Purple Innovation: Q4 Earnings Snapshot

Purple Innovation, Inc. (NASDAQ: PRPL) has just reported its fourth-quarter and full-year 2024 earnings, and the results are a mixed bag of good news and lingering challenges. The company, known for its innovative "World's First No Pressure™ Mattress," has returned to positive Adjusted EBITDA and positive cash flow generation in the fourth quarter of 2024. This is a significant milestone for Purple, as it marks the first time the company has achieved positive Adjusted EBITDA in eight quarters. However, the company's net revenue for the quarter declined by 11.6% to $129.0 million, compared to $145.9 million in the fourth quarter of 2023. This decline was driven by continued industry softness and the cycling of the 2023 launch of the company's new mattress lines.

The company's gross profit for the fourth quarter increased to $55.3 million, compared to $48.5 million in the prior-year period. GAAP gross margin improved significantly to 42.9%, an increase of 970 basis points. Adjusted gross margin, which excludes restructuring-related charges and launch costs in the prior year, expanded to 44.9%, an improvement of over 810 basis points year-over-year. These improvements were driven by continued improvements from sourcing initiatives and profitable liquidation of inventories.

The company's operating expenses for the fourth quarter were $63.0 million, down 2.6% from $64.7 million in Q4 2023. This improvement was driven by disciplined cost control and benefits of the Company's restructuring activities in the third quarter of 2024, offset partially by an increase in advertising investments. The net loss attributable to Purple Innovation, Inc. for the fourth quarter was $(8.5) million, an improvement from $(18.3) million in the prior year. Adjusted EBITDA for the fourth quarter was $2.9 million, a significant improvement compared to $(9.8) million last year, demonstrating the benefits of higher ticket sizes from the Company's premium sleep strategy and restructuring initiatives.

The company's full-year 2024 net revenue was $487.9 million, down 4.4% compared to $510.5 million in 2023. DTC net revenue was $283.7 million, a decrease of 4.4%, while wholesale net revenue was $204.2 million, a decrease of 4.5%, due primarily to increased industry softness and cycling the launch in 2023 of the Company's new mattress product lines. Gross profit for the full year increased to $181.1 million, compared to $171.8 million last year. GAAP gross margin for the year improved to 37.1%, an increase of 350 basis points year-over-year. Adjusted gross margin grew to 40.3%, up 310 basis points compared to the prior year, as the Company benefited from production efficiencies and sourcing initiatives.

Full-year operating expenses declined 4.6% to $273.3 million, compared to $285.5 million in 2023, with the benefits of cost savings initiatives and lapping special committee costs from 2023 being partially offset by $20.0 million in restructuring, impairment and other related charges. Full-year net loss attributable to Purple Innovation, Inc. was $(97.9) million, an improvement from $(120.8) million in the prior year. Adjusted EBITDA for the full year improved significantly to $(20.8) million, compared to $(54.7) million in 2023, reflecting the Company's strategic focus on improving profitability.

The company's cash and cash equivalents were $29.0 million as of December 31, 2024, compared to $26.9 million as of December 31, 2023, and compared to $23.3 million as of September 30, 2024, with the improvement in EBITDA driving positive cash flow in the fourth quarter. Inventories as of December 31, 2024 totaled $56.9 million, compared to $66.9 million at December 31, 2023, representing a decrease of 15.0%.

The company has also expanded its credit facility, increasing its existing term loan by $19 million to a total of $80 million. This expansion provides the company with greater financial flexibility and improved liquidity, enabling it to pursue strategic initiatives, invest in innovation, and support advertising efforts. However, the increased debt burden could impact the company's financial health if it is unable to generate sufficient cash flow to service the debt. The additional debt will also result in higher interest payments, which could impact the company's profitability and cash flow.

The company's Board of Directors has initiated a review of strategic alternatives for the Company, following inbound expressions of interest. The Board will consider a broad range of opportunities to maximize shareholder value, including, but not limited to, a sale, merger, or other strategic or financial transaction. The Board has formed a special committee of independent directors comprised of Gary T. DiCamillo (Chair), D. Scott Peterson, and Claudia Hollingsworth to evaluate these alternatives. The company has retained Jefferies LLC as financial advisor to assist in its review of strategic alternatives.

The company's focus on its "Path to Premium" strategy aligns with its exploration of strategic alternatives by ensuring that the company continues to execute its core business objectives while evaluating potential transactions that could enhance shareholder value. The "Path to Premium" strategy is designed to drive profitability and operational improvements, which are evident in the company's return to positive Adjusted EBITDA and positive cash flow in the fourth quarter of 2024. This financial performance strengthens Purple's negotiating position and provides a solid foundation for exploring strategic alternatives.

The potential outcomes for shareholders and stakeholders are multifaceted. If a strategic transaction is pursued and consummated, it could lead to significant value creation for shareholders through increased stock prices or other financial benefits. For stakeholders, including customers and wholesale partners, the company's continued focus on executing its "Path to Premium" strategy ensures that product innovation and customer satisfaction remain priorities. As the Board conducts its review, the Purple team remains "laser focused on executing against our Path to Premium strategy and continuing to serve our customers and wholesale partners," as stated in the press release.

In conclusion, Purple Innovation's Q4 earnings snapshot shows a company that is making progress in its efforts to improve profitability and operational efficiency. The return to positive Adjusted EBITDA and positive cash flow generation is a significant milestone for the company, and the expansion of its credit facility provides it with greater financial flexibility. However, the company still faces challenges, including a decline in net revenue and an increased debt burden. The company's exploration of strategic alternatives could provide significant value creation for shareholders, but it remains to be seen whether any particular transaction will be pursued or consummated.