Q2 2022 Sleep Country Canada Holdings Inc Earnings Call

No me.

Good morning ladies and gentlemen. I would like a welcome you to sleep countries Q2 2022 results conference call.

Yesterday, Sleep Country released their financial results for the second quarter of 2022.

A copy of the earnings disclosure is available on their Investor Relations 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 to turn the call over to Stuart Chaffer, President and Chief Executive Officer and Craig DiProtto, Chief Financial Officer. Please go ahead, gentlemen.

Thank you, Michelle, and good morning, everyone. And thank you for joining us. I hope that you're all keeping well in this beautiful summer day with me today is Craig DePradore, our CFO . We are very pleased to share the results of another successful quarter and our strongest Q2 in our company's history. We continue to deliver on our multi-year strategic plan and build on our growth and momentum to reinforce our leading position as Canada Sleep Partner.

We achieved once again, impressive growth across all the key metrics of our business, revenue increased by 18.4%, net income grew by 33.2%, and operating EBITDA increased by 21.8%, reinforcing the strengths of our business.

Our record performance in Q2 was driven by our powerful sleep ecosystem and our relentless pursuit to create a frictionless customer experience across all our expanded channels. Our goal is to provide our customers a channel-agnostic shopping journey, allowing them to shop for our innovative products how, where, and when they want to.

This quarter we grew our physical retail network with another store opening in Stittsville, Ontario as we continue to see customers choosing to return to our bricks and mortar, giving our customers even more opportunities to discover, learn, try, and purchase our sleep products with the help of our trusted sleep experts.

This brings our retail store network to 287 locations as of June 30th.

In the month ahead, we will continue to expand our footprint and look forward to sharing our new store design with further enhanced customer experience.

In these turbulent and uncertain times, we remain positive and focus on delivering on our long-term strategic plan, growing our shareholder value while looking for opportunities that will continue to drive our growth agenda.

Our e-commerce sales represented 18.1% of our total revenues, reinforcing the importance of creating a seamless customer experience across all our digital channels along with our best in class online marketplace partnerships with Best Buy, Walmart, and LawBloz.

We continue to be driven by our vision and purpose to champion sleep as an essential pillar of physical, mental, and emotional wellbeing and provide our customers with a world-class experience.

This quarter, we partnered with Helio Sleep Clinics, who helped us launch our very own interactive Sleep Country branded sleep app, all for sleep, to empower Canadians to get the sleep they need to function at their best.

Introduced earlier this month, this new app gives users evidence-based sleep solutions and the tools to create their own personalized sleep programs with leading edge support as well as access to our sleep experts, special promotions and offers.

As we continue our digital transformation, All4Sleep establishes an incredible foundation that connects our ecosystem and takes our sleep expertise and customer experience to a whole new level with new opportunities for us to communicate with our customers and monetize their sleep solutions.

If you haven't downloaded it yet, please do and join us on our journey.

We are also proud to release our very first ESG report early this month highlighting our commitment to being a purpose driven, sustainable business focus on helping people enhance their overall health and well-being, driving positive social change and protecting the planet.

Our purpose of transforming lives by awakening names to the power of sleep has never been more important. It has a transformative impact on people's lives and underpins the four pillars of our ESG strategy. And underpins the four pillars of our ESG strategy.

sleep well, people well, earth well, and govern well. While this is our first ESG report, the underpinnings of our ESG strategy has been in place for decades and reflects our beliefs and our team's beliefs and what differentiates us as the leading sleep Canadian partner.

We are incredibly pleased with our accomplishments across our business. The enhancements we've made to our customers experience, product and channel innovations are recycling and donation programs, are worked towards creating an equitable, diverse and inclusive work environment, and our ongoing commitment to transparency, governing responsibly and ethically.

Our results demonstrate the strength of our diversified investments in our portfolio of leading products and brands, digital and physical channels, and our distribution network that has positioned us well to adapt to the ongoing economic conditions, supply chain issues, and challenges in consumer confidence.

Going forward, we will continue to be guided by our purpose and commitment to driving growth, expanding our multiple distribution channels, innovative product line-up and delivering the best retail sleep experience for our customers.

Thank you to our sleep country, Dormé vou, Andy and Hush team, and all our partners for their incredible contributions throughout the quarter and continue to commitment to deliver for customers.

With that, I will now turn the conversation over to Craig to discuss our financial results.

Thank you Stewart, and good morning everyone. As Stewart noted earlier in the call, we are extremely pleased with our Q2 2022 results.

We saw an increase in our revenues of 35.4 million, or 18.4% from 192.2 million in Q2 2021, and 227.6 million in Q2 2022.

The increase in revenues was mainly driven by a 15.1% increase in our same store sales, and the incremental revenue earned from the Hush acquisition in Q4 last year.

We generated 18.1% of our revenues through ecommerce channels during the quarter.

Our gross profit margin increased by 140 basis points from 34.5% in Q2 2021 to 35.9% in Q2 2022. This increase was mainly a result of our strategic price increases that began in Q2 2021 and continued into Q1 of this year. A reminder to the market that our Q3 and Q4 results this year will be lapping over prior periods where a portion of price increases were already executed.

In addition to our higher AUSP, we experienced higher terms discounts and leveraging on our occupancy and depreciation expenses. These margin efficiencies were partially offset by higher product and transportation costs.

In addition, sales bonuses and commission costs due to the shift in revenues earned from our ecommerce platforms to our retail stores.

Finally, as we continue to navigate through the prolonged global supply chain challenges, specifically the freight cost on containers, we expect continued pressure in this area on the back half of the year. on the back half of the year.

Total G&A expenses increased by $6.6 million or 17.1% to $39.1 million in Q2 2021 to $45.7 million in Q2 2022.

The change was mainly due to an impact and increased dollar spend on median advertising, compensation and depreciation in other expenses.

G&A as a percentage of sales levered slightly during the quarter by 20 basis points.

EBITDA increased by 9.4 million or 22.2 percent from 42.5 million in Q2 2021 to 51.9 million in Q2 2022.

Adjusting our EVIDA for L-TIP and ERP related costs are operating EVIDA's on increase of 9.5 million or 21.8%. From 43.7 million in Q2 2021 to 53.2 million in Q2 2022.

Finance related expenses increased by 0.7 million from 4.6 million in Q2 of 21 to 5.3 million in Q2 of 22.

This change was mainly due to an increase in the accretion expense for the redemption liabilities related to our acquisition of Hush in Q4 last year.

We experience an increase in our effective tax rate by 280 basis points from 25.6% in Q2 of 21 to 28.4% in Q2 2022. This tax rate increase is mainly driven by the accretion that expands for the redemption liabilities related to the Hush acquisition in Q4 of 21 that are not deductible for tax purposes.

Net income attributable to the company increased by 5.7 million from 17 million in Q2 2021 to 22.7 million in Q2 2022. From 17 million in Q2 2021 to 22.7 million in Q2 2022.

Adjusting for LTIP, ERP costs, and hush-related accretion expense, adjusted net income attributable to the company increased by $7.7 million from $18 million in Q2 2021 to $25.7 million in Q2 2022. Diluted earnings per share increased by $0.15 or 32.6% from $0.46 in Q2 of 21 to $0.61 in Q2 of 22. Diluted earnings per share increased by $0.15 or 32.6% from $0.16 in Q2 of 21 to $0.16 in

increased by $0.21 or 43.8% from $0.48 in Q2 of 2021 to $0.69 in Q2 of 2022.

To summarize, our year-to-day results at a high level, revenues increased by 15.8% to 434.6 million year-to-day 2022. Seamster sales increased by 12%, and e-commerce sales represented 19.4% of total revenue. E-commerce sales represented 19.4% of total revenue.

Operating EBITDA increased by 33% to 100 million in 2022.

diluted earnings per share increased by 59.4% to $1.10 in year to date 2022 and finally diluted adjusted earnings per share increased by 68.9% from 74 cents in 2021 to $1.25 in 2022.

onto some capital allocation items.

On July 28, 2022, the Board declared a dividend of 21.5 cents per share, which is payable on August 29, 2022 to shareholders of record at the close of business on August 19, 2022. Additionally, in Q2 2022, the TSX accepted our amendment to the NCIB and approved an automatic share purchase plan, which provides us with the opportunity to repurchase shares during our blackout periods.

As of June 30, 2022, we repurchased and cancelled 835,000 common shares at an average price of $26.31, for total consideration of $22 million.

In July , as of July 28, 2022, we have repurchased for cancellation an additional 401,000 common shares at an average price of $26.30 for total consideration of an additional $10.5 million.

We will continue to execute against the NCI plan on the second half of the year. Thank you, and I'll pass the call back to Stuart for closing remarks. Thank you, and I'll pass the call back to Stuart Thank you, and I'll pass the call back to Stuart

Thanks, Craig. Our strong performance in the second quarter demonstrates the power of our sleep ecosystem and our team's ability to continue to deliver for our customers.

We will continue to build on our deep foundation of sleep expert teas, like expanding our reach, growing our channels, and investing in the most innovative and expansion product assortment in Canada. We remain focused on executing against our strategic plan and our commitment to delivering sustainable and profitable growth for our customers, associates, communities, and shareholders, as we also help Canadians achieve their best night sleep in support of their health.

and well-being. With that, we conclude our remarks and open the floor for questions. Thank you.

Thank you, sir. Ladies and gentlemen, we will now begin the question answer session.

If you would like to ask a question, please press star followed by the number 1 on your telephone keypad.

If you would like to withdraw your question, please press star followed by the number 2.

Please stand by for your first question.

Your first question comes from Martin Landry of Steethle. Please go ahead.

Hi, good morning, Craig and Stuart. Morning, Martin. Morning.

My first question is more macro. We're seeing the consumer confidence decreasing because of inflationary pressures. I was wondering if you can discuss a little bit the traffic patterns.

Path to quarter end. Have you seen any weakness in traffic this summer? Have you seen any weakness in traffic this summer?

You're seeing probably the same thing that we're seeing, Martin, and globally everybody's experiencing the same thing. What we said that we saw in Q1 on the lower end of our business continued into Q2, continuing into Q3, but the consumer to us still seems healthy and barring a couple of weeks towards the end of June where the market got a little bit uglier.

Especially the smaller local players. Historically, have you seen an increase in consolidation by attrition in times of economic slowdown?

Great question.

We've been in this business, as you know, for 28 years. The global crisis of the pandemic in 2020 would normally probably have shaken out some of the players. And we don't wish harm on anyone. But it is a recession that was saved by government subsidies. It'll be interesting to see what happens as time goes on.

The biggest area of growth opportunity we've often said comes from, not from the largest players, but over time the smaller retailers who generationally may be looking to get out of the business or their children are not necessarily taking over the business. So, recessions in the past.

have been opportunities for us to take market share if that's where we're going.

Last question, can you remind us how many days your stores were closed last year due to COVID restrictions?

Yeah, so the closures were approximately 30, I think it's 32.6% of operating days in Q2, and year to date would have been right in the same range, right around 32, 33% of total operating days, and that was mainly tied to the Ontario Quebec closures. And that was mainly tied to the Ontario Quebec closures.

Okay.

Perfect. Thank you. Thanks, Martin. Thanks, Martin.

Your next question comes from John Zamparo of CIBC. Please go ahead.

Thank you, good morning.

Good morning, John .

I wanted to ask about the dynamics of accessories growth versus mattress growth. And in particular for the past couple of quarters, if you back out what we might think is a reasonable contribution from Hush, mattress sales have actually grown well above accessories and particularly given the greater on-premise.

level of purchasing, I would have thought maybe the opposite would be true. So I wonder if you can add some color there, either on the competitive dynamic or on consumer behavior when you think about accessories versus mattresses.

I think John , the patterns that we continue to see are consistent with previous quarters. There's no secret that we believe that there is a large opportunity for us to take more market share on our accessories, which is why we were excited to partner up with Hush. And we do plan on their expanded collection of products. In fact, I think yesterday they just launched.

their hush eco pillow. And we still think we're early days. We've mentioned before that we think we have an 8% to 10% market share compared to our 35% to 40% market share in terms of mattresses, which we also feel is growing. Interesting enough, and we discussed this yesterday at the board meeting. Sometimes in times of downturns in the markets, which again, we haven't necessarily seen that because the consumer seems to be still strong.

Our accessory business does pick up as customers come into the store and are looking and maybe in the process by an accessory product or go online and buy an accessory product before they make their final purchase of the mattress. So we're still pressing hard on our accessory business, but in the same regard, we're doing the same thing on our mattresses and hope to continue to grow both categories.

Okay, that's helpful. And then on gross margins, Q2s typically meaning we're higher than Q1, and I'm referring to pre-pandemic years to remove some of the noise. It was still up this year, but less than usual. Can you talk with some of the inputs on that in particular the cadence of pricing that you've taken over the past year or so?

Yeah, so John , as I mentioned in my, kind of, in the call script, we did have, we are starting to lap over some of the price increases from the prior year. We saw a little bit of that in Q2. In addition, the container freight continues to be an area where as we sell through the inventory that we've been receiving over the past few quarters, there is that higher freight that is attached to the landed cost and being relieved through.

So one thing that we wanted to kind of point out was, as you've been seeing some pretty significant step-ups in Q1 over the Q1 of the prior year, much of the reason for that was because there was no price taken in Q1 of 2020, or in 2021. So you're seeing that big step up in 2022, and then you can see it starting to settle a little bit in Q2, and then you can expect that on the back half of the year where you won't expect that kind of bump up.

So those are kind of some of the main puts and takes that were really around the freight and then also too as consumers return to stores. Our commission is on our store gross profit and last year there was a higher proportion of sales that were on the e-commerce channels so that avoided that commission cost. So those are some of the main kind of two triggers that are seeing a little bit of pressure on gross profit and you're not seeing the jump up, though we are still growing over prior year.

Okay, understood. Thank you. And if I get a squeeze one more in, Stewart, I just wanna clarify your comments on what you just referenced with the difficult time in late June . Has that ended and you're seeing normal traffic behaviors resumed in July , so far?

It's hard to determine these days, John , what normal is, as we see a big part of our business over the last couple of years grow in terms of our e-commerce. I will say that we have healthy traffic and I will even use the word robust in some provinces, and we have softer traffic in other provinces. But overall, in the last...

towards the end of June and the beginning of July , it was spottier than normal. This week, traffic, again, we don't give guidance, but this week, and I don't know if it's because the markets are up this week, maybe that helped a little bit with consumer confidence, this week, traffic was strong again. So it's been definitely very spotty. Another comment that was made by one of the other analysts that we were talking to two days ago was.

The question, if anyone's been to an airport lately, is maybe also with all the travelling and share of wallet that seems to be going on towards vacations, this is the travel season for us. So some of the spottiness can be related to consumer confidence, even though the consumer seems quite healthy to us. And some of this could be just that they're out of town and travelling a little bit to it, we don't know.

Got it. Okay, that's very helpful. Appreciate the color. Thank you. Thanks, Sean. Thanks, John .

Your next question comes from Steven McLeod of BMO Capital Markets. Please go ahead.

Thank you. Good morning guys. Hey Steve, how are ya?

Hey Steve, how are you? Good, thanks.

Just a great color so far. Just wanted to follow up on a couple of things here. Just with respect to the gross margin outlook. You know, Craig, I guess if I'm reading between the lines a little bit, it sounds as though you would expect to kind of hold in the margin gains that you've made so far, which would incorporate or encompass the price increases, but maybe not see growth to the same levels as you saw previously in the back half of the year.

margins drop on the more price-sensitive area of the lower end of our business. And some areas where we have pricing power, we were able to pass it off on the high end. But I think the adjustments that we have made have been very deliberate as it relates around our cost to container business. Keep in mind that 80% of the business.

that we have in mattresses is still manufactured in Canada, where whatever costs under normal circumstances our vendors pass on to us, we will try to navigate that with our customers. It's more in the area of a lot of the imports on the accessory part of our business, if I have to say any part of that. That being said, in the last quarter, the lays still remain quite similar.

but we are seeing a little bit of a relief in lower container costs, albeit substantially higher than they were pre-pandemic. But we also are seeing a lower Canadian dollar that is putting a little pressure on that category also. So the mix is always to the high end and I would say more on the accessories.

Okay, great.

You've been very active on the buyback and it sounds like you're going to continue to be in the back half of the year. But I'm just curious, can you just remind us how much room you have left on the buyback once you factor in the, I guess, 400,000 shares that you bought additionally since the end of the quarter?

Yeah, so right now we're in around 32, 33 million, I believe. Yeah, right around 33. So it would be another 17 million. It would get up to where we kind of indicated our limit was, around that 50 million. So that would be about another 17 million.

Okay, so in terms of you're talking dollars obviously.

Correct, yeah. And then on shares, it would be

About another 800,000 or so, so we've, but I can send you the exact number after the call, Stephen, if you'd like. But yeah, I think you'd be ready. 800,000 more shares left.

Okay, okay. And then I guess maybe two shouldn't tell, but are there opportunities to increase that NCIB once you've exhausted the current program?

Yeah, so we've only, we've put in submissions for up to 6.7% of the float, and we can go up to 10%, so we can make a better from the back off, yeah. And we're gonna watch, we watch our capital allocation very carefully. We're gonna look for the best investments to create shareholder value, whether it's the NCIB, whether it's increasing the dividend, whether opportunity presents itself in terms of any M&A business.

the strength of our balance sheet, Steve, as you know, creates interesting opportunities in times like this.

Yeah, absolutely. And then maybe just one final one if I could, in terms of the new store renovation or the new design, do you have any stores under the new design in your network so far and if so are you able to talk a little bit about any of the changes or changes in sales per square foot or efficiency or anything like that?

I promise you, Steve, and a few others will be the first to know when we launch it. But so the answer is no. None of them are out yet. We thought we were in the final leg of the design, but some of the digital transformation, some of the technology that we want to bring in in terms of the overall customer experience is a moving target for us right now. So.

where we thought by the third or fourth quarter, at least the third quarter, that we were gonna be introducing it. I could say with certainty, it won't be introduced in the third quarter, more likely in the fourth quarter or in the first quarter. That being said, we now decided to hold back on our renovations. 82% of our stores are renovated in the new concept that we did a few years ago. The remaining 18% it doesn't pay to for us to put it in the...

the concept that we're shifting away from. So we'll definitely be transparent about when this is going to happen, but we're very excited about it.

Great, thanks guys.

No problem Steve.

Our next question comes from Patricia Baker of Scotiabank. Please go ahead.

Good morning, Stu and Craig. Just wondering if you could talk a little bit about your partnerships, the best five, what you're seeing there and are you attracting a new customer and are they meeting with your expectations?

So the partnership that we've created which we believe are the best in class, as you well know is a longer-term strategic plan for us to expand our customer segmentation, as well as transact in a seamless fashion for our customers any way they want, and for us to be everywhere and be channel agnostic. And so to ask how is that going, great! We're still in early stages of it.

the superiority throughout our entire business, our sleep experts, logistics, the frictionless omni-channel experience that we are relentlessly improving on and trying to grow. And frankly, we do believe that we have the best management team in the world that will navigate through all the noise that is being thrown at us in the last few months and as has been over the last three years or the last 28 years of growing this business profitably. So all these partnerships.

are part of a longer-term plan to make sure that we're readily available for customers anyway and anywhere they want a shop for bedding.

Okay, thank you for that Stuart. And then just a small question around the launch of your All4Sleep app. How exactly are you building awareness of the app and driving consumers to download the app?

Great question. So the marketing team, we just approved the marketing plan. So we're going to put dollars behind this and it will be part of our initiatives. The biggest part will be through the digital transformation and advertising that we're going to be doing. But you're going to see it in our stores. You're going to see it in terms of our forms of advertising.ky

Obviously this is going to be fluid. It's constantly going to be improved upon. We are, you know us by now, Patricia. We like to walk before we run. The reaction that we've had so far has been quite surprisingly good. And the teams are getting very excited about different ways to be able to engage with our customers. And eventually, there's an opportunity to monetize this relationship.

some very interesting ways. Thank you for that Stuart.

interesting ways. Thank you for that Stuart. Thanks Patricia.

Your next question comes from Megan Annette of TD Securities. Please go ahead. Go ahead.

Take it in ten minuteslung California

Good morning. Just a follow-up here on capital allocation. Stuart, you noted M&A, but can you talk a bit more about what your pipeline looks like today?

Well, Maggie, we don't talk about things that we may be looking at right now. I will say that clearly our focus is strongly around digital opportunities. I will say that we are looking to partner up with the best in class. I will say that prices have come down. So...

I'm not thrilled about what our stock price is these days because it's very cheap with the rest of the market, but that also lives in the world of M&A. So we're excited about some of the things that we've been looking at over the past year, year and a half, that have come back to earth in terms of possible deals. But besides that, I can't tell you anything in particular.

I'm not thrilled about what our stock price is these days because it's very cheap with the rest of the market, but that also lives in the world of M&A. So we're excited about some of the things that we've been looking at over the past year, year and a half that have come back to earth in terms of possible deals. But besides that, I can't tell you anything in particular, specific.

That's good color. Thank you. And with regards to your in-store partnership with Walmart. So how are you in Walmart approaching the expansion of the express stores in Canada? Just given some of the pressures we've seen in the lower end consumer, is there any change to the growth plans there in the near term? Well, great observation. So we're still in the pilot stage. We're happy and pleased. Our team...

led by Phil Bezner or Biz Dev team or in the final stages of negotiating and I think it's another was it nine stores. I think it's another was it nine stores.

nine or ten stores. And we're gonna continue the pilot, and I'm gonna say pilot until a lot of things are going on. There's already we're gonna be changing and enhancing the store design because we've discovered that the cash and carry component that we've offered in there are folks even at our sleep country express stores that in Walmart want the free delivery. So, uh...

So we don't need to store matches. We're expanding our accessory selection because there seems to be a nice demand for the accessories that we sell. We're expanding the footprint because there has been some challenges for us of being able to show what we want to show in a 450 foot square footprint. So we're gonna be expanding that a little bit to I think approximately 750 square feet and those are in the final stages.

All that being said, none of us know where the economy is going. There's no question that the lower end consumer is more impacted. It's no secret that inflation has had the biggest challenge on that. But we don't plan our business for a quarter or even for six months or nine months, whatever, if this is a recession.

If so, our strategic plan is executing the way that we want. We're going to continue to move forward and grow our footprint with Walmart.

And then just last question, looking at the e-commerce penetration rate, so that has continued to come down. Do you have any updated thoughts as to where e-commerce settles as a percent of sleep country sales? Just given the new store design that's being put in place, does that?

View on e-commerce, impact how you're investing in the business going forward.

Sure. I think we're all very paying close attention to globally what's been happening with e-commerce. I'm not going to repeat the remarks of Shopify, but it was quite interesting to hear some of their comments that were made in terms of the growth of five to 10 years and that pulling back. So there's no question for us. We are quite, not quite. We are incredibly pleased.

with what we've seen in our e-commerce business, not only with our partners with ND and Hush, but what we've seen organically growing within the sleep country and dormitivant brands. We are ahead of our expectations. With you look at our plans from 2019, November 2019, when we launched our e-commerce, our target was to be at a 10% level for our entire business by the end of 2022. So there's no question.

that the uh... COVID-19 accelerated it uh... that being said when the world thought that uh... uh... digital ruled and brick and mortar was over clearly that's not the case and we've been very happy to see uh... drove the traffic coming back to our stores and the fact that we've built a diversified portfolio that allows us to have a full frictionless

e-commerce experience between the brick-in-mortar as well as the online side of the business, we're going to continue to invest heavily in both areas. Longer term, I could probably see e-commerce at the 20% range in the next couple of years and maybe even more, but it's very hard for us in our Army Channel world to even measure our full penetration on our e-commerce.

Because as fabulous as our e-commerce teams are, following the journey of the customer, a lot of our e-commerce customers, where the journey begins on your phone or on your laptop sitting at your home, whether it concludes online or in the store, it's all interconnected. So that investment is going to continue, and we really are channel agnostic. We don't care where it transacts as long as more Canadians are transacting with us.

Thank you, that's it for me.

Thanks a lot. Have a nice vacation.

Ladies and gentlemen, once again, if you would like to ask a question, please press star one at this time.

Your next question comes from Vichelle Shredar of National Bank. Please go ahead.

Hi, thanks for my question. I'm curious about the impact on low end mattresses that you've talked about for the last few quarters. Is it because your marketing and your price increases on some of the higher end is making a country being perceived as a premium offer and it's turning away that segment of the consumer? Where's this more than industry dynamic that you're seeing and in that low end, see countries holding share?

I know it's difficult to get specific data on that, but your thought would be helpful. The concern or the thoughts in the back of my head is that as sleep country continues to grow, you'll need this low-age consumers well to help you achieve your growth ambitions. To help you achieve your growth ambitions.

Yeah, so I will say the show that on the contrary, it's the opposite. Like the relationships that we've created over the last couple of years with Walmart, Best Buy and Law Blows, Walmart was a very important part of an expansion of a customer segmentation. And it clearly demonstrated that the country has great prices, because Walmart partners only with those have great value.

and that expanded not only our customer segmentation to maybe a softer, lower-end consumer, it also expanded our customer segmentation to the 400,000 immigrants that are coming to Canada every single year that may not even know the Sleep Country brand, but are going to Walmart. I will also say our e-commerce business opened the world for us.

Transactionally, to your point, a few years ago, people maybe were intimidated to come into a sleep country store. We sure hope not. But if they were, because they thought we were mid to high end, which we do control, we do have a huge part of that market. The e-commerce world allowed you to navigate and see that we have mattresses starting at $199.

And for those that wanted to have the sleep country or dormitiv experience, they were able to transact very easily. What we saw during COVID was a huge growth in terms of those categories for us. The growth in terms of those categories for us.

When, so I think we're penetrating that market very well and I think we're going to continue to penetrate that market very well and the Walmart Express stores will also help grow that. But on the flip side of that, your other part of that question.

And I made this comment in our board meeting yesterday. I bought my first house for $110,000. You can't buy that house ever at $110,000 again. So the question is, do $99 mattresses, or $199 mattresses, like there's a correction inflation that there's gonna be some form of price stability that's gonna happen, but is there a new norm in terms of pricing? And is it more so that the bands?

Like we measure our bands 0 to 500, 500 to 750, 750 to 1000. A big part of our business, which was around the $500 price point on the low end, may now be in the $600 price point. And so we shifted. We have shifted the bands. You've seen it across all digital channels. You've seen it in Amazon. You've seen it in Walmart. So we agree with you that that category is very important.

but we also look forward to introducing better quality sleep to customers and hopefully bringing them up to a better quality bed. And the last thing I'll say on that is, Endy's partnership was key because Endy at Queenside $895, fabulous, incredible mattress. Definitely grew our customer segmentation in that category, as well as our balloon that we introduced a couple of days.

clean insights in terms of countries broader ambitions to expand away from solely fleet based accessories, fleet based products into a broader furniture type offering. So I'll answer the ND part first. ND's brand is so incredibly loved that people want to buy more ND products. And the team led by Alia, president of ND, experiment on many different things.

And if we see strong conversion, then obviously we step on the gas pedal. We're still in very early stages. A lot of the accessories that Endi has brought in has transacted really well. And we're still very much in that pilot stage. To answer your other part of that question, the expansion of Sleep Country will be all around sleep. And sleep does not just mean the mattress.

sleep means the bedroom, and our ability to do drop-ship relationships, which we're beginning within our e-commerce platform, you can hopefully look to see in the future that we will continue to expand beyond the bed. Our partnership with Sleep Out, two very dynamic leaders who are running that business for us, and the blackout curtains for the bedrooms, which has been doing very well, and they-

acquisitions. Obviously we're at an uncertain part of the economic cycle and so as you look at acquisitions are you considering more smaller, medium sized deals or would you consider a larger deal as well.

The board, as well as the management team, are always looking to enhance shareholder value. As we look at our overall capital allocation, we ask ourselves what is the best use of our cash in terms of growing our business and what's going to give the highest return, highest EPS for our shareholders as well as our team here. Not for the short term, but for the long term.

And we look at any opportunities to your question, small, big, or large. Our balance sheet gives us lots of flexibility. It's more finding the opportunities that is more difficult to do. We look at a lot of things and we are very picky in terms of making the right deals with the right partners.

Thanks very much. Thank you.

There are no further questions from the phone lines. I will turn the conference back to your hosts for closing remarks.

Gentlemen. Well, thank you very much everybody. We really appreciate all the supports thrilled to deliver our strongest Q2 in our company's history. And we look forward to chatting with you in the third quarter. We hope you all have a wonderful summer. Take care.

Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank you all for participating and ask that you please disconnect your lines.

Please Oh The conference sent over comments LL I'm sorry. Hi, I'm trying to connect to Sleep Country Canada. Okay, I can get through in there. Can I get your first and last name please? Yes, it's Rachel Smith. Thank you. In the cap of year with Rachel Smith. A year off. Thank you. I will put you into the conference room one moment please. Thank you. REST administered