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Casper CEO: Supply chain issues in Q3 are 'largely behind us'

Yahoo Finance’s Myles Udland, Brian Sozzi, and Julie Hyman speak with Casper CEO Philip Krim about the company’s latest earnings report.

Video Transcript

BRIAN SOZZI: [INAUDIBLE] and bedding-maker, Casper, are under some pressure this morning after third-quarter results. Let's welcome in Casper co-founder and CEO, Philip Krim, who just wrap up his earnings call with analysts. Phil, always good to speak with you this morning. So I was on the call, and you talked about some supply chain issues, foam, inner springs. Is that in the rear view mirror, and what exactly were those problems?

PHILLIP KRIM: Thanks for having me on this morning, Brian. We were disappointed that we had some supply chain issues impact our ability to deliver products in Q3. We took a number of steps to mitigate those issues, and we do think they're largely behind us, though the industry is going to continue to have supply issues because of a number of reasons. But we were able to onboard some additional vendors, we've changed the way that we work with our manufacturing partners, we've increased the amount of capacity that we have within our supply chain, and we've increased the redundancy we have through both tier 1 and tier 2 suppliers for us.

And so, we think those changes have hopefully allowed the supply chain issues to be in the rear view mirror. If you go to casper.com right now you'll see that we're in stock across almost all of our SKUs, we're shipping products on time, which is often the next day when you order it, and we're seeing the business reaccelerate because of that. So hopefully the supply chain hiccups are behind us, and we're seeing the business benefit by having products in stock again.

BRIAN SOZZI: All right. Well that's good you saw that demand reaccelerate as you have those products. Is your goal still to achieve profitability by the middle of next year?

PHILLIP KRIM: It is. I would say we are still ahead of plan relative to the timing of our IPO. We believe that we'll burn less capital to get into profitability, and the business model is working. Even with those supply chain disruptions happening in Q3, you saw gross margins expand pretty healthily to over 55%, and you're seeing the burn in the business come down on a quarter-over-quarter and year-over-year basis. So we think the model is working. Again, we were disappointed we couldn't ship more of the products that we offer. Demand was really strong in Q3, and going into Q4, we had record traffic, we had record demand from our retail partners, and so, as long as the demand dynamics stay healthy, which so far they look like they will, we think the business model is in really good shape and continuing to perform.

MYLES UDLAND: And I guess, Philip, related to that, I mean, obviously as you mentioned, that disappointing quarter in Q3 for a number of Q3 specific reasons. But thinking more broadly about how the stock has behaved this year relative to maybe some peers in the everyone is at home all of a sudden kind of trade, is there a reason that you think maybe your business hasn't been quite as appreciated as I think some companies that you probably want to be grouped with, or think that you should be grouped with, just on a performance basis?

PHILLIP KRIM: You know, I certainly think the stock is inexpensive. I was a buyer of the stock at the first window that we were allowed to buy. I think the business has performed well this year. I think 2021 is shaping up to be a banner-year for us. We've announced key partnerships with folks like Macy's, Nordstrom's, Ashley Home Store, Sam's Club, in addition to seeing growth in our DTC channel. So we believe that it's a great time to be in a mattress business. We think the Casper brand stands alone, when it comes to being the premier destination and brand for all things sleep.

I think our 65 retail stores are open, and doing well, and driving interest. I think if you look at our product assortment, we've expanded that coming into holiday, so that we can be a great gifting destination and we could be your go to store and shopping destination for all things sleep. And we think that's a really unique positioning that sets us up for many years of growth and moving into profitability for the business. So we think now is a great time to buy the stock. We're still a young company, we're a little over 6 and 1/2 years old. We still think that we have a tremendous future ahead of us, and we want to be the brand that people think about, when it comes to getting a better night of sleep. And no time, ever before, has it been a more important time to get a great night of sleep.

JULIE HYMAN: Ain't that the truth. Philip, I want to go back to the quarter for a minute. I mean, most companies that sell home furnishings of one kind or another, I've seen their business booming right now because people are spending more time at home. There's a lot of migration as well. Was it just the supply chain issues that affected your sales? I mean, what would sales have looked like if you didn't have those supply chain issues, or is there something else going on?

PHILLIP KRIM: Now we think, as I mentioned, now's a great time to be in the mattress business. We had record levels of traffic in Q3 to our website. We think the supply chain issues did hit us, to the tunes of tens of millions of dollars. So, it was a significant impact. That said, we scrutinize ourselves all the time, and I think we did have some other issues that impacted us. You know, we used to see consumer behavior be very acute around these temporal holiday moments. And so when we looked at Labor Day weekend, we ran kind of the historic playbook that we had around Labor Day weekend. And what we're seeing is a change in consumer behavior, and that consumers are shopping over longer periods of time when it comes to these holidays.

And so we, I think, missed not launching our Labor Day sale sooner, so we changed our playbook. We've launched our Black Friday sale, and that's part of what's driving a great start to Q4. So I do think this is the most dynamic time in the consumer side of our economy and of the world right now, and so I think it's forcing us and others to change our playbook in real time. And so, we did have other lessons learned throughout Q3, and I think we're set up well now and better positioned to capture on that demand that we're seeing.