Purple Innovation, Inc. (PRPL)·Q1 2025 Earnings Summary

Executive Summary

• Q1 2025 revenue was $0.104B, down 13.2% YoY, in line with internal guidance; adjusted EBITDA of $(4.7)M beat guidance as gross margin expanded to 39.4% GAAP and 40.3% adjusted on sourcing and manufacturing consolidation benefits .
• Showroom channel outperformed with +7.4% revenue and +11% comps despite a 5% smaller fleet; wholesale remained pressured (-24.2% YoY), but Purple announced a major Mattress Firm footprint expansion from ~5,000 to ≥12,000 slots, expected to drive ≥$70M incremental annual revenue starting 2026 .
• FY25 guidance maintained: revenue $465–$485M; adjusted EBITDA $0–$10M, with management targeting a return to positive EBITDA in 2H 2025; near‑term headwinds include tariffs with ~$10M annual cost exposure and cautious consumer sentiment .
• Catalyst: strategic distribution expansion with Mattress Firm, continued gross margin tailwinds from consolidation and sourcing, and the Rejuvenate 2.0 launch; offset by tariff impacts beginning in Q2 and wholesale softness, keeping estimates risk balanced near-term .

What Went Well and What Went Wrong

What Went Well

• Adjusted EBITDA beat guidance on sustained gross margin improvement and disciplined OpEx; adjusted gross margin >40% for the fourth consecutive quarter (40.3%) driven by sourcing and production efficiencies and completed manufacturing consolidation .
• Showrooms delivered fifth consecutive period of revenue growth (+7.4%) and second consecutive quarter of positive comps (+11%) despite fewer locations, supported by higher order values and upselling/bundling strategies .
• Strategic distribution step‑change: Mattress Firm partnership expansion to ≥12,000 slots and Sherwood assembly support; CEO: “We’re projecting the same productivity on the incremental slots…establishing us as a core brand” .

What Went Wrong

• Top-line contraction: revenue declined 13.2% YoY to $104.2M, driven by wholesale (-24.2%) and e-commerce (-8.2%); macro softness and calendar shifts weighed on partners .
• Net loss remained significant at $(19.1)M despite YoY improvement; cash used in operations increased to $(23.1)M on seasonal inventory rebuild and contractual rebates amid lower sales .
• Tariffs now a tangible headwind: ~15% COGS exposure to imported textiles/bases implies ~$(10)M annual cost starting Q2; management sees potential demand pressure beyond cost passthrough .

Financial Results

*Values retrieved from S&P Global; consensus not available for PRPL for these periods.

Guidance Changes

Management reaffirmed FY25 ranges, noting offsetting tailwinds (Mattress Firm rollout later in 2025; Rejuvenate 2.0) and headwinds (tariffs, macro uncertainty) .

Earnings Call Themes & Trends

Management Commentary

• CEO: “Adjusted gross margins exceeded 40%…supported by our sourcing initiatives, production efficiencies and the full integration of our consolidated manufacturing operations” .
• CEO on MF expansion: “Growing our presence from 5,000…to 12,000 slots…expected to drive more than $70 million in incremental net revenue beginning next year” .
• CFO: “Operating expenses were $55.5 million, down 14.4%…driven by head count reductions…and in-sourcing of certain functions” .
• CEO on tariffs: “About 15% of our cost of goods is tied to products…from overseas…we estimate the potential annual cost impact to be approximately $10 million” .
• CEO on consumer: “I’m concerned about the second quarter…April is always a weak mattress month…The consumer is very cautious right now” .

Q&A Highlights

• Mattress Firm economics: $70M projection based on current slot productivity and becoming a core brand; cannibalization expected to be modest as training/stocking improves .
• Tariff timing: cost headwind begins impacting Q2; mitigation through sourcing/pricing is in progress, but flows through quickly given inventory turns .
• Wholesale margins/Sherwood: assembly shift designed to take cost out while Purple retains 100% GelFlex grid manufacturing and IP; benefits both parties .
• Flow‑through on upside: Model built for scalability; revenue upside expected to flow through at ~35% to earnings when volumes return .
• Guidance cadence: Back‑half uplift from MF rollout and Rejuvenate 2.0; specifics for 2025 MF impact still being finalized; FY guide reaffirmed .

Estimates Context

• S&P Global Wall Street consensus for Q1 2025 EPS and revenue was unavailable for PRPL at the time of this analysis; results were assessed against company guidance instead (Revenue in line, Adjusted EBITDA above). Values retrieved from S&P Global.*

Key Takeaways for Investors

• Margin durability: Consolidation and sourcing continue to expand gross margin despite lower volumes; adjusted gross margin held above 40% for the fourth straight quarter, underpinning EBITDA recovery potential .
• Distribution catalyst: Mattress Firm footprint more than doubles (≥12,000 slots), setting up a 2026 revenue lift (≥$70M) and potential wholesale margin efficiencies via Sherwood assembly support .
• Near‑term headwinds: Tariffs (~$10M annual) and consumer caution likely pressure Q2; expect gradual mitigation via sourcing/pricing, but demand elasticity risk remains .
• DTC resilience: Showroom comps +11% with higher AOV and financing uptake; omni strategy continues to favor experiential channels where differentiation is tangible .
• Liquidity runway: Incremental $20M term loan adds flexibility to fund rollout and inventory; warrants issued to lenders/Somnigroup align financing with strategic expansion .
• Guidance stance: FY25 ranges held with plan to return to positive EBITDA in 2H; watch for back‑half execution on MF rollout and Rejuvenate 2.0 adoption vs. tariff drag .
• Trading setup: Stock narrative likely pivots on margin resilience and distribution expansion vs. tariff/macro headwinds; monitor Q2 demand signals (Memorial Day, promo cadence) and MF rollout milestones for estimate revisions .