Purple’s Earnings Decrease in Third Quarter

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Mattress producer Purple Innovation Inc. reported that third quarter net revenue decreased 2% to $140 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.

Purple’s Q3 Earnings Decrease.

But this decline was 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.

“Our third quarter top-line performance demonstrates that our Path to Premium Sleep strategy is gaining traction,” said Rob DeMartini, CEO of the Lehi, Utah-based company. “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.”

By channel, wholesale revenue increased 2.6% and DTC revenue declined 5.2%. DTC net revenues dipped due to lower e-commerce revenue partially offset by growth in Purple retail showroom revenue. The company added five showrooms during the past 12 months.

Gross margin for the third quarter decreased to 33.8% compared to 41.3% in the same period last year. 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 the company 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 compared to $58.1 million, or 40.7% of net revenue, in the same period last year. 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.

“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,” DeMartini said. “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.”