Mattress Firm Purple Is Cutting Back to Move Forward

Purple Innovations Inc. is getting leaner so it can grow again.

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The mattress maker known for its Gel Grid technology will close its Utah manufacturing facilities in Salt Lake City and Grantsville, with the completion of the closure estimated to be in the first quarter of 2025. All mattress production operations are set to be consolidated into its McDonough, Ga., facility by Dec. 31.

“These moves enable Purple to streamline our operations and to reinvest in technology and marketing to grow the category,” said Rob DeMartini, Purple’s CEO. “Over the past year, we have driven savings through manufacturing efficiency and supply chain initiatives, and we are confident that the consolidation of our manufacturing footprint is an important step to advance our Grid innovation and build momentum with our ‘Path to Premium Sleep’ strategy, which will set Purple up for positive operating cash flow and market share growth over the long-term.”

Despite the Utah closures, the company will remain headquartered in Utah, where it also has four showrooms. The company said all research and development activities will continue to be based in the Innovation Center that Purple opened in Draper, Utah, last year. Purple said the company still expects to open a new distribution center in Utah.

Separately, the company said it has reduced staff positions at its headquarters in Lehi, Utah. A regulatory filing with the Securities and Exchange Commission said the layoffs, which resulted in a 13 percent net reduction of headcount, were completed on Aug. 22.

Purple said it will incur restructuring costs of $35 million to $45 million, beginning in the third quarter of 2024 through the second quarter of 2025. About $26 million to $32 million will be non-cash charges related to the disposition of equipment and other write-downs.

“Once the restructuring is fully implemented, the Company expects annualized savings in the range of $15 million to $20 million, starting in 2025, the company said in the regulatory filing.

In the company’s second-quarter earnings call on Aug. 5, DeMartini said the company has been making strides and was becoming cash flow positive. He noted that while volume remained challenged, management was encouraged by the overall performance.

“We remain focused on the things within our control and are managing our costs, continuing our investments in innovation and marketing,” DeMartini said, adding that those actions will ensure the company’s business model is “more durable” in a market that is expected to “remain challenging for the balance of the year and maybe beyond.”

One positive in the quarter was that it represented Purple’s third consecutive quarter of year-over-year top-line expansion with sales up 2 percent in the period. But he also noted “ deteriorating industry trends ,” which led to the company’s second quarter revenue shortfall, and resulted in the company lowering its revenue guidance range by $50 million. That said, DeMartini was optimistic about encouraging signs connected with new products and said that new brand marketing messaging was gaining traction with consumers and capturing market share.

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Eric S. Haynor, chief operating officer, said the team has been focused over the last year on driving cost savings through supply chain initiative and manufacturing efficiency, which let to “significant breakthrough in gross margin in the second quarter.

Haynor cited to direct material cost savings from our supplier diversification efforts, which meant less dependency on sole-sourced materials. He also said the company generated strong efficiency gains in our plants, which also helped drive improved scrap-and-yield results. The company also saw cost improvements from its scheduled delivery program for outbound freight, which also helped with better delivery reliability,” he said.

He told investors that the company still has more supplier diversification work ahead that is expected to deliver additional savings later in the year. “While there are some headwinds, such as inbound freight from overseas suppliers and freight-mode mix on some of our outbound delivery costs, we do expect these are going to be manageable and they are not going to limit our ability to improve our cost of goods,” Haynor said.

For the second quarter ended June 30, Purple posted net income of $27,000, or 0 cents a diluted share, against a net loss of $40.5 million, or 39 cents, a year ago. Net revenues rose 2.0 percent to $120.3 million from $117.9 million. The company said wholesale revenue rose 7.2 percent, while direct-to-consumer revenue fell 1.8 percent. Gross margin in the quarter rose to 40.7 percent, versus 30.1 percent in the same year-ago period.

For the six months, the net loss was $50.2 million, or 47 cents a diluted share, on a nearly 7 percent increase in net revenues to $240.3 million.

The company lowered its full year net revenue range to $490 million to $510 million, from prior guidance of $540 million to $560 million.

The bedding market has become increasingly competitive over the last few years, which saw Mattress Firm pull its planned initial public offering, a softening demand for home goods, and the closures of stores and even home retailers filing for bankruptcy.

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