💥Projection Poppycock: Casper vs. Mattress Firm💥
🛏 Casper Joins Long List of Unicorns & Prospective IPOs 🛏
News emerged this week that Casper — the direct-to-consumer mattress company that is now becoming less-and-less direct-to-consumer and more-and-more brick-and-mortar (solo, and at Costco and Target) — intends to join the frenzied rush of money-losing companies headed towards a public offering in the midst of once-inverted yield curves and fears of recession. The appetite for IPOs is so frenetic that Lyft’s IPO was over-subscribed after a mere two days of roadshow — this, notwithstanding the fact that the company (a) has blown through crazy piles of money and (b) is unsure of its business model and whether it will ever even earn a profit. It then priced above the high end of its initial range and then popped like a champagne cork once shares opened for trading.
Source: Yahoo Finance
Because, you know, whatevs: details shmetails. IPO!!*
The Information got its hands on some leaked Casper financials (paywall) and…spoiler alert! It, too, “continued to lose money” ($18mm in Q3). That said, in Q3 of 2018, the mattress maker reportedly had net revenue of $105.3mm (a 60% YOY increase) on $34.9mm of marketing spend (“only” a 12.9% increase), projecting net revenue of $373mm for fiscal year 2018 and $8mm of EBITDA for 2019. Per The Information, here is a summary of Casper’s financials:
Source: The Information
Also:
Casper’s presentation also contained bullish forecasts for the future, with net revenue jumping to $1.655 billion and $2.135 billion in 2022 and 2023 respectively, and EBITDA of $33 million and $450 million during those years. (emphasis added)
For North America, which accounts for the vast majority of the company’s business, ecommerce represented over 68% of its third quarter gross revenue, while retail was just over 11%. (emphasis added)
The Information piece includes no data points about the number of stores that Casper ultimately expects to deploy for its growth push but CNN reported last year that Casper hopes to have 200 stores by 2021 (a figure reiterated by Fortune in the tweet below). News surfaced recently that Casper also just closed on a $100mm Series D financing provided by, among others, Target Corp ($TGT), the CEO of Canada Goose Holdings ($GOOS) and the former co-founder and chairman of Crate & Barrel. Total funding is up to $340mm. Per Fortune, “[t]he startup will use the capital to expand internationally and grow its physical retail stores.”
In total, those are some bullish projections considering the competitive landscape:
The online mattress market has seen increasing competition in recent years from retailers including Amazon and Walmart. There are also other startups, such as Purple and Tuft & Needle, which was acquired by the mattress manufacturer Serta Simmons Bedding last year. A large mattress store chain, the Mattress Firm, filed for bankruptcy protection last year, which Casper noted in its presentation as a favorable event for the competitive landscape. (emphasis added)
Oy, Mattress Firm. SAVAGE BURN, BRO!! 🔥
Speaking of Mattress Firm, we have projections there too: thank you bankruptcy!! And this allows for a fascinating juxtaposition.
Source: Mattress Firm Disclosure Statement
With a fraction of the brick-and-mortar presence, Casper projects to have net revenue that is merely $300mm less than Mattress Firm by 2023! How’s that for a commentary about disruption, e-commerce and brick-and-mortar retail? Note that Mattress Firm expects to have $630mm in fixed store expenses (for approximately 2500 stores)** while Casper would have approximately $127mm. Per The Information:
“Casper said each new store in the U.S. typically involves $635,000 in capital expenditures and $70,000 in inventory, with an average payback of less than 24 months.”
If we’re doing our math right, that means Casper has a significantly larger per-store capex spend than Mattress Firm. On the plus side, unless they’re total frikken morons (or trolls), Casper likely won’t have competing stores sitting literally across the highway from one another.*** So, there’s that.
CEO Philip Krim once said, “We’ve never been anti-retail — just anti-mattress retail.”
ANOTHER SAVAGE BURN, BRO!! 🔥🔥
"Normally you open a store, have to build presence, then the store loses money and eventually pays back after many years," Krim said. "We have such a productive digital business that we’re profitable on day one of opening a store."
(PETITION Note: not sure how you’re “profitable on day one of opening a store” when the average payback is “less than 24 months” but who are we to call out competing narratives?)
Casper projects $450mm in EBITDA by 2023. In contrast, Mattress Firm projects merely $274mm. Casper has the benefit of landing brick-and-mortar space at a time when landlords are more forgiving with rents; it also has the hyped-up DTC narrative blowing at its back — a clear contrast to the old and stodgy market view of Mattress Firm (which, to be fair, also was able, over the course of its bankruptcy, to renegotiate a meaningful number of its leases with landlords). Said another way, Casper simply seems better positioned to omni-channel its way to success while incumbents like Mattress Firm continue to play catchup.
Now, these are projections, right? So, query which kind of projection is more full of sh*t? Startup projections or bankrupted debtor projections? It’s a coin flip. In reality, the competitive posture of Casper vs. Mattress Firm four years from now is anyone’s guess. More likely than not, one or both of them are overly optimistic here. But if Casper is right about its projections, that could lead to a significant surprise for Mattress Firm. And given Mattress Firm’s previous strategies, would you want to put your money on Mattress Firm over Casper?
Continue to short strip mall landlords.
*****
Elsewhere in sleep disruption, S&P Global Ratings downgraded Serta Simmons Bedding LLC from B- to CCC+, stating:
…operating performance deteriorated in the fourth quarter of 2018 well below our expectations due to large volume declines with top customers and industry headwinds, leading to adjusted leverage increasing to near 11x as of Dec. 29, 2018.
😳
*Who stands to make money from such an IPO? Investors include Target Corp. ($TGT), Lerer Hippeau Ventures, IVP and New Enterprise Associates. Leonardo DiCaprio, Kyrie Irving and 50 Cent are also early backers.
**Mattress Firm had approximately 3250 stores on its chapter 11 bankruptcy petition date. According to certain bankruptcy materials, the company indicated that it would shed approximately 700 locations.
***Callback to “Mattress Firm Finally Rips the Band-Aid Off (Short Landlords),” wherein we wrote:
Thanks to an overly aggressive growth-by-acquisition strategy, you could essentially turn left and see a Mattress Firm, turn right, see a Mattress Firm, and turn around and see a Mattress Firm.
And the company actually noted in its bankruptcy filing:
While these acquisitions have allowed Mattress Firm to enter major markets in which it previously did not have a significant presence, and to significantly expand its share of the retail market, they also left Mattress Firm with too many newly-rebranded stores in close proximity to existing Mattress Firm stores. The result has been a significant increase in Mattress Firm’s occupancy and related costs and a negative impact on the profitability of hundreds of its stores. There are many examples of a Mattress Firm store being located literally across the street from another Mattress Firm store.