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Purple Innovation, Inc. Releases Third Quarter Financial Results

November 9, 2023  by HFBusiness Staff in Business Strategy, Industry   

Third Quarter Financial Summary (Comparisons versus Third Quarter 2022 and Second Quarter 2023)¹

Net revenue decreased 2.0% to $140.0 million compared to 3Q22 and increased 18.8% compared to 2Q23.
Wholesale revenue increased 2.6% compared to 3Q22 and increased 20.0% compared to 2Q23.
Direct-to-Consumer (DTC) revenue decreased 5.2% compared to 3Q22 and increased 17.8% compared to 2Q23.
Gross margin was 33.8% compared to 41.3% in 3Q22 and 30.1% in 2Q23.
Adjusted gross margin, which excludes discounts and transitional costs associated with the new product transition, was 37.1% in 3Q23 compared to 37.2% in 2Q23
Operating expenses were $79.9 million, or 57.1% of revenue compared to $58.1 million, or 40.7% of revenue in 3Q22 and $75.7 million, or 64.3% in 2Q23
Operating loss was $(32.6) million compared to operating income of $0.9 million in 3Q22 and an operating loss of ($40.3) million in 2Q23
Net loss was $(36.0) million as compared to net income of $2.0 million in 3Q22 and a net loss of $(40.5) million in 2Q23.
Adjusted net loss was $(19.4) million, or $(0.18) per diluted share, as compared to       adjusted net income of $2.5 million, or $0.03 per diluted share, in 3Q22 and adjusted   net loss of $(24.1) million, or $(0.23) per diluted share, in 2Q23.
EBITDA was $(29.7) million compared to $7.0 million in 3Q22 and $(34.3) million in 2Q23.
Adjusted EBITDA decreased to $(16.3) million compared to $11.8 million in 3Q22 and $(21.5) million in 2Q23.
Cash and cash equivalents were $26.6 million at September 30, 2023.

¹ Reconciliations for non-GAAP financial measures to the most directly comparable GAAP financial measures are included in the "RECONCILIATION OF GAAP TO NON-GAAP MEASURES" tables at the end of this press release.

"Our third quarter top-line performance demonstrates that our Path to Premium Sleep strategy is gaining traction," said Chief Executive Officer Rob DeMartini. "Since launching our innovative new mattresses and enhanced brand campaign in May and converting the majority of our retail partner floor sets to our new premium and luxury collections over the past several months, we've seen a steady improvement in demand for Purple mattresses despite ongoing industry softness.”

“We are encouraged by the continued sequential acceleration in revenue and we are focused on driving further improvement across each of our distribution channels during the fourth quarter and into 2024. While market conditions and one-time costs associated with our new product transition have pressured our bottom line this year, we remain confident that we are well positioned to continue taking market share and deliver sustained, profitable growth over the long-term."

Third Quarter 2023 Review
Third quarter 2023 net revenue decreased 2.0% to $140.0 million from $142.9 million in the third quarter of 2022. This decrease was driven by soft demand for home related products in the current operating environment, nearly fully offset by the positive response to the Company's new product lineup including its higher priced Premium and Luxe collections, along with increased advertising spend to support the new product launch and enhanced brand positioning.

By channel, wholesale revenue increased 2.6% and DTC revenue declined 5.2%. DTC net revenues declined due to lower e-commerce revenue partially offset by growth in Purple retail showroom revenue driven by the addition of 5 showrooms over the previous 12 months.

Gross margin for the third quarter 2023 decreased to 33.8% compared to 41.3% in the year ago period. Adjusted gross margin, which excludes discounts and one-time costs associated with the product transition, was 37.1% in the current year quarter.

These discounts and costs include industry standard price reductions on the sell-in of new mattress floor models to wholesale partners coupled with increased discounting of discontinued models sold through the Company's DTC channels associated with the transition to the new premium and luxury product lineups.

In addition, the Company experienced increased labor and airfreight costs associated with the new product launch. Net of these transitional items, gross margins were impacted by the wrap-around on manufacturing efficiencies from last year, when we had a higher amount of inventory production, and a channel mix shift in revenue to wholesale which carries a lower average selling price than DTC channel sales.

Wholesale revenues comprised approximately 43% of net revenue for the quarter, compared with approximately 41% in the same quarter last year.

Operating expenses were $79.9 million, or 57.1% of net revenue for the third quarter of 2023 compared to $58.1 million, or 40.7% of net revenue in the year ago period. 

This increase in operating expenses was largely driven by a $12.6 million increase in advertising expenses to support the new product launch including a new brand campaign that highlights Purple's premium positioning and showcases the benefits of its proprietary sleep technology and a $6.9 million loss on the impairment of goodwill. 

Operating loss was $(32.6) million for the third quarter 2023 compared to operating income of $0.9 million in the prior year period.

Net loss attributable to Purple Innovation, Inc. was $(36.0) million for the third quarter 2023 compared to net income of $2.0 million in the year ago period.  Adjusted net income, which excludes adjustments for certain non-cash items and other items the Company does not consider in the evaluation of ongoing operational performance, including losses associated with the extinguishment of debt, impairment of goodwill, change in fair value of warrant liabilities, Board special committee fees, Acquisition expenses and gain on effective settlement in acquisition was $(19.4) million, or $(0.18) per diluted share, compared to $2.5 million, or $0.03 per diluted share in the prior year period.

Adjusted net income has also been adjusted to reflect an estimated effective income tax rate of 25.9% for the current year period and 25.1% for the comparable prior year period.

EBITDA for the third quarter 2023 was $(29.7) million compared to $7.0 million in the third quarter 2022. Adjusted EBITDA was $(16.3) million compared to Adjusted EBITDA of $11.8 million in the prior year period.