Q1 2022 Purple Innovation Inc Earnings Call
Good afternoon, ladies and gentlemen, welcome to the Purple innovation first quarter 2022 earnings conference call. At this time, all participants are in a listen only mode.
Question and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad. It is now my pleasure to introduce your host Cody Mcallister of ICR. Please go ahead.
Thank you for joining purple innovations first quarter 2022 earnings call a copy of our earnings press release is available on the Investor Relations section of Purples website at Www Dot purple Dot com.
I would like to remind you that certain statements. We will make in this presentation are forward looking statements. These forward looking statements reflect purple innovations judgment.
Alex it's only as of today and actual results may differ materially from current expectations based on a number of factors affecting the company's business. Accordingly, you should not place undue reliance on these forward looking statements for a more thorough discussion of the risks and uncertainties associated with the forward looking statements to be made in this conference call and webcast.
We refer you to the disclaimer regarding forward looking statements included in our first quarter 2022 earnings release, which was furnished to the SEC today on form 8-K, as well as our filings with the SEC referenced in that disclaimer, we do not undertake any obligation to update or alter any forward looking statements, whether as a result of new information future.
Events or otherwise.
Today's presentation will include reference to non-GAAP financial measures such as EBITDA adjusted EBITDA adjusted net income and adjusted earnings per share a reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures is available within the earnings release, which can be found on our website.
With that I'll turn the call over to Rob D Martini Purple innovations Chief Executive Officer.
Thank you Tony and thank you and good afternoon, everyone with me on the call today has been at Nussbaum purpose Chief Financial Officer.
Our first quarter performance reflects the early progress of our initiatives to return the company to profitable growth.
While the business environment continues to be challenging and there is still much work to be done. Our overall results came in better than we guided.
And then it will review the numbers in detail shortly but from a high level sales exceeded guidance this quarter, driven primarily by higher wholesale volumes.
With respect to our direct to consumer channel showrooms continue to perform well and were mostly in line with the forecast.
However, this was offset by softer post pandemic e-commerce trends that deteriorated more than anticipated as the quarter progressed.
Our ecommerce results are still above 2019 pre pandemic levels.
As I said on our last earnings call one of the key areas of focus is elevating our brand through more effective marketing, which includes winning the company off its dependency on expensive and inefficient performance marketing.
We did exactly that.
First quarter pulling back on pay per click spending.
This tactic negatively impacted purple site traffic it contributed to adjusted EBITDA coming in close to $10 million better than we got it.
We're encouraged by the elements of our first quarter performance and are still in the very early stages of rebuilding the framework for strong consistent operational results.
While we continue to expect positive progress quarter over quarter. In 2022, we are adopting a more conservative view for the remainder of the year.
We're adjusting our full year revenue guidance to $650 million to $690 million and adjusted EBITDA to 21% to $27 million.
Like much of the industry, we're facing new post pandemic headwinds that have developed in recent months.
<unk> a shift in consumer behavior from online to in store and an overall declining focus on homegoods as consumers shift their spending back towards experiences and travel.
We see these trends is a rationalization of a category that was strengthened by quarantine and work from home dynamics over the last two years.
Outside of those industry headwinds, we have our own internal challenges and we're still working through.
Now that I've been here, an additional 60 days I have a clear understanding of our company's capabilities and where we need more strength.
As such rebuilding this company may take a few extra quarters than I had originally anticipated, which is why we're bringing the revenue guidance down.
April we completed a restructuring further reducing our head count.
It was a difficult decision to make but we have the costs. We've made the cost cuts to match our current revenue outlook and we will build up from here.
I do believe the company has turned the corner and the way we're thinking about it internally is new team new plan New day.
Despite these challenges we have to navigate the foundation of the company and the brand are solid and I'm more excited about the future of purple than I ever have been.
I want to emphasize we remain confident that our four strategic initiatives operational excellence brand elevation.
Developing our three channels and accelerating innovation that were outlined on our last call in March form the foundation of the right plan to get the company back to consistent profitable growth.
We've already seen some of the benefits of our plan manifest early in the year and expect these will compound as the year unfolds, albeit at a slightly more modest pace than we initially projected.
With hard work and smart choices, we can build on our position as a leader in the premium mattress category and create tremendous value for our stakeholders.
I'll now turn it over to Beth who will review the financials in more detail after which I'll provide an update on our strategic initiatives ahead of a question and answer session.
Got it.
Thank you Raul.
For the three months ended March 31, 2022, net revenue was $143 2 million down 23, 2% compared to the $196 $4 million in the prior year period.
This decrease was primarily due to the challenging year over year comparison.
We ended by the pull forward of demand driven by the effects of Covid at record economic stimulus in the first quarter of 2021, coupled with the pullback in discretionary consumer spending in early 2022.
Paired with our previously provided guidance revenue was ahead by approximately $13 million at the midpoint of the range as wholesale sell in it was stronger than anticipated.
By channel versus prior year wholesale net revenue declined six 3% and direct to consumer net revenues declined 31, 5%.
With DTC.
Within DTC E Commerce declines of 36, 38, 6% were primarily offset by a 138, 2% increase in showroom net revenue driven largely by the opening of 25, new showrooms over the past 12 months.
Gross profit dollars were $51 $6 billion during the first quarter of 2022 compared to $87 $5 million. During the same period last year with gross margin at 36, 1% versus 46, 9% in the first quarter of 2021.
The decrease in gross margin from the prior year can be attributed primarily to higher material labor and freight costs and a higher proportion of wholesale channel revenue, which carries a lower gross margin than revenue from the DTC channel.
Wholesale net revenues comprised approximately 40% of net revenue for the quarter compared with approximately 33% in the same quarter last year.
Operating expenses were 48, 9% of net revenue in the first quarter of 2022.
She was 37, 9% in the prior year period.
The increase in operating expenses as a percent of net revenue compared with prior year period was driven primarily by lower net revenues coupled with an increase in showroom related operating expenses associated with continued showroom expansion and an increase in ongoing infrastructure development costs.
These increases were partially offset by a reduction in marketing and sales expenses due to a pullback in paid search advertising and other efficiency gains.
Net loss for the quarter was $13 6 million compared to net income of $29 million a year ago.
As previously disclosed based on these based on the SEC statement dated April 12, 2021 regarding warrants issued by specs, we determined that our outstanding warrants should be accounted for as liabilities and recorded at fair value at the date of the transaction and subsequently re measured the fair.
Value at each reporting date.
For the three months ended March 31, 2022, we recognized a noncash gain of $3 9 million associated with the change in fair value fair value of warrant liabilities.
For the three months ended March 31, 2021, the company recognized a noncash gain of $9 $1 million associated with the change in the fair value of warrant liabilities.
On an adjusted basis net loss in the first quarter of 2022 was $16 $5 million.
Or a negative 21 four cents per diluted share based on an adjusted weighted share diluted share count.
67, 5 million compared to adjusted net income of $12.0 million or <unk> 17 per diluted share based on an adjusted weighted average diluted share count of $68 6 billion in the prior year period adjusted net income has been.
Adjusted to reflect an estimated effective income tax rate of 14, 9% for the current year period compared to $26 four for 2021.
EBITDA for the quarter was negative $10 $6 million compared to positive $27.8 million in the first quarter of 2021.
Adjusted EBIDTA, which excludes certain noncash and other items, we do not considered in the evaluation of our ongoing performance and as detailed in today's earnings release was negative $9 $6 million.
This compares to our guidance for adjusted EBITA in the range of negative 26% to $20 million.
Primarily as higher than expected revenues and lower marketing expenses resulted in a better than expected bottom line performance.
Moving to our balance sheet as of March 31, 2022, the company had cash and cash equivalents of $62 $7 million compared with $91 $6 million at December 31, 2021.
The decrease was driven primarily by cash used in operations of $44 $3 million capital expenditures of $12 $6 million, primarily related to showroom expansion the repayment of the full $55 million million dollars outstanding on our revolver credit.
City.
Five eight.
$8 million tax receivable agreement payment and a $2 $5 million prepayment on our term debt.
These uses of cash were offset by net proceeds of $92 $9 million million dollars received from the secondary offering of $16 1 million shares we completed in March of 2022.
In addition to the $62 $7 million in cash at the end of the first quarter. We also have the full 55 billion dollar amount available under our credit facility and we believe our cash is adequate through the balance of the year.
Inventories at March 31, 2020 to $105 8 million.
An increase of seven 2%.
Compared with the $98 $7 million at December 31.
2021.
The increase in inventories since the end of 2021 was driven.
By higher non mattress finished goods related to longer lead time sourcing.
These products from Asia.
Partially offset by a reduction in mattress inventories.
Turning now to our current outlook, while our first quarter performance exceeded guidance recent industry trends and the strengthening of certain macroeconomic headwinds have caused us to take a more conservative view on the rest of 2022.
We now expect net revenue to be in the range of $650 million to $690 million compared to our prior range of 790.
$830 million with the change primarily reflecting a reduction in e-commerce volumes as we now better understand the after effects of Covid <unk> impact on the industry.
With the reduction in the proportion of higher margin E Commerce revenue, partially offset by gains for manufacturing and supply chain efficiencies. We now expect to exit the year with gross margins close to 40%.
In terms of profitability, we now expect adjusted EBITDA to between to be between 21 and $27 million compared to our prior guidance of $26 million to $33 million.
We were able to offset the majority of the reduction in revenue and slightly lower forecasted gross margins through expense savings, including the reduction in personnel, we've already completed at additional actions, including eliminating less efficient ad spending.
I'll turn it back to Rob Rob.
Thank you Beth it as I mentioned on my first earnings call upon joining purple I saw many positive attributes of the business that excited me about the company's future.
An additional 60 days on the job has only increased my enthusiasm about where we're headed our differentiated innovative product built with proprietary technologies backed by a challenger brand position and a motivated workforce has the potential to be a true disruptor in the sleep and premium wellness space.
<unk>.
The bad and the good news is that to date, our stumbles have been largely self inflicted a.
I misread on the sustainability of Covid, driven DTC demand, leading to an overbuilding of production capacity Underinvestment in wholesale partnership alignment sale marketing and Underinvestment in innovation have hindered our ability to properly execute the past few quarters.
But all of these challenges are within our control.
While the current operating environment has proved to be more challenging, especially for our ecommerce channel and a slowing the place of our the pace of our recovery I am very confident that our four strategic initiatives. We outlined last quarter are the fundamental building blocks for our path back to our long range revenue and profitability.
Lan.
I want to close today with an update on our progress against these four strategic priorities.
The first priority is operational excellence, which will allow more effective and efficient capacity utilization delivering higher product quality and enhanced returns on the capacity investments we've made.
In 2021, we overbuilt across much of the company in both head count and operational capacity.
To address head count, we made the right and difficult decision to reduce our labor force in February and again in early April .
We were mindful to retain personnel in all critical roles and I am confident that the work that needs to be done will be accomplished more effectively with our new staffing levels.
We intend to manage our labor force based on better visibility into our near term growth potential.
In terms of the capacity of the company invested in opening a second plant last year, providing the opportunity to double our production over time.
While the need for increased production in the near term Hasnt materialized, we have found ways to utilize on our western and eastern based facilities.
The offset higher shipping cost by balancing our manufacturing across the two plants.
We expect the reduction in cross country shipments this year will help to partially offset the underutilized overhead in our Georgia facility until we require additional production from each location.
It's been well documented in the industry that input costs have been rising and progressively pressuring margins over the past several quarters in.
In response, the company took a round of pricing actions across the product portfolio in August and another round in January .
We're also taking additional measures to help return margins to prior levels, including lowering raw material costs by negotiating better prices with key suppliers designing designing to value and ensuring that every investment we make in our product is valued by our consumers.
Looking forward I'm excited to welcome Eric Haner, who is joining our team next month as Chief operating Chief operating officer.
Eric has vast experience running supply chain operations that eco labs, and as stated in our press release announcing his appointment we're very confident in eric's abilities to help us mature our operational activities and unlock the underlying value of the organization he'll play a key role in our long range profitability plan.
Our second area of focus is brand elevation through better marketing. Our goal is to build a winning brand position that can deliver 20% market shares of the premium mattress category.
Our first our first step towards that goal is to refine our promotional strategy.
In order to better reflect the premium nature of our product and restore brand equity we're refining our approach to promotional activity going forward.
While this may hampered demand in the short run it's good for the brand long term and I am convinced there will be an effective strategy.
During Q1, we restructured the marketing organization to better support and enable the changes to our overall marketing approach, we're moving away from in house agencies, and instead partnering with a select few highly experienced outside agencies.
We anticipating launching fresh new creative in Q2 that will be more effective to what we're currently running.
The third focus area is developing and expanding our channels digital has always been a strength for purple and Covid certainly accelerated demand in our strongest channel E Commerce, where we're a clear leader.
While we were right to take advantage of the changing landscape and capture that swell of demand as consumer behavior has normalized mattress buying has shifted back towards an in store experience.
Approximately 80% of online shoppers say they want to lay on a mattress before by making physical retail critical to the consumer's path to purchase.
Our showrooms are a terrific nicely profitable concept for showcasing our full product line with consistent premium presentation, while simultaneously, creating a north star for our wholesale partners to look to for elevating our brand within their stores.
We started 2022 with 28 showrooms and opened six in quarter, one with plans to add 22 more showrooms over the remainder of this year.
The stores, we've opened over the last two years are performing in line with our target and you get the unit economics of $2 million in annual sales.
With about an 18 month payback on roughly $700000 initial capital investment.
We're very excited about this emerging growth vehicle for the company and we see a clear path to a store footprint of 200 over time.
Wholesales, the second and larger component of our brick and mortar retail strategy.
<unk> showrooms wholesale is still a young channel for our company.
And relatively in a relatively short amount of time purple has built an enviable network of premium wholesale partners at.
At the end of Q1, we sell through approximately 3100 wholesale doors, having added over 600 net new doors since the start of the year.
While we plan to selectively open additional doors going forward, our priority is improving productivity for our existing doors to grow market share and enhance the profitability of this channel for us and our partners.
I am very familiar with brand building via brick and mortar how to operate and how to succeed in selling through these channels. So we have identified a few key areas to retool to make our wholesale strategy much more effective.
First we have to make ourselves attractive to our wholesale partners to sell not just attractive to stock in order to drive foot traffic.
We're focused on improving wholesale or incentives and making our margins acceptably accretive to our partners.
We believe we can do this without negatively impacting wholesale margins as we increase operating efficiencies across the company.
Secondly, we need to respect our partners timelines as a company rooted in DC DTC, we've had a habit of running promotions and delivering product on our own timelines without regard to how our wholesale partners operate.
Going for forward, we'll work with our partners to meet established timelines to make sure we're working together to drive more demand for purple.
Lastly, we need to work with our partners on product development true Omnichannel brands work with their wholesale partners to develop mutually accretive product the <unk>.
Simultaneously drives traffic and margins.
Going forward, we expect to develop these synergistic approaches to wholesale products with our partners.
Our fourth area of focus is accelerating product innovation.
<unk> was built on innovation and intellectual property that drive products, which improve our consumers' comfort and sleep.
As we've grown as a company over the last handful of years, we've lost sight of what makes <unk> unique.
To that end, we hired our first chief innovation officer this quarter.
Jeff Hutchins had been with us a little more than a week and I've been impressed with his ability to hit the ground running.
He brings more than a decade of experience in strategic business leadership in innovation research and development, new product introduction and quality assurance.
His immediate priorities include bringing structure to the new product development process currently in place.
It just previous company <unk> operated on an accelerated timeline of new product introductions, sometimes several in a single year.
We are excited.
We're excited for the pacing and process that he brings with him.
Additionally, Jeff is focusing on rationalizing our current product line in a way that best supports our efforts to develop all three business channels.
Longer term, we continue to have a strong IP portfolio and have the potential to bring exciting innovative products to market in our current categories and eventually expand to adjacent wellness categories.
To get there, we're focusing on strengthening our R&D disciplines and our go to market process.
While we've deferred new product launches in 2022, there are some next generation products in our pipeline that I am excited for the company to bring to market in the next 12 to 18 months.
Let me close by thanking our employees for their hard work and dedication that is moving the company into a position to successfully capitalize on the many long term opportunities that lie ahead.
Despite the near term challenges I remain excited about the future of purple I am.
I'm confident that our continued work on strategic priorities will position the company for solid profitable growth starting in the second half of the year.
Thank you for your continued interest in purple innovation, and Cody, we'll hand, it back and start to take some questions.
Thank you if you'd like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to retry equipment.
Again press Star one to ask a question we.
We will take our first question is from the line of Seth Basham with.
Bush Securities. Please go ahead. Your line is now open.
Okay.
Rod, it's Seth Basham on whether that's a couple of quick questions for you first just thinking about the development in the wholesale channel Rob you talked about making sure that you have.
Peering product on pricing and incentive structure for your wholesale partners can you give us a little bit more color on how you think that might change beyond what you already announced late last year your new agreement with one of your largest partners.
Yes, Thank you what I have seen because.
Because of the way our wholesale business mature, there's significant cost that happens between us and our customers.
So we can enhance their margins and ours by being more efficient our logistics effort, our communication effort. Our merchandising efforts have all been development without much.
Quite frankly without much deep understanding of how they operate and in many ways it cost our customers' money so they either.
Have to absorb that in a constrained margin for them or they keep us out of merchandising because it's not profitable Forum I've had these discussions with really most or all of our larger customers and we've agreed that by working better together, we can create a win win from a margin standpoint for both of us and they will.
Feel more comfortable about growing our business.
Fair enough as you look to the future and you see that pendulum swinging back to bricks and mortar retail what do you expect here.
Sales revenue mix to be at year end, 'twenty, two and 2023 and beyond.
Yeah. The current numbers I mean, I think it will be about 55% DTC 45% of wholesale.
2000, 2022 will be above 2019 on an e-commerce basis, but the amplification that we've seen over the last.
Really since Q2 of 'twenty I don't think we're going to see that that percentage distribution return anytime soon.
Okay last one I'll turn it over just thinking about that.
The differential between the two channels DTC versus wholesale where is it now relative to history and you expect it to widen or narrow over time.
I mean, there is there is about <unk>.
Four point gross in two and a half point net difference roughly.
I think we can maintain that and if we can work.
Better with our customers, we obviously can take some cost out and enhance both of it but there's no question. It's a more.
It's the revenue side of the gross margin that makes it challenging.
Understood. Thank you very much.
Okay.
We'll take our next question from the line of Brad Thomas with Keybanc Capital markets. Please go ahead. Your line is open.
Hi, good afternoon, thanks for all the details here.
Just to follow up on some of the guidance commentary that you provided.
So just as we're thinking about <unk> and getting sequentially better.
What would that mean basically at the rate of decline and improves from here until you get as.
As you go through the year on.
On revenue and similarly, maybe that the rate of headwinds on margins get better is that the way to interpret it and any more color on how to think about <unk> specifically.
Okay.
I mean, just take Q1 results if you straight line that out that says there is about.
75 ish million dollars of growth to get to the middle of that range that we gave you it will be quarter on quarter strengthening that happens.
And we do believe that.
The.
Abuse by channel is about what I had said earlier about $55 45 DTC.
DTC to wholesale.
Not sure Brad if that answered your question or not but follow up if it didn't.
Yes.
That's very helpful.
Then just as we think about some of the cash needs of the company, obviously a year ago. It was under inventoried and can you just talk a little bit about.
How you feel about your inventory levels today, and any potential changes in working capital in the quarters ahead that we should anticipate.
Yes. This is bennett.
I would say that our cash position is very good after a 93 million dollar stock offering.
So we feel like we're in good shape as I said in the script.
We've got about $63 million in cash right now and our full $55 million drawn on our revolver.
For the balance of the year.
I think our inventories will be flat to slightly down I think as our wholesale business grows our receivables will in minutes of use of cash.
And so I would see our cash declining a little bit.
Over the next quarter and then starting to grow again.
Our volume grows and our EBITDA grows which is very consistent with what he said it.
At the last call, which is that our cash will track our EBITDA.
Growth.
So we feel like we're in very good shape on cash and liquidity right now as a whole.
Okay, great great.
And the last one for me.
The.
Purple stores seem to really be doing well and I think are important indicator of the health of the brand and the interest in the product.
Recognizing that yet.
Long lead time to lead times to sign leases, especially where you want the store how should we think about you all signing more leases for 2023, and what that store pipeline looks like for you.
Brad debate. So we've got six Bill six opened in Q1 'twenty to balance of the year that annual pace is probably.
Pretty accurate for where we'd be in the year ahead.
And right now what we're finding is that there are we're having good luck with landlords defining very good locations and they like our stores in their portfolio and we expect that to be able to continue.
At least through 'twenty, three and maybe.
Probably beyond that but certainly through 'twenty three.
Great. Thank you so much.
We will take our next question from the line of Bobby Griffin with Raymond James. Please go ahead. Your line is now open.
Good evening.
On for Bobby Griffin. Thank you for taking our questions first I just wanted to dive a little bit further into the gross margin impact for the year.
Can you walk us through the building blocks to get to the 40% range versus 36%.
Okay.
I can't I am sorry, I missed your first name say it again please.
Just a minute.
Gain from on for Bobby.
Because of the actions we've taken in the first quarter our cost structure.
Is fully enabled to reach there it really is volume growth.
Got it.
Sure.
So that again I missed that.
Yes.
Then it was reminding me that our pricing was not fully reflected in Q1 and now it is going forward. So the combination of pricing.
Being reflected in the quarters and revenue growth is what drives that margin improvement.
Okay. That's helpful and then on your steps to right size.
Shrink footprint what else needs to be completed.
The head count and Ricardo.
The two different manufacturing plants what else.
In the coming months, you start to implement to really drive margin there.
I think at this point the again the work has been done at really as throughput and ensuring that we're doing that as efficiently as we can I will say the team. We have has been working very hard on this and when Eric Haner comes in he's got a lot of lean.
Manufacturing experience that we expect will.
<unk> help us accelerate that trend.
Okay. That's very helpful and then lastly.
For me have you heard anything from your wholesale partners on the recent price increases and then do you plan any more price increases to date or are you fairly battle.
Uh huh.
If I take that backwards, we feel like we're in pretty good shape for what we know today for the balance of the year on pricing.
As I talk to our customers I mean.
Certainly the retail environment right now is pretty challenging and they've all referenced that but we did see the price increase.
In February meet some resistance from the consumer that has been coming back over the last six to 10 weeks. So we feel like we're at a pretty decent place there don't have to take any additional up pricing and we will not need to take any kind of.
<unk>.
Rescission of any of that pricing going down so we feel like we're in a pretty good place right now.
Thank you so much and best of luck in the balance of the year.
We will take our next question from the line of Tony <unk> with UBS. Please go ahead. Your line is now open.
Good evening. This is lance <unk> from UBS. Thanks, a lot for taking my questions.
So your guidance implies.
A modest revenue decline over the rest of the guarantees cumulatively from second to the fourth quarter and also a deceleration on the three year CAGR.
So what have you assumed with respect to the macro and this guidance does the guidance assume macro stays where it is or does it just does it assume an improvement later in the year.
We definitely are planning for quarter on quarter revenue improvement.
In Qs two through four going forward.
I believe.
By the time, we get to the and we will be lapping Q4, a year ago.
Chris.
Okay and then.
I guess with respect to.
Consumer spending in the macro view, you're assuming pretty much status quo.
Well I guess, if I knew the answer to that one I would probably be on the other end of this but we certainly think that the environment is tough but.
We feel like we're fairly well positioned for what we're facing right now.
Got it and can you provide any any color on quarter to date trends like half of the year over year declines moderated thus far in the second quarter and the first quarter.
Yeah.
Or two does get a little bit stronger. So we think we saw the worst of it in Q1.
Okay got it that's helpful and good luck with the rest of the year.
Thank you tore.
We'll take our next question is from the line of Keith Hughes with Jefferies. Please go ahead. Your line is now open.
Thank you.
You had talked in the prepared statement about second quarter industry can be created coming out using third party.
To do that.
Could you talk about what kind of consumer or are you going to be going after with a new creative how is it going to be here.
Keith certainly so I think this is part of.
How our current marketing got a little stale as that our price points have moved up pretty sharply over the last four or five six quarters and I don't think our marketing is matured with them. So we will move.
Not dramatically, but more premium and more female in our targeting and our messaging than where the brand has been in its history.
And for what it's worth that is also the shape of this category.
Has naturally and we were just a bit.
More narrowly focused that male and young.
Lower priced products.
Will it be more so.
So older consumers.
Shifting focus.
Certainly we're not speaking it to be older I think by definition, they probably will skew a little bit older, but we're really talking about trying to leverage the innovation and the differentiation that it.
Purple brings to the category and what I hear from our customers and our consumers as they they like us as a challenger brand. We just have to stay fresh and I think thats something that we lost our way a little bit.
Okay final question.
You talked about sequential progress in the second quarter do you think youll be able to register a positive EBITDA number in the second quarter.
I mean, we definitely think each quarter gets better and we beat the first quarter. So we'll let that unfold, but the revenue holds up we're feeling good about the direction.
Okay.
Yeah.
We'll take our next question from the line of Matt Koranda with Roth Capital. Please go ahead. Your line is now open.
Hey, guys. Thanks.
Just along the lines of some of the pricing questions that <unk> gotten a little bit of a different angle here. Just wondering if you could speak to maybe the assumptions around the promotional environment that you are assuming for the rest of the year.
I know Rob I think you mentioned you don't expect to take additional price, but also likely don't expect to get back price, but just how does that fit into the context of sort of promotional holiday what do you expect for the year.
Matt one of the things that we're learning as part of that Omnichannel maturity that I referenced both last call on this call.
As a as a DTC brand, we could we can pretty much do whatever we want whenever we want with any lead time as it related to promotional activity and we got into that habit of.
Two frequent and not meaningful enough promotion. So this category does have some clear kind of event based seasonality that we had not participated in much. So we're really leaning towards fewer and stronger and better promotions.
That does a couple of things that puts us in the market when the consumers in the market, but it also tries to put some integrity back into the or the MSRP is in the category for us so.
We've been doing that for a couple of weeks is actually a little bit more than a few weeks and so far so good it seems to be working we've still got quite a bit of work left to do to.
To make sure that that our promotion plan is resonating with consumers who are in the market for mattress to sleep products.
Okay very helpful.
And then just on the.
April restructure I wondered if you could maybe just quantify some of the fixed costs that you are a bit from that business.
And then just on a go forward basis, maybe if you could tie that to what we should expect for sort of core G&A and sales and marketing.
Marketing spend that you have would be super helpful.
So the April then was about a $15 million impact on overhead which is similar in size to what we did in January .
And I think I think the important message that I'm trying to make is that our costs, we can make money with the current cost structure.
And we went and ensured that that was in the actions we took because it is a.
And unclear environment ahead from a revenue standpoint, just in the whole marketplace. We wanted to be ready. So we went all the way down to kind of the most conservative view of revenue and said can we make money at these prices with this overhead even with the additional capacity that we have that by definition is going to be underutilized for a while.
So they've been fairly significant.
And not easy to do I don't want to be Cavalier about that at all but they were required and we think from here we can build.
Up in forward as the volume grows.
Great and if I could just sneak one more in on the store expansion strategy here for the next year or two.
You've got a lot going on in terms of the turnaround manufacturing wise.
Yes.
Bearing or improving some of the relationships on the wholesale side.
Fixing some of the marketing issues on the DTC side, there is quite a there's a long list of stuff to do here.
And you've got a healthy cash pile at this point, but just given some of the demand erosion that you've experienced in the whole category has I guess why continue to lean into the one store strategy and the build out there in the near term.
Just given the uncertainties in the long laundry list.
Good afternoon.
No. It's a good question, Matt for sure, but I mean really two things number one.
They are working on it.
Just that simple they are working they are we think we can grow the the four wall.
Revenue from the current plan, but they are working even through these difficult times, but the second is as we grow wholesale that was $3 3000 ish doors, they need to be able to see what this brand looks like.
And they have their own priorities to run and I don't expect them to mimic it all what happens in our store, but it does it does put a northstar out there and this was very similar to the last industry I was in where.
High Street stores in that in that.
Industry is what we call them, but the difference was those didn't make any money.
But they did help you define what the brand should look like and in our case.
They are good investments they are profitable investments and they help those 3000 stores.
Understand what this brand should and can look like at retail. So the combination of those two is why we've continued to do it.
Alright, perfect I'll jump back to you. Thank you.
Thank you Matt.
Okay.
We will take our final question from the line of correct Nagle with Bank of America. Please go ahead. Your line is now open.
Hi, good afternoon, thanks for taking the question.
Just a quick one on the gross margin guidance so.
Getting to I think around 40% by the end of the year I think previously that was.
Getting to mid Forty's.
What's the biggest difference primarily lower expectations.
Our DTC sales or is there anything else, we should be factoring in there.
No I think Kurt it's two things it's lower revenue.
Obviously, adjusted the cost, but but it was a meaningful adjustment and then it is a bit of the channel mix is wholesale.
<unk> plays a larger role in the volume going forward.
Got it Okay, and then maybe just a quick follow up on pricing. So it sounds like everything is pretty well set.
What changes need to be made.
If I remember from the last call. It sounded like you guys were getting a little bit of pushback.
Okay.
The entry level.
Price points.
There has that dissipated.
Yes.
Any updates on that.
No it's still consistent.
There is some concern that we've left some volume on the table by moving away from kind of one of the important price points that purple used to play out with.
With the new Chief Innovation Officer, I've got I'm looking at both the top end and the bottom end to figure out where opportunity is.
But that certainly is.
One of the contributors to some of the volume challenges.
Got it okay. Thanks for taking my questions.
Thanks Kurt.
This concludes today's call. Thank you for your participation you may now disconnect.
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