Sleep Country Canada Holdings Inc.

Q1 2024 revenue was CAD 209.7 million, up CAD 3.2 million or 1.6% from CAD 206.5 million in Q1 2023; same-store sales declined 1.6%. Gross profit increased to CAD 72.9 million from CAD 70.8 million, and gross margin improved to 34.8% from 34.3% (+50 bps). EBITDA was CAD 37.8 million versus CAD 39.7 million last year; operating EBITDA was CAD 38.4 million versus CAD 41.4 million, with operating EBITDA margin at 18.3% versus 20.0% (-170 bps). Adjusted net income attributable to the company was CAD 9.6 million versus CAD 13.2 million, and diluted adjusted EPS was CAD 0.28 versus CAD 0.37. Cash was CAD 31.1 million at March 31, 2024, with CAD 83.3 million available on the credit facility, excluding a CAD 100 million accordion. For 2024, management expects at least 6 new stores, CapEx around CAD 40 million, leverage slightly above 2x post-IFRS in the coming quarters, and gross margin to hold at least year over year with some back-half leverage as shared-services integration progresses.

Stewart Schaefer framed Q1 as a quarter of strategic execution in a tough retail backdrop, emphasizing the company’s 30-year history, omnichannel model and ability to use promotions to drive share. He said the Q1 softness was partly self-inflicted because management accelerated floor-model liquidation and advertising to prepare for the new product cycle and the busy season. He remained upbeat on the business mix, citing strength in D2C brands, store growth, and planned synergies from integrating warehousing and logistics into Sleep Country’s network.

Craig De Pratto highlighted the core numbers: revenue of CAD 209.7 million, gross profit of CAD 72.9 million, gross margin of 34.8%, operating EBITDA of CAD 38.4 million, and adjusted EPS of CAD 0.28. He attributed margin improvement to better sourcing and pricing, while lower EBITDA and EPS were driven by higher SG&A, including Casper Canada costs and about CAD 1 million of marketing pulled forward from Q2. He also noted finance-related expenses rose to CAD 8.3 million from CAD 6.5 million due to higher interest rates and debt levels, the interest-rate swap expired on April 1, 2024 and was not replaced, and cash plus available liquidity remained solid at CAD 31.1 million cash and CAD 83.3 million available under the facility. On capital allocation, he said the quarterly dividend stayed at CAD 0.237 per share, CapEx should be around CAD 40 million, and NCIB activity would be opportunistic but more likely back-half loaded.

Analysts focused on the reasons for the EPS/EBITDA miss, integration synergies, consumer demand trends, the dividend, and capital allocation priorities. Management said the miss was largely driven by a planned, self-inflicted acceleration of floor-model liquidation and marketing, while integration of Casper, Hush and D2C logistics is creating temporary overlap and dual-operation costs that should be clearer by the end of Q2. On capital allocation, management said the dividend was held steady because they feel the payout ratio is now in line with peers, and future uses of capital will be driven by opportunity across buybacks, M&A, debt reduction and growth investments.