PURPLE INNOVATION Q2 2025 Earnings Report

PURPLE INNOVATION EPS Results

• Actual EPS: -$0.11
• Consensus EPS: -$0.12
• Beat/Miss: Beat by +$0.01
• One Year Ago EPS: N/A

PURPLE INNOVATION Revenue Results

• Actual Revenue: $105.10 million
• Expected Revenue: $103.69 million
• Beat/Miss: Beat by +$1.41 million
• YoY Revenue Growth: N/A

PURPLE INNOVATION Announcement Details

• Quarter: Q2 2025
• Date: 7/29/2025
• Time: After Market Closes
• Conference Call Date: Tuesday, July 29, 2025
• Conference Call Time: 4:30PM ET

PURPLE INNOVATION (NASDAQ:PRPL) designs and manufactures sleep and other products in the United States and internationally. The company offers mattresses, pillows, cushions, bases, sheets, platforms, adjustable bases, mattress protectors, foundations, blankets, duvets, duvet covers, seat cushions, and pet beds under the Purple brand. It markets and sells its products through its e-commerce online channels, retail brick-and-mortar wholesale partners, third-party online retailers, and Purple showrooms, as well as through its website, Purple.com. The company was founded in 2010 and is headquartered in Lehi, Utah.

PURPLE INNOVATION Q2 2025 Earnings Call Transcript

Key Takeaways

• Neutral Sentiment: This quarter Purple Innovation posted second quarter revenue of $105.1 million, down 12.6% year-over-year but slightly above last quarter’s levels.
• Positive Sentiment: The company improved profitability with adjusted EBITDA loss narrowing to $2.4 million from a $4.1 million loss a year ago, driven by disciplined cost management.
• Negative Sentiment: Gross margin fell to 35.9% (down 480 basis points) due to tariffs and launch-related ramp costs, though management aims to exceed 40% by year-end.
• Positive Sentiment: Demand for Rejuvenate 2.0 has outstripped supply, with over 1,300 units sold at an average price of ~$6,000 and showroom performance exceeding prior launches.
• Positive Sentiment: Expansion with Mattress Firm is on track for a full network rollout by mid-August, doubling slot count to ~12,000 and launching an exclusive luxury collection next year.

Presentation

[Operator]

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the Purple Innovation Second Quarter Earnings twenty twenty five. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session.

[Operator]

Thank you. I would now like to turn the call over to Stacy Turniff, Investor Relations. Please go ahead.

[Stacy Turnof, EVP - Strategic Situations & IR at Edelman Smithfield]

Thank you for joining Purple Innovation's second quarter twenty twenty five earnings call. A copy of our earnings press release is available on the Investor Relations section of Purple's website at www.purple.com.

[Stacy Turnof, EVP - Strategic Situations & IR at Edelman Smithfield]

Before we begin, I'd like to remind you that certain statements made in this presentation are forward looking statements. These statements reflect Purple Innovation judgment and analysis as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. You should not place undue reliance on these forward looking statements. For more information, please refer to the risk factors outlined in our filings with the SEC. Additionally, today's presentation will reference non GAAP financial measures such as adjusted operating expenses, adjusted EBITDA, adjusted net loss and adjusted net loss per share.

[Stacy Turnof, EVP - Strategic Situations & IR at Edelman Smithfield]

A reconciliation of these measures to their most comparable GAAP measures can be found in the earnings release available on our website. With that, I'll turn the call over to Rob DiMartini, Purple Innovation's Chief Executive Officer.

[Robert DeMartini, CEO at Purple Innovation]

Thank you, Stacy. Good afternoon, everyone, and thank you for joining us. With me on today's call is our Chief Financial Officer, Todd Boginson. We're pleased to share our second quarter results, which exceeded our expectations and improved sequentially from the first quarter in both revenue and adjusted EBITDA. Our second quarter revenue reached $105,000,000 representing a 12.6% decrease from the prior year, but a slight increase compared to last quarter.

[Robert DeMartini, CEO at Purple Innovation]

Within the decline in revenue were two positive elements of note. First, demand for Rejuvenate two point zero surpassed expectations and outpaced supply, particularly in showrooms. And second, the continued expansion of our mattress firm led us to ship inventory for the launch ahead of expectations. While these highlights were partially offset by weaker e commerce results and the impact of last year's wholesale door exits, we remain encouraged by an improving demand picture and the emerging revenue growth observed this quarter. Additionally, we delivered strong profitability improvements with adjusted EBITDA increasing $1,800,000 and 120 basis points versus last year.

[Robert DeMartini, CEO at Purple Innovation]

We are well on track to deliver positive adjusted EBITDA in the back half of the year with strong year over year revenue growth already taking shape this month. We expect acceleration in the second half to be driven by the significant rollout of new retail distribution for Mattress Firm, which is nearing completion and by the success of our Rejuvenate two point zero launch, which is already increasing distribution and driving higher average selling prices. These initiatives are meaningfully expanding our reach and will support continued momentum in our path to premium sleep strategy. As we noted on our last earnings call, incremental tariffs created notable pressure on gross margin in the second quarter along with costs associated with ramping up both the Mattress Firm rollout and the Rejuvenate two point zero launch. With the previous four quarters all delivering results above 40%, the second quarter gross margin of 36% is a temporary setback.

[Robert DeMartini, CEO at Purple Innovation]

With mitigation plans in place to offset tariff headwinds and improvements in manufacturing efficiencies, we remain confident that we'll exit 2025 with a gross margin rate above 40%. We're entering the second half with significant momentum that is expected to continue building as the year progresses, with quarter to date revenues up in the mid single digit ranges versus same period last year. We're seeing strong validation of our brand and innovation strategy through the success of Rejuvenate two point zero launch, which has sold more than twice as many units as our Rejuvenate one point zero launch through our direct to consumer channels. The growing momentum behind our Mattress Firm expansion, is already rolling out across the country and the deepening partnership with Costco as we prepare to launch in four fifty clubs for their year end furniture show and the strong interest from other traditional and non traditional partners, which we expect will materialize within the coming weeks. Turning to our three strategic pillars.

[Robert DeMartini, CEO at Purple Innovation]

Our path to premium sleep strategy remains focused on our three pillars, pioneering new technologies to drive product leadership, promoting our differentiation to effectively communicate our unique product benefits to our consumers and prioritizing gross margin driven by ongoing operational improvements. I'll now walk you through our recent progress against each of these strategic pillars. Innovation remains the cornerstone of our competitive advantage. As I mentioned earlier, we recently launched our Rejuvenate two point zero mattress collection, a major milestone for Purple and the first product to incorporate our new DreamLayer gel grid technology layered on top of our core GelFlex grid. This combination of technology provides an incredible dreamlike sleep experience with each grid playing a different part to elevate comfort while preserving the unique pressure relieving and cooling benefits our customers know and expect.

[Robert DeMartini, CEO at Purple Innovation]

Rejuvenate two point zero is now available online and across all showroom locations. Since the launch, we've sold over 1,300 Rejuvenate two point zero units at an average sales price of approximately $6,000 through our direct channels, with approximately 80% of those sales coming through our showrooms, our most effective channel. Slot commitments across wholesale remained strong with an increase in non Mattress Firm slots of over 60%. In the second quarter, we also introduced our new Grid Cloud Pillow, dollars 149 offering designed to bring the benefits of our Grid technology to a broader audience. This innovative pillow launch extended across online platforms, including Amazon, walmart.com and our own website and is now available in over 1,200 Walmart stores featured alongside our ultra premium Harmony Pillow.

[Robert DeMartini, CEO at Purple Innovation]

We're encouraged by the early positive consumer response to the Grid Cloud pillow and look forward to continuing to deepen our relationship with Walmart and other non traditional retailers. The strong consumer response to these latest launches reinforces our position as a leader in premium sleep technology and affirms the strength of our long term path to premium sleep strategy. Looking ahead, our innovation pipeline remains robust with a mix of both incremental performance upgrades across our product portfolio and broader platform innovations that will continue to position us as the leader in the premium sleep category. While delivering better sleep through innovation is what sets Purple apart, how we communicate the benefits of our innovation is critical. Our refreshed messaging highlights the unique sleep benefits of our GelGrid technology and focuses on what matters most, less pain and better sleep.

[Robert DeMartini, CEO at Purple Innovation]

As we look ahead, our new marketing will play an important role in accelerating consideration and conversion across all channels. Our marketing strategy continues to evolve and move beyond traditional category tactics centered on discounting. Our new brand campaign, Less Pain Better Sleep is resonating with consumers, which we've been validating through diligent testing. The campaign is designed to drive higher conversion on the website and stronger consumer engagement across all channels in the second half of the year. Now let me turn to how we're bringing our product differentiation to life across each of our channels.

[Robert DeMartini, CEO at Purple Innovation]

Our showrooms continue to play a key role in providing customers with a hands on experience where our associates can engage and demonstrate the benefits of our products in a personalized setting. While channel performance in the quarter reflects the Rejuvenate two point zero demand being primarily shipped in the third quarter, underlying sales orders for showrooms open for more than a year were strong at plus 5.5% growth versus the second quarter last year. This encouraging demand signal again drives confidence in our path to premium sleep strategy. The success of this launch has significantly grown the luxury share of showrooms product mix, now accounting for approximately 40% of order value. In fact, we've sold more than twice as many Rejuvenate two point zero units during its launch as we sold during the launch of Rejuvenate one point zero supported by the relaunch of our in store selling model to further emphasize premium positioning and in store education.

[Robert DeMartini, CEO at Purple Innovation]

Based on the early Rejuvenate two point zero performance, we expect our showroom channel to become profitable in 2025. Similar to our marketing strategy, our e commerce approach continues to evolve, shaped by a clear view of the consumer shopping journey and the specific role the website plays within it. In the past, our e commerce was primarily focused on a more narrow segment of consumers who are willing to purchase a bed online in an industry where over 80% of consumers want to experience the mattress in person, particularly for premium priced products. As part of our evolving strategy, our e commerce focus is expanding to include reinforcing the strength of our brand, e clearly communicating the less pain better sleep benefits of our technology and supporting premium positioning across all channels. While the website will still support online consumers, we're optimizing it as an additional tool to drive engagement, education and conversion, particularly for products fulfilled through other channels.

[Robert DeMartini, CEO at Purple Innovation]

Alongside the new Less Pain Better Sleep brand positioning, we implemented a series of meaningful website changes in the second quarter, including highlighting real world product benefits like spinal alignment and cooling, simplifying the path to purchase and reducing friction at checkout. While still early, we're beginning to see encouraging signals and we expect these changes to drive greater impact over the coming months. We've also been fine tuning our data driven targeting through a new engagement with an external partner to improve identification and targeting of our core audience. These insights are already informing media optimization across platforms like Google and Meta to drive ad spend efficiency and return on investment. Looking forward, we believe that our website enhancements, new less pain better sleep brand positioning and targeted consumer strategies will drive conversion across our brick and mortar channels and renew e commerce momentum over time.

[Robert DeMartini, CEO at Purple Innovation]

Wholesale revenue was down last year. However, we're encouraged by the meaningful sequential improvement from last quarter, especially against the difficult comparison of positive 7.2% comps last year. Additionally, wholesale revenue would have been slightly higher if REJUVENA two point zero orders had been fulfilled during the second quarter. As we work through the remaining backlog, we unlock the ability to launch Rejuvenate two point zero into more of our key wholesale partners, which is expected to drive meaningful sales growth in the coming quarters. A key driver of our wholesale strategy is our expanded relationship with Mattress Firm.

[Robert DeMartini, CEO at Purple Innovation]

As I mentioned earlier, the momentum behind this expansion is strong and Purple products will be in their full store network by mid August. In parallel, we're developing an exclusive luxury mattress collection with Mattress Firm scheduled to launch early next year and increase our slot count to approximately 12,000, more than double our previous footprint. This is a meaningful step forward in our distribution strategy and one that enhances Purple's national presence, expands our reach to premium consumers, and includes us in their consideration set as they shop. Additionally, Mattress Firm's strong commitment to our product and brand is already driving increased interest from other partners. We've recently reached an agreement with one of the largest and fastest growing mattress retailers in the country.

[Robert DeMartini, CEO at Purple Innovation]

We look forward to sharing more details in the upcoming months. Beyond mattresses, we're also expanding our pillow and accessory business across all Mattress Firm doors. Later this year, we'll be introducing our new DreamLayer pillow to sit alongside our high performing Harmony pillow, further reinforcing our position in premium comfort and wellness. We're also deepening our engagement with Costco through a key limited time promotional holiday event later this year. Following strong performance during last year's event, we're returning at a larger scale in the fourth quarter, participating in four fifty clubs, more than double the number of locations we participated in during the same event last year.

[Robert DeMartini, CEO at Purple Innovation]

This expanded footprint represents a meaningful step forward in our partnership and significantly broadens our reach with a highly engaged customer base. Our third strategic pillar prioritizing gross margin expansion reflects the operational discipline we've built over the past year, which has consistently delivered results. While gross margin of 36% marked a temporary setback, our strong performance over the past four quarters gives us confidence in a rebound as cost actions take hold, tariff mitigation efforts take effect and manufacturing efficiencies improve as we complete our Rejuvenate two point zero launch and Mattress Firm rollout. Excluding these impacts, we would have seen clear margin expansion driven by a more favorable product mix shift into our higher priced mattress collection and $2,400,000 in direct material cost savings during the second quarter with those benefits flowing through as planned. Our sourcing, manufacturing and consolidation efforts are delivering meaningful structural improvements and positioning us for sustained margin expansion.

[Robert DeMartini, CEO at Purple Innovation]

We continue to actively manage the impact of the recent tariff changes. While future changes in tariffs are difficult to predict, we currently expect our total cost exposure in 2025 to be less than our previous $10,000,000 estimate, Thanks to swift mitigation efforts and changes to the underlying tariff rates. We've begun shifting sourcing outside of China and in July we implemented a price increase on select products. Our price increases were designed to avoid our most price sensitive product offerings while protecting gross profit dollars. As we look ahead, we're reaffirming our full year revenue and adjusted EBITDA guidance.

[Robert DeMartini, CEO at Purple Innovation]

For fiscal twenty twenty five, we continue to expect revenue between $465,000,000 and $485,000,000 and adjusted EBITDA of flat to up $10,000,000 inclusive of continued tariff headwinds. Our outlook reflects a continued cautious consumer environment, but also the strength of our innovation engine, improved execution and a structurally stronger business than we had one year ago. We're entering the second half with meaningful momentum behind our newest product line, a major wholesale expansion underway and greater operational flexibility to support profitable growth. Todd will go into more detail later in the call. Before I close, a brief note on the Board's review of strategic alternatives.

[Robert DeMartini, CEO at Purple Innovation]

This process remains ongoing. We have engaged with multiple parties about a broad range of opportunities to maximize shareholder value, including but not limited to a merger, a sale or other strategic or financial transaction. We'll continue to evaluate a range of options and provide further information as appropriate. We will not be commenting further or taking questions on this topic during the Q and A portion of today's call. Now I'll turn the call over to Todd to discuss our financial performance in more detail.

[Todd Vogensen, CFO at Purple Innovation]

Thank you, Rob, and good afternoon, everyone. As Rob touched on earlier, we're pleased with our performance this quarter, which reflects our continued ability to execute effectively against our strategic initiatives. I'll now walk you through the financial metrics for the quarter and highlight the areas where we saw progress as well as where we encountered headwinds. Starting with the top line. Net revenue for the three months ended 06/30/2025 came in at $105,100,000 which was down 12.6 versus $120,300,000 in the prior year.

[Todd Vogensen, CFO at Purple Innovation]

As Rob indicated earlier, the decline was impacted by the timing of Rejuvenate two point zero shipments, lapping reductions in wholesale door count from 2024 and softness in our e commerce channel. By channel, direct to consumer net revenue for the quarter was $58,900,000 Within DTC, net revenue for showrooms decreased 13.3% compared to last year as demand for Rejuvenate two point zero outstripped our ability to supply customers. E commerce continued to see softness and was down 11.5% during the second quarter. We also experienced a decline in our wholesale segment where net revenue of $46,200,000 was down 13.4% versus last year as we continued to be impacted by door count reductions from twenty twenty four. Despite this decline, we're beginning to see encouraging signs of recovery in our wholesale channel, particularly as we approach the significant expansion of our business at Mattress Firm in the third quarter.

[Todd Vogensen, CFO at Purple Innovation]

Gross profit for the second quarter was $37,700,000 compared to forty eight point nine million dollars during the same period last year. Gross margin rate for the quarter was 35.9%, a decline of four eighty basis points compared to last year. In the second quarter, our gross margin was negatively impacted by tariff related costs and ramp up costs related to the Rejuvenate two point zero launch and Mattress Firm expansion, where rollout costs preceded revenue. As production continues to scale at our Georgia facility, we anticipate greater manufacturing efficiencies and direct material cost savings to drive gross margin improvement through the back half of the year. Now turning to operating expenses.

[Todd Vogensen, CFO at Purple Innovation]

Operating expenses were $51,900,000 down 18.2% versus $63,500,000 last year. The improvement was largely driven by reduced advertising spends and benefits from restructuring and other cost savings initiatives that we've completed over the past few quarters. Excluding restructuring and impairment related charges, adjusted operating expenses were $47,800,000 down 25% versus last year. Our adjusted net loss for the second quarter was $11,700,000 an improvement from a net loss of 13,800,000 in the prior year. And second quarter adjusted loss per share was $0.11 compared to an adjusted loss per share of $0.13 last year.

[Todd Vogensen, CFO at Purple Innovation]

Adjusted EBITDA for the second quarter was a loss of $2,400,000 an improvement from the loss of $4,100,000 last year, driven primarily by our disciplined cost management. Now turning to the balance sheet. At the June, we had cash and cash equivalents of $34,200,000 compared with $29,000,000 on 12/31/2024. Net inventories on 06/30/2025 were $60,900,000 down 12.6% compared to 06/30/2024 and up 7.1% compared to 12/31/2024. We were pleased to exit the quarter with cash over $30,000,000 As we move into the second half, which is traditionally a period of cash generation, we believe that we're well positioned from a liquidity perspective to drive expected growth from our Rejuvenate two point zero launch and the Mattress Firm expansion.

[Todd Vogensen, CFO at Purple Innovation]

As Rob mentioned earlier, we are reaffirming our full year guidance. We continue to project full year revenue in the range of $465,000,000 to $485,000,000 with adjusted EBITDA expected to land between breakeven and positive $10,000,000 We anticipate sequential growth in the second half of the year, primarily driven by our successful launch of Rejuvenate two point zero and the Mattress Firm expansion, and we expect to return to positive EBITDA in the back half, bolstered by continued momentum from our restructuring initiatives and sourcing improvements. With that, I'll turn the call over to the operator for questions.

[Operator]

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

[Brad Thomas, Associate Director - Research at KeyBanc Capital Markets]

Hi, good afternoon. I was wondering Rob if you could talk a little bit about the cadence of sales in the quarter and how you're thinking about the acceleration in the business in the second half given some of the moving parts here? Thanks.

[Robert DeMartini, CEO at Purple Innovation]

Thanks for your question, Brad. You know, the quarter started slow for sure. April was the softest month of the quarter, and it got modestly better through the quarter. I referenced in my comments that we left a little bit of demand on the table that would have probably had us closer to $1.10 than $1.00 5 had we shipped it on the timing we intended. It also would have turned the showroom comps positive for the quarter.

[Robert DeMartini, CEO at Purple Innovation]

So the optimism comes from, really three parts of the business. Number one, q two is clearly affected by tariffs and startup of both Rejuvenate and the Mattress Firm business. And we're in a place now into July where we will catch up on the demand, you know, the shipments that are trailing demand on Rejuvenate in showrooms. We'll expand the footprint in showrooms of Rejuvenate excuse me. We'll expand the footprint of Rejuvenate into wholesale, and then the Mattress Firm expansion, is gonna be about 3,800 slots in the quarter, should all be in place by August 15.

[Robert DeMartini, CEO at Purple Innovation]

So the combination of the market kind of trending very modestly better and strong Rejuvenate and Mattress Firm sales, we expect the back half to get stronger as it goes.

[Brad Thomas, Associate Director - Research at KeyBanc Capital Markets]

That's very helpful. And then understanding that 2Q has been an unusual quarter for for many companies given the tariff dynamics, but also for you given some of these initial ramp up costs with Mattress Firm. Is there a good way to think about how much might be sort of one time in nature that you might get back next year?

[Todd Vogensen, CFO at Purple Innovation]

Yeah. In terms of, the the gross margin and where we're being hit by tariffs and some of the ramp up costs, really, we expect the ramp up costs were largely moving past at this point. Tariffs will continue to mitigate as we go forward. It's a little bit of an uncertain environment to say the least. So we're planning conservatively at this point, but we do expect to end the year well north of 40% gross margin rate.

[Todd Vogensen, CFO at Purple Innovation]

So that will be a gradual improvement from Q2 through the rest of the year and then starting off next year in a strong footing at that plus 40% rate.

[Brad Thomas, Associate Director - Research at KeyBanc Capital Markets]

Great. Thank you so much.

[Robert DeMartini, CEO at Purple Innovation]

Thank you, Brad.

[Operator]

Your next question comes from the line of Matt Koranda with Roth Capital Partners. Your line is open.

[Matthew Koranda, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Hey, guys. I think you talked, briefly about third quarter trends in demand, to date, Rob. I think in your prepared remarks, I know you said mid single digit growth in the aggregate, but I just want to make sure I heard that correctly. And then can you share if that's mostly coming from the wholesale load in that you're getting with that firm and Rejuvenate? Or is there also some growth in the DTC channel as well?

[Robert DeMartini, CEO at Purple Innovation]

Matt, two parts to it. First of all, there is a little bit of the math firm in there, but remember the way floor samples ship, they don't really contribute fully to, revenue. So it's probably demand picture is is most of that up mid single digits and catching up with Rejuvenate where we've been behind in showrooms. So there's positive momentum in DTC, positive momentum in wholesale, and some encouraging early signs in ecom that we think will get stronger.

[Matthew Koranda, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Okay. Alright. That's great to hear. And then, I I think you guys said positive EBITDA in the second half for the guide. I guess does that mean that you could be positive in the third quarter?

[Matthew Koranda, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Maybe just talk about sort of the seasonality of profitability as you expect it to play out for the rest of the year here.

[Todd Vogensen, CFO at Purple Innovation]

Yes. So as we see improvements in revenue that grow sequentially and the same in gross margin that will flow through our to our EBITDA results. So really we expect to see gradual improvement on the EBITDA side of things, probably a little bit more q four weighted just based on the fact that we'll have a full quarter of of Mattress Firm and Rejuvenate two point o, and, we'll have the the high side of our our margin improvements. So we're not really guiding to the individual orders, but to think about it in terms of a slope upward towards Q4 is probably the right way to think about it.

[Matthew Koranda, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Okay. And then maybe if I could just sneak one last one in there. The I think you mentioned Rob in your remarks there's another large retailer that you could be ramping up with on a wholesale basis. Does that impact '25, or is that more likely a a '26 event that we should be kind of factoring in?

[Robert DeMartini, CEO at Purple Innovation]

Because of the timing of it, there will be a modest positive impact in q in q three and '4, probably in q four. Still working out the details, but it'll be a nice chunk of business in '26 for sure. But there should be a little bit upside in the in the back half.

[Matthew Koranda, MD & Senior Research Analyst at Roth Capital Partners, LLC]

Okay. Appreciate it, guys. I'll leave it there.

[Robert DeMartini, CEO at Purple Innovation]

Alright. Thank you, Matt.

[Operator]

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

[Bobby Griffin, Managing Director at Raymond James Financial]

Hey, guys. This is Bobby with Raymond James. Thanks for taking the questions. Congrats on, the early momentum in 3Q. So I guess, Rob, first, just clarification.

[Bobby Griffin, Managing Director at Raymond James Financial]

The the temporary, ability to fulfill, with is that now corrected? And and how is the capacity with, you know, obviously, the max account coming on? And you mentioned maybe another decent sized retailer later this year. Like, how is the, fulfillment capacity and all that going forward looking?

[Robert DeMartini, CEO at Purple Innovation]

Yeah. I think there are probably two two parts to my answer, Bobby. Thanks for the question. The first is the most encouraging part is demand in showrooms. We projected it to improve, but we started selling it, and I'm gonna forget the exact timing, but kinda halfway through the quarter, if I remember right.

[Robert DeMartini, CEO at Purple Innovation]

And the unit sales are about two x its predecessor. So that's the good news. The the bad news is we planned a little too much of a swimmer's turn and didn't have much flexibility to catch that and left the quarter with about 4 to $5,000,000 of normal demand that should have been fulfilled. We are catching that up by the end of this month, and today is the twenty ninth, so I get we're at the end of the end of the month, we should be, cutting those lead times about in half. And by mid August, we'll have them back to normal delivery times.

[Robert DeMartini, CEO at Purple Innovation]

At the same time, the demand in showrooms has encouraged our wholesale partners, and those slots commitments continue to grow modestly. And so we're gonna have to make sure we don't launch ahead of supply, but get that wholesale footprint fully deployed as fast as we can in q three.

[Bobby Griffin, Managing Director at Raymond James Financial]

Okay. That's helpful. And then on the tariff side of things, remind us the mitigation efforts. Have you guys started to adjust pricing yet for tariffs? I believe we've picked up some of our tax, so just confirm that for us.

[Bobby Griffin, Managing Director at Raymond James Financial]

And what have you seen? Like, I think everybody's trying to zero in on what the inelasticity of demand is or the the impact of demand from the tariffs. Like, so what are you seeing on, units velocity, for SKUs that you have adjusted?

[Robert DeMartini, CEO at Purple Innovation]

Yeah. So we announced about sixty to eighty days ago, and the normal wholesale you know, we we could have taken pricing a bit sooner, but we learned the hard way a couple years ago that we can't take pricing ahead of the wholesale lead times whether we end up creating a bit of an arbitrage problem. So we took pricing on 07/22, so we don't have much read yet. I know the customer reaction, not consumer, but customer, was not a lot of concern. The pricing was a little bit less than 2% or about 2%, and we stayed away from the items that we felt were absolutely either price point tethered or the most sensitive.

[Robert DeMartini, CEO at Purple Innovation]

So we don't expect a big consumer pushback. What the the a seven or eight days we've seen on the website, on pillows in particular, we crossed the decile. We have not seen any negative reaction. So I don't think we're gonna get any punishment for it. I think the trade understood it and appreciated that we gave them the notification lead time even though we did not get that from the tariff structure.

[Robert DeMartini, CEO at Purple Innovation]

So we're not expecting a big negative reaction to the pricing.

[Bobby Griffin, Managing Director at Raymond James Financial]

Appreciate it. And then lastly for me, you know, we got mass from coming on. It looks like the business is starting to flex here if we get the EBITDA in the back half. Just as we roll into '26, EBITDA shows up and this business starts to generate cash and free cash flow, what's some of the priorities for cash? You know, is it is it debt pay down at first or how do you and the team think about that?

[Todd Vogensen, CFO at Purple Innovation]

Yes. So you're heading down the path that we have been thinking quite a bit about as the business is generating this momentum, we think that it does set us up really nicely from a cash perspective as we go into next year. Priorities, we are gonna be looking at, our store footprint as showrooms are continuing to show great, results for us looking at, how we get back into the game of actually growing our store footprint, and looking at how we're deploying capital internally. We think that's the best use of cash. Beyond that, yeah, no specific plans.

[Todd Vogensen, CFO at Purple Innovation]

We want to make sure that we have built up an appropriate cash cushion for ourselves and that we're investing the cash back in the business and the things that we think will continue to generate the best returns for ourselves.

[Bobby Griffin, Managing Director at Raymond James Financial]

Thank you. Appreciate the time and best of luck here in the third quarter.

[Robert DeMartini, CEO at Purple Innovation]

Thank you, Bobby.

[Operator]

Your next question comes from the line of Dan Silverstein with UBS. Your line is open.

[Dan Silverstein, Equity Research Analyst at UBS Group]

Thanks so much for taking our questions. Hi, Rob and Todd. Maybe the first one, do you still expect the additional Mattress Firm distribution to be around, call it, 70,000,000 in revenues next year? And then for this year, for that contribution, should we kind of assume like a pro rata amount? Just trying to get a better picture of comparable like for like trends today.

[Robert DeMartini, CEO at Purple Innovation]

Yeah. I mean, the the distribution should be in place by August 15, so it'll start generating, you know, volume in the back half of the coming month and then through the rest of the year. And then by next year, as as I said in my remarks, we are working on a premium luxe line with Mattress Firm and expect that to be in place. Timing is still TBD, but but around the end of the first quarter, beginning of the second. So we'll end up with a footprint that is 12,000 slots on a year ago base that was sub 6,000. So, we're pretty optimistic about what that should produce.

[Dan Silverstein, Equity Research Analyst at UBS Group]

Got it. Thank you. And then maybe just moving aside from Mattress Firm, you pointed out, you know, some some things on the come and some positive progress already with with nontraditional retail partners like Costco and Walmart. Maybe you could just take a minute and frame, you know, business in these type of channels today relative to, you know, the opportunity you see going forward over the next few years.

[Robert DeMartini, CEO at Purple Innovation]

You know, fundamentally, the wholesale channel, we've got to make sure that our furniture and mattress retailers are well stocked, well supplied, and well supported so we can move that product through. That's the primary focus of our business. But I think as others have learned, and we're still a pretty young company, the right business in the right alternative channels, whether that's, Walmart or Costco or HomeGoods or or QVC done well and done in a way that is both accretive to the brand, accretive to the margin, and not disruptive to the traditional wholesale customers can be a nice chunk of business, and we still have way more opportunity in front of us than behind us in that case. The club the Costco is a good example. We were in a 170 clubs.

[Robert DeMartini, CEO at Purple Innovation]

We've been in distribution online for about a year and a half, but have we're in clubs for a 170 clubs last year, and they had a nice piece of business. And the the one that I spoke about earlier is gonna be 450 clubs. So it's meaningful. It's profitable. And in many cases, it's very good for the brand reputation if you do it in a way that doesn't disrupt your your, traditional customer channels.

[Dan Silverstein, Equity Research Analyst at UBS Group]

Perfect. Thank you so much, and best of luck. Alright. Thank you, Dan.

[Operator]

Your next question comes from the line of Brian Nagel with Oppenheimer. Your line is open.

[Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.]

Hey, guys. Good afternoon. Thanks for taking my question questions. So the first question I have, just on on the gross margin in the quarter, as you talked about there being it would seem like more or less onetime, you know, onetime pressures there. So I wonder if you could just articulate that a little bit more, you know, what what those were, the size of them.

[Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.]

And and then how quick you know, as we look into q three, q four, how quick will these these these onetime, pressures abate? I mean, and maybe another way to ask questions, you know, how should we be thinking more specifically about the gross margin q three and q four?

[Todd Vogensen, CFO at Purple Innovation]

Yeah. So I you know, if you look back, we had greater than 40% margin for the last four quarters. So we've kind of demonstrated that that is a level that we can operate at. As we got into this quarter, as you mentioned, tariffs were new. Now we do have plans in place to start mitigating that.

[Todd Vogensen, CFO at Purple Innovation]

To a degree, obviously, we won't be able to mitigate all of it, but that was probably a little bit more than half of the reduction in margin that we saw this quarter. So you'll see that mitigation come through across the course of the rest of the year. The other bit about ramp up costs, is really something that we believe we've addressed at this point. So a lot of that will come back to us even as we get into Q3. So as you look at margin across the rest of the year and then in addition to that I should mention there's ongoing efficiency projects that we're working on that are really bearing fruit.

[Todd Vogensen, CFO at Purple Innovation]

There's a lot of projects along the mode of direct material savings and sourcing savings that kind of ramp up as we get through the rest of the year. So there's a lot of tailwinds behind us on the gross margin front. They really do build as we go through. So as you look at it, we'll be north of 40% as we exit the year in Q4 and then ramping up towards that as we get through the third quarter.

[Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.]

Got it. That's helpful. Then let me see if I can ask this correctly. So if you look at the quarter, at least from my perspective, think one of the most significant positives here is that sales ramp and particularly what you're seeing thus far in Q3 with that rather sizable or meaningful growth year on year growth. Is is the gross margin the question I have is is the gross margin degradation in the second quarter completely disconnected?

[Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.]

In other words, not a driver of the better sales we're seeing?

[Robert DeMartini, CEO at Purple Innovation]

I I don't know if I say it's disconnected because a chunk of it was startup cost, but it was amplified in q two because we got all the startup cost and not the replacement benefit by getting all that Rejuvenate shipped as it should have. So, you know, I think the tariffs, we believe, will mitigate a majority of that as we said in the remarks. Direct material savings continue, and we got the benefit of all of the startup costs and very little of the replacement benefit coming. So again, we're confident we'll have a back half that certainly exits above 40%.

[Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.]

Got it. Okay. I appreciate it. Thank you.

[Robert DeMartini, CEO at Purple Innovation]

Thanks, Brian.

[Operator]

I will now turn the call back to Rob DeMartini for closing remarks.

[Robert DeMartini, CEO at Purple Innovation]

First, I'd like to just say thank you for joining us on today's call. We remain focused on disciplined execution, our innovation schedule and building a premium, sustainable and profitable brand for the long term. I'd like to extend my sincere thanks to our associates for their hard work through some pretty difficult times and our customers for their continued loyalty. Thank you.

[Operator]

Ladies and gentlemen, that concludes today's call. You can disconnect. Thank you, and have a great day.

Participants

Analysts

• Stacy Turnof, EVP - Strategic Situations & IR at Edelman Smithfield
• Robert DeMartini, CEO at Purple Innovation
• Todd Vogensen, CFO at Purple Innovation
• Brad Thomas, Associate Director - Research at KeyBanc Capital Markets
• Matthew Koranda, MD & Senior Research Analyst at Roth Capital Partners, LLC
• Bobby Griffin, Managing Director at Raymond James Financial
• Dan Silverstein, Equity Research Analyst at UBS Group
• Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.