Bed Bath & Beyond Inc. (BBBY) CEO Mark Tritton on Q3 2021 Results - Earnings Call Transcript

Sleep Country Canada Holdings Inc. (OTCPK:SCCAF) Q2 2022 Earnings Conference Call July 29, 2022 8:00 AM ET

Company Participants

Stewart Schaefer – President and CEO

Craig De Pratto – Chief Financial Officer

Conference Call Participants

Martin Landry – Stifel

John Zamparo – CIBC

Stephen MacLeod – BMO Capital Markets

Patricia Baker – Scotiabank

Meaghen Annett – TD Securities

Vishal Shreedhar – National Bank

Operator

Good morning, ladies and gentlemen. I would like to welcome you to Sleep Country’s Q2 2022 Results Conference Call. Yesterday, Sleep Country released their financial results for the second quarter of 2022. A copy of the earnings disclosure is available on their Investor Relations website and includes cautionary language about forward-looking statements, risks and uncertainties, which also applies to the discussion during today’s conference call.

I would now like to turn the call over to Stewart Schaefer, President and Chief Executive Officer; and Craig De Pratto, Chief Financial Officer. Please go ahead, gentlemen.

Stewart Schaefer

Thank you, Michelle, and good morning, everyone, and thank you for joining us. I hope that you are all keeping well on this beautiful summer day. With me today, is Craig De Pratto, our CFO.

We are very pleased to share the results of another successful quarter and our strongest Q2 in our company’s history. We continue to deliver on our multiyear strategic plan and build on our growth and momentum to reinforce our leading position as Canada’s sleep partner.

We achieved once again impressive growth across all the key metrics of our business. Revenue increased by 18.4%, net income grew by 33.2% and operating EBITDA increased by 21.8%, reinforcing the strength of our business.

Our record performance in Q2 was driven by our powerful sleep ecosystem and our relentless pursuit to create a frictionless customer experience across all our expanded channels. Our goal is to provide our customers at channel agnostic shopping journey, allowing them to shop for our innovative products how, where and when they want to.

This quarter, we grew our physical retail network with another store opening Stittsville, Ontario, as we continue to see customers choosing to return to our bricks and mortar, giving our customers even more opportunities to discover, learn, try and purchase our sleep products with the help of our trusted sleep experts.

This brings our retail store network 287 locations as of June 30th. In the months ahead we will continue to expand our footprint and look forward to sharing our new store design with further enhanced customer experience.

In these turbulent and uncertain times, we remain positive and focused on delivering on our long-term strategic plan, growing our shareholder value, while looking for opportunities that will continue to drive our growth agenda.

Our e-commerce sales represented 18.1% of our total revenues, reinforcing the importance of creating a seamless customer experience across all our digital channels, along with our best-in-class online marketplace partnerships with Best Buy, Walmart and Loblaws.

We continue to be driven by our vision and purpose to champion sleep as an essential pillar of physical, mental and emotional well-being, and provide our customers with a world-class experience.

This quarter, we partnered with Haleo Sleep Clinics, who helped us launch our very own interactive Sleep Country-branded sleep app, All For Sleep. To empower Canadians to get the sleep they need to function at their best.

Introduced earlier this month, this new app gives users evidence-based sleep solutions and the tools to create their own personal programs with leading edge support, as well as access to our sleep experts, special promotions and offers.

As we continue our digital transformation, All For Sleep establishes an incredible foundation that connects our ecosystem, and takes our sleep expertise and customer experience to a whole new level, with new opportunities for us to communicate with our customers and monetize their sleep solutions. If you haven’t downloaded it yet, please do and join us on our journey.

We are also proud to release our very first ESG report early this month, highlighting our commitment to being a purpose-driven sustainable business, focused on helping people enhance their overall health and well-being, driving positive social change and protecting the planet.

Our purpose of transforming lives by awakening Canadians to the power of sleep has never been more important. It has a transformative impact on people’s lives and underpins the four pillars of our ESG strategy, sleep well, people well, earth well and govern well.

While this is our first ESG report, the underpinnings of our ESG strategy has been in place for decades and reflects our beliefs, and our teams beliefs and what differentiates us as the leading sleep Canadian partner.

We are incredibly pleased with our accomplishments across our business, the enhancements we have made to our customers’ experience, product and channel innovations, our recycling and donation programs, our work towards creating an equitable, diverse and inclusive work environment and our ongoing commitment to transparency, governing responsibly and ethically.

Our results demonstrate the strength of our diversified investments in our portfolio of leading products and brands, digital and physical channels, and our distribution network that has positioned us well to adapt to the ongoing economic conditions, supply chain issues and challenges in consumer confidence.

Going forward, we will continue to be guided by our purpose and commitment to driving growth, expanding our multiple distribution channels, innovative product lineup and delivering the best retail sleep experience for our customers.

Thank you to our Sleep Country, Dormez-vous, Endy and Hush team, and all our partners for their incredible contributions throughout the quarter and continued commitment to deliver for our customers.

With that, I will now turn the conversation over to Craig to discuss our financial results.

Craig De Pratto

Thank you, Stewart, and good morning, everyone. As Stewart noted earlier in the call, we are extremely pleased with our Q2 2022 results. We saw an increase in our revenues of $35.4 million or 18.4% from $192.2 million in Q2 2021 to $227.6 million in Q2 2022. The increase in revenues was mainly driven by a 15.1% increase in our same store sales and the incremental revenue earned from the Hush acquisition in Q4 of last year. We generated 18.1% of our revenues through e-commerce channels during the quarter.

Our gross profit margin increased by 140 basis points from 34.5% in Q2 2021 to 35.9% in Q2 2022. This increase was mainly a result of our strategic price increases that began in Q2 2021 and continued into Q1 of this year. A reminder to the market, that are Q3 and Q4 results this year will be lapping over prior periods, where a portion of price increases were already executed.

In addition to our higher AUSP, we experienced higher terms discounts and leveraging on our occupancy and depreciation expenses. These margin efficiencies were partially offset by higher product and transportation costs. In addition, sales, bonuses and commission costs due to the shift in revenue earned from our e-commerce platforms to our retail stores.

Finally, as we continue to navigate through the prolonged global supply chain challenges, specifically the freight cost on containers, we expect continued pressure in this area on the back half of the year.

Total G&A expenses increased by $6.6 million or 17.1% to $39.1 million in Q2 2021 to $45.7 million in Q2 2022. The change was mainly due to an impact in increased dollar spend on media and advertising compensation and depreciation and other expenses. G&A as a percentage of sales leveraged slightly during the quarter by 20 basis points.

EBITDA increased by $9.4 million or 22.2% from $42.5 million in Q2 2021 to $51.9 million in Q2 2022. Adjusting our EBITDA for LTIP and ERP related costs, our operating EBITDA saw an increase of $9.5 million or 21.8% from $43.7 million in Q2 2021 to $53.2 million in Q2 2022.

Finance related expenses increased by $0.7 million from $4.6 million in Q2 2021 to $5.3 million in Q2 2022. This change was mainly due to an increase in the accretion expense for the redemption liabilities related to our acquisition of Hush in Q4 of last year.

We experienced an increase in our effective tax rate by 280 basis points from 25.6% in Q2 of 2021 to 28.4% in Q2 2022. This tax rate increase is mainly driven by the accretion expense for the redemption liabilities related to the Hush acquisition in Q4 2021 that are not deductible for tax purposes.

Net income attributable to the company increased by $5.7 million from $17 million in Q2 2021 to $22.7 million in Q2 2022.

Adjusting for LTIP, ERP costs and Hush related accretion expense, adjusted net income attributable to company increased by $7.7 million from $18 million in Q2 2021 to $25.7 million in Q2 2022.

Diluted earnings per share increased by $0.15 or 32.6% from $0.46 in Q2 of 2021 to $0.61 in Q2 2022. Diluted earnings per share increased by $0.21 or 43.8% from $0.48 in Q2 of 2021 to $0.69 in Q2 2022.

To summarize our year-to-date results at a high level, revenues increased by 15.8% to $434.6 million year-to-date 2022, same-store sales increased by 12% and e-commerce sales represented 19.4% of total revenue.

Operating EBITDA increased by 33% to $100 million in 2022, diluted earnings per share increased by 59.4% to $1.10 in year-to-date 2022, and finally diluted adjusted earnings per share increased by 68.9% from $0.74 in 2021 to $1.25 in 2022.

Onto some capital allocation items, on July 28, 2022 the Board declared a dividend of $0.215 per share, which is payable on August 29, 2022, to shareholders of record at the close of business on August 19, 2022.

Additionally, in Q2 2022 the TSX accepted our amendment to the NCIB and approved an automatic share purchase plan, which provides us with the opportunity to repurchase shares during our blackout periods.

As of June 30, 2022, we repurchased and canceled 835,000 common shares at an average price of $26.31 for a total consideration of $22 million. In July, as of July 28, 2022, we have repurchased for cancellation and additional 401,000 common shares at an average price of $26.30 for total consideration of an additional $10.5 million. We will continue to execute against our NCIB plan on the second half of the year.

Thank you and I will now pass the call back to Stewart for closing remarks.

Stewart Schaefer

Thanks, Craig. Our strong performance in the second quarter demonstrates the power of our sleep ecosystem and our team’s ability to continue to deliver for our customers. We will continue to build on our deep foundation of sleep expertise by expanding our reach, growing our channels and investing in the most innovative and expansion product assortment in Canada.

We remain focused on executing against our strategic plan and our commitment to delivering sustainable and profitable growth for our customers, associates, communities and shareholders as we also help Canadians achieve their best night sleep in support of their health and well-being.

With that, we conclude our remarks and open the floor for questions.

Question-and-Answer Session

Operator

Thank you, sir. [Operator Instructions] Your first question comes from Martin Landry of Stifel. Please go ahead.

Martin Landry

Hi. Good morning, Craig and Stewart.

Stewart Schaefer

Good morning, Martin.

Craig De Pratto

Good morning.

Martin Landry

My first question is more macro, I mean, we are seeing the consumer confidence decreasing, because of inflationary pressures? And I was wondering if you can discuss a little bit the traffic patterns pass the quarter end, have you seen any weakness in traffic this summer?

Stewart Schaefer

You are seeing probably the same thing that we are seeing, Martin, and globally everybody is experiencing the same thing. What we said that we saw in Q1 on the lower end of our business, continued into Q2, continuing into Q3, and but the consumer to us, still seems healthy and barring a couple of weeks towards the end of June, where the market got a little bit uglier, really the consistency of slower traffic has rested and been the same.

Martin Landry

Okay. And then I was wondering in from a competitive landscape, how are your competitors equipped to face potential downturn, especially the smaller local players. Historically, have you seen an increase in consolidation by attrition in times of economic slowdown?

Stewart Schaefer

Great question. We have been in this business as you know for 28 years. The global crisis of the pandemic in 2020 would normally probably have shaken out some of the players and we don’t wish harm on anyone, but it is a recession that was saved by government subsidies.

It will be interesting to see what happens as time goes on. The biggest area of growth opportunity we have often said comes from, not from the largest players, but over time, the smaller retailers who generationally maybe looking to get out of the business, where we are their children are not necessarily taking over the business. So recessions in the past have been opportunities for us to take market share if that’s where we are going.

Martin Landry

Yeah. Okay. And then just last question, can you remind us how many days your stores were closed last year due to COVID restrictions?

Stewart Schaefer

Yeah. So the closures were approximately 30 — 32.6% of operating days in Q2 and year-to-date would have been right in the same range, right around 32%, 33% of total operating days and that was mainly tied to the Ontario and Québec closures.

Martin Landry

Okay. Perfect. Thank you.

Stewart Schaefer

Thanks, Martin.

Craig De Pratto

Thanks, Martin.

Operator

Your next question comes from John Zamparo of CIBC. Please go ahead.

John Zamparo

Thank you. Good morning.

Stewart Schaefer

Good morning, John.

Craig De Pratto

Hi.

John Zamparo

I wanted to ask about the dynamics of accessories growth versus mattress growth and in particular for the past couple of quarters if you back out, what we might think is a reasonable contribution from Hush, mattress sales have actually grown well above accessories? And particularly given the greater on-premise level of purchasing, I would have thought maybe the opposite would be true. So I wonder if you can add some color there either on the competitive dynamic or on consumer behavior when you think about accessories versus mattresses?

Stewart Schaefer

I think, John, the pattern that we continue to see are consistent with previous quarters. There is no secret that we believe that there is a large opportunity for us to take more market share on our accessories, which is why we were excited to partner up with Hush.

And we do plan on their expanded collection of products, and in fact, I think, yesterday was they just launched their Hush Eco-Pillow. And we still think we are early days. We have mentioned before that we think we have an 8% to 10% market share, compared to our 35% to 40% market share in terms of mattresses, which we also feel is growing.

Interestingly enough and we discussed this yesterday at the Board meeting, sometimes in times of downturns in the markets, which again we haven’t necessarily seen that, because the consumer seems to be still strong, our accessory business does pick up as customers come into the store and are looking and maybe in the process by an accessory product or go online and buy an accessory product before they make their final purchase of the mattress. So we are still pressing hard on our accessory business. But in the same regard, we are doing the same thing on our mattresses and hope to continue to grow in both categories.

John Zamparo

Okay. That’s helpful. And then on gross margins, Q2 is typically meaningfully higher than Q1 and I am referring to pre-pandemic years to remove some of the noise. It was still up this year, but less than usual. Can you talk about some of the inputs on that in particular the cadence of pricing that you have taken over the past year or so.

Craig De Pratto

Yeah. So, John, lap — we — as I mentioned in my kind in the call script, we did have — we are starting to lap over some of the price increases from the prior year. We saw a little bit of that in Q2.

In addition, the container freight continues to be an area where, as we sell through the inventory that we have been receiving over the past few quarters, there is that higher freight that is attached to the landed cost of being relieved through.

So one thing that we wanted to kind of point out was, as you have been seeing some pretty significant step-ups in Q1 over the Q1 of the prior year, much of the reason for that was because there was no price taken in Q1 of 2020, but there are in 2021.

So you are seeing that big step-up in 2022 and then you can see it’s starting to settle a little bit in Q2 and then you can expect that on the back half of the year where you won’t expect that kind of bump up.

So those are kind of some of the main puts and takes that were really around the freight and then also to ask consumers to return to stores, our commission is on our store gross profit and last year there is a higher proportion of sales that were on the e-commerce channels so that avoided that commission costs. Those are some of the main kind of two triggers that are seeing a little bit of pressure on gross profit and you are not seeing that jump up. So we are still growing over prior year.

John Zamparo

Okay. Understood. Thank you. And if I can squeeze one more in, Stewart, I just want to clarify your comments on what you just reference was the difficult time in late June, has that ended you are seeing normal traffic behaviors resume in July so far?

Stewart Schaefer

It’s hard to determine these days John what normal is, as we see a big part of our business over the last couple of years grow in terms of our e-commerce. I will say that we have healthy traffic and I would even use the word robust in some provinces and we have softer traffic in other provinces. But, overall, in the last towards the end of June and the — at the beginning of July it was spottier than normal.

This week traffic, again, we don’t give guidance, but this week and I don’t know if it’s because the markets are up as we could and maybe that helped a little bit with consumer confidence. This week traffic was strong again. So it’s been definitely very spotty.

Another comment that was made by one of the other analysts that we were talking to two days ago was, the question, if anyone has been to an airport lately is may be also with the all the traveling and share of wallet that seems to be going on towards vacations. This is the travel season for us.

So some of the spottiness can be related to consumer confidence, even though the consumer seems quite healthy to us and some of this could be just that they are out of town and traveling a little bit to it. We don’t know.

John Zamparo

Got it. Okay. That’s very helpful. Appreciate the color. Thank you.

Stewart Schaefer

Thanks, John.

Craig De Pratto

Thanks, John.

Operator

Your next question comes from Stephen MacLeod of BMO Capital Markets. Please go ahead.

Stephen MacLeod

Thank you. Good morning, guys.

Stewart Schaefer

Hey, Steve. How are you/

Stephen MacLeod

Hi. Good. Thanks. Just great color so far, just wanted to follow up on a couple of things here. Just with respect to the gross margin outlook. Yeah, Craig, I guess, if I am reading between the lines, but it sounds as though you would expect to kind a hold in the margin gains that you have made so far, which would incorporate or encompass the price increases, but maybe not seen growth the same levels as you saw in the back — as you saw previously in the back half of the year, is that the way to think about it?

Craig De Pratto

That’s the exact way to think about it, yes.

Stephen MacLeod

Okay. Perfect. And then I am just wondering, like, are you able to quantify a little bit on how much price you have actually gotten over the last 12 months as you — from when you begin to put through more meaningful price increases?

Craig De Pratto

It’s varied in so many different categories, Steve, some areas we didn’t increase price and actually our margins drop on the more price sensitive area of the lower end of our business and some areas where we have pricing power, we were able to pass it off on the high end. But I think the adjustments that we have made have been very deliberate as it relates around our cost to container business.

Keep in mind that 80% of the business that we have in mattress is still manufactured in Canada, where whatever cost under normal circumstances our vendors pass on to us, we will try to navigate that with our customers. It’s more in the area of a lot of the imports on the accessory part of our business, if I have to say any part of that.

That being said, in the last quarter, delays still remain quite similar. But we are seeing a little bit of a relief in lower container costs, albeit it’s substantially higher than they were pre-pandemic. But we also are seeing a lower Canadian dollar that is putting a little pressure on that category also. So the mix is always to the high end, and I would say, more on the accessories.

Stephen MacLeod

Okay. Great. You have been very active on the buyback and it sounds like you are going to continue to be in the back half of the year. But I am just curious, could you just remind us how much room you have left on the buyback once you factor in the I guess 400,000 shares that you bought additionally since the end of the quarter?

Stewart Schaefer

Yeah. So right now we are in around $32 million, $33 million I believe. Yeah, right around $33 million, $15 million, another $17 million, it would get up to where we had kind of indicated our limit was, right around that $50 million, so that would be another $17 million.

Stephen MacLeod

Okay. So in terms of what you are talking dollars, obviously?

Stewart Schaefer

Correct. Yeah. And then on shares, it would be I have got another 800,000 or so. So we have, but I can send you the exact number after the call. Stephen, if you like. But, yeah, I think…

Stephen MacLeod

Yeah.

Stewart Schaefer

…about 800,000 more shares left.

Stephen MacLeod

Okay. Okay. And then, I guess, maybe too soon to tell, but are there opportunities to increase that NCIB once you exhaust the current program?

Stewart Schaefer

So we have only — we put in submissions for up to 6.7% of the float and that we can go up to 10%. So we can increment it in the back half, yeah.

Craig De Pratto

And we are going to watch — we watch our capital allocation very carefully. We are going to look for the best investments to create shareholder value, whether it’s the NCIB, whether it’s increasing the dividend, whether opportunity presents itself in terms of any M&A business. The strength of our balance sheet, Steve, as you know, creates interesting opportunities in times like this.

Stephen MacLeod

Yeah. Absolutely. And then maybe just one final one, if I could, in terms of the new store renovation or new designs, do you have any stores under the new design in your network so far, and if so, are you able to talk a little bit about any of the changes or changes in sales per square foot or efficiency or anything like that?

Stewart Schaefer

I promise you, Steve, and a few others will be the first to know when we launch it. But so the answer is, no. None of them are out yet. We thought we were in the final leg of the design, but some of the digital transformation, some of the technology that we want to bring in terms of the overall customer experience is a moving target for us right now.

So where we thought by the third quarter or fourth quarter, well, at least the third quarter that we were going to be introducing it. I could say with certainty, it won’t be introduced in the third quarter, more likely in the fourth quarter or in the first quarter.

That being said, we now decided to hold back on our renovation, 82% of our stores are renovated in the new concept that we did a few years ago. The remaining 18%, it doesn’t pay to for us to put it in the concept that we are shifting away from. So we will definitely be transparent about when this is going to happen. But we are very excited about it.

Stephen MacLeod

Great. Thanks, guys.

Stewart Schaefer

No problem, Steve.

Operator

Your next question comes from Patricia Baker of Scotiabank. Please go ahead.

Patricia Baker

Yeah. Good morning, Stew and Craig. Just wondering…

Stewart Schaefer

Good morning, Patricia.

Patricia Baker

…if you could talk a little bit about your partnerships with Loblaw, Walmart, Best Buy. What you are seeing there and are you attracting a new customer and are they meeting with your expectation?

Stewart Schaefer

So, the partnership that we have created, which we believe are the best-in-class. As you well know is a longer term strategic plan for us to expand and our customer segmentation, as well as transact in a seamless fashion for our customers any way they want and for us to be everywhere and be channel agnostic.

And so to ask, how is that going? Great. We are still in early stages of it. The relationships are fantastic. These are great partners to be with. The eyeballs that we have been getting has been quite amazing and we do believe, it’s very hard to pinpoint why we seem to be bucking the trend, because it never is one thing, it’s the multiple things we do.

We do believe we have the strongest portfolio of brands in the sleep space. We do believe we have built superiority throughout our entire business. Our sleep experts, logistics, the frictionless omnichannel experience that we are relentlessly improving on and trying to grow.

And frankly, we do believe that we have the best management team in the world that we will navigate through all the noise that has been thrown at us in the last few months and as has been over the last three years or over the last 28 years of growing this business profitably. So all of these partnerships are part of a longer term plan to make sure that we are readily available for customers anyway and anywhere they want to shop for bedding.

Patricia Baker

Okay. Thank you for that, Stewart. And just a small question around your — the launch of your All For Sleep app. How exactly are you building awareness of the app and driving consumers to download the app?

Stewart Schaefer

Great question. So the marketing team that we just approved and the marketing plan. So we are going to put dollars behind this and it will be part of our initiatives, where the biggest part will be through the digital transformation and advertising that we are going to be doing. But you are starting to, you are going to see it in our stores, you are going to see it in terms of our forms of advertising.

Obviously this is going to be fluid. It’s constantly going to be improved upon. We are — us by now, Patricia, we would like to walk before we run. The reaction that we have had so far has been quite surprisingly good and the teams are getting very excited about different ways to be able to engage with our customers and eventually there is an opportunity to monetize this relationship in some very interesting ways.

Patricia Baker

Thank you for that, Stewart.

Stewart Schaefer

Thanks, Patricia.

Operator

Your next question comes from Meaghen Annett of TD Securities. Please go ahead.

Stewart Schaefer

Hey, Meaghen.

Meaghen Annett

Good morning.

Craig De Pratto

Hi, Meaghen.

Stewart Schaefer

Good morning.

Meaghen Annett

Good morning. Just a follow-up here on capital allocation, so Stewart, you noted M&A, but can you talk a bit more about what your pipeline looks like today?

Stewart Schaefer

Well, Meaghen, we don’t talk about things that we may be looking at right now. I will say that, clearly, our focus is strongly around digital opportunities. I will say that we are looking to partner up with the best-in-class. I will say that prices have come down.

So I am not thrilled about what our stock prices these days, because it’s very cheap with the rest of the market, but that also lives in the world of M&A. So we are excited about some of the things that we have been looking at over the past year, year and a half that have come back to us in terms of possible deals. But besides that I can’t tell you anything particular specific.

Meaghen Annett

That’s good color. Thank you.

Stewart Schaefer

Thank you.

Meaghen Annett

And with regards to your in-store partnership with Walmart, so how are you and Walmart approaching the expansion of the Express stores in Canada, just given some of the pressures we have seen on the lower end consumer. Is there any change to the growth plans there in the near-term?

Stewart Schaefer

Well, great observation. So we are still in the pilot stage. We are happy and pleased. Our team led by Phil Besner of Bus Dev team are in the final stages of negotiating. I think it’s another — was it nine, I think, nine or 10 stores.

And we are going to continue the pilot and I am going to say pilot until a lot of things are going on. There is already we are going to be changing and enhancing the store design, because we discovered that the cash and carry component that we have offered in there are folks even at our Sleep Country Express stores and Walmart want the free delivery.

So we are — we don’t need to store mattresses. We are expanding our accessory selection, because you are seems to be a nice demand for the accessories that we sell. We are expanding the footprint, because there has been some challenges for us being able to show what we want to show in 450-foot — square-foot footprint. So we are going to be expanding that a little bit too. I think approximately 750-square-feet and those are in the final stages.

All that being said, none of us know where the economy is going, there is no question that the lower end consumer is more impacted, it’s no secret that inflation has — had the biggest challenge on that. But we don’t plan our business for a quarter or even for six months or nine months whatever, if this is a recession, if so, our strategic plan is executing the way that we want, we are going to continue to move forward and grow our footprint with the Walmart.

Meaghen Annett

And then just last question, looking at the e-commerce penetration rate. So that has continued to come down. Do you have any updated thoughts as to where e-commerce settles as a percent of Sleep Country sales. Just given the new store design others being put in place, does that view on e-commerce impact how you are investing in the business going forward?

Stewart Schaefer

Sure. And so — I think we are all very paying close attention to globally what’s been happening with the e-commerce. I am not going to repeat the remarks of Shopify, but it was quite interesting to hear some of their comments that were made in terms of the growth of five years to 10 years in that pulling back.

So there is no question for us. We are quite, not quite, we are incredibly pleased with what we have seen in our e-commerce business, not only with our partners with Endy and Hush, but what we have seen organically growing within the Sleep Country and Dormez-vous brands.

We are ahead of our expectations when you look at our plans from 2019 — November 2019, when we launched our e-commerce. Our target was to be at a 10% level for our entire business by the end of 2022. So there is no question that COVID accelerated it.

That being said, when the world thought that digital ruled and brick-and-mortar was over, clearly, that’s not the case and we have been very happy to see droves of traffic coming back to our stores and the fact that we have built a diversified portfolio that allows us to have the full frictionless e-commerce experience between the brick-and-mortar, as well as the online side of the business, we are going to continue to invest heavily in both areas.

Longer term, I could probably see e-commerce at the 20% range in the next couple of years and maybe even more, but it’s very hard for us in our omnichannel world to even measure our full penetration on our e-commerce, because as fabulous as our e-commerce teams are.

Following the journey of the customer, a lot of our e-commerce customers, where the journey begins on your phone or on your laptop sitting at your home, it — whether it concludes online or in the store, it’s all interconnected. So that investment is going to continue and we really are channel agnostic, we don’t care where it transacts as long as more Canadians are transacting with us.

Meaghen Annett

Thank you. That’s it from me.

Stewart Schaefer

Thanks, Annett. Have a nice vacation.

Operator

[Operator Instructions] Your next question comes from Vishal Shreedhar of National Bank. Please go ahead.

Vishal Shreedhar

Hi. Thanks for taking my question. I am curious about the impact on low end mattresses that you have talked about for the last few quarters. Is it because your marketing and your price increases on some of the higher end is making Sleep Country being perceived as a premium offer, it’s turning away that segment of the consumer or is this more of an industry dynamic that you are seeing and in that low end Sleep Country is holding share. I know it’s difficult to get specific date on that, but your thought would be helpful. I think the concern and/or the thoughts on the back of my head, is that, as Sleep Country continues to grow, you will need to slow consumer as well to help you achieve your growth ambitions.

Stewart Schaefer

Yeah. So, I will say, Vishal that, on the contrary, it’s the opposite. Like the relationships that we have created over the last couple of years with Walmart, Best Buy and Loblaws. Walmart was a very important part of an expansion of a customer segmentation and it clearly demonstrated that Sleep Country has great prices because Walmart partners only with those have great value.

And that expanded not only our customer segmentation to maybe a softer lower end consumer, it also expanded our customer segmentation to the 400,000 immigrants that are coming to Canada every single year that may not even know the Sleep Country brand but are going to Walmart. I will also say our e-commerce business opened the world for us.

Transactionally, to your point, a few years ago, people maybe were intimidated to come into a Sleep Country Store, we sure hope not, but if they were, because they thought we were mid-to-high end, which we do control, we do have a huge part of that market.

The e-commerce world allowed you to navigate and see that we have mattress is starting to add $199 and for those that wanted to have the Sleep Country or Dormez-vous experience, they are able to transact very easily.

What we saw during COVID was a huge growth in terms of those categories for us. When — so I think we are penetrating that market very well and I think we are going to continue to penetrate that market very well and the Walmart Express stores will also help grow that.

But on the flip side of that, the other part of that question, and I made this comment in our Board meeting yesterday, I bought my first house for $110,000, you can’t buy that house ever at $110,000 again.

So the question is do $99 mattresses or $199 mattresses, like doesn’t — like there is a correction inflation that there is going to be some form of price stability that’s going to happen, but is there a new norm in terms of pricing and is it more so that the bands, like we measure our bands zero to 500, 500 to 750, 750 to 1,000, a big part of our business, which was around the $500 price point on the low end may now be in the $600 price point.

And so we shifted, we have shifted the breath — the bands. You have seen it across all digital channels. You have seen it in Amazon. You have seen it in Walmart. So we agree with you that category is very important, but we also look forward to introducing better quality sleep to customers and hopefully bringing them up to a better quality bed.

And the last thing I will say on that is, Endy’s partnership was key, because Endy at Queen Size $895 fabulous incredible mattress, definitely grew our customer segmentation in that category, as well as our Bloom that we introduce a couple of years ago that starts at $299. So it has been to your point, the focus of ours over the last few years, it will be a continuation of our focus that we hit all price bands for all consumers, for all wallets and for all tastes.

Vishal Shreedhar

Thank you for that color. Just changing topics here, Endy has expanded into coaches. I am wondering if investors should look at that expansion and maybe clean insights in terms of Sleep Country’s broader ambition to expand away from solely sleep-based accessories, sleep-based products into a broader furnishing type offering?

Stewart Schaefer

So I will answer the Endy part first. Endy’s brand is so incredibly loved that people want to buy more Endy product. And the team led by Alia, President of Endy, experiment on many different things and if we see strong conversion, then obviously, we step on the gas pedal. We are still in very early stages. A lot of the accessories that Endy has brought in has transacted really well and we are still very much in that pilot stage.

To answer your other part of that question, the expansion of Sleep Country will be all around sleep. And sleep does not just mean the mattress, sleep means the bedroom and our ability to do drop ship relationships, which we are beginning within our e-commerce platform you can hopefully look to see in the future that we will continue to expand beyond the bed.

Our partnership with Sleepout, two very dynamic leaders who are running that business for us and the blackout curtains for the bedrooms, which has been doing very well and they are definitely executing beautifully in this environment is — and one of the extensions that we are doing within that space. Hush on the weighted blankets is another extension and they will all be looking to expand their portfolios within the sleep space.

Vishal Shreedhar

Okay. The management — and maybe just the last one here, just wondering how the Board and management think about acquisitions. Obviously, we are at the uncertain parts of the economic cycle. And so as you look at acquisitions, are you considering us more smaller-, medium-sized deals or would you consider a larger deal as well?

Stewart Schaefer

The Board, as well as the management team are always looking to enhance shareholder value. As we look at our overall capital allocation, we ask ourselves what is the best use of our cash in terms of growing our business and what’s going to give the highest return, highest EPS for our shareholders, as well as our team here, not for the short-term, but for the long-term.

We don’t need to do M&A for growth and we will not do M&A just for the sake of growth. We will do it, if it fits in our longer term strategic objectives, that fits in our portfolio of sleep, that’s accretive to our business immediately, that is profitable, which is what we have been for 28 years.

And we look at any opportunities, to your question, small, big or large, our balance sheet gives us lots of flexibility. It’s more finding the opportunities that is more difficult to do. We look at a lot of things and we are very picky in terms of making the right deals with the right partners.

Vishal Shreedhar

Thanks very much.

Stewart Schaefer

Thank you.

Operator

There are no further questions from the phone lines. I will turn the conference back to your host for closing remarks. Gentlemen?

Stewart Schaefer

Well, thank you very much everybody. We really appreciate all the supports, thrilled to deliver our strongest Q2 in our company’s history and we look forward to chatting with you in the third quarter. We hope you all have a wonderful summer. Take care.

Operator

Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank you all for participating and ask that you please disconnect your lines.

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