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Edited Transcript of ZZZ.TO earnings conference call or presentation 3-Mar-21 1:00pm GMT

·54 min read

Q4 2020 Sleep Country Canada Holdings Inc Earnings Call NORTH YORK Mar 3, 2021 (Thomson StreetEvents) -- Edited Transcript of Sleep Country Canada Holdings Inc earnings conference call or presentation Wednesday, March 3, 2021 at 1:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Craig De Pratto Sleep Country Canada Holdings Inc. - CFO & Corporate Secretary * David Friesema Sleep Country Canada Holdings Inc. - CEO & Director * Stewart Schaefer Sleep Country Canada Holdings Inc. - Chief Business Development Officer & President of Dormez-vous ================================================================================ Conference Call Participants ================================================================================ * Gary M. Chapman Guardian Capital LP - MD of Canadian Equity and Senior Portfolio Manager * Martin Landry Stifel Nicolaus Canada Inc., Research Division - MD of Equity Research * Matt Bank CIBC Capital Markets, Research Division - Associate * Meaghen Annett TD Securities Equity Research - Analyst * Patricia A. Baker Scotiabank Global Banking and Markets, Research Division - Analyst * Sabahat Khan RBC Capital Markets, Research Division - Analyst * Stephen MacLeod BMO Capital Markets Equity Research - Analyst * Vishal Shreedhar National Bank Financial, Inc., Research Division - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning. My name is Pasha, and I will be your conference operator today. At this time, I would like to welcome everyone to the Sleep Country Canada Q4 and 2020 Year-end Results Conference call. (Operator Instructions) Yesterday, Sleep Country Canada released their financial results for the fourth quarter and full of 2020. A copy of the earnings disclosure is available on their website and includes cautionary language about forward-looking statements, risks and uncertainties, which also apply to the discussion during today's conference call. I would now like to turn the call over to Dave Friesema, Chief Executive Officer. Please go ahead, sir. -------------------------------------------------------------------------------- David Friesema, Sleep Country Canada Holdings Inc. - CEO & Director [2] -------------------------------------------------------------------------------- Thank you, and welcome, everyone. I hope you're all well and healthy. With me on the call today are Stewart Schaefer, our Chief Business Development Officer; and Craig De Pratto, our Chief Financial Officer. We are very proud to announce that Q4 was the best quarter in Sleep Country's 26-year history, closing out a successful year as Canada's leading omnichannel sleep retailer. Over the past several years, we have strategically focused on building out our ecosystem and purposely adding new layers onto our powerful business, creating a diversified model that serves Canadian sleep needs well across all channels, brands, assortment and experience. Our twin investments of developing a fully transactional Sleep Country Canada Domez-vous website, which launched in November 2019, and our acquisition of Endy in December of 2018, have proven to be 2 of the most successful investments that we have ever made. While compelling on their own, the combined impact has firmly positioned us as the most successful e-commerce and brick-and-mortar sleep retailer in Canada. Further to those investments, our exclusive partnerships with some of the world's premier direct-to-consumer bed-in-a-box players like Purple and Simba, complementing our existing assortment of relevant mattress brands, have solidified our competitive advantage by providing our customers with Canada's largest selection of sleep solutions through our websites and stores. I would be remiss if I did not mention our marketplace partnership with Walmart. Partnering up with the largest retailer in Canada and their powerful e-commerce business has served us well in expanding our reach to a wider and broader customer segmentation. Finally, our enhanced model of service and our logistics machine that spans across the country, with 18 strategically located fulfillment centers, had delivered unparalleled results, delivering to that last mile, setting us apart from our competitors and placing us in a league of our own. We are exceptionally pleased of our 2020 performance across the board and could not have achieved these results without our dedicated and hard-working teams at Sleep Country, Domez-vous and Endy, plus our suppliers, landlords and media partners, each of whom went above and beyond for us in these turbulent times. Now on to some financial headlights. A few fourth quarter achievements include: Revenue, which grew by a powerful 33.4%; net income, which increased an impressive 89.4%; same-store sales, which grew 32.4%; and diluted EPS, which increased 89.5% from $0.38 to $0.72. In addition to these notable successes, we were able to expand our gross profit and operating EBITDA margins. We closed the quarter on a note of financial agility with a cash position of $38.3 million and a further $182 million in liquidity available under our credit agreement. Our results in the fourth quarter and fiscal 2020 are a testament to the strength and flexibility of our enhanced business model. Our success spans across every aspect of our business with a customer-centric view on how to best service their needs and create an exceptional and seamless customer experience. For context, only a short few years ago, almost all of our revenue was acquired via in-store sales. As a result of strategic investments in innovation, Q4 revenue from digital channels drove 20.1% of our revenue while, at the same time, our growing network of stores also contributed to our best-ever same-store sales growth. This growth was achieved while accelerating our profitability with net income increasing 89.4%. With these results, we believe that our enhanced model is working exceptionally well and anticipating and delivering on every Canadian's sleep needs. We are still early in our ecosystem journey and are bullish on our ability to grow our business and take market share. No matter where our customers journey ends or begins, we want to be there for them to serve their needs for all things relating to sleep. One example of a highly successful innovation that we introduced this past year during the March 2020 shutdowns was bringing the in-person sleep experience to our online platforms with the introduction of our Dreamline chat team. This team was successful in serving our customers and raising the average unit selling price that has now become a permanent addition to our e-commerce experience. This capability resonated extremely well with our new and loyal customers, as evidenced by nearly 100,000 chats and calls taken since June of 2020. Our innovative and future-proof ecosystem is defining how Canadians will choose to shop for sleep solutions for years to come, and we are extremely proud of what we have been able to accomplish over such a short period. What is particularly remarkable about our Q4 results is that they occurred in a highly tenuous period with 65% of our stores temporarily closed due to the mandated closure of nonessential businesses as at December 31, accounting for 10.5% of our actual quarter's operating days being closed. The closures persisted over Boxing Week, one of the most significant retail weeks of our calendar. Despite these conditions, the unparalleled trust we've earned over the past 26 years, combined with our convenient touch points across digital, store, chat, phone and curbside pickup, allowed new and loyal customers to engage with our brand on their own terms. In Q4, customers entered our stores with a clear intent to purchase with trust and confidence in Sleep Country and Domez-vous as their sleep retailer of choice, as evidenced by record conversion levels. Now, more than ever, Canadians are prioritizing their sleep as a core pillar of their health and well-being. I am proud that Sleep Country service Canada -- Canadian sleep partner on their wellness journeys by offering superior product expertise, sleep expertise, combined with the world's most innovative and high-quality solutions to fit every unique need. Further to this relentless pursuit of serving Canadians' sleep and wellness needs, a critical driving force behind our strategy is a clear differentiator with the Canadian sleep landscape is our partnership capability. We continue to secure exclusive partnerships with the world's leading sleep brands, ensuring we have -- excuse me, ensuring we serve as each Canadians' partner across premier global sleep products. In November 2020, we successfully launched an exclusive partnership with Purple Innovation, the U.S. mattress and bedding leader known for their celebrated Purple mattress. We are the only destination in Canada for the coveted mattress products, which have amassed a cult-like following with virtual -- viral marketing campaigns, racking up more than 1 billion views and widely breaking through with today's consumers. This partnership has generated excellent results in our first few months in our website and stores. We're extremely optimistic about the future. Purple Innovation is the latest brand to add to our exclusive portfolio, which includes recent partnerships with leading international brands like Malouf, Simba and BlanQuil. Our business future is bright as we continue to grow and optimize our enhanced service model and deepen our position as Canada's destination of choice. The past year's results are a testament to our strategy and our team's unmatched ability to predict and service Canadians needs, meeting them with a perfect solution to suit their sleep and wellness journey no matter how they choose to shop. I will now turn the conversation over to Craig to discuss our financials. -------------------------------------------------------------------------------- Craig De Pratto, Sleep Country Canada Holdings Inc. - CFO & Corporate Secretary [3] -------------------------------------------------------------------------------- Thank you, Dave, and good morning, everyone. I'd like to reiterate that we are extremely pleased with our record Q4 results. These positive results, despite our total store closure network being closed for 10.5% of total operating days during the quarter, and having 2 of our largest markets, Ontario and Québec closed down for Boxing day week, continues to demonstrate the strength of our business model, strategic investments and most importantly, our associates serving our customers in a safe manner. Now on to some of the quarter's highlights. Let's begin with revenue. In the fourth quarter, our revenues increased by $62.4 million or 33.4% from $186.5 million in Q4 2019 to $248.9 million in Q4 2020. The increase was primarily driven by 32.4% increase in same-store sales, 2 new store openings and our wrap stores. 20.1% of revenues was earned through our e-commerce platforms. Our mattress revenue increased by $50.6 million from $146.2 million in Q4 2019 to $196.8 million in Q4 2020. Our accessories revenues increased by $11.8 million from $40.3 million in Q4 2019 to $52.1 million in Q4 2020. We are extremely pleased with the accelerated growth we're experiencing in both these categories. During the fourth quarter, gross profit increased by $22.5 million from $59.7 million in Q4 2019 to $82.2 million in Q4 2020. Our gross profit margin increased by 1% from 32% in Q4 2019 to 33% in Q4 of 2020. These margin increases are primarily due to leveraging fixed distribution costs, occupancy costs and depreciation costs. The increase is partially offset by slightly higher delivery costs during the quarter. Moving on to G&A expenses. Our G&A expenses for the fourth quarter increased by $8.9 million or 25.6% from $34.8 million in Q4 2019 to $43.7 million in Q4 2020. As a percentage of revenue, our G&A expenses decreased from 18.6% in Q4 2019 to 17.5% in Q4 2020. The change was mainly driven by an increase in our compensation advertising expenses. Our advertising expenses, though, are larger in dollar, were in line with the prior year as a percentage of sales. Moving on from G&A. Our Q4 operating EBITDA increased by $12.5 million or 30.4% from $41.3 million for Q4 2019 to $53.8 million for Q4 of 2020. The increase is primarily due to strong revenue growth in Q4, combined with an improved gross profit margin and partially offset by an increase in G&A expenses. It was also favorably impacted by lower adjustments related to onetime ERP implementation costs and share-based compensation expenses as compared to Q4 2019. Our Q4 net income increased by $12.6 million from $14 million or $0.38 per share in Q4 2019 to $26.6 million or $0.72 per share in Q4 2020, representing 89.5% growth year-over-year, as Dave mentioned earlier. Our adjusted net income increased by $11.8 million from $15.7 million in Q4 2019 to $27.5 million in Q4 2020. Adjusted diluted earnings per share increased by $0.32 per share from $0.42 per share -- sorry, Q4 2019 to $0.74 per share in Q4 2020, representing 76.2% growth. On an annual basis, we experienced a net decrease in cash of $5.7 million. Net cash flow provided by operating activities in 2020 were $173.7 million and cash flows used in investing activities was $17.7 million. And lastly, cash flows used in financing activities were $161.8 million. Much of the cash flows used in financing was due to our repayment of $97.8 million on our long-term debt facility, thereby reducing our debt balance from $175.1 million as of December 31, 2019, to $77.3 million as of December 31, 2020. We currently have access to $182 million in liquidity under our credit facility. As mentioned previously, our cash position at the end of Q4 was $38.3 million compared to $44 million in the same period last year. And our net debt position improved to $39 million, down from $131.1 million at the same time in the prior year. An update on our capital allocation. On February 9, 2021, the Board declared a dividend for $0.195 per share on the company's common shares. Additionally, we have filed a notice of intention to the TSX to pursue an NCIB, where purchases may commence March 9, 2021. That completes the overview of our financial results. Back over to you, Dave, for closing remarks. -------------------------------------------------------------------------------- David Friesema, Sleep Country Canada Holdings Inc. - CEO & Director [4] -------------------------------------------------------------------------------- Thanks, Craig. To say we're proud of our success over the last quarter and really over the course of the past year is an understatement. It is rewarding to see our efforts yield such phenomenal value for our 26-year old profitable and growing business. Moving forward, we remain committed to our strategy of: One, delivering world-class experience across all channels and touch points, providing Canadians with exclusive access to the world's leading sleep products, and using our sleep expertise to help Canadians achieve their best sleep as a pillar of their health and well-being. I would once again, like to express my appreciation to our extraordinary teams. It has been an exceptionally challenging year, and I am so privileged to work with our amazing teams who stop at nothing in the pursuit of excellence for our customers. I would also like to congratulate Alexandra Voyevodina, for her promotion from Endy's CFO to Endy GM and President. Alio was a key member of Endy's early stage growth team in 2016, and we're thrilled to work alongside her as we continue to grow this incredibly successful Canadian brand. In other Endy news, we are proud to share that in Q4 Endy surpassed a cumulative total of 250,000 mattresses sold since their inception in 2015, with an outstanding average 4.9- out of 5-star rating based on 20,000 customer reviews. Further, the Endy donation project reached a milestone of 10,000 mattresses donated since founding in 2015. This wonderful milestone builds on Sleep Country's commitment to repurpose sleep sets from our donated bed program to those less fortunate with over 304,000 mattresses and foundations donated and another 662,000 recycled over the same time frame. These are products that we pick up from our customers and divert from landfills. In closing, I'll reiterate that I believe the future of Sleep Country, Domez-vous and Endy is bright, and we are better positioned for profitability, growth and market share expansion than ever. We are energized and focused on continuing to execute against our growth strategy in service of expanding our leading position as Canada's sleep destination of choice. As ever, we are laser-focused on building value for our customers, employees, communities and shareholders. And our record-breaking Q4 results demonstrate we are doing just that. With that, we conclude our remarks and open the floor for questions. Thank you. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question is from the line of Martin Landry with Stifel. -------------------------------------------------------------------------------- Martin Landry, Stifel Nicolaus Canada Inc., Research Division - MD of Equity Research [2] -------------------------------------------------------------------------------- Congratulations on your strong results. I'm trying to understand the driver behind your strong Q4, and I know there was some pent-up demand from the spring when the stores were closed. And I also know home renovation has been a hot sector. So I understand these drivers. But I'm wondering, did you run a specific promotion this quarter that would have gotten a lot of traction with shoppers? -------------------------------------------------------------------------------- David Friesema, Sleep Country Canada Holdings Inc. - CEO & Director [3] -------------------------------------------------------------------------------- Well, we ran many specific programs. And I think that we did gain traction with consumers because of our promotions, because of our Dreamline, because of all the different innovations we've done. And I believe that, again, as I've said in the past, market share is kind of a lagging indicator that we'll find out more later. But I believe that, yes, to your point, I think there was some pent-up demand in the market. I also think that people were spending more on their house. But we're convinced based upon conversations with our suppliers and so on that we took share as well. -------------------------------------------------------------------------------- Craig De Pratto, Sleep Country Canada Holdings Inc. - CFO & Corporate Secretary [4] -------------------------------------------------------------------------------- You would also find in the numbers, Martin, for the quarter, we took a calculated risk by increasing our ad spend. Our belief was that the consumer was out there and ready to buy. And the investment on that ad spend seemed to have paid off very well for us. -------------------------------------------------------------------------------- Martin Landry, Stifel Nicolaus Canada Inc., Research Division - MD of Equity Research [5] -------------------------------------------------------------------------------- Okay. That's helpful. And looking at Q1, you disclosed a helpful table in your MD&A, which showcases the store close and reopening dates. And I know that Toronto PO stores are still closed. But as of today, if I do, in my mind, I'd like you to just double check my numbers here, but I'm getting -- your stores would be closed for an effective 30 days so far in the quarter. Does that math make sense? -------------------------------------------------------------------------------- David Friesema, Sleep Country Canada Holdings Inc. - CEO & Director [6] -------------------------------------------------------------------------------- We'll run all that math firmly once the stores reopen, but that is closed. Stewart might have a little bit more on that. Go ahead, Stewart, did you have a comment? -------------------------------------------------------------------------------- Stewart Schaefer, Sleep Country Canada Holdings Inc. - Chief Business Development Officer & President of Dormez-vous [7] -------------------------------------------------------------------------------- So 65% of our -- you're talking about Q1, right, Martin? -------------------------------------------------------------------------------- Martin Landry, Stifel Nicolaus Canada Inc., Research Division - MD of Equity Research [8] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Stewart Schaefer, Sleep Country Canada Holdings Inc. - Chief Business Development Officer & President of Dormez-vous [9] -------------------------------------------------------------------------------- Yes. So 65% of our stores, of our 282 stores, were closed up until February 8 when the province of Québec reopened. On February 16, Ontario, reopened minus the GTA area, which I think is 38 or 39 stores, guys? -------------------------------------------------------------------------------- David Friesema, Sleep Country Canada Holdings Inc. - CEO & Director [10] -------------------------------------------------------------------------------- We're currently, right now, 13% of our stores are closed, yes. -------------------------------------------------------------------------------- Stewart Schaefer, Sleep Country Canada Holdings Inc. - Chief Business Development Officer & President of Dormez-vous [11] -------------------------------------------------------------------------------- And yes, so 13%. That would be about right. So up until February, 65%. As of February 8, Québec opened, which is 62 stores. As of February 16, Ontario open, minus the 38, 39 stores. -------------------------------------------------------------------------------- Martin Landry, Stifel Nicolaus Canada Inc., Research Division - MD of Equity Research [12] -------------------------------------------------------------------------------- Okay. If we could have like an actual number similar to what you've shared for Q4, that would be helpful, assuming -- as of today, that would be helpful. But -- and then can we assume that online penetration in Q1 has been similar to Q4? -------------------------------------------------------------------------------- David Friesema, Sleep Country Canada Holdings Inc. - CEO & Director [13] -------------------------------------------------------------------------------- Yes, our online business continues to be very strong on all channels. Yes. And to your point, Martin, we will share that information. We just -- we wanted to wait until we had all of our stores open because we're not even 100% sure when our stores are going to open, but we can get that info in follow-up. -------------------------------------------------------------------------------- Operator [14] -------------------------------------------------------------------------------- Your next question is from the line of Vishal Shreedhar with National Bank. -------------------------------------------------------------------------------- Vishal Shreedhar, National Bank Financial, Inc., Research Division - Analyst [15] -------------------------------------------------------------------------------- I'll start off with this question. It might be a bit tricky to answer, but it's on the mind of investors. And just wondering how management assesses, just given the strong revenue number, how much sales were pushed forward? How much was market share gains? If there's a change in the view of the customer, maybe they're buying mattresses every 5 years instead of every 8 to 12? If I look at those variables, is there any way you can help me understand what's going on with the market right now? -------------------------------------------------------------------------------- David Friesema, Sleep Country Canada Holdings Inc. - CEO & Director [16] -------------------------------------------------------------------------------- So let's kind of break this, and I'll try and answer it in different buckets for you. So first and foremost, just I'll start with market share. As I said, we'll have -- the market share gains will become more and more clear as we get further down the road because, again, it's a backward-looking calculation. But we have no reason to believe that we weren't taking share in Q4. Secondarily, when it comes to pushing forward or pent-up demand or pulling back, the market in Canada did have a big hole in it when you looked at the middle of the year with the first lockdown. And a lot of it was refilling that. Thirdly, the people are spending more on their houses, in general, and that probably does benefit us. And I think in that category, we've talked in the past about as a specialty retailer with a very strong e-commerce platform, we're really well positioned to capitalize on that more than others. And so it's very difficult for us at this point in time to say that there's been a fundamental shift in how often people are buying mattresses. But what I can tell you is that we feel that we are capitalizing on it as much as we can. And as we continue to move forward, we'll get a better feel as to whether this is a shift for good or a shift for the time being. And we'll continue to talk about health and well-being because people are starting to also understand more and more that a good night sleep helps with their overall health, and they're investing in that. And so that's a big positive that we'll continue to talk about as well. -------------------------------------------------------------------------------- Vishal Shreedhar, National Bank Financial, Inc., Research Division - Analyst [17] -------------------------------------------------------------------------------- Moving on to another topic. Sleep Country, and you provided some color in your disclosure material, but Sleep Country indicated to open a minimum of 6 stores this year. Is that solely due to COVID uncertainty? Or is that also because of the rapid growth in e-com and a change in focus on your network? -------------------------------------------------------------------------------- Stewart Schaefer, Sleep Country Canada Holdings Inc. - Chief Business Development Officer & President of Dormez-vous [18] -------------------------------------------------------------------------------- So more so to delays that we experienced with the closures. What is clear to us probably than ever before, is that for our business, when it comes to this tactile item of a mattress, our customers' journey, at one point, involves a visit to our stores or a conversation even with our new chat lines, our sleep experts. The convenience, 100%, and we've seen that more than ever during this pandemic, drive a better experience to the customer when they go to our stores. It drives a higher conversion and a better return on our ad spend. And no matter where our customer decides to conclude that transaction, whether it's online, on their phone or actually in the store, that store has definitely become even more important, in our thinking. The openings of our new stores because we did open some stores, some were delayed, where -- Windsor was a new -- brand-new market for us. The most powerful opening that we've had in years. A lot with lineups in front of the store. So our plans have not changed at all in terms of trying to open up 8 to 12 strategically well-located spots. And I would say that the pandemic has been good for some and not so good for other retailers. And the opportunities that are presenting itself over the coming years because we do get a little bit of a view of the pipeline in terms of premier locations is looking very interesting for us. -------------------------------------------------------------------------------- David Friesema, Sleep Country Canada Holdings Inc. - CEO & Director [19] -------------------------------------------------------------------------------- And Vishal, there's a data point that really was pointing to me, so I'll just share it. If you go back to Q3, 100% of our stores were open and doing very well. As you remember, we had a good Q3. And our e-commerce business was very strong as well. So everything was kind of working. And we're still in the middle of a pandemic without a vaccine. And we were really excited that 18% of our business was done online. But that also means that in the middle of a pandemic with no vaccine, 82% of the people were still going to the store to buy. And so that was something that really was -- is not surprising to us, but it was a data point that was kind of playing in. -------------------------------------------------------------------------------- Vishal Shreedhar, National Bank Financial, Inc., Research Division - Analyst [20] -------------------------------------------------------------------------------- Okay. And maybe just on your thoughts on real estate and on the topic of finding better locations or potentially finding better locations in the future. Are mall stores still a priority in the thinking of management in terms of the network and focusing more on growing that aspect? -------------------------------------------------------------------------------- Stewart Schaefer, Sleep Country Canada Holdings Inc. - Chief Business Development Officer & President of Dormez-vous [21] -------------------------------------------------------------------------------- It's -- nothing has changed in terms of our thinking, if that's the question. Keep in mind that of our network of 282 stores, only 11 of our stores are in the malls. We will continue to look at the AAA malls, but the convenience and the shift of a lot of people outside of the cities has definitely given some opportunities on main on main, which has still been traditionally our strongest areas for retail. But malls are still on the plan. -------------------------------------------------------------------------------- Operator [22] -------------------------------------------------------------------------------- Your next question is from the line of Stephen MacLeod with BMO. -------------------------------------------------------------------------------- Stephen MacLeod, BMO Capital Markets Equity Research - Analyst [23] -------------------------------------------------------------------------------- Congratulations on a really strong finish to the year. I just had a couple of questions. The store color that you just gave sort of was very helpful. Can I just ask a little bit about how you saw sales evolve through the quarter? And if you're able to give any color on how you've seen them evolve thus far into Q1, given the fact that there have been some store closures? -------------------------------------------------------------------------------- David Friesema, Sleep Country Canada Holdings Inc. - CEO & Director [24] -------------------------------------------------------------------------------- Well, it's -- a lot of the things, the patterns that we see are continuing. So once our stores reopened after the original lockdown, they started making up ground very quickly. And that will -- and that's what we continue to see. The other side of that aspect is the stores that never closed, and I will say that the stores that remained open, we don't really talk about in-quarter things, but I can tell you, they were very strong right up to the end of last year. -------------------------------------------------------------------------------- Stephen MacLeod, BMO Capital Markets Equity Research - Analyst [25] -------------------------------------------------------------------------------- So the stores that were closed were very strong right through the end of the year? -------------------------------------------------------------------------------- David Friesema, Sleep Country Canada Holdings Inc. - CEO & Director [26] -------------------------------------------------------------------------------- No, no. I'm sorry. I may not have been clear. Let's break this into categories. The stores that never closed at the end of the year, they remained strong up to the last day of the year. Like there was no drop off. The stores that did close, what we have -- we take a lot of comfort in the fact that throughout 2020, we saw that when closed stores reopened, that it was really more of a deferred purchase rather than a lost purchase, and they started making up ground. And we have no reason to believe that, that won't continue. -------------------------------------------------------------------------------- Stephen MacLeod, BMO Capital Markets Equity Research - Analyst [27] -------------------------------------------------------------------------------- Right. Okay. Okay. That's helpful. And I know that you're an omnichannel retailer, and you've done -- you've taken very significant strides in building out the e-commerce side of things. But have you noticed any differences in profitability between an e-commerce sale versus an in-store sale? Or are the channels so intertwined that you can't disaggregate that? -------------------------------------------------------------------------------- Stewart Schaefer, Sleep Country Canada Holdings Inc. - Chief Business Development Officer & President of Dormez-vous [28] -------------------------------------------------------------------------------- We can. And clearly, it's evolving. The ad spend that we drive through our e-commerce site is more aggressive than we have done in our traditional business as we take more and more market share online. That being said, the offset is there is no rent. The sales commission is not there. And on the fulfillment side, it's pretty equal because for us, on delivery, whether we're delivering through FedEx or a white glove delivery service, we could do the same thing across the country almost at the same cost. So it's -- the offset of the increase on the ad spend is the offset of the commission and the rent. So it's been quite profitable. -------------------------------------------------------------------------------- Craig De Pratto, Sleep Country Canada Holdings Inc. - CFO & Corporate Secretary [29] -------------------------------------------------------------------------------- Just to add one thing to that is the preference in terms of average ticket and driving that would always tend to be in the in-store of the assisted sale but -- versus a straight e-commerce sale. But we have been evolving that on the online through our sleep chat system, which we do see a good uptick in average ticket. So there is puts and takes, as Stu indicated. But obviously, we do see some differences in average ticket between the 3 channels. -------------------------------------------------------------------------------- David Friesema, Sleep Country Canada Holdings Inc. - CEO & Director [30] -------------------------------------------------------------------------------- And by the way, to add to that, Craig, the nice thing about it is we've been really looking to, and we've talked about this over the last couple of years, we've been looking to get stronger in the below $1,000 category. And our online presence, as well as our in stores, we've really seen an uptick in that. And the nice thing that really, again, the only thing we worry about -- worry us about an uptick in below $1,000 is if we saw a degradation above $1,000, but we're not. So these are incremental customers, which is very beneficial to us rather than trading down. -------------------------------------------------------------------------------- Stephen MacLeod, BMO Capital Markets Equity Research - Analyst [31] -------------------------------------------------------------------------------- Right. Okay. That's really helpful. And then maybe just finally, Dave, you referenced the underlying market or you've referenced the fact that you think you've taken market share in Q4, and you've seen it from your suppliers. Can you give a little bit of color on what the underlying market, how it performed in Q4? -------------------------------------------------------------------------------- David Friesema, Sleep Country Canada Holdings Inc. - CEO & Director [32] -------------------------------------------------------------------------------- Well, our expectation is that it performed well. Like we don't know how well yet, and we'll get more information on that, but like we don't feel that the market went down while we went up 34%. But we do feel that we were -- we grew in an outsized way. But again, as I say, it's just too early to tell that at this point. -------------------------------------------------------------------------------- Craig De Pratto, Sleep Country Canada Holdings Inc. - CFO & Corporate Secretary [33] -------------------------------------------------------------------------------- And Stephen, a good comparison is possibly another retailer that you're covering without mentioning any names. -------------------------------------------------------------------------------- Operator [34] -------------------------------------------------------------------------------- Your next question is from the line of Meaghen Annett with TD Securities. -------------------------------------------------------------------------------- Meaghen Annett, TD Securities Equity Research - Analyst [35] -------------------------------------------------------------------------------- Just looking at the high level outlook that was provided for 2021, some of the strategic initiatives highlighted there. Just wondering if you can expand on a few of those. So first off, on the digital side, how are you looking at expanding in digital marketplaces? And then secondly, can you just talk a bit about your approach to expanding the sleep product offering? And also your approach to in-house innovation, what that means? -------------------------------------------------------------------------------- Stewart Schaefer, Sleep Country Canada Holdings Inc. - Chief Business Development Officer & President of Dormez-vous [36] -------------------------------------------------------------------------------- So we haven't announced any other partnerships as it relates to marketplace. So unfortunately, I can't say anything to that now. But I will tell you that it's in the plans. So the opportunity for us to be able to expand our brand with our partners, with different marketplaces, to grow our reach, to grow our customer segmentation, to be able to fulfill on the logistics side of it probably better than anyone could in the space is definitely part of the plan in 2021. We're going to continue to reinvest in our own websites, the Sleep Country and the Domez-vous websites as well as our websites with Purple and Simba and BlanQuil. So that will continue as we build up our teams and -- which as we've been doing over the last 6 months successfully. So there's still a strong push, an initiative, as well as we are rolling out our next phase of our ERP and our POS system, which will also include our enhanced e-commerce platform, which launched originally November 2019. The second part of that is coming now. Does that answer your question? -------------------------------------------------------------------------------- Meaghen Annett, TD Securities Equity Research - Analyst [37] -------------------------------------------------------------------------------- That's perfect. And then secondly, on capital allocation. Can you speak to the potential to be active with the NCIB? And also, thinking about M&A, wondering if you can discuss how you're looking at potential transactions, like what verticals you're looking at, geography, size? If you were to further explore something within the e-commerce space, what would that look like from an acquisition standpoint? -------------------------------------------------------------------------------- Craig De Pratto, Sleep Country Canada Holdings Inc. - CFO & Corporate Secretary [38] -------------------------------------------------------------------------------- Yes. We'll probably address this in 2 ways. I'll cover off some of the capital allocation items, and then I'll pass it over to Stu and Dave on some of the M&A pieces. Right now, we're strong cash and liquidity position. So we have put back in place the NCIB, and we have reinstated the dividend. So we will continue to invest in capital -- strategic capital investments internally. We've put the NCIB in place to be able to act on that if we see an opportunity. And on the dividend side, we'll be doing our annual review of that coming up and working with the Board to see how that will evolve throughout the year. But -- and then outside of that, it really drops into opportunities with M&A. And so I'll pass this over to Stu just to address a few things on that front. -------------------------------------------------------------------------------- Stewart Schaefer, Sleep Country Canada Holdings Inc. - Chief Business Development Officer & President of Dormez-vous [39] -------------------------------------------------------------------------------- M&A is always a consideration for us that shared with ideas with our Board. At the end of the day, as you look at our landscape of our business over the last 5 years and the expansion that we've had in terms of the accessory side, which has become a very important part of our business, that does open up the opportunity more so than ever for us as with sleep-related products. Nothing that we can speak to at the moment. But we're looking for innovative brands and talented people because people drive our business. And if anything comes up that is interest -- that falls within our sleep universe that we're trying to create, it would be a consideration. -------------------------------------------------------------------------------- Operator [40] -------------------------------------------------------------------------------- Your next question is from the line of Patricia Baker with Scotiabank. -------------------------------------------------------------------------------- Patricia A. Baker, Scotiabank Global Banking and Markets, Research Division - Analyst [41] -------------------------------------------------------------------------------- I just want to follow-up on a couple of things. Just -- I don't -- it's not necessarily Stewart that I want to put words in your mouth, but I want to make sure that I'm interpreting something that you said earlier correctly. And that was with respect to operate -- the notion of the network and the importance of stores. So if we think about Sleep Country having operated through these very anomalous times with the pandemic, would it be fair to say that you've learned or you've learned a lot and, in fact, operating through these times kind of reinforced your belief that the physical store is critical to your overall strategy despite being an omnichannel retailer. In other words, you may have had that belief going in, but it's now more and more reinforced from some of the things that you've seen operating through the pandemic? -------------------------------------------------------------------------------- Stewart Schaefer, Sleep Country Canada Holdings Inc. - Chief Business Development Officer & President of Dormez-vous [42] -------------------------------------------------------------------------------- 110%, Patricia, more than ever. I mean, to Dave's point earlier, and I'm not going to say shockingly, but we were pleasantly surprised when the stores did reopen after the first close down in the midst of the fear that very quickly, our customers came in droves back to our stores. They had the option to shop online. Our online business exploded during the shutdown when there was no other option. But as soon as those stores opened, they came back and it continued. It didn't let up. And we could watch the journeys. It's unbelievable as we get better in this space because we are still new within this space and watch that journey of the customer and when that journey begins and when that journey concludes, but we could tell through our own geofencing of what happens and how often and how important that is to the store is. I will also say there's a difference of 2 worlds, and Craig alluded to it. The below $500 price point, which is an area that we want to capture, all areas we want to capture, definitely exploded for us on the online, where the expectations of the bed that you're getting maybe a little bit lower or may not require the same type of visit. And that is an area that we've been strong in, but not as strong as potentially that we would like to be. Above $500, $600, and I would say Endy does an absolutely fabulous job and the premier player in that space for their $850 Endy super bed. But above -- as you get above $1,000, that journey with this tactile item is more important than ever. And the relationships that we've created with Simba and Purple, 2 fabulous D2C retailers that teamed up with us because they understand that, that path to profitability relies on the customer coming into the store and testing the bed. At the end of the day, we're channel-agnostic. We don't care if it transacts in the store. We don't care if it transacts on your phone, as long as it transacts within our ecosystem, and more than ever, yes, it's -- that store has become an important part of our belief going forward. -------------------------------------------------------------------------------- Patricia A. Baker, Scotiabank Global Banking and Markets, Research Division - Analyst [43] -------------------------------------------------------------------------------- That's very helpful. -------------------------------------------------------------------------------- David Friesema, Sleep Country Canada Holdings Inc. - CEO & Director [44] -------------------------------------------------------------------------------- I just want to add one small thing. Like Stu says we're channel-agnostic, which we are. We totally agree with it, but we actually look at it more like it's not 1 plus 1 equaling 2. It's 1 plus 1 equally -- I'm sorry, it's 1 plus 1 plus 1 because we have our Dreamline chat. 1 plus 1 plus 1 doesn't equal three, it's equaling something higher than that. -------------------------------------------------------------------------------- Patricia A. Baker, Scotiabank Global Banking and Markets, Research Division - Analyst [45] -------------------------------------------------------------------------------- Understood. And so just want to go back to the strategic outlook for the year, and you did notice that Meaghen alluded to it, that you are looking at in-house innovation. That's not something you've talked about a lot in the past. I mean, the sleep chat would be one example. But can you talk about your approach to in-house innovation and perhaps give us some examples of things that you've done already because it seems to me that, that is going to become even more prominent as we go forward? -------------------------------------------------------------------------------- David Friesema, Sleep Country Canada Holdings Inc. - CEO & Director [46] -------------------------------------------------------------------------------- Yes, I can start and then Stu will probably have others. But just -- I mean, when you think about innovation, we're in kind of a sleepy business, but we've kind of been innovating all along. And the introduction of a very successful lifestyle-based program over the last few years has been innovation, adding new products has been innovation, our new store appearances have been innovation, putting out our new ERP was innovation, which we're going to continue to expand. You mentioned the Dreamline, which was a big move forward on that side. So that's just to name a few. But Stewart, I don't know if you had any others just to add to that? -------------------------------------------------------------------------------- Stewart Schaefer, Sleep Country Canada Holdings Inc. - Chief Business Development Officer & President of Dormez-vous [47] -------------------------------------------------------------------------------- Yes, sure. So definitely, products have been evolving over the years in terms of -- if you look at some of the categories, their businesses within themselves, our pillows, our sheets, our mattress covers, our lifestyle. Our headboard business has exploded over the last 6, 7 months as we expand into that. E-commerce, for sure, it's still new to us. We launched our first fully transactional website November 2019. It's barely a year old. And the team there is young and new and growing and with unbelievable, exciting, creative ideas. On the marketing, the world of digital is still very new to us and powerful. The world of influencers, which is being led by our teams, is very powerful and a new way to engage with the consumer than we've ever engaged before. And you're going to see more of that as we develop certain things that we'll be talking about over the next few months. And the partnerships, that is a huge part of it. And we look at it very carefully on both sides that it has to be good for us as well as for our partners but more important, is it customer-centric. Does it fit within our ecosystem? Is it going to enhance the overall sleep experience? Will it keep us top of mind for multiple reasons? So many times when we launched originally the accessory business years ago, the main reason we did that is that we wanted Sleep Country to be top of mind, not once every 8 to 10 years when you change your mattress but hopefully, every year, as you were changing other products. And that's the way the team is thinking. So you'll see a lot more of that unfolding over the next 6 months. -------------------------------------------------------------------------------- Patricia A. Baker, Scotiabank Global Banking and Markets, Research Division - Analyst [48] -------------------------------------------------------------------------------- Okay. And I didn't mean to imply that you haven't been an innovative as a company because you absolutely have. But it's just a wording in the press release just made it seem to me that you were talking specifically about in-house innovation around the product assortment. So I was just interested in new product development as opposed to all the other broader strategic innovations that you've... -------------------------------------------------------------------------------- Stewart Schaefer, Sleep Country Canada Holdings Inc. - Chief Business Development Officer & President of Dormez-vous [49] -------------------------------------------------------------------------------- Patricia, I'm going to give one call out that the benefit of COVID in the Zoom world that we all seem to live in, where the teams are getting together every single day from 7:00 a.m. to 8:00 p.m. on Zoom calls. And in many ways, these conversations and these meetings with this leadership team and throughout the organization, which they've been incredible, 7 days a week, has become a little bit more of an intimate conversation and they allow the opportunity just to brainstorm. A lot of talented people coming together about this business that they're passionate about and brainstorming in ways that we never seem to have the time to do before. So there is some good that comes out of this crazy time that we're living through. -------------------------------------------------------------------------------- Patricia A. Baker, Scotiabank Global Banking and Markets, Research Division - Analyst [50] -------------------------------------------------------------------------------- Okay. That makes a lot of sense. -------------------------------------------------------------------------------- David Friesema, Sleep Country Canada Holdings Inc. - CEO & Director [51] -------------------------------------------------------------------------------- Yes. And Patricia, just I didn't take it that way at all. I just -- I'm always someone who gives a little history lessons as well. -------------------------------------------------------------------------------- Patricia A. Baker, Scotiabank Global Banking and Markets, Research Division - Analyst [52] -------------------------------------------------------------------------------- Understood. -------------------------------------------------------------------------------- Operator [53] -------------------------------------------------------------------------------- And your next question is from the line of Sabahat Khan with RBC Capital Markets. -------------------------------------------------------------------------------- Sabahat Khan, RBC Capital Markets, Research Division - Analyst [54] -------------------------------------------------------------------------------- I just wanted to get a little bit more color on the Walmart partnership. Just given the growth in e-commerce, just wanted to understand how the sales through that partnership or the earnings kind of flow into your income statement. Is this some sort of a royalty model? And sort of how has that grown over the last year and within your e-commerce overall platform? -------------------------------------------------------------------------------- David Friesema, Sleep Country Canada Holdings Inc. - CEO & Director [55] -------------------------------------------------------------------------------- So the Walmart transaction is straight revenue in terms of our business. There's a small, and I'm not going to go into the details of the deal, but there is a percentage that goes to Walmart. And it's all in the e-commerce numbers. I will say that the strongest benefit of partnering up with the largest retailer whose key focus and raise on bed linen is to grow their e-commerce business, has been a wonderful learning experience. It's broadened our customer segmentation, which has been a very important part of this partnership to be able to expand our reach, our brand to more Canadians in more different places. And it continues to unfold. And the team at Sleep Country, which is led by Phil Besner and Jory Solomon, who've been doing an exceptional job within our team, continue month by month, enhancing that relationship. So we're excited about this relationship, and we're hoping that it's going to expand in new ways that we haven't even imagined. -------------------------------------------------------------------------------- Sabahat Khan, RBC Capital Markets, Research Division - Analyst [56] -------------------------------------------------------------------------------- Okay. And then, I guess, given your -- the time spent with that platform, are you potentially considering other third-party marketplaces? Or how have you found this business model overall now that you have Endy and you've got your own e-commerce platform up and running. Is that an area that you may expand further? -------------------------------------------------------------------------------- David Friesema, Sleep Country Canada Holdings Inc. - CEO & Director [57] -------------------------------------------------------------------------------- Yes. Yes, definitely. If the opportunity presents itself with a premier partner because we want to make sure that we do it with the right partners, Walmart was an honor to team up with and so the partners that we choose are very important. But yes, for us, it's about expanding our reach, both on -- with brands, with distribution to be able to expand ourselves and as many touch points as we possibly can to make the convenience of shopping for a mattress in Canada and Sleep Country and Domez-vous and Endy easy at the fingertips or at the footsteps of our customers. -------------------------------------------------------------------------------- Sabahat Khan, RBC Capital Markets, Research Division - Analyst [58] -------------------------------------------------------------------------------- That's helpful. And then just there was some discussion earlier on just kind of margins across channel and just want to get an understanding of, I guess, during the quarter, what were the drivers. It looks like the margins are slightly below last year. And understand there's investment going on behind the e-commerce channel, but should we expect kind of the margins through brick-and-mortar, online to converge over time? And where are you in that journey? Or is it with things like the SG&A side might always be a little bit high given how to drive the business? -------------------------------------------------------------------------------- Craig De Pratto, Sleep Country Canada Holdings Inc. - CFO & Corporate Secretary [59] -------------------------------------------------------------------------------- Yes. So on the gross profit side, there is a little bit of some efficiencies on a year-over-year basis because we have pivoted and shifted some of our sales to online, which as Stu alluded to earlier, do not attract commissions and occupancy costs and so forth, which for our stores are up in that kind of gross profit piece. When you move down to G&A, again, when we look at a year-over-year basis, we're very much level on a -- from a percentage of sales basis. There was some additional dollars spent in Q4. And again, as Stu alluded to earlier, those dollars were put to good use from an absolute dollar perspective, but we still held and didn't delever on the marketing side of the business. And as we continue to see the puts and takes throughout the model, there will be shifts in that marketing spend area on the -- as e-commerce continues because there is a different marketing percentage required to run those businesses. So you have efficiencies in -- up top in other areas. So as you look at our margins at EBITDA level, we feel very comfortable that we shouldn't see much pressure on that front. And that's really the function of those puts and takes between these 2 channels as they continue to evolve. I'd say one item that's just an interesting point is Dave discussed earlier that the below $1,000 is -- has expanded. While we've held and expanded -- held our own and expanded on the above $1,000. And we will continue to see a little bit of pressure, which we saw and mentioned in our records on delivery costs because it does cost the same amount, but it's very, very slight. And so overall, we don't think there's going to be too much pressure to EBITDA as everything kind of flows through. -------------------------------------------------------------------------------- Sabahat Khan, RBC Capital Markets, Research Division - Analyst [60] -------------------------------------------------------------------------------- So I guess in terms of the year-over-year EBITDA margin change, it's more probably attributable to the channel versus maybe product mix. Is that the right way to think about it? -------------------------------------------------------------------------------- Craig De Pratto, Sleep Country Canada Holdings Inc. - CFO & Corporate Secretary [61] -------------------------------------------------------------------------------- Yes. I would say that, that's fair. But again, we do not see -- like I'm looking year-over-year on straight EBITDA, slight leverage and on the full year. And then on operating EBITDA again, slight leverage. So it's -- we're very, very much in sync on EBITDA overall. But it's -- again, just moves a little bit of those puts and takes. -------------------------------------------------------------------------------- Stewart Schaefer, Sleep Country Canada Holdings Inc. - Chief Business Development Officer & President of Dormez-vous [62] -------------------------------------------------------------------------------- I will just add on channel mix, product mix. Still on the accessory part of our business. It is a margin expansion for us compared to our mattresses by approximately 10 points. And that should continue. I will also note, in the fourth quarter, even though we weren't so detrimentally affected clearly by the numbers that we had, of -- because we were closed as of Boxing Day because a good portion of the business gets delivered into the following month, which is January. On the accessory side of our business, that week between December 25 and December 31 traditionally, and leading up to it also is Christmas, Boxing Day and huge for our accessory business. And that walk-in cash-and-carry business during that period of time in that 65% of our stores unfortunately, we didn't get. Did we get it online? Possibly. But there's definitely a little bit of a loss of that not having that in the last week. -------------------------------------------------------------------------------- Sabahat Khan, RBC Capital Markets, Research Division - Analyst [63] -------------------------------------------------------------------------------- Okay. So just maybe following up there. I guess, with your online platforms, Endy is presumably heavily weighted toward mattresses. How would you describe the mix through -- whether it's through the Walmart partnership or through your own e-commerce website, a mix of maybe mattresses versus accessories? And have you seen that shift over the last year? -------------------------------------------------------------------------------- Stewart Schaefer, Sleep Country Canada Holdings Inc. - Chief Business Development Officer & President of Dormez-vous [64] -------------------------------------------------------------------------------- We don't break it down for competitive reasons as a percentage. But interestingly enough, the shift -- the split between mattresses and accessories between our Walmart, marketplace and our own websites is very similar. I will say that Endy is focusing on some of their products and expanding their accessories because whatever they brought in as accessories sells out all the time. So they've been doing an exceptionally great job. So look for more of that to happen, but that will be decided by Alio and that team. And I will say that on the closure -- the first closure and the second closure, specifically the first closure, accessories exploded disproportionately as people were beginning to cocoon. Happened again a little bit during the Christmas holidays, probably as people were cocooning or if they were having some visitors, I'm not sure if they were or they weren't, but then went back to what it was before, which is still a strong mix. -------------------------------------------------------------------------------- Sabahat Khan, RBC Capital Markets, Research Division - Analyst [65] -------------------------------------------------------------------------------- All right. Great. And if I could just squeeze one last one in. I guess, on some of the store closures, are you getting some of those rent breaks from the landlords? And, I guess, with Q1 with the larger number of stores closed, how are the landlords, I guess, cooperating with regards to breaks on the stores, particularly in the malls where the rent may be a little bit elevated? -------------------------------------------------------------------------------- Stewart Schaefer, Sleep Country Canada Holdings Inc. - Chief Business Development Officer & President of Dormez-vous [66] -------------------------------------------------------------------------------- So I would say the landlords during this entire time, and all our partners and also a big call out for our media partners, have been as good as they possibly can in these difficult times. Because as difficult as it was for us because retail is meant to be open when our stores are closed, and that's a huge overhead, but it is also their revenue. So the landlords were very good with us in deferring rents and not eliminating the rents. I will say, though, on a go-forward basis, one of the analysts asked the question, has anything changed in our viewpoint in terms of opening real estate? And as Patricia mentioned in terms of the importance of the store, it's more important than ever. That being said, as the business does shift and more grows online and how we look at our rent rolls throughout Canada, and as supply comes on the market, as other stores, retailers have emptied out and may continue to empty out, we hope to see some greater efficiencies in our rents as we negotiate certain deals and certain renewals. -------------------------------------------------------------------------------- Sabahat Khan, RBC Capital Markets, Research Division - Analyst [67] -------------------------------------------------------------------------------- So just a quick one there. I guess, so in Q1, where a lot of stores might be closed and you might be getting some rent deferrals. How would you account for that. Are those costs recognized in period? Do you kind of push them out until the cash flow leaves? How would those show up in your Q1 results? -------------------------------------------------------------------------------- Craig De Pratto, Sleep Country Canada Holdings Inc. - CFO & Corporate Secretary [68] -------------------------------------------------------------------------------- Yes. So on that, you can assume that for anything that happened last year, we've worked through the deferrals from both a cash basis and an expense basis. So the results that you see are with -- there's no impact throughout the year. We've -- so that's last year. And then in Q1, we are always in conversations when there's areas of the business that are under pressure from closure perspective. But, at this point in time, you can assume that there won't be any Q1 impact from deferrals from the current set of closures and stores that are closed at this time. So you can just expect that there'd be no impact to Q1 or how you should view Q1 from a rent deferral perspective. -------------------------------------------------------------------------------- Operator [69] -------------------------------------------------------------------------------- Your next question is from the line of Matt Bank with CIBC. -------------------------------------------------------------------------------- Matt Bank, CIBC Capital Markets, Research Division - Associate [70] -------------------------------------------------------------------------------- Curious about the source of market share. And specifically, I'm thinking about independent specialty sleep competitors. I guess, has that been a significant source of share, particularly online. I would assume that they don't have the resources that you do? And also, have you seen any -- or have you seen a significant amount of them shutdown? -------------------------------------------------------------------------------- David Friesema, Sleep Country Canada Holdings Inc. - CEO & Director [71] -------------------------------------------------------------------------------- So as far as, again, market share is very difficult to put your finger on it exactly. It's a bit of a -- it's a little more opaque. But we -- this is more of an acceleration of what we've been seeing for a long time. The independent market is probably somewhere between 30% to 40% of the industry, and they have been giving share up for quite a while. And I think that continues. Especially, to your point, they don't have the resources to have as good of an online presence and so on and so forth. So that's been beneficial. The other thing is, as a specialty retailer, we may also be benefiting because people would rather go to a smaller, more intimate store rather than a supercenter or something like that to do the acquisition of their products. And frankly, fundamentally, I think we've really done a good job of tapping into the consumers thinking about health and thinking about sleep and really making it a relevant purchase rather than a grudge purchase. And we're going to continue to work on that path as we move forward. But it's hard to quantify it. So I would generally say that it's probably from many different fronts. On the -- by the way, our online business has grown dramatically, as you know. And so -- and then on the other front, it's rare to see mattress retailers actually close their doors because it's easy for them to stay in business through this. They're not as effective, they probably don't have the resources to be as strong as they were before it, but it's pretty easy for them to stay in business through this. So we don't expect to see a lot close, but that doesn't mean they're not weaker. -------------------------------------------------------------------------------- Matt Bank, CIBC Capital Markets, Research Division - Associate [72] -------------------------------------------------------------------------------- Okay. And then I just have a few quick ones as well. So first, just to follow-up on all this margin conversation. I must say I read it wrong. It looked like sales incentive expenses were actually up, even though online was a significantly higher percentage of sales. So can you just explain that, please? -------------------------------------------------------------------------------- Craig De Pratto, Sleep Country Canada Holdings Inc. - CFO & Corporate Secretary [73] -------------------------------------------------------------------------------- Yes. So in our compensation expense line, it went -- it was down just slightly because of that shift. Sorry, I'm just looking through the thing there. There was actually -- sorry, in terms of the normal operating business, we did have efficiencies from the shift in e-commerce. There were certain costs for severance that were lumped in that were onetime, obviously, that we did not shave out, and those were costs just for associates that could not return to store safely just due to capacity restraints at the stores. And it was an item that we didn't point out as a normalization just because there was lots of puts and takes throughout the year with the pandemic. But that would -- when you normalize for that, we would have seen a reduction in overall compensation expense. -------------------------------------------------------------------------------- Matt Bank, CIBC Capital Markets, Research Division - Associate [74] -------------------------------------------------------------------------------- Okay. And then working capital was a significant pause this year. It looks like it was mostly from payables. Is that something that you'd expect to swing back the other direction in 2021? Or it's sustainable? -------------------------------------------------------------------------------- Craig De Pratto, Sleep Country Canada Holdings Inc. - CFO & Corporate Secretary [75] -------------------------------------------------------------------------------- So I mean, we are doing some things on the payable side, but it also to the function somewhat of the significant lift in volume of our business through Q4. So with a big increase, there's obviously a larger pickup there. In addition to that, part from a working capital perspective is customer deposits, which -- with sales levels at that level, that money is -- we did have by our collections for goods that would be delivered subsequent to year-end. But I think that you can expect that we will continue to look to drive more effective working capital and look to opportunities within payables and working with our vendors in creative ways to continue to optimize working capital over time. So I'd say early innings on what we're doing on that front. But yes, there's just some color there. -------------------------------------------------------------------------------- Operator [76] -------------------------------------------------------------------------------- And your final question is from the line of Gary Chapman with Guardian Capital. -------------------------------------------------------------------------------- Gary M. Chapman, Guardian Capital LP - MD of Canadian Equity and Senior Portfolio Manager [77] -------------------------------------------------------------------------------- I just wanted to get a sense of online sales. If my memory is correct, Endy doesn't have mattresses within the stores. Can you give a sense of what the growth of online sales for Endy were relative to online sales for the mattress, products, that do have the store presentations and I recognize that the online sales on the omnichannel side of things are hard to tell whether it was pure e-commerce or otherwise, but can you just give a sense of what the difference in growth rates might be between that and rest of the e-commerce sales? -------------------------------------------------------------------------------- David Friesema, Sleep Country Canada Holdings Inc. - CEO & Director [78] -------------------------------------------------------------------------------- No, we don't break that out for competitive reasons. But in an overall way, I can tell you that as we said in our conversation -- as we said in our opening, just a couple of years ago, a very small percentage of our revenue was driven by online, whereas you fast forward to Q4, 20.1% of our total revenue came from online, which, again, to the other side of that still means that at this point in time, almost 80% of it came through the stores, but that 20.1% is a very large growth. And you can assume that both Sleep Country, Endy and Domez-vous contributed to that. -------------------------------------------------------------------------------- Operator [79] -------------------------------------------------------------------------------- At this time, there are no further questions. I would like to turn the call back over for closing remarks. -------------------------------------------------------------------------------- David Friesema, Sleep Country Canada Holdings Inc. - CEO & Director [80] -------------------------------------------------------------------------------- We just wanted to thank everybody for the great questions and supporting us over the years. We look forward to getting together with our Q1 results. Have a great day, everybody, and stay safe. -------------------------------------------------------------------------------- Operator [81] -------------------------------------------------------------------------------- Thank you, ladies and gentlemen, for participating in today's call. You may now disconnect your lines.