Good afternoon, ladies and gentlemen. Welcome to the Purple Innovation First Quarter 2022 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. It is now my pleasure to introduce your host, Cody McAlester of ICR. Please go ahead.

Thank you for joining Purple Innovation's First Quarter 2022 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.

Thank you, Cody. Good afternoon everyone. With me on the call today is Bennett Nussbaum, Purple's Chief Financial Officer. Our first quarter performance reflects the early progress of our initiatives to return the company to profitable growth. While the business environment continues to be challenging and there is still much work to be done, our overall results came in better than we guided. Ben will review the numbers in detail shortly. But from a high level, sales exceeded guidance this quarter, driven primarily by higher wholesale volumes. With respect to our direct-to-consumer channel, showrooms continue to perform well and were mostly in line with the forecast. However, this was offset by softer post-pandemic e-commerce trends that deteriorated more than anticipated as the quarter progressed. Our e-commerce results are still above 2019 pre-pandemic levels. As I said on our last earnings call, one of the key areas of focus is elevating our brand through more effective marketing which includes reducing the company's dependency on expensive and inefficient performance marketing. We did exactly that in the first quarter by pulling back on pay-per-click spending. This tactic negatively impacted Purple site traffic, but it contributed to adjusted EBITDA coming in close to $10 million better than we guided. We're encouraged by the elements of our first quarter performance and are still in the very early stages of rebuilding the framework for strong, consistent operational results. While we continue to expect positive progress quarter-over-quarter in 2022, we are adopting a more conservative view for the remainder of the year. We're adjusting our full year revenue guidance to $650 million to $690 million and adjusted EBITDA to $21 million to $27 million. Like much of the industry, we're facing new post-pandemic headwinds that have developed in recent months, including a shift in consumer behavior from online to in-store and a declining focus on home goods, as consumers shift their spending back towards experiences and travel. We see these trends as a rationalization of a category that was strengthened by quarantine and work-from-home dynamics over the last two years. Outside of those industry headwinds, we have our own internal challenges and we're still working through it. Now that I've been here an additional 60 days, I have a clear understanding of our company's capabilities and where we need more strength. Rebuilding this company may take a few extra quarters than I'd originally anticipated, which is why we're bringing the revenue guidance down. In April, we completed a restructuring further reducing our headcount. It was a difficult decision to make, but we have made the cost cuts to match our current revenue outlook and we will build up from here. I do believe the company has turned a corner and the way we are thinking about it internally is new team, new plan, new day. Despite these challenges, we have to navigate the foundation of the company and the brand are solid and I'm more excited about the future of Purple than I ever have been. I want to emphasize, we remain confident that our four strategic initiatives: operational excellence, brand elevation, developing our three channels, and accelerating innovation that were outlined on our last call in March form the foundation of the right plan to get the company back to consistent profitable growth. We've already seen some of the benefits of our plan manifest early in the year and expect these will compound as the year unfolds, albeit at a slightly more modest pace than we initially projected. With hard work and smart choices, we can build on our position as a leader in the premium mattress category and create tremendous value for our stakeholders. I'll now turn it over to Bennett, who will review the financials in more detail, after which I'll provide an update on our strategic initiatives ahead of a question-and-answer session. Bennett?

Thank you, Rob. For the three months ended March 31, 2022, net revenue was $143.2 million, down 23.2% compared to the $186.4 million in the prior year period. This decrease was primarily due to the challenging year-over-year comparison created by the pull forward of demand, driven by the effects of COVID and record economic stimulus in the first quarter of 2021, coupled with the pullback in discretionary consumer spending in early 2022. Compared with our previously provided guidance, revenue was ahead by approximately $13 million at the midpoint of the range, as wholesale sell-in was stronger than anticipated. By channel versus prior year, wholesale net revenue declined 6.3% and direct-to-consumer net revenues declined 31.5% with direct-to-consumer e-commerce declining 38.6%, which was primarily offset by a 138.2% increase in showroom net revenue, driven largely by the opening of 25 new showrooms over the past 12 months. Gross profit dollars were $51.6 million during the first quarter of 2022, compared to $87.5 million during the same period last year, with gross margin at 36.1% versus 46.9% in the first quarter of 2021. The decrease in gross margin from the prior year can be attributed primarily to higher material, labor, and freight costs, and a higher proportion of wholesale channel revenue, which carries a lower gross margin than revenue from the direct-to-consumer channel. Wholesale net revenues comprised approximately 40% of net revenue for the quarter compared with approximately 33% in the same quarter last year. Operating expenses were 48.9% of net revenue in the first quarter of 2022 versus 37.9% in the prior year period. The increase in operating expenses as a percentage of net revenue compared with the prior year period was driven primarily by lower net revenues coupled with an increase in showroom-related operating expenses associated with continued showroom expansion and an increase in ongoing infrastructure development costs. These increases were partially offset by a reduction in marketing and sales expenses due to a pullback in paid search advertising and other efficiency gains. Net loss for the quarter was $13.6 million compared to net income of $20.9 million a year ago. As previously disclosed, based on the SEC statement dated April 12, 2021 regarding warrants issued by SPACs, we determined that our outstanding warrants should be accounted for as liabilities and recorded a fair value on the date of the transaction and subsequently remeasured to fair value at each reporting date. For the three months ended March 31, 2022, we recognized a non-cash gain of $3.9 million associated with the change in fair value of warrant liabilities. For the three months ended March 31, 2021, the company recognized a noncash gain of $9.1 million associated with the change in the fair value of warrant liabilities. On an adjusted basis, net loss in the first quarter of 2022 was $16.5 million or negative $0.214 per diluted share based on an adjusted weighted diluted share count of 67.5 million compared to adjusted net income of $12.0 million or $0.17 per diluted share based on an adjusted weighted average diluted share count of 68.6 million in the prior year period. Adjusted net income has been adjusted to reflect an estimated effective income tax rate of 14.9% for the current year period compared to 26.4% for 2021. EBITDA for the quarter was negative $10.6 million compared to a positive $27.8 million in the first quarter of 2021. Adjusted EBITDA, which excludes certain non-cash and other items we do not consider in the evaluation of our ongoing performance and as detailed in today's earnings release, was negative $9.6 million. This compares to our guidance for adjusted EBITDA in the range of negative $26 million to $20 million, primarily as higher than expected revenues and lower marketing expenses resulted in a better-than-expected bottom-line performance. Moving to our balance sheet. As of March 31, 2022, the company had cash and cash equivalents of $62.7 million, compared with $91.6 million at December 31, 2021. The decrease was driven primarily by cash used in operations of $44.3 million, capital expenditures of $12.6 million, primarily related to showroom expansion, the repayment of the full $55 million outstanding on our revolver credit facility, a $5.8 million tax receivable agreement payment, and a $2.5 million prepayment on our term debt. These uses of cash were offset by net proceeds of $92.9 million received from the secondary offering of 16.1 million shares, we completed in March of 2022. In addition to the $62.7 million in cash at the end of the first quarter, we also have the full $55 million amount available under our credit facility and we believe our cash is adequate through the balance of the year. Inventories at March 31, 2022 were $105.8 million, an increase of 7.2% compared with the $98.7 million at December 31, 2021. The increase in inventory since the end of 2021 was driven by higher non-mattress finished goods related to longer lead time sourcing of these products from Asia, partially offset by a reduction in mattress inventories. Turning now to our current outlook. While our first quarter performance exceeded guidance, recent industry trends and the strengthening of certain macroeconomic headwinds have caused us to take a more conservative view on the rest of 2022. We now expect net revenue to be in the range of $650 million to $690 million, compared to our prior range of $790 million to $830 million, with the change primarily reflecting a reduction in e-commerce volumes as we now better understand the aftereffects of COVID's impact on the industry. With the reduction in the proportion of higher margin e-commerce revenue, partially offset by gains from manufacturing and supply chain efficiencies, we now expect to exit the year with gross margins close to 40%. In terms of profitability, we now expect adjusted EBITDA to be between $21 million and $27 million, compared to our prior guidance of $26 million to $33 million. We were able to offset the majority of the reduction in revenue and slightly lower forecasted gross margins through expense savings, including the reduction in personnel we've already completed and additional actions including eliminating less efficient ad spending. I'll turn it back to Rob.

Thank you, Bennett. As I mentioned on my first earnings call upon joining Purple, I saw many positive attributes of the business that excited me about the company's future. An additional 60 days on the job has only increased my enthusiasm about where we're headed. Our differentiated innovative product built with proprietary technologies, backed by a challenger brand position and a motivated workforce has the potential to be a true disruptor in the sleep and premium wellness space. The bad and the good news is that today our stumbles have been largely self-inflicted: a misread on the sustainability of COVID-driven direct-to-consumer demand leading to an overbuilding of production capacity, underinvestment in wholesale partnerships, stale marketing, and underinvestment in innovation have hindered our ability to properly execute the past few quarters. But all of these challenges are within our control. While the current operating environment has proved to be more challenging, especially for our e-commerce channel, and is slowing the pace of our recovery, I'm very confident that our four strategic initiatives we outlined last quarter are the fundamental building blocks for our path back to our long-range revenue and profitability plan. I want to close today with an update on our progress against these four strategic priorities. The first priority is operational excellence, which will allow more effective and efficient capacity utilization delivering higher product quality and enhanced returns on the capacity investments we've made. In 2021, we overbuilt across much of the company in both headcount and operational capacity. To address headcount, we made the right and difficult decision to reduce our labor force in February and again in early April. We were mindful to retain personnel in all critical roles, and I'm confident that the work that needs to be done will be accomplished more effectively with our new staffing levels. We intend to manage our labor force based on better visibility into our near-term growth potential. In terms of capacity, the company invested in opening a second plant last year, providing the opportunity to double our production over time. While the need for increased production in the near term hasn't materialized, we have found ways to utilize our western and eastern-based facilities to offset higher shipping costs by balancing our manufacturing across the two plants. We expect the reduction in cross-country shipments this year will help to partially offset the underutilized overhead in our Georgia facility until we require additional production from each location. It's been well documented in the industry that input costs have been rising and progressively pressuring margins over the past several quarters. In response, the company took a round of pricing actions across the product portfolio in August and another round in January. We're also taking additional measures to help return margins to prior levels, including lowering raw material costs by negotiating better prices with key suppliers, designing to value, and ensuring that every investment we make in our product is valued by our consumers. Looking forward, I'm excited to welcome Eric Haynor who is joining our team next month as Chief Operating Officer. Eric has vast experience running supply chain operations at Ecolab. And as stated in our press release announcing his appointment, we're very confident in Eric's abilities to help us mature our operational activities and unlock the underlying value of the organization. He'll play a key role in our long-range profitability plan. Our second area of focus is brand elevation through better marketing. Our goal is to build a winning brand position that can deliver 20% market share in the premium mattress category. Our first step towards that goal is to refine our promotional strategy. In order to better reflect the premium nature of our product and restore brand equity, we're refining our approach to promotional activity going forward. While this may hamper demand in the short run, it's good for the brand long term, and I'm convinced it will be an effective strategy. During Q1, we restructured the marketing organization to better support and enable the changes to our overall marketing approach. We're moving away from in-house agencies and instead partnering with a select few highly experienced outside agencies. We're anticipating launching fresh new creative in Q2 that will be more effective than what we're currently running. The third focus area is developing and expanding our channels. Digital has always been a strength for Purple and COVID certainly accelerated demand in our strongest channel, e-commerce, where we're a clear leader. While we were right to take advantage of the changing landscape and capture that swell of demand, as consumer behavior has normalized, mattress buying has shifted back towards an in-store experience. Approximately 80% of online shoppers say they want to lay on a mattress before buying, making physical retail critical to the consumer's path to purchase. Our showrooms are a terrific, nicely profitable concept for showcasing our full product line with consistent, premium presentation while simultaneously creating a North Star for our wholesale partners to look to for elevating our brand within their stores. We started 2022 with 28 showrooms and opened six in quarter one with plans to add 22 more showrooms over the remainder of this year. The stores we've opened over the last two years are performing in line with our target unit economics of $2 million in annual sales with about an 18-month payback on roughly $700,000 initial capital investment. We're very excited about this emerging growth vehicle for the company and we see a clear path to a store footprint of 200 over time. Wholesale is the second and larger component of our brick-and-mortar retail strategy. Like showrooms, wholesale is still a young channel for our company. In a relatively short amount of time, Purple has built an enviable network of premium wholesale partners. At the end of Q1, we sell through approximately 3,100 wholesale doors having added over 600 net new doors since the start of the year. While we plan to selectively open additional doors going forward, our priority is improving productivity for our existing doors to grow market share and enhance the profitability of this channel for us and our partners. I'm very familiar with brand building via brick-and-mortar, how to operate and how to succeed in selling through these channels. I've identified a few key areas to retool to make our wholesale strategy much more effective. First, we have to make ourselves attractive to our wholesale partners to sell, not just attractive to stock, in order to drive foot traffic. We're focused on improving wholesaler incentives and making our margins acceptably accretive to our partners. We believe we can do this without negatively impacting wholesale margins, as we increase operating efficiencies across the company. Secondly, we need to respect our partners' timelines. As a company rooted in direct-to-consumer, we've had a habit of running promotions and delivering product on our own timelines without regard to how our wholesale partners operate. Going forward, we'll work with our partners to meet established timelines to make sure we're working together to drive more demand for Purple. Lastly, we need to work with our partners on product development. True omnichannel brands collaborate with their wholesale partners to develop mutually accretive product that simultaneously drives traffic and margins. Going forward, we expect to develop these synergistic approaches to wholesale products with our partners. Our fourth area of focus is accelerating product innovation. Purple was built on innovation and intellectual property that drives products which improve our consumers' comfort and sleep. As we've grown as a company over the last handful of years, we've lost sight of what makes Purple unique. To that end, we hired our first Chief Innovation Officer this quarter. Jeff Hutchings has been with us a little more than a week, and I've been impressed with his ability to hit the ground running. He brings more than a decade of experience in strategic business leadership, in innovation, research and development, new product introduction, and quality assurance. His immediate priorities include bringing structure to the new product development process currently in place. At Jeff's previous companies, he operated on an accelerated timeline of new product introductions, sometimes several in a single year. We're excited for the pacing and process that he brings with him. Additionally, Jeff is focusing on rationalizing our current product line in a way that best supports our efforts to develop all three business channels. Longer term, we continue to have a strong IP portfolio and have the potential to bring exciting, innovative products to market in our current categories and eventually expand to adjacent wellness categories. To get there, we're focusing on strengthening our R&D disciplines and our go-to-market process. While we've deferred new product launches in 2022, there are some next-generation products in our pipeline that I'm excited for the company to bring to market in the next 12 to 18 months. Let me close by thanking our employees for their hard work and dedication that's moving the company into a position to successfully capitalize on the many long-term opportunities that lie ahead. Despite the near-term challenges, I remain excited about the future of Purple. I'm confident that our continued work on strategic priorities will position the company for solid, profitable growth starting in the second half of the year. Thank you for your continued interest in Purple Innovation. Cody, we'll hand it back and start to take some questions.

Thank you. We'll take our first question from the line of Seth Basham with Wedbush Securities. Please go ahead. Your line is now open.

Thanks a lot. It's Seth Basham from Wedbush. A couple of quick questions for you. First, just thinking about the developments in the wholesale channel. Rob, you talked about making sure that you have an appealing product and pricing and incentive structure for your wholesale partners. Can you give us a little bit more color on how you think that might change beyond what you already announced late last year in your new agreement with one of your largest partners?

Yes, thank you. What I've seen because of the way our wholesale business matured, there's significant cost that happens between us and our customers. So we can enhance their margins and ours by being more efficient. Our logistics effort, our communication effort, our merchandising efforts have all been developed without much understanding of how they operate. In many ways, it costs our customers money. So they either have to absorb that in a constrained margin for them or they keep us out of merchandising, because it's not profitable for them. I've had these discussions with most of our larger customers. And we've agreed that by working better together, we can create a win-win from a margin standpoint for both of us, and they'll feel more comfortable about growing our business.

Fair enough. And as you look to the future, you see that pendulum swinging back to bricks-and-mortar retail. Where do you expect your sales revenue mix to be at year-end 2022 and 2023 and beyond?

Yes. The current numbers, I mean I think we'll be about 55% direct-to-consumer, 45% wholesale. 2022 will be above 2019 on an e-commerce basis. But the amplification that we've seen since Q2 of 2020, I don't think we're going to see that percentage distribution return anytime soon.

Okay. Last one and I'll turn it over. Just thinking about that margin differential between the two channels, direct-to-consumer versus wholesale, where is it now relative to history? And do you expect it to widen or narrow over time?

There is about a four-point gross and 2.5 point net difference roughly. I think we can maintain that. If we can work better with our customers, we obviously can take some cost out and enhance both of it. But there's no question it's the revenue side of the gross margin that makes it challenging.

We'll take our next question from the line of Brad Thomas with KeyBanc Capital Markets. Please go ahead. Your line is open.

Hi, good afternoon. Thanks for all the details here. Just to follow up on some of the guidance commentary that you provided. So just as we're thinking about Q2 and getting sequentially better, would that mean basically the rate of decline improves from here and as you go to the year on revenue and similarly maybe that the rate of headwinds on margins gets better? Is that the way to interpret it? And any more color on how to think about Q2 specifically?

If you take Q1 results, if you straight line that out, that says there's about $75-ish million of growth to get to the middle of that range that we gave you. It will be quarter-on-quarter strengthening that happens. And we do believe that the distribution by channel is about what I had said earlier about 55-45 direct-to-consumer to wholesale. Not sure, Brad if that answered your question or not, but follow up if it didn't.

That's very helpful. And then just as we think about some of the cash needs of the company, obviously a year ago, it was under inventoried. Can you just talk a little bit about how you feel about your inventory levels today? And any potential changes in working capital in the quarters ahead that we should anticipate?

Yes, this is Bennett. I would say that our cash position is very good after our $93 million stock offering. We feel like we're in good shape. We've got about $63 million in cash right now and a full $55 million to draw on our revolver. For the balance of the year, I think our inventories will be flat to slightly down. I think as our wholesale business grows, our receivables will grow, and that's the use of cash. I would see our cash declining a little bit over the next quarter and then starting to grow again as our volume grows and our EBITDA grows, which is very consistent with what we said at the last call, which is our cash will track our growth. So we feel like we're in very good shape on cash or on liquidity right now as a whole.

Great, great. And the last one for me, the Purple stores seem to really be doing well, and I think an important indicator of the health of the brand and the interest in the product recognizing that you often have long lead times to sign leases especially where you want the store. How should we think about you all signing more leases for 2023? And what that store pipeline looks like for you?

Brad, so we got six opened in Q1 2022. That annual pace is probably pretty accurate for where we'd be in the year ahead. And right now what we're finding is that we're having good luck with landlords defining very good locations. They like our stores in their portfolio, and we expect that to be able to continue at least through 2023, and maybe probably beyond that but certainly through 2023.

We'll take our next question from the line of Bobby Griffin with Raymond James. Please go ahead. Your line is now open.

Good evening. This is Alessandra Jimenez on for Bobby Griffin. Thank you for taking my questions. First, I just wanted to dive a little bit further into the gross margin impact for the year. Can you walk us through the building blocks to get to the 40% range versus 36% in Q1?

I'm sorry, I missed your first name. Could you please repeat it?

Yeah. This is Alessandra Jimenez with Raymond James. I'm on for Bobby.

Because of the actions we've taken in the first quarter, our cost structure is fully enabled to reach there. It really is volume growth.

Pricing was not fully reflected in Q1.

Yes, so Brad was reminding me that our pricing was not fully reflected in Q1 and now it is going forward. So the combination of pricing being reflected in the quarters and revenue growth is what drives that margin improvement.

Okay. That's helpful. And then, on your steps to right-size the manufacturing footprint, what else needs to be completed? I know we reduced the headcount. And we're starting to balance between the two different manufacturing plants. So what else will we see in the coming months to start to implement to really drive margin enhancement there?

I think at this point again, the work has been done. It really is throughput and ensuring that we're doing that as efficiently as we can. I will say the team we have has been working very hard on this. And when Eric Haynor comes in, he's got a lot of lean manufacturing experience that we expect will help us to accelerate that trend.

Okay. That's very helpful. And then lastly from me, have you heard anything from your wholesale partners on the recent price increases? And then, do you plan any more price increases to date, or are you fairly balanced based on today's input costs?

If I take it backwards, we feel like we're in pretty good shape for what we know today for the balance of the year on pricing. As I talk to our customers, certainly the retail environment right now is pretty challenging. And they've all referenced that. But we did see the price increase in February meet some resistance from the consumer; that has been coming back over the last six to 10 weeks. So we feel like we're in a pretty decent place there. We don't have to take any additional price increases and we will not need to take any kind of recision of any of that pricing going down. So we feel like we're in a pretty good place right now.

We'll take our next question from the line of Atul Maheswari with UBS. Please go ahead. Your line is now open.

Good evening. This is Atul Maheswari from UBS. Thanks a lot for taking my questions. So your guidance implies a modest revenue decline over the rest of the year at least cumulatively from the second to the fourth quarter and also a deceleration of the three-year CAGR. So what have you assumed with respect to the macro in this guidance? Does the guidance assume macro stays where it is, or does it assume an improvement later in the year?

We definitely are planning for quarter-on-quarter revenue improvement in Q2 through Q4 going forward. And I believe by the time we get to the end, we'll be lapping Q4 a year ago.

Okay. And then I guess with respect to consumer spending and the macro, you're assuming pretty much status quo?

Well, I guess if I knew the answer to that one, I'd probably be on the other end of this. But we certainly think that the environment is tough, but we feel like we're fairly well positioned for what we're facing right now.

Got it. And can you provide any color on quarterly date trends? Like have the year-over-year declines moderated thus far in the second quarter relative to the first quarter?

Quarter two does get a little bit stronger. So we think we saw the worst of it in Q1.

We'll take our next question from the line of Keith Hughes with Truist. Please go ahead. Your line is now open.

Thank you. You had talked in the prepared statement about second quarter and to see some big creative coming out we're using third party to do that. Could you talk about what kind of consumer you're going to be going after with the new creative? How it's going to be different?

Keith, certainly. So I think that's part of how our current marketing got a little stale is that our price points have moved up pretty sharply over the last four or five, six quarters. I don't think our marketing has matured with them. So we'll move not dramatically but more premium and more female in our targeting and our messaging than where the brand has been in its history. And for what it's worth, that is also the shape this category has naturally, and we were just a bit more narrowly focused on male and young lower-priced products.

Will it be more to older consumers? Is that a shifting focus?

I don't think we will be targeting older consumers exclusively. By definition, our audience may tend to be a bit older. However, our focus is on leveraging the innovation and differentiation that Purple brings to the category. Feedback from our customers indicates that they appreciate us as a challenger brand. We need to remain fresh, and I believe we have strayed from that a little.

Okay. Final question. You talked about sequential progress in the second quarter. Do you think you'll be able to register a positive EBITDA number in the second quarter?

I mean, we definitely think each quarter gets better and we beat the first quarter. So we'll let that unfold. But if the revenue holds up, we're feeling good about the direction.

We'll take our next question from the line of Matt Koranda with ROTH Capital. Please go ahead. Your line is now open.

Yes. Thanks. Maybe just along the lines of some of the pricing questions that you've gotten a little bit from a different angle here, just wondered if you could speak to maybe the assumptions around the promotional environment that you are assuming for the rest of the year. I know, Rob, I think you mentioned you don't expect to take additional prices, but also likely don't expect to get back pricing. Just how does that fit in the context of the promotionality, what you expect for the rest of the year?

Matt, one of the things that we're learning as part of that omnichannel maturity that I referenced both last call and this call, as a direct-to-consumer brand, we could pretty much do whatever we want, whenever we want with any lead time as it related to promotional activity. We got into that habit of being too frequent and not meaningful enough promotion. This category does have some clear kind of event-based seasonality that we had not participated in much. We're leaning towards fewer, stronger, and better promotions that do a couple of things. It puts us in the market when the consumer is in the market, but it also tries to put some integrity back into the MSRPs in the category for us. We've been doing that for a couple of weeks, actually a little bit more than a few weeks. So far, so good; it seems to be working. We've still got quite a bit of work left to do to make sure our promotion plan is resonating with consumers who are in the market for mattress and sleep products.

Okay. Very helpful. And then, just on the April restructure, I wondered if you could maybe just quantify some of the fixed costs that you removed from the business. And then, just on a go-forward basis, maybe, if you could tie that to what we should expect for core G&A and sales and marketing excluding the performance marketing spend that you have, it'd be super helpful.

The April event was about a $15 million impact on overhead, which is similar in size to what we did in January. The important message that I'm trying to make is that our cost structure allows us to make money with the current cost structure. We went and ensured that was in the actions we took, because it is an unclear environment ahead from a revenue standpoint. We wanted to be ready, so we went all the way down to the conservative view of revenue and said we can make money at these prices with this overhead, even with the additional capacity that by definition is going to be underutilized for a while. It's been fairly significant and not easy to do. I don’t want to be cavalier about that at all, but they were required. We think from here we can build up and forward as the volume grows.

Great. And if I could just sneak one more in on the store expansion strategy here for the next year or two. You got a lot going on in terms of the turnaround manufacturing-wise, repairing or improving some of the relationships on the wholesale side, fixing some of the marketing issues on the direct-to-consumer side. There's quite a long list of stuff to do here and you've got a healthy cash pile at this point. But just given some of the demand erosion that you've experienced and the whole category has, why continue to lean into the own store strategy and the build-out there in the near term, just given the uncertainties and the long laundry list of some have to do in the rest of that?

It's a good question Matt for sure. But really two things. Number one, they're working. They are; we think we can grow the four-wall revenue from the current plan. They are working, even through these difficult times. But the second is as we grow wholesale those 3,000-ish doors, they need to be able to see what this brand looks like. They have their own priorities to run, and I don't expect them to mimic at all what happens in our store. But it does put a North Star out there. This was very similar to the last industry I was in where high street stores in that industry are what we called them, but the difference was those didn't make any money, but they did help you define what the brand should look like. In our case, they're good, profitable investments, and they help those 3,000 stores understand what this brand should and can look like at retail. So the combination of those two is why we've continued to do it.

All right. Perfect. I'll turn back in queue. Thank you.

Thank you, Matt.

We'll take a final question from the line of Curtis Nagle with Bank of America. Please go ahead. Your line is now open.

Good afternoon. Thanks for taking the question. Just a quick one on the gross margin guidance. So getting to around 40% by the end of the year. I think previously that was getting to mid-40s. What's the biggest difference? Is it primarily lower expectations on direct-to-consumer sales, or is there anything else we should be factoring in there?

No. I think Curtis, it’s two things. It's lower revenue and we adjusted the cost. But it was a meaningful adjustment. It is a bit of the channel mix as wholesale plays a larger role in the volume going forward.

Got it. Okay. And then maybe just a quick follow-up on pricing. So it sounds like everything is pretty well set or changes need to be made. But if I remember from the last call, it sounded like you guys were getting a little bit of pushback. I think more on the entry level price points. Any update there? Has that dissipated? Any updates on that?

No, it's still consistent. There is some concern that we've left some volume on the table by moving away from one of the important price points that Purple used to play at. With the new Chief Innovation Officer, I got them looking at both the top end and the bottom end to figure out where the opportunity is, but that certainly is one of the contributors. Thanks, Curt.

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