Purple Innovation (PRPL) Financial Report Summaries

Management Discussion

• Net revenues decreased $62.7 million, or 10.9%, to $510.5 million for 2023 compared to $573.2 million for 2022. The decrease in net revenues was primarily due to continued soft demand for home-related products. This decline was partially offset by the positive response to the launch, in May 2023, of our new Premium and Luxe product lineups. During the fourth quarter of 2023, our new product lineup became fully accessible across all sales channels which led to our highest level of net revenues since the fourth quarter of 2021. The decline in net revenues from a sales channel perspective in 2023 consisted of DTC net revenues decreasing $33.8 million, or 10.2%, and wholesale net revenues declining $28.9 million, or 11.9%. Within DTC, e-commerce net revenues decreased $43.8 million, or 16.4%, while Purple showroom net revenues increased $10.0 million, or 15.8%. The decrease in e-commerce net revenues reflected the ongoing impact of softening demand and increased discounting on our legacy products. The growth in Purple showroom net revenues was driven by the number of our retail locations more than doubling over the past two years and the positive response to our new products, especially those at higher price points in our Luxe product line. The decrease in wholesale net revenues, which was due in part to continued soft demand, was also affected by an increase in the warranty reserve for products sold to our wholesale customers (for further information, see Item 9A – Previously Reported Material Weakness) and discounted sales of floor models of our new mattress and base products to our wholesale partners. These decreases were offset in part by the impact of increasing new wholesale partner “slots” (a term commonly used to describe a section in a wholesale partner’s store to display a particular product) by approximately 10% in 2023 due to our wholesale partners positive response to the new product collection.