© 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.
Ladies and gentlemen, thank you for standing by, and welcome to Sleep Country Canada Holdings, Inc., Q2 2020 Earnings Conference Call. [Operator Instructions]I would now like to hand the conference over to your speaker today, Dave Friesema, CEO. Thank you. Please go ahead, sir.
Thank you. Good morning, everyone, and thank you for joining us. With me today are Stewart Schaefer, our Chief Business Development Officer; and Craig De Pratto, our Chief Financial Officer.First and foremost, I'd like to begin by acknowledging that the past 3 months have been among the most challenging conditions to navigate in Sleep Country's history, a feeling that is shared by our entire industry. I extend my sincere thanks to our associates for their outstanding dedication and to our suppliers, partners and landlords for their continued support through the ongoing COVID-19 pandemic. Our team's resilience, innovative spirit and commitment to serving our customers has been inspirational.At our last earnings call, we highlighted our 5 immediate priorities to navigate the pandemic. One, keep our employees safe and employed; two, continue serving our customers' needs; three, support local communities; four, maintain business continuity alongside partners and landlords; and five, ensure the long-term prosperity of our company and shareholder value. These priorities have not changed.Touching upon our business and state of affairs in Q2, we entered April with our entire store network closed. We have since safely and successfully reopened all stores as of June 24 after closures ranging from 40 to 84 days. Given that our stores were effectively closed for 54% of our operating days in the quarter, we believe that same-store sales as a standard measure does not currently represent the business and it will not be included this quarter.Our second quarter results demonstrate the power of our strategic vision and the value of our ongoing investments in digital platforms and strategic partnerships. Over the last 2 years, our strategic vision focused on investments to strengthen our omnichannel impact through a variety of platforms. This includes enhancing our digital capabilities for Sleep Country and Dormez-vous, acquiring and continuing to grow be Canada's largest and most profitable online macro retailer and focusing on developing powerful and strategic value-add partnerships such as Walmart and Simba. Each of these investments have contributed to our growth in digital market share and reinforced our ability to best serve the sleep needs of Canadians any way they choose to shop. The pandemic impact on our physical store locations showcase the value of these investments by enabling us to pivot to an entirely digital landscape quickly and effectively.Our second quarter highlighted the power of our digital infrastructure, which delivered explosive triple-digit e-commerce growth and strong results in this challenging environment. Our robust online platform was further supported by a relevant product assortment, superior brand trust and differentiated online purchasing experience, including the newly introduced Sleep Expert Chat program, all of which kept us top of mind with our existing and growing customer base throughout the quarter.Our Sleep country and Dormez-vous brands messaging continue to resonate with Canadians through the evolution of our sleep well, stay well advertising platform across digital and traditional channels. Our team did a fantastic job of leveraging Sleep Country's share of voice to further grow share of heart and meaningfully connect with customers. No matter the channel, our goal remains the same: to best serve Canadian's sleep needs by exceeding their expectations and providing a superior experience. We believe that our results indicate we are doing exactly that.We are also very proud to continue supporting our communities by donating $1.5 million in mattress and bedding essentials to vulnerable communities coast-to-coast that experience severe strain due to COVID-19. This program is built upon our Sleep Country Cares Program, which has a long legacy of supporting local charities to help children and families in need. Sleep has been an essential pillar of health and has never been more relevant and critical to the wellness of every Canadian. We're honored to continue doing our part in providing Canadians in need with a safe and secure place to rest each night.We believe that our proactive and prudent financial initiatives, which commenced last quarter, and eligibility for the Canadian Emergency Wage Subsidy program were key to successfully keeping 100% of our 1,500 associates employed while our stores were closed. Other actions taken to manage liquidity and secure business continuity included reducing executive and Board compensation, suspending the NCIB and dividend and implementing proactive cost-saving measures across the business including marketing, procurement and sales expenditures. In the near term, we remain laser-focused on preserving liquidity and ensuring financial flexibility and are encouraged by our performance against these measures, which Craig will elaborate on further. Over the past several years, our strategy is centered on ensuring we remain Canada's premier provider of sleep products across all channels at all times. The combination of investments in powerful digital infrastructure, physical stores and strategic partnerships supported by the superior brand trust we've developed over the past quarter century meant that we were able to retain and grow our leading market share during the quarter. We were extremely gratified to see the benefits of our strategies come to fruition, delivering the value for our customers and business.As we navigate through this crisis, we remain confident that our family of brands are best-in-class and well positioned for continued profitable growth and market share expansion.Craig, I now turn the conversation over to you to discuss our financials.
Thank you, Dave, and good morning, everyone. I'd like to reiterate that we are pleased with our results for the quarter despite the material disruption to businesses in Canada and globally. Given the challenging retail landscape, we think it's worth noting upfront that these numbers have surpassed our expectations, demonstrating the resilience of our business through these difficult times, in particular the strength of our e-commerce business and ability to remain top of mind for Canadians despite the closure of all 276 retail stores for much of the quarter.Now on to some of the quarter highlights. We will focus our attention on Q2 fiscal 2020 given the material impact of COVID-19 has had in our business. Let's begin with revenue. In the second quarter, revenue decreased by 31% to $114.9 million when compared to $166.6 million in Q2 of 2019. Our total sales decrease was mainly driven by the closure of 276 retail locations across our country for approximately 54% of total operating days. This decrease was offset by triple-digit percentage growth in our e-commerce sales across all 3 brands, which speaks to our ability to allow our customers to shop when they want, how they want and where they want.Mattress revenue decreased by 32.6% to $90.1 million compared to $133.7 million in Q2 2019, while accessories revenue decreased by 24.6% to $24.8 million from $32.9 million in Q2 2019. Again, these trends were tied to the closure of our retail locations in Q2 fiscal 2020.During the second quarter, gross profit decreased by 25.6% to $37 million from $49.7 million in the same period of 2019. Our gross profit margin increased to 32.2% of revenue from 29.8% of revenue in the same period of last year. The increased percentage margin was primarily due to the wage subsidy under the Canadian Emergency Wage Subsidy program, which favorably impacted the sales and distribution compensation costs. The CEWS efficiency was partially offset by the deleveraging of fixed distribution, occupancy and depreciation costs.On to G&A. G&A expenses for our second quarter decreased by 0.7% to $27.8 million compared to $28 million in Q2 2019. As a percentage of revenue, G&A increased from 16.8% to 24.2% in 2020. The increase in G&A as a percentage of revenue is largely due to an increase in the following items.First, marketing expenses as a percentage of revenue was tied to the decline due to our store network being closed for 54% of total operating days in Q2 2020. The company pulled back on marketing dollars throughout the quarter by approximately $1.3 million, largely reducing spend through traditional channels and reallocating spend towards digital to drive our e-commerce business. On a year-to-date basis, our marketing spend is at 7.3% of sales as compared to 6.8% of sales for the same period in the prior year.Second, professional fees increased by $0.5 million year-over-year, causing a slight delevering effect on G&A expenses. These costs were mainly tied to the ERP implementation and have been normalized in our calculation of operating EBITDA. The net increase in professional fees on a year-over-year basis, net of this normalization, would be $0.1 million.Third, salaries, wages and benefits increased by $0.4 million, mainly as a result of an increase in share-based compensation due to the forfeiture from departures of 2 executives in Q2 of 2019. These increases were partially offset by government wage subsidies that the company qualified for under the CEWS program.Lastly, G&A, depreciation and amortization expense increased by $0.5 million, mainly due to the increase in intangible depreciation tied to our revamped e-commerce, finance and merchandise platforms implemented in Q4 2019.Moving on from G&A, our operating EBITDA for Q2 decreased to $24.5 million or 21.3% of revenue compared to $35.6 million or 21.4% of revenue at this time last year. This change is due to the decrease in our EBITDA, offset by the favorable impact of adjustments related to higher share-based compensation for the quarter and nonrecurring ERP implementation costs in Q2 2020 that did not occur in Q2 2019.Finance-related expenses increased in the second quarter to $9.7 million, up from $5.3 million in Q2 2019. This large increase relates to a onetime true-up charge of $4.3 million to the contingent consideration liability for the Endy earn-out. This recognition in Q2 fiscal 2020 is due to Endy's excellent 2020 performance year-to-date, resulting in the expectation that SEC will pay the maximum $25 million contingent consideration in Q1 2021.In Q2, our adjusted net income decreased by $7.50 to $5 million compared to $12.5 million in Q2 2019. This decrease was due -- this was due -- the $12 million -- reduction in net income at $12.7 million, offset by the favorable impact of the share-based compensation, onetime ERP implementation costs and the onetime adjustment for the Endy earn-out, as mentioned previously. Net cash flows provided for and used in operations, investing and financing activities year-to-date was $55.8 million.Our cash position at the end of Q2 2020 was $99.8 million compared to $14.9 million in the same period last year. On May 4, 2020, the company secured additional liquidity to manage the impact of COVID-19 on our operations. The senior secured credit agreement was amended to include an incremental $50 million accordion. The company is in compliance with all covenants as of June 30, 2020. And subsequent to quarter end, we've repaid $34.2 million against our senior secured credit facility.The company continues to be prudent and manage our cash flows in the following ways. In May 2020, we made the decision to temporarily suspend our NCIB program. We will continue to suspend share repurchases at this time. In May 2020, we made the decision to temporarily suspend our dividend payments. We will continue to temporarily suspend dividend payments at this time.The deferral of the cash portion of Board compensation and deferral between 25% and 50% of named executive officers remains in effect. The company intends to reinstate these items at a time and payment level considered prudent by the company's Board and aligned with the resumption of normal operating conditions and when the Board considers the risks and uncertainties associated with COVID-19 are likely to have -- to not have a material impact on the company going forward.Management and the Board have decided to reinstate the following capital expenditures that were previously postponed. Opening a minimum of 4 store locations, the renovation of 10 to 15 existing locations to feature our enhanced store design and continued investment into Phase 2 of our ERP system.Going through these unprecedented times require quick action from our associates, partners and vendors. As Dave mentioned, we are extremely pleased with the outcome of our proactive and prudent measures enacted in Q1 and Q2 to manage liquidity and ensure financial flexibility through this crisis. We look forward to sharing additional updates with you in -- on that front in the coming months.That completes my overview of the financial results. And back over to you, Dave.
Thanks, Craig. As we monitor the economic reopening process carefully, we remain confident that our resilient business model and exceptional associates have set a positive path to our business. Today, more than ever, we are very appreciative of our extraordinary culture and team. I'm pleased to share that Sleep Country and Dormez-vous have been certified as a Great Place To Work for yet another year, with Sleep Country sitting in the 2020 best -- list of Best Workplaces in Ontario. This award is always an honor, but I'm especially thrilled to be recognized by our associates during such a difficult time. A true testament to the positive and innovative spirit that has characterized our business pandemic response.I'd also like to recognize Endy for winning the 2020 Best Mattress in a Box Award from Product of the Year Canada and to congratulate Alexandra Voyevodina, CFO of Endy, for being awarded the 2020 Best Executive in Finance Award by Report on Business. I'm also very happy to share that we have continued to advance our strategy throughout the quarter.Subsequent to quarter end, we opened 4 new stores, 2 of which are located in Windsor, Ontario, a new market for Sleep Country. The Windsor opening was one of our strongest openings in our history. We also announced a brand-new partnership with innovative bedding and furniture supplier, Malouf. This exciting development further differentiates our assortment by offering Canadian's exclusive access to the fresh and modern Malouf sleep products to our stores and websites.In addition, we expanded our partnership with Walmart by significantly growing the Sleep Country assortment offered on the walmart.ca marketplace, including a wide selection of both mattresses and sleep accessories, and we now serve as walmart.ca's exclusive retailer of traditional mattress. This new and expanded partnership exposes our brand to millions of new customers in target customer segments, further strengthening our market share through multiple channels.While the Canadian retail landscape remains uncertain in near term, our business's future remains bright. This positive momentum is thanks to our robust and differentiated physical and digital infrastructure, financial flexibility and exceptional associates.In the near term, we remain focused on keeping our employees safe and employed, serving our customers' needs and supporting local communities, maintaining business continuity alongside partners and landlords and driving the long-term prosperity of our company. We are confident that our family of brands will continue to generate profitable growth, capture market share and deliver shareholder value well into the future.With that, we conclude our remarks and open the floor for questions.
[Operator Instructions] And our first question comes from the line of Martin Landry from Stifel GMP.
Congratulations on your results in a tough environment. My first question would -- wondering if you could provide some color on how sales have evolved during the quarter. You had provided that in Q1, which was quite helpful. So I was wondering if you could share any tidbits on how sales have evolved post opening.
Sure. So as we alluded to in our last call, obviously, closing our stores, our online presence grew dramatically, and that continues, both at Sleep Country, Dormez-vous as well as Endy. As we reopened the stores, our stores were quite busy. And we were very, very happy with the amount of volume coming through our stores, and that was the case up until the last day of June.
Okay. And then as a follow-up, I'm wondering, has this momentum carried into July? Any color on that would be helpful. We're, obviously, all seeing strong home improvement spending, so I would assume this is a little bit of a tailwind for you guys. Any comments on that?
Well, I think -- to your point, I think it's pretty common knowledge that people are spending more money on the home and that probably didn't end at the end of June. We don't give color into the quarter that we're currently in, but that's kind of all I can say. Sorry about that.
Okay. Okay. And then maybe one last one. Wondering, what was your average revenue per unit during the quarter versus last year?
Are you talking about average unit selling price on a mattress?
Yes. Yes.
Well, that's a -- by the way, Martin, that's a great question and very interesting. So we've always had -- we have 1 blended rate of our AUSP, but that's really broken up into 2 different categories, what's online and what's going through the stores. And now -- by the way, what goes through the stores is generally higher. We now actually have 3 different categories that make that up. We have our online-only sales. We have the sales that are supported by our Sleep Chat and our sleep online, our dreamline program where people can talk to a sleep expert on the line or by chat. And then we have what's through the stores. And I can tell you that we are making really good progress in the areas that we wanted to make in, in lower price points, while not losing any of the upper price point. So we are feeling that we've got this covered even more than before.
Okay. Broadening your target market?
Correct.
Our next question comes from the line of Matt Bank from CIBC.
I want to talk about the disclosure on that you're paying the Endy earn-out. So if I go back to when you announced the acquisition and you talked about an implied EBITDA multiple if the earn-out was hit, if you kind of do that math, it suggests that Endy EBITDA is expected to be $10 million or higher in 2020. Is that a correct sort of implication?
Yes. You're in the right ballpark. And -- so let me back up a step. Yes, you're in the right ballpark. It's only halfway through the year. We're very pleased -- I mean let's face it, Endy was doing very, very well prior to the pandemic. And then pandemic actually would not have affected Endy in a negative way like it because they didn't have stores to close. So they were performing extremely well prior, and they performed very well through, and they're continue -- I've included this foreclosure period, and so we're not going to talk anymore about what the implied multiples be until later in the year because it's still early in the game. But needless to say, we're very confident in them hitting it.
And can you just talk about how you guys think about balancing profitability and top line growth there?
I think we could say it very similarly across all of our brands. We are very, very -- we would like to see our profit continually grow, but we certainly would not go out of our way to restrict our growth to do it for a percentage point. We really look at our profit really more from a dollar point of view as opposed to a percentage of revenue. But we are always -- we don't really feel that it's fruitful to raise revenue without getting an associated profit with it and that goes across all of our banners.
Okay. And I'm not sure if you'll be comfortable sharing this, but is there anything you could give in terms of your expectation for online as a percent in your total sales as things kind of normalize in the next few months and the stores ramp back up?
Well, again, we do not break those numbers out for competitive reasons. But I think the one thing that I hope -- we all hope, excuse me, that Q2 is going to do is it's going to make people realize that we are more than a brick-and-mortar retailer. I'm not saying we're ashamed of being a brick-and-mortar retailer, we love it, but we're more than that. And Q2, especially considering 54% of the quarter our stores were closed, we performed very well, and we don't see that our online business is going to ever go back to the way it was before. It is going to continue to be very strong.I don't know, Stewart, did you have something you want to add to that?
I agree 100%. And I would just add that whether our customer chooses to transact in our stores, transact online at our multiple websites, which are Sleep Country, Dormez-vous, or transact through all the partnerships that we're creating like Walmart, Simba or BlanQuil, and every one of these cases, we win. So we are channel agnostic, whether it's the stores or on site. We hope to see that growth and be recognized for not just the brick-and-mortar foundation that we created, but the accelerated digital presence that we have throughout Canada in multiple brands.
Our next question comes from the line from Sabahat Khan from RBC Capital Markets.
Just on the kind of the commentary around reinstating the CapEx plans and investing in renovation and so forth. I want to get your perspective both on how you're looking at those renovations in light of the changing kind of consumer purchasing patterns and the e-commerce trend that you noted? And then secondly, just kind of the location of these new openings, whether it's mall-based or whether it's kind of a strip mall type of a situation, how are you sort of thinking about your store network and the type of stores you have in light of the current environment?
So well, I'll say that we are pleased with the performance of our stores across the entire market. The mall stores were obviously the last to open and represent roughly 11 stores out of our 280 stores. So not significant. That being said, the traffic is returning to those stores, not in the same pattern as before, but the customers that are coming in are coming in with a clear mandate to convert to buy. So on a go-forward basis, at this moment in time, nothing has changed strategically in terms of our plan. There were a lot of questions within the team to decide whether or not we should even open up Windsor or delay it, and we decided to move forward as we normally do, and we were incredibly pleased to see lines around the corner when we were opening up. And as Dave mentioned earlier in his remarks, it was one of the strongest openings.In terms of CapEx, in terms of the overall store design, similar to what we've been talking about for a while and investing in our millwork for our accessories. That continues to thrive. It's thriving online. It's thriving within our stores. And -- so for the moment, besides putting in safety protocols throughout our network, nothing has changed as it relates around our real estate plans.
Okay. Great. And then can you -- I think there's -- a little bit of commentary was provided earlier on the wage subsidy. Can you maybe give us a dollar amount and how much was in each line item, whether some of it was in GM versus SG&A and what was the total amount?
Yes. So we disclosed the total amount in our financials in one of our notes. I believe it's Note 13. It said the total amount was $15 million received. The vast majority of that would have been up in our -- where the majority of our associates are employed within our operations and our sales associates. So up in the cost of sales section of the P&L. There was slight -- some efficiency in the G&A, but definitely not to the magnitude. So you could assume a significant split was above the gross profit line.
Okay. Great. And then just one last for me. I guess more of a longer term question. There's been some question and commentary around the ability of Sleep Country to potentially capture more share going forward as some of the smaller peers may have faced more challenges than larger, well-capitalized players. I guess, what are you seeing on the ground? Have you seen some of those smaller operations or regional competitors maybe not do as well in the environment? Kind of what's your outlook on sort of the longer term ability to maybe upsize your market share coming out of this downturn?
Well, I think if we go back a little bit, just to reiterate, we've been gaining market share very strongly for the last 5 years. It's very difficult. We can't really talk about Q2 market share yet because it's more of a lagging indicator that we get information -- that we'll be getting it over the next couple of months. I can say that in the first part of the year, prior to the pandemic, we were gaining market share very quickly. And our belief is we can continue to take market share, especially the pandemic has allowed us to focus even more on online [ carry ]. So it's easier for us to sell to areas where we don't even happen to have stores.And we -- when you talk about the smaller players, we don't necessarily believe that a lot of people are going to be going out of business, but there's going to be 2 factors that are going to affect them. Number one, these are not going to be as strong from a marketing point of view as us and we can take share there. And secondarily, supply chain during the post pandemic is a little bit challenged. It's not terrible, but it's a little bit challenged. But it's even more challenged for the smaller players because the bigger players are getting first priority, and so we're top of the list.And by the way, the only thing I'd like to mention on the CEWS. So nothing made us happier than keeping all of our people employed while our stores were closed, and we really appreciate the CEWS helping to allow us to do that. But interestingly enough, had the CEWS not been in place and we would have had to lay off the people for that period of time, we would have actually had less expenses in Q2 than we did by having the CEWS because we still covered 25% of those expenses.
And our next question comes from the line of Patricia Baker from Scotiabank.
I have a couple of questions. The first one, I'm just curious whether the consumer behavior shifted. You said that your stores were closed for 54% of the operating days in the quarter and then when you reopened, just wondering if you saw any big shift in conversion rates because people would be much more purposeful about actually going out and going to the stores?
Yes. Stewart mentioned that in his comments a minute ago, and then so I think there's really twofold. I think, number one, if people were going to go to a store, they were going with a real purpose, and they weren't going to go and kick the tires. Secondarily, as we talked about this before, we've been hearing from around the world and we're seeing that specialty retailers are a safer place in people's mind to go because it's a smaller, more intimate environment, so we're benefiting from that. We were saying in our last call that we've been social distancing for years in our store, and we can continue to do that. The -- and then lastly, we also think that part of the reason conversion is up is because the groups that are coming in the store are a little bit smaller as well. So there's a lot of factors there. The visits to our store are very efficient.
Okay. And then secondly, in the third quarter, we've got kind of back-to-school, and I know that universities, it's up in the air what's going to be happening with kids going to university dorms and all the rest of it. How big a headwind is that for you? And are you doing anything specific with regards to marketing or adjusting to what could be the headwind there?
Yes. I would say that we are one of the bigger -- I would say we're the biggest supplier to back-to-school. But even having said that, it's not a huge part of our business. I think the one thing that I will tell you is that some of that's been offset or will be offset because our cottage country program is quite strong this year with people outfitting their secondary homes. So I do think it's not a huge headwind and we can make it up elsewhere.
Okay. Excellent. And then thirdly, the pandemic is delivering record bankruptcies and record permanent store closures across North America. But from a real estate perspective, are you thinking that there could be very interesting opportunities for you when we come out of here because there's going to be some very interesting locations that are vacant?
Great question, Patricia. And as you know, we don't need to open more stores. We only look for AAA locations, and we have a clear path over the next 5 years in terms of markets and areas that we want to be. But to your point, yes, there are definitely opportunities, already conversations with landlords on properties that we were looking years out that may become available sooner because of the situation that we're all facing. So a big positive.
Our next question comes from the line of Brian Morrison from TD Securities.
Just on the comment with respect to e-commerce remaining strong. Obviously, there's going to be a permanent shift towards e-commerce, and I'm just wondering if that impacts your brick-and-mortar economics or with the e-commerce media advertising, whether this will be offset by market share gains in traffic or better rent economics you might be getting.
Well, interestingly enough, we don't know yet what the store is going to look like in the future. One thing that I will tell you and we've said it for the last several quarters, is that I want to make sure everybody understands we have no ego around the number of stores we have. So we will continue to be at the right number of stores as time goes forward. If that's 350, we'll be there in the future. If that's 250, we'll be there in the future. And the good thing is we have a good turnover of our stores all the time, so we can really make those adjustments as we go.And -- but what I will say is, as I mentioned before, since the stores have reopened, we have been very pleased with how quickly people seem to want to go back to shopping in store. Don't know how long that's going to last. I don't know what's going to happen. But the nice thing is, we are a leader in every category. We're the #1 online player. We're the #1 in stores, and we can shift very effectively.I don't know, Stewart, did you have something you wanted to add to that?
I agree 100% with what Dave is saying. I will say that the journey for the consumer with us is seamless. Interesting enough, when all the bed-in-a-boxes were coming online in 2017, the concerns were that the e-commerce play would disrupt the brick-and-mortar world, and in many cases it has, not necessarily in the mattress world because it is a tactile item. And case in point, clear enough that we've experienced that in this past quarter, triple-digit growth in all our platforms as our consumers had the choice to go online instead of the -- once the stores were closed. But once the stores reopened, we saw that, that experience and that journey may have started on their phone, gone into our stores and maybe completed on their phone, but that is one of the competitive advantages that we have and we will continue to see as our customer base continues to grow and allows them to shop seamlessly between all our channels.
Clearly, you're well positioned across the channel. Just out of curiosity, your e-commerce sales in the quarter, did they exceed the total of 2019 in total?
Yes. Craig, you wanted to...
Yes. No, obviously, we don't break it out, but we did have a very strong quarter given the shift with the stores being closed for 54%. So it was strong and, yes, we did exceed.
Last question, Craig, your target leverage. Obviously -- pardon me, obviously, it's going to be impacted by the pandemic, but where is the level where you guys get comfortable in reconsidering or reinstating returning capital to shareholders?
Yes, I mean, right now, we're really continued -- while we're pleased with the results from the quarter and navigating through this, it's still very uncertain times. And so it's not that we need to have the levels get back to where they were pre-pandemic, but we do want to make sure that we're in a zone where the business is predictable and we understand what that new norm looks like. And at that time, we would love to reinstate these programs.In terms of leverage, we're comfortable even where we're at today, but it's really more around the operating performance of the business and making sure that the risks and uncertainties are behind this and that we have an understanding of the new norm and the levels that we're playing within that -- in the new environment.
Just -- excuse me, can I break in here for just 1 second. Before we go any further, apparently, something in the script was overlooked at the very beginning, and so I just have to read a quick blurb real quickly before we go to more questions. So I'll just take a second.For your convenience, the second quarter earnings release, financial statements and management discussion and analysis are available on the Investor Relations section of our 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 may contain forward-looking statements about Sleep Country Canada's current and future plans, expectations, intentions, results, levels 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 assurances 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 Canada has no obligation to update or revise any forward-looking statements, whether as 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 6, 2020, available on sedar.com.So now we can go back to questions.
[Operator Instructions] Our next question comes from the line of Stephen MacLeod from BMO Capital Markets.
Right after the forward-looking statements. I guess I got to...
Now we can really end.
Right. That's right. I just have a few questions. Can you just talk a little bit about how sales trended throughout the quarter? I mean obviously, with the stores being closed in -- through much of the quarter, half of the quarter. But can you talk a little bit about how they trended online as you rolled through the quarter? And then what happened when stores opened and sort of what happened on a Q3 to date basis?
Yes. So again, as much as we would love to talk about Q3, we don't, and so I can't go past the end of June. But what I will say is that, just as a reminder, when all of our stores closed and we went completely online, we, as a company, within a matter of 2 weeks, had completely started a new department within our company called Sleep Expert Chat and a Sleep Expert Call In program. And so that has -- that will remain as part of our business. We are planning to roll that out in Q3 of this year. That was very effective because, again, as you know, this is a highly consultative purchase for people, and so we've been able to help a lot of our people who needed something while our stores were closed, and it continues to be a big part of what we're doing going forward, and that helps us.But let's say, our online business exploded when our stores closed. When our stores reopened, it tempered back a little bit, which was fully expected, but it is considerably higher than it was before. So we -- it's a whole new business for us. And Endy just continued to be very strong. As our stores reopened, and as I've already mentioned, our stores reopened very strong and they remained strong until the end of June.Stewart?
And I'll just add, even as interesting enough in terms of merchandising mix, as we closed up the stores, and as Dave pointed out, our online exploded. There was, for sure, the cocooning effect that was happening within the landscape of Canada and our accessories exploded. So diversifying the fact that we've talked about our mattress business and our accessories for years now and then we saw a big acceleration on that. At the same time, keep in mind that we pulled back on all our marketing or at least our sell marketing. Our focus was more so on brand and social responsibility at the time and more of a top of a top-of-the-funnel soft messaging on building out the halo and our responsibility, which also led to our focus around donating to less fortunate folks. As the -- as time went on, some of our advertising began to return, which led up to the opening of our stores, and then the big-ticket items started to accelerate, and our lifestyle beds and our higher end mattresses started to explode once again.
Okay. That's very helpful. And just on the wage subsidy. Craig, you quantified the impact in the quarter, so thank you. I'm just curious, does that leak into Q3 at all? Or is that going to be totally isolated to Q2?
Yes. I mean we're continuing to look at the legislation changes and then compare it to our results and see where or if we qualify. At this point in time, we can confidently say that we qualified up to the end of June, the period from March 15 to June, but no comment on what we would see in Q3. As we learn more, there seems to be consistently changes and modifications. So we're just staying up to speed on that, but no comment as to what we might see in Q3 on that front. But again, we would disclose in future quarters if there was any impact to the CEWS.
Okay. In the outlook section, you had some commentary. The commentary changed a lot around the ERP investment. And it sounds as though you have reinvested in that project and continue to do so. Can you just talk a little bit about where you are on that project investment cycle?
Yes. So we're -- as you know, [ Release One ], which is the e-com and finance portal merchandising section, is complete. And then what we're doing is building the warehouse management system, in-store POS in the back end and -- sorry, and supply/demand planning tools, and then connecting all the systems together. So we're currently, I'd say, through a decent portion of the build-out, when we were -- when we got stalled kind of coming into this pandemic. Now that we've picked it up, we're really trying to figure out the most efficient way to work through the rest of the project. So I'd say in terms of where we are compared to where we'd like to be, we're a little bit behind just because of the delay with the pandemic, but well through big chunks of the build-out for [ Release Two ].Previously, we've kind of communicated that we'd expect to roll out between Q2 and Q3 of 2020. Now it's likely going to be pushed into the New Year into 2021. And one of the reasons for that is Q4 is very highly promotional and we want to make sure that there's no disruptions on -- as we flip and turn on each DC across the country one by one. We run parallel systems with this rollout. So we just want to be cognizant of the highly promotional period and good seasonal sales in Q4, not having any disruptions. And so we'll be pushing the system out and delaying it probably to the New Year now. And again, at that point in time, we'll cut over one by one, and the stores that are attached to that DC get connected, and the in-store POS and new experience will all be flipped over one by one across the country and run in parallel. So there's no interruptions to our business.But those are some of that. I think, in terms of timing of rollout and when you can expect spend, I think you'll continue to see spend throughout the second half of the year, but the rollout will come in, in Q1 of next year. I hope that addresses the question.
Yes. That's very helpful. And then maybe just...
Just to add a little color to that. I just want to -- [ Release One ] which is our e-commerce platform, which has been so beneficial to us in 2020. So that was great to have that rolled out. Our current ERP system will handle our business in-store well, and so this is rolling out next year. I mean, of course, we would rather have it rolled out this year because there's upside, but our system is very capable of running itself through this delay.
Okay. Yes, that's helpful. And then maybe just finally, with respect to the store network, I know you're not pinned down to a targeted store count, but you've opened 4 stores year-to-date. Your target for the year was a minimum of 4. Do you have anything else in the hopper for the back half of the year?
Stephen, we definitely put everything on the hold. And so the normal amount of stores that we open is going to be pushed a little bit. There is a good chance that we may open another 2 stores that we're going to determine in the third or fourth quarter of this year, but all the ones that we were planning to open that would not open normally in 2020 will be shifted into the first quarter or the second quarter of 2021. But the plans to continue down the path that we discussed of opening approximately 10 stores per year, that hasn't changed at all.
Our next question comes from the line of Patricia Baker from Scotiabank.
I just have one follow-up question. I'm just curious with respect to the chat program online, kind of if you can give some color around that. What percentage of customers use it? Is it -- did the pickup of that tool meet with your expectation there? And do you -- I think you've alluded to earlier in some of the remarks that you saw different behavior from classified people who are using that facility as being separate from just online-only or online store. I'm just curious what sort of behaviors you're seeing in the company and the use of the chat?
So Patricia, I would think -- start off by saying it exceeded our expectations, like we're thrilled with the way we were able to use it. And again, I think people want to shop in different ways, and people also have different levels of need for what their own personal needs are, for what they need from guidance. So some people would prefer to shop online and not talk to anybody, and other people want to spend 4 hours in our store getting every bit of detail they want and everything in between. And now the Sleep Chat and the Dream program, which is more of an online -- which is more of a telephone call, so it can be chat or a phone call, that just gives every -- we can go from 0 touch to complete touch and everything in between. And it is really -- it is directly affecting approximately 20% of our online revenue at the Country and Dormez-vous.But I do -- but it's even more than that because some people talk to the chat line and then they buy online. So it doesn't make that direct connection. But it really is just giving the people that need that extra little bit of guidance and expertise what they need. And by the way, we're still early days in this. We're doing very well with it, but we'll continue to optimize it with more technology and optimize it with better technology that will help it even be stronger.Stewart, did you have anything else to add?
Just 2 points I wanted to add, Patricia. First of all, the folks that are managing the chat lines are sales experts. These are folks that have worked on our floors and they're trained exactly in the same way as all our fabulous associates within our stores, which is a clear differentiation between many call centers. So it's not a call center. It is our sales experts.Two, interestingly enough, a good portion of those calls actually lead for the customer by appointment to come into our stores where the process may begin and be completed online, but a good portion of it is the customer is sent to a convenience store where associates will continue the process, which is wonderful for the basket size also.
And we have no further questions in queue. I'll turn the call back to the presenters for closing remarks.
Well, thank you very much for the great questions and your continued support. We look forward to meeting you again in just a few months, and have a good summer. Thank you. Bye.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.