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Purple Swings To Profits In Q3 And Surprises Investors With Guidance Upgrade, Sending Shares Up 15% In After Hours Trading

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Discusses the third quarter result with analysis and commentary

On Wednesday afternoon post market close, mattress and pillow manufacturer Purple Innovation (NASDAQ:PRPL) released third quarter results to investors which included updated full-year guidance figures.

The stock retreated more than -11% in trading on Wednesday following the Nasdaq’s lead but popped 15.3% in after-hours trading as the street digested the result.

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Purple's Q3 Earnings

For the third quarter, Purple’s net revenue fell -16.1% to $143.3 million but remained flat when compared to the prior quarter. The figure came in 3% ahead of consensus forecasts of around $139 million.

The firm's gross margins expanded to 41.5% representing 760bps growth when compared to the prior quarter and 570bps growth over the year.

The growth in gross margins and declines in marketing and sales expenses (by 24%) led to Purple generating positive operating income of $1.3 million during the quarter, swinging from a loss of -$6.6 million in the prior year.

On an adjusted EBITDA basis, Purple generated $12.1 million of profit and outpaced the street's forecasts of around -$1.8 million. The figure was a solid improvement to the $0.6 million generated in 2021 and -$0.3 million generated in the prior quarter.

The bottom line net result showed a marginal improvement over the year from $2.2 million in 2021 to $2.3 million in 2202. Earnings per share on a diluted basis expanded more significantly to 3 cents per share compared to -5 cents in 2021. The result was well ahead of the streets’ consensus forecast of -7 cents per share.

The firm reported a balance of $59.1 million in cash and cash equivalents at the end of September.

The groups CEO Rob DeMartini credited the improvement in profitability to the reduction in headcount, marketing spending and supply chain efficiency initiatives.

DeMartini also remained upbeat on the outlook of the company telling investors “We are optimistic that the work we are doing around product innovation and channel development will translate into sustainable market share gains

PRPL revised its full year guidance with only one quarter left and heightened visibility of earnings. The company maintained its revenue guidance expectations of $570-590 million for the full year but upgraded adjusted EBITDA guidance to $2-7 million from -$5 to -$15 million prior. The upgrade came as a surprise to the street with average consensus forecasts of around -$12 million before the release.

Analyst Matt Koranda from Roth Capital Partners believes investors should be taking note of Purple's surprising margin recovery.

Koranda thinks the result may re-attract investors to take another look at the stock with consensus estimates beginning to bottom out and the potential for growing operating leverage to return when demand recovers. Roth Capital kept its ‘neutral’ recommendation following the update.

On average, PRPL has a consensus ‘overweight’ rating and a $5.10 price target. Many target prices were revised higher to $4.35 following the takeover offer from Coliseum Capital which is still yet to progress further.

Fintel’s insider accumulation score of 93.45 is bullish on the stock, ranking the company in the top 1% when compared to 14,639 other securities around the world. In addition to this, the firm's officer accumulation score of 80.20 is high and places the company in the top 2.5% of 11,649 screened companies based on the highest level of officer buying.

Purple Innovation has had 3 net insiders that have purchased shares in the company in the last 90 days.

The three insiders included:

  • Chief Legal Officer Casey Kale McGarvey who acquired 30,000 shares at $2.85 in September and now owns 78,718 shares
  • Chief People Officer Jack Roddy who bought 2,000 shares at $2.74 in September, bringing his total to 14,000 shares
  • Board member Gary Dicamillo who purchased 113,083 shares at $2.66 in September and owns a total of 113,083 shares

Article by Ben Ward, Fintel