PRPL - Purple Innovation Inc. (PRPL) Q1 2023 Earnings Call Transcript
2023-05-10 22:23:07 ET
Purple Innovation, Inc. (PRPL)
Q1 2023 Earnings Conference Call
May 10, 2023 04:30 PM ET
Company Participants
Cody McAlester - Investor Relations Vice President, ICR
Rob DeMartini - Chief Executive Officer
Bennett Nussbaum - Chief Financial Officer
Conference Call Participants
Brad Thomas - KeyBanc Capital Markets
Brian Nagel - Oppenheimer.
Jeremy Hamblin - Craig-Hallum Capital Group
Bob Griffin - Raymond James
Matt Koranda - ROTH Capital
Keith Hughes - Truist
Atul Maheswari - UBS
Curtis Nagle - Bank of America
Presentation
Operator
Good afternoon, ladies and gentlemen. Welcome to Purple Innovation First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions]
It is now my pleasure to introduce your host, Cody McAlester of ICR. Please go ahead.
Cody McAlester
Thank you for joining Purple Innovation's first quarter 2023 earnings call. A copy of our earnings press release is available on the Investor Relations section of Purple's website at www.purple.com. I would like to remind you that certain statements we will make in this presentation are forward-looking statements. These forward-looking statements reflect Purple Innovation's judgment and analysis only as of today and actual results may differ materially from current expectations based on a number of factors affecting the company's business. Accordingly, you should not place undue reliance on these forward-looking statements.
For a more thorough discussion of the risks and uncertainties associated with the forward-looking statements to be made in this conference call and webcast, we refer you to the disclaimer regarding forward-looking statements included in our first quarter 2022 earnings release, which was furnished to the SEC today on Form 8-K; as well as our filings with the SEC referenced in that disclaimer. We do not undertake any obligation to update or alter any forward-looking statements, whether as a result of new information, future events or otherwise.
Today's presentation will include reference to non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net income and adjusted earnings per share. A reconciliation of these non-GAAP financial measures to the most comparable GAAP financial measures is available within the earnings release, which can be found on our website.
With that, I'll turn the call over to Rob DeMartini, Purple Innovation's, Chief Executive Officer.
Rob DeMartini
Thank you, Cody, and thank you, and good afternoon everyone. With me on the call today is Bennett Nussbaum, Purple's Chief Financial Officer. The first quarter played out largely as we expected from a financial perspective. Revenue was down approximately 24% year-over-year to $109 million, as our decision to reduce advertising spend by 50% combined with softer industry-wide demand and a more challenging macroeconomic backdrop, pressured our top line performance.
In light of the lower sales volume this period, I am encouraged by the meaningful increase in gross margin we delivered. The work we've done over the past year rightsizing our cost structure and improving our supply chain and manufacturing efficiencies is yielding sustainable benefits.
From a strategy standpoint, the first quarter was productive as we made progress -- important progress, setting the business up for improved results as the year unfolds and over the long term. As we outlined in our Q4 call in March, we introduced our broadest most innovative product line ever at the Las Vegas market in January of 2023 and the response from our wholesale partners has been positive. We're receiving orders to expand our existing footprint by over 1900 slots, a 15% increase in the base.
In April, we started shipping our new mattresses to partners ahead of their debut at retail in mid-May. While it is too soon to confirm demand, we're optimistic that consumers will respond to our enhanced sleep products and new brand messaging and we remain confident that we have the right strategic plan in place to drive profitable growth and sustained market share gains.
Our strategic plan is comprised of four key components: redevelopment and expansion of our product lineup; new inspirational brand positioning; investment in our wholesale partnerships; and continued showroom expansion. Regarding our product lineup, as a reminder, the full Purple product line has now been categorized into three tiers. The Purple Essential Collection represents our most accessible products with prices under $1800. These products have been engineered for and are primarily being sold through our e-commerce channel.
Our Purple Premium Collection represents our new mid-range offerings with six all-new mattresses ranging from $2,000 to $4,000, available in both our wholesale and direct-to-consumer channels. And finally, our Purple Luxe Collection features our highest end products ranging from $5,000 to $7,500, available through showrooms, e-commerce and through our wholesale channel partners. Early sales results of our Luxe Collection in our four Utah showrooms have confirmed consumer interest in these super premium products.
We're on track for the launch of the new product in our showrooms, on our website and select wholesale accounts on May 15th. The remainder of our wholesale network will change over their floor sets in the next few months. Selling activity with these partners has progressed as planned and we look forward to sharing the initial reads on sell-through on our Q2 call in August.
Turning now to our brand messaging. We've reimagined the Purple brand to be bolder and more appealing to the premium consumer. We're working to reach this customer set through a shift in messaging that better articulates the unmistakable benefits of our differentiated GelFlex Grid technology. The hallmark of the Purple brand is revolutionary technology that provides a truly differentiated sleep experience and we're using that innovation to our advantage, positioning ourselves as a true alternative to the premium memory foam mattress segment.
This new messaging will be live in market in five days through increased television advertising and will become more prominent including numerous consumer and trade PR activations that are timed to coincide with the new product launch. This will be followed by a steeper ramp in marketing spend in the third and fourth quarters as our forecast includes advertising dollars increasing more than 80% over the second half of last year.
Another key aspect of our 2023 strategy is strengthening our wholesale partnerships. We've worked with our wholesale partners to ensure improved contribution levels along with enhanced point-of-sale assets that we believe will drive increased sell-through at higher average selling prices and higher margins for both us and them. The response from our wholesale partners was quite positive and we are shipping orders for 1,900 incremental wholesale slot placements at this time.
Overall, we've received strong positive feedback on the new trade-up direction of the brand and are optimistic about our improving relationships with our wholesale partners going forward.
And lastly, we remain focused on expanding our showroom channel in 2023. Despite the headwinds I've discussed, showrooms performed in line with projections in the first quarter. With a new leader of owned retail joining the team in early January to lead the channel, we have good visibility to improve store presentation and enhance channel margins. Showrooms play a key role in our brand execution and profit road map. We ended the quarter with 55 showrooms and plan to add seven more in 2023.
In long-term we envision a store footprint of about 200 stores. While near-term challenges persist in our industry and across the broader consumer markets, we believe we've taken the necessary steps to successfully operate in the current environment. With the upcoming launch of our new products and heightened level of brand and advertising spend, we're optimistic that we have set the business up to achieve incremental top line and bottom line growth in the back half of 2023 even if the macro conditions remain challenged.
I'll now turn it over to Bennett who will review the first quarter financials in more detail. Bennett?
Bennett Nussbaum
Thank you Rob. For the three months ended March 31 2023, net revenue was $109.4 million, down 23.6% compared to $143.2 million in the prior year period. This decrease was primarily due to an ongoing shift in demand for home related products inflationary pressure on discretionary consumer spending and the intentional 50.7% reduction in advertising spend compared with a year ago.
Additionally, we saw wholesale demand for our legacy mattress models was impacted by the upcoming launch of our new premium product lineup in the second quarter. By channel versus prior year, wholesale net revenue declined 25.3% and direct consumer net revenues declined 22.5%. Within DTC, the e-commerce decline of 30.1% was partially offset by a 24.4% increase in showroom net revenue, driven largely by the net addition of 21 showrooms over the past 12 months.
Gross profit dollars were $43.2 million during the first quarter of 2023, compared to $51.6 million during the same period last year, with gross margin at 39.5% versus 36.1% in the first quarter of 2022. The increase in gross margin from the prior year can be attributed partially to lower materials, labor and freight costs, compared to the prior year period, along with the manufacturing efficiency and cost reduction initiatives that we implemented last year.
Operating expenses were $65.2 million or 59.6% of net revenue in the first quarter of 2023, compared to $70.0 million or 48.9% of net revenue in the prior year period. The reduction in operating expenses compared with the prior year period was driven primarily by a decrease in marketing and sales expenses of $11.8 million or 23.6% due to the intentional reduction in advertising spend, to improve marketing efficiency, stabilize profitability and align spending with current demand levels and the shift of approximately $3 million in launch-related expenses into the second quarter. This decline was partially offset by a $5.8 million increase in general and administrative costs that were primarily attributable to expenses incurred by the Special Committee. As previously disclosed, the Special Committee was terminated on April 27, 2023, so there will be no further costs incurred beyond those that will appear in our second quarter financials.
Net loss for the quarter was $23.4 million compared to $13.6 million a year ago. On an adjusted basis, which excludes adjustments for certain noncash items and other items we do not consider in the evaluation of our ongoing operational performance, including gains from the change in our tax receivable agreement, income and the change in valuation of our net deferred tax assets, net loss in the first quarter of 2023 was $12 million or $0.12 per share -- per diluted share based on an adjusted weighted average diluted share count of 98.9 million, compared to adjusted net loss of $16.5 million or $0.24 per diluted share based on an adjusted weighted average diluted share count of 67.5 million in the prior year period. Adjusted net income has been adjusted to reflect an estimated effective income tax rate of 25.9% for the current year period, compared to 14.9% for 2022.
EBITDA for the quarter was negative $16.3 million compared to negative $10.6 million in the first quarter of 2022. Adjusted EBITDA, which excludes certain noncash and other items, we do not consider in the evaluation of our ongoing performance and as detailed in today's earnings release was negative $4.4 million. This compares favorably to our guidance for adjusted EBITDA of negative $9.5 million, as higher-than-expected revenues, improvements in gross margin and a shift in launch costs, resulting in a better-than-expected bottom line performance.
Moving to our balance sheet. As of March 31, 2023, the company had cash and cash equivalents of $54.5 million, compared with $41.8 million at December 31, 2022.
The increase was driven primarily by cash provided from net proceeds of $57.2 million received from the secondary offering completed in February 2023. This was partially offset by cash used in operations of $13.5 million, capital expenditures of $3.1 million primarily related to additional investments made in our manufacturing facilities and the repayment of the full $24.7 million outstanding on our credit facility. Inventories at March 31, 2023 were $87.7 million compared with $73.2 million at December 31, 2022. The increase in inventory since the end of 2022 is primarily due to an increase in finished goods.
Turning now to our current outlook. Based on our first quarter results and continued confidence in our new product launch we are reiterating our full year guidance. For 2023 we still expect net revenue to be in the range of $590 million to $615 million; adjusted EBITDA between $13 million and $17 million and gross margins in the low 40% range for the full year. We expect second quarter to reflect continued softness in the market ahead of our May 15 launch.
Revenue is expected to be stronger than quarter one but below Q2 a year ago. Adjusted EBITDA will reflect launch costs including the $3 million shifted from Q1 into Q2. With first half revenues and adjusted EBITDA still tracking to our initial projections combined with the product, marketing, and channel of issues planned for the remainder of the year we feel good about our ability to achieve our 2023 financial targets.
Back to you Rob.
Rob DeMartini
Thanks, Bennett. While the category continues to face challenges, I remain, confident that the business is set up for success by continuing to drive efficiency and manage costs and by leaning into the new brand and product rollout supported by strong investment in advertising. Additionally, I'm optimistic about the longer-term opportunity to profitably drive growth, securing Purple's position as a true challenger brand. I'd like to thank our employees for their significant efforts to recharge this differentiated brand.
I'd also like to thank our retail partners that recognize the unique benefits that Purple's GelFlex Grid and how it can deliver a superior night sleep. That concludes our prepared remarks.
Operator, we're now ready to take questions.
Question-and-Answer Session
Operator
[Operator Instructions] And our first question comes from Brad Thomas with KeyBanc Capital Markets.
Brad Thomas
Hi. Good afternoon. Thanks for taking my question. I wanted to ask one question just on sort of operations going forward here and another on the competitive landscape. So maybe first Rob as we undertake this very exciting time here as you roll out the new lineup I guess can you talk a little bit about the steps you're taking operationally to ensure this works as smoothly as possible and just your degree of confidence in the ability to execute over the next couple of quarters here? Thanks.
Rob DeMartini
Thanks, Brad, and thanks for the question. We're about probably a little less than halfway into shipping the new product. We've got a hard conversion in our showrooms and e-commerce that's five days away. We definitely have some wrinkles we're dealing with inside of it, but we feel pretty good. We've got new inventory in a very good place. We've been supplying those new orders well above 98%. Every now and then there's a size, we don't have in the right place but we're shipping new product.
We don't have a very long tail on existing -- on the old products as we execute out of them. We've used our showroom channels to liquidate a lot of that stuff. And we've got 56 stores counting the one we converted from Intellibed ready to showcase the new product on Monday. The marketing team is hard at work on making sure our assets will be ready. We will be well above kind of minimum to proceed to launch on the website and then over the next month we'll get up to full speed, but we're in pretty good shape. We've had a few component constraints. We've had to incur a little bit of airfreight. But all in all for a relatively big transition for this category we feel pretty good where we are right now.
Brad Thomas
That's great to hear. Very exciting. And then as a follow-up on the competitive landscape I'll ask a question that I know everybody is curious of your answer. Obviously, news yesterday of one of your manufacturing competitors buying Mattress Firm one of your larger customers. I think your disclosures have sized them about 15% of sales. But could you maybe talk a little bit about, how you make sure that the financial outlook stays strong and how the relationship stays as positive as possible, in this backdrop here where they are slated to be acquired in the year?
Rob DeMartini
Yes. I mean Mattress Firm remains an important and valued partner, and we're not going to change our approach with them. Certainly, without any significant changes on their part, we're not going to change anything. We're working hard, to grow their business and to grow our importance of our brand and their portfolio.
I do think that GelFlex Grid positions us, very well to remain relevant regardless of who owns any retailer, because we have a truly differentiated product. And the last thing, I'd say is a late 2024 execution, is a long way off. We've got hard work to do right now. So while it's big news, in the industry and the big news in the category, it doesn't really change our plan at all.
And we think our path to premium is a great, complementary offering to retailers who have big Tempur businesses, because it's a very different feeling product, with the potential to have similar contribution levels and similar customer satisfaction. So, we're going to hold the course and work hard and making sure our brand is valuable to all retailers, including Mattress Firm.
Q – Brad Thomas
Very helpful and good luck, in the days ahead here. Thank you
Rob DeMartini
Thank you, Brad.
Operator
Our next question comes from Brian Nagel with Oppenheimer.
Brian Nagel
Hi, good afternoon. Thanks for taking my questions. So Rob, just as you get now closer and closer to the launch date for the new products, I know we've talked about this the last couple of quarters. But is there anything else that gives -- if you've seen anything else, with data points the conversations with your customers that gives you, even greater confidence in the ultimate success of the success of these products we'll be launching here shortly?
Rob DeMartini
Yes. I think – Brian, thank you. And I think I'd point to two areas. And the first one is, the way these products have tested. We did very robust more than 200 consumers, from I believe it was eight different competitive -- excuse me, yes, eight different competitive products. And we put these products into their home for 14 nights. The products performed incredibly well, across all eight attributes. So that's -- it's a significantly statistically significant sample size, tested against every one of our competitors and blindly against our best-selling product. And we outdid our own performance, and we outdid competition. So that's the, first.
And the second one is, going to sound a little blunt, but our brand has not been performing well in the wholesale channel recently, and we just added 1,900 new slots. I think that speaks loudly to what the retailer hopes and believes, behind this brand. I don't know that I've ever expanded distribution on a declining brand before.
And I won't be able to do it, a second time. I fully recognize that. But I think the optimism ,they see in this launch and the potential of GelFlex Grid, and in our improving relationships, really speaks to the customer to the team that's calling on them and to the potential of this brand. So those, are the two things, I would point to.
Brian Nagel
Very, helpful. And the second question I have, I guess maybe Bennett it's is more for you, just on the financial side. So if we look at the nice gross margin performance here in Q1, a piece of that was lower moderating input costs. So as we think about the gross margins, I guess over the balance of the current year maybe even to the next year, should that dynamic input costs shipping costs should that get even better from here?
Bennett Nussbaum
I think it could get marginally, better. I think you're, right, as the year progresses. I think the increase -- the improvement in the gross margin quarter-over-quarter, was also heavily driven by the efficiencies that our new COO, Eric Haynor, has brought through to the plants. And I've said in earlier calls, that I think his improvements are sustainable and replicable, and I think we'll continue to see that.
And I think the only pressure we'll see against gross margin going forward should be, if there's any heavy discounting in the market. So, I'm very confident that we have materials costs and operating parameters under control.
I'd also tell you that we're operating at a fairly low production level with our low sales in the first quarter and we have further opportunity to improve as we increase volume and spread our overhead absorption over more units.
Brian Nagel
Thank you very much. Looking forward to the launch. Thanks.
Bennett Nussbaum
Thank you, Brian.
Operator
Our next question comes from Jeremy Hamblin with Craig-Hallum Capital Group.
Jeremy Hamblin
Thanks and congrats on the results and the launch coming up. I wanted to start just by making sure to clarify the second quarter revenue guidance. So, I think in the release it talks about revenue guide similar to last year. Bennett, I think on the call you suggested that it was going to be better than Q1 but below Q2. Just was hoping that we could think that up and make sure that our expectations are set appropriately?
Bennett Nussbaum
Yes, that's exactly what we said. We're definitely going to beat the first quarter. But with shipments just starting to roll now on the new mattresses we're going to have to see what the follow-through orders are. And I think coming closer to last year in Q2 is probably where I'd be looking to pinpoint things.
Jeremy Hamblin
Okay. And then in terms of the implications between the two channels like you were down 22.5% DTC in Q1 down 25% wholesale. How should we be thinking about that interplay here in Q2? Are you expecting that because of channel fill that your wholesale is closer to flat on a year-over-year basis and still assuming that DTC is going to be a little soft, or because you're getting that product in showrooms on Monday and available online that it's going to be more balanced with DTC. Anything you might be able to help us think about that?
Bennett Nussbaum
Jeremy I think wholesale will be choppier in Q2 because you've got -- we've got some customers with 60% of this product floored and some customers who haven't ordered it yet. So, I think that will be a bit choppier. We do think that we'll get a little bit of help as we exit Q2. And I really am hoping our e-commerce business has been down 10 quarters in a row sequentially. I would expect to see Q2 not be down again.
Jeremy Hamblin
Got it. That is helpful. And then just in terms of when you think you're going to actually be able to walk into wholesale partners retail doors and see the product in the showroom and mass. When are you expecting that to happen?
Rob DeMartini
Well, I hadn't answered to you added the en masse. I mean we've got certain customers that are well late in the summer. You've got a modest group that are waiting till after Memorial Day. And then we are shipping about 50% to 60% of our customers now.
So, I have not been through this before. It shouldn't take long to get through the system because they're not that deep in back stock but it's showing up on floors now and we're going to turn the marketing on full speed next Monday.
Jeremy Hamblin
Okay, great. And then a last one from me. Just in terms of the performance across some of these levels whether it's luxury versus premium versus entry level. Can you add a little bit of color in terms of what you're seeing out there in the marketplace performance of those peers of mattresses out there?
Rob DeMartini
I know some -- the questions I'm not sure was your -- some of the questions I saw talked about are we seeing trade down? We are not seeing that right now. We're not seeing a whole lot of trade up on the high end because we're just getting the luck to market today.
But our hybrid line, I'll put this in parentheses because our performance has not been great over the last few months. But the hybrid line has been performing as it typically does, kind of, a percent to total. So we're not seeing consumers trade down. We actually have seen some trade up in the Essential segment towards Purple Plus away from the Purple Mattress. And then I mentioned it in my remarks if you'll recall we talked about this on previous calls.
We kind of forced in Intellibed product into our four Utah showrooms just to learn about the selling. And we've been trying to average about three-fourth to one unit per store per week of that high end and that has performed on track and that's before marketing. So again I'm not making any predictions here yet. I just -- there's nothing we're seeing that suggests this brand can't perform at that level. We think we've got to execute better and across all of our showroom formats but the early indications are encouraging.
Jeremy Hamblin
And as a follow-up on the advertising spend. So if that declined $11.7 million in Q1 what are your expectations on advertising as it relates to Q2 year-over-year?
Bennett Nussbaum
Yes. I think Q2 will be flat because we're not really burning anything until we get to next Monday. So we've been spending at minimum levels kind of minimum sustainable levels in April and the first part of May. And then you can do the math. We're up 80% in Qs 3 and 4. So it's almost a direct doubling of those months based on what we spent so far this year. And then year-on-year the total year advertising budget is up.
Jeremy Hamblin
Got it. Thanks so much And good luck with the launch.
Bennett Nussbaum
All right. Thank you, Jeremy.
Operator
Our next question comes from Bob Griffin with Raymond James.
Bob Griffin
Good afternoon, everybody. Thanks for taking my questions. Rob just one quick one to clarify the last comment on the ad budget. What does the plan imply for total ad spending for the year? Because I think we have just the 10-K numbers that give us the yearly data but we come back into the quarters. So what does the up 80% in the second half implies for full year budget?
Bennett Nussbaum
Yes. Bobby we don't release that number specifically, but I can tell you year-on-year it's up modestly and that makes it up heavily in the back half.
Bob Griffin
Okay. That's where I was kind of backing into. All right. Perfect. And for the second quarter I mean are we looking given that we have some more probably some more launch costs in 2Q, we have a little bit of turn on the picket of advertising and kind of getting the product rolled out. Is the second quarter EBITDA looking like it's going to be below 1Q despite revenue being up or anything they're directionally to point us in?
Bennett Nussbaum
Yes. Again we're not released it by the quarter but I will say we have a fair amount of cost in Q2 that we think is quite frankly very good investment. So we're going to make it.
Bob Griffin
And is the cost on the gross side like product launch costs and taking the hit on the floor samples that we're familiar with the ….
Bennett Nussbaum
Yes it's kind of internal launch costs. This industry you have to sell the floor samples at a pretty healthy discount and we're selling a lot of them. And then the most important thing is May 15 forward we start spending at what I would call more responsible rates long term so we can grow the business.
Bob Griffin
Okay. Very good. And I guess lastly for me I just wanted to know could you maybe expand a little bit on what you're seeing out of the showrooms? Any late data points there? I think it's been a little while since we've talked about them but you are starting to grow them. And with the changing -- potential changing landscape inside the retail market or maybe showrooms become a bigger piece at some point. So just anything there in terms of ASP versus your other things or attachment rate or just anything there to share?
Rob DeMartini
No, nothing. I mean this is -- it makes it hard for this call because what I'm talking to all of you about is stuff that hasn't happened yet. But they are -- two things are happening. They're feeling the impact of the brand performing relatively poorly and that's not going to change until we get the new marketing and new product out there. They will do that hard conversion this Sunday night and we're optimistic that we have plans that will make that mix start to grow the way we've mapped it out in our long-range plan. And if it does it makes the profitability of those showrooms get healthier in a hurry.
Bob Griffin
Okay. And I guess I mean maybe lastly then I'll sneak in one more. Just what are you seeing ahead of Memorial Day from an industry standpoint from promotions? Anything notable? Is the industry being more promotional less kind of in line with expectations?
Robert DeMartini
I think most people have reported that the total category has continued to be pretty soft and maybe softer as Q1 went along for the total category. We were pretty steady in Q1 and we're not hearing a whole lot of incremental promotional pressure, but it still remains relatively high.
Bob Griffin
Okay. Thank you, Rob. I appreciate the details. Best of luck here with the conversion coming up.
Rob DeMartini
Thank you. Bobby.
Operator
Our next question comes from Matt Koranda with ROTH Capital.
Matt Koranda
Hey, guys. Good afternoon.
Rob DeMartini
Hey, Matt.
Matt Koranda
Maybe just several have been asked and answered. But just on production capacity at the facility with the new product just curious if maybe you could talk about sort of the impact to gross margins on a longer time horizon or maybe even just into the second half as you kind of get deeper into the product launch and utilization improves. How do we sort of get comfort, or do you have good comfort that the gross margin profile can actually step up materially in the back half of the year in 2024?
Rob DeMartini
I think as Bennett laid out, I mean, we're optimistic about our command and control of gross margin with the one -- the biggest variable being kind of in the rearview mirror the discounting we've had to compete with. But we're confident in control of our gross margin.
As Bennett said, absorption will help us nicely when we get it. And I think like I said in my opening remarks, have volume be as soft as it was in Q1 and produced a decent margin. We've made long-term predictions that we'll get between 40 and 45 and hopefully closer to 45. I'm not backing off that at all. I don't think that will happen this year. We just -- too much of it will be kind of under the bridge by the time the volume corrects. But we should exit the year solidly in the low 40s and we've got room to go beyond that into 2024.
Bennett Nussbaum
And to your earlier question we have plenty of capacity basically more than twice what we need.
Matt Koranda
Okay. Yes, super helpful guys. And then just -- it's been asked in different ways I guess but maybe just to put a finer point on it is all the legacy products cleared from the wholesale channel and your own channel? It sounds like maybe you had a little bit more cleanup to do in the second quarter. Maybe just level set us on that and just the implications for margin as we move through Q2.
Rob DeMartini
Okay. So, it definitely is not cleared. It's almost completely cleared from our showroom channel. They've done a hell of a job getting all the floor samples out and what little backstock is carried in that channel. There's no material impact from that.
And from a wholesale standpoint and again, I'm feeling my way through this being the first time we have addressed any and most issues that are out there. It's going to be the full summer to get it all the way out because you've got some customers going late in the summer and one big customer going after the summer. So, it's going to be a while.
We're having to juggle making both the old and new for a longer period of time than I had hoped but I got confidence in that team. They're doing a great job staying on top of it. Service levels are better than they have ever been in this company. And we're running a significantly more complicated cook-to-book process in the plants because we're running -- making both old and new. All that said we don't see any significant negative impacts to the business.
Matt Koranda
Okay. Spectacular. And then I think you guys had kind of talked about the shape of inventory build through the year, but I don't think I explicitly heard an update on how to think about that. I just would love to get your latest thoughts on sort of the cadence of inventory build for the remainder of the year? And then when we…
Bennett Nussbaum
We expected the inventory to peak in late March and through April as we started to push it out. But with some of the wholesale partners delaying their introductions the peak was not as high as we expected. And we'll probably run with somewhat increased inventories through Labor Day, just as we expected.
Just to further repeat what Rob said, with regard to our existing line of hybrids, we're actually going to have to keep making them and we can make them virtually in order. So we don't expect to have hardly any left over when we finally make the conversion. So we don't expect a lot of inventory and we wouldn't expect a large amount of discounting on those mattresses until the very end. So we're very optimistic. And our warehousing in terms of managing the dual SKUs has been very efficient. And again to repeat what Rob said, our shipments are at an all-time high for reliability. So it's all going extremely well including the inventory build.
Matt Koranda
Okay. Great. Best of luck with the launch here ahead guys. Thank you.
Rob DeMartini
Thank you. Matt.
Operator
Our next question comes from Keith Hughes with SunTrust [ph]
Keith Hughes
Question is on advertising. You talked about a ramp up in the second half of the year. Historically, Purple has done advertising to the tune almost 20% of sales. Are we talking that big of a ramp-up, or give us some kind of magnitude of how much support you're going to put back?
Rob DeMartini
No. I mean again, when the business mix was 70% or more e-commerce you could run sales – advertising at that level. This is a step up from where we were a year ago but not anywhere near kind of 2021 levels. We may get back there but the economics yet are not there.
I think more importantly, the person running that – Keira Krausz, who's running our marketing has a new level of command and control over what investments are returning. We're looking at it almost on a daily basis. We will get to fully daily and she's making that mix adjustment behind it. So it's more money that's going to feel like even more money because it's being spent much better than it was before.
And then the other thing I'd add is that we were not confident in the creative. It just wasn't selling the benefits of the GelFlex Grid. Again our advertising is under embargo right now but it will be out on 15. And when you see the selling spot, it pushes very hard on what's different about Purple and why it's better and we have not done that in the past.
Keith Hughes
Okay. And one follow-up. The 50% 60% of customers that are getting the beds in the short term is there – can you give us an idea of the mix of how much is Premium how much is Luxe?
Rob DeMartini
Yes. The Luxe expansion is – were up about 300 slots. Is that the right number? 300 slots. We still have a lot of work to do on that. There's a pretty good buy into the concept but there's a fair amount of wait and see. So in many of our customers it's in 10% to 20% of their doors. So that may be their confidence in their stores. It certainly is their confidence in us. So we're going to continue to push that aggressively the rest of the year. And it's one of the reasons why I think the showroom mix is so important, because as we prove we can sell $7000 beds that won't be lost on the partner. But most of those 1900 slots are the premium line, the restore line, what is replacing the hybrids. And about 15% of our doors will have rejuvenate in it, which is the high-end stuff. Longer term I want to see us get that closer to 30%.
Keith Hughes
Okay. Great. That’s great detail. Thank you.
Rob DeMartini
Thank you.
Operator
Our next question comes from Atul Maheswari with UBS.
Atul Maheswari
Good evening. Thanks a lot for taking my question. Rob with respect to your first quarter, you did cite category softness and your beds we are obviously not launched yet, yet revenues were better than expected. So what surprised on the upside relative to your expectation for the first quarter? Was it just better sell-through at your old stores?
Rob DeMartini
First of all it's hard for me to tell you how $109 million is better than really anything. It's a little bit better than the forecast we provided. But the category was under pressure and the brand is performing below the category. So until we get to the launch, we were slightly better than we predicted, but nobody is handing out gold stars anywhere. We got to get this brand much stronger. So I really think – we're talking about a difference of $4 million or $5 million.
Atul Maheswari
Right. Okay. That makes sense. And then with respect to your second quarter guidance is there any material benefit that you expect to get from one-time channel fill activity as you ship these new beds to these retailers?
Rob DeMartini
Yeah. No. Not really particularly on the revenue line, because the industry carries relatively low-back stock. Think of it as two weeks, is what I'm learning. And then, you combine two weeks with selling the floor samples at 50% off.
And you don't get any revenue bump at all. You might get a little bit of a unit bump, because you're backfilling all those floor samples, but it doesn't add up too much. We've got to get the new product. We look at that as an investment and then start selling it through.
Atul Maheswari
Got it. Thank you for that and good luck for the upcoming quarters.
Rob DeMartini
All right, Atul. Thank you.
Operator
Our next question comes from Curtis Nagle with Bank of America.
Curtis Nagle
Yeah. Hi. Great. Thanks for taking my questions. So just a quick one Rob on, the slot expansion, I think you said 1,900. Any change there at least from what I remember, we had looked at it slots per door going from like 4.4% to 6% something like that. But yeah, any change in terms of the last time we spoke in February? And what would the ending wholesale door count for 1Q?
Rob DeMartini
Door count hasn't changed material at all in the first quarter. I think 34.50 is what we're reporting right now. From -- coming out of Vegas there has been some slippage in the slots that we got, but I want to reinforce to this group. We're not done.
Monday is the start of this not the end of it. And there's a fair amount of customers that said hey we love what you're doing come back to us when you can show me that it's working. And so we have every expectation of ensuring that no is a desperate plea for more facts about how it's performing.
So we had said, we were trying to get up a full slot. We're at about 0.6 of a slot across the entire universe. And that is with our largest customer not changing their slot count. So it's a little bit better on 2,200 of my 3,400 doors, it is about a full slot a little bit more.
And then, we've got the biggest customer holding and rightfully so. They've got a lot of competition for those slots. They want to see it perform before they're going to give us Carte Blanche distribution.
So coming out of Vegas it has slipped a bit. It's still a meaningful 15% increase in real estate. And again, as I said earlier, on a brand that's been declining.
Curtis Nagle
Yeah.
Rob DeMartini
So I can't emphasize that enough. I've never in 30 years of selling stuff I've never been able to expand distribution on a brand that's declining, because they believe in its potential. And they know if we get our service up, our marketing right, that they've got a product they can sell to their consumers and send them home happy.
Curtis Nagle
Okay. I mean, I guess, kind of the next natural question I guess it doesn't sound like a huge amount of slippage. Like you said, so that would then require higher productivity per door. So is that just a function of you like what you see in the testing, or what would offset slightly lower doors?
Rob DeMartini
It is -- you hit exactly what we've seen on the testing. In preparation for this I had our consumer insights take me through it yet again this morning. And the testing results they are outstanding. We got them about 2.5 months ago and robust, significant sample winning across every attribute against all of our competition and our best-selling mattress. So that combined with new messaging which you'll see shortly which I think you're going to see it's going to be very different than anything the category has seen.
Curtis Nagle
All right. Understood. That's really helpful. I appreciate it. Thank you.
Rob DeMartini
Yeah. Thanks Curtis.
Operator
This concludes Purple Innovation Conference Call. Thank you for attending today's presentation. You may now disconnect.
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Purple Innovation, Inc. (PRPL) Q1 2023 Earnings Call Transcript