Purple Innovation (NASDAQ:PRPL) reported a 19% decline in third-quarter revenue and lowered its full-year adjusted EBITDA outlook as weakness among wholesale partners weighed on sales and manufacturing margins.
Revenue fell to $96.5 million, while adjusted EBITDA was a loss of $0.5 million, compared with a $0.2 million profit a year earlier. The mattress maker maintained its full-year revenue forecast but cut its adjusted EBITDA guidance to $15 million to $20 million from $20 million to $25 million.
CEO Rob DeMartini described the quarter as mixed, citing a difficult mattress market and weaker-than-needed wholesale performance. Direct-to-consumer trends improved later in the quarter after June price increases hurt demand more than the company anticipated, he said.
Wholesale weakness pressures results
Wholesale revenue dropped 31% to $35.6 million, with regional and independent retailers accounting for the largest area of weakness. CFO Bob Lucian said approximately one-quarter of the decline reflected a $4 million increase in reductions of revenue related to certain payments to customers and a manufacturer under common control with a customer.
DeMartini said the company had lost sales velocity, distribution slots and customers among regional and independent retailers. He acknowledged that the weak market was not the sole cause, saying Purple had focused on a few wholesale customers at the expense of some smaller partners.
“I clearly cannot put all of this on the category. We own a chunk of it, and we have got to fix it,” DeMartini said.
The company began increasing sales coverage late in the quarter and plans to expand that effort in the fourth quarter, with more training and support for retailers. DeMartini cautioned that the wholesale business would not turn around overnight.
Direct sales improve after weak July
Direct-to-consumer revenue declined 9% to $60.9 million for the quarter, though sales across August and September combined rose approximately 1% from a year earlier. DeMartini said the combined comparison provided a clearer view because Labor Day fell later this year.
E-commerce revenue fell 6% to $42.4 million for the quarter but rose approximately 2% across August and September, supported by growth at Amazon and Purple.com. Lucian said Amazon benefited from expanded Prime eligibility, better product availability and faster delivery.
Showroom revenue declined 16% to $18.5 million. Management attributed the drop partly to the price increases and to a comparison with the prior year, when delivery delays pushed some Rejuvenate orders into the third quarter. DeMartini said he expects showroom same-store sales to return to growth in the fourth quarter.
Purple ended the quarter with 57 showrooms, opened another in Cleveland in October and expects to finish the year with 60. The company is targeting nine to 12 additional showrooms in 2027.
New mattresses and Costco products planned
Purple launched its new Essentials mattress collection on its e-commerce site and expects a broader market launch around March. A new Hybrid collection, which will replace Restore, is expected to begin entering Purple stores in the first quarter and shipping to wholesale customers in March. Both lines are scheduled to be presented to retailers at the Las Vegas market in January.
DeMartini said the portfolio refresh represents almost 90% of mattress unit volume. The new products have a similar margin profile to the old lines, he said, adding that Purple does not plan another price increase with the launches. Lucian said the company currently believes it is done raising prices, while continuing to monitor raw material costs.
After Black Friday, Purple plans to introduce a new holiday-season mattress and its first pillow offering at Costco.
Cash generation and debt discussions
Gross margin fell to 43.4% from 47.5% a year earlier on a reclassified basis, reflecting lower production leverage and inventory adjustments, partly offset by lower tariff costs and a favorable channel mix. Operating expenses fell 25% to $51.7 million. The GAAP net loss narrowed to $1.4 million from $11.7 million.
Purple ended September with $28.3 million in cash and cash equivalents. Operating cash flow was positive for a third consecutive quarter and totaled $10.6 million in the first nine months, an improvement of $38.7 million from the same period a year earlier. The company expects to continue generating cash in the fourth quarter.
DeMartini said Purple is within six months of the maturity of its outstanding debt and is discussing the path forward with lenders. He also said a special committee continues to evaluate strategic alternatives and engage with interested parties about potential opportunities to provide the company with scale and capital.
About Purple Innovation (NASDAQ:PRPL)
Purple Innovation, Inc develops, manufactures and sells comfort products designed to support sleep and other aspects of home wellness. The company is best known for its Purple mattresses, which use its proprietary GelFlex Grid material to provide pressure relief, support and airflow. Its product portfolio also includes pillows, cushions, sheets, mattress protectors, adjustable bases and other bedding accessories.
Purple sells its products primarily through direct-to-consumer e-commerce, company-owned retail locations and third-party wholesale partners.
