Don’t sleep on Purple Innovation stock, Roth says

After a fireside chat with the company at the ROTH Conference, analyst Mat Koranda remains bullish on Purple Innovation (Purple Innovation Stock Quote, Chart, News, Analysts, Financials NASDAQ:PRPL).

In a research update to clients March 21, Koranda maintained his “Buy” rating and $2.50 price target on PRPL.

The analyst says don’t sleep on Purple.

“We recently hosted a fireside chat with Purple management at the ROTH Conference earlier this week. Key takeaways include: (1) Purple is taking share in the mattress category; (2) the bedding category remains at cyclical lows; (3) Purple has several under-appreciated 2024 sales growth drivers, in our view; and (4) margins should begin to show inflection in 2H24. We recently upgraded PRPL to Buy from Neutral, and view the stock as a top idea exiting
the ROTH Conference”

Koranda thinks PRPL will post EBITDA of negative $19.9-million on revenue of $550.1-million in fiscal 2024. He expects those numbers will improve to EBITDA of $9.1-million on revenue of $600.8-million in fiscal 2025.

“Purple has several under-appreciated 2024 sales growth drivers, in our view,” the analyst wrote. “The mid-point of management’s 2024 sales outlook suggests $550mn (we’re inline, consensus is $549mn), which is +5% YoY growth off an adjusted baseline of $525mn (we take $510mn in reported revenue and add back product launch discounting into wholesale, which was $15mn in 2023, split between 2Q/3Q/4Q at $10mn/$3mn/$2mn). Most of the annual growth is coming during 1Q (+15% YoY guided within the quarter) on strong sales to wholesale partners (our forecast calls for 1Q incremental sales of $15mn YoY, leaving $10mn needed to hit guidance for the remainder of 2024). We think the remainder can come from price. New products should provide some modest pricing uplift relative to older products (our analysis of the new Restore line vs. older hybrid premier product suggests a +10% pricing improvement on list price), as well as recent like-for-like pricing action that was taken in January (management referenced price take on select SKUs, taking effect in January within DTC and in wholesale by March; our site checks suggest +4-7% list price improvements in the lower-to-middle range Purple Mattress and Restore products). We also think any uplift in units would likely represent upside to guidance (either from sustained share take or industry improvement in 2H24).”

What does Purple do (via Roth MKM)

“Purple Innovation, Inc. designs, manufactures, and distributes branded bedding and comfort products. Key products include bedding (mattresses, bases, foundations, pillows, etc., comprising 94% of 2019 revenue) and other products (primarily seat cushions; ~6% of 2019 revenue). As a digitally-native vertical brand, Purple markets and sells through (1) a direct-to-consumer channel (62% of 2019 sales), comprised of purple.com and small fleet of company-branded retail stores (five showrooms at YE’19; three in CA, two in UT), and (2) a wholesale channel consisting of specialty mattress, furniture, and department store retailers (Mattress Firm, Macy’s, Bloomingdale’s, Raymour & Flanigan, among others; roughly 1,800 doors as of 2Q20, 38% of 2019 sales). The company’s patent-protected gel technology, Hyper-Elastic Polymer, underpins many of Purple’s products, differentiating the company from many competitors in the digitally-native mattress/bedding ecosystem that primarily source latex and memory foam products from third party producers. Purple manufactures its own mattress products in-house using its proprietary Mattress Max manufacturing equipment. Purple went public via a $483mn special purpose acquisition company (SPAC) transaction in February 2018. Company headquarters is in Lehi, Utah, while Purple maintains manufacturing facilities in Alpine and Grantsville, Utah, as well as a new facility in Henry County, Georgia