Sleep Country Canada Holdings Inc. (SCCAF) CEO Dave Friesema on Q4 2020 Results - Earnings Call Transcript

Sleep Country Canada Holdings Inc. (OTCPK:SCCAF) Q4 2020 Earnings Conference Call March 3, 2021 8:00 AM ET

Company Participants

Dave Friesema - Chief Executive Officer

Stewart Schaefer - Chief Business Development Officer

Craig De Pratto - Chief Financial Officer

Conference Call Participants

Martin Landry - Stifel

Vishal Shreedhar - National Bank

Stephen McLeod - BMO

Meaghen Annett - TD Securities

Patricia Baker - Scotiabank

Matt Bank - CIBC

Sabahat Khan - RBC Capital Markets

Gary Chapman - Guardian Capital

Operator

Good morning. My name is Pasha and I will be your conference operator today. At this time, I would like to welcome to the Sleep Country Canada Q4 and 2020 Year End Results Conference Call. [Operator Instructions]

Yesterday, Sleep Country Canada released their financial results for the fourth quarter and full year 2020. A copy of the earnings disclosure is available on their website and includes cautionary language about forward-looking statements, risks and uncertainties, which also applied to the discussion during today’s conference call.

I would now like to turn the call over to Dave Friesema, Chief Executive Officer. Please go ahead sir.

Dave Friesema

Thank you and welcome everyone. I hope you are all well and healthy. With me on the call today are Stewart Schaefer, our Chief Business Development Officer and Craig De Pratto, our Chief Financial Officer.

We are very proud to announce that Q4 was the best quarter in Sleep Country’s 26-year history closing out a successful year as Canada’s leading omni-channel sleep retailer. Over the past several years, we have strategically focused on building out our ecosystem and purposely adding new layers on to our powerful business. Creating a diversified model that serves Canadian sleep needs well across all channels, brands, assortment and experience. Our twin investments of developing a fully transactional Sleep Country Canada Dormez-vous website, which launched in November 2019 and our acquisition of Endy in December of 2018 have proven to be two of the most successful investments that we have ever made.

While compelling on their own, the combined impact has firmly positioned us as the most successful e-commerce and brick-and-mortar sleep retailer in Canada. Further to those investments, our exclusive partnerships with some of the world’s premier direct- to-consumer bed-in-a-box players like Purple and Simba complementing our existing assortment of relevant mattress brands, have solidified our competitive advantage by providing our customers with Canada’s largest selection of sleep solutions to our websites and stores.

I would be remiss if I did not mention our marketplace partnership with Walmart, partnering up with the largest retailer in Canada and their powerful e-commerce business has served us well and expanding our reach to a wider and broader customer segmentation. Finally, our enhanced model of service and our logistics machine has spanned across the country, with 18 strategically located fulfillment centers has delivered unparalleled results, delivering to that last mile, setting us apart from our competitors and placing us in a league of our own. We are exceptionally pleased of our 2020 performance across the board and could not have achieved these results without our dedicated and hardworking teams at Sleep Country Dormez-vous and Endy plus our suppliers, landlords and media partners, each of whom went above and beyond for us in these turbulent times.

Now on to some financial highlights, a few fourth quarter achievements include revenue, which grew by a powerful 33.4%; net income, which increased an impressive 89.4%; same-store sales which grew 32.4%; and diluted EPS, which increased 89.5% from $0.38 to $0.72. In addition to these notable successes, we were able to expand our gross profit and operating EBITDA margins. We closed the quarter on a note of financial agility with cash position of $38.3 million and a further $182 million in liquidity available under our credit agreement.

Our results in the fourth quarter and fiscal 2020 are a testament to the strength and flexibility of our enhanced business model. Our success spans across every aspect of our business with a customer centric view on how to best service their needs and create an exceptional and seamless customer experience. For context, only a short few years ago, almost all of our revenue was acquired via in-store sales. As a result of strategic investments in innovation, Q4 revenue from digital channels drove 20.1% of our revenue, while at the same time, our growing network of stores also contributed to our best ever same-store sales growth. This growth was achieved while accelerating our profitability, with net income increasing 89.4%. With these results, we believe that our enhanced model is working exceptionally well in anticipating and delivering on every Canadian’s sleep needs.

We are still early in our ecosystem journey and are bullish on our ability to grow our business and take market share. No matter where our customer journey ends or begins, we want to be there for them to serve their needs for all things relating to sleep. One example of a highly successful innovation that we introduced this past year during the March 2020 shutdowns was bringing the in-person sleep expert experience to our online platforms with the introduction of our dream line chat team. This team was successful in serving our customers and raising the average unit selling price that has now become a permanent addition to our e-commerce experience. This capability resonated extremely well with our new and loyal customers as evidenced by nearly 100,000 chats and calls taken since June of 2020.

Our innovative and future proofed ecosystem is defining how Canadians will choose to shop for sleep solutions for years to come and we are extremely proud of what we have been able to accomplish over such a short period. What is particularly remarkable about our Q4 results is that they occurred on a highly tenuous period, with 65% of our stores temporarily closed due to the mandated closure of nonessential businesses as at December 31, accounting for 10.5% of our actual quarter’s operating days being closed. The closures persisted over Boxing Week, one of the most significant retail weeks of our calendar. Despite these conditions, the unparalleled trust we have earned over the past 26 years combined with our convenient touch points across digital, store, chat, phone and curbside pickup allowed new and loyal customers to engage with our brand on their own terms. In Q4, customers entered our stores with a clear intent to purchase with trust and confidence in Sleep Country and Dormez-vous as their sleep retailer of choice, as evidenced by record conversion levels.

Now more than ever, Canadians are prioritizing their sleep as a core pillar of their health and well-being. I am proud that Sleep Country serves Canadian sleep partner on their wellness journeys by offering superior product expertise, sleep expertise, combined with the world’s most innovative and high-quality solutions to fit every unique need. Further to this relentless pursuit of serving Canadian’s sleep and wellness needs, a critical driving force behind our strategy is a clear differentiator with the Canadian sleep landscape is our partnership capability. We continue to secure exclusive partnerships with the world’s leading sleep brands, ensuring we have – excuse me, ensuring we serve as each Canadians partner across premier global sleep products.

In November 2020, we successfully launched an exclusive partnership with Purple Innovation, the U.S. mattress and bedding leader known for the celebrated purple mattress. We are the only destination in Canada for the coveted mat products, which have amassed a cult-like following with virtual viral marketing campaigns, racking up more than a billion views and wildly breaking through with today’s consumers. This partnership has generated excellent results in our first few months in our websites and stores.

We are extremely optimistic about the future. Purple Innovation is the latest brand to add to our exclusive portfolio, which includes recent partnerships with leading international brands like Malouf, Simba, and BlanQuil. Our business future is bright as we continue to grow and optimize our enhanced service model and deepen our position as Canada’s destination of choice. The past year’s results are a testament to our strategy and our team’s unmatched ability to predict and service Canadians needs, meeting them with the perfect solution to suit their sleep and wellness journey, no matter how they choose to shop.

I will now turn the conversation over to Craig to discuss our financials.

Craig De Pratto

Thank you, Dave and good morning everyone. I would like to reiterate that we are extremely pleased with our record Q4 results. These positive results despite our total store closure network being closed for 10.5% of total operating days during the quarter and having two of our largest markets, Ontario and Quebec closed down for Boxing Day Week, continues to demonstrate the strength of our business model, strategic investments and most importantly, our associates serving our customers in a safe manner.

Now, on to some of the quarter’s highlights. Let’s begin with revenue. In the fourth quarter, our revenue has increased by $62.4 million or 33.4% from $186.5 million in Q4 2019 to $248.9 million in Q4 2020. The increase was primarily driven by 32.4% increase in same-store sales, two new store openings and our wrap stores. 20.1% of revenues was earned through our e-commerce platforms. Our mattress revenue increased by $50.6 million from $146.2 million in Q4 2019 to $196.8 million in Q4 2020. Our accessories revenues increased by $11.8 million from $40.3 million in Q4 2019 to $52.1 million in Q4 2020. We are extremely pleased with the accelerated growth we are experiencing in both these categories.

During the fourth quarter, gross profit increased by $22.5 million from $59.7 million in Q4 2019 to $82.2 million in Q4 2020. Our gross profit margin increased by 1% from 32% in Q4 2019 to 33% in Q4 of 2020. These margin increases are primarily due to leveraging fixed distribution costs, occupancy costs and depreciation costs. The increase is partially offset by slightly higher delivery costs during the quarter.

Moving on to G&A expenses, our G&A expenses for the fourth quarter increased by $8.9 million, or 25.6% from $34.8 million in Q4 2019 to $43.7 million in Q4 2020. As a percentage of revenue, our G&A expenses decreased from 18.6% in Q4 2019 to 17.5% in Q4 2020. The change was mainly driven by an increase in our compensation advertising expenses. Our advertising expenses though are larger in dollar were in line with the prior year as a percentage of sales.

Moving on from G&A, our Q4 operating EBITDA increased by $12.5 million or 30.4% from $41.3 million for Q4 2019 to $53.8 million for Q4 of 2020. The increase is primarily due to strong revenue growth in Q4 combined with an improved gross profit margin and partially offset by an increase in G&A expenses. It was also favorably impacted by lower adjustments related to one-time ERP implementation costs and share-based compensation expenses as compared to Q4 2019.

Our Q4 net income increased by $12.6 million from $14 million or $0.38 per share in Q4 2019 to $26.6 million or $0.72 per share in Q4 2020, representing 89.5% growth year-over-year as Dave mentioned earlier. Our adjusted net income increased by $11.8 million from $15.7 million in Q4 2019 to $27.5 million in Q4 2020. Adjusted diluted earnings per share increased by $0.32 per share from $0.42 per share in Q2 – sorry Q4 2019 to $0.74 per share in Q4 2020, representing 76.2% growth.

On an annual basis, we experienced a net decrease in cash of $5.7 million. Net cash flow provided by operating activities in 2020, were $173.7 million and cash flows used in investing activities were $17.7 million and lastly, cash flows used in financing activities were $161.8 million. Much of the cash flows used in financing was due to our repayment of $97.8 million on our long-term debt facility, thereby reducing our debt balance from $175.1 million as of December 31, 2019 to $77.3 million as of December 31, 2020. We currently have access to $182 million in liquidity under our credit facility.

As mentioned previously, our cash position at the end of Q4 was $38.3 million compared to $44 million in the same period last year and our net debt position improved to $39 million down from $131.1 million at the same time in the prior year. An update on our capital allocation on February 9, 2021, the Board declared a dividend for $0.195 per share on the company’s common shares. Additionally, we have filed a notice of intention to the TSX to pursue an NCIB, where purchases may commence March 9, 2021. That completes the overview of our financial results.

Back over to you Dave for closing remarks.

Dave Friesema

Thanks, Craig. To say, we are proud of our success over the last quarter and really over the course of the past year is an understatement. It is rewarding to see our efforts yield such phenomenal value for our 26-year-old profitable and growing business.

Moving forward, we remain committed to our strategy of one delivering world class experience across all channels and touch points, providing Canadians with exclusive access to the world’s leading sleep products, and using our sleep expertise to help Canadians achieve their best sleep as a pillar of their health and well-being. I would once again like to express my appreciation to our extraordinary teams. It has been an exceptionally challenging year and I am so privileged to work with our amazing teams who stop at nothing in the pursuit of excellence for our customers. I would also like to congratulate Alexandra Voyevodina for the promotion from Endy’s CFO to Endy GM and President. Al was a key member of Endy’s early stage growth team in 2016 and we are thrilled to work alongside her as we continue to grow this incredibly successful Canadian brand.

In other Endy news, we are proud to share that in Q4, Endy surpassed a cumulative total of 250,000 mattresses sold since their inception in 2015, with an outstanding average 4.9 out of 5 star rating based on 20,000 customer reviews. Further, the Endy donation project reached a milestone 10,000 mattresses donated since founding in 2015. This wonderful milestone builds on Sleep Country’s commitment to repurpose Sleep sets from our donated bed program to those less fortunate, with over 304,000 mattresses and foundations donated and another 662,000 recycled over the same timeframe. These are products that we pickup from our customers and divert from landfills.

In closing, I will reiterate that I believe the future of Sleep Country Dormez-vous and Endy is bright and we are better positioned for profitability, growth and market share expansion than ever. We are energized and focused on continuing to execute against our growth strategy in service of expanding our leading position as Canada’s sleep destination of choice. As ever, we are laser focused on building value for our customers, employees, communities and shareholders and our record-breaking Q4 results demonstrate we are doing just that.

With that, we conclude our remarks and open the floor for questions. Thank you.

Question-and-Answer Session

Operator

[Operator Instructions] Your first question is from the line of Martin Landry with Stifel.

Dave Friesema

Good morning, Martin.

Martin Landry

Hi, good morning, guys and congratulations on your strong results.

Dave Friesema

Thank you.

Martin Landry

I am trying to understand the driver behind your strong Q4 and I know there was some pent up demand from the spring when the stores were closed. And I also know home renovation has been a hot sector. So I understand these drivers, but I am wondering, did you run a specific promotion this quarter that would have gotten a lot of traction with shoppers?

Dave Friesema

Well, we ran many specific programs. And I think that we did gain traction with consumers, because of our promotions, because of our dream line, because of all the different innovations we have done. And I believe that again as I have said in the past, market share is kind of a lagging indicator that we will find out more later, but I believe that yes, to your point, I think there was some pent-up demand in the market. I also think that people were spending more on their house, but we are convinced based upon conversations with our suppliers and so on that we took share as well.

Craig De Pratto

You would also find in the numbers Martin for the quarter, we took a calculated risk by increasing our ad spend. Our belief was that the consumer was out there and ready to buy and the investment on that ad spend seemed to have paid off very well for us.

Martin Landry

Okay, thank you. That’s helpful. And looking at Q1, you disclosed that helpful table in your MD&A, which showcases the store close and the opening dates. And I know that Toronto, Peel stores are still closed, but as of today, if I do my math and I would like you to just double check my numbers here, but I am getting your stores would be closed for an effective 30 days so far in the quarter. Does that make sense?

Craig De Pratto

We will do – we will run all that math firmly once the stores reopen, but that is close. Stewart might have a little bit more on that. Go ahead, Stewart if you have a comment?

Stewart Schaefer

So, 65% of our – you are talking about Q1 right, Martin?

Martin Landry

Yes.

Stewart Schaefer

Yes. So, 65% of our stores, over 282 stores were closed up until February 8 when the Province of Quebec reopened on February 16, Ontario reopened minus the GTA area, which I think is 38 or 39 stores guys.

Dave Friesema

We are currently right now, 13% of our stores are closed, yes. And it went, yes, so 30% that would be about right. So, up until February, 65%, as of February 8, Quebec opened which is 62 stores, as of February 16, Ontario opened minus 38, 39 stores.

Martin Landry

Okay. If we could have like an actual number similar to what you have shared for Q4 and that would be helpful assuming as of today that would be helpful, but – and then can we can we assume that online penetration in Q1 has been similar to Q4?

Dave Friesema

Yes, our online business – our online business continues to be very strong on all channels, yes. And to your point, Martin, we will share that information. We just – we wanted to wait until we had all of our stores open, because we are not even 100% sure when our stores are going to open, but we can get that info and follow-up.

Martin Landry

Perfect. Okay, thank you very much.

Dave Friesema

Thank you, Mark.

Operator

The next question is from the line of Vishal Shreedhar with National Bank.

Dave Friesema

Good morning, Vishal.

Vishal Shreedhar

Good morning. Thanks for taking my questions. I will start off with this question, it might be a bit tricky to answer, but it’s on the mind of investors and just wondering how management assesses just given the strong revenue number, how much sales were pushed forward, how much was market share gains. If there is a change in the view of the customer, maybe they are buying mattresses every 5 years instead of every 8 to 12. I look at those variables. Is there anyway you can help me understand what’s going on with the market right now?

Dave Friesema

So, let’s kind of break this and I will try and answer it in different buckets for you. So first and foremost, just I will start with market share. As I said, the market share gains will become more and more clear as we get further down the road, because again, it’s a backward-looking calculation, but we have no reason to believe that we weren’t taking – we weren’t taking share in Q4. Secondarily, when it comes to pushing forward or pent-up demand or pulling back, the market in Canada did have a big hole in it when you looked at the middle of the year with the first lockdown and a lot of it was refilling that. Thirdly, the people are spending more on their houses in general and that probably does benefit us. And I think in that category, we have talked in the past about as a specialty retailer with a very strong e-commerce platform, we are really well positioned to capitalize on that more than others. And so it’s very difficult for us at this point in time to say that there has been a fundamental shift in how often people are buying mattresses. But what I can tell you is that we feel that we are capitalizing on it as much as we can. And as we continue to move forward, we will get a feel of – we will get a better feel as to whether this is a shift for good or a shift for the time being. And we will continue to talk about health and well-being, because people are starting to also understand more and more that a good night’s sleep helps with their overall health and they are investing in that. And so that’s a big positive that we will continue to talk about as well.

Vishal Shreedhar

Thank you for that. Moving on to another topic, Sleep Country and you have provided some color in your disclosure material, but Sleep Country is indicated to open a minimum of 6 stores this year, is that solely due to COVID uncertainty or is that also because of the rapid growth in e-com and that the change in focus on your network?

Dave Friesema

So, more so two delays that we experienced with the closures what is clear to us probably than ever before is that for our business when it comes to this tactile item of a mattress, our customers journey at one point involves a visit to our stores or a conversation, even with our new chat lines our sleep experts, the convenience 100% and we have seen that more than ever during this pandemic drive a better experience for the customer and we may go to our stores, drives a higher conversion and a better return on our ad spend. And no matter where our customer decides to conclude that transaction, whether it’s online on their phone or actually in the store that store has definitely become even more important in our thinking. The openings of our new stores, because we did open some stores, some were delayed, where Windsor was a new brand new market for us the most powerful opening that we have had in years, lot of lineups in front of the store. So, our plans have not changed at all in terms of trying to open up 8 to 12 strategically well located spots. And I would say that the pandemic has been good for some and not so good for other retailers and the opportunities that are presenting itself over the coming years, because we do get a little bit of a view of the pipeline in terms of premier locations is looking very interesting for us.

Craig De Pratto

And Vishal, there is a data point that really was pointing to me, so I will just share it. If you go back to Q3, 100% of our stores were open and doing very well as you remember, we had a good Q3. And our e-commerce business was very strong as well. So, everything was kind of working and we were still in the middle of the pandemic without a vaccine and we were really excited that 18% of our business was done online. But that also means that in the middle of the pandemic with no vaccine, 82% of the people were still going to the store to buy. And so that was something that really was is not surprising to us, but it was a data point that was kind of poignant.

Vishal Shreedhar

Okay, thank you for providing that color. And maybe just on your thoughts on real estate and on the topic of finding better locations or potentially finding better locations in the future. Are mall stores still a priority in the thinking of management in terms of the network and focusing more on growing that aspect?

Dave Friesema

It has – nothing has changed in terms of our thinking if that’s the question. Keep in mind that of our network of 282 stores, only 11 of our stores are in the malls, we will continue to look at the AAA malls, but the convenience and the shift of a lot of people outside of the cities has definitely given some opportunities on main-on-main, which has still been traditionally our strongest areas for retail, but malls are still on the planning.

Vishal Shreedhar

Thank you.

Dave Friesema

Thank you.

Operator

Your next question is from the line of Stephen McLeod with BMO.

Dave Friesema

Good morning, Stephen.

Stephen McLeod

Thank you. Good morning, guys.

Dave Friesema

Good morning.

Stephen McLeod

Congratulations on a really strong finish to the year.

Dave Friesema

Thank you.

Stephen McLeod

I just had a couple of questions. The store color that you just gave was very helpful. Can I just ask a little bit about how you saw sales evolve through the quarter and if you are able to give any color on how you have seen them evolve thus far into Q1 given the fact that there have been some store closures?

Dave Friesema

It’s a lot of the things, the patterns that we see are continuing. So, once our stores reopened after the original lockdown, they started making up ground very quickly. And that will – and that’s what we continue to see. The other side of that aspect is the stores that never closed. And I will say that the stores that remained open, we don’t really talk about in-quarter things, but I can tell you they were very strong right up to the end of last year.

Stephen McLeod

So, the stores that were closed were very strong right through the end of the year.

Dave Friesema

No, no, I am sorry, I may not have been clear, let’s break this into categories. The stores that never closed, at the end of the year, they remained strong up to the last day of the year, like if there was no drop-off. The stores that did close – we take a lot of comfort in the fact that throughout 2020 we saw that when closed doors reopened, it was really more of a deferred purchase rather than a loss purchase and they started making up ground and we had no reason to believe that, that won’t continue.

Stephen McLeod

Right. Okay, okay. That’s helpful. And I know that – I know that you are an omni-channel retailer and you have done it – you have taken very significant strides in building out the e-commerce side of things, but have you noticed any differences in profitability between an e-commerce sell versus an in-store sell or are the channels so intertwined that you can’t disaggregate that?

Stewart Schaefer

We can. And clearly, it’s evolving. The ad spend, that we drive through our e-commerce site is more aggressive than we have done in our traditional business, as we take more and more market share online. That being said, the offset is there is no rent, the sales commission is not there and on the fulfillment side, is pretty equal. Because for us on delivery, whether we’re delivering through FedEx, or a White Glove delivery service, we could do the same thing across the country, almost at the same cost. So it’s the offset of the increase on the ad spend is the offset of the Commission and the rent. So it’s been quite profitable.

Craig De Pratto

So just add one this to that is, the preference in terms of average ticket and driving that would always, tend to be in the in store at the assisted sale but versus a straight e-commerce sale. But we are we have been evolving that on the online through their sleep chat system, which we do see a good uptick in average ticket, but there is puts and takes, as do Stew indicated, but obviously, we do see some differences in average ticket between the three channels.

Dave Friesema

And by the way to add to that, Craig, the nice thing about it is we’ve been really looking to and we’ve talked about this over the last couple years, we’ve been looking to get stronger in the below $1,000 category, and our online presence as well as our in stores. We’ve really seen an uptick in that. And the nice thing that really again, the only thing we worry about – worry is about an uptick in below $1,000 is if we saw degradation above $1,000. But we’re not so these are incremental customers, which is very beneficial to us rather than trading down.

Stephen McLeod

Right. Okay, that’s really helpful. And then maybe just finally, David, you referenced the underlying market or you reference the fact that you think you’ve taken market share in Q4, and you’ve seen it from your suppliers. Can you give a little bit of color on what the underlying market, how it performed in Q4?

Dave Friesema

Well, our expectation is that it performed well, like we don’t know how well yet, and we’ll get more information on that. But like, we don’t feel that the market went down. Well, we went up 34%. But the way we were we grew in an outsized way. But again, as I say, it’s too early to tell that at this point.

Stephen McLeod

Right.

Stewart Schaefer

And Stephen, a good comparison is possibly another retailer that you’re covering without mentioning any names.

Stephen McLeod

Right. Okay. That’s all. Okay. Well, thanks, Dave. Okay, great. Well, thanks. Thank you so much, guys.

Stewart Schaefer

Thank you.

Dave Friesema

Thank you. Pasha, are there any other callers?

Operator

Yes. Your next question is from a lot of Meaghen Annett with TD Securities.

Dave Friesema

Thank you. Hi, Meaghen.

Meaghen Annett

Hi, good morning.

Dave Friesema

Good morning,

Meaghen Annett

Just looking at the high level outlook that was provided for 2021, some of their strategic initiatives highlighted there, just wondering if you can expand on a few of those. So first off on the digital side, how are you looking at expanding in digital marketplaces? And then secondly, can you just talk a bit about your approach to expanding the sleep product offering and also your approach to in house innovation, what that means?

Dave Friesema

And so, we haven’t announced any other partnerships, as it relates to marketplace. So unfortunately, I can’t say anything to that now. But I will tell you that is in the plans. And so the opportunity for us to be able to expand our brand, with our partners with different marketplaces, to grow our reach to grow our customer segmentation to be able to fulfill on the logistic side of it, probably better than anyone could in the space is definitely part of the plan in 2021. We’re going to continue to reinvest in our own websites, the Sleeve Country and the Dormez-vous websites, as well as our websites with Purple, and Simba and Blank will. So that will continue as we build up our teams and which is we’ve been doing over the last 6 months successfully. So there is a still a strong push in an initiative, as well as we are rolling out our next phase of our POS system, which will also include our enhanced to e-commerce platform, which launched originally November 2019, the second part of that is coming now. Does that answer your question?

Meaghen Annett

That’s perfect. Thank you.

Dave Friesema

Thank you.

Meaghen Annett

And then secondly, on capital allocation, can you see the potential to be active with NCIB and also thinking about M&A, wondering if you can discuss how you’re looking at potential transactions, but what verticals, you’re looking at geography size. If you were to further explore something within the e-commerce space, what would that look like from an acquisition standpoint?

Craig De Pratto

I will address this into two ways. I will cover off some of the capital allocation items, and then I’ll pass it over to Stew and Dave on some of the M&A pieces. Right now we’re strong cash and liquidity position. So, we have, put back in place the NCIB, and we have reinstated the dividend. So we will continue to invest in capital – strategic capital investments internally, we put the NCIB in place to be able to act on that if we see an opportunity and, and on the dividend side, we’ll be doing our annual review of that coming up and working with the Board to see how that will evolve throughout the year but, and then inside of that it really drops into opportunities with M&A. So I’ll pass it over to Stew to so address a few things on that.

Stewart Schaefer

M&A is always a consideration for us that shared with ideas with our board. At the end of the day, as you look at our landscape of our business over the last 5 years, and the expansion that we’ve had in terms of the accessory side, which has been become a very important part of our business that does open up the opportunity more so than ever for us as with sleep related products, nothing that we can speak to at the moment but we’re looking for innovative brands and talented people because people drive our business and if anything comes up that is interest that falls within our sleep universe that we’re trying to create would be a consideration.

Meaghen Annett

That’s great. Thank you very much.

Stewart Schaefer

Thank you.

Operator

The next question is from the line of Patricia Baker with Scotiabank.

Dave Friesema

Good morning, Patricia.

Patricia Baker

Good morning, everyone.

Stewart Schaefer

Good morning.

Patricia Baker

I just want to follow-up on a couple of things. I just – I don’t – not necessarily Stewart that I want to put words in your mouth, I want to make sure that I’m interpreting something that you said earlier correctly. And that was with respect to operate the notion of the network and the importance of stores. So, if we think about the Sleep Country, having operated through these very anomalous times with the pandemic, would it be fair to say that you’ve learned or you’ve learned a lot and in fact, operating through these times kind of reinforced your belief that the physical store is critical to your inventory overall strategy, despite being an omni-channel retailer. In other words, you may have had that belief going in, but it’s now more and more reinforced from some of the things that you’ve seen operating through the pandemic.

Stewart Schaefer

110% Patricia more than ever, I mean, today’s point earlier, and I’m not going to say shockingly, but we were pleasantly surprised when the stores did reopen after the first closed down in the midst of the fear that very quickly, our customers came in droves back to our stores, they had the option to shop online or online business exploded during the shutdown when there was no other option. But as soon as those doors open, they came back and it’s – it continued it, it didn’t let up. And we can watch the journeys. It’s unbelievable, as we get better in the space, because we are still new within this space. And watch that journey of the customer and when that journey begins, and when that journey concludes. But we could tell through our own fencing of what happens, and how often and how important. That’s that is the stories, I will also say there’s a difference of two worlds. And Craig alluded to it, the below $500 price point, which is an area that we want to capture all areas we want to capture definitely exploded for us on the online where the expectations of the debt that you’re getting, may be a little bit lower or may not require the same type of visit. And that is an area that we’ve been strong in but not as strong as potentially that we would like to be. Above $500, $600 and I would say Endy does an absolutely fabulous job and the premier player in that space for their $850 Endy super bad, but as you get above $1,000 that journey with this tactile item is more important than ever, and the relationships that we’ve created with Simba and Purple to fabulous D to C retailers that teamed up with us because they understand that that path to profitability relies on the customer coming into the store and testing the bed. At the end of the day, we are channel agnostic, we don’t care if it transact in the store. We don’t care if it transact on your phone, as long as it transacts within our ecosystem and more than ever, yes, it’s that that stores become an important part of our belief going forward.

Patricia Baker

Thanks for that. That’s very helpful. Okay.

Dave Friesema

I just want to add one small thing like Stew said, we’re channel agnostic, which we are we totally agree with it. But we actually we actually looked at it more like it’s, it’s not one plus one equaling two, it’s one plus one equals – I am sorry, it’s one plus one plus one because we have our dream line chat, one plus one plus one doesn’t equal three it’s equaling to something higher than that.

Patricia Baker

Understood. And so just want to go back to the strategic outlook for the year and you did notice and Meaghen alluded to it that you are looking at in health innovation, that’s not something you’ve talked about a lot in the past. I mean, the fleet chat would be one example. But can you talk about to your approach to in house innovation and perhaps give us some examples of things that you’ve done already? Because it seems to me that is going to become even more prominent as we go forward?

Dave Friesema

Yes, I can start and then Stew will probably have others. But just I mean, when you think about innovation, we’re in kind of a sleepy business that we’ve kind of been innovating all along. And the introduction of a very successful lifestyle based program over the last few years has been innovation, adding new products has been innovation, our new store appearances have been innovation, putting out our new ERP was innovation, which is going to continue to expand. You mentioned the dream line, which was a big move forward on that side. So that’s just to name a few. But Stewart, I don’t know if you had any others just to add to that.

Stewart Schaefer

Yes, sure. And so definitely products has been an evolving over the years in terms of, if you look at some of the categories, their businesses within themselves, or pillows or sheets, or mattress covers or lifestyle, or headboard business has exploded. Over the last 6, 7 months as we expand to that e-commerce, for sure. It’s still new to us. We launched our first fully transactional website, November 2019. It’s barely a year old and the team, there is young and new and growing and with unbelievable, exciting creative ideas on the marketing. The world of digital is still very new to us and powerful. The world of influencers, which has been led by our teams is very powerful, and a new way to engage with the consumer than we’ve ever engaged before. And you’re going to see more of that as we develop certain things that we’ll be talking about over the next few months. And the partnerships, that is a huge part of it and we look at it very carefully on both sides that it has to be good for us as well as for our partners. But more important if it’s customer centric, does it fit within our ecosystem? Is it going to enhance the overall sleep experience? Will it keep us top of mind for multiple reasons? So many times when we launched originally the accessory business years ago, as the main reason we did that is that we wanted Sleep Country, to be top of mind, not once every 8 to 10 years, when you change your mattress, but hopefully every year as you were changing other products, and that’s the way the team is thinking so that you’ll see a lot more of that unfolding over the next 6 months.

Patricia Baker

Okay, thank you. And I didn’t mean to imply that you haven’t been an innovative as a company because you absolutely have. But it’s just the wording in the press release just made it seem to me that you were talking specifically about in house innovation around the product assortment. So I was just interested in, new product development, as opposed to all the other broader strategic innovations that you’ve got through.

Stewart Schaefer

Patricia, I am going to give one call out that the benefit of COVID in the Zoom world that we all seem to live in, where the teams are getting together every single day from 7 am to 8 pm, on Zoom calls, and in many ways, these conversations in these meetings with this leadership team and throughout the organization, which they’ve been incredible. 7 days a week, it’s become a little bit more of an intimate conversation in the allow the opportunity just to brainstorm a lot of talented people coming together about this business that they’re passionate about, and brainstorming in ways that we never seem to have the time to do before. So there is some good that comes out of this, this crazy time that we’re living through.

Patricia Baker

Okay, that makes a lot of sense. Thanks a lot.

Dave Friesema

And Patricia, just I didn’t take it that way at all. I just I am always someone who gets a little history lesson as well, so…

Patricia Baker

Understood.

Operator

Your next question is from the line of Sabahat Khan with RBC Capital Markets.

Dave Friesema

Good morning, Sabahat.

Sabahat Khan

Hi, good morning and thanks. I just want to get a little bit more color on the Walmart partnership, just given the growth in e-commerce is wanted to understand how the sales through that partnership or the earnings kind of flow into our income statement as some sort of a royalty model and sort of how has that grown over the last year and within your e-commerce overall partner?

Dave Friesema

So, the Walmart transaction is straight revenue into our business. There is a small and I am not going to go into the details of the deal, but there is a percentage that goes to Walmart and it’s all in the e-commerce numbers. I will say that the strongest benefit of partnering up with the largest retailer whose key focus and raise on [indiscernible] is to grow their e-commerce business has been a wonderful learning experience is broadened our customer segmentation, which has been a very important part of this partnership to be able to expand our reach our brand, to more Canadians and more different and more different places. And it continues to unfold and the team met Sleep Country, which is led by Phil Bednar and Jory Solomon who are doing an exceptional job within our team continue month by month enhancing that relationship. So we’re excited about this relationship. And we’re hoping that it’s going to expand in new ways that we have even imagined.

Sabahat Khan

Okay, thanks. So then I guess given your – the time spent with that platform, are you potentially considering other third party marketplaces or how have you found this business model overall, now that you have Endy and you’ve got your own e-commerce platform up and running, is that an area you may expand further?

Dave Friesema

Yes, yes, definitely. If the opportunity presents itself with a premier partner, because we want to make sure that we do it with the right partners, Walmart was an honor to team up with. And so the partners that we choose are very important, but yes, for us, it’s about expanding our reach both on with brands, with distribution, to be able to expand ourselves in as many touch points as we possibly can to make the convenience of shopping for a mattress in Canada and Sleep Country in Dormez-vous and Endy easy at the fingertips or at the footsteps of our customers.

Sabahat Khan

That’s helpful. And then just some discussion earlier on just kind of margins across Canada land, I just want to get an understanding of I guess, during the quarter over the drivers looks like the margins are slightly below last year. And I understand there’s investment going on behind the e-commerce channel. But should we expect kind of the margins through brick and mortar online to converge over time and where are you in that journey or is it with things Endy? The SG&A side might always be a little bit high given how the driver business?

Craig De Pratto

Yes. So, on the gross profit side, there is a little bit of a efficiencies on year-over-year basis, because we have pivoted and shifted some of our sales online, which is do alluded to earlier, do not attract, commissions and occupancy costs and so forth, which, for our stores are up in that kind of gross profit piece. When you move down to G&A, again, when we look at year-over-year basis, we’re very much level on a – from a percentage of sales basis, there was some additional dollars, spent in Q4. And again, as Stew alluded to, earlier, those dollars were put to good use from an absolute dollar perspective, but we still held and didn’t deliver on the marketing side of the business. In it, as we continue to see the puts and takes, throughout the model, there will be shifts in that marketing spend area on that as e-commerce continues, because there is a different marketing percentage required to run those, those businesses. So you have efficiencies and up top in other areas. So as we look at our margins at EBITDA level, we feel very comfortable that, we shouldn’t see much pressure on that front. And that’s really the function of those puts and takes between these two channels as they continue to evolve, I’d say one item, that’s just an interesting point is Dave discussed earlier that the below $1,000 is it has expanded while we’ve held and expanded – held their own and expanded on the above $1,000. And we will continue to see little bit of pressure, which we saw and mentioned in our or in our records on delivery costs, because, it does cost the same amount, but it’s very, very slight. And so, overall, we don’t think there’s going to be too much pressure to you, but as every path closer.

Sabahat Khan

Thanks for that color. So I guess in terms of the year-over-year EBITDA margin change, it’s more probably attributable to the channel versus maybe product mix. Is that the right way to think about it?

Craig De Pratto

Yes, I would say that that’s, that’s fair. But again, we do not see, like I’m looking year-over-year, on straight EBITDA, slight leverage, and on the full year, and then on operating EBITDA again, slight leverage. So it’s, we’re very, very much in sync on the EBITDA overall, I did. Again, just move it a little bit as puts and takes.

Sabahat Khan

Okay, great.

Stewart Schaefer

I will just add on channel mix product mix. Still on the accessory part of our business, it is a margin expansion for us compared to our mattresses by approximately 10 points. And that should continue. I will also note in the fourth quarter, even though we weren’t so detrimentally affected clearly by the numbers that we had, because we were closed as a Boxing Day, because a big portion of the business gets delivered into the following month, which is January, on the accessory side of our business that week between December 25 and December 31 traditionally and leading up to it also is Christmas, Boxing Day and huge for our accessory business and that walk in cash and carry business during that period of time in that 65% of our stores. Unfortunately, we didn’t get – we get it online, possibly but there was definitely a little bit of a loss of that not having that in the last week.

Sabahat Khan

Okay. So just maybe following up there I guess with the online platforms and these presumably heavily weighted toward mattresses. How would you describe the mix through whether it’s through the Walmart partnership or through your own e-commerce websites a mix of mattresses versus accessories and have you seen that shift over the last year?

Stewart Schaefer

We don’t break it down for competitive reasons as a percentage but interestingly enough, the ship – the split between mattresses and accessories between our Walmart marketplace and our own website is very similar. I will say that Endy is focusing on some of their products and expanding their accessories because whatever they brought in as accessories sells out all the time so they’ve been not doing an exceptionally great job, so look for more of that to happen but that will be decided by Al and that team. And I will say that on the closure, the first closure and the second closure, specifically the first closure, accessories exploded disproportionately as people were beginning to cocoon happened again a little bit during the Christmas holidays, probably as if people were cocooning, or if they were having some visitors. I’m not sure if they were they weren’t like them, but then went back to what it was before, which is still a strong mix.

Sabahat Khan

Alright, great. And then if could just squeeze one last one in I guess, on some of the store closures are you getting some of those rent breaks from the landlords and I guess with Q1 with a larger number of stores closed, how are their landlords, I guess cooperating with regards to brakes on the stores, particularly in the malls with their rent, maybe a little bit elevated?

Dave Friesema

So I think the landlord during this entire time and all our partners and also a big call out for our media partners have been as good as a potential as they possibly can be difficult times because as difficult as it was for us. Because we are meant to be open and our stores are closed. And that’s a huge overhead, but it is also their revenue. So the landlords were very good with us in deferring rents. And not eliminating the rents. I will say, though, on a go forward basis. One of the analyst asked the question has anything changed in our viewpoint in terms of opening real estate and, as Patricia mentioned, in terms of the importance of the stores more important than ever, that being said, as the business does shift and more rows online, and as – how we look at our rent rolls throughout Canada, and as supply comes on the market, as other stores retailers have emptied out and may continue to empty out. We hope to see some greater efficiencies in our rents, as we negotiate certain deals and certain renewals.

Sabahat Khan

So just a quick one there, I guess so in Q1, where a lot of stores might be closed, and you might be getting some rent deferrals. How would you account for that? Are those costs recognized in period? Do you kind of push them out until the cash flow leaves? How would those show up in your Q1 results?

Dave Friesema

Yes, so on that, you can assume that for anything that happened last year, we’ve worked through the deferrals from both a cash basis and an expense basis. So the results that you see our – with there is no impact throughout the year, we’ve – so that last year. And then in Q1, we are always in conversations when there is areas of the business that are under pressure from closure perspective. But at this point in time, you can assume that, we have there won’t be any Q1 impact from deferrals from the current set of closures and stores that are closed at this time. So you can just expect that there would be no impact in Q1 or how you should view Q1 from a rental perspective.

Sabahat Khan

Great, thanks so much for all that color. Appreciate it.

Operator

The next question is from the line of Matt Bank with CIBC.

Dave Friesema

Good morning, Matt.

Stewart Schaefer

Good morning, Matt.

Matt Bank

Hey, good morning. I’m curious about this source of market share. And specifically, I’m thinking about, independent, specialty sleep competitors. I guess, I bet I’ve been a significant source of share, particularly, online, I would assume that, they don’t have the resources that you do. And also, have you seen any, any, or have you seen a significant of them shutdown?

Dave Friesema

So, as far as, again, market share, it’s very difficult to put your finger on it exactly. It’s a bit of a little more opaque. But we – this is more of an acceleration of what we’ve been seeing for a long time the independent market is probably somewhere between 30% to 40% of the industry and they have been giving share up for quite a while. And I think that continues, especially to your point that they don’t have the resources to have as good of an online presence, and so on and so forth. So that’s been beneficial. The other thing is, as a specialty retailer, we may also be benefiting because people would rather go to a smaller, more intimate store rather than a super center or something like that to do the acquisition of their products. And frankly, fundamentally, I think we’ve really done a good job of tapping into the consumers thinking about health and thinking about [indiscernible] and really making an irrelevant purchase, rather than a grudge purchase. And we’re going to continue to work down that path as we move forward. But it’s really it’s hard to quantify it. So I generally say that it’s probably from many different fronts, on the – by the way, in our online businesses have grown dramatically, as you know. And so and on the other front, it’s rare to see mattress retailers actually close their doors, because it’s easy for them to stay in business to this, they’re not, they’re not as effective, they probably don’t have the resources to be as strong as they were before it, but it’s pretty easy for them to stay in business through this. So we don’t expect to see a lot close, but that doesn’t mean they are not weaker.

Matt Bank

Okay. And then I just have a few quick ones as well. So first, just to follow up on all this marketing compensation, unless I read it wrong, it looked like sales incentive expenses are actually up even though online, which is significantly higher percentage of sales. So if you can just explain that, please?

Stewart Schaefer

Yes, so in our compensation expense line, it went, it was down just slightly, because that shift started just looking through the thing there. There was actually sorry, in terms of the normal operating business, we did have efficiencies from the shift in e-commerce, there was certain costs for severance that were lumped in that were one time obviously, that we did not shave out and those were cost just for associates that could dot returned to stores safely, just due to capacity restraints at the stores. And it was an item that we didn’t point out as normalization just because there was a lot of puts and takes throughout the year with a pandemic, but that would, when you normalize for that, we would have seen a reduction in overall compensation expense.

Matt Bank

Okay, thanks. And then working capital was a significant positive this year, it looks like it was mostly from payables. Is that something that you would expect to swing back the other direction in 2021, or it’s or sustainable?

Stewart Schaefer

So I mean, we are doing some things on the payables side, but it also to the function, some – somewhat of the significant lift and volume of our business through Q4. So with the big increase, there’s obviously a larger pickup there, in addition to that part from a working capital perspective, is customer deposits, which – with sales levels at that level, that money is that we did that by our collections for goods that would be delivered, subsequent to year end. But I think that you can expect that we will continue to look to drive more effective working capital, and look to opportunities within payables and working with our vendors, in creative ways to continue to optimize working capital over time, but early innings on what we are doing on that front, but yes, that’s just in color there.

Matt Bank

Thank you.

Dave Friesema

Thanks a lot, Matt.

Operator

Your final question is from a lot of Gary Chapman with Guardian Capital.

Gary Chapman

Yes. Hi, good morning. I just wanted to get a sense of online sales. So if my memory is correct Endy doesn’t have mattresses within the stores? Can you give a sense of what the growth of online sales for Endy were relative to online sales for the mattress products that do have the store presentations? And I recognized that the online sales on the omni-channel side of things are hard to tell whether it was pure e-commerce or otherwise, but can you just give a sense of what the difference in growth rates might be between Endy and the rest of the e-commerce sales?

Dave Friesema

I know, we don’t break that out for competitive reasons. But in an overall way, I can tell you that, as we said in our conversation, as we said in our opening, just a couple of years ago, a very small percentage of our revenue was driven by online, whereas you fast forward to Q4, 20.1% of our total revenue came from online, which again to the other side of that still means that at this point in time, almost 80% of it came through the stores, but that 20.1% is a very large growth and you can assume that both Sleep Country, Endy and Dormez-vous contributed to that.

Gary Chapman

Okay, thank you. That’s it for me.

Dave Friesema

Alright. Thank you.

Operator

At this time, there are no further questions. I would like to turn the call back over for closing remarks.

Dave Friesema

Alright. We just wanted to thank everybody for with the great questions and supporting us over the years. We look forward to getting together with our Q1 results. Have a great day everybody and stay safe.

Operator

Thank you, ladies and gentlemen for participating in today’s call. You may now disconnect your lines.