Purple Innovation Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
November 9, 2023

There are 11 speakers on the call.

Operator

Good afternoon, ladies and gentlemen. Welcome to Purple Innovation Third Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. It is now my pleasure to introduce your host, Cody McAllister of ICR.

Operator

Please go ahead.

Speaker 1

Thank you for joining Purple Innovation's Q3 2023 earnings call. A copy of our earnings press release is available on the Investor Relations section of Purple's website at www.purple.com. I would like to remind you that certain statements we will make in this presentation are forward looking statements. These forward looking statements reflect Purple Innovation's judgment and analysis only as of today, and actual results may differ materially from current expectations based on a number of factors affecting the company's business. Accordingly, you should not place undue reliance on these forward looking statements.

Speaker 1

For a more thorough discussion of the risks and uncertainties associated with the forward looking statements To be made in this conference call and webcast, we refer you to the disclaimer regarding forward looking statements included in our Q3 2023 earnings release, which was furnished to the SEC today on Form 8 ks as well as our filings with the SEC referenced in that disclaimer. We do not undertake any obligation to update or alter any forward looking statements, whether as a result of new information, future events or otherwise. Today's presentation will include reference to non GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted gross margin, adjusted net income and adjusted earnings per share. A reconciliation of these non GAAP financial measures to the most comparable GAAP financial measures is available within the earnings release, which can be found on our website. With that, I'll turn the call over to Rob DeMartini, Purple Innovation's Chief Executive Officer.

Speaker 2

Thank you, Cody, and thank you and good afternoon, everyone. I want to start today's call by welcoming Todd Vogenson, Purple's newly appointed Chief Financial Officer, who joins me this afternoon. We're thrilled to have Todd on the Purple team and we'll look to draw on his successful track record of delivering positive results with several large public retail organizations. Todd's leadership from the CFO seat will be incredibly valuable to the future of Purple as we continue to execute our new vision for the company. I also want to thank Bennett Nussbaum for his significant contributions during his tenure As CFO, Bennett joined in the summer of 2021 on a 6 month interim contract and ended up agreeing to stay an extra year and a half through December of this year to stabilize our direction and fortify Purple's financial systems and processes.

Speaker 2

Turning now to our recent results. Our 3rd quarter revenue of $140,000,000 was up 18.8% to last quarter, marking our 2nd consecutive quarter of sequential improvement and our largest quarter over quarter gain we've achieved in 12 quarters. Year over year, our revenue was down slightly last year at a time when the bedding industry is estimated to be down in the high single We're low double digit range confirming what our wholesale customers have been telling us that Purple is beginning to take market share. While our improving top line performance is yet to translate into improved profitability, this has been due largely to temporarily Elevated costs related to the transition to our new product and branding strategy. Therefore, as we get farther out from this launch phase, We're confident that the combination of growth, gross margin expansion and expense leverage will drive sustained positive Adjusted EBITDA and positive free cash flow.

Speaker 2

Speaking in more detail about The performance of our path to premium sleep strategy, our new premium sleep better live purple marketing campaign, which communicates how our proprietary GelFlex Grid delivers deep uninterrupted sleep is fueling greater affinity For Purple and new consumer interest in the brand. The elevated branding with improved messaging that launched in mid May drove a 22% increase in search volume for Purple in the 3rd quarter compared to the 2nd quarter. This heightened interest in the brand validates our position as a truly differentiated competitor in the premium space And his indication that our new messaging is resonating with consumers even as the industry dynamics remain challenging. Equally important, the response to our new product portfolio continues to be positive since launching in the 2nd quarter. Our new Luxe mattress line has continued to become a larger part of the volume in our showrooms, helping drive average selling price and 4 wall margins higher.

Speaker 2

And this trend is now emerging in many of our wholesale doors with sales of the new higher tier offerings steadily improving. At the same time, demand for our Essentials line, which consists of our reimagined excessively priced products, has driven quarter over quarter revenue growth in our e commerce business compared with the first half of the year. We are encouraged by the positive revenue trends and we're focused on driving near term bottom line improvement across the business. Starting with our marketing approach, we see further opportunity to elevate the Purple brand and make it synonymous with premium sleep. While we've made progress with the premiumization of the brand since May, we believe further refinement of both our message and our advertising tactics It is necessary to deliver the premium message in a way that drives more profitable and rapid acceleration in brand interest and customer conversion.

Speaker 2

Additionally, there are opportunities to improve sell through with each of our distribution channels, irrespective of a positive inflection in industry demand. This includes more advanced training of our retail partners' sales associates, so they're well versed in educating consumers On the sleep benefits of our differentiated technology, driving more traffic into our showrooms and improving conversion on our website, particularly for Higher End Beds. As we fine tune our strategies, we're confident that the actions that drove our sequential Increase in top line performance this quarter will further accelerate results in the months and quarters ahead. Looking at our Q3 results in more detail, starting with showrooms, revenues increased 26% compared to Q2 and 10% compared As I mentioned, we're seeing growing penetration of our highest tiered products in our showrooms where our knowledgeable staff can highlight the benefit of our Luxe line and customers can feel the true luxury experience that our REJUVEN8 mattresses provide. With price points ranging from $55,000 to $7,500 this performance combined with reduced discounting And improved attachment rates with our new base program has helped drive our average selling prices in the channel higher by approximately 12% compared to the 1st 5 months of 'twenty three prior to the mid May launch.

Speaker 2

At the same time, we're seeing good response to our new adjustable basis, Thanks to our ability to directly deliver our sleep messaging and sell consumers on the total Purple ecosystem. Momentum in this channel continues to build with September being the best month year to date, highlighted by 60% of our stores Comping positive, which is encouraging given the industry softness. Turning now to e commerce, The channel experienced a significant sequential improvement with revenue up 15% compared to the 2nd quarter. I'm pleased that we were able to build on Q2 stabilized revenue and deliver the largest quarter on quarter improvement In the e commerce channel, since the pandemic fueled Q2 of 2022 excuse me, 2020 more than 3 years ago. Our new product and marketing strategies are positively impacting this channel even as our price points move higher and industry transactions shift more Back towards brick and mortar.

Speaker 2

Unique business to purple.com were up 54% versus the same period last year And though ASPs decreased 4% over the same time period, driven by a mix shift to the Essentials collection. While several metrics are moving in the right direction led by traffic, conversion is still lagging. As I said earlier, we continue to test how to best the site in order to capitalize on the increased traffic. There's still work to be done on this front, But I'm confident that the steps we're taking will produce better results in the near and long term. In the wholesale channel, we continue to roll out of our new product collection, bringing the number of converted wholesale doors To about 2,000 or approximately 60 percent of total doors at the end of Q3.

Speaker 2

The wholesale channel revenue was up 20% compared to last quarter and up 3% compared to last year. Importantly, our average daily sales has been steadily improving Since the launch began, underscoring the strong performance of the new product collection. These improving trends also demonstrate that the work we've done Educating our partners on tangible benefits of Purple's proprietary grid technology is translating into stronger consumer demand. This is especially true for our premium and luxe lines. The sales performance of our higher priced, higher margin mattresses Has resulted in several of our customers recently increasing the number of slots for Purple.

Speaker 2

More recently, we launched the new products in the Mattress Firm And we'll have that completed that changeover will be completed 100% by the end of this month. Overall, we're encouraged with the improvements we've instituted in the business and the momentum we built so far in 2023 against the tough market backdrop. As we look to the final quarter of the year, we remain focused on strong execution of our path to premium sleep strategy. Recent results indicated we're on the right track and that consumers are responding positively to our new product introductions. However, there are still a few areas of our strategy where improvement is necessary and several significant industry wide headwinds remain in the near term.

Speaker 2

With considered purchases for both mattresses and higher ticket discretionary items in general remaining under pressure, The near term operating environment looks to be more challenging than we'd anticipated. Based on weaker industry trends and our results year to date, we're moderating our outlook for the remainder of 2023. Todd will walk you through our new guidance in more detail shortly, but we are still projecting to achieve both sequential and year over year revenue growth in Q4. We're continuing to invest in marketing to support the launch and drive broader awareness And demand for Purple products with year over year increase in ad spend in Q4. While this decision along with higher than anticipated product cost is deepening our adjusted EBITDA loss for the year.

Speaker 2

We believe it best positions the company to build on its current top line run rate, Gain further market share and achieve positive adjusted EBITDA in the back half of 'twenty four. In an effort to ensure we're driving profitable growth next year, We have several initiatives in place to enhance margins on top of the fixed cost leverage we'll realize on higher sales. To discuss these numbers in more detail, I'll now turn it over to Seth.

Speaker 3

Thank you, Rob. I'm excited to be With Rob covering our top line performance in detail, I'll focus my Comments primarily on gross margin and operating expenses and then I'll discuss how we're approaching the remainder of the year. For full details regarding our financial results, please refer to our earnings press release, which is available on the Investor Relations section of our website. Before I begin my comments, we have one administrative item that I wanted to highlight. Today, we filed a Form 12b-twenty 5 We're delaying the filing of our Q3 Form 10 Q until November 14.

Speaker 3

We identified an error in our accounting for the warranty terms specified in contracts with our wholesale customers and we're evaluating the disclosure impact of such errors on our prior periods. The results from our prior periods that are included in our earnings release have been revised to reflect the correction of this error and today We'll be referencing prior period amounts that have been adjusted to give effect for the corrections. In addition, We will be recording these liabilities as a reduction to revenue in each future period, which will have a non cash impact of reducing revenue by Approximately 175 basis points to 225 basis points going forward. These revenue reductions will flow directly through the P and L as Continued sequential top line growth, especially given the headwinds that the industry continues to face. In terms of gross margin, our reported gross margin for the 3rd quarter was 33.8% compared with 41.3% a year ago.

Speaker 3

Included in this year's gross margin are several items associated with the transition to our new products. Excluding these items, Adjusted gross margin for the Q3 of 2023 was 37.1%, approximately flat with adjusted gross margin in the The transition related items represent costs directly connected to the new product transition including Airfreight for certain new product inputs, direct labor cost increases associated with new product production and Lost revenue on the sell in and replacement of floor model mattresses at our wholesale partners. The combination of these items equated 3 30 basis points of margin pressure, which we expect to abate as we move into 2024. In addition to the product transition costs, we incurred approximately 4 20 basis points of headwinds that are more structural in nature, including 130 basis points from a channel mix shift in revenue to wholesale and marketplace, which carry a lower average selling price than Our traditional DTC channel sales, 40 basis points from the lapping of IntelliBed royalty benefits last year prior to the acquisition of IntelliBed And the remaining gross margin headwinds primarily relate to the lapping of manufacturing efficiencies from last year when we had a higher amount of inventory production.

Speaker 3

Please note that while we expect to offset these structural headwinds in the future, we'll do so Through a combination of manufacturing and sourcing efficiencies, the shift towards more premium mattresses, price adjustments and more targeted discounting. Now for operating expenses. Operating expenses were $79,900,000 or 57.1 percent of net revenue in the 3rd Quarter of 2023 compared to $58,100,000 or 40.7 percent of net revenue in the prior year period. The increase in operating expenses compared with the prior year was primarily driven by $12,600,000 Increase in advertising expense to support our new product launch, enhance Purple's premium brand position and educate consumers on the unique health benefits of our proprietary GelGrid technology. In addition, we incurred $2,000,000 in expenses associated with the growth in our showroom footprint compared to the year ago period.

Speaker 3

And finally, please note that we incurred a $6,900,000 Non cash impairment of goodwill this quarter, which is included in our operating expenses. As a result, adjusted net loss For the Q3 of 2023, it was $19,400,000 compared to adjusted net income of $2,500,000 last year. Adjusted EBITDA was negative $16,300,000 versus $11,800,000 a year ago and 3rd quarter adjusted loss per share was $0.18 compared to adjusted earnings per share of $0.03 in the prior year. Now moving to our balance sheet. As of September 30, 2023, the company had cash and cash equivalents of $26,600,000 compared with $41,800,000 at December 31, 2022.

Speaker 3

The decrease was driven by Cash used in operations of $55,800,000 year to date, capital expenditures of $9,400,000 primarily related to additional manufacturing investments and showroom expansion, partially offset by cash Provided of $57,000,000 received from the public stock offering completed in February of 2023. At September 30, we had no amounts outstanding on our ABL facility. Inventories at September 30 were $72,100,000 compared With $73,200,000 at December 31, 2022. Now let me turn my comments To our outlook for the remainder of the year, given the current state of the mattress industry along with our performance year to date, we're moderating our outlook We now expect full year net revenue in the range of $510,000,000 to $520,000,000 And adjusted EBITDA loss between $55,000,000 $65,000,000 While we narrowed our full year revenue range to $10,000,000 from $30,000,000 We are maintaining our $10,000,000 range for adjusted EBITDA due to the variability in transition costs related to the product launches, which are impacting our gross margins this year. This updated outlook implies 4th quarter revenue in the range of $145,000,000 to 100 and $5,000,000 and an adjusted EBITDA loss of between $20,000,000 $10,000,000 We're encouraged with the sequential momentum we're seeing in the top However, our adjusted EBITDA has underperformed our expectations.

Speaker 3

As Rob said, we're working on several initiatives to improve margins As we drive toward profitable growth in the back half of twenty twenty four. In addition to benefiting from the diversification of our procurement partners, which was implemented earlier in 2023. There are other actions underway that will enhance gross margins in the coming quarters. These include Select price increases on certain mattress models along with some of our ancillary products including seat cushions and sheets, Steadily increasing the mix of our higher margin, higher ASP Premium and Luxe mattresses, lowering floor model sell in and reducing discounting, reducing reliance on air freight and several initiatives to improve our manufacturing efficiency. On expenses, we are currently deploying additional cost optimization efforts to right size operating budgets for G and A and channel management.

Speaker 3

Additionally, with our new products now in the market and garnering new consumer interest, we anticipate being able to be more efficient with our advertising spend in 2024. With respect to showrooms, they continue to provide a great environment for us to merchandise the full Purple Sleep experience. However, given current industry trends, we plan to moderate showroom expansion and currently are planning to add only a handful of new locations in 2024. We are confident that along with the fixed cost leverage that we'll continue to realize in higher sales volumes, These actions will result in a sequentially improving bottom line going forward. Now, I'll turn the call back over to Rob.

Speaker 2

Thank you, Todd. I want to reiterate that I have confidence in the progress we're making in the direction we're going. The path to premium sleep strategy is driving improved revenue trends that are so far continuing into Q4 and we're committed To continuing to execute in a way that brings us to profitability in 2024. Additionally, I'm confident that we have the team in place that will get us there. I want to say thank you to our employees who believe in and are dedicated to our success and thank you to our customers who see the potential that Purple brings to them and are growing with us.

Speaker 2

Operator, we're now ready for questions.

Operator

And your first question comes from the line of Brad Thomas from KeyBanc Capital Markets. Your line is open.

Speaker 4

Hi, good afternoon. Thanks for taking my question. I was hoping first, Rob, we could talk maybe a little bit about The performance of the Purple Stores, I think that's one of the best probably indicators of how The new assortment is performing. So I

Speaker 5

was wondering if you could talk

Speaker 4

a little bit about how they're doing versus the rest of the business?

Speaker 2

Yes. Thank you, Brad. I mean, we clearly still have work to do in those stores and it's hard to put your finger on how much of it's us and how much of The category, but the mix has gotten significantly richer since the launch. So we're selling both premium and luxe mattresses Better than we were before. September was the strongest month we've had in the last year, year and a half in those stores.

Speaker 2

I said 60% in the script. It's actually 50% of the stores comped positively in the quarter And September was the strongest month of those 3 months in the quarter. In total, the comps for the quarter were down 4%. Again, not a good number, but relative to what we're hearing about the categories overall performance, we're encouraged with the direction the showrooms are going. As Todd said, we are going to slow down a bit new showrooms to make sure we can dial in the volume better to make sure that we're not spending Ahead of what we should be and get those stores to those pro form a volumes that we've put in front of you before.

Speaker 4

That's very helpful, Rob. And obviously, it seems to be a very challenging environment here for all. If some of these headwinds continue into 2024, can you talk about some of the cost opportunities or What you may focus on to improve from an expense standpoint, again, if the environment stays tough?

Speaker 2

Yes. I put them in 2 buckets, Brad, and Todd, Build on if I missed something, but we've already identified. I mean, this year, the supply chain that Eric Haynor runs has really been focused on getting those new products out. And obviously, by our execution, they have, 1, done a good job doing it, but 2, had to spend some money that we otherwise wouldn't have wanted to on air freight and things like that. 2024 is going to be really about improving our purchasing capabilities, working with our partners, trying to drive wasted cost out of the system.

Speaker 2

And we've identified gross margin savings that are significant to the business. On top Todd talked about some pricing that we think we can take modestly. And then in the G and A area, we've already made changes both in overall staff As well as the showroom opening engine. So we are planning to be successful, but being prepared for the market to stay tough.

Speaker 4

I appreciate it. Thanks so much and good

Speaker 6

luck. All right. Thank you, Brad.

Operator

Your next question comes from the line of Seth Basham from Wedbush Securities. Your line is open.

Speaker 7

Thanks a lot and good afternoon. Just a follow-up on Brad's last question. If you can help us thinking about the outlook for 2024 From a cash flow standpoint and from a liquidity standpoint, do you expect to be able to generate positive cash flow in 2024? And if not, what steps will you take to shore up your liquidity?

Speaker 3

Yes, as we plan out looking in To 2024, we've taken a pretty conservative look at it and we are confident and comfortable with our liquidity position. As we do look into 'twenty four, we haven't given guidance specifically, but I think it is fair to look at the P and L and say For gross margin, we've had 2 quarters in a row where our adjusted margin rate has been right around 37%. And as Rob mentioned, we have a number of Opportunities to build on that and kind of continue that march towards the 40% range as we go into next year. And then on expenses, there are a number of levers that We can and in many cases will pull to make sure that we're being cautious on our spending. And So all of that will lead to profitability that should improve sequentially as we go across the course of the year and It put us in a strong position.

Speaker 7

All right. Thank you. And thinking about your guidance for 2023, the changes you made, The decremental margin on the revenue reduction is absolutely huge. And I was hoping that you could give us a little bit more color on why that is? Where is the most pressure coming from?

Speaker 7

What cost Did you incur that you didn't anticipate 3 months ago?

Speaker 2

Well, I think the 2 sections that Todd broke out, there's about 7.5 margin points in there and some of those are directly tied to launch costs. We talked last quarter about Selling practices and then they were complicated by we launched 9 mattresses in hindsight without enough lead time and ended Putting a lot of pressure on the supply chain. We've been air freighting components to make sure we could complete them. So we do expect to have all of that done By the end of this quarter and should get back to that starting gross margin adjusted gross margin that Todd has talked about in the 37s and then From there start building with legitimately identified savings programs either through sourcing methods or more efficient processes in the factories.

Speaker 7

Okay, that's helpful. And my last follow-up question is just thinking about the ranges just to EBITDA 4th quarter. Now you mentioned some wide range and it's partly because of this variability in transition costs. Are you referring still to some of these things such as airfreight? Are you referring to Margins on selling and clearance of floor models.

Speaker 7

Can you give us a little bit more color there?

Speaker 2

Yes. Seth, it's a little bit of both. We still have that last third in Q4. It's mostly shipped. It will be completely done By the end of this month and installed, but because of the strength of demand in that channel, we are having to airfreight longer than we would have liked.

Speaker 2

We'll be done with it by the time December is over, but based on the current volume expectation, we do expect to incur some of these Gross margin compressing costs through the rest of the next 2 months of the quarter.

Speaker 7

Got it. Thank you.

Speaker 2

Thank you, Seth.

Operator

Your next question comes from the line of Jeremy Hamblin from Craig LM Capital Group, your line is open.

Speaker 6

Thanks. First, I wanted to start by asking about The implied gross margin that you're expecting in that guidance for Q4 kind of both What do you expect those kind of transition startup costs to be as a drag? And then what would be just the reported gross

Speaker 3

Yes. So we gave top line and bottom line. I think it's fair to say as you look at the components and Due to the modeling, we would expect a reported number to be in the range of what we saw in Q3 With operating expenses coming down as we're continuing to dial in some of the G and A costs and also being more efficient on our advertising spend. So it will I think to think about gross margin as being roughly along the same lines as what you've seen across The course of Q2 and Q3 is fair direction.

Speaker 6

Okay. And then to build on that, the Point you noted about advertising. Rob, you indicated that I think search trends are up 22% Since May, since you launched the new product, but it appears obviously that you're not really getting the conversion rates that you would have expected. Can you discuss why you think that might be happening? Is this A miss on the marketing message or I mean it's not just the backdrop of a tough macro?

Speaker 2

No, Jeremy, it's not. And we talked this last quarter a little bit. I don't think it's the messaging At the awareness level, it is in the consideration area. We're getting people to the website and converting, but not at the rates that we had hoped to. There are a couple of hypothesis that we're testing real time, but I don't want to promise figuring them out until we have evidence that's going to happen.

Speaker 2

We know where that is. It is primarily or almost singularly on the website and we're testing real time to figure out how to get it Back to the rates that we projected.

Speaker 6

Okay. And then just help me understand, because I have to ask About the change in the top line guidance, right, it's a $60,000,000 change from the August guide. In terms of what's happened here, the magnitude is really large. Is there What's different in terms of where you were thinking in August versus today? Some of this appears to be kind of the partnership with your largest wholesale customer, Maybe that slipped by a month or so on getting the new product in the door, but can you help us just to build back Where that much change came from?

Speaker 2

Yes. Well, Jeremy, certainly some of it is in Q3. We wanted to see Q3 stronger And we were planning on that and then now we're projecting that slower growth all the way through Q4. I mean, I think How much of it's our execution, which is clearly part of it? How much of it's the category?

Speaker 2

Everybody that I know Thought the category was going to be heading towards a more normalized consumption in the back half of the year and Clearly, we just have not seen that happen. I think what we do see clearly is that our premium path our premium sleep strategy is working. 2% down is not a number we're going to stand up and shout about, but 18% improvement quarter on quarter It is something that is encouraging. We know the new product is resonating. The demand in wholesale is actually quite strong.

Speaker 2

We see those things continuing to grow the business. They're just not going to grow it as fast as I forecasted and that's on me.

Speaker 6

Okay. Thanks for taking the questions guys. Good luck.

Speaker 2

All right. Thank you, Jeremy.

Operator

Your next question comes from the line of Bobby Griffin from Raymond James. Your line is open.

Speaker 5

Good afternoon, everybody. Thanks for taking my questions. I guess, Rob, first question, we've talked a little bit about this before, but now with some of the new products out there and some more learnings, What do you think the rough estimate, what do you think the level of revenue is for this business to generate, call it, breakeven profitability on adjusted EBITDA. We've talked before closer to $600,000,000 Is that still the right number to think about and shoot for? Or is there some opportunities to maybe do it On a little less given some of the talk about procurement and the supply chain and things like that.

Speaker 2

If you look at a year ago on $142,000,000 we made money. I do think that Somewhere in the $50,000,000 to $55,000,000 a month on average, we should be nicely profitable at that number. Can we get it slightly lower than that? Maybe. We've identified things that we think can add up to it, but it's in that neighborhood.

Speaker 5

Okay. That's helpful as we tune up our models.

Speaker 2

And Bobby, let me add that assumes with healthy advertising investment Obviously, we can get there in the short run, but that's not good for the long term growth of this brand.

Speaker 5

I would agree, I would agree, especially in this industry, you got to advertise. Okay. One more near term question, just For 4Q, is the cash use that you guys are going to see or kind of planning relatively in line with what we saw in 3Q? Or is there a bigger draw just because The size of the retailers that you're launching with that kind of shifted into the 4th quarter?

Speaker 3

So you can think of cash for Q4 being cash usage being roughly in line with Q3 maybe slightly deeper and It really is kind of some of the CapEx coming home and then that being offset by Potential upside on revenue as well as just moving further into the launch of the new products and starting to see Transit, excuse me, traction there.

Speaker 5

Okay. So we should be able to get through the quarter without the draw on the $55,000,000 revolver Based on the current cash balance?

Speaker 3

We wouldn't expect to always yes, as we manage our cash, we'll probably have a Draw on that ABL, but it would be a portion of the $50,000,000 not the bulk of it.

Speaker 5

Yes. Okay. And then I guess lastly for me, Robin, I think in one of your remarks, you mentioned some wholesale customers coming back and adding some slots after Seeing the new products, can you maybe just expand on that? Is there any numbers you can put around that about, I don't know, slots per average store Today versus a couple of years ago or kind of maybe where slots per average store will be at once the launch is complete?

Speaker 2

I haven't translated that all the way through. And just to remind you, the remaining customers that are shipping this quarter Don't have slot expansion. So we're sitting right at about 5 slots per door. That's not going to change in the near term. I really am focused on slot Productivity more than slot count, but we know already that somewhere either in Probably early Q1, you could see us go quickly add maybe 10% more doors.

Speaker 2

We're going to try to be very selective about it to make sure they're productive.

Speaker 5

Okay. That's helpful. I appreciate. That was it for my questions. Best of luck here in the Q4 with the remainder of the launch.

Speaker 2

All right. Thank you, Bobby.

Operator

Your next Question comes from the line of Atilma Haswari from UBS. Your line is open.

Speaker 8

Good evening. Thanks a lot for taking my question. Rob, first a quick one on the implied 4th quarter guidance. Could you provide some color on where are you tracking quarter to date just so that we can get a sense of what's implied for the rest of the quarter?

Speaker 2

I mean, So far, this is really about Q3, but we're confident in those numbers that we've given you. I guess I'd say it that way. We've obviously You've seen 1 of the 2 1 of the 3 months. So we do feel like we're up we continue to be up over a year ago And that's an encouraging sight.

Speaker 8

That's helpful. And then as my follow-up, Rob, One of your competitors who recently reported said that the consumer is increasingly getting more value conscious and that they need to adjust their message In the case of Purple, you're clearly trying to go in the other direction focusing more on the premium side. So the question is, how quickly can you pivot? Should you see more value seeking behavior from consumers next year either due to the macro or whatever?

Speaker 2

I don't think we need to pivot it, Toulay. I understand the question. I mean, we have product That range from $1,000 to $7,500 So we break them into those 3 groups, essentials, restore and rejuvenate, but We definitely see more price pressure in our e com business and significantly less in our showroom business And then wholesale falls somewhere in between. 1, they draw broader consumers and 2, it kind of depends on where they sit in the market. But I don't think we need to pivot.

Speaker 2

We can shift investment and focus up and down the line. But I'm encouraged by the fact that we're Taking share in a down market with premium products. And I do think long term, that's the vision for this brand. I think this is a category where if you're not trading up, you better be the low cost provider and we're not going to be that with grid as an ingredient. We got the best product In the market, we've got something that's differentiated and visible, and we're going to stick to the strategy.

Speaker 2

Now we do have to be nimble and watch, So we haven't seen it as much as I've heard others talk about it.

Speaker 8

Got it. That's super helpful and good luck with the rest of the year. Thank you.

Speaker 2

Thank you, Atul.

Operator

Your next question comes from the line of Keith Hughes from Truist Securities. Your line is open.

Speaker 9

Thank you. You had a press release talking about the new launch of Mattress Firm. I guess the question is on Mattress Firm. If you talk about The nature of the contract with them, there's been some noise in some other calls with some of their suppliers getting longer terms from them, the potential Combination with Tipper Sealy, just whatever kind of detail you want to provide on the relationship would be helpful.

Speaker 2

Keith, I know that competitors talked about Scott's talked about that. We're managing our business with a good customer. We're in the middle of a launch. We're focused completely on that and not as focused about the events that Or anywhere from 6 months to a year from now. So I know the questions that are out there and we will have a point of view at this point.

Speaker 2

We've been very focused on The upward I was going to use the word pressure, but the upward momentum at Mattress Firm. We presented at SleepCon for the first time in this brand's history, one of only 3 brands that were on stage and we left Very encouraged about our potential with that customer in the future.

Speaker 8

Okay. Thank you.

Speaker 2

Thank you, Keith.

Operator

Your next question comes from the line of Matt Koranda from Roth MKM. Your line is open.

Speaker 10

Hey guys, can we just come back to the math on the cash bridge toward the end of the year here? I just want to make sure I understand it correctly. $27,000,000 of cash on hand as of the Q3. I think the implied sort of cash burn for the Q4 was somewhere north of $20,000,000 Yes, we're getting to a pretty thin level, I guess, by the end of the year and then you have some capacity on the revolver. Can you just speak to sort of what is actually

Speaker 3

It is a $50,000,000 revolver. So Obviously, depends on borrowing base, which changes as we go through the course Of the year, as we look at it right now, we still have the bulk of that $50,000,000 available to us And we're continuing to manage within it. So there is plenty of availability within that ABL to help us manage through the Q4.

Speaker 10

Okay. And any good guys from inventory flush toward the end of the year or early next Sure, as you kind of get through the, I guess, lap some of the ramp up that you have with your wholesale customers.

Speaker 3

No, it's an interesting point. We're actually as we see opportunities from a demand perspective, In some cases, chasing inventory. So net net, as we forecast out our inventory and look at the end of the year, we should be Roughly consistent with where we ended the Q3.

Speaker 10

Okay. Got you. And then You mentioned the ability to take price or at least the desire to do that. Just wondered if maybe you could Drill down on pricing and maybe talk about where you see opportunity, whether that's in the wholesale or DTC channel or both and any specific products Where you think there's room for pricing and maybe just timing as well? Should we expect any benefit in the Q4 or is this more of a 2024 event?

Speaker 2

Matt, we've taken some pricing on some of our accessories late in Q3. It's not fully Installed yet in wholesale because of the lead times, but we don't really think about pricing by channel. This is an omni business and we have to start At MSRP and Work Backwards. So the pricing opportunity was mostly we've got some modest room in some of the mattress models next Here, we've taken some on our pillow business already this year and quite frankly saw no negative volume implications. And then some of the accessories business that Todd referenced will action over the next month or so, but it's pretty modest at this point.

Speaker 2

That's not a big driver.

Speaker 10

Okay. Got you. I appreciate it, guys. Thanks.

Speaker 2

Thank you, Matt.

Operator

And we have reached the end of our question and answer period. Mr. Rob DeMartini, I turn the call back over to you for some final closing remarks.

Speaker 2

Just thank you. We appreciate the interest in the company and we're working hard to get volume and profitability moving in the right direction. Thank you.

Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.

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Earnings Conference Call
Purple Innovation Q3 2023
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