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Purple Innovation, Inc. (PRPL)·Q4 2024 Earnings Summary

Executive Summary

  • Q4 2024 net revenue was $129.0M (-11.6% YoY) with GAAP gross margin of 42.9% (+970 bps YoY); adjusted gross margin was 44.9% (+810 bps YoY), driven by sourcing gains and profitable inventory liquidation .
  • Adjusted EBITDA turned positive at $2.9M (from $(9.8)M YoY), and operating cash flow was $6.8M, marking the first positive adjusted EBITDA and cash flow in eight quarters .
  • 2025 outlook: revenue $465–$485M, adjusted EBITDA flat to +$10M; Q1 2025 revenue $102–$107M and adjusted EBITDA $(6)–$(9)M, with sequential improvement expected through the year and ≥200 bps gross margin expansion targeted in 2025 .
  • Catalyst: Board initiated a review of strategic alternatives amid inbound interest, alongside expansion of the term loan by $19M (total $80M), supporting liquidity for innovation and advertising; near‑term stock narrative will center on strategic outcome optionality and profitability inflection .

What Went Well and What Went Wrong

What Went Well

  • Returned to positive adjusted EBITDA and cash flow: “Purple achieved a significant milestone in the fourth quarter, returning to positive Adjusted EBITDA for the first time in eight quarters and generating positive cash flow.” — CEO Rob DeMartini .
  • Material gross margin gains: GAAP gross margin 42.9% (+970 bps YoY) and adjusted gross margin 44.9% (+810 bps YoY), aided by sourcing initiatives and profitable liquidation of inventories .
  • Strategic distribution/product progress: Purple Renew launch into ~170 Costco stores and strong wholesale interest; Rejuvenate 2.0 hard launch on 4/15 with total slot count up ~50% vs prior, plus expanded pillow placements in ~2,000 of ~3,000 Harmony doors .

What Went Wrong

  • Top‑line pressure: Q4 net revenue down 11.6% YoY to $129.0M as the company lapped 2023 product launches and industry demand remained soft; wholesale revenue down 23% YoY .
  • Channel challenges: E‑commerce down 5.3% YoY in Q4 and continued conversion challenges; management expects Q1 2025 to be weak and is not assuming an industry recovery in 2025 .
  • Near‑term profitability guide: Q1 2025 adjusted EBITDA guided to $(6)–$(9)M despite cost savings ramp, with tariff exposure estimated at $2–$5M (manageable via supply chain/pricing) .

Financial Results

MetricQ4 2023Q3 2024Q4 2024
Revenue ($USD Millions)$145.9 $118.6 $129.0
GAAP Gross Margin %33.2% (Gross profit $48.5M / $145.9M) 29.7% 42.9%
Adjusted Gross Margin %36.7% 40.5% 44.9%
Operating Expenses ($USD Millions)$64.7 $82.0 $63.0
Operating Loss ($USD Millions)$(16.2) $(46.8) $(7.7)
GAAP Diluted EPS ($USD)$(0.17) $(0.36) $(0.08)
Adjusted Diluted EPS ($USD)$(0.15) $(0.08) $(0.07)
Adjusted EBITDA ($USD Millions)$(9.8) $(6.4) $2.9
Cash from Operations ($USD Millions)$1.15 $1.12 $6.76

Segment/channel breakdown (revenue):

Channel RevenueQ3 2024Q4 2024
DTC ($USD Millions)$70.8 $79.8
Wholesale ($USD Millions)$47.8 $49.2

KPIs (YoY growth rates):

KPIQ3 2024Q4 2024
Showroom net revenue YoY~Flat +4.2%
E‑commerce net revenue YoY−15.7% −5.3%
Wholesale net revenue YoY−20.1% −23%
Financed orders (showroom) YoY—+17%
AOV financed vs non‑financed—+57%

Guidance Changes

MetricPeriodPrevious GuidanceCurrent GuidanceChange
Net RevenueFY 2024$540–$560M (initial; lowered Aug 5) $490–$510M (Aug 5) Lowered
Adjusted EBITDAFY 2024$(20)M to $(10)M (maintained Aug 5) $(20)M to $(10)M (Nov 4 lower end) Maintained (to lower end)
Net RevenueFY 2024$490–$510M (Nov 4) $486–$488M (Jan 13) Lowered
Adjusted EBITDAFY 2024$(20)M to $(10)M (Nov 4) $(23)M to $(21)M (Jan 13) Lowered
Net RevenueFY 2025—$465–$485M Initial
Adjusted EBITDAFY 2025—Flat to +$10M Initial
Net RevenueQ1 2025—$102–$107M Initial
Adjusted EBITDAQ1 2025—$(6)M to $(9)M Initial
Gross Margin ExpansionFY 2025—≥+200 bps vs 2024 (goal) New target

Earnings Call Themes & Trends

TopicQ2 2024 (Q‑2)Q3 2024 (Q‑1)Q4 2024 (Current)Trend
Gross margin trajectory40.7% GAAP; structural improvement via supplier diversification, plant efficiencies; ≥40% sustainable Adjusted GM 40.5%; deleverage in GAAP from restructuring; still >40% adjusted GAAP 42.9%; adjusted 44.9%; target ≥+200 bps in 2025 Improving
Restructuring & cost savingsProgram delivering material savings; inventory planning system implemented Consolidation >half complete; expected $15–$20M EBITDA savings in 2025 Consolidation finishing in Q2; total annualized EBITDA savings $25–$30M anticipated (COGS $7–$10M) Accelerating
Product innovationPremium lineup gaining traction; plans for multiple launches 12–18 months Continue premium focus; showroom trade‑up; pillows up ~30% YTD Rejuvenate 2.0 launches 4/15 in showrooms & e‑com; wholesale rollout through Q3; slot count +50% Building
E‑commerce conversionProfitability prioritized; conversion improvements lagging Sequential revenue improves; YoY down; conversion challenged YoY down 5.3%; focus on product‑led marketing and site enhancements Mixed
Wholesale dynamicsGrowth; floor slots expanding; co‑op advertising Door exits to improve productivity; +200 doors possible ahead; Restore Premier top seller Wholesale −23% YoY; Costco launch strong; Mattress Firm relationship important amid consolidation Mixed
Showroom profitabilityDouble‑digit YoY growth; ASP +32% in showrooms (financing trade‑up) 4‑wall profitability improving; most profitable channel Showrooms +4.2% YoY; financing orders +17%; financed AOV +57% vs non‑financed Improving
Tariffs/macroIndustry softness; sustaining margins despite demand declines Macro headwinds persist; demand concentrated in promo periods Tariff exposure $2–$5M; mitigations via supply chain/pricing; consumer hesitation early ’25 Manageable headwinds
Strategic optionality——Special committee reviewing strategic alternatives (Jefferies retained) New catalyst

Management Commentary

  • “We achieved adjusted EBITDA profitability for the first time in 8 quarters and produced positive cash flow.” — CEO Rob DeMartini .
  • “The consolidation… and incremental actions taken during the first quarter of 2025 is projected to yield an annual EBITDA savings of $25 million to $30 million.” — CEO .
  • “The strong positive feedback… led to a substantial increase in slot commitments with total Rejuvenate slot count growing by 50%.” — CEO .
  • “We expect to expand margins by at least 200 basis points in 2025.” — CEO .
  • “Our exposure [to tariffs] is limited… we believe the impact to be $2 million to $5 million.” — CEO/CFO .

Q&A Highlights

  • Cost‑savings phasing: ~$7–$10M COGS savings annualized beginning Q2; remainder OpEx savings largely realized through 2025; total EBITDA savings $25–$30M .
  • Rejuvenate 2.0 cadence: Showrooms/e‑com hard launch on 4/15; wholesale rollout over 3–5 months, largely floored by mid‑summer .
  • Strategic alternatives: Initiated now due to inbound interest and industry consolidation; outcome could include no transaction; special committee formed with Jefferies advising .
  • Wholesale expansion: Productivity first; realistic traditional door growth +200–300 in 2025; alternative distribution (Costco, HomeGoods) ramping .
  • Macro/tone: Q1 seasonality weak (lukewarm President’s Day); management not assuming industry improvement in 2025; plan hinges on cost/margin actions .
  • Working capital/FCF: New MRP aiding inventory; expect $5–$10M working capital benefit in 2025, offsetting CapEx; positive FCF alongside EBITDA .

Estimates Context

  • Wall Street consensus via S&P Global for Q4 2024 and Q1 2025 was unavailable due to data access limits at the time of request; as a result, formal beat/miss analysis versus S&P consensus cannot be provided for revenue, EPS, EBITDA, or margins (S&P Global data access error).
  • Company guidance implies analysts should factor sequential revenue improvement through 2025, near‑term adjusted EBITDA losses in Q1, ≥200 bps gross margin expansion, and the incremental impact of restructuring savings (COGS and OpEx) .

Key Takeaways for Investors

  • Profitability inflection underway: Positive adjusted EBITDA and cash flow in Q4, with structural margin/cost tailwinds poised to expand profitability through 2025; near‑term Q1 EBITDA loss guided before sequential improvement .
  • Strategic review adds optionality: Special committee and Jefferies engagement introduce potential corporate actions; monitor disclosures for timing/outcomes as key stock catalysts .
  • Product cycle support: Rejuvenate 2.0 launches in Q2 with expanded wholesale slotting and enhanced pillow distribution; expect mix shift benefits in premium ticket sizes .
  • Channel execution priorities: Showrooms are driving trade‑up and profitability; wholesale mix optimized toward premium; e‑commerce needs conversion improvements—watch for product‑led marketing and site changes .
  • Cost program durability: Consolidation and sourcing efficiencies yielding $25–$30M annual EBITDA savings; COGS savings begin in Q2, OpEx savings through 2025 .
  • Macro/tariff risks manageable: Company not assuming category recovery; tariff exposure estimated at $2–$5M with mitigations via supply chain repositioning and pricing .
  • Near‑term trading lens: Stock likely sensitive to strategic alternatives headlines, margin execution vs guidance, and Rejuvenate 2.0 traction; watch Q1 results vs revenue/EBITDA guide and signs of sequential build in H2 .
Notes: All quantitative data cited from company primary documents; S&P Global consensus data was unavailable at the time of request, so no beat/miss vs consensus is presented.  
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