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Casper Sleep (NYSE:CSPR)
Q4 2020 Earnings Call
Feb 24, 2021, 8:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Good morning, and welcome to Casper Sleep's fourth-quarter 2020 conference call. today's call is being recorded. I would like to turn the conference over to Norberto Aja, investor relations for Casper. Mr.

Aja, you may begin.

Norberto Aja -- Investor Relations

Thank you, operator, and good morning, everyone. Thank you for joining the Casper Sleep 2020 fourth-quarter and full-year conference call. We'll get started in just a minute with management's comments and your questions. But before doing so, let me take a minute to read the safe harbor language.

This call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements made on this call that do not relate to matters of historical fact should be considered forward-looking statements, including statements regarding management's plans, strategies, goals, and objectives, our anticipated financial performance and the expected impact of novel coronavirus on our business. These statements are neither promises nor guarantees, but involve known and unknown risks, uncertainties, and other important factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Factors discussed in our annual report on Form 10-K for the year ended December 31st, 2020, and other filings with the Securities and Exchange Commission could cause actual results to differ materially from those indicated by the forward-looking statements made on this call.

Any such forward-looking statements represent management's estimates as of the date of this call. While we may elect to update such forward-looking statements at some point in the future, we disclaim any obligation to do so even if subsequent events cause our views to change. In addition, we may also reference certain non-GAAP metrics, which are reconciled to the nearest GAAP metric in the company's earnings release which can be found on our investor relations website at ir.casper.com. With me on the call today is Philip Krim, co-founder and chief executive officer of Casper; Emilie Arel, president and chief commercial officer; and Mike Monahan, chief financial officer.

Following their prepared remarks, we will open the call for a question-and-answer session. With that, I would now like to turn the call over to Philip Krim, Casper's chief executive officer. Please go ahead, Philip.

Philip Krim -- Co-Founder and Chief Executive Officer

Thank you, Norberto, and good morning, everyone. Welcome to Casper's fourth-quarter conference call. Casper's outstanding fourth-quarter financial performance marks a strong finish to 2020 as we established new records for revenue, grew market share, and significantly improved our bottom-line results. In the fourth quarter, our North American revenue grew 26%, gross margins were above 50%, representing a period-over-period improvement of over 250 basis points and adjusted EBITDA improved 80% period over period.

During the quarter, we addressed the supply chain challenges we experienced earlier in the year and with our product in stock, we were able to successfully meet the strong demand for our innovative sleep products. This April will mark our seventh birthday since launching Casper back in 2014 and I could not be more excited about our future. Since the beginning, we have remained steadfast in our vision to become a sleep destination within the broader sleep economy. At our core, we strive to provide solutions that improve people's overall wellness through better sleep.

Changes in consumer behavior accelerated by the pandemic, including increased suburbanization and a heightened focus on health and wellness, are only strengthening the demand for our products. In a large market, Casper is ideally positioned to continue to take share. We have built a powerful brand around our innovative mattress designs and sleep products and have created a seamless shopping experience that inspires loyalty among our growing customer base. As a result, we have a solid foundation for accelerated growth in 2021.

In 2021, we will be focused on three core strategic priorities; continuing to increase our brand awareness, expanding our product offerings, and growing our points of distribution. Starting with brand awareness. Since founding Casper, we have invested over $0.5 billion to drive awareness of our brand and build a loyal customer base. We started with subway ads in New York City, which have grown into national targeted online and offline campaigns that leverage detailed data and analytics for decision making.

As we continue to grow and extend our reach, we are gaining marketing efficiency. For the full-year 2020 versus 2019, we increased our overall marketing investment while lowering marketing as a percentage of revenue by over 360 basis points. With favorable and growing awareness, we believe we will continue to gain leverage on our marketing spend while capturing greater market share into 2021. Second, we are expanding our product portfolio.

Since the launch of the original Casper mattress in 2014, we've continuously improved and expanded our selection and now offer a full line of mattresses that appeal to consumers with different preferences at different price points. Additionally, we continue to diversify our revenue streams with the successful introduction of sleep products such as pillows, sheets and other accessories. We are particularly pleased with the success of our pillow line with North American pillow revenue, up 35% year over year in 2020, further highlighting our ability to leverage our brand beyond mattresses. In 2021, you should expect us to continue to help our customers sleep better with the introduction of new and innovative products.

Finally, growing our points of distribution. Despite the impact of the pandemic, we saw growth across our multichannel distribution network in 2020. In the fourth quarter, our North America direct-to-consumer channel grew 19.1% year over year with significant traffic to our website, and our North America retail partnership channel grew 42.8% year over year, reflecting healthy performance across our growing network. During 2020, we made significant progress in expanding our distribution through new partnerships, including Sam's Club, Ashley HomeStore, Denver Mattress, Mathis Brothers, and Nordstrom.

To support the success of these partnerships, we also added a professional sales team responsible for ensuring the differentiated Casper experience is represented in our partner stores and drive increased customer conversions. In 2021, you should expect to see us expand our reach through our multichannel distribution network, positioning us for accelerated profitable growth. In closing, I would like to thank the entire Casper team for their hard work and determination during 2020. Together, we took significant steps toward achieving our long-term vision.

However, we are still in the early stages of growing Casper into a world-class sleep platform. The experience of our team and the strength of our products and brand, combined with the steps we have taken to improve operating efficiencies, position Casper well for near- and long-term profitable growth and the creation of significant shareholder value. I will now turn the call over to Emilie. Emilie?

Emilie Arel -- President and Chief Commercial Officer

Thanks, Philip, and good morning, everyone. We made significant progress in 2020, and we are just getting started. This past year, we reached more consumers through our marketing, distribution and new product introductions than any year in our history. In 2021, we have exciting plans to build on that momentum.

Our near-term goal is focused on making our sleep products accessible to a larger market and we continue to make strides toward that goal. Almost seven years ago, we sold one mattress in one place, casper.com. Now we sell more than 40 sleep products across all of our channels with hundreds of trial locations. We will continue to reach a wider audience, leveraging both our direct-to-consumer channel, and retail partnerships.

As we mentioned on last quarter's call, trial remains an important aspect of the purchase decision. We ended the year with over 20 retail partnerships, adding new national and regional brands. As a result, North America retail partnerships revenue grew 55.4% over 2019 at a relatively low cost. Within this channel, we are specifically focused on increasing the consumers' ability to try our products.

Consumers love the comfort and quality of Casper's differentiated mattress designs, and the data consistently shows that trial opportunities drive higher rates of conversion. In addition to adding new partners, product education remains a key component of our strategy. We know how important sleep education is at the point of purchase, and thus, we're spending a great deal of time and effort with education in our own Casper doors and strengthening the relationships that we have with retail partners to further their understanding of the Casper value proposition. As Philip mentioned, we have a new field team in place who are actively working alongside our retail partners to educate the sales staff about the benefits and key differentiators of our products and to ensure our products are merchandised in a manner consistent with our uniquely joyful approach to sleep and our brand.

You should expect us to continue onboarding new leading retail partners with more Casper Sleep products in more doors across more markets in 2021. Through our direct-to-consumer channel, Casper delivered record North American revenue in the fourth quarter, primarily driven by strong e-commerce sales. Leveraging data and analytics, we optimize our product portfolio and media spend to drive sales and acquire customers. Our e-commerce sales growth was the result of both increased traffic year over year, along with increased average order value.

As we continue to diversify our product portfolio, we are broadening our appeal across consumer segments, both in mattress and non-mattress categories. By year-end 2020, we operated 67 Casper Sleep shops strategically located throughout North America. I am pleased to report that nearly all of our locations are now open for business while remaining in line with local public health guidelines. However, in many areas, traffic restrictions related to the pandemic still remain, although we generated a quarterly sequential improvement in sales during the fourth quarter.

We continue to adapt our retail store strategy from the overall design to product placement and accessibility so customers can safely visit our stores and have an overwhelmingly positive experience with our people, our brand, and ultimately, our products. Things like customer outreach, individual appointments, and curbside pickup are performing well and maximizing our revenue per customer in store as we navigate through the pandemic and the decline in foot traffic. Broadening our product portfolio will also be a focus in 2021. The launch of any new Casper product is driven and supported by our comprehensive research, design and development process led by Casper Labs.

Our new products always start with the consumer. During 2021, we will be launching new items that have been in development over the course of 2020. In the first half of this year, we plan to launch a new suite of products, including mattresses, that are specifically designed around keeping you cool all night long because we know temperature is one of the key factors in a good night's sleep. 2021 will be an exciting year of new products, including blankets, throws, pillows, sheets, and more, all designed to make your bedroom your favorite room in your home and help you get a better night's sleep.

This continued shift from a singular product strategy to a comprehensive focus on sleep and wellness further supports our authority as a sleep destination and provides additional entry points into the brand. We are confident that new products and initiatives, combined with our multichannel distribution network, will help us continue to capture market share both within the mattress industry, as well as, in the home and wellness space as we continue to evolve into a sleep company. Casper will provide the comfort, design, quality and innovation that consumers are searching for with a brand that continues to be obsessed with getting you the best night's sleep in order to provide you a better tomorrow. With that, I would like to turn the call over to Mike.

Mike?

Mike Monahan -- Chief Financial Officer

Thank you, Emilie. Hi, everyone. I'll provide some specifics around our financial results. In the fourth quarter, we continued to grow revenue and capture market share while making meaningful progress on our path toward achieving profitability.

Consolidated global revenue increased by 18.4% to $150.3 million, compared to $126.9 million in the fourth quarter of 2019 and by 13.1% to $497 million for the year. Our adjusted EBITDA loss narrowed to $3.5 million in the fourth quarter of 2020, representing an 80% year over year improvement and a 55% improvement sequentially versus the third quarter of 2020. Despite the ongoing challenges brought on by COVID-19, year-over-year North American revenue grew by 25.8% for the fourth quarter, and 17.4% for the full year of 2020. Our retail partnership and direct-to-consumer channels each contributed to this growth.

Retail partnership revenue grew 42.8% and 55.4% for the fourth quarter and full year, respectively. Our direct-to-consumer channel grew 19.1% and 7.5% for the fourth quarter and full year, respectively. It is important to note that our top line results were achieved despite a period where our supply chain was disrupted. Additionally, in 2020, we had less than $12 million of revenue from our discontinued European operations which contributed $26.2 million in revenue in 2019.

Our performance highlights the success of the various operational initiatives we implemented throughout 2020 and the powerful growth trajectory of our business model. As Philip mentioned, we believe Casper is in its early stages of capturing market share. Our ability to grow via the expansion of our product offering, as well as, through the expansion of our Casper retail stores and retail partners creates a powerful tailwind that supports our near- and long-term financial goals. Year-over-year gross profit increased by 24.7% or $14.9 million to $75.3 million for the quarter and by 17.9% to $253.9 million for the full year.

Gross margin continued to be above 50%, improving by 252 basis points year over year to 50.1% for the fourth quarter and 51.1% for the full year. The increase in gross margin was primarily driven by improved product mix, favorable shipping terms, and more efficient management of our cost of goods. Moving down the income statement. Sales and marketing expense increased year over year by $3 million or 7.4% to $43.6 million for the quarter, representing 29% of revenue, and increased by $2.2 million or 1.4% to $156.8 million on a full-year basis.

More importantly, sales and marketing for the full year, represented 31.6% of total 2020 revenue, favorably comparing to 35.2% for 2019, and reflecting the success of changes to our marketing spend and our ability to leverage our robust customer database to enable increased long-term value through more customer touch points and our expanded product portfolio. General and administrative expenses, including store operating costs but excluding depreciation were $42 million or 3.7% -- or a 3.7% increase, compared to $40.5 million in the fourth quarter of 2019 and $165.5 million or an increase of 16.7%, compared to $141.8 million for the full-year 2019. G&A expenses excluding depreciation as a percentage of revenue decreased from 31.9% to 27.9% from Q4 2019 to Q4 2020 and increased from 32.3% of revenue in 2019 to 33.3% of revenue in 2020. The increase was largely driven by one-time restructuring costs due to the exit of our European operations.

Depreciation and amortization of $3.9 million for the fourth quarter of 2020 increased approximately $900,000 versus the fourth quarter of 2019 and by $6.7 million to $14.5 million for the full-year 2020, compared to the full-year 2019. Interest expense was $1.9 million for the fourth quarter of 2020 and $8.4 million for the full-year 2020. This led to a net loss for the fourth quarter of $15 million, a significant improvement from a net loss of $25.6 million in the fourth quarter of 2019, while on a full-year basis, we saw a net loss improvement of $3.5 million to a net loss of $89.6 million for the full-year 2020. Earnings per share was a net loss of $0.37 in the fourth quarter and $2.42 for the full-year 2020, compared to a net loss of $2.41 in the fourth quarter of 2019 and a net loss of $8.86 for the full-year 2019.

We had adjusted EBITDA loss of $3.5 million in the fourth quarter of 2020, an 80% improvement, compared to the adjusted EBITDA loss of $16.9 million in Q4 of 2019, and a 36% improvement to an adjusted EBITDA loss of $45.3 million for the full-year 2020, compared to an adjusted EBITDA loss of $70.7 million for the full-year 2019. While we are pleased with these results and the overall trends across most lines, including adjusted EBITDA, we remain laser-focused and committed to growing our top line, and doing so while achieving our profitability goals as we become more effective and efficient across all facets of our business. Moving to the balance sheet and our liquidity position. As of December 31st, we had cash and cash equivalents of $88.9 million, compared to $67.4 million as of December 31st, 2019.

To further strengthen our liquidity position, we obtained a $30 million asset-based facility with Wells Fargo in late 2020, affording us an additional $15 million accordion feature that will enable us to scale in the future. For the first quarter of 2021, we expect to deliver $118 million to $125 million of revenue. We expect the first quarter to be the slowest quarter of 2021, consistent with our historical pre-pandemic trends. We anticipate Q1 2021 will have a higher adjusted EBITDA loss, compared to the seasonally stronger fourth quarter of 2020.

We expect an adjusted EBITDA loss for Q1 to be in the range of negative $16 million to negative $13 million. For the full-year 2021, we expect revenue growth to accelerate over 2020 and be within the range of $570 million to $600 million. We believe foot traffic trends in our retail stores will continue to be challenged. However, we expect continued growth in our e-commerce channel along with growth in retail partnerships.

As communicated on our Q3 2020 earnings call, we expect to achieve adjusted EBITDA profitability beginning midyear of 2021. We expect capital expenditures to be below $10 million in 2021, with plans to open fewer than 10 stores. We have made meaningful progress in our first year as a public company and are confident that we are on the right path to grow Casper into a world-class sleep platform. Our operating momentum heading into 2021 and growing demand for our differentiated sleep and wellness product supports this sentiment, and we are confident that we are positioning Casper to deliver ongoing growth.

I would now like to turn the call back to Philip.

Philip Krim -- Co-Founder and Chief Executive Officer

Thank you for everyone's time this morning. Casper is at an exciting point in our history. During our first year as a public company, we remain focused on the fundamentals needed to achieve our vision of becoming a sleep destination. To recap, we remain focused on three core strategic priorities.

First, continue to grow brand awareness. We are building a generational brand that consumers love and share, and we will continue to extend our reach and resonance. Second, continue to bring innovation and convenience to consumers by expanding our product portfolio. We are excited to launch new products that are designed, engineered, and curated based on rigorous consumer insights and feedback.

And lastly, expand distribution. We will continue to make it easier for consumers to discover, research, and ultimately, purchase our products through more and more points of distribution. By focusing on these priorities, we expect to drive accelerated growth in 2021 while making progress on our profitability goals. I will now turn the call over to the operator so we can take questions.

Operator?

Questions & Answers:


Operator

[Operator instructions] Your first question comes from Peter Keith from Piper Sandler. Your line is open.

Peter Keith -- Piper Sandler -- Analyst

Hi, thanks. Good morning, everyone, and congrats on the sales growth acceleration for the fourth quarter. You had mentioned briefly around the supply chain challenges. I guess, I want to confirm, are those now in the rearview mirror? Have you gotten through the supply chain issues? And maybe play that out to Q1 as well, where you're guiding for some sales acceleration to 7%, some of your peers have been talking about continued strong trends in Q1.

So anything to call out specifically about the Q1 guide?

Philip Krim -- Co-Founder and Chief Executive Officer

Sure. So, good morning, Peter, the supply chain issues, I would not say that they're squarely in the rearview mirror. I think we've taken steps to be more responsive to a supply chain that's going to remain dynamic, in our opinion. We talked about, on our last call, we think Casper has a uniquely strong business model in this environment because we can stand up more manufacturing partners, we can expand our supply chain capabilities by bringing on more capacity, and that will allow us to absorb more of the dynamic nature of what's going on in the overall mattress supply chain.

So I think it's going to continue to be an issue for the industry potentially, but I think Casper is well-positioned, thanks to our business model, to work through that. I think that's why you saw us be able to fix the supply chain issues fairly quickly, in my opinion. And kind of they became acute in mid- to late Q3, and by mid-Q4, we felt like we were in a much better position and we're able to fulfill the demand which remained strong from the demand signals we saw in Q3 and Q4, based on the ability to kind of flex up with more suppliers and add more distribution partners to the mix. On the Q1 demand, we talked about, last call and have said pre-pandemic, Q1 is always our seasonally slowest quarter.

We agree that there's kind of overall good demand backdrop in the industry and that it continues to be a good time to be in the mattress industry. And we highlighted some of those macro trends earlier around suburbanization and the focus on health and wellness, but just the way our business works is Q1 has always been seasonally the slowest. It allows us to kind of reset some of the products that we have out there and set us up for seasonally stronger demand coming out of Q1 for the rest of the year which we're excited about.

Peter Keith -- Piper Sandler -- Analyst

Thank you very much sir and that's a lot from you. The other issue that you didn't bring up is just the rising input costs and so we know that's pretty rampant with chemical costs continuing to inflate. How are you guys managing through that? And should we expect maybe some price increases as the year progresses?

Philip Krim -- Co-Founder and Chief Executive Officer

Yeah. We've been talking about it. Certain price increases are on the horizon for us, although we're trying to be pretty light with those. Again, the way that we believe with our business model that we can best combat some rising input costs is just to build capacity with our supply chain so that we can shift demand from supplier to supplier and that allows us to mitigate some of this.

We do think there is an environment of rising kind of feedstock and input costs. But we think, given our supply chain setup with capacity and giving -- having multiple vendors bid on our business and also our ability to control pricing at the end destination, we can navigate that successfully. And I think that's one of the virtues of having the majority of our business be DTC and working very closely with our retail partners, is that we can navigate if there are changes in the input costs in a substantial way.

Peter Keith -- Piper Sandler -- Analyst

OK. That's helpful. Thank you, Philip and good luck with this coming year.

Philip Krim -- Co-Founder and Chief Executive Officer

Thanks, Peter.

Operator

And your next question will come from Randy Konik from Jefferies. Your line is open.

Randy Konik -- Jefferies -- Analyst

Yeah, thanks. Good morning, everybody. I guess, Phil, I just want to ask more about the retail partner segment. So you've done a good job of increasing the penetration of that segment.

It looks like it's gone up about 2,000 basis points in the last eight quarters to about over 30% of the revenue base. And how do you think about where that kind of penetration should sit over the next couple of years? And then talk about -- you've had some very early success -- or good success with these different traffic winners, whether it's Costco, Sam's Club, what have you. How are you thinking about incremental partners from here? What type of partners are you looking at to expand that segment?

Philip Krim -- Co-Founder and Chief Executive Officer

Yeah. Good morning, Randy, thank you. I agree, we've had good success with our retail partner business, and we believe we're in the earliest days of building that out. If you look at it from an addressable market standpoint, retail partnerships are by far the biggest addressable market that Casper has to play in, and we've only been focused on standing that up over the last couple of years, as you highlighted.

So we believe that it has a long way to continue to grow at a pretty rapid clip. And I would also highlight that our retail partnership base looks very different than pretty much any of our peers and we think that was a benefit to us and one of the reasons that it drove such strong growth for the year, 55.4% growth in 2020 and over 40% growth in Q4. And it's because our partners had navigated 2020 successfully, with partners like Costco and Amazon and Target, etc. As we've talked about kind of toward the end of last year and into this year, we are very focused on expanding our trial presence.

And I think bringing more trial opportunities for our consumers is going to be key to capturing more market share within the mattress side of things, and in particular, on the high end of the mattress side of things. So you'll see us continue to focus on bringing more partners online with an emphasis on trial opportunities where consumers can lay on our products, compare our products, and that's why we highlighted that we brought on a professional sales team to work with those trial partners to make sure that we're standing up the brand in the right way, delivering a unique and differentiated experience to consumers. And we think overall, that's key for us to capture share in that channel.

Randy Konik -- Jefferies -- Analyst

And then just to expand upon that, with the sales team you just mentioned that you hired, I mean, is it fair to say that you've seen a meaningful increase in sell-through rates around those retail partners? And then on top of that, is it also fair to say that inventories on hand at the channel partners -- or retail partners is kind of below where it maybe normally is because of inventories that have been pretty lean across all areas of retail? How do you think about that?

Philip Krim -- Co-Founder and Chief Executive Officer

Sure. So on the sales team side, I would say the sales team has had a fairly immediate, measurable and meaningful impact on conversion rates which we mentioned, and thus, sell-through. So we're really pleased by that. And it's been a great unlock for us and I think a key part of operating within that channel.

So you'll continue to see us invest in that. And then on inventory levels, we understand that our retail partners are keeping lean inventory levels. We don't have a long track record of understanding kind of what normal looks like with some of these partners because most of them were stood up fairly recently, but we work with our partners. And again, this is, I think, the nice part about our DTC heritage and our business model, is that we can flow goods to our partners very quickly.

We can do dropship for them. We have a very nimble omnichannel infrastructure in place so that we can provide our partners however they want to manage their inventory. And we think that's one of the reasons why some of the retail partners are really excited to sign up with us and why they see us as a flexible partner moving through a dynamic consumer landscape.

Randy Konik -- Jefferies -- Analyst

Thanks. My last question is, on your retail stores, you said that business was down, but it sounded like it improved on a sequential basis. You are talking about expecting subdued traffic. But how do you think about when a return to a little bit more, I guess, inflection potential in traffic or -- and/or sales patterns could occur in that channel of the business?

Philip Krim -- Co-Founder and Chief Executive Officer

Sure. Emilie, do you want to talk about what we're seeing within our retail store channel?

Emilie Arel -- President and Chief Commercial Officer

Yeah. Hi, good morning. So as we said, nearly all of our markets are open today and we really see markets with more relaxed COVID restrictions having higher foot traffic. So traffic is a challenge to predict and we know that, but we are optimistic about the back half of the year when it comes to traditional retail.

We do think foot traffic will continue to begin to return to normal levels as widespread vaccine distribution happens. And we're really proud of our team for, as we mentioned, things like virtual appointments and curbside pickup, and really innovating within this environment to make the most of every customer that walks through the door.

Randy Konik -- Jefferies -- Analyst

Got it. Thanks. Helpful guys. Thank you.

Philip Krim -- Co-Founder and Chief Executive Officer

Thanks, Randy.

Operator

And your next question will come from Atul Maheswari from UBS. Your line is open.

Atul Maheswari -- UBS -- Analyst

Good morning. Thanks a lot for taking my question. Phil, I wanted to circle back on the first quarter. Why is it going to see a sequential slowdown in revenue growth compared to the fourth quarter, especially considering that the industry backdrop is still pretty supportive? Is there any specific call-out that you have that's limiting revenue growth this quarter?

Philip Krim -- Co-Founder and Chief Executive Officer

If you recall, Atul, we mentioned this on the last call as well, that Q1 is going to be a slower quarter for us and it just has to do with how we're managing our partners, with how our business works is, Q1 is always seasonally slower. And we understand it's a step back from the reacceleration we've seen on a sequential basis with quarterly growth, but this was something that we talked about on the last call that we have known as just how we manage our business. And it gives us a chance to kind of reset some of the product and distribution opportunities that we have in order to be set up for success throughout the rest of 2021.

Atul Maheswari -- UBS -- Analyst

Got it. And then as you look forward past the first quarter, our math would suggest that you need like around 22% to 23% revenue growth to achieve your sales guidance. So at this point, what's giving you confidence that revenues will accelerate following the first quarter, given that there could probably be some challenges in the second half of this year as wallet share shifts back to travel and entertainment and away from home?

Philip Krim -- Co-Founder and Chief Executive Officer

Yeah. So when we look at the data and when we look at 2020, especially if you zoom out, certainly, 2020 played out very different than we expected. But stepping back, we still delivered 17.4% for the year in our North American business, growth versus the previous year. And as we talked about, we're early days of building out distribution, that distribution is working well, we continue to see growth in our e-commerce, as well as, our overall digital business with partners like amazon.com and other dot-com partners that we work with.

And when we look at how the year will play out, we believe that we do have the opportunity to take share and grow in an accelerated fashion even beyond what we saw in 2020 which we were proud of, to be able to deliver over 17% growth last year. So we just did a bottoms-up build on the opportunities in front of us that we've seen based on the performance to date and that's how the forecasts came together.

Atul Maheswari -- UBS -- Analyst

Got it. Very helpful and good luck with this upcoming year. Thank you.

Philip Krim -- Co-Founder and Chief Executive Officer

Thank you, Atul.

Operator

And your next question will come from Bob Drbul from Guggenheim Securities. Your line is open.

Bob Drbul -- Guggenheim Securities -- Analyst

Hey, good morning. A couple of questions for me. You know, the first one is can you talk a little bit on return rates -- product return rates, either on casper.com or partners, like how that has influenced the business sort of '20 versus '19, and your expectations in this '21 embedded guidance that you're giving us? And then the second question is can you talk a little bit about just the outlook, specifically, shipping expense in the fourth quarter, but the outlook for shipping and delivery expense in -- even in the first half of this year? Those two topics would be helpful. Thank you.

Philip Krim -- Co-Founder and Chief Executive Officer

Sure, good morning, Bob. Mike, do you want to talk a little bit more about returns and shipping expense?

Mike Monahan -- Chief Financial Officer

Sure, good morning, Bob. On the returns piece, we are seeing -- we're consistent with prior years in what we're seeing. So in general, we've talked about we believe we're lower than the overall industry average. We haven't given out specifics around that percentage, but we haven't seen material changes to what we've seen in the past.

On the shipping, as you think about gross margins going forward, you remember we rebid our shipping contract at the beginning of April of 2020. And so, specifically, in Q1 on a year-over-year basis, we expect to see improvement as a result of that renegotiated contract and we saw improvements in Q4 as well. So I would expect to, over the next -- over Q1, to show improvement there and continued improvement from that on a year-over-year basis, just a little bit less, as we comp that new contract.

Bob Drbul -- Guggenheim Securities -- Analyst

Thank you.

Operator

And your next question comes from Matt Koranda from ROTH Capital. Your line is open.

Matt Koranda -- ROTH Capital Partners -- Analyst

Hey, guys, thanks. Just on the very near-term, I wanted to understand how we're thinking about how gross margins sequentially flow into the first quarter and how that's built into the first-quarter guidance. And then maybe if you could talk a little bit about the cadence of gross margin improvement through the remainder of the year, that would be helpful.

Philip Krim -- Co-Founder and Chief Executive Officer

Hey, Matt, good morning. Hey, Mike, do you want to take the margin question?

Mike Monahan -- Chief Financial Officer

Yeah, hello. There are -- if you look year over year in Q1 2020, we did -- our gross margins were roughly 46.9%, so I would anticipate seeing a meaningful improvement in that year over year. It's largely driven by two things. The first is the shipping terms that we talked about.

The second thing is the overall product mix. We continue to see improvements in terms of our product mix portfolio and some of the pricing we've been able to push through. That would help gross margins throughout the year. So as you think about it on a year-over-year basis, we didn't give specifics, but both for the first quarter and through the full year, I would expect to see a decent amount of improvement versus the full year of 2020.

Matt Koranda -- ROTH Capital Partners -- Analyst

OK. Helpful. And then one other clarifying question. I don't know if I saw the positive EBITDA for the second half guidance reiterated, but just wanted to clarify.

Is that still on the table for 2021?

Mike Monahan -- Chief Financial Officer

Yes. We're reiterating what we said on the third-quarter call.

Matt Koranda -- ROTH Capital Partners -- Analyst

OK. Great. And then lastly, just in terms of the 2021 outlook. It's been covered a little bit, but maybe I just want to put a finer point on it.

The retail partnership sales, is there anything quantifiable in terms of number of new retail partners we should expect in 2021? Maybe you could talk a little bit about sort of sell-through at existing retail partners and how that's going relative to kind of sell-in expectations on the retail front for 2021.

Philip Krim -- Co-Founder and Chief Executive Officer

Sure. Emilie, do you want to talk about that one?

Emilie Arel -- President and Chief Commercial Officer

Yeah, hi. So we don't have an exact number of partners that we're going to talk about today, but I would say we continue to partner with brands that understand the value proposition of Casper and can really help us bring our brand to more consumers across North America. We, as Philip had mentioned, onboarded some new partners in Q4 and are starting to see those take off which we're very excited about. And I would just put a finer point on what Philip had mentioned and I mentioned earlier about the professional sales team that we onboarded in the fall.

And really, their role is to be in the store to spend time with the retail partners to make sure they understand how we think about sleep as the key differentiator in our products and how we really want to work directly with the consumer to get them in the best bed for the best night's sleep. And so we can -- we are excited to continue to strengthen those relationships with the partners as we go throughout this year.

Matt Koranda -- ROTH Capital Partners -- Analyst

Great. Thanks, guys. I'll get back in the queue.

Operator

Your next question comes from Curtis Nagle from Bank of America. Your line is open.

Curtis Nagle -- Bank of America Merrill Lynch -- Analyst

Good morning. Thanks very much. Wondering if you could talk about your advertising plans for the year. I guess, just how to think about it from a dollar and a rate basis.

Just thinking about, I guess, the industry at large. Some of your larger competitors are investing a good bit more. So, yeah, how do you guys fit into that?

Philip Krim -- Co-Founder and Chief Executive Officer

Yeah, good morning. Going back to what we mentioned, we continue to be a very data-driven marketing organization and so we let kind of the data drive how we think about it, and we do believe that there's room to expand our overall marketing budget for the year but also focus on driving more sales and marketing leverage for the business. So we think that trend can continue into 2021. And in part, that's because we believe that e-commerce will be a robust channel for us, but also using our dollars to drive the omnichannel presence of our business.

Curtis Nagle -- Bank of America Merrill Lynch -- Analyst

OK. Makes sense. And yeah, I just, I think we touched on this, but I guess, any commentary on performance of -- revenue contribution from your existing versus new partners within wholesale?

Philip Krim -- Co-Founder and Chief Executive Officer

So we don't break that out specifically, but we're very pleased that revenue and growth continues to build with our existing partners, and that's driving the majority of dollars in the channel. So that business continues to comp very nicely and then we're pleased with building new business with new partners which there's a ramp when we stand those up. So we think those are ramping nicely as well.

Curtis Nagle -- Bank of America Merrill Lynch -- Analyst

OK. And then maybe just one last quick one. So I understand you're not building or putting up too many stores this year, I think 10. Why not just invest more generally in capex? At least just looking at the dollar amount you gave relative to sales, it's only about 2%, which, I don't know, seems a little light for your company.

So, yeah, I mean just kind of how do you think about capital allocation kind of this year and going forward?

Philip Krim -- Co-Founder and Chief Executive Officer

Yeah. It's a good question and it doesn't change our long-term desire to build out stores, but we're just going to be kind of data-driven on timing which is, in large part, informed by what we believe how -- how COVID vaccines distribution plays out for the year. So this year, we're going to be pretty slow to add new doors, but long-term, we believe that's a core part of our strategy. And, you know, capex, obviously, is needed to stand up stores, but it's not needed to drive growth through our e-commerce channel and it's not needed in a big way to drive growth in our retail partnership channel.

So it's really just a question of how retail evolves and how we come out of the pandemic and how we get the vaccines distributed. Our view is that that will drive increases in retail store sales and foot traffic, and when we see that happen, we'll get back to opening up doors down the road.

Curtis Nagle -- Bank of America Merrill Lynch -- Analyst

OK. Thanks very much. I appreciate it.

Philip Krim -- Co-Founder and Chief Executive Officer

Thank you, sir.

Operator

And your next question will come from Nick Jones from Citi. Your line is open.

Nick Jones -- Citi -- Analyst

Great. Just two questions. First, on the product launches expected this year, are these -- are some of the products going to be new products that aren't in kind of the offerings today? Or are they largely upgrades to what's out there already? And then the second question is on the D2C channel. Can you give us some color on how much of the conversions are driven by performance marketing and how that might be impacted by IDFA deprecation, and I guess, the looming third-party cookie deprecation on Chrome? Thanks.

Philip Krim -- Co-Founder and Chief Executive Officer

Nick, both great questions. So on the product side of things, we're going to continue to increase products in categories that we operate in, including our mattress category. So we're really excited about some of the innovation that we'll be taking to market in that and we'll also bring new products and new categories to market as well. So more to come on both those fronts.

On the marketing front, we definitely have been talking about for some time now the changes in data privacy and some of the deprecation that we're going to see later this year. We do think that it's going to impact kind of the industry at large from a direct marketing standpoint but that we've had good advanced notice on it and have been working on other ways that we think we can drive performance in the channels. And we don't think that performance media at large is going to take a material hit. I just think we're going to have to rely on different data points and different tools to drive optimization.

And we've been working on those and that includes bigger lifts like multi-touch attribution platforms and media mix modeling platforms, as well as, different ways to measure end user engagement and quantify the impact our marketing is having on conversions and driving traffic, etc. This is an area where we think we do have some real core competencies and expertise. And so we think kind of having a dynamic landscape there will actually play to our strength long-term.

Nick Jones -- Citi -- Analyst

Great. Thank you.

Operator

And your next question will come from Lauren Schenk from Morgan Stanley. Your line is open.

Lauren Schenk -- Morgan Stanley -- Analyst

Great. Thank you. I just wanted to ask about the longer-term real estate strategy. Obviously, 10 stores in '21, which I think is prudent, but are you still thinking about a store fleet of 200-plus stores long-term? Or has that sort of evolved over the past 12 months or so?

Philip Krim -- Co-Founder and Chief Executive Officer

Hi, Lauren, good morning. No, we still think we can easily support 200-plus stores. So in our view, no matter how bullish of an expectation you have on how e-commerce scales over the next several years for this industry, offline and retail is going to be really a big part of the industry, a big part of the consumer experience and we don't think that goes away, and we think the best way to lure them out and try Casper products is in a Casper store. And so we're pleased with how those stores have performed despite foot traffic declines due to COVID.

And long-term, we think that that can be a very large profitable channel for us, and when we see some of our peers like sleep number offer, I think, 600 doors, something in that ballpark, we think we have a long way to go to kind of fill out distribution geographies with our stores so that we can bring the best experience to more and more consumers throughout North America.

Lauren Schenk -- Morgan Stanley -- Analyst

OK. Great. And then just one follow-up on the new product launches. Just curious from sort of a mattress SKU count perspective what you think the right number is over the medium to long-term.

I think in the past, maybe you had talked about having too many choices was overwhelming to the consumer. So just kind of wondering what you think the right SKU count is for mattresses specifically.

Philip Krim -- Co-Founder and Chief Executive Officer

Yeah. It's a great question. And we definitely don't believe in kind of SKU proliferation for the sake of SKU proliferation which we think is kind of a legacy way of thinking in this industry where you just launch different SKUs and different mattresses for different price points. For us, we take more of an innovative lens to how we can launch new products and more of an approach on how do we bring more solutions to satisfy more people's preferences to market.

So you'll see some real innovation with the products that we're going to take to market within our mattress category. We're really excited about that. We think it's kind of a next-level opportunity for us when it comes to sleep quality. In particular, these are on the higher end side of the overall line and we think there's a really compelling reason for these to be a part of our overall mattress mix.

So we'll be very judicious with how we bring new products to market and we think there's still plenty of room to fill out additional consumer preferences within our lineup and we'll do that over time.

Lauren Schenk -- Morgan Stanley -- Analyst

Thanks much.

Philip Krim -- Co-Founder and Chief Executive Officer

Thanks, Lauren.

Operator

And your next question will come from Seth Basham from Wedbush Securities. Your line is open.

Seth Basham -- Wedbush Securities -- Analyst

Thanks a lot and good morning. My first question is around retail partners revenue growth in the fourth quarter. Can you provide some color on how much of that growth is driven by sell-in versus sell-through?

Philip Krim -- Co-Founder and Chief Executive Officer

Sure. The vast majority of it was sell-through. There's some timing with retail partnerships always at the end of the quarter. But overall, as we talked about earlier on the call, retail partners in this category in this industry take pretty lean inventory positions.

So the majority of it is sell-through, but there is some timing around sell-in versus sell-through.

Seth Basham -- Wedbush Securities -- Analyst

Gotcha. And as we think about the guidance for Q1, as well as, 2021, can you provide some color around how much growth you're expecting or what the growth rates are in the DTC channel relative to the retail partner channel?

Philip Krim -- Co-Founder and Chief Executive Officer

Sure. Mike, do you want to talk about how we've thought about that one?

Mike Monahan -- Chief Financial Officer

Sure. We haven't given specifics between the two channels, but I can give a little color around that. As we think about the DTC channel, we've largely modeled in that modest growth for our retail stores in the back half of the year. That's the one factor that is difficult for us to judge, when the stores will open up.

So we leaned into -- our expectation is that e-com will grow a little bit faster than the retail stores. And certainly, if we have the ability to see foot traffic come back, that would be helpful to the DTC channel. On the retail partnership side, as we continue to see improvement from our sell-through with existing partners and we've also been in talks with a number of different potential partners that we're really excited about. And so we're expecting to see growth in the back half of the year from the combination of those two drivers.

Seth Basham -- Wedbush Securities -- Analyst

Got it. So for the first quarter and the full year, would you expect that the retail partner channel will outgrow the DTC channel?

Mike Monahan -- Chief Financial Officer

Where we sit today, I'd rather not give specifics around that, but as we -- from where we sit, I would anticipate to see retail partnerships grow a little bit more than the DTC channel this year, correct.

Seth Basham -- Wedbush Securities -- Analyst

Got it, thanks. And the last thing, as it relates to the guidance, just thinking about some of the components within SG&A. Where should we be expecting more of the operating leverage? Is it going to be in advertising or G&A in the first quarter of 2021?

Mike Monahan -- Chief Financial Officer

We've modeled in -- I would expect it to see more on the G&A side just for the first quarter than on the sales and marketing.

Seth Basham -- Wedbush Securities -- Analyst

And for the full year?

Mike Monahan -- Chief Financial Officer

For the full year, we expect contribution. We don't give the specifics between the two, but I would expect to see leverage on both those lines on a year-over-year basis as it relates to full year.

Seth Basham -- Wedbush Securities -- Analyst

Thank you very much.

Operator

I have no further questions in queue. I turn the call back over to Philip Krim for closing remarks.

Philip Krim -- Co-Founder and Chief Executive Officer

Thank you, operator, and thank you all for the time today and for your interest in Casper. We hope you and your families stay healthy and safe. Have a good day. Thank you.

Operator

[Operator signoff]

Duration: 53 minutes

Call participants:

Norberto Aja -- Investor Relations

Philip Krim -- Co-Founder and Chief Executive Officer

Emilie Arel -- President and Chief Commercial Officer

Mike Monahan -- Chief Financial Officer

Peter Keith -- Piper Sandler -- Analyst

Randy Konik -- Jefferies -- Analyst

Atul Maheswari -- UBS -- Analyst

Bob Drbul -- Guggenheim Securities -- Analyst

Matt Koranda -- ROTH Capital Partners -- Analyst

Curtis Nagle -- Bank of America Merrill Lynch -- Analyst

Nick Jones -- Citi -- Analyst

Lauren Schenk -- Morgan Stanley -- Analyst

Seth Basham -- Wedbush Securities -- Analyst

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