Purple Innovation, Inc. Stock

Thank you. Hello, everyone. Thank you for joining us and welcome to Purple Innovation's second quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, I will now hand the conference over to Stacey Turnuff. Please go ahead.

Thank you for joining Purple Innovation's second quarter 2026 earnings call. A copy of our earnings press release is available on the investor relations section of Purple's website at www.purple.com. Before we begin, I'd like to remind you that certain statements made in this presentation statements. These statements reflect PURPLE Innovation's judgment and analysis as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. We should not place undue reliance on these forward-looking statements. For more information, please refer to the risk factors outlined Additionally, today's presentation will reference non-GAAP financial measures such as adjusted gross margin, adjusted operating expenses, adjusted EBITDA, adjusted net loss, and adjusted net loss per share. A reconciliation of these measures to their most comparable GAAP measures can be found in the earnings release available on our website. that, I'll turn the call over to Rob Demartini, Purple Innovation's Chief Executive Officer.

Thanks, Stacey, and good afternoon, everyone. I want to start with what matters most from the quarter. While the market remains difficult, we continue to make progress in areas where we believe we have the greatest impact. Our showrooms had another strong quarter. Our premium products continued to perform well, e-commerce improved sequentially, and we delivered better profitability. This tells us the work we've been doing over the past year continues to take hold. We're a stronger and more disciplined business today than we were a year ago, and that is showing up in our direct-to-consumer business, product mix, and cost structure.

The broader market did not give us any help in the second quarter. Demand remained uneven, and wholesale was softer than we expected. Turning to our quarterly performance, our results were mixed across channels. Starting with our direct-to-consumer, we continue to make progress across both our showroom and e-commerce channels. Our showroom business was the highlight of the quarter, with retail sales up 16.6% versus the prior year, driven by improving traffic, stronger conversion, and continued strength in our premium portfolio. E-commerce was down slightly versus last year, but the channel continued to move in the right direction, marking the third consecutive quarter of sequential improvement. We're getting better at managing the channel, and the work we're doing across marketing and the site experience is contributing to that progress.

Purple's wholesale performance remained challenged in the second quarter as wholesale revenues were down approximately 19% year over year. In addition to continued softness in the broader mattress category, we've made a deliberate decision during the second quarter to invest more than $4 million incrementally in marketing programs with our retail partners. These investments affected reported wholesale revenue in the quarter, but we believe they were necessary to support consumer activation, retailer engagement, and Purple's long-term position within the wholesale channel. Excluding the impact of these incremental investments and other payments to customers, wholesale revenue would have declined approximately 8% year over year. On profitability, we made progress through disciplined expense management while continuing to invest in innovation, advertising, and consumer experience. Consistent with previous quarters, our strategy continues to center on three priorities. number one, deepening our understanding of the consumer, number two, delivering better sleep through product experience and expanded distribution, and number three, executing with financial discipline across the business. Let me walk you through how these priorities showed up during the second quarter.

First, knowing our consumer. Purple has strong awareness, but awareness alone is not enough. We remain focused on helping people understand why the GelFlex grid is different and why it matters to sleep quality and which Purple product is right for them. Since March, we've shifted our marketing's approach to place greater emphasis on brand building and consumer education outside of key holiday periods, while continuing to use targeted conversion marketing as consumers move closer to purchase. The opportunity is to turn our strong awareness into stronger consideration. That means making the benefits of Gel Flex Grid easier to understand before consumers are ready to buy and making it simpler to choose the right purple product when they enter the purchase process. This work applies across the full consumer journey from our showrooms and website to our wholesale partners with the same objectives everywhere. Clearly answer why purple and which purple mattress.

Within e-commerce, we continue to make improvements to the consumer journey throughout the quarter. It was a series of enhancements designed to make it easier for consumers to reach, to research, compare, and ultimately choose the right purple mattress while better understanding why our technology is so unique. These enhancements include improved product comparison tools, refined site navigation, and new content and landing pages designed to better educate consumers. We're also improving how purple shows up across traditional search and AI powered tools where consumers are increasingly beginning their research. The goal is not simply to drive traffic, it's to bring more informed consumers into the purchase journey and help them understand how Purple's GelFlex grid delivers a better sleep experience. We've now experienced three consecutive quarters of sequential improvement within e-commerce, supported by better marketing execution and stronger performance on Amazon. Second, delivering better sleep through product experience and expanded distribution.

Our innovation continues to differentiate purple in the marketplace, and we remain encouraged by the continued performance of our premium portfolio. During the quarter, our premium products continue to perform well, with Rejuvenate remaining the strongest performing collection, particularly in our showroom channel. Within our showroom business, Rejuvenate 2.0 continues to account for more than half of total mattress revenue, underscoring the strength of our premium positioning and the consumer's willingness to invest in better sleep products. Beyond mattresses, our pillow business continued to deliver strong results, reinforcing the broader appeal of the Purple brand and providing additional opportunities to introduce new consumers to our GelFlex grid technology. While the overall mattress category remained under pressure, we continue to believe our premium innovation positions us well for long-term growth. Beyond the product itself, we're continuing to invest in customer experience across every touch point. Our showrooms are the clearest proof point for our product.

When consumers experience the GelFlex grid in person and our teams can explain the difference, we see better conversion and a stronger premium mix. That was evident again in the second quarter with showroom sales up strongly. This reinforces something that we've believed for a long time. When consumers experience the GelFlex grid firsthand and understand how it differs from traditional foam, purple wins. Turning to distribution, expanding and strengthening our network remains an important component of our long-term growth strategy. Our owned retail footprint expanded during the quarter with the opening of one new showroom and the relocation of another, both of which are performing well. Looking ahead, we remain on track to open five additional showrooms before year end as we refine our real estate strategy and shift towards more productive, open-air retail locations that better align with evolving consumer shopping trends.

We're planning a broader growth of the store fleet in fiscal 2027 with 12 to 16 additional locations. Our job is to scale the model thoughtfully so it can become a more meaningful contributor to PURPLE's growth. As we expand our showrooms, we continue to deepen our presence with key wholesale partners, The rollout of Purple Royale at Mattress Firm was completed during the second quarter. Costco continued to perform well during the quarter, and year-to-date volume was well ahead of last year, and we continue to see meaningful opportunity with this partner. Amazon also had another strong quarter delivering double-digit growth as we further optimized our product assortment and fulfillment strategy. Now let's talk about the third pillar, executing with financial discipline. Over the past year, we've taken meaningful steps to improve the efficiency of the business.

Those efforts continue to support stronger profitability. During the second quarter, we delivered higher gross margins and profitability above last year, fight lower sales. We took pricing action in June to help offset commodity and logistics inflation and preserve gross margins going forward. Our sourcing teams continue to identify additional opportunities to improve costs through supplier diversification and operational efficiencies. As we move into the second half, the demand environment remains uncertain, but we are operating from a stronger foundation. We expect to benefit from continued operational improvements, additional sourcing initiatives, and the continued development of our premium product portfolio. Before I turn it over to Bob, one other update.

Following the reverse stock split in July, last Friday, NASDAQ confirmed that Purple has regained compliance with its minimum bid price requirement and that matter is now behind us. With that, I'll turn the call over to Bob.

Thank you, Rob, and good afternoon, everyone. Before I walk through the financials, I'd like to briefly address the change in the presentation of certain costs in our reporting results. Beginning this quarter, merchant credit card processing and third party consumer financing fees are no longer classified within cost of revenues and are now being presented in marketing and sales expense. This presentation is consistent with industry practice and makes our gross margins more comparable to our industry peers. In the second quarter, the reclassification increased GAAP gross margin by 505 basis points, with a corresponding 505 basis point increase in marketing and sales expense. This change does not impact previously reported revenue, operating loss, adjusted EBITDA, or cash flow. To make the periods easier to compare, our Forum 10-Q includes supplemental schedules presenting prior periods under the revised classification.

Net revenue for the second quarter was $98.3 million, down 6.5 percent from $105.1 million in the prior year period. The decrease is primarily driven by lower wholesale revenue, partially offset by strong growth and showroom revenue. By channel, direct-to-consumer, or DTC, net revenue for the quarter was $60.9 million, up 3.4%, compared with $58.9 million last year. Within DTC, showroom revenue increased 16.6% to $18.4 million, marking the fourth consecutive quarter of year-over-year growth. Comparable revenue in stores open for at least one year increased 18%, reflecting continued strength and rejuvenate and improving traffic and conversion. The second quarter also marked the fourth consecutive quarter of positive comps. E-commerce revenue decreased 1.4% to $42.5 million, improving sequentially for the third consecutive quarter.

The decrease was primarily attributable to lower mattress revenue, partially offset by growth in pillows and cushions, and continued strength at Amazon. June was especially strong given the shift of prime days from July into June this year. Wholesale revenue decreased 19.1% to $37.4 million from $46.2 million last year. The decrease reflected a $5.3 million increase in certain payments to customers and a manufacturer under control with a customer. These payments represent consideration paid to a customer and are recorded as a reduction in revenue. In addition, we had a $3.5 million decrease in wholesale sales volume related to lower industry demand. GAAP gross profit increased 44.5% to $44.4 million compared with $42.5 million last year.

GAAP gross margin was 45.2%, up approximately 470 basis points from 40.5% last year. The improvement in gross margin primarily reflected a $5.3 million IEPA tariff refund received in the quarter and year-over-year tariff mitigation from sourcing projects, favorable inventory adjustments, and lower scrap. These benefits were partially offset by higher freight and material costs, higher wholesale discounting, and lower volume leverage. We also took pricing during the second quarter to help offset higher input and freight costs and preserve gross margins moving forward. Because the increases did not impact revenue until the second week of June and take longer to flow through for certain customers, the benefit to the second quarter was limited. We expect to see a more meaningful impact in the second half of the year from these pricing actions. Operating expenses for the quarter were approximately $48.7 million, down $8.1 million, or 14.3%, from $56.8 million last year.

Approximately half of the improvement was due to non-recurrence of restructuring, impairment, and other related charges recorded in the prior period. The other half of the dollar reduction primarily reflected lower payroll related expenses following a number of workforce reduction efforts over the last 12 months. professional service expenses and continued discipline across the business. Gap net loss was $3.2 million, a $14.1 million improvement versus last year. Gap net loss per share was 74 cents compared to a gap net loss per share of $4.01 in the prior period. Adjusted EBITDA was $2.1 million, a notable improvement of $4.4 million from an adjusted EBITDA loss of $2.4 million in the prior year period. For more details, please see the reconciliation of gap net loss to adjusted EBITDA in today's press release. We ended the quarter with cash and cash equivalents of $23.3 million, compared with $24.3 million on December 31st, 2025.

Net inventories were $55.4 million, down $4.3 million compared to December 31, 2025, reflecting continued disciplined inventory management and improving working capital Efficiency. Cash flow from operations was positive for the second straight quarter and totals 3.6 million dollars through the first six months of fiscal 2026. This was a $30.7 million improvement over previous year's first half results, which are typically challenged due to the seasonality of our business. Capital spending in the first six months was $3.6 million, supporting showroom expansion and investments in our manufacturing operations. Finally, turning to our outlook. Given the continued softness in the category, particularly in wholesale, we are lowering our revenue guidance in the range of $420 million to $440 million. Importantly, the continued strength of our DTC business, coupled with our cost discipline, gives us confidence in our outlook to deliver a fiscal year adjusted EBITDA of to $25 million. Please note that we are revising our fiscal year 2026 gross margin target from approximately 40% to approximately 45% to reflect the reclassification of merchant credit card processing and third party consumer financing fees from cost of revenues to marketing and sales expense.

We continue to expect gross margins to improve through the second half of the year as seasonal volumes increase. Price increases to offset inflation are fully realized, and our ongoing sourcing and productivity initiatives continue to take hold. While we are not satisfied with the current level of revenue, we believe the improvements in profitability, cash generation, and operating discipline demonstrate that Purple is operating from a stronger foundation versus last fiscal year.

With that, I'll turn the call back to the operator for questions. We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your hands. set when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device.

Please stand by while we compile the Q&A roster. Your first question comes from the line of Matt Coranda with Roth Capital. Your line is now open. Please go ahead.

Hey guys, thanks. I guess just in terms of the reduced sales guide, is that all coming from a weaker wholesale channel? ARE YOU ASSUMING, I GUESS, THAT DTC SALES CONTINUE TO GROW, JUST GIVEN THE STRENGTH THAT YOU HIGHLIGHTED IN SHOWROOM? AND THEN I GUESS, HOW DO THE PRICING ACTIONS FROM JUNE OFFSET THE VOLUME DECLINES IN THE BACK HALF OF THE YEAR, JUST TRYING TO KIND OF FIT IT ALL TOGETHER?.

together here. Thanks, Matt. A couple of questions there. Let me take them backwards because that's how I'm remembering them. So we did some elasticity assumptions when we put the pricing in. I will tell you what we saw in But right after those started to take effect is that the reaction from the consumer was a little bit more downward than we would have expected or had we seen previously. We really need to get through Labor Day to figure out how they respond before we can read them. But to your first question, primarily the reduction is our wholesale business, and that's what allows us to keep our profit guide at the bottom half of it in the same place of where it was and really just taking off some of the top. We had previously been at 20 to 30.

Okay, I got it. Does that make sense? I think I missed your question. Remind me what the middle one was. No, I think,.

I think it was just that I think you kind of buried it in there, but I was asking if DTC sales are still going to grow in the outlook in the back half of the year.

if you were to kind of look at the channel. Yes, Q3 will be a little bit tricky because we had some delivery issues last year with the launch of Rejuvenate, but we're still very confident in our showroom business and very encouraged by the fact that Ecom keeps getting closer and closer to flat. We were down 1.4 percent in the quarter and the back half tends to be more important to both of those businesses.

Yes. Okay. And then my second question, I guess, was just in terms of the implied EBIT I got for the back half, Maybe Bob, if you want to take sort of conversion to free cash flow, how we should be thinking about sort of the working capital needs or flush for the rest of the year.

to remain and how that might impact cash flow for 3Q42? I would expect that in Q3, we're going to see probably just given the seasonality of where Labor Day is and where the shipments come in for that, we'll see a small, we could potentially see a small step back from an operating cash flow perspective, but then we typically will see a very large increase in Q4.

that will keep us positive for the entire year. Got it. Okay. I'll turn it over to others. Thanks.

All right. Thank you, Matt. Your next question comes from the line of Brad Thomas with KeyBank Capital Markets. Your line is now open. Please go ahead.

Good afternoon, Rob. Good afternoon, Bob. Thanks for taking the question. Hi, Brett. I wanted to just ask about the performance in your showrooms relative to the rest of the market. If our data is correct, this is at least the sixth consecutive quarter that same store sales has had positive growth, if not some really strong positive growth as it did this quarter, that I think really is very encouraging to see. And I was wondering if you could just help talk about perhaps why some of your projects partners in the wholesale channel maybe aren't performing quite as well as what you've been able to deliver in your own showrooms. Thanks.

Thanks, Brad. A couple things. I think Q2, the 16.6 or 18% comp sales were helped a little bit by what I just referenced in Matt's question is some written sales last year that didn't deliver until outside the quarter. But the core of that business certainly 12% or more of that 18 is growth of the premium product portfolio. I can't comment on, I don't want to comment on our partners' business and how they do it, but I know when we get people in stores onto our beds and we can explain the technology, what looked like very expensive products become things they want to buy when they realize the benefit they're going to get out of it. And, you know, we've always known show rooms is the stickiest of all of our businesses, then probably wholesale, then e-comm, where it tends to be a little bit more transactional. But that's what's behind it. I think I know we've got four quarters in a row of positive comps in that channel, and we do expect that to continue.

I appreciate that and obviously really a nice bright spot here. in your execution. Maybe if I just move over to the environment with raw material prices, you know, having gone up, can you just speak a little bit to pricing and how much that's running.

up and the potential needs to do more on the pricing front in the back half. Thank you. David Morgan, F& yes, we took prices up towards the middle of June between 8 and 10 percent across mattresses and pillows. The expectation is that we're seeing prices obviously move all over the place right now with what's going on over in Iran. One of the biggest challenges we see from a pricing perspective or a cost perspective is mineral oil, which is a large component of the GelFlex grid. And we are priced to where we think that's going to end up kind of averaging out over the back half of this year. Obviously, if it gets a lot worse than that, we would take additional pricing, but right now we feel like we're covered both for those costs as well as preserving the margin that goes along with the price increase.

That's very helpful. Thanks so much. Thank you, Brad.

Your next question comes from the line of Brian Nagel with Oppenheimer. Your line is now open. Please go ahead.

Hey, guys, good afternoon. Hey, Brian. So the first question I have. Can you just explain further in the prepared comments you talked about the impact to the wholesale sales and the kind of the sales would have been. Can you just explain for me what that is? You know, it sounds like it was a marketing expenditure, but then that affected revenue growth. So I guess you explain further what it is. And then the question is, is this a one-time thing.

time or one time adjustment? This represented a co-op advertising that we entered into with a number of our wholesale customers, where we, if you, if you write a customer a check for anything, it's a, it's a, it's contra revenue. So as a result, that's some investment that we did over the Memorial Day and Labor Day period. I'm sorry, not Labor Day, sorry, Fourth of July period. So we did more of that in this last quarter that we just finished. And as a result of those payments to those customers, and also last quarter, if you recall, we have a, a company owned by SGI selling to another company owned by SGI mattress firm, some of our products and those are also deemed a related party transaction. And those those are also payments to customers. So a combination of those things make up that $5.3 million.

I mentioned in my.

prepared remarks and those are all just reductions to revenue. Got it. Then so the question is this something we should expect going forward too?.

Yes, I think the SGI relationship, we've gotten clear with our accountants and we know how to treat it now, and we'll be projecting it accordingly. I think what you are saying is a change in practice where the burden that a vendor needs to produce results from co-op advertising is higher now that you have to reflect it as a direct reduction in sales. We've just got to make good choices with our customers and invest in things that grow the business for both of us. And we remain committed to do that. I think the burden of proof is just a bit higher than it used to be.

So to be clear, you're still moving, I guess the unit sales would be better, that's maybe that one, the unit sales would be better there, they get amassed by this payment then?.

That's why if you look at my remarks, the 19% in wholesale, about 10 points of that is contra revenue situation where the core unit volume, and again, I'm not speaking to mix so this may not be exact, but the business operationally was down about 8%, not 19.

Got it. The important piece on the, yes, the important piece on the, any co-op advertising revenue is that it provides, a good enough return on ad spend to just pay itself out, not on a revenue-free basis, but on a profit basis.

That makes sense. Then I guess my follow-up question, different topic. You mentioned the tariff refunds and your prepared comments. But I guess you talked about what that amount was. Have you, are they, you still have more tariff refunds potentially coming and how's.

we think about what Purple was doing with those refunds? Yes, the amount that we received that went into COGS was $5.3 million. And that was, we got 100% of what we were eligible for, that we applied for. A little bit came in in April, and the rest of it came in towards the end of June.

And then as far as like strategically,.

the deployment of those payments? Well, we're continuing to grow our store network by five stores in the back half, and then we're working on improving our cash flow in the back half of the years to enable us to really take the increases in store openings into the 12 to 16 range, given the fact that we're seeing the most success As Rob talked about, when we can have that one-on-one relationship with the consumer, get them in the store, and sell them on Why Purple is so special.

I got you. I appreciate the call. Thank you. Thanks, Brian.

There are no further questions at this time. This concludes today's call. Thank you for attending. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Thank you for standing by, and welcome to the Purple Innovation First Quarter 2026 Earnings Conference Call.[Operator Instructions] I'd now like to turn the call over to Stacy Turnof, Investor Relations. You may begin.

Thank you for joining Purple Innovation's First Quarter 2026 Earnings Call. A copy of our earnings press release is available on the Investor Relations section of Purple's website at www.purple.com. Before we begin, I'd like to remind you that certain statements made in this presentation are forward-looking statements. These statements reflect Purple Innovation's judgment and analysis as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. You should not place undue reliance on these forward-looking statements.

For more information, please refer to the risk factors outlined in our filings with the SEC. Additionally, today's presentation will reference non-GAAP financial measures such as adjusted gross margin, adjusted operating expenses, adjusted EBITDA, adjusted net loss and adjusted net loss per share.

A reconciliation of these measures to their most comparable GAAP measures can be found in the earnings release available on our website. With that, I'll turn the call over to Rob DeMartini, Purple Innovation's Chief Executive Officer.

We entered 2026 building on the progress we made in the fourth quarter, and our first quarter reflects continued progress and greater consistency across our channels. Trends were solid during the quarter with growth in showroom and wholesale. E-commerce also improved sequentially from the fourth quarter with March performance approximately flat to prior year. Importantly, we continue to see the benefits of actions taken last year reflected in our operating expense performance.

This progress is a direct result of the changes we've made to the business, not a recovery of the broader market, reinforcing the durability of the model we've been building. We're entering the second quarter with improving trends and are positioned for a step-up in performance. In the first quarter, total sales were down 8% as lower e-commerce and wholesale sales more than offset the gains in our showroom channel.

That said, e-commerce trends improved sequentially, declining 10% in the first quarter compared with down 15% in the prior period, reflecting more disciplined marketing execution and early signs of improved conversion.

Wholesale performance was impacted by an accounting-related item, which Todd will cover in more detail. Excluding this accounting impact, net revenue would have been $100.6 million or down 3.4% year-over-year. Showroom performance remained a bright spot with sales up 5% and comps up 7%, marking our third consecutive quarter of positive comp growth. Wholesale sales were down approximately 11% in the quarter, but excluding the impact of the accounting-related item, were up 1%.

We saw improving sell-through trends at Mattress Firm throughout the quarter with our revenue performance building as the quarter progressed, supported by strong demand for our premium offerings, including Rejuvenate 2.0. We're encouraged by the continued evolution of our partnership with Mattress Firm, where sell-through improved consistently, supported by strong engagement from their sleep experts and solid traction in expansion doors.

We also began rolling out our new Royale collection late in the quarter. And while still early, initial sell-through has been in line with expectations and reinforces the strength of our premium offering. Our accessory business continues to perform well with our expanded pillow assortment at Mattress Firm performing above plan and driving incremental growth.

At Costco, our in-store furniture event performed as expected, further supporting our confidence in the long-term opportunity with that partner. A year ago, we were focused on stabilizing the business by rightsizing our cost structure, strengthening the foundation and restoring profitability in a tougher environment. Now our focus is on driving growth. That growth is centered on 3 priorities.

As we highlighted last quarter, number one, deepening our understanding of the consumer; number two, delivering better sleep through product experience; and number three, expanding distribution and executing with financial discipline across the business. These priorities reflect how we're operating today.

Let me update you on our progress against each. First, knowing the consumer. This continues to shape how we show up across channels. We're shifting away from promotionally led messaging towards clear benefit-driven storytelling focused on GelFlex Grid technology and how Purple delivers better sleep. We've deepened our understanding of our core customer and what's driving their decisions.

Today, what we're seeing is a customer with clear need, but one that has historically approached the category as a price-driven replacement purchase rather than a performance decision.

That dynamic has limited conversion and reduced the effectiveness of traditional marketing approaches centered on promotion. At the same time, our data continues to show that when customers are educated on the functional benefits of our technology, particularly around pain relief and sleep quality, conversion improves and mix shifts higher.

That insight is shaping how we approach the market with a greater focus on clarifying the value proposition, improving mid-funnel education and aligning our messaging to the outcomes customers are seeking rather than leading with the product features or discounts.

On the marketing front, our strategy is focused on 3 things: delivering on the Purple brand promise of less pain, better sleep at every touch point; growing the earned traffic that brings high-intent customers to our website and driving more consumers into our retail and wholesale stores where the product can be experienced.

We're sharpening our focus on answering the key question, "why Purple?", making our differentiation clearer, our content more educational and our local marketing more effective at converting awareness into foot traffic. The GelFlex Grid is a genuinely different innovation, and we believe we have meaningful headroom to tell that story more powerfully. We're also seeing early benefits from increased discipline in our marketing execution, including more effective search optimization, more disciplined spending and a shift towards higher impact channels.

This is driving higher quality traffic and improving conversion, particularly in e-commerce. We're also seeing an increase in unsolicited consumer feedback with consumers reaching out directly to share their experiences, particularly around pain relief and improved sleep quality. We're incorporating these insights into our messaging through testimonial videos to better reflect what matters most to consumers.

In addition, we partnered with a new marketing agency that's helping refine the quality of traffic and optimize our media mix with an emphasis on awareness and consideration across the funnel in a more evergreen approach. We also continue to make changes in our creative approach and how we guide consumers through the online purchase journey with a more focused and tactical path to identifying the right mattress. These changes are resulting in improved engagement and conversion. Second, delivering better sleep through product experience and expanded distribution. Our innovation continues to resonate with our premium products maintaining strong traction across both showroom and wholesale channels. During the quarter, we saw strong initial response from the launch of Purple Royale, our new Luxe offering developed in partnership with Mattress Firm.

Early feedback has been strong with encouraging sell-through trends in the early weeks following the launch and growing adoption among sales associates. Today, Purple Royale is in 3,100 slots across Mattress Firm's 2,200 stores. While still early, we're encouraged by our performance and the strong consumer response to in-store engagement in Purple Royale. We also benefited from increased marketing support for Mattress Firm, including one of the largest co-marketing investments in our partnership to date, which is helping drive awareness and traffic.

Additionally, Rejuvenate 2.0 continues to perform in line with expectations with strong demand across the lineup, including our highest priced models. In the first quarter, the Rejuvenate 2.0 collection was 56% of our showroom mattress revenue, demonstrating the positive customer response to the new product. This performance reinforces the strength of our premium positioning and the resonance of our innovation with consumers. We're also seeing a positive halo effect across the portfolio, supporting performance in adjacent categories. In addition to product innovation, we're focused on elevating the full consumer journey across both owned and partner channels.

This includes improving how we present and explain our technology in store with greater emphasis on pain relief and more effective use of demonstrations and digital support. This is resulting in improved engagement from retail sales associates, particularly within our wholesale channel as our product storytelling continues to resonate. We've also made changes to our online sales approach, enhancing live customer care and follow-up to better replicate the in-store experience in a digital environment, which is helping improve engagement and conversion rates.

At the same time, we're enhancing our delivery experience to ensure a more consistent and credible brand experience from purchase through fulfillment. These improvements are helping reinforce our value proposition and supporting stronger conversion. We continue to focus on expanding our distribution presence so customers can find us across multiple channels. Our premium innovation continues to support that expansion. The launch of our Purple Royale collection at Mattress Firm in March is driving incremental distribution across our wholesale channel and represents an important step forward in our partnership with Mattress Firm as we continue to evolve both our product offering and in-store presence. We're also expanding our assortment with Mattress Firm with the rollout of additional pillow offering, which is performing in line with our expectations and helping to deepen our presence in stores at Mattress Firm.

In addition, Costco continues to perform well with revenues up over double last year's volume. As expected, this program will pause before returning again later in the year. At Sam's Club, our in-store pillow displays are performing well and helping introduce the brand to a broader audience.

Based on the strength of our recent sell-through, we're planning additional events with Sam's. We're also seeing continued opportunity to expand our pillow assortment with select retail partners, including incremental additions within Walmart. In addition, we generated solid performance from the recent QVC event, which provided additional exposure and incremental reach for the brand. We see more opportunities ahead with QVC. Amazon was a standout during the quarter, delivering strong growth. We've shifted more of our assortment to fulfilled by Amazon, improving in-stock levels, delivery speed and overall customer experience while also helping us reach new consumers.

We see a meaningful opportunity to continue scaling this channel. Taken together, these efforts are expanding our reach with key partners and support continued growth in our wholesale. Finally, executing with financial discipline.

We've taken a meaningful step to resize and simplify the business, and we're seeing these benefits reflected in our operating efficiency and cost structures. These actions have created a more stable foundation as we shift towards growth. In the first quarter, gross margins came in below our normal 40% baseline, primarily driven by higher levels of floor model discounts associated with the Purple Royale rollout at Mattress Firm, which impacted both pricing and mix.

We view this as a temporary and as the floor model transition normalizes, we expect improved contribution from Royale, which remains a key driver of margin expansion over time alongside Rejuvenate 2.0.

We've seen similar dynamics during prior transitions and would expect a comparable normalization as the floor model activity moderates. At the same time, we're making continued progress in our underlying cost structure, particularly across sourcing, operations and fulfillment, supported by ongoing productivity initiatives and supply chain optimization efforts.

We're also actively managing a more dynamic cost environment, including tariff dynamics and rising input costs. Our mitigations are well underway, including diversifying our supplier base, expanding multi-sourcing and selectively in-sourcing key components such as pillows where we see both cost and quality benefits.

These actions contributed to approximately $2 million of cost savings in the quarter. As we look ahead, we expect tariffs to be a modest tailwind this year while we continue to actively manage other input cost pressure. We're also navigating pressure in foam input costs, which remain a near-term headwind, but is being actively managed through our sourcing and mitigation actions.

In addition, tighter inventory management remains a focus, and we delivered a reduction in the first quarter inventory levels, helping to improve working capital efficiency. While mix remains an important driver over time, especially as higher-priced products like Rejuvenate 2.0 continue to scale, the first quarter reflects some near-term variability. As we look ahead, we remain focused on improving margins and continue to believe the business can support gross margins around 40% over time as operational improvements take hold while acknowledging that external factors, including input cost volatility and broader macro conditions may create variability in the near term.

Todd will walk you through the key drivers in more detail. Turning to our outlook. We're updating our revenue guidance to a range of $465 million to $485 million from the prior range of $500 million to $520 million due to the accounting-related adjustment discussed earlier. We're maintaining our adjusted EBITDA guidance of $20 million to $30 million. The outlook reflects the continued momentum in our premium product portfolio, expanded wholesale distribution and operating leverage in the business as volume grows.

Our guidance does not assume a recovery in broader market and reflects the progress we've made across product, distribution and operations. We believe we are well positioned to deliver a meaningful earnings growth in 2026.

Before I turn it over to Todd, I want to briefly acknowledge that he will be stepping down as CFO effective May 1 to pursue another opportunity. Todd has been a strong partner to the business, helping strengthen our financial foundation and positioning Purple for this next phase.

We thank him for his contributions and wish him the very best in the next chapter. We're also pleased to welcome Bob Lucian as our next CFO. Bob brings deep experience across branded consumer businesses, including his time as CFO of La-Z-Boy, and we are confident in a seamless transition. And with that, I'll turn the call over to Todd.

Thank you, Rob, and good morning, everyone. As Rob discussed earlier, we are pleased with the momentum we entered the year with, which gave us confidence as we look to the rest of the year. Net revenue for the first quarter was $95.7 million, down 8.1% year-over-year. The decrease was primarily driven by softness in e-commerce and a $4.9 million accounting-related reduction to wholesale revenue, partially offset by growth in showrooms. Excluding this accounting-related impact, net revenue would have been $100.6 million or down 3.4% year-over-year. By channel, direct-to-consumer net revenue for the quarter was $59.4 million, down 6.2% compared to last year. Within DTC, showroom revenue increased approximately 5%, up for the third consecutive quarter, and comparable sales were up 7%, reflecting continued strength in Rejuvenate 2.0.

E-commerce revenue was down 10.6% in the quarter and was flat for the month of March, the first time in 3 years that we've seen a flat month in our e-commerce business.

Wholesale revenue decreased approximately 11%, primarily reflecting the $4.9 million accounting-related reduction associated with certain commercial payments to a manufacturer affiliated to Mattress Firm. Excluding this impact, wholesale revenue would have been up 1%, driven by growth with Mattress Firm and Costco. The accounting-related reclassification had no impact on gross profit dollars, EBITDA or cash flow, but it reduced net revenues and cost of sales by the same amount. Gross margin for the quarter was approximately 36.8%, driven by 2 primary factors.

First, we made a strategic investment in Royale floor models to support our Mattress Firm rollout. As a reminder, those floor models ship at roughly 50% of list price, which created a significant drag in the quarter. Second, we saw modest deleverage in our manufacturing overhead.

As we have improved inventory management, we produced fewer grids and mattresses compared to last year, which meant we were absorbing fixed manufacturing costs across a lower production base. Said differently, we have some fixed costs that remained relatively consistent, but with fewer units produced, the overhead absorption per unit was less favorable in the quarter. Importantly, this is primarily a timing dynamic between production and sales, not a change in the underlying health of the business. As production and shipments normalize, we expect gross margin to return to approximately 40% by the second half of the year. Operating expenses in the quarter were $52 million, down 6.3% versus $55.5 million last year.

The decrease reflects ongoing cost savings initiatives and benefits from prior restructuring actions, partially offset by higher spend related to the ongoing evaluation of strategic alternatives, which can vary from quarter-to-quarter. Our first quarter adjusted loss per share was $0.13 compared to an adjusted loss per share of $0.11 last year. Adjusted EBITDA in the first quarter was negative $4.8 million, generally in line with last year's level.

Now turning to the balance sheet. We ended the quarter with cash and cash equivalents of $25 million versus $24.3 million on December 31, 2025, the best first quarter cash performance in 7 years. Net inventories on March 31, 2026, were $58.1 million, down 2.7% compared to December 31, 2025.

Finally, let's turn to our outlook. As Rob mentioned earlier, we are updating our full year revenue guidance to a range of $465 million to $485 million from the prior range of $500 million to $520 million due to the accounting-related adjustment discussed earlier. We are maintaining our adjusted EBITDA guidance in the range of $20 million to $30 million. With that, I'll turn the call back to the operator for questions.

Your first question comes from the line of Brad Thomas from KeyBanc.

It's Taylor Zick on for Brad this morning. Rob, maybe just to start, there's been a lot of moving pieces within the business as you add more floor space. But can you speak a little bit more to the demand trends you saw throughout the quarter? And then maybe related to that, you said you saw improved trends here in 2Q and you expect to step up further in the quarter. I guess, kind of what gives you confidence on that improvement?

Thank you, Taylor. The first quarter started off -- January was fairly healthy. February got a little bit of choppy and then March got a little bit better across all channels. I think as Todd highlighted, we were particularly encouraged by the e-commerce performance in March, where we got to flat, which hadn't happened in quite a long time.

And we do believe that's being driven by better media buying. I think the consumer still is pretty nervous right now, and we have seen trends get a little bit better, but definitely, the category is not robust.

Great. And then maybe just to -- you mentioned it in your prepared remarks, is just kind of on the input cost side. But I guess what are you seeing on that side of things and maybe transportation as well related to elevated oil prices, petrochemicals and some of the pressures within foam?

Yes. So clearly, with oil being what it is, we are seeing pressure across transportation as well as some of our input costs, including foam. To this point, we've been able to manage through those. They are headwinds. They're being roughly offset with savings that we're seeing on tariffs as we've gotten the lower rates coming off of the change in the IEEPA tariffs. And then in addition, just done a lot of good groundwork on where we're sourcing goods to make sure that we're optimized from a tariff and overall cost perspective. As we look at it, I yeah that headwind that we're seeing from oil and foam costs, we should be able to manage within our guidance, especially if the price of oil stays around that $100 a barrel range. So we're managing it as we go essentially.

Great. And then maybe just if I can squeeze one more in, Rob. You had a really nice -- another nice quarter here of high single-digit showroom comps. I guess, can you speak a little bit more to that and maybe what's driving those comps here even as you compare against it looks like a double-digit comp in the prior year?

Yes, Taylor, the showroom team has really dialed in on trying to explain the "why Purple?" and "which Purple"? Those 2 simple challenges, I think, are key to unlocking growth in this brand. We've got something that's different, but consumers still sometimes say, why should I pay for it? What's happening in showrooms is a very strong mix up in their volume.

In the prepared remarks, I told you that first quarter, the top category Rejuvenate was 56% of revenue in the stores, and that's what's driving the comp and making those stores profitable as well.

Great , Thank you so much.

Thanks Taylor.

Your next question comes from the line of Dan Silverstein from UBS.

And I'll just start by saying, Todd, great working with you and best of luck in your next role. Just to start, no problem. On the sales guidance, can you just clarify -- just to make sure, is anything changing from an underlying demand perspective or it's just a reporting adjustment? And then could you just comment on how the wholesale channel has trended on a comp basis the last few months, taking out some of the new door growth?

Yes. So I'll start with the revenue guidance and then turn it to Rob for wholesale performance. So in terms of the revenue guidance, it is purely just the reporting change.

We are still seeing good solid overall trends and still committed to that same level of overall volume activity. It's just making sure that we're reflecting how that accounting for some of that Mattress Firm activity is going to flow through the P&L. So no change to the underlying activity, though.

And Dan, on momentum, I think there's a couple of things we got to consider that our top 8 accounts, including Costco, Mattress Firm and then some of the other large regionals are performing up year-on-year on a comp basis and on a consumption basis also up. The Costco business and the Mattress Firm business both had year-end merchandising events that had them leave the year with relatively heavy inventory. So the consumption performance in Q1 was better than the shipment performance.

And that's particularly true of the Costco business because they load in that event as they set the floor in December. So it's mixed, but we're encouraged by the stronger accounts doing better, and we've got some smaller accounts that we got to figure out how to service better because that's where the business is struggling a bit.

And again, remember, on an unadjusted basis with this accounting change, wholesale had a very good fourth quarter, and they had an up 1% first quarter. Obviously, it's down, I think, 11% when you do the adjustment on the accounting. Does that make sense, Dan?

Very helpful color. And then just one more follow-up on the input costs. to Taylor's question. Are you thinking about any price adjustments needed as a result of some of the cost inflation? And what have you been -- what are you seeing from your peers on the pricing front? And just maybe the competitive opportunity there, if you guys have less foam in your products, maybe you don't need to raise prices as much or just anything on the competitive pricing environment?

Yes. I mean we do use less foam than others. We also use more mineral oil than others. So I'm not sure there's going to be any gain there. I think, first of all, we haven't seen any action by anybody else, and we will be more than likely a follower, not a leader. We are going to try to get at it, though, now through discount reduction.

And that's as much about cost and margin as it is about kind of getting the brand healthier. We are too dependent on discount and depth of discount. And we've got a whole team trying to figure out how to not damage volume, but reduce the discounts in the brand a couple of percentage points, which is real money.

Your next question comes from the line of Matt Koranda from ROTH Capital.

Best of luck, Todd, in the next role.

Just wanted to hear a little bit more about the trends you've seen quarter-to-date. Is the trend improvement you mentioned relative to the adjusted sales number you cited for the first quarter? Just wanted to hear a little bit more about whether we can expect positive sales heading into this quarter and into the back half, maybe seasonality as well for the year and how you see it?

Yes. The underlying volume is looking good for the quarter. Once we make the accounting adjustment, which should be in that range of, call it, $7 million to $9 million in the quarter. We still would expect sales to be up modestly. So that just points to the fact that we are seeing good underlying progress in the business.

Got it. And then maybe just on the e-com side of the business, getting back to flat is an interesting data point. And I think you cited better media buys helping with that. Maybe can you unpack what you're doing a little bit more that's helping out on the e-com side of the business and how sustainable that is?

Yes. I don't know if it's too early for -- to call 1 month of trend. I think we're changing the information we use to drive the daily media purchase, trying to be more responsive to what's working and what's not. It's a combination of a skill and a specific tool that we've got to build more robustly in the company. We've enrolled an outside agency that specializes in this and the early signals are good, but I'm not going to wave any success flag yet. We got to do it months in a row and put a couple of quarters up.

Okay. Got it. And then just maybe, Todd, how long does it take for the higher oil prices to flow through to cost of goods? I guess, assuming there's raw materials that enter inventory and cycle into cost of goods that takes at least a quarter or 2.

Does that mean sort of the highest margin pressure felt in the third quarter, back half of '26? Maybe just from a timing perspective, how should we be thinking about that?

Yes, it flows through pretty quickly. Really, our turns are generally less than a couple of months. And for the types of things, particularly if you're looking at foam that tend to come in at the end of the process, we've already seen some of that pressure flow through the P&L in Q1.

Like I said, we were able to offset that with savings on the tariff side of life, but it is flowing through currently, and we will see pressure from that in the course of the second quarter.

So as you look at Q2, Q3, Q4, from an overall trend of business perspective, we usually see revenue increasing proportionately across the quarters and are looking for similar this year. That means volume in Q2 will be lower than Q3 and Q4, and that oil pressure will probably place a little bit more pressure on gross margin in the coming quarter versus what we'll see later in the year.

[Operator Instructions]

Your next question comes from the line of Brian Nagel from Oppenheimer.

First off, Todd, best of luck in your next role. It's be nice working with you. The question I want to ask here, again, maybe some shorter-term questions to start. But with regard to the accounting change here in Q1, so just to make sure, is there going to be a similar type impact in subsequent quarters? Was it all in Q1?

No, it will be ongoing. And actually, the big impact is from the Royale production and that production being done by an affiliate of Mattress Firm. So as we grow that Royale volume going forward, if anything, the adjustment gets bigger as we get through the course of the year.

You can see that we adjusted the revenue guidance by about $35 million. The impact to Q1 was only $5 million. So that will kind of give you a picture of how much it does increase as we go later and later in the year.

Okay. And then just -- I think this was a prior question, but just to confirm, so that adjustment you made to your full year guidance is entirely associated with this accounting change.

100%.

Entirely associated, yes.

Okay. Got it. Second question I have on gross margin. So you saw the impact here in Q1 from the, I guess, the floor models. Can you size that more? I mean, I don't know if I caught this, but what would gross margin have been had you not had this impact?

Yes. So the impact from the floor models was about 200 basis points. We also had much lower production as we're managing our inventory levels, maybe a little more actively this quarter. So that lower absorption was, call it, something similar, close to 200 basis points of drag on the gross margin rate.

Okay. And then a similar question. So should we expect further impacts in subsequent quarters from this store model dynamic as well?

No. We really moved through that in the course of Q1. I would say similar for the absorption impact, we moved through that in Q1. So those are really timing issues.

Got it. And then I guess my bigger picture question, we're seeing the different sales channels start to take shape here. I guess how should we be thinking about -- you recognize you still -- there's still a number of challenges out there, right? But how should we be thinking about kind of what we're playing for in terms of a top line growth algo for the company? And then along those lines, you've seen some, I guess, success here with regard to showrooms. Are those showroom sales -- are they potentially cannibalizing other channels? Or do you think those are truly new to the business?

Yes. I mean, given -- Brian, I guess, theoretically could be, but given our relatively small share and the fact that I think the showroom count right now active is 57 or 58, that's not cannibalizing the business. In fact, we've seen data that e-commerce, wholesale partners and showrooms, top-performing DMAs are all similar. And one of the things we're doing is driving more spend into those ZIP codes because we see our business strength in pockets across channels and no negative correlation from showroom performance. Take a Greater L.A. market. I mean, the entire market, I think we have 8 showrooms in the greater area. That's not going to cannibalize. Mattress Firm alone probably has 50 stores, 60 stores in that same market, and so do all the rest of our competitors.

And then in terms of the growth algorithm, taking aside the accounting adjustment, -- our revenue guidance, excluding that had been and is $500 million to $520 million in revenue. That's growth of high single-digit to low double-digit percentage. And while that may vary in future years, we still are committed to that. We think that's good solid progress and appropriately conservative for the year.

And we have reached the end of our question-and-answer session. I will now turn the call back over to Robert DeMartini for closing remarks.

Thank you, operator. I just again want to thank Todd for his significant service to Purple and welcome Bob Lucian, and thank all of our employees for a hard-fought quarter. Thank you.

This concludes today's conference call. Thank you for your participation. You may now disconnect.

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to Purple Innovation Fourth Quarter Full Year 2025 Earnings. [Operator Instructions]

I would now like to turn the call over to Stacy Turnof, Investor Relations. Please go ahead.

Thank you for joining Purple Innovation's Fourth Quarter and Full Year 2025 Earnings Call. A copy of our earnings press release is available on the Investor Relations section of Purple's website at www.purple.com.

Before we begin, I'd like to remind you that certain statements made in this presentation are forward-looking statements. These statements reflect Purple Innovation's judgment and analysis as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. You should not put undue reliance on these forward-looking statements. For more information, please refer to the risk factors outlined in our filings with the SEC.

Additionally, today's presentation will reference non-GAAP financial measures such as adjusted gross margin, adjusted operating expenses, adjusted EBITDA, adjusted net loss and adjusted net loss per share. A reconciliation of these measures to the most comparable GAAP measures can be found in the earnings release available on our website.

With that, I'll turn the call over to Rob DeMartini, Purple Innovation's Chief Executive Officer.

As we close out 2025, I'm proud of how far the business has come over the past year. While the broader market remains challenging, the progress we're making at Purple is increasingly evident in our results.

The fourth quarter marked an important inflection point for the company. Revenue increased approximately 9% year-over-year. We delivered gross profit expansion and profitability improved meaningfully across the business. In the quarter, we generated adjusted EBITDA of approximately $8.8 million and finished the year profitable. This performance was driven by the benefits of the strategic actions we've taken. Those actions include our cost initiatives that are now fully embedded in the business, including consolidating our manufacturing footprint as well as a full quarter of expanded Mattress Firm distribution and a significant expansion of our Costco program.

Looking at the full year, 2025 was a period where the business became meaningfully stronger. We continue to build on our path to premium sleep strategy and delivered positive adjusted EBITDA for the year, finishing within the guidance range we established at the beginning of 2025.

Importantly, we achieved profitability levels that we haven't seen since 2021. That progress was driven by the execution and by the changes we put in place, not by a recovery in the broader market, which speaks to the durability of the model we've been building.

Our focus throughout the year was not on short-term fixes, but on creating a business that can perform more consistently. Taken together, this represents more than a strong finish to the year. It marks a clear shift from defense to offense. Growth, margin expansion and profitability are showing up in the numbers and that's in a market which is down low single digits. The direction is clear, the momentum is real, and we're entering 2026 with a playbook designed to scale profitably as demand continues to improve.

We've made meaningful progress across each of our sales channels in 2025. And in the fourth quarter, 2 of our 3 channels delivered positive growth for the second consecutive quarter. Comparable sales in our showrooms increased 8.8% in the quarter and showrooms continued to grow in profitability for the full year.

Sales execution improved, the updated selling model gained traction and Rejuvenate 2.0 represented over 50% of showroom mattress revenue during the quarter with more than 80% of showrooms or wall profitable for the full year.

Wholesale was a key driver in 2025 with a robust 39.8% growth in the fourth quarter. E-commerce performance was mixed during the year and declined in the fourth quarter though we did see pockets of strength around Black Friday and Cyber Monday. At the same time, we saw solid marketplace performance, particularly on Amazon and meaningful improvements to the website experience tied to our less pain, better sleep positioning.

Stepping back, the way we're thinking about the business today is fundamentally different than a year ago. Last year was about reshaping the business for a tougher market, rightsizing our cost structure, strengthening the foundation and restoring profitability.

Today, we're focused on growth. Going forward, our focus is centered on 3 priorities: deepening our understanding of the consumer, delivering better sleep through product experience and expanded distribution and executing with financial discipline across the business. This approach builds on what's already working and reflects how we're running our business.

With that framing, let me walk you through our progress against these priorities and what they mean for the business going forward. Number one, knowing our consumer. Over the past year, we've sharpened our focus on understanding who our consumers are, what matters most to them and how they make their purchase decisions across the channels.

Our work is shaping how we communicate, shifting us away from promotionally led messaging towards clear benefit-driven storytelling, focusing on GelFlex Grid technology that helps consumers understand how Purple delivers better sleep. Our less pain, better fleet positioning continues to resonate, providing a consistent consumer-led message that translates across e-commerce, retail and wholesale channels. Importantly, we're focused on reaching our consumers with the right message in the right place at the right point in their decision journey.

We're seeing early signs of improved brand momentum with increased awareness, beginning to translate into brand consideration. As a result, we're improving our clarity across touch points, strengthening engagement and supporting higher quality conversion as consumers better understand the value of our product.

In e-commerce, we're encouraged by the progress we're making. As part of better meeting consumers where they're shopping, our expanded presence on Amazon is gaining traction. Improvements in availability, delivery speed and conversion are strengthening the consumer experience and broadening our reach particularly among new-to-brand consumers. This expanded assortment is driving a healthy lift in Amazon sales, especially in pillow and seat cushions and introduces new consumers to our technology.

We're also seeing this consumer-focused approach to resonate through our partnerships. Our participation in Mattress Firm's Sleep Easy marketing campaign drove sales conversion and improved aided awareness scores. At the heart of better sleep is better product. From there, we focus on how we bring innovation to life through the consumer experience and expanded distribution.

Innovation remains at the core of Purple's differentiation and our Rejuvenate 2.0 collection continues to validate that approach. Performance exceeded our expectations in 2025 with strong traction across both showrooms and wholesale as retail partners expanded Rejuvenate 2.0 placement on their floors.

Through our direct channels, Rejuvenate 2.0 is performing well at an average selling price of almost $5,800, demonstrating our ability to drive demand at meaningfully higher price points and reinforcing the value consumers place on better sleep.

We also completed development work on Purple Royal, a new premium offering developed in close partnership with Mattress Firm. This is an important product for us and a meaningful step forward in our premium strategy. Purple Royal is complementary to our Rejuvenate 2.0 collection with similar price points across the curated floor model lineup. The launch is on track with initial floor models arriving now.

The Purple Royal collection was originally planned for over 2,800 slots bringing us to a total of 12,000 slots across Mattress Firm's 2,200 stores. Encouragingly, the quality and design of the final product has exceeded expectations, and as a result, Mattress Firm is adding incremental slots as the product launches.

Beyond the product itself, we continue to focus on delivering a differentiated end-to-end consumer experience, anchored by compelling in-store presentations across our own stores and wholesale partners. This includes elevating how we educate our consumers around pain relief and the role of GelFlex Grid technology, which we are seeing drive strong engagement when brought to life through in-store demonstrations and digital content.

We're also continuing to strengthen white glove delivery services to ensure that Purple shows up consistently incredibly whenever the consumer chooses to engage. This focus is strengthening the brand and improving conversion by reinforcing the value of our technology across channels.

Part of delivering better sleep is expanding our distribution presence, meeting more consumers where they shop. The premium innovation is translating directly into expanded distribution. With Purple Royal now launching across Mattress Firm, we've expanded our footprint and deepened our presence across their network. Additionally, we're seeing strong performance with Costco, where our program continues to resonate with members and provide an important opportunity to introduce Purple to new customers at scale.

With both Mattress Firm and Costco, our initial launches significantly exceeded expectations driving immediate demand for expanded placement. In Costco's case, early performance was exceptional, supported by the introduction of unrolled beds on floor displays, which allowed members to see and feel our differentiated product. The strength of those results led Costco to quickly expand the program in the fourth quarter to approximately 450 clubs bringing us to nearly nationwide distribution.

We're also making progress in new channels, including Walmart and Sam's Club, which are helping us reach new consumers, diversify demand and drive incremental volume. Importantly, expanding into these large far-reaching retail platforms strengthens distribution for our pillar portfolio and positions us to drive meaningful incremental pillow sales through highly scaled high-traffic partners.

And in owned retail, we continue to focus on showroom profitability. In 2025, we closed 4 underperforming stores as part of optimizing the fleet. And looking forward to 2026, we plan to open 7 new stores. Our showrooms continue to be an important part of the model that showcases our GelFlex Grid technology and premium positioning. Our showrooms drive traffic to wholesale locations, helping convert interest into purchases.

Finally, let me talk about how we're executing with financial discipline across the business. Last year, our focus was on rightsizing the business, so we could operate profitably at current scale. That work is now behind us. And importantly, the actions we took were structural, not temporary. We're increasingly focused on driving growth from a much stronger foundation.

Gross margin improvement remains a key focus, and we continue to see the benefits of the actions we've taken to simplify the business and improve efficiency across sourcing, operations, fulfillment and product quality. Mix has become an increasingly important tailwind led by the growth of Rejuvenate 2.0. The shift towards higher ticket products, combined with strong attachment rates for adjustable smart bases and pillows, is driving higher average transaction values and incremental profit dollars. As a result, the operating discipline we put in place over the past year is now clearly showing up in our margins and profitability. We continue to view 40% gross margins at a sustainable level and we expect further improvement as we move into 2026 as efficiencies continue to flow through the business. Todd will provide more detail on specific margin drivers and cost actions in his remarks.

Turning to our guidance. As we look ahead to 2026, we're entering the year with improved stability and a structurally stronger operating model. For the full year, we expect revenue in the range of $500 million to $520 million and adjusted EBITDA of $20 million to $30 million. This outlook reflects continued momentum in our premium product portfolio, expanded wholesale distribution and the operating leverage in the business as volume grows. Importantly, this guidance is driven by execution, not by a recovery in the broader market. It reflects the progress we've made across product, distribution and operations, with gross margin sustainably above 40% and disciplined expense management we believe we're well positioned to deliver meaningful earnings growth in 2026.

Before I close, I'd like to briefly readdress the Board's ongoing review of strategic alternatives. The process remains ongoing, and we've engaged with multiple parties across a broad range of opportunities to maximize shareholder value, including a potential merger, sale or other strategic or financial transaction. We'll continue to evaluate all options and will provide updates as appropriate. As a reminder, we will not be commenting further or taking questions on this topic during today's Q&A.

With that, I'll turn the call over to Todd.

Thank you, Rob. I'll begin by walking through our fourth quarter financial performance and then the year ended December 31, 2025.

Net revenue for the fourth quarter was $140.7 million, representing growth of 9.1% year-over-year. The increase was driven primarily by wholesale, reflecting a full quarter of expanded Mattress Firm placements and continued momentum with Costco, partially offset by a decline in e-commerce.

By channel, direct-to-consumer net revenue for the quarter was $71.9 million, down 9.9% compared to last year. Within DTC, showroom revenue increased approximately 4.5%, up for the second consecutive quarter and comparable sales were up 8.8%, reflecting continued strength in Rejuvenate 2.0. E-commerce revenue continued to be down with a decline of 15.3%. Wholesale revenue increased approximately 39.8%, driven by our expansion with Mattress Firm and Costco.

Gross margin for the quarter was approximately 41.9%, remaining well above our 40% quarterly margin target and down 100 basis points from last year. We're pleased with the durability of our gross margin, particularly given the strength of last year's results when gross margin rose 970 basis points driven by sourcing initiatives and the profitable liquidation of inventories.

Viewed over a 2-year period, gross margin increased by nearly 870 basis points, reflecting durable improvements to the business. The margin continues to be driven by direct material savings, plant efficiencies, restructuring benefits and volume leverage. On an adjusted reported basis, gross margins for the quarter, excluding restructuring costs, was 41.9%, down 300 basis points from last year.

Operating expenses for the quarter were $61.2 million, down 2.9% versus $63 million last year. The decrease reflects the benefits from restructuring activities and other cost-savings initiatives.

Our fourth quarter adjusted loss per share was $0.02 compared to an adjusted loss per share of $0.11 last year. Adjusted EBITDA in the fourth quarter was $8.8 million, a notable improvement over the $2.9 million EBITDA last year.

Turning now to full year results. Net revenue for the full year 2025 was $468.7 million, reflecting a 3.9% decline versus the prior year. By channel, direct-to-consumer net revenue for the year was $261.3 million, down 7.9% compared to last year. For the full year, showrooms generated strength with sales up 1.5% versus last year to $78.5 million and comparable revenue was up 6.6%. We delivered net revenue of up 4% or more 3 of the past 4 quarters with only the second quarter being impacted by the timing related to the Rejuvenate 2.0 launch.

Wholesale has been sequentially improving over the last 4 quarters, up 1.6% versus last year to $207.4 million, benefiting from expanded partnerships and nontraditional revenue streams, while e-commerce remained soft throughout the year. Full year gross margin increased 310 basis points to 40.2% versus last year, reflecting the impact of restructuring, sourcing initiatives and manufacturing efficiencies. On an adjusted basis, full year gross margin, excluding restructuring costs, improved slightly to approximately 40.4%, up approximately 10 basis points year-over-year.

Our cost initiatives delivered $25 million in annual savings in 2025, with $25 million to $30 million of sustainable savings expected going forward, giving us greater flexibility to reinvest in marketing and innovation while continuing to expand margins. Just as importantly, it reflects a business that is operating with greater discipline and a structurally stronger cost base. Full year operating expenses declined by 15.3% to $231.6 million, driven by restructuring savings and productivity initiatives.

Adjusted net loss was $34.3 million versus an adjusted net loss of $55.1 million in the prior year. Adjusted EBITDA for the full year was $1.9 million, representing a significant improvement versus the adjusted EBITDA loss of $20.8 million last year and adjusted net loss per share in 2025 was $0.32 compared to an adjusted net loss per share of $0.51 in the full year of 2024.

Now turning to the balance sheet. We ended the quarter with cash and cash equipment of $24.3 million versus $29 million on December 31, 2024. Net inventories on December 31, 2025, were $59.7 million, up 5% compared to December 31, 2024. We're pleased to exit the quarter with cash over $24 million, and we believe we are well positioned from a liquidity standpoint. We also extended our debt maturities from December 31, 2026 to April 30, 2027, enhancing our financial flexibility and reflecting continued strong support and confidence from our lending partners.

Now let's turn to the outlook. Given that we are through most of the quarter, we will be providing guidance for the first quarter. We plan total revenue to be in the range of $100 million to $105 million and adjusted EBITDA to be in the range of a loss of $7 million to a loss of $4 million. As Rob walked you through earlier, for the year, we expect revenue in the range of $500 million to $520 million and adjusted EBITDA of $20 million to $30 million.

We plan for revenue to continue to be driven by strength in Rejuvenate 2.0 as well as our expanded distribution with Mattress Firm and Costco. We also anticipate continued improvement in EBITDA, driven by further operational efficiencies and ongoing restructuring actions benefiting both gross margin and operating expenses. These initiatives are expected to support improved profitability and cash generation, reflecting the full impact of our cost actions, product innovation and expanded distribution.

Thank you, Todd. This morning, we filed our annual report on Form 10-K for the fiscal year ended 2025. As disclosed in the filing, our independent auditor has included a going concern qualification. While this notification is not necessarily a surprise, given the liquidity challenges of the past year and our historical cash burn, we want to provide clear context why the decisive, transformative actions we've already taken are expected to continue stabilizing our financial position and driving the business forward.

The fruits of our labors are already evident in our recently improved operating and financial performance. Following a rigorous period of restructuring, we achieved profitability levels in the second half of 2025 that we haven't seen since 2021. This momentum is driven by 3 core strategic pillars: supply chain reorganization. We've optimized our footprint to ensure a more agile, cost effective flow of goods, disciplined cost management. Structural savings initiatives implemented in 2025 have led to significant margin expansion and profitability at revenue targets meaningfully lower than past years.

Channel momentum, we're seeing robust volume growth across both our wholesale and showroom channels as our path to premium sleep strategy takes hold. We entered 2026 on much firmer footing. We expect to conclude Q1 '26, historically our seasonally weakest quarter with neutral cash burn. Furthermore, we're grateful for the strong continued support of our lenders. Our recent agreement to extend debt maturities to April 2027, provides us with the runway and the financial flexibility to execute our long-term vision. We believe these factors, combined with our improved liquidity profile, directly addressed the concerns raised in our 10-K and position us for a year of consistent growth and profitability, as evidenced by our 2026 guidance.

We appreciate the patience and the confidence of our shareholders. Like you, we are disappointed by the current stock price. Our team remains focused on executing our clear plan to build on recent business momentum and deliver sustainable shareholder value on your behalf.

With that, operator, we can turn it over for questions.

[Operator Instructions] Your first question comes from the line of Brad Thomas with KeyBanc Capital Markets.

Rob, I wanted to start off asking about recent trends. There's no question that the fourth quarter showed some nice momentum and your outlook for this full year is very encouraging. It does look like maybe the first quarter had maybe a step back in the pace of the business. Can you just talk a little bit more about what you've been seeing here?

Yes, Brad, thank you for the question. And I think there's a couple of things going on. We had a very strong fourth quarter. And the way the fourth quarter shipped, it did impact demand in January as that sell-through and consumption happened. Particularly, we've got the club customer that had a a significant buy-in in December that was part of loading the floor, and so there wasn't much follow-up on that.

As Todd said, we think we'll be between $100 million and $105 million. And I think the momentum also includes all those floor samples at Mattress Firm going out, and that obviously has a short-term push down on revenue as they sell in at floor sample prices. So we're encouraged. Q1 has always been our weakest quarter. It's not a strong quarter, but we think the momentum in the business dictates the strong rest of the year that we've predicted.

And just to be clear, Rob, it sounds like aside from the January, you've seen an improvement in trends of late. Is that fair to assume?

Yes. I mean Q1 is not robust by any means, but we've seen us kind of lapping last year right at about equal to comp levels. And obviously, we're close to ending March, and we expect kind of the same performance in March.

Great. And then just following up about the outlook for the year, we can obviously back into it a bit through your guidance. But the question is really how to think about the flow-through margin? You've done a great job of improving the cost structure of the business as you start to drive this volume, how could we think about it flowing through to the bottom line?

Yes, flow-through actually should be quite good for us. If you look at the guidance, we're guiding to revenue that's $30 million to $50 million better than last year. And looking at EBITDA, that's going to be around $20 million to $30 million better. That's a pretty healthy flow. I think on a normal basis, our sales should be generating about a 30% flow through. This year, it will be a lit bit more because we're also seeing margin expansion and a lot of cost control that is helping us along the way.

Great. And if I could squeeze in just one more regarding the macro environment as it relates to raw materials, can you just remind us the degree that you have exposure to petrochemicals or other inputs that may be at risk of some price pressure here? And what are you hearing from suppliers?

Yes. So mixed bag, we obviously are not importing oil or anything like that directly, but we do have products that have a petroleum based and you can make foam, some of, are, to a lesser degree, the mineral oil that's going into the gel. Overall, we've looked at it. And if the price of oil stays around that $100 a barrel range. Effectively, the savings we're going to get this year off of tariffs from being able to get, well, lower rates on tariffs, but also tariff mitigation would roughly offset the exposure from any oil. We continue to monitor it. We're hearing noises about price increases, but it's just very, very early on at this point.

Your next question comes from the line of Matt Koranda with Roth Capital.

I wanted to hear a little bit more about how you're thinking about the seasonality of the year just given the visibility you have in the product launches with your wholesale partners. So maybe just a little bit more around the ramp that's implied in guidance for the remainder of 2016?

Yes. So you should see revenue growing -- sorry, Rob.

You should see revenue growing pretty consistently across the course of the year. Typically, Q2 would be relatively flat to Q1. But this year, we have the Purple Royal launch at Mattress Firm that literally just got out on floors last week officially. So that will help out the Q2 pace and then we have a natural build that we see virtually every year going into Q3 and Q4. So it really should build pretty consistently as we go across the course of the year. Okay. And then maybe just wanted to hear you unpack the drivers of the flow-through you mentioned. There's likely some more restructuring actions. Does that benefit operating expenses or the gross margin benefits embedded in the actions that you're taking are the actions already taken? Or is this incremental stuff that still needs to happen during the second quarter to hit the flow-through sort of that's implied in the 26 EBITDA guide?

Yes. So the actions that I kind of referenced were actions that have already been taken. At this point, we don't have plans for additional actions that are needed right now. We feel like we're positioned very well for the full year. But we did take a little bit of an action in January that will continue to benefit the operating expense line. And then from a gross margin perspective, we actually just have a very strong team on the operations side of the world that is always looking for room for improvement from an efficiency perspective, overall scrap and yield RECONNECT looking at sourcing opportunities, there's a number of opportunities that should play out across the course of the year to help that flow.

Your next question comes from the line of Dan Silverstein with UBS.

Maybe just to start looking at the sales guidance, up $30 million to $50 million this year. I think the Mattress Firm expansion was supposed to drive around $70 million of additional sales and sounds like it's doing really well right off the gate. If this is the case, what other areas might be driving a bit of a drag to.

Yes. First of all, I think that the $70 million, we've got to grow into that number. It's probably somewhere between $50 million and $70 and obviously, it's just hitting the floor right now. But we've got -- we expect growth from Costco as well. We expect growth from showrooms modest, and then we have assumed a flat e-commerce business in the roll-up -- we want to do better than that. But given the performance of the last few years, we've tried to show some conservatism there. Super helpful. And that was kind of my second question. why is the Amazon business doing well relative to your own e-com channel? How can you capitalize on this? And how can you reinvigorate your own e-com channel looking ahead?

Yes, Dan, I'll separate the 2 questions because they really are different drivers. I mean our own e-commerce business, we've got to figure out a way, as we've expanded our availability across both our own showrooms and partner showrooms, the specialness of reaching our product online has been challenged, and the product assortment while proving to be a benefit in a physical environment is either a neutral or a negative in a digital environment, and we're still trying to figure that out. So that's what's going on with e-com on Amazon, it's quite a different situation where because of the cube of mattresses, we have a very underdeveloped shape of business at Amazon. So the progress you're seeing that we're starting to figure out. So it really is 2 different drivers across those otherwise seemingly consistent channels.

[Operator Instructions] Your next question comes from the line of Robert Griffin with Raymond James.

This is Alessandra Jimenez on for Bobby Griffin. First, I wanted to follow up on current demand trends. What are you seeing from growth in your retail partners outside of Mattress Firm and the incremental Costco program?

Alessandro, on our own business, you're asking about the overall market.

Yes.

Yes, it's a mixed bag. We've got some customers where we're seeing nice growth, and we've got others where we've got to figure out why we're not seeing that. So it is a bit mixed across wholesale. I think if you backed out the 2 customers that we spoke about in our script, we're probably seeing a net down about 5% -- and I think that's about consistent with the market, but it is definitely mixed in the performance.

Okay. That's helpful. And then what are you expecting from a cash flow perspective for 2026 on the improved EBITDA profitability? Do you anticipate positive free cash flow for the year?

Yes, we would expect positive free cash flow for the year. If Apologies, I was getting a positive free cash flow for the year. And as we look at it, we'll have CapEx that we'll be reinvesting in and a $20 million to $30 million of adjusted EBITDA, that would get us modestly positive and coming off of the Q1 where we're ending Q1 with our cash actually equal to where we ended Q4. That's the first time that we've been in that range in over 7 years. So we're off to a good start for the year for sure.

That's really helpful. And if I can just sneak one more in. I wanted to revisit the channel. It's encouraging to see that strong comp growth. Can you speak to what you're seeing from a demand perspective? And what's kind of accelerating there? And then how do you think about the roughly 20% of locations that are not yet full all profitable?

Yes, let me try to tackle that. So Scott Kirby, who runs that channel has been doing an excellent job in establishing a selling system and what's driving the results is positive mix. RECONNECT As I mentioned in the script, our mattress percent to total of the premium line is now over 50% of dollar revenue. And so that obviously helps the stores be much more profitable. of the 20% of stores, that's about 9 stores that are not four-wall profitable. We think at least 5 of those can get there with continued development and maybe 3 to 4 of them we really have to look at and figure out if we have -- are we in the right location with the right rent structure, but it's been mix, tight labor discipline and really looking at the cost structure of those stores that have led to this significant improvement over the last 2 years.

Your next question comes from the line of Brian Nagel with Oppenheimer.

So I have a couple of questions. First off, just with regard to the newer products, the more innovative products, is that RECONNECT is that rollout now complete? Or should we expect further rollout here? I guess my follow-up question, I guess most of the tote maybe just outline kind of the capital needs. From an operational standpoint, the capital needs of the business.

All right, Brian, let me take the first one, and then I'll let Todd answer the second one. Yes, that rollout is physically completed. We completed our Rejuvenate rollout probably in the middle of fourth quarter and then started the Royal, which is a curated version of similar price points. The official launch at Mattress Firm was March 20, and -- it's on all the slots that it was aimed for at this point. But we still have significant opportunity to develop that line. I spoke about the percent of total in showrooms. It's much, much lower in wholesale and in e-commerce. And that's a business development opportunity. So we think we can continue to grow that as a percent of total, but the physical expansion is completed, and we're now looking to a very full innovation pipeline for other products starting in early.

And from a capital needs perspective, I should have said before, our target for the year is $10 million to $12 million capital that's just up modestly from the $8 million that we had in 2025. So the base CapEx is going to always be kind of the normal maintenance CapEx that we've had for the past several years, particularly in our operations. actions CapEx this year as we innovate for new products going forward. And then the -- probably the big chunks that are incremental versus last year a number of things that just help with the overall products that we think help sell the products through. And then Rob mentioned, we have 5 new stores that we're planning for this coming year, there's a modest amount of CapEx that goes for those as well.

I will turn the call back over to Rob DeMartini for closing remarks.

I just want to thank all of our shareholders and investors and lenders for the support we've gotten and I want to thank the Purple associates for the hard work they've put in on the business. I believe from the Q3 and Q4 results, you can see our turnaround is taking hold, and I want to say thank you to everybody for that.

Thank you, operator.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Good day, and welcome, everyone, to the Purple Innovation Third Quarter Earnings 2025. Today's conference is being recorded. [Operator Instructions] At this time, I would like to turn the conference over to Stacy Turnof. Please go ahead.

Thank you for joining Purple Innovation's Third Quarter 2025 Earnings Call. A copy of our earnings press release is available on the Investor Relations section of Purple's website at www.purple.com.

Before we begin, I'd like to remind you that certain statements made in this presentation are forward-looking statements. These statements reflect Purple Innovation's judgment and analysis as of today and are subject to a variety of risks and uncertainties that could cause actual results to differ materially from current expectations. You should not place undue reliance on these forward-looking statements. For more information, please refer to the risk factors outlined in our filings with the SEC. Additionally, today's presentation will reference non-GAAP financial measures such as adjusted gross margin, adjusted operating expenses, adjusted EBITDA, adjusted net loss, and adjusted net loss per share. A reconciliation of these measures to their most comparable GAAP measures can be found in our earnings release available on our website.

With that, I'll turn the call over to Rob DeMartini, Purple Innovation's Chief Executive Officer.

Thank you, Stacy. Good afternoon, everyone, and thank you for joining us. The third quarter unfolded largely as we anticipated, reflecting the continued execution of our strategic priorities. We delivered revenue of $118.8 million, up slightly compared to last year, marking an important inflection point following consecutive periods of year-over-year declines. We also achieved positive adjusted EBITDA, consistent with what we anticipated. Our results demonstrate ongoing progress towards strengthening the business and building a foundation for sustainable growth. As we move into the final months of the year, we're encouraged by the early traction we are seeing across our core initiatives and remain focused on driving improved operational performance and long-term profitability.

Gross margin improved nearly 700 basis points sequentially to approximately 43%, even with tariff-related headwinds. Importantly, we remain on track to deliver positive adjusted EBITDA for the year. These results reflect solid execution across each of our strategic priorities. Our Mattress Firm rollout is progressing well with Purple products now being represented in nearly 9,200 slots today, keeping us on pace for 12,000 slots in 2026. Our Rejuvenate mattress collection, Rejuvenate 2.0, also continues to outperform our initial expectations. As we continue to catch up with second quarter backlog, sell-through remained strong and drove 6.5% showroom sales gains, marking an acceleration from the prior quarter. Meanwhile, wholesale revenue grew 8% during the quarter, supported by the ongoing expansion of our Mattress Firm partnership.

E-commerce was down 10%, but showed early signs of improvement following our site refresh and growing traction with Amazon. It's been just over a year since we initiated the restructuring program in August of 2024, and it's important to reflect on how far we've come. At this time last year, we made the difficult but necessary decisions to consolidate our manufacturing footprint, to streamline our corporate structure and to realign our distribution network. These changes were not easy, but they were essential to strengthen the durability of our business for the future. Importantly, we accomplished this transformation while maintaining uninterrupted customer service levels. The early results are clear. We have reduced our fixed costs and expect to deliver $25 million to $30 million in savings annually. We're on track to achieve positive adjusted EBITDA and our gross margins have improved from the low 30s to more than 40% today. We're improving our operating efficiency and creating a business model that can deliver more consistent performance even during difficult market conditions.

As we look forward, this leaner and more agile Purple is allowing us to redirect resources back into what matters most, innovation, marketing and our strategic partnerships. That's what's fueling the Rejuvenate 2.0 and the expansion with Mattress Firm, Costco, and others, and we see new opportunities to continue expanding our presence with new retail partners. Having made significant progress in stabilizing the business and improving the underlying profitability, we're increasingly focused on positioning our business for future growth. With a strong foundation firmly in place, our next chapter is centered on accelerating innovation and marketing investments. While there's still work to do, I am confident that Purple is on the right path.

Now let me turn to our three strategic pillars and update you on our progress during the third quarter. Innovation remains at the heart of Purple's competitive advantage and continues to define our leadership in comfort technology. In the second quarter, we launched Rejuvenate 2.0, one of the most successful product introductions in our history, featuring our new DreamLayer gel grid technology. In our showrooms, Rejuvenate 2.0 has sold more than twice the number of units, doubling net revenue compared to Rejuvenate 1.0. Through our direct channels, we've sold more than 3,000 units at an average sales price of approximately $5,800, underscoring the strength of our premium positioning. We're also encouraged by the early performance of our GridC Pillow, which is outperforming expectations and demonstrates the versatility of our proprietary grid technology across new comfort categories. Our focus on differentiation continues to resonate with our customers across each of our channels and reinforces Purple's position as the leader in premium comfort.

Starting with our showrooms. We delivered strong performance in the quarter. Net revenue grew 6.5% to $22 million, reflecting the strength of our premium positioning even in a softer traffic environment. Our showrooms remain a key driver of brand experience and sales conversion across all channels. Our new selling model has empowered our teams to more effectively communicate Purple's technology and value proposition, driving 12% comparable sales growth in the quarter. These results demonstrate the value of the showroom as both a brand experience and a growth engine. Showroom four-wall profitability reached an all-time high with record mattress order values of about $4,500, further validating the success of our path to premium sleep strategy.

Momentum within our luxury mattress assortment also remains strong. Rejuvenate mattress sales nearly doubled year-over-year and 76% of showrooms are now profitable year-to-date versus 56% last year. E-commerce business is central to the shopping journey, and our website is often the first stop. It plays a critical role in building consumer confidence and guiding them towards the right products. While revenue in the channel remains pressured, we're encouraged by the recent signs of improvement.

During the quarter, we enhanced our digital experience to reinforce Purple's premium positioning and highlight the less paying, better sleep benefits of our GelFlex and DreamLayer technologies. Our refreshed website with simplified navigation and richer video content has helped shift demand towards higher-priced mattresses. We also saw promising results in our Amazon channel as a growing share of sales moved to fulfilled by Amazon, improving both conversion and delivery speed.

While there's still work ahead, we're pleased with the sequential improvement and positive consumer response to these initiatives. The wholesale channel grew 8%, driven by the rollout of Rejuvenate 2.0, and our expanding partnership with Mattress Firm. Momentum accelerated through the quarter and trends we are seeing early in Q4 point to sustained growth with our key wholesale partners. Today, Purple products are now in Mattress Firm's full store network, representing approximately 9,200 slots today, and we are on pace to reach 12,000 slots by March of '26. This expansion represents roughly $20 million in incremental revenue this year, and we anticipate approximately $70 million next year. We're working hard to unlock benefits for both partners through continued collaboration and execution.

Beyond Mattress Firm, we're expanding with other partners as well. We're testing our entry into the Florida market with Mattress Warehouse, building on our existing 140-store footprint and broadening our reach through partners like Costco and QVC. Our Costco partnership is performing exceptionally well. We are currently in 54 Northwest stores and later this year, we'll participate in Costco's Q4 Furniture event in a minimum of 450 clubs, nearly double last year's footprint. And on October 2, we tested our first Purple Mattress program on QVC, offering another opportunity to share our technology with a wider audience in a live interactive format. For the new Rejuvenate mattresses, our non-Mattress Firm slot placement have now increased by 68% compared to last year, also highlighting Purple's growing relevance across the channel.

Finally, turning to marketing. Our Less Pain Better Sleep campaign launched in the third quarter continues to perform well and has been expanded across digital and social media platforms. The message is simple but powerful, and it focuses on real sleep benefits and connects directly to our GelFlex Grid technology story. We also leaned into our expanded Mattress Firm partnership through joint campaigns, including their recent Sleep Easy promotion, which exceeded expectations and contributed to a strong Labor Day sales period. Across every touch point from our showrooms to our website, to our retail partners, we're driving consistency and message, look and feel. Our differentiation has always been rooted in innovation, but how we communicate it is what turns that innovation into brand preference. We're confident this focus on differentiation will drive stronger engagement, higher conversion, and sustained growth across our channels in the quarters ahead.

Turning to our third strategic pillar, prioritizing gross margins. Our margin discipline remains firmly intact. Gross margins recovered to approximately 43% in the third quarter from 36% in the second quarter. This improvement reflects direct material cost savings, the completion of the restructuring plan, and continued progress in warranty and scrap reduction initiatives. Tariffs only impacted us by roughly $2 million this quarter as mitigation efforts continue to pay off. While April and May were challenging as the new rates took effect, our sourcing shifts and pricing actions have meaningfully reduced the overall impact compared to initial expectations. Looking ahead, we expect fourth quarter gross margins will remain at roughly 40%, albeit lower than the strong third quarter result, and we continue to be confident that we'll end the year above the 40% level. This progress highlights the operational discipline we've built into the business and the structural improvements that position Purple for sustained profitable growth moving forward, supported by our full Mattress Firm rollout and the sustained momentum of Rejuvenate 2.0 and anticipated holiday momentum.

We are reiterating our full year 2025 guidance, expecting revenue in the range of $465 million to $485 million and adjusted EBITDA between breakeven and $10 million positive. Looking forward into 2026, we see a clear path to positive cash generation. Our capital priorities will focus on reinvesting in showroom expansion and innovation while maintaining flexibility to reduce debt as appropriate.

Before I close, I'd like to briefly address the Board's review of strategic alternatives. This process remains ongoing. We have engaged with multiple parties about a broad range of opportunities to maximize shareholder value, including, but not limited to a merger, a sale or other strategic or financial transaction. We will continue to evaluate a range of options and provide further information as appropriate. We will not be commenting further or taking questions on this topic during the Q&A portion of today's call.

Now I'd like to turn it over to CFO, Todd Vogensen.

Thank you, Rob, and good afternoon, everyone. As Rob discussed earlier, we're pleased with our performance this quarter, which demonstrated our continued ability to deliver against our strategic initiatives. I'll now walk you through the financial metrics for the third quarter, starting with the top line.

Net revenue for the 3 months ended September 30, 2025, was $118.8 million, up slightly versus $118.6 million last year, driven by the timing of Rejuvenate 2.0 shipments and the expansion of our Mattress Firm relationship. We saw strength in both showroom and wholesale that was partially offset by softness in e-commerce. By channel, direct-to-consumer net revenue for the quarter was $67.2 million, down 5.1% versus last year. Within DTC, net revenue for showrooms in the third quarter was $22 million, up 6.5% compared to last year despite 4 fewer stores opened this year.

Last quarter, we experienced timing issues related to Rejuvenate 2.0 launch as demand for Rejuvenate 2.0 has significantly outstripped our ability to supply customers. Those issues have since been resolved. Our delivery schedule has normalized, and we've seen continued momentum in showroom sales trends. E-commerce continued to see softness and was down 9.8% during the third quarter, but was a sequential improvement from the prior quarter. We also experienced a notable increase in our wholesale segment, where net revenue of $51.5 million was up 7.9% versus last year, driven by strength in our Rejuvenate 2.0 launch and our expansion with Mattress Firm. As we look toward the fourth quarter, we're encouraged that the sales trends should continue to improve even further. Gross profit for the third quarter increased to $50.9 million or 42.8%, compared to $35.2 million or 29.7% in the prior year period.

Adjusted gross margin, which excludes restructuring and related charges, expanded to 42.8% in the quarter compared to 40.5% last year. With the restructuring now complete, we also benefited as we delivered greater manufacturing efficiencies and direct material cost savings in addition to improved warranty trends. While we expect some of those short-term benefits to moderate as we move into the fourth quarter over time, we do expect to continue realizing sustainable structural improvements as production continues to scale at our Georgia facility, and we also see greater manufacturing efficiencies and direct material cost savings opportunities in the future.

Now turning to operating expenses. Operating expenses were $63 million, down 23.2% versus $82 million last year. The improvement was largely driven by a reduction in restructuring and impairment costs in the current year in addition to benefits from the restructuring and other cost savings initiatives that we've completed over the past few quarters. Excluding restructuring and impairment-related charges, adjusted operating expenses were $57.7 million, down 8.6% versus last year. Our adjusted net loss for the third quarter was $8.6 million compared to an adjusted net loss of $13.8 million in the prior year. And third quarter adjusted loss per share was $0.08 compared to an adjusted loss per share of $0.13 last year. Adjusted EBITDA for the third quarter was a gain of $200,000, an improvement from the loss of $6.4 million last year, driven primarily by our gross margin expansion and disciplined cost management.

Now turning to the balance sheet. We ended September with cash and cash equivalents of $32.4 million compared with $29 million on December 31, 2024. Net inventories on September 30, 2025, were $65.8 million, up 9.8% compared to September 30, 2024, and up 15.7% compared to December 31, 2024. We were pleased to exit the quarter with cash over $30 million again as we move into the fourth quarter, which is traditionally a period of cash generation. We believe that we're well positioned from a liquidity perspective to drive expected growth from our Rejuvenate 2.0 launch and the Mattress Firm expansion.

Finally, guidance. As Rob discussed earlier, we are reiterating our full year outlook. We continue to expect full year revenue in the range of $465 million to $485 million and adjusted EBITDA between breakeven and $10 million. As we move into Q4, we anticipate continued top line growth driven by the seasonal lift in direct-to-consumer sales during the Black Friday, Cyber Monday holiday, an expansion of business at Costco, as Rob described earlier, our Mattress Firm expansion and sustained momentum of our Rejuvenate 2.0. In addition, we expect a sequential acceleration in EBITDA that is fueled by our revenue expansion and the continued momentum from our restructuring initiatives and sourcing improvements.

With that, I'll turn the call over to the operator for questions.

[Operator Instructions] We'll take our first question from Bradley Thomas at KeyBanc Capital Markets.

Congrats on the improvement in the business that you all are driving here. Rob, that's actually where I wanted to start off with my first question. Just as you see the acceleration in sales in the business, I guess, could you speak to what, if anything, are encouraging green shoots that we might be seeing in terms of the industry overall versus how much this is coming from the multitude of initiatives that you all have underway right now?

Thanks, Brad. And hard to put my finger exactly on it. I think most of the people in the category, ourselves included, in Labor Day thought the market was starting to show signs of improvement and then the back half of September was pretty mixed and soft. I think we're the first reporting company in the category, but I'm expecting kind of flattish overall category results. So I think we own both the parts of our business that are working well and then the parts that still need a little bit of work. But wholesale is clearly growing behind expanded distribution. And I'd point out that we're encouraged on our performance because we've had a pretty significant expansion of slots and slot productivity has remained about the same. It's down a little bit in Q1 or Q3 because of all the flooring that we did. But since then, we're seeing it pick back up. So that's the first point.

The second is the showroom performance: 6.5% up, 12% comps. I think 12% comp is going to stand up against any retailer, and we're encouraged by that. And even in e-com, as Todd talked about, we were down about 10% in the quarter. But during the quarter, each month got a little bit better, and we're starting to see the new marketing show some real early signs of success. Too early to declare anything, but we're encouraged on the direction. Finally, on the market, it doesn't feel like it's getting a lot better. It also doesn't feel like it's getting worse. So I think we're probably at the bottom, and we're certainly well positioned to capitalize if the market gets better in Q4 and early 2026.

Maybe I could ask a question just on the margin front or the business front financially more broadly. Clearly, a number of the revenue initiatives that you have underway are going to wrap into 2026 and be a nice boost through the first half of the year. Can you talk to how you think about flow-through to the bottom line and any other margin opportunities for you as we think to 2026?

Sure. So as we look at gross margin, we really are starting to see all of those benefits from the plant consolidation and our restructuring efforts. As we look at it, we've been hitting that 40% gross margin level pretty consistently. And with the 42.8% this quarter, I think we've shown that we've been able to capture those efficiencies and would expect to be at around that 40% level going forward. From a breakeven perspective, we used to talk about the business needing to be at $55 million to $60-plus million a month in revenue. We're down to the point where basically at $40 million or even a little under that per month, we're able to break even and then scale from there to generate profitability very rapidly. The cash just flows through the bottom line very quickly with the model we've developed at this point.

We'll go next to Matt Koranda at ROTH Capital Partners.

It's Joseph on for Matt. I just wanted to see if you guys can kind of bridge us on your adjusted EBITDA guide here. Implied EBITDA in the 4Q is roughly high single digits. Can you bridge us as we exit 3Q on a flattish margin?

Sure. So a big part of what we're looking at in Q4 is the continued revenue acceleration from all the factors that we talked about, moving into what is traditionally our highest revenue quarter of the year. We are on the backs of continuing our expansion in Mattress Firm, the Rejuvenate 2.0 launch, continuing to pick up steam. We also have strong plans as we go into Black Friday and Cyber Monday from our direct-to-consumer channel. So a lot of things really pushing towards the positive on the top line. And while we do that, we're still able to maintain that 40%-ish level of gross margin and strong cost control. So that incremental revenue flows through very quickly.

Then as we kind of approach like the 1,200 mark in -- the 12,000 mark, excuse me, on your Mattress Firm slots, how should we think about it going into 4Q? And then obviously, you guys stated that, that 12,000 should be hit in March 2026. Should it be an even split? Or should we ramp up most of those slots early 1Q '26?

No. I think -- I mean, just to be clear, we're working on a specific collection of Rejuvenate. So a product that's already performing well in the market. And I think that incremental 2,800 slots or something in that neighborhood will happen at the end of Q1.

We'll move next to Bobby Griffin at Raymond James.

Rob, just quickly on just how the quarter played out. I think we were -- we entered the quarter or at least when we spoke last like up, I think, mid-single digits in revenue. and then we finished flat. Was that just a function of the softness of the last couple of weeks? Or did some of the timing of the rollouts change a little bit where there was some expected revenue that just shifted into 4Q?

No, we were chasing Rejuvenate all through the second quarter and into the third. But I think the difference when the first half of the quarter looked like it was developing more strongly and was pacing at a stronger development. And then post Labor Day, the market was just -- for us, at least, was really soft. The discussions I've had with others is it was mixed at best. So I don't think we were unique there. But luckily, we've seen kind of a return to the strength we were hoping in October, but it was after Labor Day.

Then I just wanted to clarify, the gross margin, you guys ended 3Q at, call it, 43 round numbers, 42.8%. You expect it to be down sequentially and that would be down pretty meaningfully year-over-year. And is that just -- what exactly is driving that? It's just the mix going more to wholesale with these launches? Or what exactly is driving that? Because you talked kind of about 42.8%, and then 40% as a round number. So just wanted to kind of clean up where we actually expect grosses to be at in the fourth and what is a sustainable gross margin given the changing mix here of Purple's customer base?

Yes. Let me come at that backwards and see if it gets you what you're looking for. I mean I think 40% and north is clearly sustainable. Period. We think that I don't want to pin a number to it yet, but we can get and stay north of that with our current wholesale mix because the mix hurt DTC to wholesale is being offset by the premium positioning of the product and the way the mix is changing both in wholesale and in e-commerce and showrooms towards the premium product. So I think that's the mix. The down in Q4, what we're planning is a pretty competitive environment, and you spend a lot of the quarter on promotion. And I think that's the biggest drain to that gross margin.

Then it does seem like, look, you got the wholesale business outgrowing with some accounts, nice comp in showrooms. There's still some work to be done on showroom profitability. So I'd be curious to kind of see you unpack -- if you could unpack kind of that aspect of the stores that are not EBITDA profitable. I think you gave some statistic. I missed it on the call.

Then the second part of the question is just maybe it's more strategic, but as this business kind of continues to evolve, you got 2 of the parts of the house growing, e-commerce remains pressured. Just kind of what do you think of the long-term e-commerce opportunity here for Purple? Has it changed now given some of the success with wholesale and what you're seeing out of some momentum in the showrooms? Just curious thoughts there, Rob.

Yes. No, Bobby, we're still very bullish on e-com, and we think we've had a bit of a communication problem that we refreshed the website at the end of September and early October. The early signals of that are that we are moving in the right direction. The mix is improving in e-com as well, not as rapidly as showrooms, but it is improving. So we're not stepping away from e-com at all. And we also are recognizing that as we expand our distribution footprint, e-com as a stand-alone channel will continue to have to work very hard to make the sales that they make, but we're not going to step away from it. And the second -- first part of your question was on showroom profitability. The numbers I quoted is 76% of them were profitable in Q3 versus 56% last year. This channel is going to be profitable.

Showrooms is going to be profitable for us. We've made nice progress. And I would suggest that we probably always have somewhere between 5% and 10% of stores that just either aren't working the way we hoped or are structurally going to be a challenge because of high rent. But it's going to be a vibrant channel that we will go back to investing in, in the future, and we're encouraged by the profitability that they're driving right now.

Very good. Well, I appreciate the details and congrats on some of those moving parts, especially the showroom comp and getting the launch going. So best of luck here in fourth quarter.

We'll move next to Daniel Silverstein at UBS.

Maybe just to start, if we want to unpack the third quarter a bit, how much of the improvement in the wholesale segment was driven by the additional Mattress Firm slots? And maybe a different way of asking is just how is productivity in other retail partners trending today?

Thanks, Dan. So a couple of things. I talked about our Costco business. That continues to grow very nicely. We've been online broadly for them for about almost 2 years. We're now in permanent -- permanent is wrong. We're in in-aisle distribution in 54 of them. And then the year-end year start event, their furniture mod will be in 450. So that's a nice piece of growth that has a lot of upside.

On mattress productivity, the Mattress Firm launch actually hurts your productivity in the short run as you load in all of those floor samples. But we are seeing that the overall productivity held with a significant increase in slots. So to me, that's encouraging. And then we've got other -- a number of other customers that are doing well and maybe a couple that are not doing as well as we want. So it's better than a mixed bag, but there is a mix of performance across our wholesale network.

Then just one follow-up. So to your point, it seems like there's some pretty good visibility into the sales building blocks next year. Specific to the $70 million from Mattress Firm, what's in your control to drive that number potentially higher? And then if the mix skews a bit more to wholesale next year, how might that impact profitability from a margin standpoint?

All right, Dan. I think the wholesale growth doesn't concern me on a margin basis. I think the performance of the premium business will continue to be able to offset that degradation. And the Mattress Firm forecast is built on us performing at levels we've been at. We have not assumed improved slot productivity, but we have held it. So you could build an argument that there's a little bit of risk in that. But we've got to work with them to make sure we're getting the most. And we also have to compete to perform in those slots that we're in. So we're spending more money at retail with them. We're spending more money on marketing and demand creation. And we have a lot of excitement behind the Rejuvenate product that they'll put in, in the first quarter. So it's a difficult environment. They're a challenging partner, but all for the good. We've got to perform and make sure we grow their business. If we do that, ours will develop as we outlined.

That concludes our Q&A session. I will now turn the conference back over to Rob DeMartini, for closing remarks.

I'd just like to close by saying thank you to the Purple employees all across the country that have worked so hard to stabilize this business and get it more durable. And I think we're incredibly well positioned as the market eventually improves. And I want to say thank you to our partners who have stayed with us and showed faith in our efforts.

So with that, I'll close the call, and thank everybody for attending.

This concludes today's conference call. Thank you for your participation. You may now disconnect.