What happened

Shares of Purple Innovation (PRPL 0.76%), the direct-to-consumer mattress company, were climbing after it delivered better-than-expected results in its first-quarter earnings report, even though it lowered guidance for the year. As of 3:02 p.m. ET, the stock was up 7.2%.

So what

Similar to other e-commerce and home-furnishings companies in the first quarter, Purple saw a decline in revenue as it lapped the last quarter before COVID vaccines became available to the general public.

A person pressing on a mattress in a store.

Image source: Getty Images.

Revenue in the period fell 23.2% to $143.2 million, but that still beat estimates of $129.3 million. Gross margin fell sharply from 46.9% to 36.1% as the sales mix shifted in favor of the wholesale channel, which carries lower gross margins. Adjusted EBITDA was down from a profit of $22.8 million to a loss of $9.6 million.

On the bottom line, Purple posted an adjusted loss per share of $0.24, which compared to expectations of a loss of $0.35.

CEO Rob Martini acknowledged the headwinds the company is facing, saying, "While we are making progress, and believe we will see sequential improvements including second-half profitability during this year, evolving economic and post-pandemic headwinds such as a shift in consumer buying behavior from online to in-stores and away from home related categories toward experiences and travel, has caused us to adopt a more conservative view on the remainder of 2022."

Now what

Purple lowered its full-year guidance from $790 million-$830 million to $650 million-$690 million and cut its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) range from $26 million-$33 million to $21 million-$27 million. This was ahead of $11 million a year ago, as cost-cutting will help lift profits. Management still expects performance to improve sequentially over the course of the year and called for profitable growth in the second half.

Investors seemed to be encouraged enough by the update to bid the stock higher, despite the guidance cut and sharp decline in sales. Part of the reason for the gains is that Purple shares had already fallen sharply and were trading in penny stock range, so the headwinds Martini discussed were already priced into the stock.