© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning, and welcome to Sleep Country Canada's Financial Results Conference Call for the Second Quarter Ended June 30, 2019. We will begin today's call with management's discussion followed by a question-and-answer period open to investors and financial analysts. For your convenience, the second quarter earnings release, financial statements and management's discussion and analysis are available on the Investor Relations section of the company's website at sleepcountry.ca. They are also available on SEDAR. The results were released yesterday after market close.Please note that the remarks on this conference call may contain forward-looking statements about Sleep Country Canada's current and future plans, expectations, intentions, results, level of activity, performance goals or achievements or any other future events or developments. Forward-looking statements are based on information currently available to management and on the investments and assumptions based on factors that management believes are appropriate and reasonable in the circumstances.However, there can be no assurance that such estimates and assumptions will prove to be correct. Many factors could cause actual results, levels of activity, performance, achievements, future events or developments to differ materially from those expressed or implied by the forward-looking statements. As a result, Sleep Country Canada cannot guarantee that any forward-looking statement will materialize, and you are cautioned not to place undue reliance on these forward-looking statements.Except as may be required by law, Sleep Country has no obligation to update or revise any forward-looking statements, whether a result of new information, future events or otherwise. For additional information on these assumptions and risks, please consult the cautionary statement regarding the forward-looking information contained in the company's MD&A dated August 8, 2019, available on sedar.com.I would now like to turn the conference over to Mr. David Friesema. Please go ahead.
Thank you very much. Good morning, everyone, and thank you for attending our second quarter 2019 conference call. Joining me today are Stewart Schaefer, Chief Business Development Officer and President of Dormez-vous; and Prajakta Raut, our Vice President of Corporate Accounting.The second quarter highlighted the strength of Sleep Country Canada's accelerating omnichannel retail strategy. We are very pleased with a strong 15.9% increase in revenue for the year before -- from the year before to $166.6 million. The gains were led by a 15.5% increase in mattress sales and a 17.9% increase in our accessory sales. The strength contributed to a 1.9% increase in same-store sales, building on the 4.4% increase from the second quarter of 2018. The inclusion of Endy in our family of brands has helped to drive the large increase in online revenue with Sleep Country e-commerce business also contributing meaningfully to this growth. Since our IPO in 2015, we have been significantly investing in long-term and profitable growth to reinforce our position as Canada's #1 sleep retailer, and our second quarter results continue to demonstrate that we are achieving this goal.Over the previous several quarters and even in recent weeks, we've successfully acquired Endy, Canada's leading online mattress brand, partnered with Walmart, the world's largest retailer to sell our popular Bloom mattress-in-a-box collection on walmart.ca and Urban Barn to showcase the Endy mattresses and pillows which can be tested at many Urban Barn locations across the country.We launched Europe's favorite mattress-in-a-box, the Simba Hybrid mattress, both online and in stores; continue to diversify and expand our suite of sleep accessories that we sell as part of our All for Sleep opportunity; are working diligently at launching our improved and fully transactional e-commerce capabilities as well as our refreshed ERP and POS systems with Oracle; launched a pilot program with SnapPay to bring more flexible payment options to our customers; opened 15 new stores and renovated 31 existing locations to our enhanced store design over the last year and continued to invest in our brand by refreshing our creative and advertising output.These investments are all part of the diverse growth strategy that we have developed since going public, which is positioning us for continued growth while best serving our customers' needs whenever, wherever and however they choose to shop. We are very excited to see the accelerated growth in our accessory and bedding category as our strategic investments are paying off, as illustrated by our 17.9% increase in growth this quarter on top of, I say, 13.7% growth in the second quarter of 2018. This growth is driven by the successful execution of our All for Sleep brand platform, new infomercials, expanded innovative mix of products and our strategic brand partnerships. These investments will help us to take share in the attractive, lucrative and fragmented $1.5-plus billion Canadian sleep accessories market. And I'm very excited that we are still very much in the early stages of this opportunity.During the quarter, we expanded our footprint opening 6 new stores, 2 of which are located in enclosed malls. We also recently celebrated a milestone in Quebec with our 60th Dormez-vous location in the province. We also upgraded 8 locations to our enhanced store design, bringing the total amount of renovated stores to 68% of our entire fleet of stores. We continue to be very pleased with the performance of our new stores, demonstrating that our real estate strategy is effective at driving strong results. We are on schedule to achieve our goal of opening 8 to 12 new stores this year while also renovating 20 to 30 existing locations.We are also very pleased with the overall growth of our online business, especially our newly formed partnership with Endy. Our accelerating e-commerce business constitutes an increasingly significant portion of our overall revenue. Online revenue expansion is attributable to the integration of Endy, the positive reception of our expanded Bloom collection, the introduction of the Simba Hybrid mattress and an increased demand for our growing accessory assortment. We have also expanded our overall reach and customer segmentation online through our new partnership with Walmart, which offers our Bloom collection on walmart.ca and exposes our products to 23 million additional customers per month.While we've enjoyed this exponential online growth, we continue to see the consumers' purchasing journey for this tactile product involves a visit to our stores, especially for the coveted mid- to premium price collections. This trend further supports our real estate strategy in conjunction with our full omnichannel offering. We are uniquely positioned with our 274 profitable locations across Canada combined with our multiple online offerings, expanding basket and new partnerships to continue to accelerate our dominant position in this market. Our continued focus on our overall ecosystem puts us in an enviable position for both traditional brick and mortar and online only -- from traditional brick-and-mortar and online-only retailers.Looking at profit, I want to remind you that we adopted IFRS 16 accounting standards as of January 1, 2019, which means that our quarterly results aren't directly comparable to 2018. Our MD&A provides the pro forma results for 2018, which are the 2018 results for the respective periods adjusted for the estimated impact of IFRS 16. On a pro forma basis, operating EBITDA increased 9.3% to $32.6 million quarter-over-quarter, and adjusted earnings per share on a diluted basis fell 2.1% to $0.33 per share. Year-over-year comparative earnings per share are also impacted by our adopted of IFRS 16.I will now turn the call over the Praj Raut who will discuss our financial results in detail and reiterate the impact from the changes to our accounting standards. Praj?
Thanks, Dave, and good morning, everyone. I would like to start off by reminding everyone that similar to Q1 2019, it's important to note that this quarter's numbers aren't directly comparable to Q2 of 2018 mainly because of 2 reasons: one, the inclusion of Endy in Q2 2019 results; and two, our adoption of IFRS 16 accounting standards which came into effect on January 1 of this year. I'll be sure to explain the impact these 2 numbers on the results as we've gone through the numbers, and we will also use pro forma numbers for last year where possible.Like Dave mentioned, we will not be breaking upEndy's performance in our financial results at this time as a standard in the industry. I will be referring to IFRS 16 many times as we discuss the second quarter results. And thus, I would like to start off by briefly explaining the standard.IFRS 16 is a new accounting standard on how to record, measure and present leases in the financial statement. This new standard became effective January 1, 2019, and requires companies to record operating leases on their balance sheet as a right of use or ROU asset. Sleep Country's operating leases are mainly comprised of our store location and distribution on our leases. The corresponding lease liabilities valued at present value of future rent payments are recorded as liability. The ROU assets will be depreciated over the lease term on a straight-line basis, and interest expense, which is higher towards the start of the lease life cycle, will accrue on the lease liability. Rental expense, which was previously recorded as in cost of sales for store leases and in G&A for the warehouse leases, is no longer expensed in the P&L and is replaced by depreciation on ROU assets and interest expense on lease liability. This has an impact on our gross profit, gross profit margin, EBITDA, operating EBITDA, operating EBITDA margin, net income, adjusted net income and earnings per share. There is no impact on the underlying business economics on how Sleep Country operates as a business or on our cash flow.IFRS 16 impacts our 2019 results. However, in the financial statements, 2018 comparative figures are not adjusted based on the adoption choice we made. In order to improve the comparability between the 2 quarters, we have included pro forma numbers for last year where possible. The pro forma numbers are compiled for Q2 and year-to-date 2018 by adjusting the reported 2018 results of the respective period for the estimated impact of IFRS 16 and are disclosed in the Q2 2019 MD&A to provide the financial statement users with more meaningful comparative figures. Upon adoption, an adjustment was made to the balance sheet as of January 1, 2019, as follows: ROU assets of $253 million were recognized, lease liabilities of $289 million were recognized, deferred tax liabilities was reduced by $6.2 million to recognize the impact of timing difference, other liabilities were reduced by $13 million to reverse the balance sheet balance related to straight-line rent, and retained earnings was debited by $16.9 million.I would now also like to specifically disclose the impact of IFRS 16 on Q2 2019. In the cost of sales section, depreciation related to IFRS 16 was increased by $8 million. Straight-line rent, which was previously recorded in this section, was reduced by $9.4 million. In the G&A section, depreciation related to IFRS 16 was increased by $0.9 million, and straight-line rent was removed by $1.2 million. The interest expense line went up by $2.9 million. The bottom line impact on net income after tax was a decrease of $0.94 million, resulting in a $0.03 per share impact.In Q2 2018, the impact was as follows. Cost of sales section, depreciation was increased by $7 million. Straight-line rent was reduced by $8.5 million. In the G&A section, straight-line rent was reduced by $1.1 million and depreciation increased by $0.85 million. In the interest expense section, interest was increased by $2.6 million, and so the bottom line impact on net income after tax was a decrease of $0.6 million which rounded up to $0.01 per share impact.To give you some insights into this quarter's highlights, let's begin with revenue. In our second quarter, revenue increased by 15.9% to $166.6 million. This increase was aided mainly by the acquisition of Endy in December 2018, the addition of 15 new stores since June 30, 2018, as well as the strong growth in our accessories business.As Dave mentioned, same-store sales increased by 1.9%. Mattress revenue and accessories revenue also continue to be key drivers for our businesses. The former increased by 15.5% to $133.7 million compared to this time last year. And our accessories business continue to grow substantially, rising 17.9% to $32.9 million over the same period. These gains are largely attributable to the addition of Endy but also due to a focus on our All for Sleep brand evolution to include more diverse total sleep solutions-focused product offerings, increased customer awareness due to advertising campaigns, e-commerce growth, our enhanced store design and new store openings.As we explained in our first quarter conference call, gross profit for the quarter is not directly comparable to a year ago due to the adoption of IFRS 16 accounting standard. The gross profit margin increased by 2.6% from 27.2% of revenue in Q2 2018 to 29.8% of revenue in Q2 2019. Quoting pro forma, our gross profit margin increased by 1.6% to 29.8% from 28.2% in the second quarter of 2018. This margin improvement was primarily influenced by 3 factors: First, our inventory and other directly related expenses net of volume rebate and expressed as a percentage of revenue decreased by 80 basis points. Second, sales and distribution compensation expenses decreased by 70 basis points largely due to the improved efficiencies brought by Endy. And third, the combined effect of store occupancy cost and depreciation as a percentage of revenue resulted in a decrease of 100 basis points mainly due to the adoption of IFRS 16.On a pro forma basis, store occupancy costs and depreciation expense combined resulted in an increase of 10 basis points as a percentage of revenue in Q2 2019 compared to Q2 2018.G&A expenses for this quarter increased by 34.6% or $7.2 million to $28 million. As a percentage of revenue, this expense represents 16.8%, up from 14.5% last year. Again, this increase in expense is largely due to the inclusion of Endy in our results along with the changes to the way we account for rent expense under IFRS 16. On a pro forma basis, G&A expenses for the quarter increased by $7.5 million to $28 million for this quarter from $20.5 million in Q2 2018. A large portion of the increase in G&A expense came from the media and advertising expenditures which rose by $5 million. The rise in costs during the quarter was largely because of the inclusion of Endy, but also because of planned increase in spending on digital advertising, traditional media spend and production expenses to support the Sleep Country and Dormez-vous brand. Sales, wages and benefits G&A expenses increased by $0.4 million. This is largely attributable to the inclusion of Endy and was partially offset by a decrease in sales -- in share-based compensation expense. From a customer standpoint, credit card and finance charges as a percentage of revenue grew by 0.1% again largely due to the inclusion of Endy.The adoption of IFRS 16 has also had an impact on our G&A expenses, specifically around our occupancy and depreciation figures. Occupancy charges which includes property taxes, maintenance costs for distribution centers and office space fell by $0.8 million from a year ago. However, our depreciation expense almost doubled to $2.5 million from $1.3 million because of changes to the treatment of leased warehouse from operating leases to depreciating ROU assets.Moving on from G&A. Our operating EBITDA for the quarter was $35.6 million. On a pro forma basis, that was an increase of 9.3% after accounting for adoption of IFRS 16. On a pro forma basis, operating EBITDA margin decreased by 130 basis points from Q2 2018 to 21.4% as a percentage of revenue, primarily impacted by the inclusion of Endy.Finance related expenses increased in the second quarter to $5.3 million, up from $1.1 million in Q2 2018. This is largely due to the additional interest expenses incurred in Q2 2019 on lease liabilities upon adoption of IFRS 16, increased interest expenses on the senior secured credit facility related to the acquisition of Endy and accretion of Endy's contingent consideration. On a pro forma basis, finance-related expenses increased by $1.6 million or 44.4% in Q2 2019 compared to Q2 2018. Our adjusted net income for the quarter decreased 5.6% to $12.5 million or $0.33 per share on a diluted basis from the same period last year. Again, this was largely due to the impact of Endy's numbers and the transition to IFRS 16. On a pro forma basis, the decrease in adjusted net income was 2.3%.Net cash flows generated by operating activities for year-to-date 2019 were $35.4 million compared to $16.1 million for year-to-date 2018. Net cash flow generated by operating activities in year-to-date 2019 comprised of the positive impact of cash generated from operating activities $57.5 million offset by $22.1 million of cash used as a result of an increase in noncash items related to operating activities or working capital. This increase in year-to-date 2019 was primarily driven by higher inventories, higher trade and other receivables, higher prepaid expenses and deposit, lower trade and other payables and lower customer deposits.On June 30, 2019, our cash position currently stands at $14.9 million compared to $17 million as a June 30, 2018. As we have stated in previous quarters, our priorities when it comes to excess capital are as follows: one, look for ways to grow our business and maintain some dry powder for future opportunities; two, pay down our debt; three, be a company that continually raises our dividend; and finally, use any remaining cash to buy back shares under our NCIB program. This will continue to be our key priorities for the foreseeable future.As a quarter event, the balance on our revolving credit facility was $175.8 million compared to $168.6 million as of December 31, 2018. Our Board of Directors declared a dividend of $0.195 per share payable on August 29, 2019, to shareholders of record as of the close of business on August 20, 2019. The dividend was increased for the fourth time since our IPO after the first quarter of this year.Lastly, I'll provide an update on our NCIB program. In the first quarter of 2019, we received approval from the Toronto Stock Exchange to buy back approximately 4% of our outstanding shares on the open market beginning on February 28 of this year. Since the commencement of NCIB, we have not currently repurchased any shares for cancellation but are exploring the possibility of doing so in the future.With that, I conclude my remarks. I'll now turn the call back to Dave.
Thanks, Praj. With the inclusion of IFRF 16 as well Endy, that was a very complex quarter. You did great job of explaining. Thank you.
Thank you.
As you've heard today, our long-term investments over the past several quarters continue to capture additional market share. The acquisition of Endy, new partnerships with Walmart, Simba, Urban Barn, project pilots with innovative companies like SnapPay, reiterating our All for Sleep commitment and updated ERP system, aggressive investment in e-commerce including a new cloud-based platform, our expansion into a more diversified product line and an ongoing commitment to expanding and refreshing our bricks-and-mortar presence have driven significant revenue growth across our business. We are enjoying the benefits of our investments and look forward to seeing how the fully realized impact of this strategy continues to unfold and grow. Our commitment to our strategic investments is bringing customers into our stores and online, and we believe our commitment to exceed the customers' expectations will keep them coming back. We are well positioned to grow our market share and solidify ourselves as Canada's preeminent omnichannel sleep solutions retailer.Before wrapping up, I would like to highlight the solid progress we are making in the rollout of our upgraded e-commerce ERP and POS systems, which we've undertaken in partnership with Oracle and Deloitte. As our business grows and evolves, this investment will further advance our competitive positioning while streamlining and enhancing the overall efficiencies of our business. Finally, as you know, this is Sleep Country's 25th year in business. It's been an exciting quarter century to reflect upon, and we look forward to what the future holds for our business, our industry and our customers: loyal, core and new customers. We're proud to once again be recognized as a great place to work and look forward to celebrating the final half of this year with our best in business teams.That concludes our remarks. We now open the call for questions.
[Operator Instructions] And our first question comes from the line of Vishal Shreedhar from National Bank.
Just looking back kind of over the long term, Sleep Country has been delivering exceptional same-store sales growth for some period of time, then it started to taper more recently. At the same time, the investments started kicking in and maybe depressing a little bit the earnings growth, coincident with the weakening of same-store sales. But it seems like Q2, a little bit of a better balance between the sales and the profitability in the investment. Wondering if management has -- feels like it can achieve this balance going forward or if the investments are still going to continue hurting the profitability line. Any thoughts there?
Sure. I'm going to try and cover all that off. So first and foremost, I'd like to say that our same-store sales growth in Q2 was built upon what we don't consider a robust market. So we're very excited about how we performed on all fronts of our business. Secondarily, and we've said this right from the day we went public, we will continue to invest in our business. But we invest in our business to grow it, and we invest in our business to grow it profitably. So our goal is always to grow our business and grow it profitably. So that will continue to be our focus.And we're very excited about the investments we've been making. And we also stated right at the very beginning that Endy was going to be a deleveraging of our profit for a period of time because even though they're profitable, which is unusual in their industry, their level of profitability isn't as high as ours as a percentage of revenue. And so -- and that will just continue to evolve over time.And so we feel that we're right on track for what we've always been promising to do. And we're winning at it while we're doing it. So can we say that we're going to get right back to our percentage of profitability? No, I wouldn't promise that at all. But we're always going to grow our business profitably over the long run. Did that cover off all the points?
I think, yes. And as you alluded to in the script, you guys are doing a lot of things in a lot of different fronts. Maybe if you could just comment on some of -- kind of what I do see as some of the bigger items, how Endy is working, how the Walmart partnership is working and how Simba is working out.
Sure. I'll just start off real quickly with Endy. And then, Stewart, I think you take the other ones. I think we're really happy to have Endy as a partner, and we -- and they continue to grow and we're very excited about the future there. So nothing's changed on that front. Now for the more in detail stuff, [ Stu ]?
Yes. And just add to Dave's point, Endy, we have -- we've now 6, 7 months with this group and we just actually enjoyed a Board meeting at their offices yesterday. And we had time to spend with not just Raj and Mike but lucky enough to spend a great amount of time with the fabulous team at Endy. And the more we spend with them the integration within our operations, the best practices, we're all getting very excited about this new partnership. And very early days and we hope to see a lot of benefits on both sides of our business. On the Walmart side, this new partnership is very exciting for us, a different customer segmentation that we're going after with the help of the largest retailer in the world. And we hope to create a lot more new types of partnerships like this that will expand our distribution channels and help us penetrate and dominate more of the market in All for Sleep.
Our next question comes from the line of Sabahat Khan from RBC Capital Markets.
Just a question. I guess just sort of following up on the e-commerce side. You called out a lot of growth there, and I know you don't get into details about Endy. But maybe if you can just unpack that a little bit, talk about how Bloom did, about how Simba did. And you talked about some plans on developing your e-commerce a little bit more. Just trying to understand what the drivers of the e-commerce growth were and what your plans are in terms of adding offerings and so forth.
Sure. So you are absolutely right. We don't want to break that down too much for competitive reasons, but I can -- but we do want to share some color. And so let me start off with an overall statement about Q2. When as -- over the years, we've always described how we're going to continue to grow our business. And that's by increasing traffic; that's by increasing conversion; it's by increasing average unit selling price, mattresses, accessories, all those things. And I can tell you that every single one of those levers increased in Q2. So we felt -- both in stores as well as online. So we feel very strong that we are hitting on all cylinders when it comes to growing our business in what seems to be less than a buoyant market. On the online side, I would like to just say, as we said in the script, that we did see growth in all of our avenues. And so we're not going to break it down much more than that because -- for competitive reasons, but hopefully, that color gives you some better feel for it.
That's helpful. And then just in terms, I guess, growing the top line, who do you think at this stage of the cycle that you are likely taking share from? Is it [ Mass Player ], [ Specialty ], other online folks? Trying to get understanding of against a relatively moderate backdrop where the extra sales are coming from.
Well, I would say, just speaking on the mattress side, with the market the way we think it is, a 15.5% growth means I think we're taking it from a lot of different places. And I won't name any of them specifically, but I think it's a pretty across-the-board taking.The other thing that I do want to remind everybody is that, just to -- I'll specifically talk about Sears. We -- our market share, according to our data, has gone up about 5% or so over last couple of years, which we believe indicates very strongly that we took a very big portion of the Sears business as they closed. But I don't want anybody to think that, that advantage or that benefit has disappeared. Because now customers that bought at Sears 10 or 12 years ago, when they re-enter the market, they -- the store where they last bought is no longer there. So we think that the Sears will continue to benefit our business going forward. That's on the mattress side.On the accessory side, as we mentioned and we've always talked about, we're much earlier days in our progress there. So I think we're taking share again across the board, but places like Sears going out will continue to pay -- will continue to help those businesses over the long haul as well. And it feels very good to be in the early days of that business.
Okay. And then just one last one on the outlook. How are you thinking about the operating backdrop, I guess, across Canada? Is there any pockets of strength or weakness? And then, as you sort of look out to the next 12 months, 24 months, do you kind of see yourself getting back into your sort of long-term guidance range? How should we think about the top line kind of over the near to medium term?
Well, so I think the one thing that we've always talked about is that consumer confidence is a pretty good indicator of our industry. And we are happy to see that in some areas consumer confidence was growing, started to grow in Q2, and we hope that continues. But it is still very variable across the country. And so we've watched that very carefully. We only have ever given top line guidance as a range when we went public, and we give a 5- to 7-year guidance range. And I believe we beat that at year 3. So we are not giving -- we don't give forward-looking guidance. But again, we talk about our investments and we talk about how our goal is to continue to build a great company and a great company that's growing and a great company that is growing profitably, and that's going to be our focus.
Again, if I could squeeze in one last one. I guess in terms of the purchases that you saw during the quarter, you typically talk about if there aren't purchases in a quarter or 2 it kind of builds a bit of a backlog. Did you find those customers coming back into the market not that they're a bit more confident on the economy? Was it new customers? How did -- if the -- do you have any read into the type of customer that walked into your stores or shopped online with you?
I think it was a mix across the board. We saw -- I think we saw lot of new customers based upon the new stores that we had opened over the last year that opens up to new people, especially the mall stores. We saw more traffic on our online properties, and a lot of that was new as well. Plus, we had a very good returning customer rate, and so we saw a lot of people that just continued in our community and bought again.
Our next question comes from the line of Matt Bank from CIBC.
On same-store sales, I was wondering if weather impacted you at all in the quarter and if there's anything noteworthy by months that you can share.
Did you say weather?
Yes.
Yes -- no. I would not say that weather impacted us in Q2. We did talk about how weather might have been a challenge in Q1. But no, we wouldn't have felt that in Q2. And we felt pretty good about our business all the way through Q2. So nothing super to highlight on variability. Again, other than what we've always mentioned, which is geographically we are seeing variability based upon consumer confidence.
Okay. And I mean on the consumer confidence in the macro more broadly, are you seeing any improvement worth noting? And just curious for your thoughts on how potentially lower interest rates could impact your customers and your business at all?
So as I mentioned earlier on, we did see consumer confidence statistics start to uptick in Q2, and hopefully that continues. I can't necessarily say that that would have been a big factor in Q2 itself, but hopefully that continues. It's a nice trend. I think lower interest rates as that would affect consumer confidence that might help us out. Just having a lower interest rate in general probably wouldn't affect us too much. But if it can make the consumer more confident and wanting to invest in a healthier life and a better night sleep, that would certainly benefit us.
I would add just one other thing, and we don't break out our sales by province. But as we mentioned in previous quarters, we have seen definitely provinces where the consumer confidence is higher. That rate of sale, that same-store sales has accelerated quicker than other provinces. And in the past, we've always talked about that our type of business is, if they're not making the purchase today, it's deferred purchase. Unless we feel that we're losing market share to another retailer, either online or brick and mortar, we're not usually concerned. Because when that consumer confidence returns to the particular province, that pent-up demand usually swings back in our way. And we are positioning ourselves for that future growth and that customer to come back.
That's great point, [ Stu ]. And the only thing I'd like to add to it is, and to answer his question, we don't feel like we're losing market share. Grown 15.5% in mattresses and 175 -- over 17% in accessories, that was a very strong quarter in our industry.
Okay. And one more, if that's all right on trying to get a sense of margins in the Sleep Country business ex Endy. And I know you don't break that out. But just conceptually, is 2% same-store sales enough to keep operating margins positive in the core business given the investments that you make on an annual basis?
We're always going to strive to have the most same-store sales we can. But you not only have to -- if we had -- just using your number of 2%, it would be 2% same-store sales, plus additional sales from new unwrapped stores. And our new stores are opening very nicely. And we're seeing our renovated stores outperform the nonrenovated stores as well. So yes, we would -- first of all, we try -- if it were 2%, we would take that 2% and turn it into more with new business. And we've always been a very prudent company financially, and that won't change. So we would make the most out of that for sure.
I will also add. If you look, Matt, over the last couple of quarters, there's been some concern on a drop in same-store sales growth. But if you look at our 16 quarters since going public, we had a total revenue CAGR of 12.9%, same-store sales 10.4%, 16 on 16 quarters of growth, 14 on 16 quarters of same-store sales growth. But even more impressively, which is sort of margin question, our CAGR on for the 16 quarters on our accessory business is 17.95%. And this quarter, again it's 17.9% off of a 13.3%. And why I'm highlighting that is in the past, we've mentioned that the margin difference between our mattresses and our accessories is a 10-point difference approximately. And as we see, the accessories grow as a percentage of our overall revenue, which is a huge focus for us. It definitely -- I'm not going to say completely insulates us, but it actually definitely accelerates our overall gross margin. And we hope and expect to see that in the future.
Our next question comes from the line of Stephen MacLeod from BMO Capital Markets.
I just wanted to just circle around on the industry backdrop a little bit. I know you've talked a little bit -- I know you've talked about consumer confidence in the past as being a key driver of sales, less so housing. But housing is a trigger for a mattress sale. And I'm just curious if you're seeing -- or if you -- if you've seen since the quarter, I guess, with the housing market sort of perking up a little bit in terms of existing home sales, are you seeing that getting translate into an accelerated sales rate?
Again, I wanted to be clear on that. I do -- we do -- just real estate in itself, we do view as a very -- a trigger for our business for sure. And then there's on top of that, the real estate market does play into the overall consumer confidence of the market. And so I don't believe that -- in our opinion, it's not easy to measure on a very short-term basis. But over the years, we've never seen a perked-up real estate market not help our business. So we're very confident -- and not common -- sorry, not confident. No, no, I'm sorry. We're very confident that if that continues that will help our business on both of those points.
Right. The add-on effects, right, okay. And then just turning to Endy. When you bought the business, you talked a little bit about how the online mattress industry was trending. And I'm just curious if Endy has performed in line with or above your expectation since the time of the acquisition.
Well, Stephen, I mean we're not going to -- we're not going to break out our details about Endy because we're all one company, but I can say that they're growing nicely and we're very -- not only are we pleased with where we're at, we are excited about the future.
And then finally, just sticking with the online business, you talked a little bit about your e-commerce capability project. Can you talk a little bit about what that does for the business when fully implemented?
Sure. Well I think it's not -- and I'm sorry, Stephen, I don't know if you said on the e-commerce side because I just want to start off by saying if you did mention that this is really a lot more than e-commerce. It starts of as taking us from -- we -- when you look at our e-commerce capabilities right now, technically we're probably a little behind the curve just in general. But once this gets implemented later this year we'll be ahead of the curve, so that's exciting.It also is a new ERP system which will help us with efficiencies across the whole company over time. Now that -- those get implemented in phase 2. And it's also a new POS system, our stores, which is much more intuitive and much more user friendly. And so all of that together is going to help us on top line. It's going to help with efficiencies. It's going to help us just be -- and it's going to help us in the future even more. But Stewart, you might want to highlight some of the things that it's going to do from the e-commerce capability over time.
Yes. And I'm actually going to focus little bit more even on the overall omnichannel, because over the last couple of years there's no question that brick and mortar has at a favor even though there's a big difference we believe between good brick and mortar and not so good brick and mortar, and we've been performing beautifully even at our store level. But as we push and grow our business to always try to exceed our customer's expectations and make sure that we are serving them any way they want, that omnichannel component becomes more and more important for us Stephen.And we're seeing those results early days. In today's comment we have been a little bit slower behind the curve in terms of our transactional website. We only launched in 2016 Bloom and that was one product and we, as you know, have a lot more than just one product.And as we move towards the fourth quarter of this year and hopefully launch our new platform, our new platform will have our entire offering online, which is very exciting, allowing customers to shop anyway that they want to shop. And what we're also seeing, which is exciting, because for 2 years all we heard was the threat of the online player. Not only did we acquire the #1 bed-in-a-box player in Canada that has years of fabulous growth coming, but we also are seeing that pendulum swing back and that the online players are realizing that their path to profitability requires a brick and mortar component.We are way ahead of the curve there with our 274 strategically located locations, our 17 distribution centers that allow us if we want same-day delivery, next day delivery, like in Amazon or in Amazon Prime. Now with the combination of Endy and our full omnichannel offering coming by the end of this year, we're really excited that the customer is going to see the benefits of shopping at Sleep Country, not only for some of the new fabulous relevant brands that we brought into the company, but for the traditional brand that we've been selling successfully for the last 25 years. So these are really exciting times for us.
Our next question comes from a line of Meaghen Annett from TD Securities.
Just coming back to the top line performance in the quarter, primarily that positive same-store sales growth. Dave, I think you mentioned, might have talked about this a little bit, but can you give us some color on the KPIs that were underlying this performance? And more specifically, can you just confirm whether mattress same-store sales growth was positive? And also how that compared to the performance of the accessories business?
Well, I'll start off by saying that the accessories business grew more than the mattress business did. It's -- we're not as -- we don't have the market share in that business that we do in mattresses. So we would expect it to grow faster. But they both were positive and they both grew.So now back to start, the beginning of your question. So when we think of how we build our same-store sales, that comes from traffic through the door. It then comes from our conversion rate of shoppers to buyers. And then it comes from average unit selling price. And when I -- we look at all of those, let me just start our traffic was up, our conversion was up. And I'll just take a special note on that. Ever since we went public we've really said that there's very -- it's very difficult for us to raise our conversion in our stores, because it's already so high. And we, yes, every year we've raised it since we went public. And that really is not just happenstance, that's a lot of training and hard work and on-boarding people.And we have a very low turnover rate in our company. So our people just keep getting better and better at serving the customer. And so and that's why the conversion rate keeps getting stronger. And then lastly, average unit selling price both in mattresses as well accessories, because when we do a good of job explaining the importance of sleep and importance of health, consumers often choose to invest more and raise and so our average unit selling price increases.
Just going back to the accessories business. So you mentioned a potential to further gain sharing in a $1.5 million market. So does that represent your addressable market? And is there a percentage of that market that you think you could potentially capture?
So first and foremost, that would be our current addressable market. And secondarily, we don't give forward-looking statements. But the fact is we are -- our current market share in that is maybe the 6% to 8%. And so while we're not going to give you a number, and I'm sorry about that, we still think there's a lot of room for growth. When you sit back and look at what our mattress market share is, when you now include Endy, we're in the 31% range. I'm not -- by the way, I did not just say we're going to take our accessory to that level. But again, I just wanted to highlight that it's showing we have room to grow for sure.
Then just couple of questions on the outlook. So am I correct into -- reading into your comments that you're taking a greater focus on advertising than you had previously, specifically related to the comments around All for Sleep and the digital advertising for Bloom and Simba? Can you just put some additional context around those points?
Well, first and foremost, I would say we're not taking more time or more effort around advertising. It's always been a big part of our business. Obviously the shift in media mix will change over time. But that's also nothing new. It's continually to evolve. And that will continue.We are sending different messages though than we have in the past. So our All for Sleep campaign really highlights how we have All for Sleep. And that's something we want to continue to talk about. Secondarily, we didn't talk about it in our script because it was launched on July 8. But our Tell Us Everything campaign started on July 8, which is really highlighting how there's a lot of issues that people have with sleep that are common across everybody. And when you come into our store, we spend a lot of time talking to you about those, whether it would motion transfer or whether it would be temperature regulation. And we can really satisfy a lot of those issues and help people sleep better. And so we're really highlighting that more. So it isn't more focused, it's just continued focus.
And if I could just add. And I would even say we are evolving our brand positioning. For 25 years Canada knows us as why buy a mattress anywhere else and that is something that we will always be and hope to continue to accelerate. But at the same time, as Dave identified, that $1.5 billion fragmented accessory market has been a shift that we've been talking to you folks for years now. 16 quarters of compounded growth at almost at 18% is an area of the market that we want to continue to go after and go after strong. We don't give guidance obviously. But our past performance should be an indication little bit of what our focus and our direction is. So evolving the advertising means not only servicing our customers and taking more share on mattresses, but it's also that some of the retailers within this space on the accessory part of the world have now disappeared. Sears is gone. HBC has now announced and they've closed their stores, Home Outfitters. Bed Bath & Beyond is not expanding more into the Canadian landscape because of their challenges in the United States. There is a great opportunity that we're just going to compound. And the advertising will focus that All for Sleep campaign which will include mattresses and all our bedding accessories on a go-forward basis.
And just so my last question on the margin side, following up on your earlier comments, Dave, can you give any color as to your expectations or maybe some kind of goalposts for gross margin and G&A as percent of sales for this coming year 2019? And should we expect to see growth in that G&A line offset any gross margin improvement?
So again, I have to fall back on the first game, actually we don't give forward-looking statements. I will just go back to say we always want to grow our business profitably, obviously. And we also go back to what we've made very clear from the beginning, the acquisition of Endy is going to deleverage our profitability from a percentage of revenue point of view. But the fact is, they are adding on every level of our company, both as a great partner.So we will -- and one of the big parts of SG&A is marketing. And so our marketing spend is going up largely due to Endy. And we're going to continue to try and be as thoughtful of our costs as we always have been for 25 years. But we will continue to grow our business profitably. I can't put any particular goalpost around it specifically, because we don't get forward-looking statements.
Our next question comes from the line of Elizabeth Johnston from Laurentian Bank Securities.
Just want to start, in terms of the new store openings, have you found that the ramp-up period for new stores more recently is still at the same pace you have seen historically? I ask this in the context of the softer or more -- less robust market we're seeing recently. And just wondering if your new stores continue to ramp up at a similar pace?
Well, every store for 25 years has always ramped up at a different pace. Some open faster than others. So there is no absolute formula on that. But what I will tell you is that this year, last year, the year before, we have been very, very pleased with our new store openings. And we're not seeing any changes to that type of -- the way that they're ramping up.
I'd like to add just one thing here also is that we -- all the new stories that we've been opening have exceeded our expectations. So we're very excited about our new stores. And of a note that I read from one of the analysts, and there was a concern on the real estate and our positioning. I want to remind the team that in 2015 when we went public we had 218 stores. And we talked about opening 1 store for every 100,000 to 120,000 in terms of population. Our path is -- and we talked about opening 8 to 12 stores, which again still is what we give in terms of our limited guidance. But we have added over the last 16 quarters on average 13 stores per year. So we've exceeded our expectations also with finding top-notch quality and real estate.But what's more exciting to us during that timeframe of going from 218 stores to 271 stores as of the end of this quarter is that our average store grew in terms of top line revenue from $1.9 million to $2.4 million. So not only are our stores opening and exceeding our expectations, but our over -- our over top-line revenue for each one of our stores throughout the chain has had a significant impact of our total revenue growth.
Okay. Great. So you don't find that given the strong openings and the year that have gone by, you're not feeling like it's more challenging to find appropriate locations to put these stores to avoid cannibalization. You still feel like it's wide open, in other words.
Yes, we are -- as we've always said, we are very picky in terms of our real estate because we want the best of the real estate. And our real estate team does a fabulous job and they have their feelers out. For the next 2, 3 years there's already areas that they've highlighted that they want to open. Landlords know very well, because we have a great relationship with all our fabulous landlords, of certain areas, spots, corners and gaps that we want. And we -- we'll wait for them. We're not going to open up real estate just for the sake of our guidance of 8 to 12. If the real estate is not there we won't open second-rate property.So to answer your question, Elizabeth, there's a lot of exciting things within our infill market. There's a lot of exciting things in the satellite and new markets that we are still just tapping into. And the malls, again, exceed our expectations. We're very excited about it. It not only exposes our brand to the thousands upon thousands of customers that are walking through that mall, but the numbers in those stores we're very pleased with. And the exit of Sears and the rejigging of the floor on HBC, because there seems to be very fashion-focused. Again, we're very excited about that and continue to make great entries into some AAA fabulous malls and that plan will continue.
Great. I wanted to ask a question about accessories. Are you able to provide any additional insight into the kinds of accessories transactions? So we know you saw really strong growth in the quarter. Are you seeing a faster growth in the accessories-only transaction? Are you attaching more to mattress sales? Any additional color you can provide would be helpful.
I think the best color we can give on that is that it's yes to all those. We have -- we're seeing more people coming in specifically for accessories, again going back to the All for Sleep campaign and how we're talking about that as a product that we're becoming known for. And by the way, we continue to see it being an item that gets added to mattress sales. So we won't break that out of course from a numbers point of view, but they both increased.
And I will just add that we make investments and we try to share that with you folks all the time in terms of those timings that we make our investments around our advertising. About a year ago there was a little bit of a concern if we were slowing a bit on our accessories. And we identified that some of our commercials and our infomercials that we were using, which have been incredibly impactful in a positive way to our business, we're a little bit old, and we need to reinvest in some of our content, because content is king. And we did and we reinvested and we came out. Our team created a bunch of very powerful new commercials and we saw that instant lift once again on our accessory side of our business. And all areas of our business, including the new entries of some of the new products that we've been bringing in has been exciting and adding to the entire mix.
And my final question is just regarding the IT initiatives and the investments you're making this year. Can you just run through us again to give us an update on where you are in terms of rolling out the different phases? What's the next phase to come on board online this year would be? And any update in terms of the amount of spending we should expect?
Sure. So right now, we are on budget, and so our expectation is that we're going to spend what we said we're going to spend. We break it into really 2 phases, and we've done this because we want to make sure that we are not putting ourselves in a position where we -- that day where you flip the switch and hope everything moves over and that's catastrophe. So what we've done is we have 2 phases. Phase number 1, which is later this year, we will be rolling out the new e-commerce platform, which by the way, is also one of the things we're very excited about. So it's nice that that's phase 1. And we're also going to have the new ERP for financials and also running that portion of the business. So that is phase 1.And then over the next period of time, we will roll in our different regions across the country one at a time, which has also been planned specifically so that we can reduce any turbulence in our business and we can learn from each one as we go. And so -- and that when we roll those in, then what happens is the warehouses and the stores will be running on the system at that point in time. And so we would hope that by the end of 2020 we would be completely fully implemented. And -- but again, as I say, we are specifically doing it to get the most value early that we can while reducing the risk wherever we can.
And just to follow up on the POS system for the stores and the warehouses, which is the part 2 of this, have you done any testing yet? I seem to recall in previous calls that there is to be some pilot testing this summer. Maybe just provide an update on that point or correction.
So first and foremost, we're testing everything as many times we possibly can. I was just in a meeting last week where we had some of our top sales associates from around, and we were running through demos of the POS system just to understand from them directly whether they -- whether we were accurate in thinking it was as intuitive as we thought. Because they've been involved all the way, I'm kind of kidding. But yes, they're very excited about it. We're just starting a test in one store that will give us some real-life feedback on the POS system. So yes, testing will continue. It's big and it will continue to be very big. And we're going to just make sure that we're ready before we make any steps. But the fact is, like I say, phase 1 later this year does not include that in the stores and the distribution centers. It includes the omnichannel -- I'm sorry, the e-commerce portion of it.
Our next question comes from the line of Patricia Baker from Scotiabank.
I've got 3 questions. So we saw a nice acceleration in the top line for both mattresses and for accessories. And it's pretty easy to understand on the mattress side, but you know that Endy would have been a big driver there. But when we look at the accessories, do you attribute the -- the trend that we saw in Q2, do you tribute that to the advertising, to the All for Sleep, to the new content, to specific new products, to changes in the competitor set? Or would you say it's all of the above?
I would say it's all of the above. And again, I know that's a pretty easy way to answer that question. But we truly believe that every lever that we have on that is being pulled and we're getting benefits.
Would it be fair to say then, Dave, that you've got some good momentum behind there because of all of those factors? And as I think Stewart quite articulately pointed out earlier that we can -- without any guidance been given, but we can expect that accessories trends are going to be accelerated generally.
Well, so accelerated is -- again, I'm not saying it's not going to start. We feel that we have the momentum, and we feel that we're going to continue with that momentum. We're not going to let go. But as we're also -- we also want to under-promise and overdeliver. The fact is, we -- as Stewart mentioned, our CAGR on accessories over the last 16 quarters has been over 17%. And by the way, we'd love to accelerate from that. But even if it just stayed like that, we'd be okay. I mean the fact is we continue, but we're continuing to work hard on that.And I just take a second to go back. Because Patricia, you haven't asked this question in the past because I think you really understand it. But some people ask us, "What -- right now, you're at about 80-20 in business between mattress and accessories. Where do you want that to go?" I just want to reiterate what we've always said which is, we really look at them as separate businesses and we wanted them both to grow as quickly as we can. And we have specific teams working on specific products and specific categories to grow those. So whether it's 80-20 or 70-30 or 90-10, like if mattress would just grow that much, we're okay with that. We are just working to grow both sides of that as much as we can.
No, fair enough, and to maintain that momentum. My second question is earlier in the call, Stewart mentioned -- in discussion on Walmart, he mentioned customer segmentation. And I was just curious if you could frame your Simba, your Bloom and what you're doing with Walmart and look at that through a customer segmentation lens.
I think that -- I think we know as a retailer that we have a very coveted group of customers in segmentation that are great for us, and they will continue to be great for us for years. And so we want to continue to protect and grow that section of the market. We also know that, and by the way that section of the market will be well served by Simba and Bloom.We also know that the younger generation, the newer Canadians, while we're not -- we don't do poorly in those categories. We're not as strong. And those are going to be particularly served by Sleep Country, by Endy, by Walmart, with the Bloom category as well as the Endy. And so we think that, that is just enhancing. The people that are seeing us, especially in the Walmart category, are seeing us and are being introduced to our brand in an earlier part of the -- whether it's their age group or where they're at in their life cycle or where they're at in new Canadians because Walmart just has a lot more people visiting their site than we do.
No, I definitely understand that. But I guess what I was asking is when you look at -- if you differentiate Bloom, Simba, et cetera, are they -- and Endy, are they going after different customer segments? Or they're all addressing the same segments?
Well, I'm sorry I thought I kind of covered that a little bit but I must not have been clear. So Simba is obviously a little bit more -- it's a little bit more expensive than the Bloom categories, but the fact is they all fall -- none of them are super high-end products that takes us to a whole another level. They are all right in that category of starter beds, up to very good quality bed. So I think they meet a lot of it, particularly though the Bloom covers off a very wide spectrum of the area, including Walmart and including Sleep Country where we continue to see growth in the future.
I'd like to add. I agree with everything what Dave just said, but I just like to add a little bit color to that, Patricia. And if you look at the holistic view of our customer segmentation, we've had for 25 years a fabulous loyal base of customers that have and continue to come to our brick-and-mortar stores and hopefully for many, many more years to come. But at the same time, we're also realistic that not every single person is going to walk into a Sleep Country or Dormez-vous store [indiscernible].But we need to appeal to different types of demographics, not only to appeal to their needs but to keep us relevant. And we are relevant within our space and we dominate within that space, except that we also recognize the fabulous advertising component to a lot of these new partners. Endy is exactly one of those examples. Endy has done a fabulous job over the last 3, 4 years of creating a brand and awareness that customers are gravitating to. So bringing that into our family has been a very positive thing that we think is only going to accelerate.At the same time, the Walmart customer, there's a whole migration coming to Canada of people that are, not necessarily know the 25-year-old legacy brand of Sleep Country, but they do know the name. They trust the name of Walmart. And it's what a wonderful way to introduce the Sleep Country brand through that Walmart connection as new immigrants come to Canada and maybe make their first purchase at Walmart and then continue their journey through our Sleep Country stores.Simba, also again a different type of a demographic. Maybe a little bit cooler and hipper like Endy, but at the same time as we attract the most relevant brands out there and maintain the relationships with our super brands that we already have, not only does it expand our assortment but obviously will expand the interest and the customer segmentation to drive business through multiple channels in our overall business. And hopefully, you'll see more of that, that multiple channel relationship in making sure that we penetrate and dominate and enter into different areas of where the customer wants to shop and who the customer wants to shop with. Does that answer your question?
Absolutely, Stewart. Dave, just a final question. Can you give us any update on the CFO search?
Yes, that's great. Well, before I give an update on that, I just want to say that Praj who did the -- this morning and her entire team has -- we have not missed a beat this quarter. And I just want to take hats off to our whole finance team because our investor relations team, our finance team, our analysis team have all really rolled up their sleeve and worked very hard to make sure we didn't miss a beat. So thank you.Secondarily, I'd like to say that the whole process for hiring a CFO has been great. We were able to see a lot of candidates that were very interested in the role. We're getting close, and you should expect an announcement very soon.
Our next question comes from the line of Stephen MacLeod from BMO Capital Markets.
Actually, all my questions have been answered. Thank you.
We have no further questions in queue. I'll turn back to the presenters for closing remarks.
Well, we'll keep it short and sweet. We really enjoyed the questions. We really enjoyed being able to share this news with you. And we look forward to seeing you in our Q3 update. Have a great day. Thank you.
This concludes today's conference call. You may now disconnect.