. Okay. That's that's helpful. Thank you.
And then I just wanted to drill down a little bit on just the gross margin and SG&A if I could.
You had some strong strong gross margin performance in the quarter and I'm just curious if there's.
If theres anything in there that's sort of one time, just given the backdrop, we've seen with with.
With some of the inflationary pressures that seemed like there was a higher level than we were looking for so I'm just curious as to what the sustainability of that might look like.
Yeah.
Again, when we on the last call, we did remind that our containers had been kind of delayed and pushed through and so we did have a little bit of in Q4, you saw some pressure from the containers coming through as we received some and move those through the sales cycle, but we will continue to see pressure on that on our margin in Q1, just because those contain.
Our costs were much higher reminder, from $3500 historically too.
Upwards of 20% to 30000 per container.
So now that we've received you can see our inventory is higher you guys. Because we got we've been proactive we received more inventory now as we sell that through the cycle.
That will come through and have some pressure rolling through Q1, So I'd say there could be some pressure coming through it's just a little bit of a timing shift, but you did see some of that in Q4.
And then in terms of G&A.
You kind of pointed out a few items on our on the in the in the call script, but just to clarify there was one our marketing spend as a percentage of sales has increased and as a reminder, we did acquire harsh they have a higher marketing spend as a percentage of our ecommerce business as a tracking at a very nice pace around 20, almost 21% for the quarter.
And it does have a little bit of a higher percentage of our marketing spend versus the rest of the brick and mortar business. In addition, we did have our <unk> costs.
Increase for more one time adjustment of our 2019 PSU plan, so that that would be a one time item in SG&A and then lastly, we had about $2 million in nonrecurring against the ERP project and so both the L tip and the ERP costs are normalized down and adjusted EBITDA to show that you'll see the percentage pick.
Up to our EBITDA line on an adjusted basis, but the only other item there just to point out that was a little bit higher which was expected was that advertising spend as a percentage of sales I'll I'll add one other thing Stephen which is hard to measure.
And we want our unfair share of all categories in terms of mattresses from the low end to the high end, but what we've also seen as the business shifts a little bit to the mid to the high end there are efficiencies in that model to them.
Livery and a 500 dollar mattress cost is the same thing is delivering a 2000 dollar mattress. So it's hard to model. It for I'm sure for you guys, but but it does drive them.
A higher overall.
Gross profit margin for us.
Okay. Okay. That's that's helpful.
And then just to clarify when you talk about gross margin.
I assume you're meaning moderating on a quarter over quarter basis sort of moderate from Q4, rather than year over year.
Exactly yeah, you're correct, yes, Okay, and then and then just in terms of SG&A can you can you quantify what the Altair cost plus in the quarter.
It was.
I don't have the number right off it would have been a pretty deep like a few a few million dollars. Okay.
Okay.
Okay, great even he could get back to you with Ikea.
On that forget what the exact number yes right. Okay. Okay. Thank you.
And then just finally before I turn it back just on the on the capital allocation framework. Thanks for that color Craig.
On the on the net debt to EBITDA, you talked about sort of being comfortable at that two times range.
You're going to naturally delever over time, so what are some of the levers that you would pull to keep that net debt higher is that is that we kind of attribute that potentially to the buyback in the absence of M&A.
I think that's a fair way of I'm looking at Steven than we did increase the CIB.
CIB or submitted to the T. S X for approval them up to the 50 million, Mark and but I think the way youre thinking about it as fair and Stephen you've been around long enough I will tell you that our balance sheet is the strongest it's ever been and we're really confident in the strength of our business as well as our balance sheet.
And theres been a lot of conversations at the board level in terms of our dividend increase but with the geopolitical uncertainties tied to the atrocities that are happening in the Ukraine that add in the growing inflation and interest rate hikes.
We prefer and are very comfortable on this increase pause right now and see how the the impact on consumer confidence may or may not roll out or change over the over the coming months.
But at the same time, we are targeting to increase our dividend in the future by a minimum of 10% and the buybacks on our stock as Craig mentioned in the script, we believe that our stock is undervalued right now currently trading around seven times EBITDA.
Which is why we're increasing our NCI be from 25 million to $50 million and and we also think some uncertainty in the marketplace may create some interesting M&A opportunities and work aggressively still aggressively pursuing anything that's going to enhance our strategic growth opportunities.
Right. Okay. That's great. Thank you for that color I. Appreciate it guys and then Stephen Stephen just to get back sorry, just to get back to you on the.
The incremental from last year to this year on the <unk> line was that was $2 million approximately oh, great. Okay.
Thank you.
Thank you.
Ladies and gentlemen, as a reminder, if you do have a question. Please press star then the number one.
Your next question comes from Megan Annette from TD Securities. Please go ahead.
Thank you good morning.
Good morning Megan.
Yeah.
And I just wanted to go back to some of the conversation earlier here I mean, Stuart can you talk to maybe your expectation for unit growth for the mattress industry for 2022 because we have seen industry participants talk to this sort of flat to slightly positive outlook for you. This and maybe that's more so applicable to the.
But how would you view line up there for the Canadian market and maybe you could just generally talk about your comfort in volumes being positive for the industry in 2022.
Yeah, It's a great question, Megan and I'm listening to the same things that you're listening from our peers and our and our U S partners.
If you would've asked me the question a few weeks ago, my outlook would be pretty bullish based on the consumer and their the flushed with cash and low debt levels and still.
Spending lots within at home travel still has not returned.
Share of wallet still seems to be positive.
But I don't even want to speculate over the coming months or a year because I don't know if we have even seen or come close to what the repercussions will be of this Ukraine move or how many times the bank of Canada is going to move on their rate increase so.
I'm, hoping to lean to you guys that they would give us a little bit of insight but.
The consumer has been strong and has been still demonstrating that a bar in the last couple of weeks, where we've seen a little bit of a.
Pause and pauses don't ever concern us because it's a pause it's not a loss its an.
And usually it's a shift within timing so we usually pick up on it as the pandemic demonstrated but more than that on units I don't know.
And just my second question is on capital allocation. So with regards to M&A are there any acquisition criteria you can talk about today in terms of categories geographies and potentially size and if you could also just talk a bit more about the rationale for your investment in sleep outs.
And if we can expect any similar investments from sleep country going forward. Thank you.
Sure and so acquisition is always going to be driven by our relentless focus and discipline around the sleep ecosystem that we're trying to build there.
There's no secret that we still believe there is a long runway in terms of our accessory business.
Especially in the landscape within Canada.
And I will point out there is an interest as hush has a percentage of their business in the United States. So nothing on the horizon at the moment, but that does expand our interest in terms of I'm going pass the borders within Canada, but acquisition will be always with.
In that sleep space.
And we actually think that there's some more opportunities on the horizon as we expand on that sleep out.
Not only not only do we love to invest in great businesses, but we love to invest in great people at a N D. The original team of Raj and Mike and now the President Eylea.
As well as Lee, our and Erin from Hush and and Mark and.
Uh huh.
He was going to say and I apologize Hana from sleep out, we're incredibly impressive and incredibly smart incredibly entrepreneur.
Entrepreneurial it it was in our sleep ecosystem, it's still within the bedroom, which is our key focus and we love, bringing talented people into the fold and you should expect to see that also.
Thank you for all the color.
Thanks Megan.
Yeah.
Thank you.
Your next question comes from Jonathan <unk> from CIBC. Please go ahead.
Thanks, just a couple of follow ups Stuart you've spoken recently about being able to open stores in smaller cities and you've seen some really attractive unit economics on those stores. So I'm wondering in regards to the guide of six new for this year like do you think thats temporary does that contemplate what youre seeing in smaller cities is there.
Potential upside to that over the next few years.
100% John .
I'll tell you what first of all it's a minimum of six stores and if you're hearing any hesitation or pause on the amount of stores.
It has nothing to do with our bullishness in terms of whats of opening more stores in fact, Theres a long list of stores that we're looking at some that are that some leases that are coming due that we're waiting for people to ask it I will tell you we.
We are practicing some fiduciary responsibility right now in the sense that our construction costs over the last four or five months have gone up by 30%, 40%. So there's no rush for us to open up stores in some of our deals we've actually pushed off and delayed a little bit.
In the hope that we're going to see a return to normal prices lumber has already come down dramatically that being said with them with the war in Ukraine and in the and the commodity prices going up of late.
That may persist for a little bit longer but had but you should expect a minimum of six doors plus keep.
Keep in mind also in that number is not we're not talking about our sleep country Express in our dorm Evo Express stores, which is still very early days and we're testing out to see that model and that is also another opportunity of growth for us in our brick and mortar footprint.
Okay. That's helpful. Thanks, and then a follow up on the M&A side.
When it comes to the pipeline of targets how would you describe it versus the past few years in terms of both the number of targets and then on the valuation side or private multiples or the asking prices are they reflecting on what's going on in public markets.
I think there has been as everyone knows is a re rating on the multiples and that they've come down dramatically, including ours at a seven times, which I think is ridiculously low, but that's my own opinion.
But on the private side everybody thinks that they have the best next thing. So people are still slightly bullish within the private space. There's a lot of cash that's floating around in the private equity markets and they're trying to place. It. So there's some competition on that I will say, though whatever we do acquire it will be.
In our sleep App ecosystem, it will come with great people it will come with product innovation that expands on our sleep ecosystem and it will be a profitable model, we have no need to chase anything that's not profitable.
Got it Okay and then one last one if I may the ERP system can you remind us when we should see the impact that and how will how will that play out on the P&L what would be the primary impact.
I'll, let Greg.
Greg speak to the the the financial impact I will tell you that its going.
Slower as many ERP rollouts.
I was going slower than what we had hoped.
We're still piloting.
Piloting in the London region, and working on some new things and there's.
There's no question that Covid and the disruption of people being out of the office and some of our integration partners shifting people around has.
Slowed us down months months behind what we were hoping the longer term benefit of this obviously is to harness our data as.
As we have openly admitted before we're good at lots of things, but harnessing the power of our 27 28 years of data of customers millions of customers across this country has not been our strong suit, which is actually exciting for us because that's an opportunity that we see.
I'll have an untapped and and we're hoping to see by midyear this year.
A lot of a lot more advance in that space, Greg once again, firstly on the financial side. So we have the normalization is down below which those are very much tied to kind of hyper care and support as the different regions rollout. So those ones are identified and adjusted operating EBITDA.
On the actual cost for like licensing and infrastructure and the cost that would be the regular ongoing they are largely baked into the quarterly numbers. So you can I wouldn't expect that youre going to see it very significantly from kind of the.
Our run rate it is but you have to adjust out the one times to get and that'll give you more of a year over year. If you take as a percentage of sales Youll just see a more similar percentage of sales for the kind of I T area once normalized for for some of those costs and the same with the professional fees. If you took those two in a in a bucket so I'd say the cost.
Infrastructure going forwards are largely baked in.
Okay. That's helpful. Thank you very much.
Thank you.
Thank you.
Next question comes from.
<unk> <unk> from.
From RBC capital markets. Please go ahead.
Great. Thanks, and good morning, just a question on just revenue mixture in the quarter. It looks like accessories sales did quite well under likely help margin.
Is that just kind of a standard Q4 pickup with gifts and so forth or did you see some sort of.
Progress in that business that you had been maybe pushing forward through media et cetera, I'm trying to understand how we should think about <unk>.
Directional mix over the course of 'twenty, two and onwards from accessories.
A combination of both of the things. He says about so yes, Q4 is traditionally a higher lift for us on accessories, I mean years ago. When we weren't in this business Q4 wasn't such a strong quarter for us, but it is getting more and more important for us we definitely saw a pull forward I think Martin asked that question.
Earlier on but a pull forward in October and November on our accessory business because that one for sure people were concerned about in terms of gift, giving them and but you should see the normal cadence that you've seen probably over the years third and fourth quarter are clearly becoming more important for us third quarter is always.
The most important that being said on accessories. We do we still believe that we have a low market share within this space hopefully with our acquisition of Hush, we're going to accelerate that but were still somewhere in the 8% to 10%.
And we think that we could grow that are exponentially over the over the next few years.
Okay. Thanks for that color and then I guess, maybe just following up on kind of that second part of the comment there with some of your acquisitions, you've taken a number of an investment position. Some majority some minorities some pull out acquisitions of sleep products.
And I guess are these more to build sort of a like a holistic sleep related offering are you eventually hoping some of these products can be rolled into your sort of sleep country location I'm trying to understand.
The top row. So some of these longer term or do you envision them given that some of them are digitally native maybe they stay.
Operate on a with a separate management team and so forth, what's kind of a long term vision there.
Again, so, but that's probably a combination of a few things that you said first of all the uniqueness of the endy team the Hush team the sleep country enduring me routine we love.
And how they operate their own business, we encourage that and we have no plans of changing the magic that each of these teams bring to their particular brands that being said brands.
Is the important word here Andy has created an amazing brand awareness Hush has created an amazing brand awareness and some of those brands and as you're going to start to see and it has already begun on a wholesale level may be appearing in other retail stores you can see N D at sports check you'll see that.
<unk> laws Hush is in multiple places in the fourth quarter. They were on a hurry Rosen and online marketplace. So.
And for sure longer term you will see.
Some of those products within our stores when the teams think it's the right time to do it that being said it is a digital push and acquisition for us to drive more market share online as our stores are doing really well and have the ability to bring in.
People types of different products too so it's a little bit of both.
Okay, Great and then just kind of along the lines of that comment.
In terms of the ecommerce mix looks like for the full year call. It roughly 25% of sales you know how do you envision that as the world reopens, because obviously the stores have not only just sales, but a bit of a marketing benefit as well how should we think about two or three years out as the world opens up more how do you envision e-commerce penetration.
Over the next few years.
And I think we all would agree that the last two years accelerated e-commerce , a lot quicker than any wanted I imagine the businesses that we're well positioned for it.
<unk> succeeded and those who were not did and that being said it also change the consumer's mindset.
I know for myself I don't know if my wife or I are ever going to go to a grocery store again, because it's quite easy just order it online that being said, what we did see immediately when the stores reopened after some of the closures in 2020 mask and all people quickly came back to the stores specialty.
When it came to premium bedding anything over above $1000.
And so I think when the world normalizes, whatever that new normal is.
Robert I believe we'll see a bit of a pullback in e-commerce , but I think only temporarily I think the longer term trend as you well know is going to continue.
With the ease of the transaction, but the omnichannel component of it is key.
In 2017 2018, when all of the bed in a box guys were popping up and everybody thought it was going to disrupt the industry, especially the brick and mortars.
I think what everyone has now discovered that the ability to test and begin the transaction online maybe on your phone go to one of our stores in test one of the models and may be can conclude the transaction.
Car for us, it's a seamless experience it has to be a seamless experience for the customer. So they can transact whenever and however, they want with the store without the store, but I think that will I think you'll see the differentiating leaders in retail have that omnichannel ability.
More than those who are just the D to C play.
Okay, and if I could just squeeze in one last one maybe more for Craig I think you talked about Theres. Some ERP implementation costs embedded in SG&A, which will be ongoing I guess can you give us some guidance on this amount that maybe the onetime portion of it that it's getting back to it looks like we did about $5 million in 'twenty. One is there more of this onetime portion of it.
We would expect over the next year as you roll this out.
Yes, there will be there will be each quarter.
Some amounts that will be that will be backed out but will those are ones that are tied to system redundancies were all running two systems and that's quite quite low amount of it most of it is just with.
Our support onsite as they're rolling out or working through hyper care every time you roll a different region. There is a period of hyper care that they have to go through and we just normalize those because those aren't part of the operating model going forward, but we'll just we'll continue to be clear on those per per quarter going forward. Just so you can normalize it on your side.
Thanks very much.
Thank you.
And your last question comes from Seaton Mcquade from BMO capital markets. Please go ahead.
Thanks, I just had one follow up question.
Just wanted to ask you about this new country Express stores that you have them in the Walmart partnership.
I know that launched in the fall. So I'm just curious if you can give a little bit of color on sort of how that's performing and maybe any plans to expand that relationship.
Sure. So the last one so we said that we're going to start with the 10 pilot stores.
And you know us by now Stephen We'd love to test test test.
And measure and make sure that we execute flawlessly. So it's still very early days for US. We've always said that we'll probably make a decision in terms of the next leg by mid year. So are.
You should probably figure.
And by June maybe there'll be some color around it in may as we gather some data thus.
That's far we're quite.
Quite pleased with what we're seeing there is a component of the business that's transacting in store and Theres a component of the business that is a drive to our bigger stores.
And I will say that we are quite pleased that being said these last two weeks.
Walmart.
Our sleep country Express stores in our Walmart have slowed down a little bit again, I don't know if that's a consumer confidence and it probably marries back on in terms of our lower end, but.
We are really excited about what this could be.
Great. Thank you.
Pleasure.
Thank you.
And there are no further questions at this time you may Please proceed.
Well.
I just wanted to say thank everybody for your support as always is this wraps up our conversation and we look forward to speaking to you and updating and you folks throughout the year and have a great weekend everybody.
Ladies and gentlemen, this concludes your conference call for today, we look forward to keep you updated throughout the year. Thank you for joining us and sleep lab.