Sleep Country Canada Holdings Inc. (SCCAF) Q2 2023 Earnings Call Transcript

Sleep Country Canada Holdings Inc. (OTCPK:SCCAF) Q2 2023 Earnings Call Transcript August 11, 2023 8:00 AM ET

Company Participants

Stewart Schaefer - President & CEO

Craig De Pratto - CFO

Conference Call Participants

Martin Landry - Stifel GMP

Stephen MacLeod - BMO Capital Markets

John Zamparo - CIBC Capital Markets

Brian Morrison - TD Securities

Operator

I would like to welcome everyone to Sleep Country's Q2 2023 Results Conference Call. Yesterday, Sleep Country released its financial results for the second quarter of 2023. A copy of the earnings disclosure is available on their Investor Relations website includes cautionary language about forward-looking statements, risks and uncertainties, which also applies to the discussion during today's conference call.

I would now like to turn the call over to Stewart Schaefer, President and CEO. Please go ahead, sir.

Stewart Schaefer

Thank you, and good morning, everyone. Thank you for joining us today. With me is Craig De Pratto, our CFO. I'm pleased to discuss one of the strongest second quarters in our company's history, second in revenue only to the same period last year, which was up over 18%. These results were delivered against challenges in a less favorable macro environment than we expected. The impact of which was partially mitigated by the company's proactive strategic initiatives around cost controls, direct sourcing and targeted advertising for more profitable segments of our business.

As Canadians adapt to an environment of higher interest rates and inflation, we continue to see a slowdown in consumer spending on large discretionary goods that began in the second half of 2022. We still feel that the consumer spending is cautious but healthy, albeit our mid- to lower end of the business is softer, down high single digits but holding up better than the industry, which has reported to be down 20% to 25% in units.

With still near record low unemployment, we believe that there was no material change in the competitive landscape and held our share of market and remain focused on executing on our strategic initiatives as our customers temporarily shift their spend away from large ticket purchases in favor of travel and leisure while also navigating higher food, rent and mortgage payments.

Our digital platforms continue to experience softness as customers come back into our retail stores post pandemic. The shift we have experienced between our digital platforms and our brick-and-mortar over the last few years only reaffirms our long-term strategic plans to build a seamless omnichannel experience and allow our customers to shop how they want, when they want and where they want.

As for some positive growth highlights for the quarter, first off, during the quarter, a big focus was on our two recent acquisitions, Silk & Snow and Casper Canada, and I'm very happy to report that our plans are well underway to enhance and grow the value of these two powerful brands. We couldn't be happier with the team at Silk & Snow and the results they are delivering and are excited to see a strong alliance that is being formed between the teams at Endy, Silk & Snow, Hush and Casper Canada as they organically share best practices to drive our businesses.

Second, this quarter, we signed off on the final plans to open up our very first Endy and Silk & Snow retail locations. With these two new store openings planned for Q4, we are excited to bring these digital brands into a tactile environment. Third, at Casper Candida, all of our teams have been working closely together to execute on our four stage plan to relaunch Casper Canada and enhance this valuable asset for years to come.

As we said last quarter, Casper will be a 2024 story as we put our plans into place for the remainder of this year. That being said, I am pleased to report the progress of our plan, which was to discontinue the 2022 lineup in our 289 Sleep Country and Dormez-vous stores and reintroduced a Canadian inspired collection with lower prices and expanded margins, which is well underway.

Number two, replatforming both -- replatforming both the site and our POS systems to be independent of Casper USA and over to a new platform controlled and managed by our teams in progress and to be completed in Q3. Three, realign our marketing and ad campaigns to our targeted strategic approach that we have successfully implemented with our Canadian digital brands, in progress also, and we will flip back switch when our new platform launches.

And four, we continue to double down on our investment in the Casper people who are hard at work every day and share with them the enhanced magic that all our teams will bring to their skill set in both their digital and brick-and-mortar business. We are well underway and are happy with the progress we are seeing. Once we secure the foundation of this powerful brand, we look forward to methodically and thoughtfully rolling out an expanded footprint of this business across the country.

Looking ahead to the second half of the year, we will also be redefining the definition of luxurious sleep with the introduction of our newest concept, a high-end luxury category of sleep called The Rest, opening in November in Yorkdale Shopping Center. The Rest will redefine luxury sleep with a bespoke sleep experience.

And lastly, we expanded our partnership with Walmart Canada with the opening of two additional Sleep Country Express stores in Walmart Supercenters, bringing the total number of Express locations to 19 and we continue to build out our full-service Sleep Country retail footprint with four new stores planned to open in the back half of this year.

Along with the growth of our retail footprint, we continue to build the most innovative product lineup of sustainable sleep essentials and create opportunities for product sourcing across all our brands. In Q3, we will begin offering new Hush, Silk & Snow and Casper products in our Sleep Country and Dormez-vous stores, and we are currently rolling out three new Casper mattress models to all our Sleep Country and Dormez-vous stores that we expect will be hugely popular with our customers.

At the same time, we are focused on managing costs and driving efficiencies throughout our organization and see great opportunities to leverage our infrastructure and scale as a consolidated company across the three acquisitions that we have made in the last two years. In May, we opened our largest and most technologically advanced distribution center to date in Kitchener, Ontario, tripling our warehouse capacity to meet the growing needs of our customers and business.

We continue to transform our digital capacity and build new technology that will integrate our systems and enhance our omnichannel service with the planned launch in Q3 of our newest digital platform powered by big commerce. Our technology and transformation teams are hard at work building our integrated systems of the future that will harness our data with advanced AI customization tools to maximize our engagement in ROAs with our customers.

We are proud to be releasing our second ESG report this month, this report outlines the progress we've made on our commitment to being a purpose-led sustainable business focused on helping people enhance their overall health and well-being, building a best-in-class culture and supporting positive social change in protecting our planet.

As always, we are incredibly grateful to our entire teams who proudly represent all our fantastic brands and have worked tirelessly over the last few years to transform the sleep industry in Canada and our businesses, making us Canada's favorite and most trusted sleep expert.

Looking ahead, we remain cautiously optimistic for the second half of 2023 and beyond as we continue to focus on optimizing our investments, delivering a seamless customer experience across all our brands and channels and driving growth in our business and value for our shareholders.

With that, I will now turn it over to Craig to discuss our financial results.

Craig De Pratto

Thank you, Stewart, and good morning, everyone. We continue to be pleased with the financial performance of our business, including our Q2 2023 results. We saw a decrease in our revenues by $10.4 million or 4.6% from our highest Q2 revenue ever of $227.6 million in Q2 2022 to $217.2 million in Q2 2023. This change was mainly due to a decrease in same-store sales which was partially offset by wrap stores opened in 2022 as well as incremental revenue earned from our acquisitions of Silk & Snow in January 2023 and Casper Canada in April 2023.

Our Q2 2023 same-store sales were negative 10.9%, coming off of same-store sales growth of 15.1% in Q2 2022 and 65.5% in Q2 2021. If we were to normalize our Q2 2023 revenues and remove the incremental revenue earned from Silk & Snow and Casper Canada from our results, we would have still achieved the second highest Q2 revenue in the company's 29-year history. Our Q2 revenues from our e-commerce platform increased by 320 basis points from 18.1% in Q2 2022 to 21.3% in Q2 2023. Taking a step back and looking at our total revenues. Over the last four years, from 2019 to 2023, we have achieved a strong CAGR of 6.5%.

Moving on, our gross profit -- our gross profit decreased $2.7 million from $81.7 million in Q2 2022 to $79 million in Q2 2023. Our gross profit margin increased 50 basis points from 35.9% for Q2 2022, to 36.4% for Q2 2023, mainly due to higher average unit selling prices and lower product costs, partially offset by higher sales and distribution compensation costs and deleveraging tied to our occupancy and depreciation costs.

Our improved gross margin this quarter was negatively impacted by our deleveraging tied to our G&A expenses. Total G&A expenses increased by $9 million or 19.7% from $45.7 million in Q2 2022, to $54.7 million in Q2 2023, of which $2.1 million of the $9 million increase was due to incremental media and advertising expenses and $2.6 million was due to compensation costs.

Both increases were primarily tied to incremental spend from our Silk & Snow and Casper acquisitions. Additionally, total G&A expenses were impacted due to higher professional fees driven by the acquisition of Casper and intangible depreciation costs, which were largely tied to our recent acquisitions. As a reminder, our D2C brands such as Hush, Silk & Snow, which are earlier in their growth cycle, have higher marketing and fixed costs as a percentage of total revenues and therefore, cause a deleveraging impact at the consolidated level.

Taking a step back, EBITDA decreased by $10.5 million or 20.1% from $51.9 million in Q2 2022 to $41.4 million in Q2 2023. Adjusting our EBITDA for LTIP, ERP and acquisition-related costs, our operating EBITDA decreased by $9 million or 17% from $53.2 million in Q2 2022 to $44.2 million in Q2 2023. Operating EBITDA margin for the quarter decreased 300 basis points versus the prior year.

Finance-related expenses increased by $1.3 million from $5.3 million in Q2 2022 to $6.6 million in Q2 2023, mainly due to the decrease in an unrealized gain on our company's interest rate swap and an increase in interest expense on the company's lease obligations and its senior secured credit facility, which is impacted by higher interest rates and debt levels. These changes were partially offset by a decrease in accretion expense as a result of lower debts and liabilities related to the Hush acquisition.

Net income attributable to the company decreased by $10 million from $22.7 million in Q2 2022 to $12.7 million in Q2 2023. Adjusting for LTIP, ERP and acquisition-related costs, as well as accretion expenses related to the redemption liabilities for Hush and Silk & Snow, adjusted net income attributable to the company decreased by $10.9 million from $25.7 million in Q2 2022, to $14.8 million in Q2 2023.

Diluted earnings per share decreased by $0.25 or 41% from $0.61 in Q2 2022 to $0.36 in Q2 2023. The change in diluted EPS of $0.25 was mainly impacted by a $0.28 decrease in EPS due to lower EBITDA, as discussed, as well as $0.07 decrease in EPS due to higher interest expense on our senior secured facility and leases and $0.04 decrease in EPS due to higher depreciation and amortized expense mainly driven by the intangible depreciation as a result of the acquisitions of Silk & Snow and Casper Canada. These decreases were partially offset by lower accretion expense of $0.05 per share and a decrease in income taxes of $0.11 per share.

Income taxes decreased due to lower taxable income in addition to a lower effective tax rate by 1.2% from 28.4% in Q2 2022 to 27.2% in Q2 2023. As at June 30, 2023, our cash balance was $41 -- or $48.1 million with an additional $90.9 million of liquidity available to us. This does not include the $100 million accordion available to us through our credit facility.

On to some capital allocation items. During the second quarter, we did not purchase any of our common shares under our NCIB. We suspended the repurchases during the acquisition process of Casper Canada, which closed in mid-April. And while we put an automatic share purchase plan ahead of our Q2 blackout, the share price remained above our predetermined purchase threshold. We do intend to execute our NCIB as opportunities arise in the second half of 2023, and I would like to remind everyone that nearly two-third of our repurchases in 2022 occurred in the second half of the year as we enter our seasonally higher sales periods.

On August 10, 2023, the Board approved a quarterly dividend of $0.237 per share which will be payable on August 31, 2023, to shareholders of record at the close of business on August 25, 2023.

Regarding our CapEx for 2023, we continue to plan on opening a minimum of six new Sleep Country, Dormez-vous stores and due to store renovations to our new store concept. In Q2 2023, we opened a new warehouse in Ontario and consolidate its operations with an existing warehouse. Additionally, we continue to invest in our ERP and technology to further enhance our digital capabilities in omnichannel experience, and we spend approximately 1% of revenue for ongoing store and DC maintenance.

Thank you, and I'll now pass the call back over to Stewart for closing remarks.

Stewart Schaefer

Thank you, Craig. Our accomplishments in the quarter are a testament to our unwavering commitment to our strategic plan to build the country's best sleep ecosystem, along with the adaptability and resilience of our team. Our continued investment in an incredible portfolio of brands with an expansive and innovative product lineup while expanding our distribution channels and touch points has enabled us to create the most robust omnichannel sleep experience in Canada.

This quarter, Sleep Country was one of the many organizations affected by the previously unknown vulnerability in the widely used MOVEit software. Our organization has determined that no meaningful Sleep Country Canada customer information was affected. Our websites and payment portals all remain safe to use. I want to congratulate the technology and transformation teams for doing an excellent job in safeguarding our business.

Looking ahead, we approached the remainder of the year with cautious optimism for the macro environment. While we continue to focus on driving efficiencies and results and managing our strong balance sheet, we remain committed to identifying opportunities that align with our long-term strategic goals while delivering growth and value to our shareholders.

Thank you once again to our fabulous teams at Sleep Country, Dormez-vous, and the Hush, Silk & Snow and Casper to all our partners for their commitment and support for all our customers and our businesses and have a good summer.

With that, we conclude our remarks and then open it up for questions.

Question-and-Answer Session

Operator

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question comes from Martin Landry with Stifel. Please go ahead.

Martin Landry

Hi. Good morning, guys.

Stewart Schaefer

Good morning, Martin.

Craig De Pratto

Good morning.

Martin Landry

I would like to touch on your EBITDA margins. They have eroded in recent quarters, and it's partly as a result of the acquisitions that you've done, some of them have a bit of a lower profitability at the EBITDA level. So how much of the 300 bps margin erosion that we've seen in the quarter comes from acquisitions. Any color on that would be helpful.

Craig De Pratto

Yes. Martin, yes, on the EBITDA margin, a large component of the deleveraging that we did see this quarter and we have seen over the last kind of two quarters is those new investments do have a deleveraging impact because of their fixed cost base at the G&A level is higher. In addition, as we continue to grow those businesses digitally, the cost of marketing, which gets grouped into our G&A lines is higher and tick higher.

So I would look at it as these businesses mature and then also as we go into seasonally higher selling periods of the back half of the year, we should see less pressure on -- at the G&A level. And -- but it is mostly tied to acquisitions. And then the other thing that you always have to remember is taking a step back at G&A. We always will have a deleveraging in periods of time where you have a decrease in sales year-over-year, which is just tied to your occupancy costs and depreciation costs of our warehouse.

This quarter, from a store perspective, we did renew approximately 24 new leases. And under IFRS 16, they do get accounted for with the new more recent higher interest rates. So there is additional pressure there. And then at the G&A level, on the warehouse side, we did open the new warehouse in Kitchener. We also did take possession -- or not possession, but we're in the build-out phase or fixturing period of the Montreal warehouse. And again, those are valued at the higher interest rate environment. So we did see some pressure just tied to occupancy and depreciation as well in this quarter.

Martin Landry

Okay. That's helpful. And then I mean you touched a little bit on it, but I mean, Casper, you just acquired Casper, and I think that's a bit margin dilutive for now at the EBITDA level. Like when can we expect you guys to lap the dilution from your acquisitions? I know there's some initiatives that Stewart, you mentioned about improving the profitability of Casper. So if we can get maybe just some visibility as to when we turn that corner.

Craig De Pratto

Yes. No, that's a great question, Martin. We look at the 2024 -- specifically for Casper, 2024 is kind of that year where it will be the kind of Casper story. Now on the Silk & Snow, it's very similar. I think 2024 is when you see us lapping and looking at the margin in a more normalized manner going forward.

So I'd say we'll have a little bit of pressure in the back half of 2023 on those new investments, which will have a little bit of delevering impact. But in 2024 is when we kind of see more level results on those and more predictable kind of margin profiles for those two investments. And I don't know, Stewart, if you have anything else to add around that component?

Stewart Schaefer

Yes, well, I'll just add back to, I guess, the real question, Martin, is in terms of the plan. And as we said right from the very beginning, I mean, we're thrilled to now own this powerful brand with one of the highest awarenesses and mattresses. We were less impressed, which is why it created an opportunity for us with how the business was managed in Canada. And the first step for us was to discontinue the American Made mattresses that were designed for the U.S. and reintroduce a collection of mattresses that are suited for Canadians. And there's not a ginormous difference, but there is definitely a difference that we know very well.

Also, Casper was one of our lowest margin contributors. And now, hopefully, it will be one of our highest margin contributors, and that's already starting to materialize with the new 3 beds that have rolled out. The recon rebuild we're doing on the POS and the e-commerce sites you live in Montreal, Martin. The French website is a disaster and the new one will be fabulous, because, again, no disrespect to our Southern friends, but that wasn't their forte. So it will go on to our new platform, which we're going to be going on to Shopify for Casper.

And within our stores also on the POS that we're very excited about and having great conversations with them. And once that's replatformed, we're going to flick the switch on our advertising, which we completely pulled back. Also in the numbers -- and again, we didn't want to call it out because we don't want to make any excuses but over $0.5 million was in ad spend that we couldn't -- the ad campaigns were handled by an agency out of New York.

And so there was a transition phase and a time line of when and what you could cancel that was already booked within the market. So there was $0.5 million plus of wasted spend that was happening while we discontinued the floor model. So I'm saying the beginning of 2024, I'm optimistic for Q4, but I'd rather underpromise and overdeliver, so the first quarter of 2024.

Martin Landry

Okay. That's super helpful, guys. Thank you. And I'll pass along the line.

Stewart Schaefer

Thanks Martin.

Operator

Thank you. Your next question comes from Stephen MacLeod of BMO Capital Markets. Please go ahead.

Stephen MacLeod

Thank you. Good morning, guys.

Stewart Schaefer

Good morning, Steve.

Craig De Pratto

Good morning.

Stephen MacLeod

Good morning. Thanks for that great color on the last couple of questions, very helpful. Just wanted to ask a little bit about sort of how you saw consumer spending and same-store sales evolving through the quarter? And if you're able to share any color on what you're seeing on a quarter-to-date basis?

Stewart Schaefer

Yes. So I guess, very similar to what we were seeing in Q1. I mean the back half of Q2, everyone knows is old history. The pressure is for sure on the lower end of the business. There are more price-sensitive consumer. But I've been doing this for 29 years, and I lived through, I don't know how many recessions and stock market crash not that we have a stock market crash. But we always see a little bit of a pause when there's a little bit of a pause on consumer confidence or a shift in terms of their overall spending.

We have not seen any signs of the recession. I mean there's for sure a recession within the mattress industry, especially within United States and definitely a slowdown here. But these are still quite bullish numbers historically for our brands. And usually, if we see the slowdown, we see it across all categories. So to be specific, it's our mid- to lower end that's having the biggest impact, but our mid -- but our high end, mid and higher end has been fine.

And interestingly enough, our accessories across the board which is usually a gauge for us of consumer confidence because they're coming in, they're interacting with the brand. They're kicking the tires, buying a nice pillow and then Korean a lead generator for us for when they're ready to buy a mattress, but maybe they're pausing a little bit more.

And we saw -- like we have said cautiously optimistic and we don't give guidance. But July came in better than June finished. So let me just say that. And we are comping off of lower numbers from last year. So we have a lot of things on the go that are in place, and we're hoping that as long as the consumer stays the way they are in the macro environment doesn't get worse, and people get used to the new world of 22-year high interest rates, I think we'll be flying.

Stephen MacLeod

Okay. Great. Sorry, can you just clarify the comment on accessories? Were you saying that they've held in okay. And then obviously, the growth was up year-over-year.

Stewart Schaefer

Yes. I mean that's a big part of our business. People forget that years ago when we introduced the accessories, we introduced accessories, what we used to call a lead generator. We just wanted some of the cross the lease line to experience Sleep Country or Dormez-vous. It then became an incredibly profitable business and obviously a big focus for us because we think there's lots of runway to grow there.

In previous recessions that I have lived through everything goes soft, everything right across the board, everything goes soft. So whether this is a recession or not or a slowdown just on discretionary spend or shift in spend on pause, we have not seen that in our accessory business, which we look at that as a very good sign. In fact, some of our categories have ticked up.

And for us, that means our customers are still engaging with us on our smaller items, which are very profitable, which has an impact also on our gross profit margin, which is one of the comments I made in my -- that our advertising campaigns, we're targeting some of our more profitable channels, which is the accessories because -- we call it the Starbucks effect. They're coming in. They still want to feel a little bit good thinking about their health and well-being and maybe just at the moment, they're pausing to buy a mattress.

Stephen MacLeod

Right. Okay. That's great. Thank you. And then maybe just on that gross margin comment. We did see some growth on a year-over-year basis in Q2. And I'm just curious if you can give -- is that sort of a new run rate that we should expect? I know last year's H2 comps are quite difficult. But I'm just wondering if you can give a little bit of color on how gross margins should evolve over the next couple of quarters?

Craig De Pratto

Yes, Stephen, I think you're talking about overall gross margins, correct?

Stephen MacLeod

Yes, that's right. Yes.

Craig De Pratto

Yes. So I think we -- we've said on previous calls is we kind of expect the leveling of our gross profit margin on a year-over-year basis. We did have a little bit of an uptick this quarter very slight, but I would expect more consistent with year-over-year like a stabilization rather than counting on continued expansion. Again, we're going to do all the things we tend to continue to drive margin, and we've got lots of things in the pipeline. But if I was planning the back half of the year, I just look at kind of year-over-year similar profile.

Stephen MacLeod

Okay. That's great. Thanks, Craig. Thanks, Stewart. Appreciate it.

Operator

Thank you. Your next question comes from John Zamparo with CIBC. Please go ahead.

John Zamparo

Hi, good morning, guys.

Stewart Schaefer

Good morning, John.

Craig De Pratto

Good morning, John.

John Zamparo

I'd like to get a better sense of consumer behavior. I just want to follow up on some of the prior questions. And clearly, you think there's an opportunity with your higher-end models, and that's evident through launching the Rest, but you're also leaning more into the Walmart partnership with the nine additional stores planned there.

So when it comes to lower prices or lower-priced models or lower income consumers, is it that you think there's an opportunity to take share even though that segment isn't performing as well? I just would like to better understand that dynamic.

Stewart Schaefer

Yes. I'm smiling, John, you can't see me, but I always laugh because it's always about taking share. We lay in bed, we're happy with our 40% market share, but we wonder why 60% of the population are still not shopping with us. So we do believe that it's across all segments, across all channels and we don't manage the business based on a quarterly basis.

So nothing's changed or shifted in our mind strategically. In fact, on times like this, there is an opportunity because of the strength of our balance sheet to accelerate certain things. And we think with the growing population, 0.5 million newcomers coming to Canada, that -- that's a very important part that Walmart is a big component of introducing the brand, even if it's not transactional at the moment, it does give it an enormous amount of exposure. And this is an area that we want to grow our unfair share. A more difficult segment of the market to grow in a down market, which is what we have right now in that category. But again, we put these things in place for years and we're optimistic -- very optimistic in terms of when it turns, we'll be ready for them.

On the mid- to high end, that's our sweet spot. And the acquisition of Casper is a big component of that. The mid- to high end is definitely where the biggest profitable part of our business is. It costs us the same amount of money to deliver a $2,000 mattress as it does a $200 mattress and all the other metrics that go along with that. So that's why we're expanding on our regular store base if we find great opportunities for fabulous real estate that's in the pipeline a lot. We have many stores in the pipeline that are hopefully coming up over the next three years.

And the high end, this is something that we've talked about for a long time. Obviously, it will not be a huge expansion, but we do see an opportunity for this to grow to about 6 to 8 stores strategically across Canada and some very affluent markets where we have customers that are asking for something a little bit more special. You've seen this trend develop in the United States successfully in a few different areas. And so we're going to be very careful and methodical as we enter into this space.

Yorkdale Mall, as you know, is like the Premier Mall, and that will be a good testing place for us, and we're going test, test, test, and see what happens, what we think is going to happen, happen, then we'll consider other markets.

John Zamparo

Okay. I appreciate that color. Sticking with Yorkdale, I wonder why Hush wasn't the brand that you plan to open with later this year, given the test did seem quite successful and also that accessories are outperforming mattresses at the moment?

Stewart Schaefer

It's a great question. And so there's still not far behind, but it's more that we have to expand the merchandising selection. So Hush is a fabulous brand for us and as they introduce other products under like -- everyone knows them as Hush weighted blankets, but their sheets are now -- their cooling sheets are probably their best sellers. They're selling mattresses now. There's new pillows that are rolling out.

So when you enter into the brick-and-mortar world, you need to be able to fill up that square footage. It's a little different in terms of how we transact online and what we transact per square foot within our stores. And Mike Douglas, our Head of Merchandising is overseeing this mission for us for all our businesses and expanding the accessories in Hush is number one on that. So let's see what happens on the next call, maybe I'll surprise you.

John Zamparo

Okay. Fair enough. Two more for me. One, the change in store renovations target, now you're down to two for the year. Is that a function of -- you just have a lot going on, on the brick-and-mortar side. You don't entirely know what the next generation of stores will look like? Or is it -- is there some other factor beyond that?

Stewart Schaefer

Yes, yes and yes. So we do. Like when we put this script together and we look around as a team and we are hitting on -- like park the macro environment for a second. We're hitting on all cylinders in all the areas and the strategic objectives that we laid out this team has been working like dogs in the last two years, and we're really pleased and ahead of schedule on a lot of the things that we're doing.

And this -- the remainder of this year is to buckle down and really drive efficiencies and maximize the value of the investments that we have made and make sure that we are razor-focused on executing. That's what we're really good on. And that's -- so we have our hands full there and add in the macro environment like we're also cautious.

Our balance sheet is still incredibly strong and -- but we like having a war chest, because you never know what other opportunities pop up. So on the renovation side, we could pause that a little bit, and we'll reconsider that in Q1. I also don't want to be doing renovations in the third quarter, which is one of our biggest quarter, especially if we're thinking that there's a bit of a pent-up demand.

And your last comment on the two renovations, those are the two new store concepts that we've been mentioning. So we're rolling out. We're ready to roll out our two new store concepts, which is going to bring a digital optimization component within our stores and fresh new look and feel and an expansion on our accessory side of our business. But again, we like to test, test, test before we decide that if something is going to move the needle before we allocate capital to do it across the board.

John Zamparo

Okay. Understood. That's helpful. And then my last question is on margins, and you talked in your prepared remarks and also the press release about the idea of managing costs and driving efficiencies, and specifically the new DC and transforming your digital capacity, are we right to think about the benefits mostly being on gross margin rather than SG&A? And is there anything you can say to help us frame the magnitude of that benefit, whether it's dollars or in percent?

Craig De Pratto

Yes. I mean, on -- I think as we look at all of the different efficiencies that we can use from a roll-up perspective of the D2Cs and centralizing certain departments, there will be an impact over -- that we'll see through 2024 that would hit G&A because there's a lot of different synergies, and those are some of the reasons why we looked at these different acquisitions. So there will be some benefit there.

And then again, we continue to look at our product sourcing road map additional scale as we roll in some of these additional investments. And there will be some -- we feel, margin opportunities. But I wouldn't count on that in the back half of this year. It's more of a 2024 story.

And I think the other component is also with some of the acquisitions like Casper, we saw a good opportunity to expand our gross profit margin while providing the customer with a better pricing on a -- just as good a better, better. So there's opportunities like that, that we're going to continue to explore. But -- so I could see relief in both buckets.

And then lastly, the marketing as we mature in those D2Cs. They do become more efficient as they grow up. And so we're -- we'll see some opportunity there as well. But again, this is more of a 2024 and beyond story rather than 2023 back half.

Stewart Schaefer

And I just want to add, John. We don't make your jobs easy and we get it, and that's why we try to be as transparent as possible. And sometimes hard to read the because [indiscernible] some of the investments that we're making today, we won't reap the benefits until further periods outwards.

But every one of the acquisitions that we've done, we're not buying these companies just to buy them that we're buying them to grow them. And we do believe each one of the brands that we've acquired can live within the sleep ecosystem as we expand out the footprint both digitally and retail across Canada.

We want Canadians to shop with one of our brands that our customers choose whatever that appeals to them, and we just want to make it easier and more seamless for them. And like even just the investment in the Kitchener DC, it triples our capacity of our distribution, but clearly, that's not going to be filled for years to come or are two super hubs Belleville and Calgary, which support our direct sourcing part of our business as our margins expand, they're not anywhere near full capacity.

But we have to plan these moves so that we're doing these acquisitions and why -- and while we're growing organically the Sleep Country, Dormez-vous business, that we have the ability to service our customers in the way they are used to and they expect to be served.

John Zamparo

Excellent. All right. I appreciate the color, and I'll pass it on. Thanks very much.

Stewart Schaefer

Thanks, John. Have a good weekend.

Operator

Your next question comes from Brian Morrison with TD Securities.

Brian Morrison

Good morning, Stewart. Good morning, Craig.

Stewart Schaefer

Hi, Brian.

Craig De Pratto

Hi, Brian. How is it going?

Brian Morrison

Yes, thanks. Stewart, I want to start off with your cautiously optimistic comment. I know you don't provide guidance, but it sounds like July is off to a decent start, especially for accessories. I'm wondering if you might be able to just talk about how mattress sales have had a cadence of them maybe over the last six weeks. You did have one of Canada's most representative retailers come out yesterday and say that they've seen a substantial decline in sales in the past six weeks. I'm just wondering if you're seeing anything remotely similar to that?

Stewart Schaefer

I will say to you because I want to give you guys as much color as possible. So let's start with the easy one. Accessories seem to be holding up still very nicely. The mattress business is soft, but not as soft as Q2 at the moment. And specifically to your question, over the last six weeks, and I said this to the Board. And again, we don't have a crystal ball. We're not economists, you guys are better at that than us, and we have no idea what tomorrow will bring.

But if you lay over days when the stock market is up and when the stock market is down, it definitely has a play on consumer confidence because these last six weeks have been a bit of a yo-yo. We've had strong updates, and we've had big down days. And what we usually see is consistency across the country because I mean, habits are the same from coast to coast, but we haven't been seeing that.

When oil dipped down towards $70, Alberta got quiet as oil now pushes above $80 again, Alberta gets busy. I mean, it's been really funny times and trying to plan on our advertising because that's the 1 big lever that we always have to determine if we want to drive -- is it the right time to drive even more people through our doors. Are we going to get the efficiency on the spend and that only is answered if the customer is there.

So we have been leaning a little bit more into our advertising on accessories because that seems to be very healthy. We're launching two new campaigns that we're very excited about, which is part of the additional advertising spend that was in Q2 as we create the content. Endy is launching a new awareness campaign called Rise to Shine, which is going to hit in Q3 -- this quarter, excuse me. Sleep Country is launching also a new campaign that's focusing on our sleep experts with the tagline We Solve Sleep.

So we're going to roll the dice in terms of driving awareness and hopefully, the customers out there in Q3, with the ability to always pull it back if we're not seeing it there. I know that's a long answer, maybe not giving you what you need, but that's our best guess.

Brian Morrison

I appreciate that. I want to -- a second question maybe for both of you. What's the decision to integrate Silk and Hush and Casper as opposed to into Sleep Country stores as opposed to keeping them independent? And Craig, with your earlier comment on these banners having a higher fixed cost structure, we should expect them to have a higher margin profile upon maturity, such as Endy. Would that be correct?

Craig De Pratto

That's correct. Yes. Yes.

Stewart Schaefer

And on the accessory side of it, we have an eye on the possibility of the wholesale component of our business. We believe like these weren't retail stores that we bought, these were brands, very powerful brands that have high awareness and affinity with Canadians. And we control what the product is. So Silk & Snow or a Hush or a Casper pillow doesn't necessarily or sheets or whatever it may be on the accessory side, doesn't necessarily need to be the same product in a Casper store or a Silk & Snow store or a Hush store in the future.

And we have a captive audience that we believe are willing to pay a premium dollar for a premium brand. And if that helps elevate the overall experience for the customer to acquire a Casper pillow while they're buying a Tempur-Pedic mattress, then we want to make sure that we make that opportunity for them.

Brian Morrison

Okay. Last question, Craig, your message on the NCIB in the second half of last year, obviously blacked out last period with a little bit more debt due to the acquisitions, should we expect that kind of $50 million target to still be intact on the NCIB? Or should we look for some of the free cash flow to be allocated to debt instruments?

Craig De Pratto

No, I think we're not -- I think that $50 million is still doable. Again, we'll always continue to be opportunistic with repurchases. We have lots of access to liquidity and then we're coming into our seasonally higher sales periods as well, which generate much more of the free cash flow for our business. So we're not really changing our outlook on that at this time, just with the understanding that we'll make the purchases in an opportunistic way.

Stewart Schaefer

We're going to make sure we optimize our shareholder value by being opportunistic, whether it's in a buyback, whether it's in any other new business, whether it's expanding our own footprint or raising the dividend, which was just done like -- we want to be in May. Thank you. We want to be able to be smart with our cash. We like to have war chest because you never know what tomorrow will bring, and we have a long runway on things that we're planning. And so as we have in the last 1.5 years, we've been very opportunistic and will continue to be so.

Brian Morrison

All right. Good luck. Enjoy the rest of your summer.

Stewart Schaefer

Thank you. You too.

Operator

Thank you, gentlemen. There are no further questions at this time. I will turn the call back to Mr. Schaefer for closing.

Stewart Schaefer

Well, thank you again, everyone. We really appreciate your support. It's been a rainy summer, but hopefully, we'll get a little bit of sun for the remainder of August and you can enjoy the last part of it. We'll speak to you on the next call. Be well.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.