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Purple CEO sees ‘significant operational improvements’ at play for the company

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On Thursday, Purple Innovation reported $173.9 million in revenue, but fell short on expectations for its fourth quarter earnings. Joe Megibow, CEO of Purple Innovation, joins Yahoo Finance to break down the numbers.

Video Transcript

JULIE HYMAN: Well, as we had mentioned, the reopening trade doesn't just have to do with technology necessarily. It might have to do with something like mattresses. Purple shares down about 23% today. The company out with its earnings. Revenue growth of about 40% last quarter. In the current quarter, that revenue should rise by 31% to 39%, Purple said today, and for the full year of 30% to 36%.

The CEO Joe Megibow is with us now. And Joe, how are you looking at 2021? Is this sort of a transitional year after, obviously, a very unusual 2020? On the one hand, we're seeing a lot of people buy homes, having to outfit those homes. On the other hand, they're also going to be probably getting out and maybe spending money on other things. So how are you dealing with all these issues?

JOE MEGIBOW: Yeah. It's-- I mean, we see more opportunity than issues for sure. We did just come off an extraordinary year, just incredible growth in our business. I mean, one thing to consider is the category overall has been relatively flat for the last five years. Little bit of growth last year, but it's been a relatively flat category.

Our entire strategy has been one of taking share. And we've been doing that on merit. We have technology that we've spent three decades working on and have a product that offers real healthful consumer sleep benefits to our customers. And despite our ever-growing marketing budget, our number one most successful marketing channel continues to be word of mouth, as we've taken on record numbers of customers.

So we don't see that changing. Yes, we see that there's going to be some shift in spend next year, as do many others. But in terms of, again, this relatively stable market, our ability to continue to take share with our premium better product, we continue to see a lot of headroom in front of us.

BRIAN SOZZI: Joe, are you surprised to see the market reaction here? It's a pretty sizable sell off. I mean, the guidance looked OK. But has the fundamentals of your business changed over the past three months compared to when we last talked to you?

JOE MEGIBOW: No. In fact, if you really dig in and look at the fundamentals, we've had nothing but improvement for two years straight now and continue to have sizable opportunity.

I think the biggest story right now is just we rescinded guidance early last year and, you know, with all the uncertainty, we did not give guidance again until just today. So there was clearly some missed expectations in the market on exactly what was going to happen on Q4 and as we're guiding into Q1, which I think is just working through the uncertainty out there. We believe we've posted extraordinary results. Our business has grown dramatically and we see tremendous opportunity.

The big change is, as of today, we're getting back to issuing guidance. We've been very specific with what's happening in Q1, throughout the year and full year. And when we've done that in the past, we've continued to demonstrate ability to meet or beat and we expect to get back to that.

MYLES UDLAND: You know, Joe, in the home category, there's a lot of supply issues right now across different-- depending on what room of the house you're in. I'm curious how your supply chain has held up. Any bottlenecks that you guys have seen, and any that you maybe anticipate coming up in 2021? How is the industrial side of it, I guess, playing out now?

JOE MEGIBOW: Yeah. So we've had the good fortune of being very vertically integrated. We're all onshore domestic manufacturing. As of this week, our facility outside Atlanta, another 525,000 square feet, became operational. So I mean, we do a lot in-house, and that has helped protect us with a good deal of onshore sourcing as well.

That said, we are not immune to the supply challenges, specifically in the little bits of foam we buy and with spring coil and the fabrics around them. Given our strength and our growth and our partnerships, we've been able to get what we need. So as of right now, our shipment times are within SLAs and our ability to service our wholesale partners has not been impacted. But we're running pretty tight right now.

The good news is we see, nearly in all measures, that improving, both through our continued vertical integration and just general improvements in supply chain. So we don't anticipate seeing ongoing problems. But I think this quarter is going to be a little touch and go as we work with supply and see the rate of our growth. But we do anticipate having the supply we need to meet as we've guided.

BRIAN SOZZI: Joe, we've seen you expand into more product categories, seat cushions, weighted blankets. What's your next big product on tap?

JOE MEGIBOW: We're really laser focused on winning share on the products we have. But you brought up seat cushions, and even pillows. Pillows are not an ancillary product to us to try to sell with a mattress. The majority of the pillows we'd sold are to first-time Purple buyers. And this is led with our Harmony pillow, which is a complete reinvention of the pillow, leveraging the same elastic polymers in this grid formulation we have. It is a remarkable pillow. We call it the best pillow ever invented. And despite those humble claims, our customers seem to agree with us. We just can't make them fast enough and are investing in capacity there as well.

So right now, it's lean into the categories we have and go from a relatively small player to become a relatively large player. But part of our story is anywhere there's cushioning, we can play. And there are many, many categories that we will be able to enter in the future.

BRIAN SOZZI: We're going to get you into the car, Joe, because my seats are very uncomfortable in my car. But looking at your, just going through your guidance this year, Joe, How do your margins change? How does that structure of your margins change as people go back out, they get vaccinated, they go to your wholesale locations instead of shopping directly online?

JOE MEGIBOW: That's right. This is a year of some headwinds and tailwinds. On the headwinds, we are seeing more mix shift back into wholesale, where we don't have as strong a margins, as we share the margin with our wholesale partners. Last year was very distorted toward online buying, with brick and mortar reduced or shut down. So there is some margin pressure as we see mix shift back into our channel partners in wholesale, as well as our investment in opening our own showrooms and investment in capacity.

But we are, through a combination of new product launches, a combination of pricing changes that improve our margin position, and just we are a young manufacturer and we have significant operational improvements that are in play right now, we see tailwinds as well. All in, we're expecting our margins to be relatively flat year over year, which, given the headwinds we're facing, we actually think is very impressive.

JULIE HYMAN: Joe, good to catch up with you. Hope to keep in touch as the year does go on. Joe Megibow is the CEO of Purple. Thanks so much.