by Company’s Q3 conference call offers insights into how it plans to segment its line into a good, better, best offering
LEHI, Utah — Purple Innovation’s latest quarterly report and earnings call provides the industry a window into its plans for the Intellibed gel bed line it purchased this past summer that could help fuel significant growth for the company and its wholesale partners.
But first a quick look at the company’s performance during the third quarter ended Sept. 30.
The company said net revenue fell 16.1% during the quarter to $143.3 million from $170.8 million in the same period last year.
This included a 25% decrease in direct to consumer (DTC) revenues compared to the same period, which was partially offset by a 1.3% increase in wholesale revenues. The wholesale business was boosted by the addition of $2.6 million in revenues from Intellibed from the date of the purchase to Sept. 30.
Within DTC, the company said, e-commerce fell 36.6%, which it said was due to market conditions and compounded “by a normalization of consumer consumption patterns.” Net revenue from its showrooms rose 110.4%, which resulted from the opening of 32 new showrooms over the past 12 months.
Meanwhile, net income rose to $2.3 million, compared to $2.2 million during last year’s third quarter and compared to a net loss of $8.3 million in this year’s second quarter. Operating income — including a one-time expense of $3.4 million related to the Intellibed acquisition — was $1.3 million, compared to an operating loss of $6.6 million in last year’s third quarter and a loss of $12.1 million in the second quarter of this year.
Its gross margin also rose 570 basis points year over year to 41.5% from 35.8% last year and rose 760 basis points compared with nearly 34% in the second quarter of this year.
In his presentation, company Chief Executive Officer Robert DeMartini provided insights into why the Intellibed purchase is important and how it will help boost the company’s performance in the future as the go-to resource for gel bed mattresses.
For one, he said, it helps consolidate its intellectual property under one roof “which will allow us to more fully capitalize on growing demand for gel grid technology as that space matures. We believe that gel grid technology has the opportunity to become the next evolution of mattress beyond memory foam. And as the pioneers of this revolutionary technology, we are well-positioned to continue to lead and grow the gel segment.”
He noted that the brand also will elevate the line into upper price points with mattresses ranging from $4,300 to $7,500. He added that the acquisition accelerated the company’s product development schedule by several years and allows it to address a market for a higher margin segment of the sleep and wellness industry.
This compares with a price range starting at $1,095 in queen for the starting priced NewDay brand — launched this quarter within its Essentials line — to $3,799 in queen for its hybrid line, according to the company’s website.
“The business is small relative to Purple today, but we see ample opportunity to expand Intellibed products into our existing wholesale door network in addition to adding the premium line to our showroom footprint,” DeMartini said. “We don’t expect to mature this segment of our business overnight, but we’re excited about the longer-term opportunity this combination offers.”
He added that starting next year, the company will retire the Intellibed brand and segment the entire Purple product line into the Purple Lux, Purple Premier and Purple Essentials product tiers.
The Purple Lux lineup will be the highest-end product segment featuring mattresses retailing from $5,300 to more than $7,000. It will be available in its DTC and wholesale channels.
Also available in DTC and wholesale channels, the Purple Premier line will feature mattresses retailing from $2,000 to about $4,500. Meanwhile the Purple Essentials line will feature mattresses retailing from $1,000 up to $2,000 and will primarily be sold via e-commerce, but also will be available through all channels, DeMartini noted.
“This brand unification and re-segmentation of our Purple offerings will be a significant leap forward in solidifying Purple and the gel grid as a true traditional mattress alternative across the price spectrum.” he added.
Other highlights of the presentation were as follows:
+ The company recently named Keira Krausz as chief marketing officer, effective Nov. 1. The company said she will help elevate the company’s brand positioning to support its premium brand strategy and update its advertising initiatives to achieve better returns.
+ The company also has been able to negotiate better pricing on some materials and components and also has been able to value engineer certain items to reduce costs in its component purchases. “Looking ahead, we have a pipeline of procurement and innovation projects that will enable continued input cost reductions,” DeMartini said, adding, “Operationally we’ve continued to drive continuous improvement in our productivity while balancing the supply and demand.”
+ The company also ended the quarter with 52 showrooms after opening 11 new locations and adding one Intellibed store during the quarter. It will end the year with 55 locations in total and ultimately anticipates achieving at least $2 million in annual sales per store. “Our showrooms will remain a critical channel as we work to drive Purple on the path to premium,” DeMartini said.
+ The company plans to add new partners in its wholesale channel moving forward. However, it also plans to improve productivity of existing accounts “to grow market share and enhance the profitability of this channel for us and our partners,” DeMartini said. The company aims to achieve this through the re-segmentation of the line and the shift to a more premium product being offered by Intellibed. “We’re at the very early stages of expanding the Intellibed product line across our wholesale network, but long term, we see this as a key opportunity for our brand and for our partners,” DeMartini said.
+ The company also named Jeff Hutchings chief innovation officer during the last quarter. “Jeff’s near-term priority has been reinvigorating our innovation department and filling our innovation pipeline process to ensure we’re consistently developing new products that are truly innovative,” DeMartini said. “Having seen some of the innovation coming out of his lab, I’m excited for Purple’s future and I’m confident that we’ll continue to hold the leading position in our category.”
In conclusion to his remarks, DeMartini said that the company’s board has hired independent financial and legal advisors to evaluate Coliseum Capital’s Sept. 17 proposal to purchase the remaining Purple stock it does not currently own. He said no further details were available at this time.
