PRPL Q1 Earnings Call: Wholesale Expansion and Margin Gains Amid Industry Headwinds

Bedding and comfort retailer Purple (NASDAQ: PRPL) met Wall Street’s revenue expectations in Q1 CY2025, but sales fell by 13.2% year on year to $104.2 million. The company’s full-year revenue guidance of $475 million at the midpoint came in 0.8% above analysts’ estimates. Its non-GAAP loss of $0.11 per share was 23.6% above analysts’ consensus estimates.

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StockStory’s Take

Purple’s Q1 results reflected a mix of ongoing industry challenges and company-specific initiatives. Management attributed the quarter’s performance to continued growth in showrooms, improved gross margins, and disciplined cost control, while acknowledging softness in both wholesale and e-commerce channels. CEO Rob DeMartini explained, “Showrooms grew 7%, the fifth consecutive period of revenue growth, while comparable sales were up 11%.” He also cited the positive impact of higher order values and upselling strategies in retail stores.

Looking ahead, leadership reaffirmed full-year guidance while highlighting the expanded partnership with Mattress Firm as a meaningful growth driver for the second half of the year. The company expects to offset some tariff-related cost pressures through pricing and sourcing adjustments but remains cautious given the uncertain consumer environment. DeMartini noted, “Our guidance reflects a balanced view considering some contribution from the expansion of our wholesale distribution later this year while also incorporating potential headwinds from tariff policies.”

Key Insights from Management’s Remarks

Purple’s management detailed several operational and strategic developments that influenced Q1 results and shaped the outlook for the rest of the year.

• Showroom channel momentum: Showroom sales outperformed internal benchmarks with 7% growth and 11% comparable sales gains, attributed to effective upselling, product bundling, and higher order values, despite a reduced store count.
• Wholesale and e-commerce weakness: The wholesale channel experienced a 24% decline, and e-commerce sales were also down, with management citing lower conversion rates and broad-based softness among partners as primary factors. Efforts are underway to improve digital messaging and online-to-store conversion.
• Margin improvement initiatives: Adjusted gross margin exceeded 40% for the fourth consecutive quarter, aided by sourcing improvements, production efficiencies, and full integration of manufacturing operations. Operating expense reductions from restructuring contributed to better overall profitability.
• Expanded Mattress Firm partnership: The company announced a significant agreement to increase Purple’s presence in Mattress Firm stores, which is expected to drive over $70 million in incremental net revenue beginning next year. This includes exclusive assembly arrangements with Sherwood Bedding for certain product lines.
• Tariff exposure and mitigation: Management identified new tariffs on imported components as an estimated $10 million annual cost headwind, primarily affecting textiles and bases. The company is exploring alternative sourcing and pricing strategies to minimize the impact.

Drivers of Future Performance

Purple’s outlook is shaped by strategic wholesale expansion, ongoing cost management, and external risks such as tariffs and consumer demand variability.

• Wholesale footprint expansion: The rollout of the expanded Mattress Firm partnership is anticipated to drive higher volumes and broader brand awareness, with management expecting meaningful incremental revenue in the second half of the year.
• Margin optimization focus: Continued benefits from manufacturing consolidation, sourcing initiatives, and restructuring are expected to support gross margin improvements, even as tariffs present new cost pressures.
• Consumer demand uncertainty: Leadership remains cautious about the overall consumer environment, noting that persistent macroeconomic headwinds and evolving tariff policies could temper demand and affect near-term results.

Top Analyst Questions

• Brad Thomas (KeyBanc Capital Markets): Asked about the methodology behind the $70 million incremental revenue estimate from the Mattress Firm partnership. DeMartini explained the projection is based on current slot productivity, acknowledging some cannibalization but expecting net benefits.
• Brad Thomas (KeyBanc Capital Markets): Inquired about trends in consumer demand and Q2 outlook. DeMartini responded that consumer caution continues, with April remaining a weak month for mattresses and overall uncertainty in discretionary spending.
• Bobby Griffin (Raymond James): Questioned whether the new Mattress Firm agreement affects Purple’s distribution strategy for its own stores and online channels. DeMartini confirmed the company remains committed to a balanced omni-channel approach, emphasizing both showrooms and wholesale.
• Bobby Griffin (Raymond James): Asked when tariff impacts would be reflected in financials. DeMartini stated tariff costs would begin to flow through in Q2, with mitigation strategies still being finalized.
• Dan Silverstein (UBS): Sought details on the economics of the Mattress Firm relationship and margin implications. DeMartini noted the partnership is modeled to be accretive for both parties, with margin benefits from supply chain efficiencies.

Catalysts in Upcoming Quarters

Looking forward, the StockStory team will monitor (1) the pace and effectiveness of the expanded Mattress Firm rollout, including initial sales results and slot productivity; (2) the ability to sustain showroom growth and improve digital conversion rates; and (3) successful mitigation of tariff-related cost pressures through sourcing or pricing. Updates on product launches, particularly the Rejuvenate 2.0 line, and any changes to the strategic alternatives process will also be key signposts.

Purple currently trades at a forward EV-to-EBITDA ratio of 30.3×. In the wake of earnings, is it a buy or sell? Find out in our free research report.

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