Purple Innovation, Inc. Q3 FY2024 earnings call

• Third quarter was difficult revenue-wise, but volume was flat q-o-q. Maintained strength despite housing market softness and outperformed broader industry year-to-date.
• Took proactive steps for operational efficiencies: manufacturing consolidation, corporate restructure. Adjusted gross margin improved to 40.5%.
• Restructuring progress continues as expected; corporate restructure complete, manufacturing consolidation over halfway. Annual EBITDA savings of $15M-$20M expected from 2025.
• Revenue performance: Q3 sales down 15% y-o-y due to consumer demand softness, advertising optimization, and tough comp. DTC showrooms flat with higher average selling prices; e-commerce down due to lower ad spend; wholesale down lapping new product launches.
• Strategic initiatives: Driving gross margin via cost savings, supplier diversification, plant efficiency; showrooms focusing on pillows and luxury line Rejuvenate; wholesale seeing growth in higher price point collections; e-commerce refreshed promotional strategy; marketing focused on efficient advertising; innovation plans for new products in 2025.

Net revenue for the three months ended September 30, 2024 was $118.6 million, down 15.3% year-over-year. Direct to consumer net revenue was $70.8 million, down 11.7% year-over-year (e-commerce down 15.7%, showrooms flat). Wholesale net revenue was $47.8 million, down 20.1% year-over-year. Adjusted gross margin was 40.5%, improving 340 basis points year-over-year, exceeding the 40% year-end target for the second consecutive period.

• Full year 2024 expected to be at lower end of revenue guidance ($490M-$510M) and adjusted EBITDA guidance (-$20M to -$10M).
• Anticipate sales pickup in November and December due to Black Friday promotions.
• Expect to see benefits of restructuring start to flow in 2025, leading to positive adjusted EBITDA and cash flow next year.

• Macro环境 challenges and industry softness continuing to pressure top line.
• Potential disruptions during manufacturing consolidation and corporate restructure could impact operations.

Q: About 4Q revenue and potential acceleration, Rob said post-Labor Day business was soft but Black Friday promotions starting and November/December period expected to see pickup.

A: Rob DeMartini said post-Labor Day business was soft, but Black Friday promotions starting and November/December period expected to see pickup.

Q: Cash moving forward and cash costs of Utah restructuring, Todd said good inventory management, accounts payable to normalize in Q4, and managing expenses/CapEx tightly.

A: Todd Vogensen said good inventory management, accounts payable to normalize in Q4, and managing expenses/CapEx tightly.

Q: Confidence in turning profitable next year, Rob said confidence from gross margin progress, already two quarters above 40% adjusted gross margin and ongoing purchasing and supply chain benefits.

A: Rob DeMartini said confidence from gross margin progress, already two quarters above 40% adjusted gross margin and ongoing purchasing and supply chain benefits.

Q: Labor Day performance and outperforming industry, Rob said down less than 2% y-t-d and feels like outperforming category.

A: Rob DeMartini said down less than 2% y-t-d and feels like outperforming category.

Q: Operational manufacturing consolidation, Rob said more than halfway through, still work left like using West manufacturing and opening Salt Lake City distribution center by end of January.

A: Rob DeMartini said more than halfway through, still work left like using West manufacturing and opening Salt Lake City distribution center by end of January.

Q: Cash puts/takes from Utah restructuring, Todd said benefits start to flow in Q4 2024 and mostly through 2025, with subleasing of facilities in Salt Lake City in progress.

A: Todd Vogensen said benefits start to flow in Q4 2024 and mostly through 2025, with subleasing of facilities in Salt Lake City in progress.

Q: Exit of certain doors and wholesale footprint, Rob said exited customers not buying into Path to Premium strategy, net door count reduction of 200, but not closing doors forever.

A: Rob DeMartini said exited customers not buying into Path to Premium strategy, net door count reduction of 200, but not closing doors forever.

Q: Showrooms comp and profitability, Rob said showrooms comp flat y-o-y with units down but ticket up, making progress on moving doors from unprofitable to profitable.

A: Rob DeMartini said showrooms comp flat y-o-y with units down but ticket up, making progress on moving doors from unprofitable to profitable.

Q: Breakeven and EBITDA, Todd said $45M a month is EBITDA breakeven, but not yet accounting for all restructuring savings.

A: Todd Vogensen said $45M a month is EBITDA breakeven, but not yet accounting for all restructuring savings.

Q: Volume flat in quarter, Rob said Q3 volume flat enterprise-wide, but details on wholesale vs online needed more calculation.