Q2 2024 Purple Innovation Inc Earnings Call

August 5, 2024

Speaker Change: Good afternoon, ladies and gentlemen, and welcome to the Purple Innovation Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode.

Operator: 4 Earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow after the formal presentation. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. It is now my pleasure to introduce your host, Cody McAlester of ICR. Please go ahead, sir.

Speaker Change: A brief question and answer session will follow after the formal presentation. If anyone should require operator assistance during the conference, please press star then zero on your telephone keypad. It is now my pleasure to introduce your host, Cody McAlester of ICR. Please go ahead, sir.

Cody McAlester: Thank you for joining Purple Innovation's second quarter 2024 earnings call. A copy of our earnings press release is available on the investor relations section of Purple's website at www.purple.com.

Cody McAlester: 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 Innovation's judgment and analysis 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 second quarter 2024 earnings release, which was furnished to the SEC today on Form 8K, as well as our filings with the SEC referenced in that disclaim

Speaker Change: 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 Innovation's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting the company's business.

Speaker Change: Accordingly, you should not place undue reliance on these forward-looking statements.

Speaker Change: 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,

Speaker Change: We refer you to the disclaimer regarding forward-looking statements included in our second quarter 2024 earnings release, which was furnished to the SEC today on Form 8K, as well as our filings with the SEC referenced in that disclaimer.

Cody McAlester: 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 gross margin, 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 in the earnings release, which can be found on our website. With that, I'll turn the call over to Rob DeMartini, Purple Innovation's Chief Executive Officer.

Speaker Change: Today's presentation will include reference to non-GAAP financial measures such as EBITDA, Adjusted EBITDA, Adjusted Gross Margin, Adjusted Net Income, and Adjusted Earnings Per Share.

Speaker Change: 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 DeMartini, Purple Innovation's Chief Executive Officer.

Rob DeMartini: Thank you, Cody. Good afternoon, everyone.

Rob DeMartini: Thank you, Cody. Good afternoon, everyone. With me on the call today, as usual, is our CFO , Todd Vogensen.

Rob DeMartini: With me on the call today, as usual, is our CFO Todd Vogensen. We're also joined this afternoon by Chief Operations Officer Eric Hainer. While our volume remained challenged in the second quarter, we're encouraged by the overall performance. We're making real strides in becoming cash flow positive and delivering improved profitability in what continues to be a very challenging market. We remain focused on the things within our control and are managing our costs.

Speaker Change: We're also joined this afternoon by Chief Operations Officer Eric Hainer.

Rob DeMartini: While our volume remained challenged in the second quarter, we're encouraged by the overall performance.

Speaker Change: We're making real strides in becoming cash flow positive and delivering improved profitability in what continues to be a very challenging market.

Speaker Change: We remain focused on the things within our control and are managing our costs.

Rob DeMartini: Continuing our investments in innovation and marketing and ensuring our company's business model is more durable and suited for the market, we expect to remain challenging for the balance of the year and maybe beyond. Our adjusted EBITDA improvements in the second quarter are driven by a focus on better sourcing and improved supply chain operations. And we expect to maintain these gains over time. As a result of the progress we've seen, we're reaffirming our adjusted EBITDA outlook for 2024. However, given the deteriorating industry trends that led to a shortfall in our second quarter revenue, we're lowering our top line guidance range by $50 million.

Speaker Change: Continuing our investments in innovation and marketing and ensuring our company's business model is more durable and suited for the market we expect to remain challenging for the balance of the year and maybe beyond.

Speaker Change: Our adjusted EBITDA improvements in the second quarter are driven by a focus on better sourcing and improved supply chain operations, and we expect to maintain these gains over time.

Speaker Change: As a result of the progress we've seen, we're reaffirming our adjusted EBITDA outlook for 2024.

Speaker Change: However, given the deteriorating industry trends that led to a shortfall in our second quarter revenue, we're lowering our top line guidance range by $50 million.

Rob DeMartini: We remain confident in our longer-term market opportunity for Purple, and our second quarter performance reinforces our belief that our path to premium sleep strategy is moving the company towards our goal of sustained profitable growth. On today's call, I'll share some highlights of our second quarter performance, followed by an update on the progress of our five strategic initiatives, of which Eric will discuss the manufacturing and supply initiatives that his team has been implementing and the success of their efforts to improve gross margins. Lastly, Todd will discuss our quarterly financial performance and our updated 2024 full-year guidance outlook in more detail.

Speaker Change: We remain confident in our longer-term market opportunity for Purple, and our second quarter performance reinforces our belief that our path to premium sleep strategy is moving the company towards our goal of sustained, profitable growth.

Speaker Change: On today's call, I'll share some highlights of our second quarter performance, followed by an update on the progress of our five strategic initiatives.

Speaker Change: of which Eric will discuss the manufacturing and supply initiatives that his team has been implementing and the success of their efforts to improve gross margins.

Speaker Change: Lastly, Todd will discuss our quarterly financial performance and our updated 2024 full-year guidance outlook in more detail.

Rob DeMartini: Q2 marked our third consecutive quarter of year-over-year top-line expansion, with total sales up 2% in the period. While we continue to navigate a challenging sales environment, we're seeing encouraging signs that our new products and new brand message continue to gain traction with consumers and capture market share. That said, we continue to see variation in performance by channel.

Todd Vogensen: Q2 marked our third consecutive quarter of year-over-year top-line expansion with total sales up 2% in the period.

Speaker Change: While we continue to navigate a challenging sales environment, we're seeing encouraging signs that our new products and new brand messaging

Todd Vogensen: Continue to gain traction with consumers and capture market share.

Rob DeMartini: Direct-to-consumer revenues in total were down, with showroom gains offset by e-commerce softness. While our Wholesale Channel experienced growth, showroom revenues increased 10.6% driven by an increase in average selling prices from both strategic price adjustments early this year and a sizable mixed shift into our higher-priced Lux collection from our Essentials and Premium collections. Importantly, we observed a consistent month-over-month increase in mattress average selling price.

Todd Vogensen: That said, we continue to see variation in performance by channel. Direct-to-consumer revenues in total were down, with showroom gains offset by e-commerce softness.

Todd Vogensen: While our Wholesale Channel experienced growth.

Todd Vogensen: Showroom revenues increased 10.6% driven by an increase in average selling prices from both strategic price adjustments early this year and a sizable mix shift into our higher price deluxe collection from our essentials and premium collections.

Todd Vogensen: Importantly, we observed a consistent month-over-month increase in mattress average selling prices, indicating strong and growing consumer acceptance of our new product offerings and showrooms.

Rob DeMartini: This indicates strong and growing consumer acceptance of our new product offerings and showrooms. Over half of our showroom locations opened more than 12 months ago had positive sales in the quarter. On our e-commerce channel, revenue was down 5.7% for the second quarter as our efforts to improve personalization and streamline the website have taken longer than initially expected.

Todd Vogensen: Over half of our showroom locations opened more than 12 months and had positive sales in the quarter.

Todd Vogensen: In our e-commerce channel, revenue was down 5.7% for the second quarter as our efforts to improve personalization and streamline the website have taken longer than initially expected.

Rob DeMartini: Encouragingly, e-commerce gross margins improved meaningfully year over year, helped by price increases, lower discounting, and a range of initiatives to lower product costs while maintaining quality. We also were more efficient with our media while still supporting omni-channel traffic. Meanwhile, the partnerships we've cultivated with our retailers to expand and showcase our premium assortment led to a 7.2% year-over-year increase in wholesale channel net revenue. This performance was highlighted by solid growth in our top accounts.

Todd Vogensen: Encouragingly, e-commerce gross margins improved meaningfully year over year, helped by price increases, lower discounting, and a range of initiatives to lower product costs while maintaining quality.

Todd Vogensen: We also were more efficient with our media while still supporting omni-channel traffic.

Todd Vogensen: Meanwhile, the partnerships we've cultivated with our retailers to expand and showcase our premium assortment led to a 7.2% year-over-year increase in wholesale channel net revenue.

Todd Vogensen: This performance was highlighted by solid growth in our top accounts, as well as DOORS we've added since last year.

Rob DeMartini: As well as the doors we've added since last, As we look to the back half of 2024, we remain focused on five key initiatives to drive sustainable and profitable growth, which are first, Prioritizing productivity in our existing wholesale and showroom doors. Second, improving our marketing effectiveness. Third, driving e-commerce conversions. Fourth, bringing new products and innovations to the market.

Todd Vogensen: As we look to the back half of 2024, we remain focused on five key initiatives to drive sustainable and profitable growth, which are, first, prioritizing productivity in our existing wholesale and showroom doors.

Todd Vogensen: Second, improving our marketing effectiveness.

Todd Vogensen: Third, driving e-commerce conversions.

Todd Vogensen: Fourth, bringing new product and innovations to the market.

Todd Vogensen: And fifth, driving gross margin improvement through manufacturing and supply chain optimization, which Eric will discuss shortly.

Rob DeMartini: And fifth, driving gross margin improvement through manufacturing and supply chain optimization, which Eric will discuss shortly. First, we're prioritizing the productivity of our existing wholesale and showroom doors. In our wholesale channel, we continue to improve the quality of our partnerships and expanded our co-op advertising relationships with several key accounts. Looking ahead, we're continuing to invest and expect to launch more marketing partnerships in the future, which should drive door productivity. In our showroom channel, as we previously discussed, we're focusing on increasing the productivity and profitability of our existing fleet.

Todd Vogensen: First, we're prioritizing the productivity of our existing wholesale and showroom doors.

Eric Hainer: In our wholesale channel, we continue to improve the quality of our partnerships and expanded our co-op advertising relationships with several key accounts.

Eric Hainer: Looking ahead, we're continuing to invest and expect to launch more marketing partnerships in the future, which should drive door productivity.

Eric Hainer: In our showroom channel, as we previously discussed, we're focusing on increasing the productivity and profitability of our existing fleet.

Rob DeMartini: The work we're doing includes establishing a more focused selling environment with new demand-driven tactics such as mattress carryout services and increased in-store pillow inventory. Additionally, we rolled out a new consumer financing partnership at the end of May that more closely aligns with industry standards.

Eric Hainer: The work we're doing includes establishing a more focused selling environment with new demand driving tactics such as mattress carryout services and increased in-store pillow inventory.

Eric Hainer: Additionally, we rolled out a new consumer financing partnership at the end of May that more closely aligns with industry standards.

Rob DeMartini: The new financing should help drive customers to trade up and increase attachment rates of accessories. Along with these top-line enhancements, we continue to improve showroom operating costs through labor and other store expense optimization activities that are enhancing profitability. Second, is improving our marketing effect. Our marketing will support profitable growth in two ways, by enhancing creative and by improving media efficiency. In terms of enhancing creative, the premium branding we launched last year in connection with our new product office has been outperforming the previous branding, and we believe there's potential to further evolve the marketing creative to attract more consumers.

Eric Hainer: The new financing should help drive customers to trade up and increase attachment rates of accessories.

Eric Hainer: Along with these top-line enhancements, we continue to improve showroom operating costs through labor and other store expense optimization activities that are enhancing profitability.

Eric Hainer: Second is improving our marketing effectiveness.

Eric Hainer: Our marketing will support profitable growth in two ways, by enhancing creative and by improving media efficiency.

Eric Hainer: In terms of enhancing creative, the premium branding we launched last year in connection with our new product offerings has been outperforming the previous branding and we believe there's potential to further evolve the marketing creative to attract more consumers.

Rob DeMartini: Purple Marketing grabbed attention, educated, entertained, drove curiosity, and inspired sharing, and we believe there's opportunity to bring more of those elements into our premium brand. Next, we're focusing on media efficiency through a deeper understanding of our customers, their media usage, and their shopping behavior. We're directing spend to underpenetrated, high-sales potential geographies, adjusting the cadence of our ad spend to align with the consumer demand period, and shifting some of our upper funnel spend closer to key wholesale distribution. Additionally, we recently moved digital media management back in-house to increase agility and performance.

Eric Hainer: Marketing grabbed attention, educated, entertained, drove curiosity, and inspired sharing. And we believe there's opportunity to bring more of those elements into our premium branding.

Eric Hainer: Next, we're focusing on media efficiency through deeper understanding of our customers, their media usage, and their shopping behavior.

Eric Hainer: We're directing spend to underpenetrated, high-sales potential geographies.

Eric Hainer: Adjusting the cadence of our ad spend to align with consumer demand periods.

Eric Hainer: and shifting some of our upper funnel spend closer to key wholesale distribution points.

Eric Hainer: Additionally, we recently moved digital media management back in-house to increase agility and performance.

Rob DeMartini: Our third initiative is driving e-commerce conversion. As we discussed on our last earnings call, our focus in Q1 was on improving e-commerce profitability. And in Q2, we turned our attention to driving conversion improvements through personalization and streamlining of the website. We've not seen meaningful results yet, but we continue to focus on these efforts.

Eric Hainer: Our third initiative is driving e-commerce conversion.

Eric Hainer: As we discussed on our last earnings call, our focus in Q1 was on improving e-commerce profitability. And in Q2, we turned our attention to driving conversion improvements through personalization and streamlining of the website.

Eric Hainer: We've not seen meaningful results yet, and we continue to focus on these efforts.

Rob DeMartini: Fourth, we remain committed to bringing new products and innovation to market. As a company born from innovation, we believe that to engage customers, we need differentiated and effective product benefits that reward customers when they trade up. Our Path to Premium Sleep strategy is working and is allowing us to weather these difficult times. We'll continue to invest in innovation to help grow the category and get more people sleeping well. Our customer research and low return rates indicate this direction is sound.

Eric Hainer: Fourth, we remain committed to bringing new products and innovation to market.

Speaker Change: As a company born from innovation, we believe that to engage customers, we need differentiated and effective product benefits that reward customers when they train up.

Speaker Change: Our Path to Premium Sleep strategy is working and is allowing us to weather these difficult times.

Speaker Change: We'll continue to invest in innovation to help grow the category and get more people sleeping well.

Speaker Change: Our customer research and low return rates indicate this direction is sound.

Rob DeMartini: Our research and development initiatives are generating new and more cost-effective technologies and intellectual property, which not only helps demonstrate our commitment to leadership in the sleep category but positions Purple for the next stage of growth. We expect multiple new product launches across our major product categories over the next 12 to 18 months as we continue to drive our path to premium sleep strategy and look forward to furthering Purple's position as the premier sleep innovator. I'll now turn the call over to Eric to discuss with you our fifth key initiative.

Speaker Change: Our research and development initiatives are generating new and more cost-effective technologies and intellectual property, which not only helps demonstrate our commitment to leadership in the sleep category, but positions Purple for the next stage of growth.

Speaker Change: We expect multiple new product launches across our major product categories over the next 12 to 18 months as we continue to drive our path to premium sleep strategy and look forward to furthering Purple's position as the premier sleep innovator.

Speaker Change: I'll now turn the call over to Eric to discuss with you our fifth key initiative.

Eric Hainer: Thanks, Rob. It's a pleasure to be speaking with everyone today. Over the last year, our team has focused on driving cost savings through supply chain initiatives and manufacturing efficiency, which led to a significant breakthrough in gross margin in the second quarter. Gross margin was up more than 1000 basis points year over year and 590 basis points sequentially, exceeding our recent improvement trajectory and meeting our 40% year-end target midway through 2024.

Eric Hainer: Gross margin was up more than 1,000 basis points year over year and 590 basis points sequentially, exceeding our recent improvement trajectory and meeting our 40% year-end target midway through 2024.

Eric Hainer: When you normalize that for the premium product launch, in fact, in 23, the gross margin improvement was still noteworthy, up 350 basis points year over year. It's a meaningful structural improvement in our volume-dependent input costs that we believe we can sustain going forward. In order to deliver these cost changes, the operations team pulled on four primary levers.

Eric Hainer: When you normalize that for the premium product launch, in fact, in 2023, the gross margin improvement was still noteworthy, up 350 basis points year-over-year. It's a meaningful structural improvement in our volume-dependent input costs that we believe we can sustain going forward.

Eric Hainer: In order to deliver these cost changes, the operations team pulled on four primary levers. First, we delivered direct material cost savings from our supplier diversification efforts, becoming less dependent on sole source materials.

Eric Hainer: First, we delivered direct material cost savings from our supplier diversification efforts, becoming less dependent on sole source material. Second, we generated strong efficiency gains in our plants. Third, we're driving improved scrap and yield results from our continuous improvement efforts. And finally, our scheduled delivery program for outbound freight is giving us both cost improvements and improved delivery reliability. As I look forward, we're optimistic about the additional opportunities we see ahead of us. We still have more supplier diversification work that we expect will deliver savings later this year, and we continue to optimize our outbound freight network.

Eric Hainer: Second, we generated strong efficiency gains in our plans.

Eric Hainer: Third, we're driving improved scrap and yield results from our continuous improvement efforts. And finally, our scheduled delivery program for outbound freight has given us both cost improvements and improved delivery reliability.

Eric Hainer: As I look forward, we're optimistic about additional opportunities we see ahead of us. We still have more supplier diversification work that we expect will deliver savings later this year, and we continue to optimize our outbound freight network.

Eric Hainer: Additionally, our lean manufacturing efforts are already manifesting themselves in plant performance improvement. While there are some headwinds, such as inbound freight from overseas suppliers and freight mode mix on some of our outbound delivery costs, we do expect these are going to be manageable, and they're not going to limit our ability to improve our cost of goods. We've made great strides to figure out how to run the company profitably at this size, and we believe there's room for continued improvement on all of our input costs, inclusive of landed materials, conversion labor, plant yields, and outbound freight.

Eric Hainer: Additionally, our lean manufacturing efforts are already manifesting themselves in plant performance improvements.

Eric Hainer: While there are some headwinds, such as inbound freight from overseas suppliers and freight mode mix on some of our outbound delivery costs, we do expect these are going to be manageable and they're not going to limit our ability to improve our cost of goods.

Eric Hainer: We've made great strides to figure out how to run the company profitably at this size, and we believe there's room for continued improvement on all of our input costs, inclusive of landed materials, conversion labor, plant yields, and outbound freight.

Eric Hainer: One last thing I'd like to highlight is that in Q2, we completed the deployment of a systemic planning capability that's already given us improved visibility and control over our inventory management. We expect this will provide some nice gains in our inventory cash requirements. All this ongoing work is going to greatly benefit our bottom line and shareholder value as the market rebounds and our growth accelerates. I'll now turn the call over to Todd to take us through the financials and our expectations for the back half of 24. Todd?

Eric Hainer: One last thing I'd like to highlight is that in Q2, we completed deployment of a systemic planning capability that's already given us improved visibility and control over our inventory management. We expect this will provide some nice gains in our inventory cash requirements.

Eric Hainer: All this ongoing work is going to greatly benefit our bottom line and shareholder values as the market rebounds and our growth accelerates. I'll now turn the call over to Todd to take us through the financials and our expectations for the back half of 24. Todd?

Todd Vogensen: For the three months ending June 30, 2024, net revenue was $120.3 million, an increase of 2% compared to $117.9 million last year. The increase was largely due to the growing positive response to our new product line. By Channel, Wholesale Net Revenue increased 7.2% in the period, driven primarily by strong demand for our new product line. Direct to Consumer Net Revenue was down 1.8% in the second quarter, with e-commerce declines at 5.7% being offset by a 10.6% increase in showroom net revenue.

Todd Vogensen: Thanks, Eric.

Todd Vogensen: For the three months into June 30, 2024, net revenue was $120.3 million, an increase of 2% compared to $117.9 million last year.

Todd Vogensen: The increase was largely due to the growing positive response to our new product lineup.

Todd Vogensen: By channel, wholesale net revenue increased 7.2% in the period, driven primarily by strong demand for our new product line.

Todd Vogensen: Direct-to-consumer net revenue was down 1.8% in the second quarter, with e-commerce declines of 5.7% being offset by a 10.6% increase in showroom net revenue.

Todd Vogensen: The double-digit growth in showrooms was driven by the addition of four net new showrooms over the past 12 months, along with higher mattress ASPs compared to last year, as we continue to successfully sell customers on the benefits of our higher-tiered product set.

Todd Vogensen: Gross profit was $48.9 million during the second quarter compared to $35.5 million during the same period last year, with gross margin at 40.7% versus 30.1% last year. To note, when adjusting for launch costs in the prior year period, our gross margin still expanded by 350 basis points. On a sequential basis, gross profit improved $7.2 million, or 17%, and the Gross Margin Rate improved 590 basis points. This significant improvement in gross margin was largely due to the operational efficiency improvements implemented over the last 12 months that Eric just covered for us, along with comparability to the Yugo period, which contains significant non-recurrent costs related to our new product line.

Todd Vogensen: Gross profit was $48.9 million during the second quarter compared to $35.5 million during the same period in 2024, with gross margin at 40.7% versus 30.1% last year.

Todd Vogensen: To note, when adjusting for launch costs in the prior year period, our gross margins still expanded by 350 basis points.

Todd Vogensen: On a sequential basis, gross profit improved $7.2 million, or 17%.

Todd Vogensen: and Gross Margin Rate improved 590 basis points.

Todd Vogensen: The significant improvement in gross margin was largely due to the operational efficiency improvements implemented over the last 12 months that Eric just covered for us.

Todd Vogensen: Along with comparability to the Yugo period, which contains significant non-recurrent costs related to our new product launch.

Todd Vogensen: Operating expenses were $63.5 million, compared to $75.7 million in the second quarter of 2023. The decrease was driven by an $8.3 million decrease in G&A expense related to the non-recurrence of specialty costs from 2023, along with a $4.2 million reduction in advertising. As a percentage of net revenue, operating expenses improved by more than 1,000 basis points to 52.8% compared to 64.3% in the second quarter of 2023. As a result, the adjusted net loss in the second quarter of 2024 was $13.8 million compared to an adjusted net loss of $23.9 million last year.

Todd Vogensen: Operating expenses were $63.5 million compared to $75.7 million in the second quarter of 2023.

Todd Vogensen: The decrease was driven by an $8.3 million decrease in G&A expense related to the non-recurrence of special aid costs from 2023.

Todd Vogensen: along with a 4.2 million dollar reduction in advertising spent.

Todd Vogensen: As a percentage of net revenue, operating expenses improved more than 1,000 basis points to 52.8% compared to 64.3% in the second quarter of 2023.

Todd Vogensen: As a result, adjusted net loss in the second quarter of 2024 was $13.8 million compared to an adjusted net loss of $23.9 million last year.

Todd Vogensen: But Justin Dibita was negative 4.1 million versus negative 21.5 million a year ago, and the second quarter adjusted loss per share was 13 cents compared to an adjusted loss per share of 23 cents in the second quarter of 2023.

Justice Iveda: Justice Iveda was negative 4.1 million versus negative 21.5 million a year ago.

Justice Iveda: And second quarter adjusted loss per share was $0.13 compared to an adjusted loss per share of $0.23 in the second quarter of 2023.

Todd Vogensen: Now turning to the balance sheet. At the end of June, we had cash and cash equivalents of $23.4 million, compared with $26.9 million at December 31, 2023. Note that our cash balance does not include an incremental $7.3 million received from an insurance settlement in early July.

Justice Iveda: Now turning to the balance sheet.

Justice Iveda: At the end of June , we had cash and cash equivalents of $23.4 million, compared with $26.9 million at December 31, 2023.

Justice Iveda: Note that our cash balance does not include an incremental 7.3 million dollars received from an insurance settlement in early July .

Todd Vogensen: Net inventories on June 30, 2024 were $69.7 million, down 11.2% compared to June 30, 2023, and up 4.2% compared to December 31, 2023. Turning now to our outlook for the balance of 2024. We outlined our initial guidance for 2024 on our fourth quarter call in March. We discussed how achieving our targets was not predicated on market conditions improving. That said, it did not contemplate industry demand slowing further following two years of double-digit decline.

Justice Iveda: Net inventories on June 30, 2024 were $69.7 million, down 11.2% compared to June 30, 2023, and up 4.2% compared to December 31, 2023.

Justice Iveda: Turning now to our outlook for the balance of 2024.

Justice Iveda: We outlined our initial guidance for 2024 on our fourth quarter call in March. We discussed how achieving our targets was not predicated on market conditions improving.

Justice Iveda: That said, it did not contemplate industry demand slowing further, following two years of double-digit declines.

Todd Vogensen: This change is the primary driver for us adopting a more conservative top-line view for the remainder of 2024. As a result, we're lowering our full year 2024 net revenue outlook from a range of $540 to $560 million to a range of $490 to $510 million. In addition to current market events, our updated outlook reflects lower e-commerce sales as we continue to refine our go-forward strategy and prioritize profitability over growth for this channel in the near term.

Justice Iveda: This change is the primary driver for us adopting a more conservative top-line view for the remainder of 2024.

Todd Vogensen: However, due to our strong gains in operational efficiency, we do not expect the lower top line to impact adjusted EBITDA, and we're reaffirming adjusted EBITDA to be between $20 million and negative $10 million for the full year, including our expectation to achieve adjusted EBITDA profitability in the fourth quarter. Even at these lower expected net revenue levels. For your modeling purposes, we expect third-quarter profit to be impacted by deleverage from lower than expected volumes, which will be more than offset by incremental sourcing, production efficiency, and other cost savings in the fourth quarter. And now, I'll turn the call back over to Rob for his closing comments.

Justice Iveda: As a result, we're lowering our full year 2024 net revenue outlook from a range of $540 to $560 million to a range of $490 to $510 million.

Justice Iveda: In addition to current market trends, our updated outlook reflects lower e-commerce sales as we continue to refine our go-forward strategy and prioritize profitability over growth for this channel in the near term.

Justice Iveda: However, due to our strong gains in operational efficiency, we do not expect the lower top line to impact adjusted EBITDA, and we're reaffirming adjusted EBITDA to be between negative $20 million and negative $10 million for the full year.

Justice Iveda: including our expectation to achieve adjusted EBITDA profitability in the fourth quarter even at these lower expected net revenue levels.

Justice Iveda: For your modeling purposes, we expect third-quarter profit to be impacted by deleverage from lower-than-expected volumes, which will be more than offset by incremental sourcing, production efficiency, and other cost savings in the fourth quarter.

Justice Iveda: And now, I'll turn the call back over to Rob for his closing comments.

Rob DeMartini: Thank you, Todd. Thank you, Eric.

Rob DeMartini: While we remain in a very difficult demand environment, we're committed to focus on the areas we can control and to continue to adapt our business model to ensure we can weather the current market conditions. Create the runway to enable this strong brand to accelerate growth when market conditions improve. We expect to exit the year with stronger gross margins, improved cost management, and effective marketing and innovation investments that will produce positive cash flow and enable continued investment and growth.

Rob DeMartini: Thank you, Todd. Thank you, Eric. While we remain in a very difficult demand environment, we're committed to focus on the areas we can control and to continue to adapt our business model to ensure we can weather the current market conditions.

Speaker Change: Create the runway to enable this strong brand to accelerate growth when market conditions improve.

Speaker Change: We expect to exit the year with stronger gross margins, improved cost management, and effective marketing and innovation investments that will produce positive cash flow and enable continued investment and growth.

Rob DeMartini: There is no question about this brand's staying power. People want and love Purple. Purple has the highest satisfaction rate in the category, with 98% of customers loving their Purple Max.

Speaker Change: There is no question about this brand staying power. People want and love Purple. Purple has the highest satisfaction rate in the category with 98% of customers loving their Purple mattress.

Rob DeMartini: Testament to the Integrity of Our Innovative Products, that strong satisfaction and brand affinity leads to consumers talking about our brand. Our unaided brand awareness is second highest in the category, with many of our customers coming to Purple from friends and family recommendations. This category needs innovators and brand investors. We have been and continue to be committed to growing the category through product innovation, marketing awareness, and omni-channel availability. I'd like to end by thanking our partners, suppliers, and customers as we continue to guide this young company through very difficult market conditions. I'd also like to thank all our Purple associates for their commitment to helping more consumers sleep well.

Speaker Change: A testament to the integrity of our innovative product.

Speaker Change: That strong satisfaction and brand affinity leads to consumers talking about our brand.

Speaker Change: Our unaided brand awareness is second highest in the category, with many of our customers coming to Purple from friends and family recommendations.

Speaker Change: This category needs innovators and brand investors.

Speaker Change: We have been and continue to be committed to growing the category through product innovation, marketing awareness, and omni-channel availability.

Speaker Change: I'd like to end by thanking our partners, suppliers, and customers as we continue to navigate this young company through very difficult market conditions.

Speaker Change: I'd also like to thank all our Purple Associates for their commitment to help more consumers sleep well.

Operator: We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been answered and you would like to withdraw your question, please press star, then two. And our first question for today will come from Bobby Griffin with Raymond James. Please go ahead.

Speaker Change: Operator.

Speaker Change: We will now begin the question and answer session.

Speaker Change: To ask a question, you may press star then 1 on your touchtone phone. If you're using a speakerphone, please pick up your handset before pressing the keys.

Speaker Change: If at any time your question has been addressed, and you would like to withdraw your question, please press star, then 2. And our first question for today will come from Bobby Griffin with Raymond James. Please go ahead.

Bobby Griffin: Good afternoon, everybody. Thanks for taking my questions and congrats to the team on the nice improvement in gross margin. Thanks, Bobby.

Bobby Griffin: Good afternoon everybody. Thanks for taking my questions and congrats to the team on the nice improvement in gross margins.

Rob DeMartini: I guess where I want to start is could you maybe just talk a little bit about the progression of the quarter and kind of what you saw throughout the quarter from a demand perspective? Did it get better as we moved through the quarter and into July and early August? And then kind of as a second part to that, I know we only have I know we rolled out the new financing tool at the end of May. So we only have two months. But have you seen anything noteworthy in those two months post that new financing offering within the showrooms?

Bollie: Thanks, Claudie.

Ezra: Ezra, I want to start, could you maybe just talk a little bit about the progression of the quarter and kind of what you saw throughout?

Bobby Griffin: The quarter from a demand perspective, did it get better as we move through the quarter and into July and early August ?

Speaker Change: And then kind of as a second part to that, I know we only have, I know we rolled out the new financing tool at the end of May, so we only have two months, but have you seen anything noteworthy in those two months post that new financing offering within the showrooms?

Rob DeMartini: Yeah, Bobby, let me answer both of those questions, and I'll answer them in reverse order.

Rob DeMartini: I think that financing is clearly driving trade up and attachment in our showrooms. ASP for mattresses is up 8% across the business and up a staggering 32% in showrooms, quarter versus year ago. Now be careful with that 32% because that was when we were liquidating, getting ready for the launch.

Speaker Change: Yeah Bobby, let me answer both those and I'll answer them in reverse order. I think that financing is clearly driving trade-up and attachment in our showrooms.

Speaker Change: ASP for mattresses is up 8% across the business and up a staggering 32% in showrooms.

Speaker Change: Quarter versus year ago. Now be careful with that 32 because that was when we were liquidating, getting ready for the launch, but at least half of that is absolute trade up in dollars.

Rob DeMartini: But at least half of that is absolute trade up in dollars. That's being driven by financing. It's not working as well for us in e-commerce. And we're still trying to figure out what that is, where we still offer two different partners. So that's on us and execution.

Rob DeMartini: But yes, we do believe that it'll drive, it'll help enable the path to premium sleep strategy because that's built on trade up, and it will improve attachment, and in showrooms, where we have the most control of it, it is working. The first part of your question was about the shape of the quarter, and, you know, it was relatively steady through the quarter; it got a little softer as the quarter went on, and more volume concentrated around the holidays, which has been a continuation of what we have seen. Our e-commerce business was weak in volume but strong in margin. And I think we've got, you know, we're just sharing that concern for the year to go on top.

Speaker Change: That's being driven by financing. It's not working as well for us in e-commerce, and we're still trying to figure out what that is, where we still offer two different partners. So that's on us and executional.

Speaker Change: But yes, we do believe that it'll drive, it'll help enable the path to premium sleep strategy because that's built on trade up and it will improve attachment and in showrooms where we have the most control of it, it is working.

Speaker Change: The first part of your question was on the shape of the quarter and, you know, it was relatively steady.

Speaker Change: It got a little softer as the quarter went on and more volume concentrated around the

Speaker Change: Holidays, which has been a continuation of what we have seen. Our ecommerce business was weak in volume, but strong in margin. And I think we've got, you know, we're just sharing that concern in the year to go on the top line.

Todd Vogensen: Okay, very good. And then maybe one for you, Todd, just on 4Q, moving to positive adjusted EBITDA, would that translate into positive free cash flow as well? Or do we still have a little bit more work to get the business to positive free cash flow?

Speaker Change: Okay, very good. And then maybe one for you, Todd, just on 4Q, moving to positive adjusted EBITDA, would that translate into positive free cash flow as well or do we still have a little bit more work to get the business towards a positive free cash flow?

Todd Vogensen: Yeah, it will translate into positive free cash flow. We have a number of things that Eric and his team are working on around inventory management, which provides an opportunity for us from a working capital perspective, and that positive EBITDA really does drop through to cash very quickly for us.

Todd Vogensen: Yeah, it will translate into positive free cashflow. We have a number of things that Eric and team are working on around inventory management, which

Speaker Change: provides an opportunity for us from a working capital perspective and that that positive EBITDA really does drop through to cash very quickly for us.

Todd Vogensen: Okay, very good. And is there any, just quickly, just for housekeeping, looks like CapEx is running roughly 5-ish million or so year-to-date. Is 10-ish million a good estimate of where it will end this year, or is there a little bit more spinning in the back half?

Speaker Change: Okay, very good. And is there any, just quickly, just for housekeeping, looks like CapEx is running roughly 5-ish million or so year-to-date. Is 10-ish million a good estimate of where we'll end this year? Is there a little bit more spinning in the back half?

Todd Vogensen: No, it should be pre-routable. So at $10 million, that is a fair estimate for the year. Okay.

Speaker Change: No, it should be pre-routable so at 10 million that is a fair estimate for the year.

Bobby Griffin: Okay, I'll jump back in the queue and turn it over to somebody else, but I appreciate the details and congrats on the gross margin side of things.

Speaker Change: Okay, I'll jump back in the queue and turn over to somebody else, but I appreciate the details and congrats on the gross margin side of things.

Operator: The next question will come from Brad Thomas with KeyBank Capital Markets. Please go ahead.

Speaker Change: Thank you, Bobby. Thank you.

Speaker Change: The next question will come from Brad Thomas with KeyBank Capital Markets. Please go ahead.

Brad Thomas: Hi, good afternoon. And that's a good segue to talking about the wonderful gross margins we had in the quarter. I was hoping maybe we could talk a little bit about how you think gross margin will play out in the back half of the year. And how, if it all is different, to think about the long-term opportunity here for gross margin.

Brad Thomas: Hi, good afternoon, and that's a good segue to talking about the wonderful gross margins in the quarter.

Brad Thomas: I was hoping maybe we could talk a little bit about how you're thinking about Grossmargin playing out in the back half of the year.

Speaker Change: And how, if at all, it's different to think about the long-term opportunity here for gross margin.

Eric Hainer: Thanks Brad, this is Eric. I'll take the, especially how we think we're going to deliver it in the long-term prognosis. You know, as we talked, we have the four levers that we're pulling on, which are, you know, our material costs by diversifying suppliers, efficiencies in our plants, eliminating scrap, and optimizing our freight, and we haven't run out of ideas there, so we've got more that's dropping, particularly in Q4, and we have expectations that we will continue to have areas to optimize that going forward.

Speaker Change: Thanks, Brad. This is Eric. I'll take the, especially how we think we're going to deliver it in the long-term for our offices.

Speaker Change: You know, as we talked, we got the four levers that we're pulling on, which is, you know, our material costs by diversifying suppliers.

Speaker Change: Efficiencies in our plants, eliminating scrap and optimizing our freight, and we haven't run out of ideas there, so we've got more that's dropping, particularly in Q4, and we have expectations that we'll continue to have areas to optimize that going forward.

Eric Hainer: Yeah, and as it plays out for the year, what that will mean for us is we are going to see a little bit of headwind on margin in Q3, just due to due leverage as we're adjusting our production volumes to be more in line with our revenue guidance that we gave today. But that is more than offset by some of the opportunities that we have, especially around supplier diversification and operational efficiencies as we get into Q4. So that puts us in a place where that 40% plus is a very much sustainable rate for us that we can grow from over the long term.

Speaker Change: Yeah, and as it plays out for the year, what that will mean for us is we are going to see a little bit of headwind on margin in Q3 just due to due leverage as we're adjusting our production volumes to be more in line with our revenue guidance that we gave today.

Speaker Change: But that is more than offset by some of the opportunities that we have, especially around supplier.

Speaker Change: Diversification, operational efficiencies as we get into Q4. So that puts us in a place where that 40% plus is very much a sustainable rate for us that we can grow from over the long term.

Rob DeMartini: I appreciate it. And if I could follow up on the sales outlook, If we're doing the math right, it looks like the second half guidance goes to where you're projecting revenues to be down somewhere in the neighborhood of 5% to about 12%. For one, are we doing the math right? And for two, can you just help us get a little bit more flavor for what it is that's driving that level of deceleration in the business?

Speaker Change: I appreciate it. And if I could follow up on the sales outlook, if we're doing the math right, it looks like the second half guidance goes to where you're projecting revenues to being down somewhere in the neighborhood of 5% to about 12%.

Speaker Change: For one, are we doing the math right? And for two, can you just help us get a little bit more flavor for what it is that's driving that level of the deceleration of the business?

Rob DeMartini: I think, Brad, I think it's two things. One, you know, our comps are tougher in the back half because of the launch last year, but the bigger driver is we're just not seeing people come to buy MAP, and we did 120 in the first two quarters. The low end of the range would see a modest improvement from that, and the high end of the range would see, you know, a bit more medium improvement from that. I just don't see the signals that this thing's about to get healthy in the short run.

Speaker Change: I think, Brad, I think it's two things. One, you know, our comps are tougher in the back half because of the launch last year, but the bigger driver is we're just not seeing people come to buy mattresses.

Speaker Change: and we did 120 in the first two quarters. The low end of the range would see a modest improvement from that, and the high end of the range would see, you know, a bit more medium improvement from that.

Speaker Change: I just I just don't see the signals that this thing's about to get ready to get healthy in the short run.

Rob DeMartini: That's a really helpful perspective, Rob. And just a follow-up on that. If the environment stays tough like this for another six months, can you help us think a little bit about what revenue or marketing strategies you may be employing in the future to try to gain some additional traction here?

Speaker Change: That's really helpful perspective, Rob. And just a follow up on that. If the environment stays tough like this for another six months, can you help us think a little bit about what revenue or marketing strategies you may be employing in the future to try to gain some additional traction here?

Rob DeMartini: Let me start with something that we didn't put in the script, but I think as you guys work on your models, we're protecting profit in the year, we are maintaining our marketing investment, and we're maintaining our innovation investment. So those are levers that haven't been pulled to protect the bottom line, and we don't want to. As the year unfolds, we'll obviously have to do whatever we have to do.

Speaker Change: Let me start with something that we didn't put in the script, but I think as you guys work on your models, what we're protecting the profit in the year, we are maintaining our marketing investment and we're maintaining our innovation investment.

Speaker Change: So that those are levers that haven't been pulled to protect the bottom line and we don't want to

Rob DeMartini: But, you know, I think in general, we need people investing in this category at the rates that we are, and we're going to try to hold our ground and best position the company to perform in this market today and be ready for a market that gets better, you know, at some point.

Speaker Change: You know, as the year unfolds, we'll obviously have to do whatever we have to do, but, you know, I think in general, we need people investing in this category at the rates that we are, and we're gonna try to hold our ground and.

Speaker Change: Best position the company to perform in this market today and be ready for a market that gets better, you know, at some point.

Brad Thomas: Very helpful. Thanks, Rob.

Operator: The next question will come from Matt Koranda with Roth Capital. Please go ahead.

Rob DeMartini: Very helpful. Thanks, Rob.

Rob DeMartini: The next question will come from Matt Koranda with Roth Capital. Please go ahead.

Matt Koranda: Hey, guys, just maybe wanted to get a finer point on the third quarter commentary that you gave there, Todd. You mentioned it sounded like volume down, potentially year over year, any finer point on just the revenue split that we should assume for the third and fourth quarter, and then you said de-leverage on gross margin in the third quarter. I would assume you mean sequentially on the de-leverage commentary, any commentary around the magnitude of that de-leverage that we should expect in the third quarter and then what we have to make up for in the fourth quarter to hit that profitability. Yeah, so first, you are corrected.

Matt Koranda: Hey guys, just maybe wanted to get a finer point on the third quarter commentary that you gave there, Todd. So you mentioned it sounded like volume down potentially year over year. Any finer point on just the revenue split that we should...

Speaker Change: Assume for the third and fourth quarter, and then you said de-leverage on gross margin in the third quarter. I would assume you mean sequentially on the de-leverage commentary. Any, you know, any commentary around the magnitude of that de-leverage that we should expect.

Speaker Change: In the third quarter, then what we have to make up for in the fourth quarter to hit that profitability number.

Todd Vogensen: It was meant to be a sequential comment. So, we were at 40.7% in Q2. The leverage should be fairly modest from that. So, you know, I would expect to see a little bit lower gross margin rate as we go into Q3, but then it will be more than offset as we go into Q4. And to put a finer point on the volume, it's really production volume that we're talking about. Sales volume should actually be sequentially higher in Q3 versus Q2.

Speaker Change: Yeah, so first you are corrected. It was meant to be a sequential comment. So we were at 40.7% in Q2.

Speaker Change: The leverage should be fairly modest from that. So, you know, I would expect to see.

Speaker Change: A little bit lower gross margin rate as we go into Q3.

Speaker Change: But then more than offset as we go into Q4. And to put a finer point on the volume, it's really production volume that we're talking about. The sales volume should actually be sequentially up in Q3 versus Q2.

Todd Vogensen: But what flows through the P&L obviously is the value that we're producing against, which we've adjusted to reflect that lower revenue guidance relative to what we had originally been expecting as we were planning out our production for the year. So that's the dynamic that's playing out as we go into Q3. And that kind of writes itself as we go into Q4. Okay, gotcha.

Speaker Change: But what flows through the P&L obviously is the value that we're producing against, which

Speaker Change: We've adjusted to reflect that lower revenue guidance relative to what we had originally been expecting as we were planning out our production for the year.

Speaker Change: That's the dynamic that's playing out as we go into Q3 and that kind of writes itself as we go into Q4.

Rob DeMartini: And then just, Rob, I guess you mentioned a willingness to continue to spend on sales and marketing as we head into the back half of the year. So we're not necessarily aiding profit by cutting into those. Can you just speak to where you're seeing opportunity to lean into marketing? Are we seeing anything in digital? What's the state of play there and how we think about sort of whether we're increasing that line item sequentially and back up.

Rob DeMartini: Okay, gotcha. And then just, Rob, I guess you mentioned, you know, a willingness to continue to spend on sales and marketing as we head into the back half of the year, so we're not necessarily

Speaker Change: Can you speak to where you're seeing opportunity to lean into marketing? Are we seeing anything in digital? What's the just the state of play there and how we think about sort of the

Speaker Change: Whether we're increasing that line item sequentially and back half of the year.

Rob DeMartini: Yeah, I don't, Matt, I don't think we see enough to increase it. We are going to hold it, and, you know, we are, Kira's working on, as I said in the script, trying to get a little more breakthrough into our media.

Speaker Change: Yeah, I don't, Matt, I don't think we see enough to increase it. We are going to hold it. And, you know, we are, Cura's working on

Kira: As I said in the script, trying to get a little more breakthrough into our media. We know it's performing better than what we've been running lately, but it's not back to that level of...

Rob DeMartini: We know it's performing better than what we've been running lately, but it's not back to the level of the kind of viral leverage that Purple had a number of years ago. I don't know that we can get back to that in this market, to be honest, but we can do better. The second thing we're doing is trying to put it closer to the point of consumption. That's the partnerships with retailers that bring spending closer to the showrooms while continuing to invest heavily in digital. So, you know, it's just you're constantly trying to make that significant investment work harder. We are an over investor. We're trying to build the category and try to build our business in the process.

Kira: had a viral leverage that Purple had a number of years ago. I don't know that we can get back to that in this market, to be honest, but we can do better. The second thing we're doing is trying to put it closer to point of consumption.

Kira: That's the partnerships with retailers, that's spending closer to the showrooms while continuing to invest.

Kira: heavily in digital. So, you know, it's just you're constantly trying to make that significant investment work harder. We are an over-investor. We're trying to build the category and try to build our business in the process.

Todd Vogensen: Okay, gotcha. Maybe just one more quickly on the balance sheet. Todd, you mentioned there was a $7 million positive, I think after the quarter closed, so that's not included in the cash in the second quarter. Given that we're sort of inflecting the EBITDA positive in the fourth quarter, and you mentioned pre-cash flow should be positive. Is it a fair assumption to say that 2Q might have been the trough in cash for the year? It just seems like a reasonable way to do the math, but I wanted to hear your thoughts on that. No, you're thinking about it, right?

Speaker Change: Okay, gotcha. Maybe just one more quickly on the balance sheet.

Speaker Change: Todd, you mentioned there was a $7 million dollar positive, I think, after the quarter closed, so that's not included in the cash.

Speaker Change: In the second quarter, given that we're sort of inflecting the EBITDA positive in the fourth quarter, and you mentioned pre-cash flow should be positive, is it a fair assumption to say that 2Q might have been the trough in cash?

Speaker Change: for the year. It just seems like a reasonable way to do the math, but wanted to hear your thoughts on that.

Todd Vogensen: So, yes, getting to a point where, when you do the pro forma of adding that $7 million insurance settlement into it, if it had been there at the end of Q2, our cash balance would have been about $31 million. I, as we look at opportunities around working capital, as we get to the point of being even positive in cash flow positive in Q4, we certainly plan to see cash. Cash returns to healthy rates and is sustainable if not growing over the course of the rest of the year. Okay, very helpful. I'll leave it there.

Speaker Change: No, you're thinking about it right. So, so yes, getting to a point where, when you do the pro forma of adding that $7 million insurance settlement into it, if it had been there at the end of Q2, our cash balance would have been about $31 million.

Speaker Change: As we look at opportunities around working capital, as we get to the point of being EBITDA positive, cash flow positive in Q4, we certainly plan to see cash

Speaker Change: I cash return to healthy rates and be sustainable, if not growing, over the course of the rest of the year.

Operator: The next question will come from... The next question will come from Seth Basham with Wedbush Securities. Please go ahead.

Speaker Change: Okay, very helpful. I'll leave it there.

Speaker Change: The next question will come from...

Speaker Change: The next question will come from Seth Basham with Wedbush Securities. Please go ahead.

Seth Basham: Thanks a lot and good afternoon. My first question is a follow-up on marketing. So if you could just give us some more color on the new co-op marketing programs they're doing. What's different about them? Are you adding more funds? Are you giving more discretion to how those funds are being spent? That would be helpful.

Rob DeMartini: Are you adding more funds? Are you giving more discretion to how those funds are being spent? That would be helpful.

Rob DeMartini: We have both those things, Seth. We've put more money available to invest in trying to harness what our customers do. You know, they spend a lot of money, and our advertising can't fit into theirs, and we've seen good progress on that. So it's both of those.

Seth Basham: Yeah, both those things, Seth. We've put more money available to invest trying to harness...

Speaker Change: What our customers do.

Speaker Change: You know, they spend a lot of money and our advertising can't fit into theirs. And we've seen good progress to that. So it's both of those. It's putting more money out there at that point. It's in fairness, it's the same dollar being moved.

Rob DeMartini: It's putting more money out there at that point, but in fairness, it's the same dollar being moved closer to the point of consumption and then having more latitude with how they use it. If we get a positive return for both of us, then we want to keep investing in it. You know, I think it's clear that our transactions trade up the category, and our advertising swings the doors for our partners. And ultimately, there's no substitution.

Speaker Change: Closer to the point of consumption and then having more latitude with how they use it if we get a positive return for both of us Then we want to keep investing in it

Speaker Change: You know, I think it's clear that our transactions trade up the category, our advertising swings the doors for our partners, and ultimately there's no substitution if a consumer wants Purple.

Rob DeMartini: If a consumer wants purple, Wright. And I think part of what we've got to do is build our way out of being positioned as a bed-in-a-box category, or in that niche, and be seen as the category leader is as a category builder. And we're working hard to make sure we do that.

Speaker Change: Right? And I think part of what we've got to do is build our way out of being positioned as a bed-in-a-box category or in that niche and being seen like the category leader is as a category builder and we're working hard to make sure we do that.

Rob DeMartini: That's helpful. Do you think you're sacrificing some advertising and or traffic slash sales on the e-commerce channel, given what you're moving to the wholesale channel?

Speaker Change: That's helpful. Do you think you're sacrificing some advertising and or traffic sales on the ecommerce channel, given what you're moving to the wholesale channel?

Rob DeMartini: Yeah, it may be, and it's something we're watching very closely. Our absolute traffic level is down a bit. Our engaged traffic is up, and conversion is where we're struggling. So the money's there, and the traffic's there digitally. We've got to figure out how to convert it better, but we are watching that because we don't want to swing, you know, one direction or two. We've got an omni-channel brand that needs to be competitive in every channel. So we're trying to get that balance right.

Speaker Change: Maybe, and it's something we're watching very closely. Our absolute traffic level is down a bit. Our engaged traffic is up.

Speaker Change: And conversion is where we're struggling. So the money's there and the traffic's there digitally. We've got to figure out how to convert it better. But we are watching that, because we don't want to swing one direction or two. We've got omni-channel brand that needs to be competitive in every channel. So we're trying to get that balance right.

Rob DeMartini: Right, okay. And in terms of the personalization and website streamlining efforts, can you give some color on what you did there and what the next step forward is to make more progress?

Speaker Change: Right, okay. And in terms of the personalization and website streamlining efforts, can you give us some color on what you did there and what the next step forward is to get more progress?

Rob DeMartini: Yeah, I mean, Seth, a year ago when we launched this new line, we brought some great products to market. But I think what we're learning is that within an unassisted sale online, it's not working as hard for us as it is in the assisted channels, both ours and our customers. I talked about the ASP. It's up 8% in total, 15% in wholesale, 32% in showrooms, and it's flat on eCommerce. Now, some of that's the shape of the mix.

Speaker Change: Yeah, I mean, Seth, we, a year ago when we launched this new line, we brought some great product.

Speaker Change: to market. But I think what we're learning is that

Speaker Change: Within an unassisted sale online, it's not working as hard for us as it is in the assisted channels, both ours and our customers.

Speaker Change: I talked about the ASP. It's up 8% in total, 15% in wholesale, 32% in showrooms, and it's flat on e-commerce.

Rob DeMartini: We do more essential business on EECOM than anywhere else, as it should be. But I want to see that needle moving, and it's not. So, as I said in the script, we've worked a lot on personalization. I can't translate for you what it's doing for the business.

Speaker Change: Now, some of that's the shape of the mix. We do more essentials business on eCom than anywhere else, as it should be. But I want to see that needle moving, and it's not yet.

Speaker Change: So, as I said in the script, we've worked a lot on personalization. I can't translate it for you in what it's doing for the business yet.

Rob DeMartini: Got it. So as you think about the outlook for revenues going forward, even beyond 2024, do you think we could shift to see DTC channels being less than half the company's sales?

Speaker Change: Got it. So as you think about the outlook for the revenues going forward even beyond 2024, do you think we could shift to see DTC channels being less than half the company's sales?

Rob DeMartini: No, I don't. You know, we want the business to be 60-40. It was 56-44 in the second quarter. We've never had wholesale above maybe 46-47 in total, and we don't think it'll be there. This is a unique brand that is best serviced where it's experienced in retail, and that's both our showrooms and wholesalers, but we don't see it swinging 60-40 wholesale.

Speaker Change: [inaudible]

Speaker Change: I don't. You know, we want the business to be 60-40.

Speaker Change: 56-44 in the first, in the second quarter.

Speaker Change: We've never had wholesale above maybe 46, 47 in total, and we don't think it'll be there. This is a unique brand that is best serviced.

Speaker Change: where it's experienced in retail and that's both our showrooms and wholesalers, but we don't see it swinging 60-40 wholesale.

Seth Basham: Got it, all right, thank you very much.

Speaker Change: Got it. All right, thank you very much.

Operator: The next question will come from Brian Nagel with Oppenheimer. Please go ahead.

Phil: Thanks, Seth.

Speaker Change: The next question will come from Brian Nagel with Oppenheimer. Please go ahead.

Brian Nagel: Hey, good afternoon. Thanks for taking my questions. So again, the first question I want to ask, you know, obviously, you're talking a lot about just now more challenging backdrop, you know, we're hearing this similar sentiment from other companies in your space around consumers. The question I have is, you know, as you're looking at Purple, particularly with the initial success of some of these new products. Assuming that the backdrop remains challenged, are there levers that, Poll, can drive the business here, or are you really at the mercy of the vaccine?

Brian Nagel: Hey, good afternoon. Thanks for taking my questions.

Brian Nagel: So, again, the first question I want to ask, you know, obviously you're talking a lot about just a now more challenged backdrop, you know, we're hearing this similar sentiment from other companies in your space around consumer. The question I have is, you know, as you look at Purple, particularly with, you know, the

Brian Nagel: the initial success of some of these new products.

Speaker Change: Assuming that the backdrop remains challenged, are there levers that...

Speaker Change: You could pull to drive the business here, or are you really at the mercy of the backdrop?

Rob DeMartini: No, we're not going to be at the mercy of the backdrop. I think what you and Eric referenced is we're controlling what we can control, and we're going to continue to manage this business as if this is the category we have to deal with. You know, I think probably in my tenure, we should be a little more aggressive and less waiting for the market to get better because I don't know when it's going to get better.

Speaker Change: No, we're not going to be at the mercy of the backdrop. I think what you and Eric referenced is we're controlling what we can control and we're going to continue to manage this business as if this is the category we have to deal with.

Speaker Change: You know, I think probably in my tenure, that's a little more aggressive and less waiting for the market to get better, because I don't know when it's going to get better.

Rob DeMartini: But what I don't want to do is put off growth, put off profitability, or put off the positioning of this brand to do well in this market. If it gets better, great; we'll be ready, but we're going to make sure that we compete in this size market now.

Speaker Change: But what I don't want to do is put off growth, put off profitability, or put off the positioning of this brand to do well in this market. If it gets better, great, we'll be ready, but we're going to make sure that we compete in this size market now.

Rob DeMartini: That's helpful. And then I guess the second question is probably somewhat related, but obviously, you had nice gross margins in the quarter. That's a testament to the, you know, the kind of repositioning of the brand. But from a sector perspective, are you seeing more promotions out there? Is that part of this more difficult backdrop?

Speaker Change: That's helpful. And then, I guess the second to this is probably somewhat related, but obviously, you had nice gross margins in the quarter, and that's a testament to the reposition of the brand. But from a sector perspective, are you seeing more promotions out there? Is that a component now of this more difficult backdrop?

Rob DeMartini: I think it's encouraging. However, we're not seeing deeper promotions or discounts. Some of the progress in margin, you know, number one, we have to stay competitive. And we've seen, you know, either flat or modestly down discount levels. What we are seeing is a concentration of volume behind those deeper promotional periods. And I think you've heard other players, both savvy and stingy, and we have to earn their business, and they're smart enough to know that, you know, every three-day weekend is a mattress all.

Speaker Change: Well, I think it's encouraging. We're not seeing deeper promotions or discounts. Some of the progress...

Speaker Change: In margin, you know, number one, we have to stay competitive, and we've seen, you know, either flat or modestly down discount levels. What we are saying is a concentration of volume behind those deeper promotional periods. And I think you've heard other players report that. I think the consumer is just

Speaker Change: Both savvy and stingy and we got to earn their business and they're smart enough to know that every three day weekend is a mattress holiday.

Brian Nagel: Much appreciated. Thank you.

Operator: The next question will come from Jeremy Hamblin of Craig Hallam Capital Group. Please go ahead, sir.

Speaker Change: Much appreciated, thank you.

Brian Nagel: Thanks Brian .

Brian Nagel: The next question will come from Jeremy Hamblin with Craig Hallam Capital Group. Please go ahead, sir.

Jeremy Hamblin: Thanks for taking the question. I want to come back to the revenue guidance cut, and if you look at the $50 million change, I wanted to get a sense of how much of that is coming out of what you previously expected wholesale to be versus DTC.

Jeremy Hamlin: Thanks for taking the question. I want to come back to the revenue guidance cut, and if you look at the $50 million change, I wanted to get a sense of how much of that is coming out of what you previously expected wholesale to be versus DTC.

Rob DeMartini: Jeremy, I don't think we've broken it that way, but we can get close for you. I mean, eight of that 50 already happened in Q2, so, you know, it's about 42 in the back half. And we are seeing nice progress in showrooms. It's split mostly between e-com and wholesale, and about the same tone as our forecast... It does, I think.

Speaker Change: Jeremy, I don't think we've broken it that way, but we can get close for you. I mean, eight of that 50 already happened in Q2. So, you know, it's about 42 in the back half. And it is, we're seeing nice progress in showrooms. It's split mostly between e-com and wholesale.

Todd Vogensen: It does. I think, you know, we might be seeing slightly more pressure on e-comm as we look to improve some of the conversion things that we talked about, but it is largely being driven by our understanding of the overall market, which impacts both of those channels equally.

Speaker Change: and About People.

Speaker Change: Does that seem right, Todd? It's about from what our forecasts were.

Todd Vogensen: It does. I think, you know, we might be seeing slightly more pressure on EECOM as we look to improve some of the conversion things that we talked about, but it is largely being driven by our read of the overall market, which impacts both of those channels equally.

Jeremy Hamblin: And then just looking ahead a bit here, as we think about, you know, plans over the next few quarters here and in trying to reinvigorate the top line. What do you anticipate in terms of wholesale door growth or how aggressively you go after wholesale door growth, given some, you know, consolidation here in the industry? And then secondly, how does that make you think about your own potential purple showroom growth as we move forward into like 2025?

Speaker Change: Great, helpful. And then just looking ahead a bit here, as we think about, you know, plans over the next few quarters here and in trying to reinvigorate top-line

Speaker Change: You know, what do you anticipate in terms of

Speaker Change: wholesale door growth or how aggressively you go after whole wholesale door growth, given some, you know, consolidation here in the industry. And then secondly,

Speaker Change: How does that make you think about your own potential Purple showroom growth as we move forward into like 2025?

Rob DeMartini: Yeah, Jeremy, our long-range view of our own showrooms really hasn't changed. It obviously slowed down as we became a bit cash-pinched.

Speaker Change: Yeah, Jeremy, our long-range view on our own showrooms really hasn't changed. It obviously slowed down as we became a bit cash-pinched.

Rob DeMartini: As Todd said, I believe we're working our way through that, and I want to see us get back into the business of growing those showrooms. They're by far the stickiest sale we make. And they're the highest-value sale we make.

Speaker Change: As Todd said, I believe we're working our way through that, and I want to see us.

Speaker Change: get back into the business of growing those showrooms. They're by far the stickiest sale we make. They're the highest value sale we make. And we also know that a meaningful amount of traffic

Rob DeMartini: And we also know that a meaningful amount of traffic goes to a showroom and then visits a wholesale partner and purchases later. You know, we're in non-mattress perching, purchasing locations, if you will, but very high-traffic locations. So a lot of what comes, you know, a typical mattress store might close at 30 or 40%. We are a fraction of that because it's a different location.

Speaker Change: goes to a showroom and then visits a wholesale partner and purchases later.

Speaker Change: You know, we're in non-mattress purchasing locations, if you will, but very high traffic locations. So a lot of what comes, you know, a typical mattress store might close at 30 or 40 percent. We are a fraction of that because it's a different location.

Rob DeMartini: So we want to get back into that business, and part of what I said in the earlier question is keep the business 60% DTC. You know, beyond that, the changes in the landscape of wholesale, I don't want to predict what's going to happen there. It's, you know, you've got significant consolidation happening in a couple of places, obviously, Tempera Mattress Firm and then Ashley Resin as well. Here's what I do know.

Speaker Change: So we want to get back into that business and part of what I said on the earlier question is keep the business 60% DTC

Speaker Change: [inaudible]

Speaker Change: Beyond that, the changes in the landscape of wholesale, I don't want to predict what's going to happen there. You've got significant consolidation happening in a couple of places.

Speaker Change: obviously Temper Mattress Firm and then Ashley Resina as well. Here's what I do know. We grow the transaction size. We're very profitable for our partners.

Rob DeMartini: We grow the transaction size. We're very profitable for our partners. Our consumers have a 98% satisfaction level. And you can't substitute something else for purple. I want to, I think that's something I haven't stressed enough. I mean, you can substitute another mattress product.

Speaker Change: Our consumers have a 98% satisfaction level, and you can't substitute something else for Purple. I think that's something I haven't stressed enough. I mean, you can substitute another mattress product, but if you're interested in the benefits of grid, you've got to come to us.

Speaker Change: And so that should make us a healthy, omni-brand, regardless of who owns the retail.

Rob DeMartini: But if you're interested in the benefits of grid, you have to come to us. And so that should make us a healthy Omni brand, regardless of who owns the retail. And so, you know, I think that's going to dictate why this brand can grow long term with an omnichannel trade up strategy.

Speaker Change: And so, you know, I think that's going to dictate why this brand can grow long-term with an omni-channel trade-up strategy.

Jeremy Hamblin: Got it. Let me ask the question slightly differently in terms of thinking ahead to 2025. Would you expect your wholesale door count to be up?

Speaker Change: Got it. Let me ask the question slightly differently. In terms of thinking ahead to 2025, would you expect your wholesale door count to be up?

Rob DeMartini: Yes, I mean, we're up 168 doors from the same quarter a year ago. But again, door productivity is the most effective way, in my opinion, to grow doors. Chasing doors for door sank is a losing way to go at this. If we create profitable business for our customers, satisfied consumers, and we trade up the transaction, the doors are gonna find us.

Speaker Change: Yes, I mean, we're up 168 doors from the same quarter of a year ago, but again, door productivity is the most effective way, in my opinion, to grow doors.

Speaker Change: Chasing doors for door sank is a, you know, declining way to go at this. If we create profitable business for our customers, satisfied consumers, and we trade up the transaction, the doors are going to find us.

Rob DeMartini: Got it. Thanks so much for taking the questions and, uh...

Speaker Change: Got it. Thanks so much for taking the questions and best of luck.

Operator: The next question will come from Keith Hughes with Truist. Please go ahead.

Jeremy Hamlin: Thank you, Jeremy.

Keith Hughes: Thank you. You had talked earlier about the reduction in marketing. It was about four million dollars. Can you talk about what you are looking at for marketing spend in the second half of the year versus the prior year?

Keith Hughes: The next question will come from Keith Hughes with Truist. Please go ahead. Thank you. You had talked earlier about the reduction in marketing, it was about $4 million. Can you talk about what are you looking at for marketing spend in the second half of the year versus prior year?

Rob DeMartini: Compared with the prior year, I think that is what that reduction is, right? It's four million more.

Speaker Change: Versus prior year, I think that is what that reduction is, right? It's four million on the half. Yeah, it'll be a little bit more centered around Q3. We had a fair amount of marketing that was very top of funnel that came with the launch last year.

Todd Vogensen: Yeah, it'll be a little bit more centered around Q3. We had a fair amount of marketing that was very top of funnel that came with the launch last year, and so a lot of that we won't be going over because it frankly wasn't as productive as we'd like to see, but generally, if you're looking at about that four to six million dollar range for the back half, that's right in there. What would that be? And Keith, year on year, we haven't changed the commitment from what we started with by more than a million bucks.

Speaker Change: And so a lot of that we won't be wrapping around on because it frankly wasn't as productive as what we'd like to see, but generally, if you're looking at about that four to six million dollar range for the back half, that's that is right in there.

Speaker Change: And what would that be? And Keith, year on year, we haven't changed the commitment from what we started with by more than a million bucks. Right. That's right. Okay. And the four to six million, what kind of percentage change is that year over year in

Todd Vogensen: Right. That's right. And the four to six million, what kind of percentage change is that year over year? I probably

Todd Vogensen: I'm probably to the tune of around 10%.

Keith Hughes: I'm probably to the tune of around 10%.

Operator: The next question will come from Michael Lasser with UBS. Please go ahead.

Speaker Change: Okay, thank you.

Keith Hughes: Thank you. Thank you, Keith.

Keith Hughes: The next question will come from Michael Lasser with UBS, please go ahead.

Michael Lasser: Good afternoon, this is Dan Silverstein on for Michael. [inaudible] Hey, King, just two questions.

Keith Hughes: Good afternoon, this is Dan Silverstein for Michael.

Rob DeMartini: Just firstly, what does the new financing agreement allow you to offer customers that you couldn't provide before? And what can you flex in terms of, you know, promotional offerings to drive incremental engagement? Dan, I want to be clear on this.

Dan Silverstein: Hi Dan.

Dan Silverstein: Hey Kim, just two questions. Just firstly, what does the new financing agreement allow you to offer customers that you couldn't provide before and what can you flex in terms of, you know, promo offerings to drive incremental engagement?

Rob DeMartini: We think this doesn't really put us in an advantageous position. It gets us to be competitive, and it allows us to offer 0% at kind of a competitive level with what the market's at. It changes by price point, so I'm not dodging the answer. It's just a bit confusing, but it's a fully competitive offer with most of the mattress retailers that are out there that offer financing as part of their transaction. It's not the longest book I've read, but it's right there.

Speaker Change: Dan, I want to be clear on this. We think this doesn't really put us in an advantageous position. It gets us to be competitive, and it allows us to offer 0% at kind of a competitive level to what the market's at.

Speaker Change: It changes by price point, so I'm not dodging the answer. It's just a bit confusing. But it's a fully competitive offer with kind of the mattress retailers that are out there that offer financing as part of their transaction. It's not the longest I've read, but it's right in the middle.

Michael Lasser: Got it okay, and then I'm just zooming out a bit. How do you do that?

Rob DeMartini: How do you view your moderated outlook for sales in the back half relative to the broader industry? And if there's anything you can share in terms of metrics on aided or unaided awareness or, you know, NPS scores today versus a few years ago, just to give us a check.

Speaker Change: Got it. Okay, and then just zooming out a bit, how do you view, you know, your moderated outlook for sales in the back half relative to the broader industry?

Speaker Change: And if there's anything you can share in terms of metrics on aided or unaided awareness or, you know, NPS scores today versus a few years ago, just to give us a check on where the brand's health is today ahead of a recovery for the industry.

Rob DeMartini: on where the brand's health is today ahead of a recovery for the industry.

Rob DeMartini: Recovery for the Industry. Um, I mean, all right, all right.

Rob DeMartini: I mean, our unaided awareness is second highest to the category leader. We invest in advertising above our share of the market sharply by about 50%. And, you know, we don't have that same viral nature that Purple had when it kind of first, no pun intended, came out of the box, but when it was first sold, but it is still a very well regarded brand. And I think the brand is healthy.

Speaker Change #100: I mean, our unaided awareness is second highest to the category leader. We invest in advertising above our share of market sharply by about 50%. And we don't...

Speaker Change #101: We don't have that same viral nature that Purple had when it kind of first, no pun intended, came out of the box, but

Speaker Change #101: When it was first being sold, but it is still very well regarded brand and I think the brand is healthy and honestly 2% sales growth in the quarter. I think it's going to show up in the middle Or better when everybody else kind of comes out with their numbers

Rob DeMartini: And honestly, 2% sales growth in the quarter is going to show up in the middle or better when everybody else kind of comes out with their numbers. (Inaudible) You know, as far as the category goes, this is the ultimate delaying purchase. And until people start moving again, I don't think you're going to see a return to the higher level of units that we saw with COVID and going into it.

Speaker Change #102: As far as the category goes, this is the ultimate delayable purchase, and until people start moving again, I don't think you're going to see a return to the higher level of units that we saw, you know, COVID and going into it.

Operator: This concludes our question and answer session, as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect.

Speaker Change #103: Thank you.

Tim: Thanks, Tim.

Speaker Change #105: This concludes our question and answer session as well as our conference call for today. Thank you for attending today's presentation. You may now disconnect.

Q2 2024 Purple Innovation Inc Earnings Call

Request a DemoDemo

PRPL

Purple Innovation

Earnings