Pandemic lowers Q1 earnings for Sleep Country
TORONTO – Until mid-March, this was shaping up to be another record setting year for Sleep Country Canada Holdings (SCC), the publicly held parent of this country’s largest mattress speciality retailers, as sales and earnings were trending higher than ever. And then, the COVID-19 pandemic struck shutting all its 276 brick-and-mortar stores from coast to coast.
“Ours is a tale of two realities – before and after COVID-19,” SCC president and chief executive officer David Friesema told analysts in a conference call to review the company’s first quarter 2020 results.
Revenue for the three months ending 31 March 2020 was $151.6 million, up 1.5% from the $149.3 million rung-up during the same period of 2019.
Same store sales for the period fell 0.9%. However, through the end of February, sale store sales increased by 13.1% – a measure that fell precipitously after all of SCC’s brick-and-mortar stores closed across the country. (At press time, they had yet to re-open.)
Mattress revenue was $122.0 million for the period, up 2.8% from $118.7 last year million while accessory sales totalled $29.6 million – a decrease of 3.3% from the comparable period’s $30.6 million.
Net earning for the first quarter totalled $5.0 million or 14 cents per diluted share, compared to $7.8 million or 21 cents per diluted share – a decline of 33.3% on a per share basis.
On the positive side of the ledger, Friesema noted e-commerce sales have grown 143% since the stores were closed. He also told analysts the company remains in a strong cash position with $52.7 million on hand at the end of March.
However, the company didn’t break-out e-commerce sales, which are driven by Endy – the direct-to-consumer mattress retailer it acquired in December 2018 – as well by the virtual stores operated by its two other banners, Sleep Country and Dormez-Vous?
The shift to e-commerce was augmented with the introduction a contactless delivery process and by the launch of its Sleep Expert Chat program, which is designed to help customers navigate the purchase of mattress and accessories either online or by telephone. Friesema noted the chat program was originally set for introduction later this year, but the pandemic quickened its launch.
Although much of its workforce was laid off when the stores were closed, SCC transitioned many of them to paid leave of absence after successful application to the Canada Emergency Wage Subsidy (CEWS) program.
As part of the effort to conserve resources, Friesema told analysts SCC has expanded its secured credit facilities to access an additional $50 million. It will postpone most of the new store opening and renovations planned for the rest of 2020. It will also suspend dividend payments to shareholders as well as its ongoing share buy-back program until the crisis is over.
It will also defer cash compensation paid to members of its board of directors while senior executives will see as much as 50% of their salaries deferred.
“The story of this year’s opening quarter is a dichotomy of before and after COVID-19,” Friesema said. “Sleep Country began the quarter with powerful growth across our entire company. With rapid e-commerce expansion in all three brands, promising market share capture, solid free cash flow and the strongest same store sales performance we had seen in years, we entered the health crisis from a position of financial strength.
“Once the full impact of COVID-19 became apparent in mid-March, we swiftly closed our retail stores to protect our associates and customers while also shifting the entirety of our business online,” he continued.
Friesema told analysts the company’s past investments in it omnichannel platforms will keep it in good stead over the company months, noting since the launch of the Sleep Expert Chat program, the number of session have grown exponentially, driving high average unit selling prices and overall improvement in customer satisfaction.
“We have taken proactive measures to manage our financial position, ensuring we remain sustainable and liquid through the COVID-19 pandemic and recovery period,” he said, adding, “With these prudent initiatives, we are confident that our business will rebound with vigour and remain Canada’s premier mattress and bedding retailer.”