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Purple (PRPL) Q2 Earnings Miss Estimates, Revenues Rise Y/Y

Purple Innovation, Inc. PRPL posted second-quarter 2021 results, wherein earnings missed the Zacks Consensus Estimate, while revenues meet the same. Continued solid demand for its products, particularly in the wholesale channel, along with resumed store operations aided the quarterly results. However, isolated manufacturing challenges limited the company’s ability to meet a significant portion of demand.

Going ahead, the company remains focused on innovation of mattress and non-mattress products, expanding distribution through partner and owned retail, and improving digital capabilities to drive traffic and conversion. It is also on track with its long-term target of $2-$2.5 billion in annual revenues and mid-teens adjusted EBITDA margins for the next three to five years.

We note that shares of this Zacks Rank #4 (Sell) stock declined 13.7% in the past three months against the industry’s growth of 1.9%.

 


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Q2 in Detail

Second-quarter 2021 adjusted earnings were 5 cents a share in the reported quarter, which missed the Zacks Consensus Estimate of 13 cents. The figure declined from 35 cents in the second quarter of 2020 but improved from 4 cents in the second quarter of 2019.

Net revenues grew 10.6% year over year to $182.6 million in the quarter under review. The uptick can be attributable to the robust demand for all products, particularly mattresses. The metric also surged 77.3% from the second quarter of 2019.

While wholesale revenues skyrocketed 233.2% year over year, representing roughly 36% of the total revenues, DTC revenues fell 19.9%. Revenues in the wholesale and DTC channels surged 68.9% and 82.4%, respectively, from second-quarter 2019.

Gross profit was slightly up 0.1% year over year to $81.7 million, while gross margin contracted 470 basis points (bps) to 44.7%. This is mainly due to a higher proportion of wholesale revenues, which carries lower gross margin along with isolated production issues. However, the metric expanded 320 bps as compared to second-quarter 2019.

Adjusted EBITDA of $11 million plunged 68.8% year over year, while the metric rose 77.4% from second-quarter 2019.

Financial Details

Purple ended the quarter with cash and cash equivalents of $110.1 million, with debt (net of current portion) of $40.4 million and shareholder’s equity of $160.6 million, excluding non-controlling interest. Cash flow from operating activities was $20.9 million. Capital expenditure was $26.2 million due to manufacturing capacity and showroom expansion. Management envisions capital expenditure of $55-$60 million for 2021.

Purple launched 4 showrooms in the second quarter. It is likely to open eight more in the third quarter. In 2021, the company plans to open 20 showrooms, bringing the total count to 30.

PURPLE INNOVATION, INC. Price, Consensus and EPS Surprise

 

Guidance

Management anticipates full-year net revenues of $820-$850 million. The metric suggests a year-over-year improvement of 26-31% and a rise of 81-98% from 2019. Adjusted EBITDA is envisioned to be $78-$88 million. Owing to the inventory constraints, which are likely to persist till late August, management expects a considerable portion of revenue growth to occur in the final quarter. The company expects price increase to partly offset elevated labor and material costs in third-quarter 2021.

Stocks to Consider

GMS Inc. GMS, a Zacks Rank #2 (Buy) stock, has a positive earnings surprise of 15.7%, on average, in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Beacon Roofing Supply BECN has a positive earnings surprise of 573.1%, on average, in the trailing four quarters. It currently has a Zacks Rank #2.

Target Corporation TGT, another Zacks Rank #2 stock, has a long-term earnings growth rate of 13.3%.


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