Purple Innovation's Q3 2025 Earnings Call: Contradictions in Revenue Trends, E-commerce Strategy, Mattress Firm Impact, and Consumer Sentiment Outlook

Date of Call: November 4, 2025

Financials Results

• Revenue: $118.8M, up slightly versus $118.6M in prior year
• EPS: $0.08 adjusted loss per share, improved from $0.13 adjusted loss per share prior year (adjusted)
• Gross Margin: 42.8% (~43%), up from 29.7% YoY and improved ~700 bps sequentially from Q2 (~36%)

Guidance:

• Full-year 2025 revenue reiterated at $465M–$485M
• Full-year adjusted EBITDA reiterated between breakeven and $10M positive
• Q4 gross margins expected to be roughly 40%; company expects to finish the year above 40%
• Expect positive adjusted EBITDA for the year and a path to positive cash generation in 2026
• Capital priorities: reinvest in showroom expansion and innovation while retaining flexibility to reduce debt

Business Commentary:

* Revenue Recovery and Market Position: - Purple Innovation reported revenue of $118.8 million for Q3, marking an important inflection point as it was slightly up compared to last year, following consecutive periods of year-over-year declines. - The recovery was supported by the ongoing execution of strategic priorities, including the rollout of Mattress Firm and the success of the Rejuvenate mattress collection.

• Improved Gross Margin and Operational Efficiency:
• Gross margin improved nearly 700 basis points sequentially to approximately 43%, even with tariff-related headwinds.

• This was driven by direct material cost savings, the completion of the restructuring plan, and progress in warranty and scrap reduction initiatives.

• Strategic Partnership Expansion:

• Wholesale revenue grew 8% during the quarter, supported by the ongoing expansion of the Mattress Firm partnership, which now represents approximately 9,200 slots.

• This expansion is expected to contribute roughly $20 million in incremental revenue this year and potentially $70 million next year.

• Showroom Performance and Profitability:

• Showroom net revenue grew 6.5% to $22 million, reflecting strong premium positioning even in a softer traffic environment.

• A significant improvement in showroom profitability was observed, with 76% of showrooms profitable year-to-date, compared to 56% last year.

• Adjusted EBITDA and Profitability Outlook:

• Purple achieved positive adjusted EBITDA for the third quarter, reflecting a turnaround from previous losses.
• The company is on track to deliver positive adjusted EBITDA for the year and expects sequential acceleration in EBITDA driven by revenue expansion and restructuring initiatives.

  Sentiment Analysis:

  Overall Tone: Positive

  • Management highlighted: "revenue of $118.8 million, up slightly compared to last year," "positive adjusted EBITDA," and "gross margin improved nearly 700 basis points sequentially to approximately 43%." They reiterated full-year guidance of $465M–$485M and adjusted EBITDA breakeven to $10M, and said they are "on track to deliver positive adjusted EBITDA for the year."

Q&A:

• Question from Bradley Thomas (KeyBanc Capital Markets): Congrats on the improvement in the business that you all are driving here. Rob, that's actually where I wanted to start off with my first question. Just as you see the acceleration in sales in the business, I guess, could you speak to what, if anything, are encouraging green shoots that we might be seeing in terms of the industry overall versus how much this is coming from the multitude of initiatives that you all have underway right now?
  Response: Management: Improvement appears driven mainly by Purple's initiatives (showroom strength, wholesale expansion) rather than a broad industry recovery; market seems flattish overall but company is well positioned if demand improves.

• Question from Bradley Thomas (KeyBanc Capital Markets): Maybe I could ask a question just on the margin front or the business front financially more broadly. Clearly, a number of the revenue initiatives that you have underway are going to wrap into 2026 and be a nice boost through the first half of the year. Can you talk to how you think about flow-through to the bottom line and any other margin opportunities for you as we think to 2026?
  Response: CFO: Plant consolidation and restructuring have lowered breakeven; gross margins are sustainably around 40% and incremental revenue flows through quickly, enabling rapid profitability as sales scale.

• Question from Joseph (ROTH Capital Partners): It's Joseph on for Matt. I just wanted to see if you guys can kind of bridge us on your adjusted EBITDA guide here. Implied EBITDA in the 4Q is roughly high single digits. Can you bridge us as we exit 3Q on a flattish margin?
  Response: CFO: Q4 EBITDA upside driven by seasonal revenue acceleration (Black Friday/Cyber Monday, Mattress Firm expansion, Costco) while maintaining ~40% gross margin and cost control, so incremental top-line largely converts to EBITDA.

• Question from Joseph (ROTH Capital Partners): Then as we kind of approach like the 1,200 mark in -- the 12,000 mark, excuse me, on your Mattress Firm slots, how should we think about it going into 4Q? And then obviously, you guys stated that, that 12,000 should be hit in March 2026. Should it be an even split? Or should we ramp up most of those slots early 1Q '26?
  Response: CEO: The incremental ~2,800 slots to reach 12,000 will largely ramp at the end of Q1 (March 2026) tied to a specific Rejuvenate collection rollout.

• Question from Robert Griffin (Raymond James): Rob, just quickly on just how the quarter played out. I think we were -- we entered the quarter or at least when we spoke last like up, I think, mid-single digits in revenue. and then we finished flat. Was that just a function of the softness of the last couple of weeks? Or did some of the timing of the rollouts change a little bit where there was some expected revenue that just shifted into 4Q?
  Response: CEO: The quarter softened after Labor Day across the market, causing pacing to decelerate; some strength returned in October, so timing (market softness) drove the shift into Q4 rather than major shipment timing changes.

• Question from Robert Griffin (Raymond James): Then I just wanted to clarify, the gross margin, you guys ended 3Q at, call it, 43 round numbers, 42.8%. You expect it to be down sequentially and that would be down pretty meaningfully year-over-year. And is that just -- what exactly is driving that? It's just the mix going more to wholesale with these launches? Or what exactly is driving that? Because you talked kind of about 42.8%, and then 40% as a round number. So just wanted to kind of clean up where we actually expect grosses to be at in the fourth and what is a sustainable gross margin given the changing mix here of Purple's customer base?
  Response: CEO: Management: Sustained gross margin north of 40% is achievable despite more wholesale mix; Q4 will be lower (~40%) due to competitive promotions and margin pressure from seasonal promotions, not structural degradation.

• Question from Robert Griffin (Raymond James): Then it does seem like, look, you got the wholesale business outgrowing with some accounts, nice comp in showrooms. There's still some work to be done on showroom profitability. So I'd be curious to kind of see you unpack -- if you could unpack kind of that aspect of the stores that are not EBITDA profitable. I think you gave some statistic. I missed it on the call. Then the second part of the question is just maybe it's more strategic, but as this business kind of continues to evolve, you got 2 of the parts of the house growing, e-commerce remains pressured. Just kind of what do you think of the long-term e-commerce opportunity here for Purple? Has it changed now given some of the success with wholesale and what you're seeing out of some momentum in the showrooms? Just curious thoughts there, Rob.
  Response: CEO: Showroom profitability improved (76% profitable YTD vs 56% prior year); expect a stable minority of underperforming stores (5–10%) but will keep investing; remain bullish on e-commerce after recent site refresh and Amazon traction.

• Question from Daniel Silverstein (UBS): Maybe just to start, if we want to unpack the third quarter a bit, how much of the improvement in the wholesale segment was driven by the additional Mattress Firm slots? And maybe a different way of asking is just how is productivity in other retail partners trending today?
  Response: CEO: Mattress Firm expansion contributed materially but initially depresses slot productivity when samples are loaded; overall productivity held with increased slots and other wholesale partners like Costco are growing well while performance is mixed across the wider wholesale base.

• Question from Daniel Silverstein (UBS): Then just one follow-up. So to your point, it seems like there's some pretty good visibility into the sales building blocks next year. Specific to the $70 million from Mattress Firm, what's in your control to drive that number potentially higher? And then if the mix skews a bit more to wholesale next year, how might that impact profitability from a margin standpoint?
  Response: CEO: The $70M estimate assumes current slot productivity; upside requires improved slot productivity and marketing/support at retail—management believes increased wholesale mix can be offset by premium product mix and thus not materially harm margins.

Contradiction Point 1

2025Q3 Revenue Performance

It involves differing explanations for the revenue performance in 2025Q3, which affects investor understanding of the company's operational performance and market conditions.

How did the quarter perform, given the expected mid-single-digit revenue growth but flat results? - Robert Griffin (Raymond James & Associates, Inc., Research Division)

2025Q3: Strong start post-Labor Day, but market softened. Market recovery started in October. - Robert DeMartini(CEO)

Can you discuss the sales cadence this quarter and the expected acceleration in H2? - Bradley Thomas (KeyBanc Capital Markets)

2025Q2: The quarter started slow, with April being the softest month. Demand was strong, but shipments were delayed, which could have resulted in sales closer to $110 million. - Robert DeMartini(CEO)

Contradiction Point 2

E-commerce Performance and Strategy

This contradiction highlights differing perspectives on the company's e-commerce performance and strategic focus, which could impact investor expectations regarding the company's digital sales channel.

Can you discuss e-commerce's future given wholesale and showroom momentum? - Robert Griffin (Raymond James & Associates, Inc., Research Division)

2025Q3: We remain bullish on e-com. Early signs suggest mix improvement post-website refresh. Showroom profitability is strong with 76% EBITDA profitability. - Robert DeMartini(CEO)

Can you clarify third-quarter demand trends and if growth is driven by wholesale or DTC? - Matt Koranda (ROTH Capital Partners)

2025Q2: We're encouraged by early signs of e-commerce recovery. E-commerce would be down mid-single digits for the year, flattish to slightly up in Q3 and slightly down in Q4. - Todd Vogensen(CFO)

Contradiction Point 3

Mattress Firm Revenue Contribution

This contradiction involves differing expectations for the revenue contribution from Mattress Firm, which could impact investor expectations regarding the company's wholesale strategy and sales growth.

How much of the wholesale segment's improvement is due to additional Mattress Firm slots, and how is productivity trending with other retail partners? - Daniel Silverstein (UBS Investment Bank, Research Division)

2025Q3: Mattress Firm launch initially hurt productivity, but overall productivity held with increased slots. - Robert DeMartini(CEO)

Do you still expect $70 million in additional Mattress Firm revenue next year? What is this year’s pro-rata contribution? - Daniel Silverstein (UBS)

2025Q2: The Mattress Firm distribution will be fully in place by mid-August, contributing revenue in Q3 and Q4. - Robert DeMartini(CEO)

Contradiction Point 4

Mattress Firm Partnership and Slot Productivity

The response highlights differing expectations regarding the impact of the Mattress Firm partnership on slot productivity, which could affect wholesale growth and revenue projections.

What portion of the wholesale segment's improvement was due to additional Mattress Firm slots, and how is productivity trending with other retail partners? - Daniel Silverstein(UBS Investment Bank)

2025Q3: Mattress Firm launch initially hurt productivity, but overall productivity held with increased slots. - Robert DeMartini(CEO)

What is the math behind the $70 million figure from the expanded Mattress Firm partnership? Is this a net number or does it offset sales at nearby stores? - Brad Thomas(KeyBanc Capital Markets)

2025Q1: The $70 million is based on the current productivity of our existing Mattress Firm slots, which are about 62% utilized today. We project that the same productivity will apply to the new full scope of slots. - Rob DeMartini(CEO)

Contradiction Point 5

Consumer Sentiment and Market Recovery

The differing responses indicate a shift in the company's perspective on consumer spending trends and market recovery.

What's driving the sales acceleration, and how do industry trends compare to your initiatives? - Bradley Thomas(KeyBanc Capital Markets Inc., Research Division)

2025Q3: The market showed signs of improvement around Labor Day, then softened, hence we expect flattish category results. - Robert DeMartini(CEO)

What are your thoughts on consumer trends and spending in Q2? Any updated insights? - Brad Thomas(KeyBanc Capital Markets)

2025Q1: I'm concerned about the second quarter, mainly due to consumer sentiment rather than tariffs. April consumer data suggests caution, and while there is some optimism about Memorial Day, we're seeing more uncertainty than certainty. - Rob DeMartini(CEO)