On Wednesday, Craig-Hallum maintained a Hold rating on Purple Innovation (NASDAQ:PRPL) while raising the price target to $2.00 from $1.00. The adjustment comes after Purple Innovation reported its fourth-quarter earnings, which showed sales in line with expectations and a smaller-than-anticipated adjusted EBITDA loss. The company's forecast for the fiscal year 2024 also surpassed consensus estimates for sales and adjusted EBITDA.
The firm's analyst pointed out that while the Q4 results were solid, the Q1 outlook was less impressive. Despite easy comparisons to the previous year, Purple Innovation expects a significant sequential decline from Q4 and a wider adjusted EBITDA loss. However, the settlement agreement with Tempur Sealy (NYSE:TPX) was seen as a slight positive, potentially delaying any reduction in Mattress Firm wholesale doors until after the Tempur/MFRM transaction closes in the fall of 2024.
The analyst highlighted that Purple Innovation needs a substantial improvement in sales and profitability from the second to fourth quarters to meet its guidance.
The company's performance is now significantly reliant on gross margins returning to around 40%, a notable increase from recent quarters and the anticipated mid-30s percentage for Q1. The new credit agreement with Coliseum also puts pressure on the company to improve results swiftly to avoid negative impacts on equity holders.
The firm concluded that a more positive stance on Purple Innovation's shares would be considered if the company demonstrates significant progress in sales volumes and gross margins. The revised price target of $2.00 reflects this cautious optimism, contingent on the company's ability to meet its outlined objectives.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.