NEW YORK--(BUSINESS WIRE)--Casper Sleep Inc. (NYSE: CSPR) today announced financial results for the quarter ended September 30, 2020.

Third Quarter 2020 Financial Highlights (as compared to the quarter ended September 30, 2019)

• Revenue decreased 3.3% to $123.5 million;
• North America revenue increased $2.2 million or 1.8%;
• European revenue was negligible due to the closure of our European operations in the second quarter of 2020, compared to approximately $6 million in the quarter ended September 30, 2019;
• Direct-to-Consumer Revenue decreased 11.4% to $89.9 million;
• Retail Partnership Revenue increased 28.3% to $33.6 million;
• Gross Profit increased 5.9% to $68.5 million with gross margin of 55.5%, up 480 basis points;
• Net Loss improved $7.2 million or 31.1% to $15.9 million;
• Adjusted EBITDA loss improved by $9.3 million or 55% to $7.5 million; and
• Cash and cash equivalents of $96.1 million at quarter end.

Philip Krim, Chief Executive Officer, comments: “Casper’s third quarter was highly productive but unfortunately we believe the results don’t fully reflect the health and potential of our business. We saw record interest for our products evidenced by record website traffic, continued to drive gross margin expansion and progress towards profitability, and had another sequential quarter of growth; however, our top-line growth was disappointing based on the initial demand signals. Challenges in our supply chain, including industry-wide shortages in textiles and chemicals critical to foam production, led to significant out-of-stock inventory both in our direct-to-consumer and retail partnership channels. Many of our core mattresses were out of stock on our website for weeks at time and we were unable to monetize the full demand from retail partners leading to cancelled orders.

We have made significant progress addressing some of our supply chain challenges. Specifically, we have on-boarded new Tier 1 and Tier 2 suppliers and vendors; we are putting in place redundancies across key supply chain points and implementing improved inventory planning; and we are actively building up our safety stock which will help protect against further disruptions. We believe the worst of our supply chain disruptions are behind us, and we are well-positioned going forward.”

Mr. Krim continued: “We are actively managing the business to best position Casper for the future and are excited about the many opportunities in front of us to enhance shareholder value as we continue to leverage our leading brand and scale our multi-channel distribution. Our organization is focused on long-term, sustainable growth and we believe our expanded distribution, current growing product offering and pipeline, strong brand awareness, refined marketing expertise and healthy balance sheet position us well to achieve our goal of sustainable Adjusted EBITDA profitability starting in mid-2021.”

Third Quarter 2020 Review (all comparisons to the three months ended September 30, 2019)

Revenue was $123.5 million, a decrease of $4.2 million, or 3.3%, compared to $127.7 million. North America revenue increased $2.2 million or 1.8%, while our European operations, which closed at the end of the second quarter of 2020, had negligible revenue compared to revenue of $6.4 million for the three months ended September 30, 2019. Direct-to-consumer sales decreased 11.4% driven by the closure of our European operations and limited store offerings in response to public health and government orders and depressed retail foot traffic due to the COVID-19 pandemic, partially offset by a modest increase in North America e-commerce sales. North America direct-to-consumer revenue decreased by $6.1 million or 6.3%. We ended the third quarter with a retail presence of 65 stores, an increase of 17 net new stores compared with our retail footprint in the third quarter of 2019, with 64 of our 65 stores open and operating as of the end of the third quarter. Total retail partnership revenue increased by $7.4 million, or 28.3%, to $33.6 million driven by growth of sales activity with existing partners and the introduction of 7 new partners compared to the same period in the prior year. We ended the quarter with 21 partners, and an expanded range of product offerings. North America retail partnership revenue increased $8.3 or 32.6%. Additionally, during the third quarter 2020, we believe our revenue was negatively impacted by supply chain constraints that extended the time required to fulfill customer orders and resulting in lost orders. We have taken active measures which we expect to mitigate these supply chain issues in future quarters.

Gross profit was $68.5 million, an increase of $3.8 million, or 5.9%, compared to $64.7 million. Gross margin of 55.5% increased 480 basis points compared to 50.7%. The increase in gross margin was primarily driven by favorable product mix related to our new mattress line launched in March 2020, as well as lower logistics costs due to a change in service provider. Gross margin also benefited from an 80 basis point partial reversal of a charge taken in the first quarter of 2020 associated with a change in logistics providers.

Sales and marketing expenses were $42.6 million, a decrease of $2.0 million, or 4.5%, compared to $44.6 million. Sales and marketing expenses decreased due to reduced advertising spend resulting from lower online and offline media costs and improved marketing efficiencies. Sales and marketing expenses as a percentage of revenue decreased 40 basis points to 34.5% from 34.9%.

General and administrative expenses, which include store operating costs, were $39.5 million, a decrease of $1.8 million, or 4.3% , compared to $41.3 million. General and administrative expenses decreased primarily due to lower payroll costs and lower operating expenses associated with our corporate workforce working from home and limited store operations, partially offset by increased expenses related to being a public company. General and administrative expenses as a percentage of revenue decreased from 32.4% to 32.0%.

The Company recorded restructuring expenses of $0.2 million related to previously announced steps to reduce our cost structure and exit our European operations.

Net loss was $15.9 million, a decrease of $7.2 million, or 31.1%, compared to a net loss of $23.0 million.

Adjusted EBITDA loss was $7.5 million, a 55% improvement of $9.3 million compared to a loss of $16.8 million. See below for a reconciliation of Adjusted EBITDA to the most directly comparable measure calculated in accordance with GAAP, net loss.

Balance Sheet

As of September 30, 2020, the Company had cash and cash equivalents of $96.1 million, compared to $67.6 million as of December 31, 2019. The increase was driven primarily by $88.0 million in net proceeds from our initial public offering, partially offset by $47.0 million of cash used in operating activities and $12.6 million invested in property and equipment, primarily to build retail stores.

Recent Initiatives

Our Casper retail stores remain critical to our multi-channel strategy, providing our customers the opportunity to experience our products before making a purchase. Since the temporary closure of all our retail stores in North America in mid-March 2020, we have reopened all of our 66 total stores as of the date of this release, with each offering walk-in shopping, private in-store appointments, curbside pick-up services, as well as virtual appointments. As part of our retail operations, we have implemented and continuously update a suite of COVID-19-related operating policies and protocols, including providing modified service offerings where advisable, with the health and safety of our customers and employees as our top priority. We have also developed procedures to enable us to responsibly and efficiently open or close our stores and adjust our service offerings as needed in response to changing COVID-19 conditions and applicable guidance from government and public health officials.

We continued to see strong demand for our products on our e-commerce platform and from our retail partners in the third quarter. COVID-19-related supply constraints and labor shortages experienced by certain of our suppliers and logistics partners, coupled with the lean levels of safety stock inventory we generally maintain as part of our flexible manufacturing model, resulted in increased delivery times for certain products on our website and impacted order fulfillment for certain of our retail partners. As a result, during the third quarter, sales in our e-commerce and retail partnership channels were meaningfully impacted by product and delivery supply chain constraints. We are actively qualifying and on-boarding new suppliers, working in close partnership with existing suppliers to re-build safety stock inventory levels, and enhancing internal inventory planning and monitoring capabilities. Taken together, we expect these actions and additional capacity to significantly mitigate inventory constraints in future quarters.

Outlook

The Company today provided an outlook for certain financial metrics for the quarter ended December 31, 2020 (the “fourth quarter 2020”), reflecting certain assumptions by management regarding the Company’s business, trends, historical seasonal factors, and the continuing impact of the COVID-19 pandemic on its business. In addition, the outlook assumes there will be no material changes in world events, weather, recent consumer trends, economic conditions, competitive landscape or other circumstances beyond our control that may adversely affect the Company’s results of operations.

In the fourth quarter 2020, the Company expects revenue of approximately $132 to $142 million, driven by year-over-year growth in the Company’s e-commerce channel and the expansion of its retail partnerships. At the mid-point, this range represents high single-digit consolidated growth and double-digit year-over-year growth for its North America business in the fourth quarter 2020.

About Casper

Casper believes everyone should sleep better. The Sleep Company has a full portfolio of obsessively engineered sleep products—including mattresses, pillows, bedding, and furniture designed in-house by the Company’s award-winning R&D team at Casper Labs. In addition to its e-commerce business, Casper owns and operates Sleep Shops across North America and its products are available at a growing list of retailers.