PRPL earnings call transcript, November 4, 2026

additionally we've taken steps to improve our cost structure and we're consistently generating cash. we ended the quarter with more than 28 million of cash compared with approximately 23 million at the end. of the second quarter and operating cash flow was positive for the third consecutive quarter. that's meaningful progress for this business particularly given the industry pressure on demand. importantly we expect to continue to generate. cash in the fourth quarter which is traditionally our strongest cash flow quarter. let me walk you through what we saw in our third quarter. starting with our direct to consumer business the quarter's performance. was uneven. july and the period around july 4th were weak as the price increases we implemented in june had a greater impact on demand than anticipated. however, we saw the business improve meaningfully around mid-august with better performance during the labor day promotional period. labor day was particularly encouraging with direct consumer sales slightly above last year during the holiday period. with labor day falling six days later this year, the entire holiday weekend occurred in September compared to most of the weekend falling in August last year. This shift affects the monthly year over year comparisons. So looking at August and September together provides a clear view of the trend. Across the two months, direct-to-consumer net sales increased approximately 1% year over year. July performance, however, caused DTC revenue for the full quarter to decline 9% versus last year.

For the third quarter, e-commerce sales were down 6% versus last year, driven by weakness in July. Trends improved in August and September, with overall e-commerce sales up 2% year over year. Across the two month combined, driven by growth at Amazon and purple.com. Over the last several quarters, we've made a number of changes to the website to provide consumers with the information they need and to make it easier. Easier to understand which product is right for them. This includes connecting our advertising more directly to the website, taking consumers to the right product based on what brought them to purple in the first place and creating a more seamless customer journey from advertising through purchase. These efforts are translating into early positive results with conversion rates on purple.com improving significantly year over year. Amazon also continued to significantly outperform during the quarter, supported by improvements in fulfillment, inventory availability, and advertising efficiency. We still have work to do, but we're... Encouraged by the progress we're making on purple.com and the continued strength we're seeing on Amazon. Moving to showrooms, we saw softness in our showroom business during the quarter with sales down 16%, primarily due to too fast. First, in 2025, delivery issues related to the Rejuvenate launch pushed a meaningful number of orders written in May and June to be delivered in July and August, which increased the

comparison base for the quarter. Second, the price increase we implemented in June had a greater impact on consumer demand than anticipated, particularly around the July 4th promotion. Following that period, consumers gradually acclimated to the higher prices with performance improving as we approach Labor Day and through the latter part of the quarter. So looking at Q2 and Q3 together gives us a better picture of how the showroom business is performing on that. On that basis, the showroom business was 2% below same period last year with same store comp sales only down 1%. Importantly, when you neutralize the shipping change and acknowledge the price increases. We are encouraged that year to date showroom comps are up nearly 2%. We continue to view showrooms as an important part of our growth strategy. While the third quarter represented a departure from recent trends, our showroom business had delivered year over year growth in the prior four. quarters, and we expect the same store comps to turn positive again in the fourth quarter, which will deliver positive comps for showrooms for the full year. Turning to our expansion efforts, we opened two new showrooms during the quarter in San Antonio and Jacksonville, bringing our total to 57 at quarter end. We opened another location in Cleveland in October, and with two additional expected openings in the fourth quarter, we should end the year.

with 60 showrooms. Looking into 2027, we continue to target 9 to 12 new showrooms with approximately half of those locations already identified and several first quarter locations approved and under construction. We remain confident in the long term opportunity for our showroom business when consumers experience the gel flex grid and our sales teams explain what makes purple different and which purple is right for them. We see better conversion, a much more premium mix, and highly satisfied consumers. Wholesale represented our largest headwind during the quarter with sales down 31% versus last year. Accounting. Changes represent roughly one quarter of that decline. True channel performance was down approximately 23%. We continue to see pressure in our regional and independent retailer business with declines in sales velocity, distribution slots. And that dynamic has not yet changed materially. We know we need to do a better job supporting these retailers. And we've started taking steps to address that. First, we began increasing sales coverage in the latter part of the. And we plan to expand that effort into the fourth quarter. Our objective is to develop and execute improved training and business support plans that help these retailers sell purple more effectively. Second, as I mentioned earlier. Over the next two quarters, we're rolling out two new mattress collections and an assortment of pillow products that will provide these retailers with new and improved products to engage their customers.

One of the challenges we face is that our existing mattress assortment has not been as effective as it needs to be in a multi brand environment. We have opportunities to make the aesthetics more compelling and to differentiate models to make it easier for consumers and retail sales associates to distinguish and explain. We're addressing these issues directly with the new collections, which features significantly improved aesthetics, more distinct product designs in a much clearer step up story. The updated mattresses have a new athletic inspired look with redesigned covers that help differentiate models on the retail floor. Combined with more intuitive naming and clear technology differences, these changes give retail sales associates a better way to explain what makes PRPL unique and guide consumers through the assort. We'll be introducing both collections at the Las Vegas market in January, giving us an important opportunity to get the new products in front of our wholesale partners. Early retailer and customer feedback on these products has been very strong, and we believe they give us an opportunity to re-engage retailers and strengthen the wholesale business. We know that wholesale isn't going to turn around overnight, but with improved sales coverage, better training, and a significant number of new products coming, we believe we're taking the right steps. to improve performance. Additionally, Costco remains an important wholesale partner, and we see opportunities to expand our assortment with them as we move into the fourth quarter. Following Black Friday, we plan to introduce a new

man. Mattress for the holiday season, along with our first purple pillow offering at Costco. These new products will give us an opportunity to reach more Costco members and expand our presence with this important partner. Our strategy continues. To focus on three priorities, understanding our consumer, delivering better sleep through product experience and expanded distribution and executing with financial discipline. Let me give you an update on each. We continue to get better at understanding what matters to our customers and what it takes to move them from awareness to consideration and ultimately to purchase. As part of that effort, we're becoming more disciplined about where. We invest our marketing dollars and the returns we expect from them. Our marketing approach continues to evolve in several important ways. First, we've shifted towards a more consistent, always on approach to brand awareness. Advertising, rather than concentrating investment around individual promotional periods. We're also putting more emphasis on national advertising, helping us reach consumers earlier in their purchasing journey. Second, we're doing more to let our customers tell the purple story through testimonial marketing. We have people who have been sleeping on our products for years and their experiences can help explain why purple is different and what the gel flex grid does for them. As part of our recent 10th anniversary celebration in October.

We brought together 50 of our earliest customers, including original Kickstarter backers to experience our next generation of products. These are customers who have been with purple from the beginning and hearing directly from them is a. Powerful way to showcase what makes us special. Building on that momentum, we're launching grid day on November 8th, along with our grid forward campaign to celebrate our longtime customers and give them the opportunity. To share purple with friends and family. The goal is to activate our existing customer base, generate more word of mouth around purple and build a stronger community of brand advocates. This is not just a one. Time campaign, but something we intend to make a core part of our marketing approach going forward. We're also looking to expand our influencer marketing affiliate partnerships in consumer PR efforts to reach new audiences. And generate more organic conversations about PRPL. Another important priority is strengthening how we communicate the PRPL brand. When PRPL was founded 10 years ago, our story was centered on innovation and what made our products different. Today, we're building on that foundation by placing greater emphasis on the broader benefits of our products and the role better sleep can play in consumers' health and wellness. Our goal is to position PRPL as more. in a mattress brand, helping consumers understand how better sleep can contribute to a better life. Our product remains the biggest differentiator we have. Last month, we unveiled the first major redesign of our proprietary

gel flex grid technology featuring a new patented circular geometry that enables more precise contouring and better responsiveness while reducing motion transfer. innovation has always been at the heart of purple, and we have a significant number of new products coming to market over the next two quarters with major updates to both our essentials and hybrid mattress offerings. Today, we launched our new Essentials collection on our ecom site with a broader market launch expected around March. This is an important launch for our ecommerce business as Essentials represents a significant portion of our mattress sales and offers consumers an accessible entry point to the purple brand. As previously mentioned, we're also introducing the new Essentials line and our new hybrid line to retailers at the Las Vegas market in January. Early retailer feedback has been very strong and we expect these new products to generate meaningful retailer interests. The new hybrid collection will replace Restore with improved construction and performance and improve aesthetics for the multi brand retail environment. Hybrid is expected to begin rolling into our own store. stores in the first quarter and begin shipping to wholesale customers in March. We've also created clear differentiation between models and a much more compelling look for the multi brand environment. Taken together, this is a significant refresh of our mattress portfolio representing almost.

90% of our mattress unit volume. Innovation also extends beyond mattresses. We recently introduced a new airline travel pillow and we have a super premium down pillow coming. The airline travel pillow gives us. another opportunity to bring the gel flex grid into more use cases and expand our presence in the travel category. While we're also introducing the renew grid pillow at Costco, a more accessible alternative to our harmony pillow featuring gel flex grid on one side, it gives consumers. Another way to experience what makes purple different at a more accessible price point. The third part of our focus is continuing to operate the business with financial discipline. Two years ago, we were focused on stabilizing the business. We consolidated our manufacturing footprint, took costs out, and changed the way we operate. Those actions have made us a more efficient business, but the lower wholesale volume is putting temporary pressure on our margins and profitability as we absorb fixed manufacturing costs over a lower percent. production base. We're responding by managing the things we can control. We're keeping a close eye on plant costs, adjusting labor to match production volume, and continuing to manage inventory and working capital carefully. Our sourcing work also continues to create additional opportunities. Supplier diversification initiatives are beginning to show benefits, and additional sourcing initiatives are expected to take effect during the first half of 2020.

At the end of the quarter, we also took another step to reduce costs by subletting our corporate headquarters and bringing our teams together into the dream lab or our innovation center. This not only reduces operating expenses. but improves collaboration and brings our people closer to the product we're developing. We continue to focus on the things we can control costs, working capital, inventory, and where we put our investment dollars. As we move into the fourth quarter, we have several exciting opportunities in front of us. We expect a normal seasonal benefit in DTC, a significant increase in Costco activity supported by a new mattress launch for the holiday season and our first purple pillow offering there. And additional wholesale opportunities as we begin introducing our new essentials collection. We also have new pillow products coming to market and will continue to invest in marketing and customer experience where we're seeing a return. We don't expect the wholesale business to turn around overnight, but we're increasing our sales coverage, strengthening support of our regional and independent partners, and beginning to introduce new products that we believe will help improve performance. As we move into 2027. And with that, I'll turn it over to CFO Bob Lucian.

performance despite the challenging demand environment. Showroom revenue was $18.5 million, down 16% versus last year. Showroom performance was affected by the June price increases and the previously mentioned prior year rejuvenate delivery shift. Wholesale revenue was $35.6 million, a 31% reduction versus last year. Regional and independent retailers represented the large area of weakness. Approximately one quarter of the reduction was due to an increase of $4 million in reductions of revenue due to certain payments to customers and to manufacture under common control with a customer. gross profit was approximately $41.9 million compared with $56.5 million in the prior period presented on the reclassified basis adapted in the second quarter of 2026. gross margin was 43.4 percent down approximately 410 basis points from the prior year period on the reclassified basis. the year-over-year decline reflected lower production leverage and inventory adjustments. offset by lower tariff costs and favorable channel mix. operating expenses for the quarter were 51.7 million dollars 25 percent lower than the prior year period. the year-over-year improvement and operating expenses primarily reflected continued cost discipline and structural savings across the business including lower marketing and sales expenses, advertising spending, and payroll related costs. we also incurred lower restructuring and impairment charges versus the prior year. gap net loss was 1.4 million dollars versus a gap net loss of 11.7 million dollars in the prior year period. adjusted EBITDA

was a loss of 0.5 million dollars compared with positive adjusted EBITDA of 0.2 million dollars last year. We ended September 30, 2026 with cash and cash equivalents of 28.3 million dollars. Compared with 24.3 million dollars on December 31st, 2025. Net inventories were 53.5 million dollars, down 10% from 59.7 million dollars on December 31st, 2025. Reflecting continued inventory improvements and improved working capital efficiency. Cash flow from operations was positive for the third consecutive quarter and totaled 10.6 million dollars through the first nine months of fiscal 2026. This was a 38.7 million dollar improvement over the previous year's first nine months results. Capital spending in the first nine months was 5.2 million dollars supporting showroom expansion and investments in our manufacturing. operations. We remain focused on disciplined working capital management and expect to continue generating cash in the fourth quarter, which is traditionally our strongest cash flow quarter. Finally, turning to our outlook for the remainder of 2026, we continue to expect no meaningful recovery in the broader betting category. We are maintaining our full year revenue guidance of $420 to $440 million. Our revenue outlook reflects a stronger Q4, supported by an improved marketing plan, normal seasonal strength in DTC, and new product introductions, partially offset by continued pressure.

We now expect full-year adjusted EBITDA to be in the range of $15 to $20 million, compared with our prior outlook of $20 to $25 million, reflecting the impact of continued volume de-leverage. In our manufacturing operations. With that, I'll turn the call back to Rob.

Your first question comes from the line of Brad Thomas with KeyBank

Capital Markets. Brad, please go ahead.

This concludes today's call.