Purple Innovation - Q4 2025

Transcript

Operator (participant)

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to Purple Innovation fourth quarter full year 2025 earnings. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the call over to Stacy Turnof, Investor Relations. Please go ahead.

Stacy Turnof (EVP of Strategic Situations and Investor Relations)

Thank you for joining Purple Innovation's fourth quarter and full year 2025 earnings call. A copy of our earnings press release is available on the investor relations section of Purple's website at www.purple.com. Before we begin, I'd like to remind you that certain statements made in this presentation are forward-looking statements. These statements reflect Purple Innovation's judgment and analysis as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. You should not place undue reliance on these forward-looking statements. For more information, please refer to the risk factors outlined in our filings with the SEC. Additionally, today's presentation will reference non-GAAP financial measures such as adjusted gross margin, adjusted operating expenses, adjusted EBITDA, adjusted net loss, and adjusted net loss per share.

A reconciliation of these measures to their most comparable GAAP measures can be found in the earnings release available on our website. With that, I'll turn the call over to Rob DeMartini, Purple Innovation's Chief Executive Officer.

Robert DeMartini (CEO)

As we close out 2025, I'm proud of how far the business has come over the past year. While the broader market remains challenging, the progress we're making at Purple is increasingly evident in our results. The fourth quarter marked an important inflection point for the company. Revenue increased approximately 9% year-over-year. We delivered gross profit expansion and profitability improved meaningfully across the business. In the quarter, we generated adjusted EBITDA of approximately $8.8 million and finished the year profitable. This performance was driven by the benefits of the strategic actions we've taken. Those actions include our cost initiatives that are now fully embedded in the business, including consolidating our manufacturing footprint, as well as a full quarter of expanded Mattress Firm distribution and a significant expansion of our Costco program.

Looking at the full year, 2025 was a period where the business became meaningfully stronger. We continued to build on our path to premium sleep strategy and delivered positive adjusted EBITDA for the year, finishing within the guidance range we established at the beginning of 2025. Importantly, we achieved profitability levels that we haven't seen since 2021. That progress was driven by the execution and by the changes we put in place, not by a recovery in the broader market, which speaks to the durability of the model we've been building. Our focus throughout the year was not on short-term fixes, but on creating a business that can perform more consistently. Taken together, this represents more than a strong finish to the year. It marks a clear shift from defense to offense.

Growth, margin expansion, and profitability are showing up in the numbers, and that's in a market which is down low single digits. The direction is clear, the momentum is real, and we're entering 2026 with a playbook designed to scale profitably as demand continues to improve. We've made meaningful progress across each of our sales channels in 2025, and in the fourth quarter, two of our three channels delivered positive growth for the second consecutive quarter. Comparable sales in our showrooms increased 8.8% in the quarter, and showrooms continued to grow in profitability for the full year. Sales execution improved, the updated selling model gained traction, and Rejuvenate 2.0 represented over 50% of showroom mattress revenue during the quarter, with more than 80% of showrooms four-wall profitable for the full year.

Wholesale was a key driver in 2025, with a robust 39.8% growth in the fourth quarter. E-commerce performance was mixed during the year and declined in the fourth quarter, though we did see pockets of strength around Black Friday and Cyber Monday. At the same time, we saw solid marketplace performance, particularly on Amazon, and meaningful improvements to the website experience tied to our less pain, better sleep positioning. Stepping back, the way we're thinking about the business today is fundamentally different than a year ago. Last year was about reshaping the business for a tougher market, right-sizing our cost structure, strengthening the foundation, and restoring profitability. Today, we're focused on growth. Going forward, our focus is centered on three priorities, deepening our understanding of the consumer, delivering better sleep through product experience and expanded distribution, and executing with financial discipline across the business.

This approach builds on what's already working and reflects how we're running our business. With that framing, let me walk you through our progress against these priorities and what they mean for the business going forward. Number one, knowing our consumer. Over the past year, we've sharpened our focus on understanding who our consumers are, what matters most to them, and how they make their purchase decisions across the channels. Our work is shaping how we communicate, shifting us away from promotionally led messaging towards clear benefit-driven storytelling, focusing on GelFlex Grid technology that helps consumers understand how Purple delivers better sleep. Our less pain, better sleep positioning continues to resonate, providing a consistent consumer-led message that translates across e-commerce, retail, and wholesale channels. Importantly, we're focused on reaching our consumers with the right message in the right place at the right point in their decision journey.

We're seeing early signs of improved brand momentum with increased awareness beginning to translate into brand consideration. As a result, we're improving our clarity across touch points, strengthening engagement, and supporting higher quality conversion as consumers better understand the value of our product. In e-commerce, we're encouraged by the progress we're making. As part of better meeting consumers where they're shopping, our expanded presence on Amazon is gaining traction. Improvements in availability, delivery speed, and conversion are strengthening the consumer experience and broadening our reach, particularly among new-to-brand consumers. This expanded assortment is driving a healthy lift in Amazon sales, especially in pillow and seat cushions, and introduces new consumers to our technology. We're also seeing this consumer-focused approach resonate through our partnerships. Our participation in Mattress Firm's Sleep Easy marketing campaign drove sales conversion and improved aided awareness scores.

At the heart of better sleep is better product. From there, we focus on how we bring innovation to life through the consumer experience and expanded distribution. Innovation remains at the core of Purple's differentiation, and our Rejuvenate 2.0 collection continues to validate that approach. Performance exceeded our expectations in 2025, with strong traction across both showrooms and wholesale as retail partners expanded Rejuvenate 2.0 placement on their floors. Through our direct channels, Rejuvenate 2.0 is performing well at an average selling price of almost $5,800, demonstrating our ability to drive demand at meaningfully higher price points and reinforcing the value consumers place on better sleep. We also completed development work on Purple Royale, a new premium offering developed in close partnership with Mattress Firm. This is an important product for us and a meaningful step forward in our premium strategy.

Purple Royale is complementary to our Rejuvenate 2.0 collection, with similar price points across the curated four-model lineup. The launch is on track, with initial floor models arriving now. The Purple Royale collection was originally planned for over 2,800 slots, bringing us to a total of 12,000 slots across Mattress Firm's 2,200 stores. Encouragingly, the quality and design of the final product has exceeded expectations, and as a result, Mattress Firm is adding incremental slots as the product launches. Beyond the product itself, we continue to focus on delivering a differentiated end-to-end consumer experience anchored by compelling in-store presentations across our own stores and wholesale partners. This includes elevating how we educate our consumers around pain relief and the role of GelFlex Grid technology, which we are seeing drive strong engagement when brought to life through in-store demonstrations and digital content.

We're also continuing to strengthen white glove delivery services to ensure that Purple shows up consistently and incredibly whenever the consumer chooses to engage. This focus is strengthening the brand and improving conversion by reinforcing the value of our technology across channels. Part of delivering better sleep is expanding our distribution presence, meeting more consumers where they shop. The premium innovation is translating directly into expanded distribution. With Purple Royale now launching across Mattress Firm, we've expanded our footprint and deepened our presence across their network. Additionally, we're seeing strong performance with Costco, where our program continues to resonate with members and provide an important opportunity to introduce Purple to new customers at scale. With both Mattress Firm and Costco, our initial launches significantly exceeded expectations, driving immediate demand for expanded placement.

In Costco's case, early performance was exceptional, supported by the introduction of unrolled beds on floor displays, which allowed members to see and feel our differentiated product. The strength of those results led Costco to quickly expand the program in the fourth quarter to approximately 450 clubs, bringing us to nearly nationwide distribution. We're also making progress in new channels, including Walmart and Sam's Club, which are helping us reach new consumers, diversify demand, and drive incremental volume. Importantly, expanding into these large, far-reaching retail platforms strengthens distribution for our pillow portfolio and positions us to drive meaningful incremental pillow sales through highly scaled, high traffic partners. In owned retail, we continue to focus on showroom profitability. In 2025, we closed four underperforming stores as part of optimizing the fleet. Looking forward to 2026, we plan to open seven new stores.

Our showrooms continue to be an important part of the model that showcases our GelFlex Grid technology and premium positioning. Our showrooms drive traffic to wholesale locations, helping convert interest into purchases. Finally, let me talk about how we're executing with financial discipline across the business. Last year, our focus was on right-sizing the business so we could operate profitably at current scale. That work is now behind us, and importantly, the actions we took were structural, not temporary. We're increasingly focused on driving growth from a much stronger foundation. Gross margin improvement remains a key focus, and we continue to see the benefits of the actions we've taken to simplify the business and improve efficiency across sourcing, operations, fulfillment, and product quality. Mix has become an increasingly important tailwind, led by the growth of Rejuvenate 2.0.

The shift towards higher ticket products, combined with strong attachment rates for adjustable smart bases and pillows, is driving higher average transaction values and incremental profit dollars. As a result, the operating discipline we put in place over the past year is now clearly showing up in our margins and profitability. We continue to view 40% gross margins as a sustainable level, and we expect further improvement as we move into 2026 as efficiencies continue to flow through the business. Todd will provide more detail on specific margin drivers and cost actions in his remarks. Turning to our guidance. As we look ahead to 2026, we're entering the year with improved stability and a structurally stronger operating model. For the full year, we expect revenue in the range of $500 million-$520 million and adjusted EBITDA of $20 million-$30 million.

This outlook reflects continued momentum in our premium product portfolio, expanded wholesale distribution, and the operating leverage in the business as volume grows. Importantly, this guidance is driven by execution, not by a recovery in the broader market. It reflects the progress we've made across product, distribution, and operations. With gross margins sustainably above 40% and disciplined expense management, we believe we're well-positioned to deliver meaningful earnings growth in 2026. Before I close, I'd like to briefly readdress the board's ongoing review of strategic alternatives. The process remains ongoing, and we've engaged with multiple parties across a broad range of opportunities to maximize shareholder value, including a potential merger, sale, or other strategic or financial transaction. We'll continue to evaluate all options and will provide updates as appropriate. As a reminder, we will not be commenting further or taking questions on this topic during today's Q&A.

With that, I'll turn the call over to Todd.

Todd Vogensen (CFO)

Thank you, Rob. I'll begin by walking through our fourth quarter financial performance and then the year ended December 31st, 2025. Net revenue for the fourth quarter was $140.7 million, representing growth of 9.1% year-over-year. The increase was driven primarily by wholesale, reflecting a full quarter of expanded Mattress Firm placements and continued momentum with Costco, partially offset by a decline in e-commerce. By channel, direct-to-consumer net revenue for the quarter was $71.9 million, down 9.9% compared to last year. Within DTC, showroom revenue increased approximately 4.5% up for the second consecutive quarter, and comparable sales were up 8.8%, reflecting continued strength in Rejuvenate 2.0. E-commerce revenue continued to be down, with the decline at 15.3%.

Wholesale revenue increased approximately 39.8%, driven by our expansion with Mattress Firm and Costco. Gross margin for the quarter was approximately 41.9%, remaining well above our 40% quarterly margin target and down 100 basis points from last year. We're pleased with the durability of our gross margin, particularly given the strength of last year's results when gross margin rose 970 basis points, driven by sourcing initiatives and the profitable liquidation of inventories. Viewed over a two-year period, gross margin increased by nearly 870 basis points, reflecting durable improvements to the business. The margin continues to be driven by direct material savings, plant efficiencies, restructuring benefits, and volume leverage.

On an adjusted reported basis, gross margins for the quarter, excluding restructuring costs, was 41.9%, down 300 basis points from last year. Operating expenses for the quarter were $61.2 million, down 2.9% versus $63 million last year. The decrease reflects the benefits from restructuring activities and other cost savings initiatives. Our fourth quarter adjusted loss per share was $0.02 compared to an adjusted loss per share of $0.11 last year. Adjusted EBITDA in the fourth quarter was $8.8 million, a notable improvement over the $2.9 million EBITDA last year. Turning now to full year results. Net revenue for the full year 2025 was $468.7 million, reflecting a 3.9% decline versus the prior year.

By channel, direct-to-consumer net revenue for the year was $261.3 million, down 7.9% compared to last year. For the full year, showrooms generated strength with sales up 1.5% versus last year to $78.5 million, and comparable revenue was up 6.6%. We delivered net revenue of up 4% or more in three of the past four quarters, with only the second quarter being impacted by the timing related to the Rejuvenate 2.0 launch. Wholesale has been sequentially improving over the last four quarters at 1.6% versus last year to $207.4 million, benefiting from expanded partnerships and non-traditional revenue streams, while e-commerce remained soft throughout the year.

Full-year gross margin increased 310 basis points to 40.2% versus last year, reflecting the impact of restructuring, sourcing initiatives, and manufacturing efficiencies. On an adjusted basis, full-year gross margin, excluding restructuring costs, improved slightly to approximately 40.4%, up approximately 10 basis points year-over-year. Our cost initiatives delivered $25 million in annual savings in 2025, with $25 million-$30 million of sustainable savings expected going forward, giving us greater flexibility to reinvest in marketing and innovation while continuing to expand margins. Just as importantly, it reflects a business that is operating with greater discipline and a structurally stronger cost base. Full-year operating expenses declined by 15.3% to $231.6 million, driven by restructuring savings and productivity initiatives.

Adjusted net loss was $34.3 million versus an adjusted net loss of $55.1 million in the prior year. Adjusted EBITDA for the full year was $1.9 million, representing a significant improvement versus the adjusted EBITDA loss of $20.8 million last year. Adjusted net loss per share in 2025 was $0.32 compared to an adjusted net loss per share of $0.51 in the full year of 2024. Now turning to the balance sheet. We ended the quarter with cash and cash equivalents of $24.3 million versus $29 million on December 31, 2024. Net inventories on December 31, 2025 were $59.7 million, up 5% compared to December 31, 2024.

We're pleased to exit the quarter with cash over $24 million, and we believe we are well-positioned from a liquidity standpoint. We also extended our debt maturities from December 31, 2026 to April 30, 2027, enhancing our financial flexibility and reflecting continued strong support and confidence from our lending partners. Now let's turn to the outlook. Given that we are through most of the quarter, we will be providing guidance for the first quarter. We plan total revenue to be in the range of $100 million-$105 million and adjusted EBITDA to be in the range of a loss of $7 million to a loss of $4 million.

As Rob walked you through earlier, for the year, we expect revenue in the range of $500 million-$520 million and adjusted EBITDA of $20 million-$30 million. We plan for revenue to continue to be driven by strength in Rejuvenate 2.0, as well as our expanded distribution with Mattress Firm and Costco. We also anticipate continued improvement in EBITDA, driven by further operational efficiencies and ongoing restructuring actions benefiting both gross margin and operating expenses. These initiatives are expected to support improved profitability and cash generation, reflecting the full impact of our cost actions, product innovation, and expanded distribution.

Robert DeMartini (CEO)

Thank you, Todd. This morning, we filed our annual report on Form 10-K for the fiscal year ended 2025. As disclosed in the filing, our independent auditor has included a going concern qualification. While this notification is not necessarily a surprise, given the liquidity challenges of the past year and our historical cash burn, we want to provide clear context why the decisive transformative actions we've already taken are expected to continue stabilizing our financial position and driving the business forward. The fruits of our labors are already evident in our recently improved operating and financial performance. Following a rigorous period of restructuring, we achieved profitability levels in the second half of 2025 that we haven't seen since 2021. This momentum is driven by three core strategic pillars. Supply chain reorganization. We've optimized our footprint to ensure a more agile, cost-effective flow of goods.

Disciplined cost management. Structural savings initiatives implemented in 2025 have led to significant margin expansion and profitability at revenue targets meaningfully lower than past years. Channel momentum. We're seeing robust volume growth across both our wholesale and showroom channels as our path to premium sleep strategy takes hold. We enter 2026 on much firmer footing. We expect to conclude Q1 2026, historically our seasonally weakest quarter, with neutral cash burn. Furthermore, we're grateful for the strong, continued support of our lenders. Our recent agreement to extend debt maturities to April 2027 provides us with the runway and the financial flexibility to execute our long-term vision. We believe these factors, combined with our improved liquidity profile, directly address the concerns raised in our 10-K and position us for a year of consistent growth and profitability, as evidenced by our 2026 guidance.

We appreciate the patience and the confidence of our shareholders. Like you, we are disappointed by the current stock price. Our team remains focused on executing our clear plan to build on recent business momentum and deliver sustainable shareholder value on your behalf. With that, operator, we can turn it over for questions.

Operator (participant)

At this time, I would like to remind everyone, in order to ask a question, please press star then the number one on your telephone keypad. We will pause for just a moment to compile the Q&A roster. Your first question comes from the line of Brad Thomas with KeyBanc Capital Markets. Your line is open.

Brad Thomas (Associate Director of Research)

Good morning. Thanks for taking the question. Rob, I wanted to start off asking about recent trends. There's no question that the fourth quarter showed some nice momentum, and your outlook for this full year is very encouraging. It does look like maybe the first quarter had maybe a step back in the pace of the business. Can you just talk a little bit more about what you've been seeing here?

Robert DeMartini (CEO)

Yes, Brad, thank you for the question, and I think there's a couple of things going on. We had a very strong fourth quarter, and the way the fourth quarter shipped, it did impact demand in January as that sell-through and consumption happened. Particularly, we've got the club customer that had a significant buy-in in December that was part of loading the floor, and so there wasn't much follow-up in that. As Todd said, we think we'll be between $100 million and $105 million, and I think the momentum also includes all those floor samples at Mattress Firm going out, and that obviously has a short-term push down on revenue as they sell in at floor sample prices. So we're encouraged. Q1 has always been our weakest quarter.

It's not a strong quarter, but we think the momentum in the business dictates the strong rest of the year that we've predicted.

Brad Thomas (Associate Director of Research)

Just to be clear, Rob, it sounds like aside from the January, you've seen an improvement in trends of late. Is that fair to assume?

Robert DeMartini (CEO)

Yeah, I mean, Q1 is not robust by any means, but we've seen us kind of lapping last year right at about equal to comp levels. Obviously, we're close to ending March, and we expect kind of the same performance in March.

Brad Thomas (Associate Director of Research)

Great. Just following up about the outlook for the year, we can obviously back into it a bit through your guidance, but the question is really how to think about the flow-through margin. You've done a great job of improving the cost structure of the business. As you start to drive this volume, how do we think about it flowing through to the bottom line?

Todd Vogensen (CFO)

Yeah. Flow-through actually should be quite good for us. You know, if you look at the guidance, we're guiding to revenue that's $30 million-$50 million better than last year and looking at EBITDA that's gonna be around $20 million-$30 million better. That's a pretty healthy flow-through. I think on a normal basis, our sales should be generating about a 30% flow-through. This year will be a little bit more because we're also seeing margin expansion and a lot of cost control that is helping us along the way.

Brad Thomas (Associate Director of Research)

Great. If I could squeeze in just one more, regarding the macro environment as it relates to raw materials. Can you just remind us the degree that you have exposure to petrochemicals or other inputs that may be at risk of some price pressure here? You know, what are you hearing from suppliers? Thank you.

Todd Vogensen (CFO)

Yeah. Mixed bag. We obviously are not importing oil or anything like that directly, but we do have products that have a petroleum base to it. You can think foam, some of our, to a lesser degree, the mineral oil that's going into the gel.

Overall, we've looked at it, and you know, if the price of oil stays around that $100 a barrel range, the savings we're gonna get this year off of tariffs from being able to get, well, lower rates on tariffs, but also tariff mitigation would roughly offset the exposure from any oil. We continue to monitor it. We're hearing noises about price increases, but it's just very, very early on at this point.

Brad Thomas (Associate Director of Research)

That's really helpful, Todd. Thank you so much. I appreciate it.

Todd Vogensen (CFO)

You bet. Thank you.

Robert DeMartini (CEO)

Thank you, Brad.

Operator (participant)

Your next question comes from the line of Matt Koranda with ROTH Capital. Your line is open.

Matt Koranda (Managing Director and Senior Research Analyst)

Hey, guys. I wanted to hear a little bit more about how you're thinking about the seasonality of the year, just given the visibility you have in the product launches with your wholesale partners. Maybe just a little bit more around the ramp that's implied in guidance for the remainder of 2026.

Todd Vogensen (CFO)

Yeah. You should see revenue growing.

Robert DeMartini (CEO)

Matt

Todd Vogensen (CFO)

Oh, sorry, Rob.

Robert DeMartini (CEO)

No, no.

Todd Vogensen (CFO)

You should see revenue growing pretty consistently across the course of the year. In Q2, typically Q2 would be relatively flat to Q1, but this year we have the Purple Royale launch at Mattress Firm that literally just got out on floors last week officially. That will help out the Q2 pace, and then we have a natural build that we see virtually every year going into Q3 and Q4. It really should build pretty consistently as we go across the course of the year.

Matt Koranda (Managing Director and Senior Research Analyst)

Okay. Maybe just wanted to hear you unpack the drivers of the flow-through. You mentioned there's, you know, likely some more restructuring actions. Does that benefit operating expenses or are there gross margin benefits embedded in the actions that you're taking? Are the actions already taken, or is this incremental stuff that still needs to happen during the second quarter to hit the flow-through, sort of that's implied in the 2026 EBITDA guide?

Todd Vogensen (CFO)

Yeah. The actions that I kind of referenced were actions that have already been taken. At this point, we don't have plans for additional actions that are needed right now. I feel like we're positioned very well for the full year. We did take a little bit of an action in January that will continue to benefit the operating expense line. From a gross margin perspective, we actually just have a very strong team on the operations side of the world that is always looking for room for improvement from an efficiency perspective, overall scrap and yield, looking at sourcing opportunities. There's a number of opportunities that should play out across the course of the year to help that flow-through.

Matt Koranda (Managing Director and Senior Research Analyst)

Yeah. I'll leave it there. Thanks, guys.

Todd Vogensen (CFO)

All right. Thank you.

Robert DeMartini (CEO)

Thank you, Matt.

Operator (participant)

Your next question comes from the line of Dan Silverstein with UBS. Your line is open.

Dan Silverstein (Equity Research Analyst)

Good morning, Rob. Good morning, Todd. Thanks for taking our question. Maybe just to start looking at the sales guidance up $30 million-$50 million this year, I think the Mattress Firm expansion was supposed to drive around $70 million of additional sales and sounds like it's doing really well right off the gate. If this is the case, you know, what other areas might be driving a bit of a drag to kind of net out below $70 million?

Robert DeMartini (CEO)

Yeah. First of all, I think that, you know, the $70 million, we've got to grow into that number. It's probably somewhere between $50 million and $70 million, and obviously it's just hitting the floor right now. We've got. We expect growth from Costco as well. We expect growth from showrooms, modest, and then we have assumed a flat e-commerce business in the roll-up. We wanna do better than that, but given the performance the last few years, we've tried to show some conservatism there.

Dan Silverstein (Equity Research Analyst)

Super helpful, and that was kind of my second question. Why is the Amazon business doing well relative to your own e-com channel? How can you capitalize on this, and how can you reinvigorate your own e-com channel looking ahead?

Robert DeMartini (CEO)

Yeah. Dan, I'll separate the two questions 'cause they really are different drivers. I mean, our own e-commerce business, we've got to figure out a way, as we've expanded our availability across both our own showrooms and partner showrooms, the specialness of reaching our product online has been challenged. The product assortment, while proving to be a benefit in a physical environment, is either a neutral or a negative in a digital environment, and we're still trying to figure that out. That's what's going on with e-com. On Amazon, it's quite a different situation where because of the cube of mattresses, we have a very underdeveloped shape of business at Amazon. The progress you're seeing is kind of getting our fair share relative to the pillow business that we have there.

It is a bit of a development opportunity, and that has to do with availability and Prime badging that we're starting to figure out. It really is two different drivers across those otherwise seemingly consistent channels.

Dan Silverstein (Equity Research Analyst)

Super helpful. Thank you. I'll pass it on.

Robert DeMartini (CEO)

Thank you, Dan.

Operator (participant)

Before going to the next question, again, if you would like to ask a question, please press star, then the number one on your telephone keypad. Your next question comes from the line of Bobby Griffin with Raymond James. Your line is open.

Alessandra Jimenez (Senior Equity Research Associate)

Good morning. This is Alessandra Jimenez on for Bobby Griffin. Thank you for taking our questions. First, I wanted to follow up on current demand trends. What are you seeing from growth in your retail partners outside of Mattress Firm and the incremental Costco program?

Robert DeMartini (CEO)

Good morning, Alessandra. On our own business, you're asking, not the overall market?

Alessandra Jimenez (Senior Equity Research Associate)

Yes.

Robert DeMartini (CEO)

Yeah. It's a mixed bag. We've got some customers where we're seeing nice growth, and we've got others where we've got to figure out, you know, why we're not seeing that. It is a bit mixed across total wholesale. I think if you backed out the two customers that we spoke about in our script, we're probably seeing a net down about 5%, and I think that's about consistent with the market, but it is definitely mixed in the performance.

Alessandra Jimenez (Senior Equity Research Associate)

Okay, that's helpful. What are you expecting from a cash flow perspective for 2026 on the improved EBITDA profitability? Do you anticipate positive free cash flow for the year?

Todd Vogensen (CFO)

Yes, we would expect positive free cash flow for the year. Apologies, I was getting an echo. Positive free cash flow for the year, and as we look at it, you know, we'll have CapEx that we'll be reinvesting in, and $20 million-$30 million of adjusted EBITDA. That'll get us modestly positive and coming off of the Q1 where we're ending Q1 with our cash actually equal to where we ended Q4. That's the first time that we've been in that range in over seven years. We're off to a good start for the year for sure.

Alessandra Jimenez (Senior Equity Research Associate)

That's really helpful. If I can just sneak one more in. I wanted to revisit the showroom channel. It's encouraging to see that strong comp growth. Can you speak to what you're seeing from a demand perspective and what's kind of accelerating there? How do you think about the roughly 20% of locations that are not yet four-wall profitable?

Robert DeMartini (CEO)

Yeah, Alessandra, let me try to tackle that. Scott Kerby, who runs that channel, has been doing an excellent job in establishing a selling system, and what's driving the results is positive mix. As I mentioned in the script, our mattress percent of total of the premium line is now over 50% of dollar revenue. That obviously helps the stores be much more profitable. Of the, you know, 20% of stores, that's about nine stores that are not four-wall profitable, we think at least five of those can get there with continued development and maybe three to four of them, we really have to look at and figure out if we have, you know, are we in the right location with the right rent structure.

It's been mix, tight labor discipline, and really looking at the cost structure of those stores that have led to this significant improvement over the last two years.

Alessandra Jimenez (Senior Equity Research Associate)

Thank you so much, and good luck moving forward.

Robert DeMartini (CEO)

Thank you, Alessandra.

Operator (participant)

Your next question comes from the line of Brian Nagel with Oppenheimer. Your line is open.

Brian Nagel (Managing Director and Senior Analyst)

Hey, guys. Good morning. I have a couple questions.

Robert DeMartini (CEO)

Good morning, Brian.

Brian Nagel (Managing Director and Senior Analyst)

First off, just with regard to, you know, the newer products, the more innovative products, is that rollout now complete or should we expect further, you know, rollout here, you know, just through 2026? My follow-up question, I guess mostly for Todd, I mean, maybe just outline kind of the capital needs of the business from an operational standpoint.

Robert DeMartini (CEO)

All right, Brian, let me take the first one, and then I'll let Todd answer the second one. Yeah, that rollout is physically completed. We completed our, you know, our Rejuvenate rollout probably in the middle of fourth quarter and then started the Royale, which is a curated version of similar price points. The official launch at Mattress Firm was March 20th. It's on all the slots that it was aimed for at this point. We still have significant opportunity to develop that line. I spoke about the percent to total in showrooms. It's much lower in wholesale and in e-commerce, and that's a business development opportunity that we think we can continue to grow that as a percent to total.

The physical expansion is completed, and we're now looking to a very full innovation pipeline for other products starting in early 2027.

Todd Vogensen (CFO)

From a capital needs perspective, I should have said before, our target for the year is $10 million-$12 million in capital. That's just up modestly from the $8 million that we had in 2025. The base CapEx is gonna always be the normal maintenance CapEx that we've had for the past several years, particularly in our operations. We do have a little bit of innovations CapEx this year as we innovate for new products going forward. And then probably the big chunks that are incremental versus last year with the new products going out this year, we are looking to expand some of the fixtures that go into stores. You can think about that being the headboards. We have some branded walls that go in.

We have a number of things that just help with the overall environment around the Purple products that we think help sell the products through. Rob mentioned we have five new stores that we're planning for this coming year. There's a modest amount of CapEx that goes for those as well.

Brian Nagel (Managing Director and Senior Analyst)

I appreciate it. Thank you.

Todd Vogensen (CFO)

Thank you.

Robert DeMartini (CEO)

Thank you, Brian.

Operator (participant)

I will turn the call back over to Robert DeMartini for closing remarks.

Robert DeMartini (CEO)

I just wanna thank all of our shareholders and investors and lenders for the support we've gotten, and I wanna thank the Purple associates for the hard work they've put in on the business. I believe from the Q3 and Q4 results, you can see our turnaround is taking hold, and I wanna say thank you to everybody for that. Thank you, operator.

Operator (participant)

Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.