Purple Innovation Stock is a DTC Mattress Winner

Mattress, cushions and sleeping products manufacturer Purple Innovation NASDAQ: PRPL stock was a pandemic winner as the stay-at-home mandates accelerated a housing and renovation boom. The Company’s patented grid system provides stability, breathability, and heavy duty support in its products ranging from seat cushions to mattresses and pillows. The Company is continuing to shift more towards a direct-to-consumer (DTC) model which stands at a 75/25 split between DTC channel and wholesale channel. DTC represents online while wholesale represents its retail stores and partnerships. The pandemic revealed and even spawned a whole cozy economy of customers that discovered and adopted the high quality, premium Purple products. As a side note, I can personally attest to the Purple seat cushions as the best I’ve ever used. There’s a stack of seat cushions and donuts that have piled up in my quest for a remedy to the various types of pain experienced when spending up to 14-hours a day (seven days a week) in an office chair. Originally designed to make wheelchairs more comfortable, the Company developed its mattress  as a result of over 30-years of research and over 35 patents. The Company faces stiff competition from DTC players like Casper Sleep NASDAQ: CSPR, Sleep Number NASDAQ: SNBR and Temper Sealy NYSE: TPX. While analysts expect top-line regression as the re-openings accelerate with the rate of COVID-19 vaccinations, they may have underestimated the stickiness of Purple’s end users as the cozy economy is extremely sticky and particular when they are won over by a product. Prudent investors can watch for opportunistic pullback levels to consider exposure on this proprietary play.

Q4 FY fiscal 2020 Earnings Release

On March 4, 2021, Purple released its fourth-quarter fiscal 2020 results for the quarter ending December 2020. The Company reported an earnings-per-share (EPS) profit of $0.07 excluding non-recurring items versus consensus analyst estimates for a profit of $0.12, a (-$0.05) per share miss. Revenues rose 39.9% year-over-year (YoY) to $173.9 million, missing consensus analyst estimates for $196.13 million.  

Lowered Q1 2021 Guidance and Raised Full-Year 2021 Top-Line

Purple lowered its Q1 2021 revenues between $160 million to $170 million, below the $177 million consensus analyst estimates. However, the Company raised its full-year 2021 revenues between $840 million to $880 million versus analyst expectations for $823.23 million. Adjusted EBITDA is full-year 2021 is expected between $90 million to $100 million. Capex is expected between $45 million to $50 million of which $20 million is allocated to the continued buildout of its Georgia manufacturing facility. The Company will invest $19 million to expand its showrooms and R&D.

Conference Call Takeaways

Purple Innovation CEO Joseph Megibow set the tone, “The accelerated shift to online channels created by COVID-19 positively impacted 2020 revenue and margins, which, along with savings from certain cost actions and lower advertising rates earlier in the pandemic, fueled significant improvement in profitability and cash generation.” The Company bolstered production capacity with the addition of two more Max Machines in Grantsville, Utah. The Company also opened its 525,000 sq. ft. Purple South facility in Atlanta, which will house six more Max Machines. Purple pillows and seat cushion sales rose 140% YoY crossing more than 1 million lifetime sold units. Purple grew its U.S. mattress market share to over 3% and nearly 6% of the premium mattress market. The unanticipated COVID-19 resurgence caused stores in Canada to shutdown again in Q4 2020. The softness in retail was exacerbated by the aggressive purchases by partners in Q3 2020. However, sales rebounded strong in January 2021 equated to delated consumer purchasing and sell-down of partner inventories at years-end.

Growth Drivers

Purple plans to bolster its manufacturing capacity by over 85% as a complete vertically integrated organization in 2021. The Company also plans to boost its wholesale door growth with approximately 1,500 addition doors and a new e-commerce platform to be released in phases in 2021. The new platform will be heavy on the education with more sophisticated customer service tools, enable accounts and customer-centric capability to enable CRM best practices. The Company plans to open between 20 to 25 Purple showrooms in major metro areas in 2021. New product launches are expected to commence in Q2 and rollout heavily by years end along with a new marketing campaign. This underscores the lowered Q1 2021 guidance that ramps up in the latter part of the year. Prudent investors can watch for opportunistic pullbacks in the near-term for an end of year recovery.

PRPL Opportunistic Pullback Price Levels

Using the rifle charts on the weekly and daily time frames provides a precision view of the landscape for PRPL stock. The weekly rifle chart peaked abruptly at the $36.51 Fibonacci (fib) level and collapsed quickly under the monthly market structure high (MSH) sell trigger at $31.16. The weekly 5-period moving average (MA) went flat $33.97. The weekly stochastic stalled for a potential cross down which would form a weekly inverse pup breakdown towards the weekly lower Bollinger Bands (BBs) at the $27.57 fib. The daily rifle chart downtrend has a falling 5-period MA at $31.89. The daily stochastic has cross down through the 20-band oversold level. The daily market structure low (MSL) buy triggered above $28.15, which the bulls need to protect. Opportunistic pullback levels sit at the $28.15 daily MSL trigger, $27.57 fib, $26.60 fib, $25.75 fib, and the $24.32 fib. Upside trajectories range from the $35.52 fib up towards the $42