Q3 2021 Weber Inc Earnings Call
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Hello, and welcome to the Web Bot, Inc. Third quarter 2021 earnings conference call. My name is Charlie and I will be coordinating your call. Today. If you would like to ask a question. During your presentation. You may registered to do so by pressing star followed by one on your telephone keypad I will now hand, you over to your highest Brian and go out to bid.
Again, Brian. Please go ahead, good morning, and thank you for joining us today for our third quarter 2021 earnings call I'm joined this morning by Chris Sure singer, our Chief Executive Officer, and Bill Horton, Our Chief Financial Officer.
I'll start with our forward looking statements disclaimer as you are aware certain statements made today such as projections.
Four levers future performance are forward looking statements actual results could be materially different from those projected for further information concerning factors that could cause results to differ please refer to our public 10-Q, SEC filings our earnings release, and our SEC filings all of which are available on the company's website.
This is of particular note during the current COVID-19 pandemic when the length and the severity of the crisis and economic and business impacts are so difficult to predict.
A recording of today's webcast and supporting documents will be archived for at least 90 days on whether its investor relations website.
During the call today. The company May also discuss certain non-GAAP financial measures for a reconciliation of these measures to GAAP reporting please refer to the company's earnings announcements, which has been posted on the company's website at investors at Weber Dot com and can be found on the company's SEC filings and now I'd like to turn.
The call over to Chris.
Hello, everyone I'm excited to be with you. This morning, and I want to welcome you to whether its first earnings call as a public company.
Bill and I comment on the outstanding results for our fiscal third quarter I'd like to start by thanking our <unk> team members all around the world for their hard work this quarter and this year and their commitment to making the very best drills and accessories and delivering the very best customer service to our Weber fans around the world we wouldn't be here today, having this conversation as a public company were it not for your efforts.
I'd also like to thank our founding family the Stevens and BBT capital partners for their support over so many years and during our IPO process. The IPO certainly represent the capstone moment and a remarkable 70 year company history, but it's even more so a launching pad for future opportunities.
Today, we're extremely proud to report a record fiscal third quarter, our first quarter as a public company. Our fiscal year ended September 30th. So this quarter's results represent our third fiscal quarter ended June 30th.
Bill will go through the entire quarter in more detail, but in summary, our third quarter sales were up 19% versus the same period last year, reaching a record $659 million. This marks the fifth straight quarter of record fails and compared to the third quarter in 2019, our net sales in the quarter. This year were up 51% on a fiscal year to date base.
Net sales were up $475 million or 41% to $7.0 billion.
For the quarter every region experienced strong growth rates with EMEA, leading the charge up 35% Asia Pacific up 25% in the Americas up 8% countries are experiencing the most significant growth in the quarter were Canada. The U K, the nordics and several emerging markets around the world.
For reported earnings net income was $18 million or two 7% of net sales and adjusted EBITDA was $134 million or 21% of net sales despite distribution inbound freight and commodity cost inflation headwinds, our quarterly gross margin improvement and strong EBITDA performance.
Repeatable to a multi continent manufacturing footprint, particularly with our U S plant here in Chicago, as well as proactive pricing and mix management early in 2021, when we foresaw the ryzen challenges.
These are unique strength for Weber and delivered reliable earnings for our shareholders, while also allowing us to fund investment and future growth initiatives like new product development.
Allergy platforms digital marketing and geographic expansion.
For those of you who are new to wherever in the outdoor cooking category I want to spend a few minutes introducing you to the iconic Weber brand and our truly unique global business model. That's driving this outstanding performance. Unlike other outdoor cooking companies. We are a true global business selling in 78 countries around the world driving approximately half of our revenue outside the U S. Weber.
As the clear market share leader in key grilling markets globally with a wide margin over the number two player and notably the number two player is different in each market reinforcing the Weber is the only truly global outdoor cooking brand.
And it's not just global presence its global fandom, we have an installed base of over 50 million households across those 78 countries. We went on brand awareness net promoter score customer satisfaction and loyalty in fact, 96% of Webber owners globally recommend Weber grills to friends and family to turn people on average.
Owners Grill about 80 times, a year, which is around.
Around 15% to 30% more than other brand owners, we have over 3 million social followers about two times the closest competitive brand and that lead is growing our category leadership and our strong momentum position us to capture an even greater leadership share of the estimated 49 billion dollar global outdoor cooking Pam per Frost <unk> Sullivan.
In addition, wherever it's the only brand that plays in all of the product segment within the outdoor cooking category gas charcoal smokers electric wood pellet portables and accessories.
At price points, ranging from $50 for a smoky Joe to $4000 for a stomach gas drilling center. There is a weber grill for everyone No matter, where you live where or what you want to grill or what fuel preference you may have.
Having access to all consumers globally and across all product segments gives us an opportunity to innovate broadly Weber has a company of inventors, we invented modern charcoal grilling and $71.0, and GAAP and 1985, and our inventions and electric pellet and smart grilling in recent years have driven category and market share growth forever and all the key markets around the world.
Today Webber holds over 1000 patents and pending patents globally. So invention is not only a key strategic growth platform for Webber. It's also built into our DNA.
We partnered with <unk> life, a couple of years ago to invent Weber connect our smart grilling technology platform that one the consumer Electronics show award for best connected home product last year and when we acquired 100% of June earlier. This year, we added more inventors to our family. The June oven just wanted the best Smart Oven Award from Americas Test kitchen, we bring that attitude of.
Invention to the largest community of owners and fans worldwide and it's been a successful driver of revenue and market share growth for us in 2021 as you see in our third quarter results.
Before bill drives more deeply into the Q3 numbers I want to provide an update on progress against our five key strategic growth priorities.
First to introduce disruptive new products second to accelerate our direct to consumer and E Commerce business third to expand customers and consumer revenue streams fourth to expand in emerging geographies and fifth and finally to execute value, creating operational initiatives in the quarters and years to come I'll continue to frame our operating results against the.
Five strategic growth priorities.
First up is disruptive new product innovation. This year, we launched the Genesis Es and Spirit X smart gastro lines as well as the Weber traveler portable grill for camping and tailgating, both launches have been extremely well received averaging four eight stars out of five and consumer ratings. We also upgraded the smoked by our wood pellet grill with a new second generation.
Launch and we've launched several enhancements to our Weber connect smart grilling platform, which is available both on the Standalone Weber connect smart hub device that can turn any really do with smart grill and also embedded into the smoke fire and ex gas growth. The X Smart grids recently won several key awards best overall growth for 2021 awarded by good housekeeping.
The food network's best New Grill for 2021, best gas Grill for 2021 by Rolling Stone and best Smart grilled by NBC news and the travelers just one best portable grill on wheels from Wired magazine and best travel drill from the manual we're very excited about the marketplace response to our 2021 innovations.
Our second key growth strategy is to accelerate direct to consumer and E. Commerce sales growth, which includes Weber dot com as well as our global network of Webber stores and Grill academies.
<unk> Dot com growth has been strong in 2021 with year to date sales up 54% versus the same period last year increased media investment across connected TV, social media Influencer programming and online video and search contributed to revenue gains in general and Weber Dot com specifically.
Our third strategic priority, expanding our retail customer base and new consumer revenue streams also continue to drive strong results from 2018 to 2020, we added over $200 million in revenue at retail customers, who are completely new to Webber and we continued to see that incremental growth in 2021 from the like the tosco globally Bestbuy Rei.
Canadian tire soda Mac and other new partners internationally operating consumers more access points to the Weber experience with.
We've also continued to invest in our core retail partners and we continue to outpace market growth in their stores as well.
Our four key growth strategy is expanding and deepening our presence in emerging geographies, a short list of markets with high Tan, but relatively underdeveloped retail categories. A key market development lever here are our Weber stores and grill academies of which we now have 179 globally, we've seen disproportionate growth in these outlets in 2021 as you'll hear.
Bill shortly and we continue to expand.
Fifth and finally, as our strategy around value, creating operational initiatives, we're making significant progress against our make where we sell strategy and delivering on margin improvement initiatives, even as our teams managed through what continues to be a very challenging commodity and global logistics environment. During Q3, we set a new output record in our U S manufacturing facility, which.
20% more output versus the same period last year setting a productivity record. In addition, we've made great progress on construction of our new manufacturing facility in Europe, where we are on track to our fall production startup. This do Breen certified facility will provide us a cost reduction and speed our responsiveness to customer demands in our important EMEA market.
So overall, we're very happy with the progress being made and our ability to convert our strategic priorities and the strong results. Both in sales growth and margin performance finally, before I hand, it over to Bill I'd like to recognize our recently appointed Nonexecutive chair of the board Kellie Renco. She has been fantastic and a valuable board member lever for many years and she now steps.
Into our chair role and I would like to welcome two new board members and Melinda Rich from Rich foods and surrounds suraj and from Procter <unk> Gamble. It's great to have you on the Weber team with that I'll now pass it over to Bill Horton, our CFO to review the third quarter financial results over to you Bill.
Thanks, Chris and good morning, everyone before I get into the details I wanted to summarize some guidelines will follow as we share our financial results every quarter.
We will report our results by operating segment, which lines up for us as our three primary regions. The Americas, which includes the U S, Canada and Latin America.
EMEA, which includes all of Europe, the Middle East and Africa, and APAC, which consists of Australia, New Zealand and the balance of the countries we operate in throughout Asia.
As a reminder, we will present, our financial results on both a GAAP and a non-GAAP basis, along with reporting our GAAP financials every quarter. We'll also disclosed several non-GAAP reporting metrics that we believe provide a better representation of the underlying operating results of the consolidated Weber business.
And our operating segments.
As we call out in our earnings release and in our public filings, our non-GAAP results exclude noncash stock based compensation and other nonrecurring costs, we detail out.
Such as business transformation costs operational transformation costs, and COVID-19 costs that were especially impactful in 2020.
For the consolidated Weber business. The primary GAAP metrics will speak to will be net sales gross margin income from operations net income and operating cash flow.
And our non-GAAP reporting metrics will be adjusted income from operations adjusted net income EBITDA and adjusted EBITDA.
For each of these non-GAAP measures, we will provide a walk from GAAP to non-GAAP reporting in our public filings.
At an operating segment level will report net sales and adjusted income from operations at times. We will also discuss some other metrics that provide our stakeholders with status updates against our five key strategic growth priorities.
Finally, with every quarterly earnings call, we intend to provide updated fiscal year guidance for net sales and adjusted EBITDA today, we will be the first time, we will be providing guidance as a public company for our 2021 fiscal year and we will then follow up in November with our first outlook for fiscal 2022.
Now I'd like to share our financial results from our third quarter call.
By our year to date financials.
For the third quarter net sales increased 19% to $669 million from $561 million in the prior year quarter and up 51% versus the third quarter of 2019, shutting a fifth straight year over year quarterly sales record.
Third quarter sales growth was driven by strong consumer demand, particularly in Europe and APAC.
Core growth, which represents business growth, excluding the impact of foreign exchange accounted for $69 million or plus 12% year over year.
The impact of favorable exchange rates, primarily the euro Canadian dollar and Aussie dollar contributed $39 million or 7% lift in the quarter.
Net sales growth in the third quarter was broad base across all of our operating segments with the Americas up 8% EMEA up 35% and APAC up 25%.
Turning to the Americas, net sales increased 8% to $349 million from $315 million in the prior year quarter.
Sales growth began to normalize in Q3, following an exceptionally strong first half of 2021, where the business was up 65% year on year.
This strong performance in the first half.
<unk> ended the third quarter was driven by strong supply chain execution to proactively meet customer and consumer demand in advance of the season, resulting in fiscal year to date third quarter sales growth.
37% versus 2020.
Bottom line, we put ourselves in a position to win early in advance of enduring the third quarter <unk> and this has worked well for us.
Of note Canada's results were exceptionally strong up 90%.
Our focus on new customer acquisition, such as Canadian tire continued to deliver positive results overall.
Overall core growth represented $18 million or 6% growth and favorable foreign exchange rates, primarily the Canadian dollar represented $6 million or 2% of the increase.
In Europe, net sales increased 35% to $307 million from $228 million in the prior year quarter.
Every country in the region showed solid growth. However, our strongest results came from the UK and the Nordic countries that include Denmark, Norway, Sweden, and Finland, which all outpaced the overall regional growth rate.
Core growth accounted for $49 million or 22% year over year increase and favorable foreign exchange, primarily the euro provided a $30 million or 13% lift in the quarter.
Finally, our APAC region also completed a strong quarter as net sales increased 25% to $23 million from $18 million in the prior year quarter.
Core sales were up $2 million or 10%.
Foreign exchange, primarily the Australian dollar contributed $3 million or 15% lift.
Australia, and New Zealand continue to benefit from Weber Grill academies, and Weber store sales. This quarter, we added another five Weber stores, bringing our store count in Australia, and New Zealand to 31.
Now I'd like to transition from net sales to our other key financial results for the quarter.
Consolidated gross profit increased 29% to $299 million or <unk> 44, 7% of net sales compared to $232 million or <unk> 41, 3% of net sales in the prior year quarter.
340 basis point year over year gross margin improvement was driven primarily by pricing actions offsetting cost inflation, a favorable mix shift towards EMEA, our highest margin operating segment and reduced COVID-19 costs.
Net income declined 78% to $18 million from $79 million in the prior year quarter to.
The decrease was primarily driven by 62 million of noncash unit based compensation expense, primarily driven by valuation methodology changes as a result of the recent IPO.
Lower net income compared to our expectations related to the timing related to the release of reserves against our net operating losses and research and development credit carryforwards from the acquisition of July.
In January.
We had anticipated a $13 million one time benefit will be realized in Q3, but are confident now that it will be in Q4. So there was no impact to our anticipated full year 2021.
The noncash compensation expense charges and shifting of tax benefits from the June light transactions for Q4 were partially offset by strong gross margin performance during the quarter.
Adjusted net income declined 6% to $85 million from $91 million in the prior year quarter, primarily driven by increased interest expense in the quarter.
Adjusted EBITDA increased 10% to $134 million or 21% of net sales compared to $122 million or 21, 7% of net sales in the prior quarter.
This was primarily driven by sales and margin growth, partially offset by higher year over year, SG&A spending, including increased distribution cost on higher volumes and strategic investments in advertising and marketing and R&D to drive current and future results and is consistent with the growth priorities outlined.
Earlier by Chris.
Operating cash flow for the third quarter was down $44 million to $289 million, primarily driven by a $96 million increase in year over year inventories in the same period last year strong operating income results combined with low levels of inventory during the early stages of the pandemic.
Drove the best operating cash flow quarter in Webber's history.
With strong Pos trends in mid to late Q3 last year inventory levels dropped to extremely low levels, which continued through the first quarter of fiscal 2021, when trade inventory started to normalize.
Now turning to our fiscal year to date results net sales increased 41% to $165.0 billion from $122.0 billion in the prior fiscal year to date period.
Core growth represented $401 million of 35% increase versus last year and foreign exchange accounted for $74 million.
We continue to see progress towards our key strategic growth priorities with direct to consumer sales up 54% versus the same nine months period last year. In addition, emerging geographies were up 59% versus the same period last year, representing 11% of total revenues up from 9%.
Last year.
On a year to date basis net sales growth was consistently strong across all of our operating segments with the Americas up 37%.
EMEA up 42% and APAC up 69%.
For the Americas, net sales increased 37% to $892 million from $650 million in the prior year.
All channels continued to deliver strong year over year sales growth with online sales at <unk> Dot com outpacing the overall region up 72% versus the prior year core.
Core growth represented a $233 million increase or 36% increase year on year, while foreign exchange contributed $9 million of the revenue increase.
Our EMEA region net sales increased by 42% to $618 million from $435 million in the prior year.
Core sales growth was $129 million up 30%.
Foreign exchange represented $54 million of the sales increase.
Strong consumer demand for Weber outdoor cooking products impacted all countries and every country across Europe has delivered strong year over year comps year to date.
For the APAC region, net sales increased by 69% to $123 million from $73 million in the prior year.
Core growth represented $39 million or 54% increase was primarily driven by Australia, and New Zealand, while foreign exchange represented $11 million of the year to date growth.
Turning now to our key financial results and our fiscal year to date basis consolidated gross profit increased 53% to $720 million or <unk> 44, 1% of net sales compared to $470 million or <unk>, 46% of net sales in the prior year.
This 350 basis point year over year expansion of gross margins were driven by pricing actions to offset cost inflation favorable mix towards EMEA rich.
Reduced COVID-19 costs and favorable FX movement.
Net income declined 11% to $92 million from $103 million in the prior year to date period.
The decrease was primarily driven by 94 million of noncash unit based compensation expense, primarily driven by valuation methodology changes as a result of the recent IPO.
Net income compared to our expectations relates to the same June life, Nols and R&D tax credit timing issue I discussed earlier, so again no impact to our anticipated full year 2021.
The noncash compensation expense charges and shifting of tax benefits from the June low transaction to Q4 were partially offset by strong gross margin performance and revenue growth.
Adjusted net income increased 62% to $196 million from $121 million in the prior year to date period.
Driven by strong top line growth and gross margin improvement.
Adjusted EBITDA increased 62% to $321 million or 19, 7% of net sales compared to 199 billion or 17, 2% of net sales in the prior year.
This 250 basis point improvement was primarily driven by topline growth and margin initiatives across the business, partially offset by increased investments to support our five key strategic growth priorities in areas like brand advertising marketing and R&D.
Operating cash flow for the first nine months of fiscal 2021 was down $47 million to $74 million, driven primarily by a $69 million increase in year over year inventories.
I would like to wrap up my prepared remarks by providing guidance for 2021 fiscal year.
Clearly the third quarter of fiscal 2021 was a record quarter for weather by nearly all key financial measures. We drove strong financial results throughout our P&L, our entire organization is making great strides against our key growth initiatives and we're leveraging our world class supply chain and operations organization to <unk>.
Access fully navigate the tight supply chain in this environment of heightened consumer demand.
We anticipate closing out our fiscal 2021 with full year net sales between $97.0 billion and $98.0 billion up 28% to 29% versus the prior year.
Adjusted EBITDA is expected to be between $305 million and $310 million up 35% to 37% versus the fiscal year ended September 32020.
When we report our Q4 and full year fiscal 2021 financials, and what that time provide guidance for our fiscal year 2022.
I will also at that time to provide our EPS outlook, and we will detail our recurring dividend plan.
I will now turn it back to Chris to close out our prepared comments.
Thanks, Bill in closing I'd like to again, thank our Weber team members for delivering outstanding results in the quarter during the challenges of lockdowns across offices and facilities around the world and still supplying and satisfying our customers when many others could not.
And I'd like to thank our new shareholders for joining us today.
I am extremely excited for all of that is in front of Webber and the opportunities that lie ahead of us as a public company, we won't let up on our passion for inventing groundbreaking new products that continue to redefine all the segments of the outdoor cooking category and we look forward to adding to our loyal community of Webber fans in the process now I would like to open up the call for questions.
Thank you I would like to ask a question. Please.
Lead by one on your telephone keypad now if you change your mind followed.
Followed by <unk>.
Our first question comes from Robbie <unk> of <unk>.
Ladies America. Your line is open. Please go ahead.
Good morning, guys can you hear me okay.
Yes, Robin can you hear us yes Ravi.
Yes terrific terrific, just just making sure you never know.
Great quarter.
Listen I think I think the key question I just wanted to ask was could you guys give us an update on freight and commodity cost pressures and Bill you gave us the <unk>.
<unk>, but anything change in sort of the gross margin expectations embedded in that guidance and maybe how to think.
About the quarter, you are now and what Youre seeing in terms of gross margin pressures and then also any thoughts on how that carries over into next year and maybe some how the price increases are playing out to mitigate some of these pressures.
Yes, Robin maybe I'll take a first crack at it and then Chris can certainly jump in if he's got some additional comments, but generally.
These these commodity inflationary trends youre seeing are consistent with what we've shared during during the IPO process and no real surprises, although we're managing through it as we have historically generally our supplier contracts and hedge positions protected us from most of the major commodity movement.
Earlier this fiscal year, we certainly realize the impact in our year to date Q3, actuals, but not to the extent that we're now seeing in the spot markets.
Impacting Q4, and Q1 and definitely not what we're seeing in the inbound freight pricing.
That's out there however, our exposure is higher now consistent with what you've seen from for most companies reporting earnings providing guidance et cetera.
In late Q3, and now into Q4, we're now at market rates, which depending on the commodity.
Generally are up between 20% to 170% in some cases versus last year.
We're covering these inflationary challenges.
Like we have historically these are new to our team we managed through tariffs back in the early days, we managed through inflationary challenges earlier this year and we have plans to cover this impact on a dollar basis, starting in Q1, and certainly fully by Q2 with pricing actions that we are being finalized and deployed across all of our markets.
So I guess I'll wrap up and maybe come back to you with a follow up.
If you have follow ups, but ultimately we're going to continue to focus on what's helped us gain competitive wins throughout the pandemic, we're going to focus on ensuring we have the supply ready for our.
Consumers, where and when they want to purchase we're going to leverage as Chris alluded to.
Our unmatched supply chain with a truly global manufacturing footprint, and we're going to proactively manage pricing in a methodical way to make sure the Weber brand and our Weber pricing holds value for our consumers and I would say directionally that pricing deployment is going well in every market. We will share details of that into our next earnings call as we give.
Guidance for 2022.
That's really helpful and just a quick follow up maybe for Chris it sounded like demand for.
For grills is stronger outside the U S than inside the U S. I don't know if I heard that right, but is that the case and why why would that be.
Well I think Robyn.
I think it is strong in all of our regions and so we've seen positive both from our point of sales standpoint positive trends there as well as.
Sort of an overall retail or wholesale demand.
And I think it's consistent across the markets. There are some timing dynamics and so one of the strange oddities of how Covid has played out and how lockdowns play out regionally and frankly, even how some of the supply chain challenges.
Container logistics challenges relative to ocean freight how those have played out regionally it's different parts of the world in different times and so it's just to give you. An example in our in our fiscal Q2, which is January through March the European market had a really tough go relative to a resurgence in lockdowns and also.
The transportation issue of inbound containers and so they were they did demand there was suppressed a little bit by the COVID-19 dynamic in logistics in Q2 and that balance you saw that bounce back in our Q3 results, where Europe really outpaced.
If you remember the Suez Canal incident that happened back earlier in the year that really impacted European inbound and so.
We saw that bounce back in Q3 in contrast, the Americas, which is a little bit lagging behind in a Q3 standpoint had a tremendous Q2 and so as you look over the course of the year.
It's pretty balanced or our.
Year to date numbers for the Americas up 37% for EMEA up 42% for Asia Pacific up 69%, particularly in Asia Pacific driven by an enormous growth year in Australia for our business, there, which is because its southern hemisphere counter seasonal and there they were kind of lapping.
Depressed year from 2019 due to some brush-fire.
Issues issues in country and so there was a really big surge in Australia. So generally speaking it's been balanced across all across the world minus fees quarter to quarter fluctuations based on macro factors.
That's really helpful. Thank you so much.
Thanks Robyn.
Our next question comes from Kate Mcshane of Goldman Sachs. Your line is open. Please go ahead.
Hi, Good morning, Thank you for taking our question.
Good morning. My question. My question was just around accessories I don't think we heard too much in the prepared comments, Dave, but I know that has a big future growth driver for you. So could you maybe.
Give a little bit more color around your accessories business, how it performed during Q3 and what the outlook is for for the rest of the year.
Sure. Let me let me go first and then you can.
Sorry go ahead great.
No you go ahead, Chris go ahead.
Well I was going to say the accessories business is doing really well.
We challenged our teams to.
To really maximize that part of the business as you know Kate from prior conversations that's been that's an accretive part of our of our gross margin mix and so we like the accessories business and it's a key focus area for US we've put a lot of programs in place to continue to drive those and they are performing well I would say generally speaking from a revenue stand.
Point.
It's growing.
Basically in line with our grille sales and so it's not it's not beating our grille sales, but it's growing in line with gross sales.
We've seen some really good progress in a number of areas one of the ones that is my favorite is looking at attachment rate. So anytime we sell someone a grill, which because of our group business has been good.
Growing so rapidly.
There is a tremendous opportunity for us to get accessories attached to a grille at the first purchase of the grille and in our Weber Dotcom environment in particular, we've put a number of programs in place and we actually redefined our entire website for the 'twenty one season back in the spring timeframe to present really highly.
<unk> accessories at the time of purchase of each grill, which is perhaps not rocket science, but it's something that we werent doing in the past and putting that those algorithms in place inside our website drove about a 10 point 10 percentage point attachment rate increase for accessories sales associated with a Weber grill and so that's been a really nice dry.
Ever of growth in our dot com environment, and we're also seeing attachment rates increase at retail as well through our retail partners.
And so it's probably on the order of about 5% to 7% higher than we've seen in the past in the past years and so that's a function of merchandising. It's a function of how we present the accessories adjacent to the Grilles.
And accessories will be a key growth driver for us going forward.
There is.
A great innovation coming next year on accessories that I'll be excited to share with you probably in our November call.
But where we are really taking the accessories to another level and effectively creating an outdoor kitchen.
FERC grill users in the lever and whoever user base so.
Accessories are a key growth platform for us going forward and that's across every region around the world not just in the U S. In particular, our accessories business.
Is a substantially higher part of our overall mix in Europe, where we have a stronger presence of Webber stores in <unk> and.
It's more of a a dealer model.
As opposed to a big box model and Thats been a.
Growth engine for us in outside of the U S that we're bringing into the U S for years coming forward.
Thank you.
The only thing I'd add to that and Chris got it Ryan generally our accessories are growing right in line with the balance of our business certainly in Q3. The one point I'd add is our asps continue to trend up and accessories. We were kind of last year. If you will versus last year were up almost 10%.
In the quarter, an accessory asps so were getting the trade up that Chris alluded to on Weber Dot com, that's helping certainly so we feel overall really positive about what we're seeing in accessories.
Thank you.
Our next question comes from Meghan Alexander of Jpmorgan. Your line is open. Please go ahead.
Hey, good morning, Thanks, guys.
My first question.
It's kind of a follow up to Robin second question can you talk about whether youre seeing any impact in pls trends from adult to vary in any of your markets internationally.
Julian that you'll have.
Yes, sure I can I can take that one so.
I don't know that we've seen.
The volatile environment, obviously, and one of the dynamics that we've seen certainly in the U S. Although.
Honestly, probably not as dramatic in some other countries is here.
Is.
With the slowdown of the reopening if you will so kind of a pause in the reopening and a little bit more.
Lockdown behaviors.
And a lot of the debates around vaccine policies et cetera.
That's a little more dramatic here in the U S, where our vaccination rates are relatively low in many other of our regions around the world.
See more of a return to normal happening, although although clearly varies because a market like Australia or parts of Asia.
Our even more in a more dramatic kind of pullback so it really varies by region.
Sorry Megan.
And I think it's.
Theres not one unilateral statement that would work for the entire world. So with that said the way that the way we.
We're looking at it first of all our point of sale data as I mentioned before continues to be strong and so we haven't seen any kind of a pullback what you might expect to see it.
Linkedin to surge and I would say that the business is behaving a little bit more in line with the traditional seasonal dynamic that we would normally see in a grilling season and so it is normal in the northern hemisphere for us to come out of the.
<unk> come.
Come out of the summer and into the fall with.
It's sort of counter seasonal dynamics, we have seen continued strong business in the last couple of months and so I don't know that I would attribute that to delta.
I would probably attribute that to.
Are the sustaining trends that are coming out of the pandemic. There is if you think there is a number of them. If you think about homeownership and the the migration of particularly millennials from urban areas, the suburban areas and purchasing houses starting.
Starting backyard entertaining or backyard entertaining, becoming a bigger part of your your experience and how you socialize with people. That's traditionally that's a sweet spot for Weber. It has always been for decades and decades of places where Weber has a brand wins and is really an integral part of consumers' lifestyles and so thats positive for US I think also.
If you think about remote working.
There hasnt been a light switch flipped and everyone goes back to the office five days a week everywhere and so I think on a go forward basis. It's fair to expect some kind of a hybrid model, where you've got a little more work from home than pre pandemic, even if it's not a full locked down five days a week at home.
Generally beneficial to the grilling category and generally beneficial to Weber because just if you add a friday at home. It basically extends your weekend by 50% relative to grilling opportunities. So there is a lingering and I think in sustaining upside that's not really related to the delta variance, but it is related to the sort of new normal.
We're living in right now and there's every reason to expect those trends to continue on a go forward basis.
That's really helpful. Thank you just as a follow up it seems like the supply chain concerns are more cost related but can you just talk about maybe your inventory position and the ability to fill demand.
That's the concern, but how does this compare to maybe some of your peers and you maybe see this as an opportunity to take more share going forward.
We had good income.
Okay go ahead bill.
I was just can take start Chris and then you can jump in certainly.
We feel really good about our inventory position, obviously, we're comping as I mentioned in my.
My comments were Comping, a period last year, where inventory levels were at extremely low levels for us as a company just given the demand and the.
The surge in the season, if you will from last year. So we feel real real good about as we head into our peak season in the next three to four months about where our inventory positions lie.
We are seeing the constraints, obviously out in the marketplace, but as I mentioned, we feel really confident in our supply chain teams can manage through this what we're seeing is transit times generally have moved from historical averages of 45 to 50 days to now closer to 75% to 80 days.
We are seeing the carrier reliability for example, which in July was I believe 15% versus if you go back to last year's <unk>, 75%. So we're certainly seeing the challenges in the supply chain long Beach Port. For example is one that's really really a bottleneck as you've read about in the media.
However.
We're managing through it we haven't had any issues with supplying our customers needs and that's ultimately what we're our team is pressed to do which is ensure that as we get to our peak season.
We've got the supply ready for our consumers and our customers globally. We feel good about where we are Chris do you want to add anything to that.
Yes, sorry, I stepped on you earlier.
The thing I would add is there some of what we're doing well that's leading to us taking share in the market and I think winning in.
Based on the data we have outperforming competitors on in stocks.
At retail generally speaking.
We've got a we've got a great team we've been around the block before this is not our first rodeo we run into these kind of challenges in the past and I think our team is working well globally and communicating well and that's not to be taken lightly like I think the ability to execute in times like these does matter and I feel I am thankful for my team and I am proud of their.
I would also say the strategies that we've put in place gives us a leg up in many respects and so we do have a strategy that I've talked to many of you about maybe all of you about it.
Called make where we sell and that's a strategic intent to get our production closer to our demand and so we've invested substantially in my three and a half years here at Weber to maximize our U S production footprint, that's really unique for Weber were the only drilling company of size that has U S. U S manufacturing footprint and that helps us a lot.
When it comes down to these global transportation challenges in both getting stuck at ports and inventory being.
Being tied up on the water so to speak.
So having and we're adding.
Our manufacturing footprint in Europe.
That will open I think we open officially with the Grand opening is it just a couple of weeks and things are trending really well there and so on a go forward basis, we will have a European manufacturing footprint that will take some of those delays and lead times.
Out of the European business, as well and that's a really exciting opportunity for us and it is going to be a big unlock if you think about that dynamic where.
Product on the water normally for.
35% to 45 days and now it's up to 75 days.
When you have local production in Europe, you will cut back dramatically probably by two thirds in terms of like the sort of the working capital that's tied up in serving the business and it allows you to be much more responsive to customer demand and we think that's a strategic advantage for us. It's a big investment point, it's what we've invested to bring that to life and that's going to serve as well as these dynamics play out.
The future of their volatile they'll come and go.
But will be robust and ready for them.
Great. Thank you.
Thanks Megan.
The next question comes from Simeon Siegel of BMO capital. Your line is open. Please go ahead.
Thanks, Hey, guys. Good morning, Congrats on the first quarter as a public company.
Get to connect again.
Chris you mentioned that could be interesting data points about consumer usage, you talked about the average grill as proposed.
And how frequently will grill et cetera can you just talk to how you track those usage that it that's how they've been trending maybe touch on how you see using technology to get increasingly more engaged with those customers going forward and then bill if you can any help on how youre thinking about the regional revenues for the fourth quarter embedded within the revenue guide that you guys gave thanks so much.
So I'll take the first I'll take the first one.
It's evolving as we've talked about before we put a lot of investment behind Webber connect that's our technology platform for those who don't know that.
Effectively creates a smart grilling dynamic the way I think about it is it's like waves and so it gives you a personal situation specific.
Grill guidance throughout a cook that reacts to changes in conditions or temperatures or food types and gives you real time real time feedback the types of algorithms that you have in the cloud we have seen a really positive response to that in fact the Weber.
<unk> in my in my prepared remarks, some of the success, we've seen behind the Weber and Spirit X Smart grills, which had weber connected embedded in them that effect, we've driven a huge amount of growth in revenue through that connect line. This year and in particular embedded into grills and that'll be a key platform for us going forward, but as we expand that.
And we drive that household penetration of smart grids higher Simeon we get the data from consumers that show us.
Not just not just the engagement with the brand on a on a week to week day to day Cook to Cook basis through the App, but also a.
Our connection with the brand, where we get insight into what people are cooking and when they like to cook and what their what their desires are that may be unmet relative to accessories or.
Maybe even services in the future that they will build on that experience and that's growing from a scale standpoint. So it's still early days for us in terms of the household penetration of our connect technology, but it does give us everything that youre talking about the richness of information that allows us to spend our marketing back and even its been our product development back in our service.
<unk> back to create to create new value solutions for consumers going forward. So that's an engine, that's getting revved up and starting but the early read particularly in Q3 on the <unk> line was tremendously positive and Youll see us youll see us build on that going forward, we do measure consumer trends beyond the Weber connect platform in a number of.
Ways, and we do have an entire consumer insights and analytics groups as part of the Weber family, It's sort of how I am wired from my background at at leading consumer companies and so I do really value of the data and there are a number of a number of trends that are really interesting just to hit back on the tech point quickly one of our key strategies that we've outlined is to go.
After new innovation and disruptive new products that will accelerate purchase frequencies and attract millennials into the categories and what we've found when we show millennials and research.
Grill that has Weber connect technology embedded versus the same drill without Weber connected technology embedded and we'll sell them both ways in the future millennials purchase interest rises over 40% higher when they see the grille with technology embedded in so theres a tremendous accelerator in front of us to bring that technology solution to this broad array of consumer.
Who are wired literally two expected and really desire it and thats, a really great drilling experience in so the feedback that we've had some products in market is really positive and I think that that association of.
Technology that a product thats not tech protect sake, but really grounded in the consumer insight does create a deep bond with the Weber platform and it creates value that goes beyond the initial purchase and into a series of purchases and interactions over time and so I think that's that's a piece of where we've connected the dots between our research with consumers and the.
Actual behaviors on Grilles that are being purchased so I think thats, probably the key the key insight that I am thinking about on a day in day out basis.
Right now.
Don't know if theres anything you want to build on that Simeon before Bill takes the second half of your question.
No that was perfect. Thank you.
As Tom and.
I'll hit the the core question for Q4, so just as a reminder, we're comping a really strong Q4 last year that was up more than 80% in Q4 last year. If you think back to historically, our Weber business is generally somewhere between 27%.
Of our business normally happens in Q4 last year in our fiscal 2020, our Q4 was 24% of our of our year. So again, just a really strong Q4 this year or Q4, we still feel really positive about where the business is coming in it's still going to represent 17% of our.
<unk> across the year, that's our latest outlook, so still much higher than our kind of historical trends and then when we look at a two year stacked basis, it's still going to be our highest quarter. So our two year stack for Q4 is going to be close to 73%. So again, a really strong quarter. When it comes to the region I think was your question.
And around the region spread it's generally level based or level spread across regions. So we're not seeing any particular region in Q4 significantly stronger than the other maybe with the exception of APAC slightly although we're managing through.
The forecast and managing through final shipments here, so, it's but generally it's going to be.
Essentially flat growth.
Compared comparatively across regions, so that makes sense.
Yes, Thanks, a lot guys best of luck for the rest of the year.
Thank you.
Yeah.
The next question is from Chris Carey of Wells Fargo Securities. Your line is open. Please go ahead.
Hi, good morning, Thank you.
I just wanted a quick follow up on Robbie's question at the beginning of the call. It is the right way to think about commodities.
They are getting worse or the overall concept of inflation is getting worse commodities are and all of that freight is an element, but youll be looking at pricing offsets and in general feel good about where you are maybe if you could just expand on.
On that or clarify that for me just as far as whats occurred maybe over the past couple of months.
How youre thinking about it.
And then.
Any any.
Any commentary just as we get further into this kind of uptick in growth purchases on.
How much do you think these.
Purchases have been for.
Replacement of old girls for its first new grilling households, yet and how you expect.
Do you expect that mix kind of play out over there over the next year. Thanks, so much.
Yes, Chris So maybe I can take the first part of your question and Chris you can jump in on the second one so is it getting worse I would say definitely the last three to four months, we've seen an increase spike in inflation, primarily on inbound freight you've heard about that from.
Not only our competitors, but also just generally CPG is everybody is talking about then thats real.
And we expect it to continue at least through March which is our second quarter with the continued use of higher premium expedited freight lanes. So.
Just for perspective generally inbound freight represents historically.
Between call it 5% to 6% of our cost of goods that we've seen that increase over the last three months to closer to 12% to 15% of our Cogs. So certainly it's it's real it's out there and we're not we're not going to.
Talk around it.
But what are we doing about it were planning our supply chain is that this is going to persist like I said at least through our second quarter.
With this use of continued higher premium expedited freight lanes, we've doubled our carrier excess pools with more than eight providers. So we're expanding.
We've got a strategy to essentially deal with us. So we're executing these strategies to number one protect our in season volume movement again, I had mentioned that earlier, we want to make sure that where customers.
Customers are able to get the Weber grills that they demand and need so that's our strategy and we'll continue to manage through these issues like we've done in the past so Chris sure thing or do you want to comment.
I think you hit it we hit it before a bit I don't we don't or at least personally.
Personally I don't take pricing lately, and so I don't I don't just want to pass the Bakken. So we do put a lot of effort into productivity initiatives into partnering with our supplier base to.
To lock in contracts and rates and try and.
Get advantageous.
<unk> relative to the marketplace and generally speaking we've been successful with that over the year is facing in a number of challenges and we are having.
We're making good progress on that front now.
We do we are a brand that lives in a premium segment generally speaking of each of the categories. In the segment that we plan I mean, you can get a Weber grill for a Weber Smokey Joe is $50 all the way up to a Webber summit gas drilling center $4000. So we play across a really wide range of price points.
In an inflationary environment like this one where you would expect to see most consumer goods manufacturers, taking some kind of pricing action in the face of the headwinds that we're talking about.
It's nice that Weber has one of the tools, we have available to us as a full assortment and so we're not going to price ourselves out of a particular consumers market. Because we have offerings that are a whole range of price points and that gives us I think an advantage structurally in terms of how we go to market.
But we do have pricing power because we're a premium brand and we have the highest brand perception and brand equity in net promoter score and brand awareness not just in the U S and in all of the markets that we're that we're playing in and around the world and so when when the rubber meets the road and pricing has to be a lever to pull and we do have the ability to execute that.
And we've shown that even going into 2021. The reason you see.
Part of the reason that you see.
Really positive gross margin performance for our business in Q3, and adjusted EBITDA performance for our business in Q3 is because of that we saw we saw this coming and we took action early and we and that included some pricing in certain markets going into the 2021 season and that was effective and so we would anticipate that being <unk>.
Our our tool set that we have to navigate these kind of headwinds going forward.
And we will navigate to navigate that with the consumer in mind and with our retail partners at our side and do that in a collaborative way, but we do have the power the power to do that and then I want to hit I want to hit the the other question Chris that you had around volume sourcing I don't really have any new information.
Around repeat or kind of replenishment, if you will repurchase volume of existing grilles versus new grill category entrants. So honestly, we do look at that at the end of the year.
On an annual basis, and so that's probably work that's going on with our insights team right now so I'll check in with them and we will we will have that information for you. If we can next time, we talk but.
So let me take homework on that one but I do think one of the interesting trends we've seen this year, particularly over the last three or four months is.
A surge in our premium drill lines and so we have seen particularly like in the GAAP category, which the GAAP category by the way is a really interesting is growing it's a growing segment. It's up substantially this year on a fiscal year to date basis, but webber is up more than double the category. In fact, I think our market share is up.
Something like two five points in the GAAP category this year.
Based on NPD data and that that is a testament to what our ability to supply what you talked about earlier, but to some of the movement in the market towards premium grills were Webber, obviously wins and so.
We have seen a big a big surge in demand for our Genesis grills.
And for our summit grills, which is our premium gas line and over the last few months and that's a that's a dynamic that would typically indicate not our first grille purchase, but a trade up or a or a replacement of an existing grill.
Very helpful. Thank you very much.
Thanks, Chris.
As a reminder, if you'd like to ask a question. Please press star followed by one on your telephone keypad now.
Our next question comes from Sharon.
Huron of UBS. Your line is open. Please go ahead.
Thank you and good morning could you talk a little bit about 2022 demand drivers and what you see at this point.
Any insight into how your retail partners are looking at the category and then to go back to the inventory question earlier, what would it be possible to quantify what the inventory situation at retail looks like at the end of the quarter and how that compares to pre pandemic levels I'm really just trying to understand how much inventory replenishment could help sale.
Our next fiscal year, regardless of demand.
Our opinion EMEA entre.
On trade inventory question Okay.
Okay.
And then Chris maybe you can comment on the first part of the.
The question generally obviously in our three markets, they're all unique three primary markets, but I would say generally trade inventories are in line with our historical norms.
So we're kind of aligning with our retailer inventory strategies I would say much healthier than they were at this time last year during the peak of the pandemic, where everybody was challenged with just fulfilling demand and the supply issues et cetera. So we feel really good about entering the year. So I would say generally.
<unk> the Americas as an example, we spent a lot of time collaborating with our channel partners in Q1, and Q2 two to make sure that their trade inventories were in good shape going into the Q3 selling season. This is Chris alluded to earlier I think paid off really well with strong in stocks, which then drove strong Pos.
So we certainly there's always challenges to manage the mix if you will but I would say overall, both in the Americas APAC and Europe, we feel really good about where we sit in trade inventory and as we head into the season will be able to fulfill consumer demands.
Great.
The second I guess.
Alright go ahead sorry.
No I was just sort of part of that would you say you have a follow up for Bill go ahead and shoot at his way.
Yes.
Would you say that inventory levels at quarter end, thats sort of comparable to pre pandemic levels in other words youre not really looking at kind of a stop channel or anything.
That's correct that's exactly how we view it couldnt put it better myself so.
That's exactly how we view, there's puts and takes within some categories, but generally overall, that's exactly how we're viewing it in all of our markets.
Thanks.
And then ill let me jump in on the this is Chris I'll jump in on the first part of your question.
Around 22, I mentioned some of the tailwind that we think will sustain earlier relative to.
Sort of the post COVID-19 or are they coming out of Covid dynamics and <unk>.
The positive dynamics that we see there I would add one that we didn't really I didn't mentioned earlier, which is this.
Really remarkable wave of millennials, who are sort of coming of age from a drilling standpoint. So the soundbite. There is that there are $40.
U S soundbite, but I think you can multiply it.
By a little over a factor of two to get to the global number which is of course will be looked at.
With half of our business outside of the U S. But there are in the U S 40 million Millennials will turn 35 in the next 10 years and so there's a tidal.
Tidal wave of millennials coming into what is traditionally for Weber a really like.
Sweet spot for introduction to the brand and for starts.
Starting a family buying a home.
Orienting your light more around your home in your backyard and Thats historically been a place where Webber plays a really dynamic part of consumers and families lives and so we're excited about that tailwind that's coming in front of US I would say that's not a one year tailwind.
That's a prolonged next 10 years tailwind and it's a sizable in fact, I think it might even be more sizeable than the baby boomer surge that happened.
Years and years ago. So that's an exciting tailwind everything that we're doing in the face of those positive tailwind.
Is is what I outlined earlier in the prepared remarks, our key growth strategies, which is to introduce disruptive products and innovate with ways to change consumers' grilling experiences to drive our direct to consumer and experiential interaction with the brand to expand our customer base partner with our retailers and drive new revenue grow.
There and then to expand and deepen our presence in emerging geographies, which represents.
Growth in all four of those pillars, just as they were.
Impactful to our Q3 results and to our 'twenty, one 2021 results there'll be impactful to our 2002 2022 strategies as well I have a <unk>.
Wine that I use here with my team internally, a lever, which is the category doesn't happen to us we happened to the category and that is a.
Only a mantra of an ambition to be a leader and to always put our consumer at the forefront of everything we do and to make sure that we're bringing consumers new value added solutions that earn the Weber brand and live up to the Weber brand and Thats, how we drive our business and we think that that will impact our 2022, when we get to it.
Thank you.
We are now out of time for any further questions and we are coming.
So I will hand back over to the team for any closing remarks.
I just want to thank everyone for your time today.
As I mentioned earlier, we're very excited about the results and I'm very proud of the Weber team for what we've accomplished and you heard that from me throughout the conversation our ability to rise up in the face of the challenges that we talked about today, but also to bring to life. So many great growth initiatives for the company and to see those show up in our Q3 results is exciting.
And not just on the top line, but on the bottom line as well and so we feel that we're doing right by our shareholders and we're delivering on the promise of the Weber brand and we look forward to our future conversations with you and continuing to push it higher so thank you everyone.
This concludes today's call. Thank you for joining you may now disconnect your lines.
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