Q3 2023 Sleep Country Canada Holdings Inc Earnings Call
I would like to welcome everyone to sleep country's Q3, 2023 results conference call.
Yesterday, she country released its financial results for the third quarter of 2023, a copy of the earnings disclosure is available under Investor Relations.
Website and includes cautionary language about forward looking statements risks and uncertainties, which also apply to.
The discussion during today's conference call I would now like to turn the call over to Stewart Schaefer, President and CEO. Please go ahead.
Good morning, and thank you everyone. Thank you for joining us for our Q3 earnings call with me today is Greg to plateau, our Chief Financial Officer overall, I'm pleased with our performance this quarter as we continue to navigate through this volatile macro environment delivering our second highest Q3 revenues.
The Companys 29 year history are.
Our Q3 revenues grew by one 9% as we integrate our strategic acquisitions and see our channels coming together to grow our market share and expand on our channel distribution Q.
Q3 saw once again pressure in our mattresses sub $750 price band, while our mid to high end remain flat. This slowdown in the Canadian real estate transactions caused by the impact of higher interest rates plus the impact of inflation saw certain cluster.
Customer segmentation is there further purchases on larger ticketed items and spend cautiously in this challenging environment when looking at revenues across all our channels. We continue to see the greatest weakness coming from our price sensitive e-commerce channels revenues from our brick and mortar stores stayed strong.
In the third quarter reinforcing the importance of the in store experience and the importance of our diversified omni channel positioning.
Our teams have worked diligently over the last couple of quarters to get us to that point up launching three new brick and mortar brands. The first two are highly recognized direct to consumer brands M. D and silken snow that are going to introduce their brands into a tactile environment with an expanded.
The collection of sleep products, while also bringing to life, a new customer experience by allowing our DTC customers the opportunity to discover trial and purchase quality sleep products with the help of our trusted sleep experts.
Earlier. This earlier this week, we celebrated the opening of our first <unk> store at <unk> Gardens in Toronto and later this month, we'll be opening our first ever store within a store featuring silken snow within our newest sleep country location in Ottawa. This will be the first of many to come.
That will showcase these two powerful brands all our teams are very excited to see these leading digital brands come to life in two beautiful and inspiring environment I'm also thrilled to share that we'll be launching our exclusive new luxury sleep banner called the rest with the open.
Our very first store in New York L Mall in Toronto. This month, the rest will redefine luxury asleep and offer a uniquely elevated experience, bringing customer bringing customers. The world's most exquisite collection of bespoke mattresses, and the very finest and premium bedding.
As leaders and innovators in the sleep space, we can't wait to showcase this highly curated luxury offering to Canadians for the very first time.
Which you really couldnt be happier with our newest acquisitions and the results. They are delivering silicon snow continues to outperform our expectations and this quarter. They received recognition for the third consecutive year as one of the top 50 fastest growing businesses in the globe and males 2020.
Three report on business.
We've also been making tremendous progress with Casper, Canada over the last five months, our teams have invested significant energy and redefining the future of this business from planning the expansion of Casper Canada's store footprint to designing a new collection of mattresses tailored explicitly.
But the Canadian consumers needs in mind half of this collection has already began to rollout with the other models hitting the floors in the first half of next year.
Looking ahead as we continue to execute on our strategic growth initiatives, we remain cautiously optimistic on our medium term outlook, but are very bullish on our strategic long term positioning as we focus on strengthening our sleep ecosystem, while investing in growth of all our brands.
To continue to deliver the best in class sleep options to our growing customer base.
Finally, I want to extend my deep and sincere thanks to our incredible dedicated driven and talented teams who proudly represent all of our amazing brands and who have worked tirelessly to help make us Canada's most trusted sleep partner.
With that I will now turn it over to Craig to discuss the financial results.
Thank you Stuart and good morning, everyone. This quarter, we saw an increase in revenues by $4 7 million or one 9% from $251 million in Q3, 2022 to $255 7 million in Q3 2023.
This increase was mainly driven by incremental revenue earned from new stores opened in 2023 wrap stores opened in 2022 and the incremental revenue earned from our acquisitions of Silicon Snow in January of 2023, and Casper, Canada in April 2023.
This increase was partially offset by a decrease in our same store sales by five 5%. Our Q3 revenues from our E. Commerce platforms increased 190 basis points from 18, 5% in Q3, 2022% to 24% in 2023 for Q3 of 2023.
Taking a step back and looking at our total revenues over the last four years from 2019 to 2023, we have achieved a strong CAGR of four 9%.
Moving on our gross profit margin increased $4 8 million from $96 6 million in Q3 2022 to $101 4 million in Q3 2023, our gross profit margin increased by 120 basis points from 38, 5% in Q3 2022 to 39, 7% in Q3 2000.
Twenty-three, mainly due to higher average unit selling prices lower product costs. These are partially offset by higher sales and distribution compensation costs and deleveraging tied to our store occupancy costs store occupancy costs were also impacted by our nine new stores opened in 2023 of which six were acquired under the Casper Canada.
Acquisition.
Our improved gross margin this quarter was negatively impacted by the deleveraging on our G&A expenses total G&A expenses increased by $10 9 million or 22% from $49 8 million in Q3 2022 to $60 7 million in Q3 2023.
Of the $10 9 million increase in G&A expenses, $4 5 million of the increase was driven by advertising expenses and $4 three was due to an increase in compensation costs.
These increases were primarily tied to the incremental spend related to the acquisitions of silk and snow and Casper Canada.
Minded to the market that there is seasonality in our advertising expenses similar to our revenues our advertising spend is generally highest in Q3 total G&A expenses were also impacted by an increase in information and technology cost tied to software licensing and support and lastly, as a reminder, our D to C brands Hush and tuck ins.
Now, which are earlier in their growth cycle have a higher marketing in fixed cost as a percentage of total revenue and therefore cause a deleveraging impact at a consolidated level on our advertising spend and G&A.
<unk> a step back EBIT decreased by $5 8 million or nine 1% from $63 7 million in Q3, 2022 to 59 point or $57 9 million in Q3, 2023, which was primarily due to an increase in G&A expenses, which was partially offset by the improved gross profit margin.
Adjusting EBITDA for al tip, ERP and acquisition related costs operating EBITDA decreased by $5 8 million or eight 8% from $65 6 million in Q3 2022 to $59 8 million in Q3, 2023, and operating EBIT margin decreased by 270 basis points from 26, 1% in Q3.
2022 to 23, 4% in Q3 2023.
Finance related expenses increased by $1 7 million from $6 3 million in Q3, 2000 $22 million to $8 million in Q3 2023, mainly due to an increase in interest expense on our lease obligations and our senior secured credit facility, which were both impacted by higher interest rates and higher debt levels on a year over year basis.
These increases were partially offset by a decrease in accretion expense as a result of lower redemption liabilities related to the <unk> acquisition. In Q3 2023, we completed the second closing of our share purchase of harsh blankets, Inc. Increasing our share ownership by 16% to 68% as a reminder, we will purchase the remaining 32.
The scent of shares in two equal increments in 'twenty, four and 'twenty five.
Other income and expenses decreased by $1 2 million from an expense position of $2 million in Q3, 2022 to income of $1 million. In Q3 2023. This change was largely tied to interest income related to investments acquired in 2023.
Income taxes decreased by $2 2 million from Q3 2022 to Q3 2023. This change was driven by the decrease in net income before taxes of $6 5 million from $40 3 million in Q3, 2022 to $33 8 million in Q3, 2023, and a decrease in our effective tax rate by 110 basis points from.
28, 1% in Q3, 2022% to 27% in Q3 2023.
Net income attributable to the company decreased by $4 2 million from $28 9 million in Q3, 2022 to $24 7 million in Q3 2023.
Testing for all Pip, ERP and acquisition related costs as well as accretion expenses related to the redemption liabilities of harsh and silicon snow adjusted net income attributable to the company decreased by $5 7 million from $32 5 million in Q3 2022 to $26 8 million in Q3 2023, primarily impacted.
The decrease in accretion expense as a result of the lower redemption liabilities related to the harsh acquisition.
On to diluted earnings per share decreased by nine or 11, 4% from 79 in Q3 2022 to <unk> 70 in Q3 2023. This change in diluted EPS of nine <unk> was mainly impacted by a 16% decrease in EPS tied to lower EBITDA as discussed as well.
<unk>, 7% decrease in EPS due to higher interest expense on our senior secured facility.
Facility and leases. These decreases were partially offset by lower accretion expense of four cents per share and a decrease in income taxes of <unk> <unk> per share.
Moving on to liquidity as at September 32023, our cash balance was $38 3 million with an additional $121 9 million available to us on our credit facility and this does not include the $100 million accordion available to us as well through the credit facility in regards to capital allocation in Q3, we purchased 165.
5000 common shares for total consideration of $3 8 million under the NCI be subsequent to the quarter end in October the company repurchased for cancellation, an additional 446000 shares for $9 9 million or year to date 910000 shares for $21 million in total.
On November nine 2023, the board approved a quarterly dividend of $23 seven per share, which will be payable on November 30th 2023 to shareholders of record at the close of business on November 24th 2023.
Regarding our Capex spend will be opening a total of seven sleep country dorm may boost stores in 2023 and as Stuart mentioned earlier, we just opened our first Andy store at the sheer way mall in Toronto, Ontario, and we'll be opening our first store within a store under the Silicon Snow brand in Ottawa, Ontario, and lastly, our new luxury store the rest and Yorktown.
<unk> is slated to open in the coming weeks we.
We will also be opening our new warehouse in Montreal, and relocating our two existing warehouses to this location by the end of this year. Additionally, we will continue to invest in our digital infrastructure and further enhance our digital capabilities and omni channel experience and spend approximately 1% of revenue ongoing for ongoing maintenance and the store N D C.
Thank you and I'll now pass the call back over to Stuart for closing remarks.
Thank you Greg as I said earlier, we are pleased with our third quarter results. Despite the macroeconomic environment and feel confident that our talented and dedicated teams are razor focused on executing on our multi year strategic growth plans, while also focusing on our collective synergies and cost efficiencies.
As we position our growing more do more diversified business into a stronger and more profitable profitable business than ever before as more Canadian consumers feel confident investing in their health and wellness, we will be there to serve them through the power of sleep with that.
We conclude our remarks and open the call for questions.
Thank you and ladies and gentlemen, we will now begin the question and answer session should you have a question. Please press the star followed by the number one on your telephone keypad you were here at least on from acknowledging your request and Youre question is who will be followed at Laguardia received.
Should you wish to decline from the polling process. Please press the star followed ligand umbrella.
And if you're using a speaker phone please lift the handset before pressing any Keith one moment. Please for your first question.
And your first question comes from the line of Martin Landry from Stifel. Your line is open.
Hi, Good morning, guys. Good morning Martin.
My first question is I'm trying to understand a little bit where we are in the in the industry cycle.
So what you've mentioned in the past that you know.
Some customers are delaying their purchases.
And then I'm wondering if it's a delay or if it's not right or just a return to normal industry volumes a third of the pull forward that was created by Covid.
No.
Is there any way for us to figure out where industry volumes are right now in units versus two.
2019 level, let's say pre pandemic.
I don't have that data for you Andy Martin, but we can.
Robert Lee <unk>.
Give you a good indication.
To answer your question specifically.
Yeah.
When business exploded.
During those two years of the pandemic.
The argument that was made by a lot of analysts was is this a pull forward you who've been around long enough to know that for a period of time prior to the pandemic there was a little bit of a lull in the in the industry, which really triggered farther back from OAG and <unk> financial crisis.
And because this industry has always been around a 6% CAGR.
So I do think it's a little bit of both.
Both and I would've said that for 2022.
2023.
There is no question and I see it all around me from my team of 1700 associates from conversations that we have.
Inflation and mortgages and.
And the cost of interest rates has definitely impacted those who are affected in terms of their their personal savings and discretionary spending and every single time.
I've been in this business for 29 years every single time, there has been a little bit of a pause it usually starts with discretionary spending read the Canadian tire.
Script like everyone is seen in the exact same thing compared to some of our peers within the industry. Martin you put on one of the biggest best spreads and I'm not going to say the company out of that but you know what I'm talking about of buying sleep country, ensuring someone else like if youre seeing some of the things that I am.
Seeing within this industry and I'm hearing numbers down 20, 30% when you look at our numbers our human Tempur Pedic Sealy there are some real winners in this space and then there are some losers in this space and I do think it's a pause of the consumer.
<unk>, which always comes back and the beauty of our business. Unlike fashion. Unlike restaurants. Unlike any other type of business, you're mattresses, just getting older and when it does come back whether it's a pull forward or or catching up we do get that benefit of it and that's why we're.
<unk> investing in our longer term plan so if.
If you rent our stock.
You may not be happy on a quarterly basis, if you own our stock I think you are going to be very pleased as we are still going to finish this year with one of the strongest years that we've ever had in our 29 year history, So I'm still pretty bullish.
But I'm not going to say that for these last few these last few months I don't know if that answers your question.
Yeah, no it helps us it helps out.
22 was maybe you know.
A bit of a hanger COVID-19 hangover in 'twenty three as maybe a pause in delay in it. So maybe just a follow up so if.
To your point, if there is right now a delay and purchases.
That suggests that we're going to see a pent up demand on the other side when the consumer confidence improves.
Is this what we've seen in previous recessions.
He's always always always every single time that theres been a recession sleep country has emerged stronger than ever before.
We had a recession in 2020 2021 there was a recession, but it was a subsidized government bailout.
At this time, there won't be a subsidized government bailout.
And I don't want to ever do well off of the backs of others, because we want everybody to do well, it's healthy for the entire industry, but as we strategically position ourselves with some of the acquisitions as we expand our channels of distribution as we acquire some fabulous brands, giving consumed.
<unk>.
Joyce and in an environment, where other retailers may or may not make it or have some struggles along the way each and every time in a recession, we've come out of it stronger and that's why we're doubling down in terms of our investments in some areas where youre seeing deleveraging. This is planned not planned.
That business is a little bit softer than I would like I would like it to be much more buoyant than it is but it's not changing anything in terms of our perspective to position ourselves in the strongest way we can.
Okay.
And then last question for me.
You've made several acquisitions and you have a <unk>.
Portfolio of brands right now.
And I'm trying to understand whats their impact on the bottom line. So is there any way for you to quantify you know if we look at Casper Hirsch and Silicon no are.
Are these business dilutive or where they were these business dilutive to your EBITDA margin in Q3, and then if so any any any chance you can quantify.
That their impact.
Yeah, Hi, Martin.
I'd say that the we continue to remind the market that you know as we have earlier cycle in the growth of like a silicon snow or a harsh acquisition. It is going to be dilutive to the EBIT margin.
But from a you know are they accretive acquisitions to the bottom line yes.
In terms of quantifying or breaking out our giving additional detail you know at this time, where we don't break out that segment of the business.
Separately, but I would say that they.
They do have higher marketing spend upfront as they're continuing to mature they.
They have a higher percentage of compensation costs compared to the topline, which puts pressure on the G&A stack.
But again as these mature and they move more towards kind of the mid term life or like the kind of where N D. As in its cycle, that's where you start seeing the leverage start coming back in into the into the right direction. So I.
I'm trying to help out without <unk>.
Being able to break it out specifically, but those will have pressures around marketing and and compensation costs.
In the near term, but in the medium term you'd see that smooth.
Smoothes itself out and then start adding back to the bottom line from the G&A and marketing positions.
I also want to add Martin.
You shouldn't do you and glad to go out for lunch with you and go even deeper on it but.
We think of this as a chessboard and Theres some strategic moves that we're making because in the eyes of consumers, we believe having multiple brands in different customer segmentation and different merchandising high our keys is very important to be able to grow our market.
Sure.
And serve the customers in terms of what they need plus a big part of what we're doing in positioning which you've seen over the years is expanding our accessory mix, which is a very important area of our business that is incredibly profitable which in these times.
Serves as a lead generator or traffic in our stores was really not down in that this quarter. I mean, maybe slightly September saw some a little bit slower as the market sold off and people got may be a little bit nerve or nervous, but but the customers are.
Nan and I call it and I've said it before it's the Starbucks effect they come in they're kicking the tires, a little bit on the mattresses, but theyre walking out with a pillow or some sheets or a duvet and we look at that as a lead generator in the exact same way that we looked at it in 2008 2009 in the financial crisis, when everyone just stopped for them.
Moment, and we just wanted them to engage with the brand and all these things are still early investments Kasper. The reason we were able to acquire this unbelievable brand is that they had a misstep and we capitalized on their misstep and now we are investing in this fab.
This brand and its going to take as I keep saying, it's going to be a 2024 story as we re jig, what we believe and sprinkle a little bit of the sleep country magic into this casper.
Unbelievable brand.
Okay. That's helpful. Thank you Fermi necessary. Thanks Martin.
Thank you and your next question comes from the line of Stephen Macleod from BMO Capital markets. Please proceed with your question.
Thank you good morning, guys good morning, Stephen.
Good morning.
Just a couple a couple of follow up questions. There are lots of good color Stuart. Thank you.
I was wondering if you could just talk a little bit more about Casper.
Just around the.
The repos I don't know if repositioning is the right way the right way to say it but.
Just some of the.
Sort of what Youre doing to the brand this year and how you expect that to be positives for driving incremental growth next year sure and repositioning is it is the perfect word, especially as we look at our business as I, just said to Martin as like a chessboard. So.
We have some really great partners are already Tempur, Pedic Sealy Kings down Simmons Serta and everyone plays a role within our floors and when we look at our floors are.
Our our policy has always been from a more economical pricing at the bottom and could be at a $199 to our premium bedding within our stores, which will be probably five or $6000.
And we have to make sure that we offer consumers.
Our brands are great brands quality brands at all different price points Casper to us as a premium brand and we are repositioning before when we were buying the Casper product we were buying from the U S. Whatever they were making.
Our team has redesigned these beds to make them better and more Canadian focus there isn't a dramatic difference, but there actually is a difference between what customers like in Canada compared to United States and we are positioning in them in on our floor, so that our customers as well of our sales associates have different price points.
At different ranges a big part of this also which I said earlier when we did this acquisition was around expansion of margin, while also bringing down the price of Casper beds for Canadian consumers and we have effectively done that because we were buying these beds, 100% from the United.
Dates before and with the dollar at a Buck 38, right now are about 39.
We've insulated ourselves from that difference within itself and we're already.
Seeing expansions of margins in this particular category by 10 points.
As well as <unk> seen the cost of these mattresses dropping anywhere from 12 to 21 points. So.
That's important within our stores.
We believe that the Casper brand itself and the customer experience for those who don't want to shop in our house of brands will be incredibly well served as we.
Our rollout the Casper unique personality and their unique Casper settings.
As if you visit one of our stores already and that's a different customer we believe it's a customer who chooses to go to a brand specific and we're going to make sure that we continue to roll that out in specific markets, but methodically and thoughtfully and make.
Sure that we do it right.
Great. That's good color. Thank you.
And then maybe just maybe even more granular.
Can you just talk a little about how you saw demand.
Our sales trends through the quarter, and then and then what you're what you've seen on a quarter to date basis has the trend changed materially from.
How you how you finished the quarter.
Sure July was good August was <unk>.
FLAC and September was soft and October.
It was good up until.
Probably the weekend of October 7th and then we saw it get soft again.
So it's been very choppy, we've seen and I'll even break it out for you at provincially, we've seen GTA.
GTA the softness Montreal, the second and BC the third wall the Maritimes.
And the prairie's have Ah were actually positive for the quarter. So.
We're not we're.
We're not economists here, but we do believe that the <unk>.
More price sensitive mortgage sensitive.
Markets.
Housing markets, Montreal, Toronto, and Vancouver, or the consumer.
Consumers who are.
Yeah.
Most sensitive or affected I mean everyone's affected by mortgage rates, but.
The wealth effect or the consumer confidence effect.
Is impacting those markets the most at the moment.
Great.
Okay. Thanks, Stuart I appreciate the color. Thanks, I had my pleasure.
Your next question comes from the line of Johnson <unk> from CIBC. Your line is open.
Thank you and good morning.
Good morning.
I wanted to start on the macro picture that's great color on on the previous answer but I.
I mean, obviously, there's concerns about the Canadian consumer going into 'twenty four for all the reasons that you cited and if we do see a more difficult environment in 'twenty four even then than the one we're in now I wonder if what would the playbook b and what have you learned from previous downturns do you focus more on capturing share.
Or do you prioritize margins and capital allocation do you accelerate M&A or do you prefer the buyback obviously, there's lots of unknowns, but I wonder if you can provide some insights on how you might react if conditions worsen versus to that yes.
And I'm going to tell you, it's a little bit of everything first I'll start off this has been a year of investment in and we always have a strong focus around our capital allocation.
I mean this year alone we increased our dividend we increased our buyback program and we did too.
Two strategic acquisitions.
It seems a long time ago, but silicon snow was in January and Casper was in April or May.
And so managing capital Alec managing our capital and our strong balance sheets.
As always.
Top of mind, including.
We're ready to roll out our new version, which I have been talking about a 4.0 in terms of our sleep country design, which is going to be an expansion of our accessory collection, but we paused on it now because we werent ready, but as a use of capital allocation in a market that may be a little bit softer we decided to push.
It off into Q1, which is where youre going to see the first two new prototype stores that are going to be open opening up and if and if the market.
Turns softer maybe we'll pause it because our stores still look fantastic and are transacting incredibly well that being said, even this year and always for us a big focus is around always our cost efficiencies and driving the synergies. There is some really exciting things that are happening.
That have not yet unfolded in terms of the overall expenses of our business as we consolidate the endy the harsh the silken snow the Casper business is on the what I like to call the back of the store.
Logistics really there is going to be savings, there, which I don't ask me for specifics now because let us make it happen, but we're already seeing progress where we will reduce the use of three pls as we bring it into our back end because we have the capacity to do so which was recognized when we wanted to do these acquisitions there is going to be.
Synergies around how we approach the market on marketing and our with our Fabulous partners, whether it's Google and Facebook and all the others and there will be synergies.
Synergies in terms of sourcing, which has already begun Mike Douglas who is the head of merchandising is already working closely with those teams and the buying power of that is already.
Happening the back office on our HR and our finance teams all of that while maintaining the personalities and the uniqueness of the brands is happening and we're going to double down on that in a softer economy.
And not because it's a softer economy. It's just it's our focus on advertising.
Our market share because that's a great question.
In the history of this company 29 years that I've been with this business. There is one time that we paused on our advertising.
Or what we called our growth strategic initiatives because.
That's a big part of us growing market share being top of mind being there all the time, so that when you're ready when you already were in the consideration funnel and that was in 2010 and 2011 as everyone was feeling the OE to <unk> nine financial crisis.
And we pulled back in 2010 and the beginning of 2011 11, and we rode on the Halo effect of our powerful brand because everyone knew why buy a mattress anywhere else.
That works.
For nine months and then it took us six months to regain.
What we pulled back on.
And we said that we would never do that again that being said.
We're getting better and more efficient in terms of how we allocate our advertising dollars.
As we look at some of our traditional spend compared to our digital spend where we have the lever of literally.
A live view of whether we want to double down on our ROE and see if our <unk> delivery.
Or pulling back and we divide it into two ways. One is performance and one is awareness so.
You should expect.
Pull back on our advertising, obviously, we'll watch the deleveraging component and we will be smart about our performance spend but our awareness spend is our long term plan that positions us stronger than anyone.
That I've seen in this marketplace and you should see that continuing.
Okay. That's good color. Thank you for that.
And then I wanted to pivot to population growth.
Because it is frequently said that one of the drivers of this industry is robust immigration levels that are on now and expected over the next few years and I think you've said in the past that you don't think you get your fair share of sales from New Canadians and express the express stores and Walmart are one way you can address that I wonder is is that still the case.
How might you capture more of those sales and do you anticipate express being a bigger driver in 'twenty four.
Ah.
Yeah, I'm going to answer it well.
Well first of all let me just I'm never going to be happy with our share of business. You know, we're at a 40% market share right now.
When we were at 20 I wasn't happy with 25, 30, 35, and when we're at 60, I am still not going to be happy and thinking that we're not getting our fair share that being said.
A lot of the brands that we're doing and a lot of the positions when I talk about distribution channels. We view it as though we want to be everywhere that customers are and certain customers will not come to the sleep country brand because theres no question that some people perceive it as mid to high and even though we do have our unfair share of the lower end because our price bands range from.
Like I said $199 to over $5000 that being said, what I've said before in the past our belief is win win.
Newcomers come to Canada, which is terrific and great for our business long term. They may not know the Christine Magee why buy a mattress anywhere else our sleep country brand as well as they should obviously, but they do know the Walmart and they do know the Ikea is and they do know the cost goes up the world and so on.
Our relationship with Walmart, which has been a good relationship.
<unk> was important almost like a billboard to be able to have newcomers over 2 million people walk through those doors on an annual basis on per store Walmart basis, where we probably don't even get $2 million and our three hundreds 300 stores.
So that was very important but it's so.
A lot of our marketing and advertising, especially within the digital side is trying to target. The newcomers. So that is a big initiative for our marketing teams.
The other side, though is the aging demographic of Canadians, where some people and some retailers depending on their business get concerned about that that's actually a longer term bullish positioning for us.
The ageing demographic.
And their disposable income.
Rise is within Canadians and has been nicely for a period of time, whether or not they're saving rate their savings are a little bit lower than they were during the pandemic is not the conversation here, but.
As people age they spend more in and invest more in health and wellness and we've been seeing that you've been seeing that over the last few years as our average unit selling price grows and as our premium bedding collections grow and that is a huge strategic.
<unk> longer term part of our business. So when I say don't rent my stock buy my stock you're going to see you have seen ups and downs on the markets are recessions come and go but our positioning is key in terms of the demographic in the future.
<unk> of Canadians.
Understood.
Thank you for that one last one can you remind us what percent of sales are financed and then has there been any change in performance among those customers versus ones not financing.
Quebec is the highest and always has been and that for US is about 25% of our business, which is low if you look at the Bro and marching knows and Leon in the Brics in those markets. They finance much higher and we're actually bringing in a specialist this year around that because we don't know.
We don't know if thats, good or bad is bad because there is a cost to us as for financing, but I guess, you're asking the question in a more price sensitive economy. When people may want to pay over a longer period of time, but that is by the way to answer. Your question. It is increasing and for the rest of the country. It's low it's about 11%.
<unk> percent.
And.
But it is something that we have been focusing on also and it's creeped up a little bit too not as much as you would think.
Because I still think the Canadian consumers healthy I mean unemployment is still low GDP is still great whether we get a soft landing or not I have no idea, but I think it's more a choice at the moment that the consumers are just being a little bit more cautious because we're all feeling the same thing or the uncertainty so.
Usually in a recession when you see a contraction on the GDP when unemployment is spiking about over 556%, we've seen our financing programs kick up aggressively, but we're not seeing that yet.
Okay great.
That's all for me thank you very much.
Thank you. Thank you.
Your next question comes from the line of Brian Morrison from TD Securities. Your line is open.
Hey, good morning, Stuart Good morning, Craig Good morning, Brian Good morning, Brian.
Okay.
I just wanted to go back to the consumer it's clearly stretched here.
And you're really seeing a bifurcation towards the high end being positive and lower end product, probably feeling more pressure I guess with the transformation acquisitions. You've made do you have more exposure to this premium market or are you still evenly spread throughout both segments.
We always lean probably more premium I mean.
I know this is an exciting are sexy when I talk about the backend and of the business, but it is a huge component of why we are profitable and why others coming to the market are not profitable that costs us the same amount of to deliver.
500 dollar mattresses does a 500 dollar mattresses in.
And take all down the line on everything else.
We are seeing.
And you're right, Brian we're seeing the softest part, which is my commentary I wrote are are below $750 price point like we measure our business by bans and I'm not going to get into all the bands, but the fact that our above 750 band, which is everything above 750.
<unk> was flat for the quarter.
And our below 750 with software for the quarter.
That is definitely an economic sensitive consumer.
And we're feeling the most in our digital brands most of our transactions online below $1000 is a fabulous.
Cost efficient way of driving transactions, even more so than in a physical footprint.
And that customers pulling back right now, which is why youre seeing some of the deleveraging because it's also a higher cost of advertising the brick and mortar stores have always been more in terms of the premium bedding, because if youre buying a bed over $1000 you sometimes want to kick the tires and the more expensive you go for sure.
You wanted to try try try that bet that being said over the last few years to answer your question specifically, we have been positioning ourselves. So that we make sure that we offer all price points, but we're doing it in different types of way if you walk into our stores five years ago.
You would have may be seen two or three more skus on the floor below $1000, we measure that square footage and the and the productivity of that square footage very carefully.
And it's more.
Profitable for us to put a little bit more of a premium bed and I'm not talking to $3000, but creeping over that thousand dollars price point.
Within our stores, because we know the customer wants that way and one of the reasons endy is such a powerful brand and silicon snow is doing amazing.
Is.
Is it because of their price points and the efficiencies of delivering it through a digital transaction.
<unk> is exactly where I think youre going also because we do believe it's a category of premium bedding, which is why we wanted it fits so well in terms of our long term strategic plan and our 29 year history of premium bedding and the fact that we actually got it we still pinch ourselves.
Now you're going to judge us on what we do with it but we're quite bullish on what we're going to do with it.
Well I guess I do want to follow up there Stuart so in terms of the Casper transformation, clearly, you're making progress here I think you've said previously that your worst margin performer. When can we expect to see this get to industry average women can we start to see the financial benefits will they be immediately should we see them early 2024 to get to your industry a premier company average.
Or will it take longer than that back half of 2024, I'm very confident to say we're already starting to like we're just rolling out so we had to do.
Just to be clear on this acquisition, because I love, giving you guys as much knowledge as you can to build out your models, but we.
We bought this company.
We were tied to the U S. The first thing that we decided after 60 days is to move away from their platform, which was on sales force.
And bring in the Shopify and re platform the entire site change the Pos in the stores to Shopify also and that.
I think you all know once you re platform. It has an effect in terms of your traffic, which we knew when we were planning for also.
And the leaders of Endy and and.
Silicon Snow Alliin Albert were the ones that were driving that for us and we did that in 10 weeks, which was record breaking for us in terms of how fast we did that that was step one step two is looking at the logistics of it because casper use it use three PL.
And we are now shifting that three PL component into our Dcs step three which was happening. While these two were actually happening too was rebuilding casper products.
Here, even in Canada will do multi sourcing, but because we knew we could just and the difference in terms of the margin and then they started rolling out the actually started rolling about out about 30 at <unk>.
30 days ago, I will tell you that we were and I don't breakdown margins normally gross margins topline, but we've seen.
Yeah.
Already as we're rolling out some of this product at a lower price to the consumer which is making it more attainable margin expansion of north of 10 points and that's big So it's now entering its gone from the lowest.
<unk> entering.
Yeah.
At the highest while also serving our customers in a better way at a lower price point so.
Youre going to see more of that happen in Q sorry in in the first half of the year because we've done.
Half of the lineup, which is still rolling out and the other half will roll out in the first half of $1 24, so starting the back half of 2024, you'll see that throughout the country in our stores Youll see it in the Casper stores, you'll see it on the Casper sites and our web site.
That's great.
Last question.
Youre in CIB, and you were kind of modest or temporary with it.
Throughout the year and then it really accelerated in October I'm wondering if you're going to keep that going and if you plan on hitting 50 million buyer March.
Call at year end for the NCI B.
So as we discussed on previous calls we are first half of the year was.
Very acquisition heavy and so the capital that typically might maybe would have deployed more towards the NCI via at that point in time was deployed towards the acquisitions.
And on the back half of this year you can see in October where.
Where the price is at.
You can expect that.
We're going to be active in the market going forward as well on the $50 million by March I believe that.
Based off of the number of trading days.
We should be able to get fairly fairly close to that mark.
But again, we're we're in a position where we think that the signal that we put out in October in terms of being more aggressive on the buyback.
We would intend obviously to continue that.
Alright, certainly makes sense. Thank you both.
Thank you.
And your next question comes from the line of Saba Khan from RBC capital markets. Your line is open.
Hi, Good morning. This is Arthur nowhere in Yonkers Sadly.
Just my first question I guess could you walk us through the thought process.
On adding store counts across your various bettors I guess.
Given the softening.
Operating backdrop.
As a follow up I guess.
Could it make sense to also maybe convert some of these are some of your potentially less productive stores on the legacy sleep country side to some of these new vendors over time as well.
Let me answer your latter question first first of all.
There's not too many of our stores that are not productive.
Which is I guess a positive.
And if they weren't productive.
For our sleep country banner, then I would never take one.
One of our new exciting brands and set them up for failure and I'd, rather just wait till that lease expires.
And and reposition it.
To answer your first question.
Yeah.
A softer market for us and nobody wants a recession and nobody wants a softer market but.
In some regard we get.
I know this is going to sound silly, but we get excited about the softer markets because it does create greater opportunity because other retailers and usually within the fashion.
Struggle and some of those fashion have fabulous AAA spots. So we already have a very clear road map in terms of locations.
Across the country of where and how and we want to expand we are patiently waiting for certain leases from other retailers to come due and we anticipate if there is a recession that there will probably be more opportunity, but we will only.
Only take AAA.
Locations, we don't need to rush to do it but nothing has slowed down and in fact, if if more availability avail.
Availability comes onto the market, we will quickly open up the stores our stores are very.
Accretive become very profitable very quickly we have seen that through the pandemic, we string that seeing that through <unk>.
Past recessions.
But we must have the right locations.
Okay, and then I guess youre talking about triple a locations.
Just wondering how youre thinking about the rent expense for some of.
These locations I guess, particularly in the malls.
And I guess is there is there an angle here is lower.
I guess the storefront.
Funds also serve as the <unk>.
Potentially marketing.
Get them in front of the customers as well.
I, just said that yesterday to our board.
So interesting that you even made that comment and I'll just talk about.
Our existing brick and mortars, we have 300 billboards all around the country.
That creates a high awareness, even if youre not in the consideration funnel and we do view it that way we view our relationship with Walmart Express our sleep country Express and.
Yes.
Billboard obviously in all of these places our job is to transact and drive revenue and profitability, but it is an ongoing component of our advertising, we're not going to open up stores as advertising and given the excuse that if a nonperforming store.
Is around that that well, it's an advertising thing every store for us has to perform.
But it definitely is is an added benefit.
Because most people arent buying a mattress.
Every three years I wish they were but they are buying at every eight to 12 years and the beauty of this company as we've always thought long term. So in every single thing that we do every single thing that we do we think about the customer firsthand and how how we are engaging with them and that visibility component is a big part malls.
<unk> had never been a big part of it malls do have higher rent to your question, but also unbelievable exposure.
And we have a great relationship with all our landlords and I think our landlords have been fair with us and and we've been fair with them and the fact that we have 300 stores across this country.
Allows landlords to help us on properties.
Or is that may have reduced traffic.
And we are considerate to them on some of their properties that are doing more traffic. So it's always been a very equal partnership relationship that we we cherished with our landlords.
So all my questions. Thank you.
Thank you.
Thank you and there are no further questions at this time I would like to turn it back to Stuart cheaper for closing remarks.
Thank you everyone and we appreciate your time and your patience and your focus on our company.
And I wish you all well, let's all stay safe, that's all stay well and let's all sleep well and we'll see you at the next quarter have a good.
Hey.
Thank you presenters, ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.