Release Date: August 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Purple Innovation Inc (PRPL, Financial) achieved a 2% year-over-year increase in total sales for Q2 2024.
- Showroom revenues increased by 10.6%, driven by higher average selling prices and a shift to higher-priced Luxe collections.
- Gross margin improved significantly, up more than 1,000 basis points year-over-year, reaching 40.7%.
- Operational efficiency improvements and supplier diversification efforts contributed to cost savings and margin improvements.
- The company reaffirmed its adjusted EBITDA outlook for 2024, despite lowering top-line guidance.
Negative Points
- Direct-to-consumer revenues were down, with e-commerce revenue declining by 5.7% in Q2 2024.
- The company lowered its full-year 2024 net revenue outlook by $50 million due to deteriorating industry trends.
- Adjusted net loss for Q2 2024 was $13.8 million, although this was an improvement from the previous year's loss.
- Marketing and website personalization efforts have not yet yielded meaningful improvements in e-commerce conversion rates.
- The challenging market environment is expected to persist, impacting sales and requiring continued cost management.
Q & A Highlights
Q: Could you talk about the progression of the quarter and what you saw from a demand perspective? Did it get better as we moved through the quarter and into July and early August? Also, have you seen any noteworthy results from the new financing tool rolled out at the end of May?
A: The financing tool is driving trade-up and attachment in our showrooms, with ASP for mattresses up 8% across the business and 32% in showrooms. However, it’s not working as well in e-commerce. Regarding the quarter's shape, it was relatively steady but got softer as it went on, with more volume concentrated around holidays.
Q: Will the positive adjusted EBITDA in Q4 translate into positive free cash flow as well?
A: Yes, it will translate into positive free cash flow. We have opportunities around inventory management, and positive EBITDA will quickly drop through to cash.
Q: How are you thinking about gross margin playing out in the back half of the year and the long-term opportunity for gross margin?
A: We expect a little headwind on margin in Q3 due to deleverage but anticipate improvements in Q4 from supplier diversification and operational efficiencies. Long-term, a 40% plus gross margin rate is sustainable and can grow.
Q: Can you provide more flavor on the sales outlook and what’s driving the level of deceleration in the business?
A: Our comps are tougher in the back half due to last year's launch, but the bigger driver is the lack of people buying mattresses. We don’t see signals that the market will get healthy in the short run.
Q: Are there other levers you could pull to drive the business if the backdrop remains challenged?
A: We are not at the mercy of the backdrop. We are controlling what we can and managing the business as if this is the market we have to deal with. We are focusing on profitability and positioning the brand to perform well in this market.
Q: Are you seeing more promotions in the sector, and is that a component of the more difficult backdrop?
A: We are not seeing deeper promotions or discounts. The progress in margin is due to staying competitive and seeing a concentration of volume around deeper promotional periods.
Q: How do you view your moderated outlook for sales in the back half relative to the broader industry?
A: Our unaided awareness is second highest in the category, and we invest in advertising above our market share. The brand is healthy, and our 2% sales growth in the quarter is likely to be in the middle or better compared to others.
Q: What does the new financing agreement allow you to offer customers that you couldn’t provide before?
A: The new financing agreement allows us to offer competitive 0% financing, aligning with market standards. It’s not the longest term available but is competitive.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
