Q4 2024 Purple Innovation Inc Earnings Call
Thank you for joining Purple Innovations with quarter 2024 earnings call.
Before we begin, I'd like to remind you that certain statements made in this presentation are foreword-looking statement.
These statements reflect purple innovations, judgment and analysis as of today, and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations.
You should not place undue reliance on these forward-looking statements.
For more information, please refer to the risk factors outlined in our filings with CSEC.
To their most comparable GAAP measures can be found in the earnings release available on our website.
with that.
I'll turn the call over to Rob DeMartini, Purple Innovations, Chief Executive Office.
Speaker Change: Before we begin, I'd like to remind you that certain statements made in this presentation are
Speaker Change: These statements reflect purple innovations, judgment and analysis as of today. There are subject to a variety of risks and uncertainties that can cause actual results to differ materially from current expectations. We should not place undue reliance on these forward-looking statements.
Speaker Change: For more information, please refer to the risk factors outlined in our filing to the SEC.
Speaker Change: Additionally, today's presentation will reference non-GAAP financial measures, such as adjusted growth margin, EBITDA, adjusted EBITDA, and adjusted earnings for share. A reconciliation of these measures to their most comparable GAAP measures can be found in the earnings release available on our website.
Speaker Change: With that, I'll turn the call over to Rob DeMartini, Purple Innovation Chief Executive Officer.
Rob DeMartini: Thank you, Stacy. Good afternoon, everyone, and thank you for joining us. With me on today's call is our CFO , Todd Vogensen.
Rob DeMartini: The fourth quarter was a significant milestone for purple as we achieved adjusted even the profitability for the first time in eight quarters and produced positive cash flow.
Rob DeMartini: These encouraging results were the culmination of a purposeful actions taken throughout the year, including discipline execution, operational improvements, and cost savings initiatives.
Rob DeMartini: Specifically highlights of the quarter include Grossmargin reaching 42.9% in improvement of 970 basis points compared to last year.
Rob DeMartini: A significant improvement in showroom profitability through disciplined operational management and the successful launch of our Purple Renew mattress in 170 Costco retail locations complementing the online business and expanding our market presence.
Rob DeMartini: Looking back, 2024 was a year of significant transformation for purple.
Rob DeMartini: We continue building on our path to premium sleep strategy that was launched in 2023 and elevated us to a leading premium mattress brand while improving our stability through higher price points
Rob DeMartini: During the year we took actions to strengthen the durability of the business so we can confidently navigate the ongoing uncertainty of the market, where we are seeing challenge consumer demand and increased industry consolidation.
Thank you for watching. See you next time.
Rob DeMartini: From a cost perspective, we successfully consolidated our manufacturing operations as part of a broader restructuring initiative alongside several other operational and cost savings improvements in the second half of the year.
Rob DeMartini: These changes have allowed us to streamline our operations, enhance efficiency, and reinvest in technology and marketing to drive growth.
Rob DeMartini: Beyond cost savings, we drove continued improvements in our sales channels throughout the year.
Rob DeMartini: Our showroom channel experience the most improvement with four quarters of sequential revenue growth and full-year four-wall profitability for the first time since 2021.
Rob DeMartini: This success was primarily driven by strong sales execution and discipline on the labor cost controls.
Rob DeMartini: While our e-commerce and wholesale channels were more challenged in the year, we're encouraged by signs of progress.
Rob DeMartini: In e-commerce, we saw sequential revenue growth in the second half with strong results in our marketplace channels, including our Amazon pillow business.
Rob DeMartini: In our wholesale channel, we're pleased with the improvements in channel profitability and continued expansion in non-traditional revenue driven by interest from partners such as Costco and mattress firms event business.
Rob DeMartini: Again, these strategic actions and improvements strengthen the durability of our business model, enabling us to continue navigating volume challenges in the industry, and we're confident in our ability to drive the profitability required to support long-term market share gains.
Thank you. Thank you. Thank you.
Rob DeMartini: Looking ahead to 2025, we've already achieved some early successes that position us for market share growth over time.
Rob DeMartini: At Las Vegas Market in January we unveiled our new Rejuvenate 2.0 mattress line and introduced our expanded pillow collection to our wholesale partners.
Rob DeMartini: Both launches were well received, generating excitement and securing new points of distribution.
Rob DeMartini: Additionally, sales through our Costco partner doors have exceeded expectations here today and we anticipate continued growth and expansion of that partnership moving forward.
Rob DeMartini: As we think about how we drive sustainable and profitable market share, we've outlined a clear plan that enables us to continue competing effectively as we sharpen our focus on three critical pillars of success.
Pioneering new technologies, promoting our differentiation in prioritizing gross margins.
Rob DeMartini: First and foremost, we're focused on pioneering new technologies to maintain our competitive advantage and strengthen our differentiation.
Rob DeMartini: Purple has always been on the cutting edge of comfort science. Our products are powered by technology born from the medical space that we've since improved upon and brought to the consumer market.
Rob DeMartini: Unlike memory foam or other mattresses, our pandid flexible gel material with structural geometries provides unique benefits that set us apart from everything else on the market.
Rob DeMartini: Our goal is to maintain that a competitive advantage by launching new technology about every two years, continuously reintroducing the greatest sleep ever invented.
Rob DeMartini: As I previously mentioned, we announced our new Rejuvenate 2.0 luxury mattress line in January which represents a significant leap forward in gel grid technology.
Rob DeMartini: This is one of the biggest launches in our company's history and is the first time that we are introducing a new type of grid technology to the market.
Rob DeMartini: Our new technology successfully layers a plush pillow top gel grid called Dream Layer on top of our classic gel flux grid. A unique combination that preserves the benefits of sleeping on gel layer while providing a rich comfort experience.
Rob DeMartini: This new launch keeps us at the forefront of comfort technology and continues to differentiate us in the market while driving superior comfort and support for an even more premium sleep experience.
Rob DeMartini: The new Rejuvenate 2.0 collection launches in the second quarter through our direct channels and is followed by a full wholesale rollout expected to be completed by the third quarter.
Rob DeMartini: The strong positive feedback from current and future retail partners at the unveiling in January has led to a substantial increase in slot commitments.
Rob DeMartini: with total rejuvenate slot count growing by 50% marking a major step forward in our path to premium sleep strategy.
John DeMartini, John DeMartini, John DeMartini, John DeMartini,
Rob DeMartini: Furthermore, we significantly expanded our distribution of pillows by launching our renowned Dreamlayer and Freeform pillows into our wholesale channels and expect additional placements on one or both pillows in about 2,000 of the 3,000 current harmony doors.
Rob DeMartini: We've also introduced our new grid cloud pillow, which leverages the success of our Harmony Pillow and an attractive $149 price point to expand our pillow line and reach new customers.
Rob DeMartini: Second, we're focused on driving sales and promoting our differentiation to consumers, which includes articulating the fleet benefits of our technology.
Rob DeMartini: Purple started as a brand built on differentiation, which we have effectively communicated through our original viral Goldilocks and subsequent advertising.
Rob DeMartini: In recent years, the category has relied extensively on discount messaging to attract consumers with less focus on product benefits, a real disservice to the consumer.
Rob DeMartini: Our goal is to refocus messaging to lead with our product differentiation.
Rob DeMartini: If we can effectively articulate the unique qualities of sleeping on our Joe Grid layer we can bring better sleep and improve health to more consumers.
Rob DeMartini: Re-focusing our messaging also positions us to break through the category's discounting noise and because we have real differentiation, we expect our messaging to be more effective than the competition.
Rob DeMartini: As a first step in promoting our differentiation, we recently launched our aches and pains product advertising with over 7 million views since mid-November. In the coming quarters, we expect to deliver more product-focused marketing.
Beep
Rob DeMartini: In our selling channels, refocusing our messaging and promoting our differentiation should drive more and better quality sleep traffic while improving conversion both online and in stores and increase our share of retailer sales and the wholesale channel.
Rob DeMartini: While our technology is clearly differentiated, when experienced in person, the complexity of the science has proven difficult to effectively articulate online.
Rob DeMartini: We know that the closer we are to the customer, the stronger our sales are, which is why our highest converting sales are in our own showrooms, where we can directly demonstrate and educate, followed by our wholesale doors, where retail associates can speak to our technology.
Rob DeMartini: Not surprisingly, our e-commerce channel converts at a much lower rate and will benefit the most from improving how our differentiation can be better understood by consumers through more effective marketing and enhancements to our website.
Looking at our channel specifically, let's start with showrooms.
Rob DeMartini: Our showrooms play a crucial role in providing customers with a hands-on experience allowing them to fully engage with and understand our products and technology in a personalized setting.
Rob DeMartini: Additionally, our showrooms are evolving into highly effective sales channels as we continue focusing on sales initiatives that drive demand.
Rob DeMartini: Moreover, our showroom channels continue to push us into higher end as customers increasingly embrace the Rejuvenate business and trade-up approach which enhances the channel's profitability.
Rob DeMartini: Our showroom strategy has been critical in reinforcing our position as a premium and innovative mattress brand.
Rob DeMartini: Shifting to our wholesale channel where we have an indirect but engaged connection with consumers.
Rob DeMartini: about the differentiation of the technology and how to better articulate its unique properties to drive effective sell-through through our premium product lines.
Rob DeMartini: We continue to focus on improving wholesale partnerships and looking for new points of distribution.
Rob DeMartini: I previously touched on our Costco partnership and we have also been rolling out pillows at home goods in recent months which have been performing well. Additionally, we continue to evaluate wholesale relationships with a focus on partner alignment and shared profitability.
Rob DeMartini: Moving now to our e-commerce channel, because our e-commerce is our most passive connection to consumers, the greatest challenge we're facing is effectively communicating our technology differentiation to drive sales.
Rob DeMartini: We have a lot of work to do to improve conversion in the channel, starting with how we speak to online customers.
Rob DeMartini: For example, leading with the advantages of our technology, rather than leading with a promotional message.
Rob DeMartini: We're also improving the user experience online, including thoughtfully curating the mattresses we display, and we have seen early signs of improvements to e-commerce conversion.
Rob DeMartini: Purple.com also serves as an important research tool for our customers who buy off line.
Rob DeMartini: Lastly, prioritizing gross margins. Over the last several quarters, we've executed key initiatives that have been driving healthy gross margin gains. We ended the year at our target rate of 40% and we expect to expand margins by at least 200 basis points in 2025.
Rob DeMartini: Prioritizing gross margin improvements enables us to deepen our investments in innovation, which in turn allow us to bring new technologies and better sleep to more consumers at a faster pace.
Rob DeMartini: We expect continued gross margin gains to come from driving cost savings through our plant consolidation, supplier diversification efforts, and improving scrap and yield results through continuous improvement efforts.
Rob DeMartini: These efforts have been and will continue to be instrumental in optimizing our operations and strengthening our financial performance.
John DeMartini, John DeMartini, John DeMartini, John DeMartini
Rob DeMartini: We remain on track to complete the consolidation of our manufacturing facilities this quarter.
Rob DeMartini: We also have begun shifting production on some pillows in-house and initiative still in its early stages with significant scaling plan this year.
Rob DeMartini: All of these efforts will drive meaningful cost savings and improve operational agility over the year.
Rob DeMartini: The impact of these restructuring efforts is already being realized. The consolidation in addition to incremental actions taken during the first quarter of 2025 is projected yield and annual EBITDA savings of 25 to 30 million.
Rob DeMartini: We began seeing operating expense improvements late in the third quarter of last year and those savings continued into the fourth quarter.
Rob DeMartini: While we expect a small gross margin benefit in the first quarter, the full run rate savings will materialize in the second quarter.
Rob DeMartini: As we enter 2025, we're encouraged by the progress we've made and we will continue building on our strong foundation.
Rob DeMartini: We expect tailwinds from the Rejuvenate 2.0 launch in addition to further cost savings opportunities that will drive more meaningful profitability in the second half of the year.
Speaker Change: We expect total sales to be in the range of 465 to 485 million with adjusted EBITDA in the range of flat to up 10 million, which Todd will provide more details on shortly.
Speaker Change: We remain optimistic about the long-term opportunities for purple and believe our path to premium sleep strategy is guiding the company toward sustainable and profitable growth.
Speaker Change: On a separate note, we're closely monitoring the potential impact of recently announced US tariffs.
Speaker Change: Williams. Our exposure is limited given the small level of goods that we import from overseas, and we believe the impact to be two to five million dollars. However, we are confident in our ability to respond to the situation who supply chain repositioning and pricing actions if necessary.
Speaker Change: Thank you for watching. Please subscribe to my channel. See you in the next video.
Speaker Change: Before I turn the call over to Todd, I wanted to briefly address the industry changes that are now occurring with the Somni Group International, previously known as Temprasili International and Mattress Firm.
Speaker Change: We want to assure you that Purple remains in a strong competitive position as we offer a differentiated in premium product, powered by our patented grid technology.
Speaker Change: Our commitment to innovation, advertising and elevating the category ensures that we continue to meet wholesale customer needs while driving value within the industry.
Speaker Change: Mattress Firm is an important customer and a great partner for purple and we are committed to ongoing success with them.
Speaker Change: Now I'll turn the call over to Todd to discuss our financial performance in more detail.
Thank you Rob, and good afternoon everyone.
Speaker Change: As Rob mentioned, the broader macroeconomic landscape continues to be challenging but we are optimistic going into the new year given some positive results for the fourth quarter and year-end December 31, 2024.
Speaker Change: Today I'll walk you through the Keith financial metrics for the quarter and highlight the areas where we saw both headwinds and progress.
Speaker Change: Starting with the top line, net revenue for the fourth quarter came in at $129 million, which was down 11.6% versus 145.9 million in the prior year, as we cycled the sell-in of our major product launch in 2023.
Speaker Change: On an encouraging note, revenue improves sequentially from the third quarter and grew steadily throughout the fourth quarter, gaining strong momentum around Black Friday and culminating in a solid year in finish.
Speaker Change: Nearly 50% of quarterly revenues were generated in December , fueled by robust holiday demand.
Speaker Change: By channel, direct consumer net revenue for the quarter was $79.8 million, down 2.9% first last year.
Speaker Change: with NDTC, Matt Revenue for Showrooms increased 4.2% compared to last year.
Speaker Change: Showrooms continue to deliver strength and consumer financing with the number of finance orders of 17% year-over-year and the average order value on those finance orders of 57% to non-finance
Speaker Change: He commerce continued to deliver on sequential revenue improvements through the second half.
Speaker Change: However, compared to the strength we delivered last year from the new product launches, we did experience and software results on a year-over-year basis with e-commerce down 5.3% for the quarter.
Speaker Change: Similarly, we saw weakness in our wholesale segment performance relative to last year.
Speaker Change: Net revenue was $49.2 million, down 23% in the fourth quarter versus 2023. The wholesale did show a substantial improvement each month during the quarter.
Speaker Change: This performance also reflected the impact of laughing the launch of our new product line in 2023.
Speaker Change: A gross profit for the fourth quarter was $55.3 million compared to $48.5 million during the same period last year. Gross margin rate for the quarter was 42.9%, which was up 970 basis points compared to the reported gross margin rate last year.
Speaker Change: Porter Porter, adjusted gross margin was 44.9%, which grew 810 basis points versus the adjusted gross margin last year.
Speaker Change: This represents our third consecutive quarter of adjusted gross margins over 40%. As we continue to implement programs to not only sustain, but structurally grow our gross margin over time.
Speaker Change: The improvement disorder included continued growth from sourcing initiatives and the profitable liquidation of inventories.
Speaker Change: Now turning to operating expenses, operating expenses were $63 million, down 2.6% versus $64.7 million last year.
Speaker Change: The decline was driven by the benefits from the company's restructuring activities in the third quarter of 2024 and discipline cost control, upset partially by an increase in advertising investments during the quarter.
Speaker Change: Our adjusted net loss for the fourth quarter was $8 million and improvement over last year's adjusted net loss at $15.8 million.
Speaker Change: Adjusted EBITDA for the fourth quarter was $2.9 million, an improvement from negative 9.8 million last year, demonstrating the benefits of our restructuring initiatives and ongoing gross margin programs.
Speaker Change: and Ford quarter adjusted loss per share with seven cents, compared to an adjusted loss per share of 15 cents in the fourth quarter last year.
Speaker Change: Now to briefly touch on our full year results, for the 12 months ended December 31, 2024, net revenue was $487.9 million, down 4.4% compared to 510.5 million last year.
Speaker Change: Our Pullier Revenue was impacted by continued industry softness as well as headwinds from cycling last year's successful launch of our new product line.
Speaker Change: By channel, DTC net revenue was 283.7 million, down 4.4% versus last year.
Speaker Change: Our showroom performance was strong, up 5.8% for the year and improving sequentially over the last four quarters.
Speaker Change: Decommerce was down 7.8% for the full year and wholesale net revenue was $204.2 million, down 4.5% year over year.
Speaker Change: Gross Profit came in at $181.1 million, a 5.4% versus 171.8 million in the prior year, with a gross margin rate for the year at 37.1% of 350 basis points versus last year.
Speaker Change: on an adjusted basis. Our gross margin was 40.3 percent, about 310 basis points versus last year.
Speaker Change: Operating expenses were 273.3 million dollars in 2024, down 4.6 percent compared to 285.5 million in the prior year.
Speaker Change: Driven by savings from our corporate reorganization in August of reduction and year-over-year advertising.
Speaker Change: and Cycling $11.4 million in special committee fees in the prior year, all offset partially by incremental costs from restructuring and impairment charges in 2024.
Speaker Change: As a result, adjusted net loss was $61.7 million versus an adjusted net loss of $72.2 million in the prior year.
Speaker Change: Adjusted EBITDA, came in at a negative 20.8 million, got more than half from last year's level of 54.7 million out of loss.
Speaker Change: and the adjusted loss per share was $0.57 compared to an adjusted loss per share of $0.69 in the year of 2023.
Now turning to the balance sheet.
Speaker Change: At year end, we had cash and cash equivalents of $29 million compared to $26.9 million at December 31, 2023.
Speaker Change: Importantly, our positive-evident performance in the fourth quarter in addition to solid inventory management led to positive cash flows of $6 million during the quarter.
Speaker Change: John DeMartini, John DeMartini, John DeMartini,
Speaker Change: As part of our ongoing capital management strategy, purple successfully secured an increase of $19 million in our existing term loan commitment.
Speaker Change: As with our existing term loan, the increased amount includes the ability to pick our interest.
Speaker Change: This amendment will provide us with enhanced financial capacity and greater flexibility to support our strategic growth initiatives.
Speaker Change: Now as we head into the new year, we're focused on strengthening our foundation through our restructuring efforts and through innovations powered by our GelGrid technology.
Speaker Change: We've taken significant actions to drive down our fixed cost structure and to be more efficient with our processes.
Speaker Change: As a result, incremental volumes will flow through at a much faster rate than historically, which we expect to drive positive EBITDA and cash flow in 2025.
Speaker Change: Well, we anticipate continued challenges across the industry. We remain confident in our path toward profitability and we are well positioned to take advantage of any upside should the market recover.
Speaker Change: Based on our current costs and margin structure, we would expect that any revenue improvements versus our plan would flow through it at approximately 35%.
Speaker Change: Demonstrating a business model that is scalable and provides upside opportunity.
Now let's turn to our Outlooks.
Speaker Change: First, while we don't normally provide quarterly guidance, since we are almost 80% through the quarter, we will be providing guidance for this particular quarter.
Speaker Change: So, for the first quarter of 2025, we expect total revenue to be in the range of $102 to $107 million and adjusted EBITDA in the range of negative 6 to negative 9 million.
Rob DeMartini: As Rob discussed in his remarks for the full year, we expect total revenue for 2025 to be in the range of 465 to 485 million.
Rob DeMartini: and Adjusted Evita of Flat to Up 10 Million, which includes an incremental 10 million dollars from further restructuring actions on top of the 15 to 20 million dollars that we communicated it's last year.
Rob DeMartini: We expect Revenue to grow sequentially throughout the year and Revenue growth in positive EBITDA in the second half driven by the Rejuvenate 2.0 launch.
Rob DeMartini: Despite ongoing macroeconomic pressures, we remain optimistic for the new year, supported by positive results for the fourth quarter and 2024 year end.
Rob DeMartini: and we're confident in our long-term ability to execute on our path to premium sleep strategy.
Rob DeMartini: And with that, I'll turn the call over to Rob for closing remarks.
Rob DeMartini: Thank you, Todd. Before opening up the questions, I'm sure you've all seen that we issued a news release announcing that we've received inbound expressions of interest, and in keeping with our commitment to evaluate all pathways available to maximize shareholder value, our board has initiated a review of strategic alternatives for purple.
Rob DeMartini: We've established a special committee of independent directors to evaluate potential opportunities.
Rob DeMartini: We believe we're embarking on this review from a position of strength.
Rob DeMartini: Purple is a leading independent premium mattress brand with a durable business model evidenced by our positive performance in the fourth quarter, and we've enhanced our financial position through the expansion of our credit facility, which supports continued growth initiatives.
Rob DeMartini: Accordingly, we believe we're well positioned for market share gains over time, independent of the conclusion of this evaluation.
Rob DeMartini: As the Special Committee conducts its review, the purple team is fully focused on driving our three critical pillars of success.
Rob DeMartini: Pioneering new technologies, promoting our differentiation to customers and prioritizing gross margins.
To continue building on the momentum we've recently achieved.
Rob DeMartini: We appreciate your understanding that we cannot provide additional information on the review or speculate about its outcome. As such, we will not be taking questions about it during our question and answer session.
Rob DeMartini: With that, I want to thank you all for joining today's call, and I want to thank our associates who have navigated successfully a very difficult time. We remain focused on controlling what we can and executing our strategy. We're committed to driving profitability and positioning purple for long-term success.
Thank you.
Rob DeMartini: We will now begin the question in the answer session to ask a question you may press star and one on your touch tone phone. If you are using a speaker phone, please pick up your hand set before pressing the keys.
Rob DeMartini: If at any time your question has been addressed and you would like to withdraw your question, please press star and then two.
Speaker Change: Art First Question comes from Matt Koranda with Roth Capital. Please go ahead.
Matt Coronda: Thanks for taking the questions. I guess maybe just a math on the 2025 outlook as it pertains to the cost savings that you highlighted. So I think you guys said 25 to 30 million in total cost savings with some of those kicked in.
Speaker Change: in the third quarter, you've fully realized at least the fourth quarter with those savings. So I guess that would imply there's some...
Speaker Change: Lower number that we should be factoring in for the full year 25 in terms of what we should flow through. So, maybe Todd, if he just helped us kind of understand the map that's embedded in terms of what you assume is realized in 25.
Speaker Change: So I'll split it into two parts. There's the cost of sales related savings, which you can assume is about 7 to 10 million annualized. The bulk of that is really going to start in Q2, so we'll get about three-quarters of those savings across 2025.
Speaker Change: We have generated a quarter and a half of savings, let's say, $4 million of savings in 2024. The bulk of the rest of that is going to get realized over the course of 2025.
Speaker Change: Okay, got it. And then can you talk a little bit about how to rejuvenate the new product scheduled for launch this year and how that might factor into the phasing of revenue seasonality during 25th?
Speaker Change: Matt, thanks for the question. We'll use this language a hard launch on April 15th in our 59 showrooms.
Speaker Change: When that makes up a meeting, Rejuvenate is about 30% of that business is mixed.
Speaker Change: and then it'll launch at wholesale, partly driven. I mean, it's available on 415, but I think what we learned from the Restore.
The launch is that it takes our wholesale partners. [inaudible]
Speaker Change: Three to five months to get it fully launched and that's mostly I think because they're coordinating with other competitive launches. They want to reset the floor once. So our wholesale team has a
Speaker Change: Specific Schedule that Strings Out from April 15th and we're hoping by-
Speaker Change: By mid-Summer will be at least starting to floor everything across the whole wholesale market.
Okay, that's a four-ug, um...
Speaker Change: Look, I know we're probably not supposed to ask about the strategic alternative stuff and I don't want you to speculate about the outcome, but I think I want to ask the question that everybody is wondering, which is just around timing. Why is now the right time to go through this? Maybe if you could just address that, I think it would be helpful for everybody.
Speaker Change: Yeah, I think, you know, the board does this on an ongoing basis as part of their regular duties, looking at options, looking at opportunities.
Speaker Change: because we've had some inbound interests. We've felt now was the right time to formulate a special committee and ask for the help from Jeffries to really investigate.
Speaker Change: All potential outcomes and options, including not, right? I mean, one of the outcomes is we don't do anything differently but we did feel like that now was the time given that interest and given the consolidation in the industry. You've seen it, Matt. I mean, there's
Speaker Change: There's been six or so transactions and in marriages of one kind or another just over the last six or eight quarters so we felt it was the right thing to do for all shareholders and I trust the special committee will evaluate those choices and then recommend a path forward that benefits all shareholders.
Speaker Change: Okay. Fair enough. I'll turn it over to someone else. Thanks, Rob. Thanks, Matt.
Speaker Change: The next question comes from Bobby Griffin with Raymond Jane. Please go ahead.
Hey guys, thanks for taking my questions and good afternoon.
Thank you.
Speaker Change: Well, I want to go back to your comments on wholesale. I forget how you phrased it be my mission, looking for new partners or expanding. You know, priorly, we talked a little bit about productivity. I just wanted to maybe dive into. Is that a little bit of a pivot?
Speaker Change: and now you guys are in the position with the manufacturing chains that you think there is a door of growth opportunity, maybe just connect some of those dots.
Speaker Change: Yeah, I don't think it's a pivot. I still am very focused on our 3,500-ish traditional wholesale doors of making them more productive. And it's self-serving because the better we do with the wholesaler on a throughput, the more likely they're going to ask us to come into more doors.
Speaker Change: and there are plenty of customers where we're in all their doors, but there are some big customers where we're in a percentage of their doors. So if the door productivity is there, the new doors will come.
The alternative distribution is just realizing that
Speaker Change: You know because of the relatively high retail margin structure in this category, the alternative retailers offer a pretty nice piece of business and everybody gets a fair margin and the consumer gets a fair value.
Speaker Change: and I think the product we have at Costco is a good example where they make a fair margin. It's profitable for us and the consumer gets a great value and that's how Costco built their business.
Speaker Change: Home Goods is a little bit of a different animal. You know, they're kind of a push retailer. But what we're recognizing is that 3,500 doors in wholesale is a relatively modest door count relative to our best competitors. [inaudible]
Speaker Change: and that there are other places we can look to get volume. We don't want to chase the door count just for the door count. It's the most expensive way to get the business.
Speaker Change: But we do have some pretty interesting new door opportunities in the pipeline and I would you know we could grow doors this year traditional doors maybe two to three hundred I think that would be realistic.
Speaker Change: is, you know, they're a very expensive bet. They'll be the first to tell you that. But when the consumer values sleep and is willing to pay for that outcome, it's a very profitable opportunity for our customers and it's a creative to us as well.
Okay, that's helpful and then
Speaker Change: Maybe on the shape of the year from the EBITDA perspective, understand, you know, you have the savings built out through the years we talked about with the manufacturing kind of starting there in 2Q. Does the guy to assume basically the industry is the same as it is today throughout the year, or are you also assuming, along with the savings, a little bit of an improvement in the industry to get to the positive EBITDA on the back half?
Bobby, we are definitely not assuming improvement in the industry.
I mean I think it does build. [inaudible]
through the year, partly because our volume...
Speaker Change: is naturally shaped that way. And then partly because those cost savings realized
Speaker Change: as we get deeper into the year. But we've held advertising investment pretty steady with volume and at kind of our planned, I'll call it healthy rate.
Speaker Change: But I'm not optimistic in the short run about the market.
Speaker Change: We've seen, you heard Todd talk about the first quarter, it's definitely not a super strong quarter so we're concerned about it.
Speaker Change: Okay, fair enough. I appreciate that detail. And then maybe lastly, Todd, you guys did generate cash flow here in the fourth quarter. If we do kind of hit the EBITDA guide, what opportunities are there with inside working capital? What does it look like from a cash flow from up or a free cash flow type yield on on that EBITDA guide?
Speaker Change: Yeah, I see him actually is doing a terrific job on inventory management. We put in a new MRP system to help manage inventory earlier this year, and that is really yielding some benefits for us, so...
Speaker Change: I showed it at the very least upset our CAPEX requirements, so you can look at that being by $10 million of benefit across the year from working capital.
Speaker Change: Okay, that's helpful. I appreciate the detailed guys best of luck here in a tough industry.
All right. Thank you, Bobby.
Speaker Change: The next question comes from Brian Nagel with Oppenheimer. Please go ahead.
Hi, good afternoon.
Speaker Change: 25. Again, we have the guidance for Q1. Have you seen that happen where the consumers actually pulled back further here to start the year?
Speaker Change: You know, I think we have, I mean, President's Day was lukewarm at best. It's usually a pretty decent period, and I think the consumers is
Speaker Change: You know, I don't know what the right word is, maybe paralyzed right now more than we've seen recently, just because they don't know where we're going collectively. You know, we'll last, I don't know, maybe, I hope not, but I will say that in our full year plan, we are...
Speaker Change: Then a follow-up to that is as you're launching the new products, particularly the more innovative products, whatever consumer response you're seeing there.
The new Rejuvenate line? Yes.
Speaker Change: Well, we had, I mean, in fairness, the consumer hasn't seen it yet. We took it to Vegas. I mean, we did some consumer testing, and it scored the product performs very well. And I, you know, it was, it was in my main script, this dream layer.
Speaker Change: That I think most people know that the Rejuvenate product that was out there was fundamentally the IntelliVed company that we bought with those beds wrapped with a new purple cover. But we hadn't yet had the chance to do any innovation. This dream layer, you know, typically the high end beds, you pillow top beds.
Speaker Change: Very cushy on top, if you will, but that's been, that was a hard thing to marry with grid and have it feel like purple.
Speaker Change: Jeff Hutchings, and his team have done a phenomenal job. We're launching an incremental price point on the low end, so the new range will go from...
Speaker Change: Probably promoted prices of about 4,800 up to the 7,900 at the top. So it's four beds instead of three. It's got a more
Speaker Change: Achievable price point, again, still very expensive, but more achievable, and we're quite optimistic, the trade response has been great, the consumer testing has been great.
Speaker Change: and that line in its old form is probably the second biggest contributor to the show in business turning positive last year because of what it's doing to the mix of their business. So we're optimistic they are expensive but they're fantastic beds and
Speaker Change: if you know I was asked people you don't nobody wants to pay for tomorrow night's sleep but how much would you pay for a better night's sleep last night [inaudible]
Thank you. Bye. Bye.
Speaker Change: That's helpful. And then there's the final question I'll ask. Just on the gross margin in a nice trajectory there.
We got the guidance that you laid out for 25. I guess what?
Speaker Change: Maybe just two part question, the kind of building blocks to continue to drive gross margin from here and then maybe some longer-term outlook as we look at the model, what do you think we're playing for now at a gross margin rate?
David
Todd Vogensen: Well, you predicted, you know, well, Todd, go ahead, you'll answer the step of the name.
Todd Vogensen: So, in terms of building blocks for Gross Margin, the big things as we look into 2025 are going to be around the consolidation, so actually getting the benefits off of consolidating down to one manufacturing plant, and we're well on our way on that.
Todd Vogensen: We also have a number of continuing opportunities on sourcing initiatives and production efficiencies. That is part of how we got to about the 40%.
Todd Vogensen: Plus, run rate across the last three quarters and it's a lot of what is going to be the incremental benefit we get as we go into 2025. So as we look across the course of the year.
Todd Vogensen: We'll start getting the benefits off the consolidation in Q2. You'll probably start seeing more of the sourcing and production efficiencies as we get towards the back half and growth margin should continue to grow sequentially as we go across the year from Q1 forward.
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Okay, I appreciate it. Thank you very much.
Thank you. Thank you, Brian .
Speaker Change: Again, if you have a question, please press star and then one. Our next question comes from Jeremy Hamblin with Craig Hallum Capital Group. Please go ahead.
Hi, Will on for Jeremy. Thanks for taking my questions.
We have not, Will. You know, that'll happen.
Speaker Change: I would expect relatively soon, but you know they've been making some management changes to try to line up their team whether it's from the existing team and the new team and I think they'll be reaching out to vendors.
Speaker Change: Shortly, as I said in my prepared remarks, I mean they are an important customer and we're going to treat them like that and do our best to grow good profitable business with them and I do think we're well positioned because the category needs people who do what we do
Speaker Change: We innovate and we invest in advertising and I think one of the challenges this category has had is there hasn't been enough of that [inaudible] I'm sorry, I'm sorry, I'm sorry, I'm sorry
Speaker Change: So Tempor as a brand and the owner of Matters Farm, I know respects investment in advertising and investment in innovation so they should see the same thing from us, they should expect it from us and we expect that that will keep us in a healthy place with them.
Speaker Change: Thanks, that's helpful. And then, just a quick one. Curious on...
Speaker Change: Your Terrific Sposure. I know you manufacture in the US and have noted very little China exposure.
Speaker Change: I'm curious if you source any of your materials from Canada or Mexico and I guess if so, what actions would you or have you taken to minimize any of that terror impact?
Speaker Change: Yes, so we do have just a little bit of imagery that we're purchasing from Mexico.
Speaker Change: Yeah, at this point, between China and Mexico are overall exposure, you know, based on the current proposals that are out there, whether they're on again or off again is
It's in the $2 million to $5 million range, so. So.
Speaker Change: You know, we feel like we've got a manageable exposure I end.
Speaker Change: We have good relationships and good supply chains set up with the current vendors that we have so I wouldn't say there's any massive changes planned and however how we're managing things at this point.
Thanks, that's all for me.
Speaker Change: We are done taking questions at this time. This concludes our question and answer session. I would like to turn the conference back over to Rob DeMartini for any closing remarks.
Beep
Rob DeMartini: I just want to say thank you to our associates. As I said in my script, it's been a difficult couple of years and they've feared well and stand up to the challenges and I want to thank our wholesale partners because they help us build a great brand. So with that I'd say thank you and I can close the call.
Disconcludes are