Purple Innovation, Inc. (PRPL) Earnings Call Transcript & Summary

Good afternoon, everyone. I am Atul Maheswari, the mattress and hardline retail analyst from UBS. We are really excited to introduce the management team from Purple Innovation today. With us from the company are Joe Megibow, its CEO. Joe has been CEO since October of 2018. And prior to that, he was the Chief Digital Officer at American Eagle Outfitters. And with us also is Craig Phillips, Purple's CFO. Craig has been CFO since October of 2019 and has 3 decades of experience with a number of organizations during over 15 years in the big 4 accounting firms. Thank you, gentlemen, for your time today.

Joe, I'm going to start off with a high-level question. So really, can you give a brief overview of Purple and its go-to-market strategy? How is Purple differentiated from the other bedding peers? And most importantly, how's Purple differentiated from the rest of the bed-in-a-box space?

Sure. A lot of questions in there. I'll try to be quick. And thanks so much for having us. Terrific to be here. Yes. Purple is a -- we're a manufacturer first and foremost of premium mattresses and other cushioning products such as pillows and seat cushions. We've actually -- our roots date back over 3 decades. Our founders are really the inventors, the founding fathers of consumer gels. The blue gels you see everywhere were invented in our labs. And we actually have been making medical beds and medical cushions for the last 25 years through licensing and first-party manufacturing. About 5 years ago, we came up with a manufacturing technique. It's built on a machine of our own design called the Mattress Max machine that allows us to make consumer beds at a cost basis that allows for consumer pricing and at a scale that allowed us to go after more of a mass premium market, which really launched the Purple brand as a first-party consumer brand built on these decades of experience. Our core differentiation, first and foremost, again, as a domestic manufacturer, but what we manufacture, we believe, is the first real innovation in cushioning and sleep in the last 3 decades. It's this -- it's a material, we call Hyper-Elastic Polymer that we put into this gel flex grid formation, similar to what you see behind me. It's a remarkably soft, stretchy material that has unique properties and very, very even weight distribution. But more importantly, the way it is structured allows for instantaneous response as you move and sort of evolve your positioning through your sleep cycle. But also the nature of the grid allows for very, very efficient energy dissipation, which means it does not get hot as you sleep the way that memory foams do. So again, we believe it's the first real innovation since memory foam 3 decades ago, and have built our business around these differentiated premium products.

Awesome. And then your thoughts on the overall industry, Joe, of what do you think is the state of the mattress industry. Currently, the industry obviously has been pretty strong lately. So how long do you think this trend persists? And what are some of the leading indicators that you're tracking that would suggest softening in the demand environment? And then along those lines, Joe, how are you thinking of lapping some of the tough compares that you'll have to beginning second quarter of this year?

Yes. It's -- you're bombarding me with questions, Atul. The -- so the first thing to recognize is it's a pretty stable, consistent category that really hasn't seen a lot of growth in many, many years. It's been a pretty flat category, $16 billion, $16.5 billion of sales per year for the last 5 years or so. Last year, we did see a little bit of boost in the category, a point or 2 perhaps. But our business has not been built around category growth. That's not sort of our thesis or strategy. One of the things that's interesting in the category is it's a very unit-driven category dominated by value or commodity mattresses. By our math, about 75% of mattresses sold are value or commodity mattresses below the $1,000 price point. And the top furniture embedding retailers around these are mass consumer brands. It's 4 of the top 6 are IKEA and Amazon and Wayfair and Walmart. And most of the bed-in-a-box space really played into that side on price points, in convenience and some branding on largely contract manufactured commodity mattresses. What we found interesting is if you look at the 25% of units that are premium, that's what captures most of the industry revenue. So about 56%, 57% of industry revenue is captured by those quarter of units and an even greater percentage of industry profits. And there's been very little challenge or disruption to the major players on the premium side, whom have been getting stronger and more consolidated. And that was the more interesting play for us that we had a premium product that can compete on product merit and a price point that made sense on the premium side. And that's where we've been putting our energy. Again, we're not depending on category growth. This has been a share game, where we have been taking share from the premium side. And see a lot of headroom in front of us. We're barely -- it's between 5% and 6% share of the premium market right now and good momentum, and see a lot of opportunity in front of us.

Great. And then I guess switching gears to some of the share gains that you've had over the past few years. Clearly, a significant amount of share gains. You've far outgrown the industry consistently over the last several quarters. But if you look at the last quarter, the share gains did slow a bit. Still like 40% growth on a year-over-year basis, it's far above what any of your peers did, but the gap kind of narrowed a little bit. So what would you attribute that? Was it simply a case of the wholesale channel picking up for the overall industry relative to DTC and others being more levered to the channel that led to the narrowing of the gap? Or was there something else going on?

No. We -- I mean, full year, we grew north of 51%. And as you said, in Q4, we grew about 40% all in. Our online side of the business, meaning just the pure e-commerce side, continues to grow well. That actually grew 57% in Q4. And there was some softness at the end of Q4 industry-wide, I think outside of some nonseasonal patterns there. We had potential to grow even more. The challenges -- the premium side of the category is very brick-and-mortar led. It's been historically 85% brick-and-mortar. So while our e-commerce business continues to perform admirably and continues to grow at fairly strong rates, a big part of our go-to-market strategy has been leaning hard into brick-and-mortar. We have 2,200 doors that we're sold in right now through a variety of premium specialty mattress and furniture retailers. That is a big part of our growth strategy. This year, we've guided that we'll be adding as many as 1,500 additional doors this year. So in a market that is so brick-and-mortar focused, having that side of the business perform is a big part of our growth. And with the pandemic last year, that obviously was a challenged category in the brick-and-mortar side. Much of the growth from most of the retailers of mattresses saw huge booms to their e-commerce businesses but continued to struggle to get the brick-and-mortar side back to work. We're seeing tremendous improvements. And we anticipate leaning into that hard this year. But through the end of last year, we continue to see some softness on the wholesale side, which we continue to see come back post-pandemic.

Great. I'm going to get to wholesale in just a little bit. But prior to that, on the guidance for the full year, it does imply a ramp in the back half of the year. So maybe you can provide us with a sense of all the initiatives that you have in the works that should drive that acceleration in the back half. And maybe rank order those initiatives in terms of importance as well.

Yes. We -- it is a little more of a backloaded plan for sure, and that really is built up from a series of initiatives. For those who are interested to dig into our earnings call script, I do spend a little time leaning into half a dozen initiatives there. But at the highest level, one I just spoke to is wholesale door expansion. And that just -- there is a curve to bringing those doors online that we anticipate really leaning into Q2 and then into Q3 and expanding the door count. That is the single most effective lever we have for growth in brick-and-mortar. We did announce that we're opening 20 to 25 of our own showrooms, which provide significant contribution to our business. And again, Q1, we haven't announced any new doors yet. We anticipate that ramping through the remaining 3 quarters of the year. We've got a number of product initiatives, both on price points, assortment expansion and some new products that, as they launch, drive revenue opportunity. I mean we have a much, much [Technical Difficulty] than the traditional premium players as compared to, say, a Tempur-Pedic or a Sleep Number. Our assortment is quite a bit smaller. And part of our strategy is to continue to build out our consumer choice assortment and price points and more of that is launching in the year. And we have some very significant upgrades coming to our website. We've been on a Shopify platform, which is a terrific platform, and we've been very impressed with what they've been able to do for e-commerce in general. We have needs that have grown far beyond what Shopify provides out of the box and are launching an entirely new platform really designed specifically around the complexity of the bundles and offers and cross-sells that are typically done in brick-and-mortar and have been harder to replicate online. We've been very good. We've been really led online with these capabilities and have a lot more coming that we believe will also unlock revenue opportunities. So I mean it's a very initiative-driven plan. It's just a matter of getting these things landed, which we're well underway on, and getting the benefit of that throughout the year.

Got it. That's super helpful. So as you look at the initiatives that you have in the works, essentially, relative to your guidance, what would drive the most upside? And where do you see the key risks that lie?

The -- on the risk side, the biggest risk we have right now, which nearly everyone in the category is talking about, is just supply chain constraints. We are vertically integrated. We manufacture ourselves. And the core ingredients to the unique parts of our product are not constrained right now. What we do in our premium mattresses have -- it's a hybrid mattress. There's a coil core, and there's been some component shortages in getting coil into mattresses, and that has been a constraint on our business. We're getting what we need right now, but we're not getting what we need for the growth that we anticipate. We -- our channel checks and our partnership and as well as additional suppliers that we are bringing online, we do believe we can get the capacity we need. But it is a risk that is -- the entire category is facing right now. Yes, on the upside, we've continued to outperform through the years. New product we're launching. Our Harmony Pillow is a perfect example, far exceeded any of our expectations in any of our internal planning. We've done a really good job of really designing the right product that meets our consumers' needs. I mean, and some of that, it's just good old-fashioned hard work on innovation. Our Harmony Pillow, we spent 1.5 years perfecting over 55 prototypes, a couple of new patents out of that. I mean it is a very unique design, and that's our approach, and we have seen overperformance. So assuming we can get these products out the door, and if we get the kind of lift we've seen from some prior products, there's absolutely upside potential.

Awesome. I want to touch upon the channel dynamics of -- at Purple. So wholesale has been a little slower to ramp. But as you mentioned, you are expecting an acceleration this year. So what's giving you the confidence there? Are you already in discussions with a bunch of new potential players? Or are you leaning in more heavily to the existing partners that you have? And then also what's [Technical Difficulty] for the DTC channel for the year ahead?

Yes. It's -- yes. So for wholesale, yes. I wouldn't say it's been slow to grow. I'd say it was slow to grow in the middle of the pandemic. I mean, I think we added nearly 1,000 doors in 2019. We -- so I mean, we were on a ramp for significant wholesale expansion going into the pandemic. It's slowed during the pandemic. And we're really just getting back to the pace we were at. There's -- you look at, say, like a Tempur-Pedic that leans heavily into wholesale. I believe they're in over 8,000 doors now. We're in, call it, 1,900 domestically, 2,200, including Canada or so. We're very early in our saturation. Mattress Firm, we're in 900 of their 2,500 doors. And there are very large, reputable furniture chains that we're not in at all. So I mean there is a -- there are far more doors we're not in than we're in by a lot. And the channel pressure we're getting is we're the biggest brand sold in furniture and mattress specialty that isn't on the floor at the majority of the stores. And we're hearing a lot of pent-up demand to get our product on display. The limiting factor historically has been capacity. I mean we are a manufacturer. We need to have the capacity to make our product. And we've been constrained for the last 4 years. This is the year we're building capacity faster than our anticipated growth of the company, which is what we want. We want to have some surplus capacity for a whole lot of good manufacturing reasons. So combined with the capacity growth we have and the pent-up demand that we're seeing, there are many paths forward for us to hit our wholesale goals. And it gives us some protection on our ability to do that right now. DTC will continue to move along. Our DTC, we really view as own retail. We're leaning heavily into getting our showrooms up. We have 9 right now. We said 20 to 25 this year. We really want to make sure we've got representation in most major markets to bring our full brand story and full assortment to life, and they are very productive boxes for us. They really have exceeded our expectations there as well. And in e-commerce, I mentioned the new platform, which we're launching. I mean we're also leaning heavily into, call it, our other showrooms, which is our contact center. It's been an enormous source of growth for us. I'm leaning into human-assisted online selling. It resonates at these premium price points. I mean, these can typically be orders in the $3,000 to $5,000 range. And it is driving a significant percentage of our online business is going through the contact center as well.

Okay. That would be a good lead-in to my next question, which is on capacity addition. So I want to touch upon the Atlanta facility. I guess, machine 8, it's already online, 9 should be here, I think, early second quarter. And then you've got 10 and 11 in the back half. So is the $80 million to $100 million in revenue per machine that you've cited in the past still the right way to think about capacity of -- per machine? And then -- which basically means that by the end of this year, you would be doing, on a run-rate basis, around $1 billion.

Yes. So if you model out our full year guidance, where we are in Q1, what we've signaled for Q2, it does imply that Q4, we are running at or around a $1 billion annual run rate, if you were to carry that forward. So I think that's right. I think it's going to be harder. We've been -- because we were so capacity constrained and really our growth curve was tied directly to the rate of expansion in our mattress building machines our Mattress Max Machines, it was a pretty safe bet to just take Max Machines multiplied by some total revenue contribution and assess what our potential was. I think it's going to be harder to do moving forward. The $80 million to $100 million that's been historically out there, I think it's still probably a good index. But in a world that we're growing capacity faster than we're growing our business, there becomes a little more of a disconnect as we build overhead and the ability to balance as we've now got a manufacturing facility on both coasts. We -- our nonmattress business is growing faster than our mattress business, which is upside potential as well. So -- but we also are leaning more into wholesale year-over-year, which drives down the revenue potential per mattress as we just collect less net revenue. So I mean, there's puts and takes. And I think the model is going to evolve, so I'm not sure that's the perfect index indefinitely. But it certainly held true up until now. And it's probably a good guardrail moving forward for the moment anyway.

Got it. That's helpful. [Operator Instructions] So Joe, I think you did touch upon some exciting new products that are planned for 2021. But can you provide some sense of what's coming on the mattress side, what's coming on the accessories side? And what are some of the expected timing for these launches?

Yes. There's -- I mean there's some product that I'm happy to hint to, which are really just extensions and expansions of existing product. I mean, I mentioned our Harmony Pillow product that just we really nailed, and we've honestly struggled on that one as well to keep up with demand. So we're building an enormous amount of additional capacity around that, including our supply chain for some of the key components into that. But if you were to look at a traditional premium pillow assortment, it's typically going to be something along the lines of having both standard pillows and king-sized pillows in a variety of thicknesses, a short pillow, a standard and a tall pillow. So if you took that on 2 sizes each, that's 6 SKUs. We have 2 of those 6 represented today. We don't have a king pillow, and we only have it in 2 heights. So that's a no-brainer for us to continue to provide more consumer choice and flesh out these assortments. Which we absolutely are going to do. And there's some of that in mattress. There's some of that in the accessories, and you'll see a number of those kinds of expansions landing this year which carry revenue potential. There are more exciting products that we have planned for later in the year. So while some of those expansions will happen in Q2 and Q3, in Q4, we do anticipate some meaningful advancements. On the sleep side, not a lot to announce at this point other than we've been investing heavily on the R&D side of our business. And we'll finally have some advancements to show on that, that I think will really set us up for 2022. So yes, a little bit of a taste on what's coming and the timing.

Awesome. Thank you. And I got one question e-mailed to me which is on the imported mattresses. And it looks like there's -- ever since the antidumping duties were implemented on 7 countries, imports were down. I think in December, it was down 60% or 65%. How do you -- and that probably becomes [Technical Difficulty] for the entire domestic sector, I guess, through 2021. So how does that really help Purple, if at all it does, [Technical Difficulty] that you have?

I think it tangentially may help us. I think the reality is back to my assessment of the category. There's a very large unit-driven side to this on the commodity side and imports have driven the commodity side. So there may be some price pressure on the value side of the equation. And I think it may allow some of the more domestic manufacturers to compete. Again, I -- it's just -- it's not where we're seeing the competition on the premium side. That has not been an import-heavy side of the category. So it's fascinating to watch. I'm not sure that has a lot of direct impact on our specific consumer segment.

So shifting gears, I want to touch upon international expansion. So you mentioned Canada recently, I mean not -- the country has been in a lockdown since your entry, but that's probably going to normalize at some point this year. But really, after Canada, what's the thought process behind international expansion? Would you at some point look to enter Europe? Is there any time lines that you can share? And what are typically the incremental investments that would be required for such an expansion?

Yes. We have -- I mean, there are many areas of growth for this business. International is one. And there's some really interesting category expansions we can do outside of sleep as well. On international, we're taking our time. We believe -- I mean as a manufacturing-constrained business, our job one right now is to build up our domestic capacity and take domestic share. And we are laser-focused on that and are not going to do anything to disrupt our focus there. That said, Canada was a straightforward extension in North America for us to test some. It's in different regulation. The beds are manufactured all differently. There's language requirements. There's currency and export requirements. So I mean, it's a good test the water in the international. And it turns out consumer tastes are different in Canada, too, which is why we launched a all-new mattress, our Purple Plus specifically for Canadian markets. We -- half the market is not in the U.S. We see tremendous potential outside the U.S. It's a much more fragmented market, and there's a wider array of consumer taste and consumer price points. So we're not going to rush into international. I've got a great consultancy out of London doing some market sizing for us right now and looking at some of our channel-entry opportunities. Because it is a manufactured product and a relatively heavy product, there's a lot to figure out in terms of how much, if any, we manufacture domestically and export and how much we establish manufacturing operations elsewhere in the world. But we do see some very attractive markets, and we intend to go after them. I would anticipate starting to see some expansion sometime next year without any real meaningful push likely till probably 2023.

Then a question on gross margin that got e-mailed to me. So the person's asking that your gross margin is a little bit below its peers even as it stands today. So, a, why is that the case? And would you expect gross margins to [indiscernible] where your peers are in the next few years? [Technical Difficulty]

No, it's a good question. So I mean, against the 2 largest incumbents in the premium side, our margins are lower. They are both 3-decade-old companies that have the advantage of time in maturing their supply chain and more importantly maturing their manufacturing capabilities. We're a very young manufacturer, manufacturing a relatively complex product. There's just more COGS in our business to start with. That said, we see we're in very early innings on efficiency gains, and we make the equipment that makes the mattresses. And as we've gone through this process, we found tremendous opportunity to increase yield, reduce labor dependency as well as just outright manufacturing efficiencies. And these are gains that we can retrofit onto all of our machines. It's just good old classic engineering. So we have years of investment in efficiency gains that are meaningful in front of us. It just takes time to build that out. We're also investing in growth fairly substantially, which has margin pressure. We are building new facilities and carrying the start-up costs and overhead there. We are still building out the organization. We are still investing heavily into things like showroom expansion and retail expansion. So there's just call it start-up or onetime expenses. We carry that does impact gross margins in the short term. Most importantly, we're going up market. I mean there is margin we can manufacture into our product assortment. Newer products at higher price points and re-assortment of existing products with just more margin intrinsically built into the product design. And that absolutely is part of our strategy, and you'll see some of that coming this year. I mean we have 4 mattresses for sale in the U.S. right now. The intrinsic competitors have dozens and at price points that expand overall margin. So we're getting there. And we see a lot of opportunity over the coming years to improve our margin position.

Great. So I guess, let's talk about some of the unused patents that you have, which you would -- I mean, we touched upon this a little earlier. But you could use some of your unutilized patents to potentially enter in new adjacent -- new sleep or nonsleep-related categories altogether. So can you probably cite some examples of what's possible to the extent that you can. And when would you look to enter into such categories?

Yes. We -- I mean, we have a really robust patent portfolio and some really novel uses. I mean it runs the gamut far beyond the grid you see behind me and mattress products. Seat cushions is an example of another product we're getting tremendous growth right now, far outpacing our mattress growth. But a simple example. We have patents around a lattice formation of elastic polymer that we can actually make reams of, so rather than injection molding, more of extruded reams. And it makes for a very flexible but very protective, almost like fabric material that can be used as liners and things. It can be used for cushioning. It was originally designed for things like inside gloves or knee pads. I mean -- and are we going to get into that business? Probably not for a while. But I bring that up as an example of how far out the extensibility of our cushioning technology is and the kind of markets we could get into. Whether it be travel or transportation or furniture or office or fitness or gaming or sporting goods or -- I mean, it goes on and on. Where there's cushioning, we likely have some advancements that we've worked on. Right now, we're focused on our core, which is the revenue and margin opportunity in mattress is substantial. We have a lot of share growth in front of us. Our pillows and seat cushions right behind, and in many cases, actually leading now. And that is our primary focus. But over the next 5 to 10 years, there are category extensions and outright all new categories that we see all sorts of opportunity with. And it's part of the exciting part of our business.

Great. A near-term question that got e-mailed to me, Joe and Mike -- and Craig, to the extent you want to chime in as well. But first quarter revenue growth, it does imply just mathematically a slight bit of slowdown from the fourth quarter. The person wants to know why is that the case given some of the wholesale sales got shifted into the first quarter. Is it simply a case of the management being conservative? And also the person wants to know what happened in the last 2 weeks of March last year. Are you [ lapping easy ] compares?

Last 2 weeks of March or December?

Last 2 weeks of March of 2020.

Of March?

So what happened when the pandemic hit, I think, is the question.

Yes. Yes. So thanks, Craig. Yes, we -- Q1 is more of a momentum quarter for us. We did not announce any showroom expansion. We did not announce any significant wholesale expansion. So it's basically structurally the same as Q4. Q1 historically is a slightly down quarter to Q4. Q4 is a big quarter seasonally. We are still seeing substantial growth year-over-year. And in dollar contribution, significant dollar contribution growth. So yes, we don't see any softening in the business or slowing down in the business. It's really just a factor of seasonality and coming out of the COVID bubble with the shift back -- more back into wholesale, although not a lot of that shift is happening in Q1. As to March, I mean -- when the pandemic hit, we -- no one knew what was happening. We shut manufacturing operations down. We furloughed 1/3 of the company. Wholesale, all but disappeared overnight. So I mean, there were some fairly drastic changes we made, and we were about to sign with our new manufacturing facility which we just shut negotiations down. So I mean there was a lot that happened there. If there's anything I'd say from that, it's a good evidence of the power of vertical integration. I mean, we have an enormous amount of variable expense that we can ramp up or down as needed, and we did that in preservation of cash. And we had ample inventory because we had a lot of inventory intended to go out to wholesale for Memorial Day that ended up not going out because of the shutdown. But in general, we don't stockpile a lot of inventory. So we were able to burn down that effectively. So yes, it was a good example of what we're capable of. In retrospect, it would have been great to never shut anything down and keep going as we ended up having far more demand than we had capacity. But at the time, no one knew what was going to happen. And it was the right decision, and it's great that we have a kind of business that can protect that way.

Yes. On a comp perspective, if that's what your -- that's how you're looking at it from a wholesale perspective, because everything was shut down we did -- it kind of fell off a cliff in the middle of the month and didn't recover. But on a DTC perspective, we did see a slowdown for several days starting in the middle of the month, but then it started to pick up right at the end, like the last 5 or so days is when we really started to see the tick up in DTC. We didn't know how long it will last, but we did start to see it around then.

That's right. Cool, I don't know if you're saying 4 questions have come in through the console. I just want to make sure you've seen those. I'm happy to convey them if you're not seeing them.

Yes. If you want to go ahead and address them.

Yes, I'll hit them. In the managed Q&A section, if you've got that, they're showing up under new questions. There's a question just about M&A as -- and it's -- I assume implied here, given the strength of our balance sheet now, which has never been stronger, and we've got a $55 million revolver behind that. And our market capitalization gives us some value as well. What's our view on M&A? And specifically, there was a question around some of the than the box players. We are looking at a number of M&A opportunities as we should be. We have very little interest in the bed-in-the-box players as we're a product-focused company focused on innovative technologies. And nearly all of the bed-in-the-box players are contract manufactured mattresses from existing manufacturers we could work directly with. So you're really just buying a brand or buying a customer base, neither of which is what we feel the best use of our capital. But there are interest being both vertical integration opportunities as a manufacturer and technology advancements that are out there that we are looking at, and we may pursue those in the future. Atul, do you want me to keep going? There's a few other.

Yes, please feel free to accommodate those questions.

There's a question on like our Harmony Pillow and mass appeal, and do we see ourselves hitting big box stores. We are mass premium. So the idea of going into some of more of the more traditional value-priced stores, we don't anticipate doing. That said, the large premium department stores that don't necessarily have furniture and mattress departments but do have very strong bedding departments, we absolutely see as opportunities for things like our pillows. And we're exploring that as we go. So yes, we do see that there is other wholesale distribution opportunities for our nonmattress products, especially on things like the pillows.

Right. So I'll sum up now. So essentially, the longer-term question that one participant has is, beyond 2021, is 25% to 30% type growth rate sustainable for the next few years? I don't know, to the extent [Technical Difficulty].

Yes. That's -- it's a good question. I think -- I mean, again, we grew 51% last year. We're signaling more like 30% growth this year or higher. So we do anticipate over the next 3 to 5 years, some deceleration of growth. Even talking about getting within, call it by 2025 toward $2 billion of net revenue and being that #2 premium player. I mean even at like a 20% CAGR, you're hitting those kinds of net revenue size. So it's the law of large numbers. The bigger we get, the less growth we need to start to approach some of the largest players out there. So yes, I do think there's going to be some deceleration. We're not going to see these 50% to 80% growth years as we've seen in our history. But the idea that we can continue to sustain 20% to 30% growth, yes, I think we've got a number of years in front of us, especially as you factor in international expansion in new categories for many years to come.

Great. And then the question on your -- expanding your own showrooms. Is 20% to 25% -- I mean 20 to 25 new showrooms this year, is that enough or given what some of your competitors are doing? And then are you simply -- is it simply a bit on [ pro forma ] doubling down on DTC?

Yes. No, we -- so is 20 to 25 new showrooms this year enough? Probably for this year, yes. I mean we have 9 today, 4 of which just launched in the last 4 months. And there's a -- there are many retail casualties out there from overbuilding too fast. We've been really good at learning as we go, getting the format right, and our newest stores are dramatically outperforming our earlier doors off of the learning there. So -- and this isn't a skill that -- I mean, going from sort of 0 to 10 and 10 to 25 is a lot harder than going from 25 to 300. It's -- so we are getting it right now. And I mean, given that we're basically a quarter of the way through the year, we're still talking about, call it, 2 stores every 3 weeks is sort of what we're talking about right now for the rest of the year. So we do think that's a healthy pace for this year. I think the larger question is, do we see showroom expansion beyond this year at a higher pace? And yes, I think there will be some acceleration in showrooms as we move forward. Mattress Firm is 2,500 doors. I don't see us getting anywhere close to that. Sleep Number has over 600 doors. I also don't see us getting into that level as we fully intend to be an omnichannel retailer with wholesale as a part of our business. We continue to guide sort of a 70%, 30% owned versus wholesale split. But there's -- to get national penetration, if you look at sort of benchmark retailers, sort of that 200 to 300 mark is when you typically get somewhere around national penetration. And I do think there's a lot of headroom for showrooms for us.

Awesome. And the next question from an audience who owns Purple, loves it. But is asking, would you ever try to enter into the legacy space, such as producing memory foam beds?

Goodness, no. So I suppose I could eat my words at some point in the future. But no, I mean, first of all, by no means are we so passionate about our product that we believe Purple is right for everybody. There are many tastes out there. There are many price points. There are many needs. And we're not going to be so bulls to say that Purple is the one mattress that every human being should choose. It's a big market. That said, we do believe that we've got a compelling premium offering that is a better mattress for most. And our entire strategy on our new technology is that this is an improvement on the memory foam. So we -- to go backwards, I don't know why we would pursue that. And it turns out memory foam's very divisive. There -- it's one of the first questions asked, if you go into a mattress store. Do you like memory foam or not. There are customers who love it, and that's great. And if they do, we actually have something that does everything memory foam does and has fewer the downsides. And then there are those who really don't like memory foam. It's slow to react. It can get very hot. And we've got something that gives the promise of memory foam, the adaptive support without the downside as well. So again, we view ourselves as the first real challenger to memory foam. And sort of by definition, I can't imagine us selling memory foam.

That makes sense. So another question is on your -- on some of your products, such as the Harmony Pillow that could have mass appeal. Would you consider selling those products through big box stores?

Yes. I think while you're looking at that, Atul, I hit that one a little bit. So -- and we did say premium department stores that have bedding, but not furniture, I do see opportunity for us, especially with products, Harmony is $159. It's a premium pillow. We do believe that there's going to be some channel expansion opportunities there.

Awesome. And then the last few minutes that we have. I want to touch upon the longer-term question. You mentioned being the #2 player as one of your goals, that would -- as you mentioned a little earlier, $2 billion in revenues. When you are scaled at that level, what is the EBITDA margins that you think you can generate? You're guiding to around about 11% margin for this year. Where do you think that number would be at $2 billion level?

Yes. I -- there's been public challenges out there on can we get to, say, a 15% EBITDA margin at that scale, say, 3 to 5 years out, more in that 2025 range. And we absolutely believe that we've got the headroom. And as our investment in growth gets absorbed across a larger base, as we get a much broader assortment out there with price points that have just more intrinsic margin in there. And as we capture these efficiencies, we absolutely see margin expansion opportunity. So I think the idea that we could get toward a 15% EBITDA margin when we get to that size of company, I think it's absolutely in the realm of possibility.

Awesome. I hate to break the party, but we have run out of time. So again, on that note, we'll have to wrap it up there. If you have any other questions, please free to e-mail them to me, and we'll reach out of the company off-line. But again, thank you so much, Joe and Craig, for your time and for your valuable insights. This was wonderful. And to the audience, thank you so much for dialing -- for listening in and sending in your questions. I hope everyone has a great rest of your day and stay safe. Bye.

Thank you.