What occurred
Shares of bed mattress business Purple Innovation (PRPL -13.88%) dropped on Tuesday after fellow bed mattress business Tempur Sealy (TPX 1.25%) revealed it was getting bed mattress seller Mattress Firm in a deal valued at $4 billion. As of 2 p.m. ET, Purple stock was down 12%.
So what
For its part, Tempur Sealy stock was flat, although it was the business that had news today. In addition to revealing monetary outcomes for the very first quarter of 2023, it revealed that it’s getting the biggest specialized bed mattress seller in the U.S., which is Mattress Firm.
Why would Purple stock trade down on this news? Well, Mattress Firm is the business’s biggest wholesale partner, and the possibility of Tempur Sealy getting Mattress Firm was particularly resolved in the danger area of Purple’s yearly report. The report says, “We comprehend that it is possible that Mattress Firm, Inc. might be offered to Tempur Sealy International, Inc. which might interrupt our relationship with Mattress Firm or avoid us from continuing to offer our items in favorable positionings along with Tempur Sealy items within Mattress Firm shops.”
In other words, if Tempur Sealy effectively closes its acquisition of Mattress Firm, it’s possible (and rational) that it would promote Tempur Sealy bed mattress over bed mattress from Purple. And that’s why this bed mattress stock is down today.
Now what
In 2022, almost 43% of Purple’s profits originated from wholesale partner channels, that include Mattress Firm however isn’t restricted to it. Therefore, this might materially affect the business’s monetary outcomes, depending upon what occurs.
If there’s a silver lining here, it’s that most of Purple’s profits is direct-to-consumer and features much better earnings margins than offering through wholesale partners. That said, it’s something management will require to browse thoroughly.
Purple is scheduled to report monetary outcomes tomorrow, May 10, after the marketplace closes. I would anticipate management to a minimum of state something about Tempur Sealy and Mattress Firm then.
Jon Quast has no position in any of the stocks discussed. The Motley Fool has no position in any of the stocks discussed. The Motley Fool has a disclosure policy.