Q4 2021 Weber Inc Earnings Call
Yeah.
Hello, and welcome to the Web Inc, fourth quarter and full year 'twenty to 'twenty. One earnings conference call. My name is Alex and I will be coordinating the call today. If you would like to ask a question at the end of the presentation. You can press star one on your telephone keypad.
If you wish to withdraw your question you can press star two.
I will now hand over to your host Brian Alex Lau, Vice President of Investor Relations and Treasurer of <unk>, Inc. Brian over to you.
Good morning, and thank you for joining us today for our fourth quarter and full year fiscal 2021 earnings call. I am joined this morning by Crushers in our Chief Executive Officer, and Bill Hartmann, Our Chief Financial Officer.
Not with our forward looking statements disclaimer as you are aware certain statements made today such as projections for <unk> 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-K, SEC filings our earnings release.
And to our SEC filings all of which are available on the company's 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 announcement, which has been posted on the company's website at investors at Weber Dot com and can be found in the company's SEC filings.
A recording of today's webcast and supporting documents will be archived for at least 90 days on Webers Investor Relations website, and now I'd like to turn the call over to Chris.
Thanks, Brian and good morning, everyone I'd like to start today's call by thanking our team around the world for delivering another strong quarter and a record setting year for Webber delivering 30% revenue growth in fiscal 2021 on top of last year's strong 18% growth rate for a two year revenue growth at plus 48%.
And despite the well known challenges in its global operating environment, our revenue growth converted to record setting gross profit and EBITDA as well however team around the world worked tirelessly to meet customer needs and to grow our iconic brand, while delivering fantastic financial results.
In fiscal 2021, we generated net sales of $1 billion $982 million again, a 30% increase versus last year.
Adjusted EBITDA reached a record $307 million and we expanded EBITDA margins by 60 basis points to 15, 5% while at the same time, increasing our strategic investments in new product development digital marketing and supply chain initiatives that yield current and future benefits for our company.
Our ability to drive growth today invest in our future and deliver these results are a testament to our strategies and also our people and their ability to execute in tough environments.
Given these strong financial results last month, our board of directors declared a quarterly cash dividend of <unk> <unk> per share to common stockholders, implying a <unk> 16 per share annual dividend.
Initiation of the dividend reflects the confidence we have in the performance of our business and the strong cash flow generation, we expect to achieve which affords us the ability to return value to our shareholders. While also investing in our future growth.
In recent months there has been much discussion around global supply chain challenges and inflationary pressures and like many businesses. We have been affected however, we believe our unique global manufacturing footprint and World class supply chain organization is a valuable competitive advantage. It is uniquely positioned us to navigate the current environment favorably relative to the broader.
And we've continued to supply our customers and consumers in the face of record demand.
To help mitigate the supply chain pressures that we expect to linger throughout 2022, we have leveraged the unique broad network up supply partners and proactively engaged with new carriers and landside transportation partners to manage both availability and rates.
In addition, we've increased rail moves within regions and are flexing a variety of alternate container depots and port pairs to limit terminal congestion delays.
As a result, we are current with all global shipments and have healthy inventory levels to meet 2022 demand.
We are the only large scale drill Brad who owns and operates our own U S manufacturing facilities, which has been a distinct advantage in this tough environment. In addition in October we began production at our new Poland manufacturing facility, which I will speak to in a moment.
We're now the only major grille brand to operate our own European manufacturing facility as well. This is a real unlock for our large and growing EMEA business and it strengthens and Diversifies our entire global network.
Regarding inflation and commodity price increases going into 2022. These supply chain advantages help us on this front and we remain focused on improving our operational efficiency as the first line of defense to help offset rising input costs. In addition, as we've discussed in the past whether it's a premium brand that has pricing power in the marketplace on a global basis.
We have implemented price increases this quarter to offset the current inflationary environment as we enter the 2022 season and these have been accepted and planning discussions with our retail partners across geographies. The combination of supply chain productivity and pricing actions will help protect gross profit dollars in 2022 and set up longer term structural accretion.
Our strong financial results for fiscal 2021 continue to demonstrate the strength of the Weber brand and our products across all key segments of the outdoor cooking category in all key growing markets globally.
They validate the five key growth strategies that we've discussed since going public a few months ago.
To provide some highlights on the progress we've made against these.
First is disruptive new product innovation, we are a company of inventors and have been for 70 years and innovation played a big role in our 2021 success with successful new launches that included the Weber traveler portable grill, the Weber Genesis Spirit E X line of smart gas grills, which feature embedded Weber connect technology the Weber.
Summit come Onno, charcoal grill, and the second generation Weber smoked buyer wood pellet grill among others.
These new products, one a number of industry awards and consumer ratings and reviews are excellent and we are on track to unveiled several exciting new products for 2022 over the next few months. So theres a lot of positive momentum here.
The Weber connect platform is worth a special call out as a reminder, in January 2021, we acquired 100% of June life. The Silicon Valley inventors of the June oven and our longtime partner in the creation of Webber connect the first true smart grilling technology platform.
<unk> continues to be recognized as the best in class Smart grilling experienced by influential media.
And it keeps getting better this month, we're releasing our largest ever update to the Weber connect app consumers can access new recipes and guided took programs for a variety of dietary preferences and it will enjoy new experiential benefits, including a new fuel monitoring feature the stream of Webber connect updates and added functionality continually make sure grill smarter over time.
Which piece of exciting opportunities for Weber and our loyal consumers.
Our next key growth platform is direct to consumer sales and E Commerce, which includes both Weber Dot com and our global network of roughly 200 Weber stores and Grill academies.
Growth here was up substantially in 2021, even lapping a strong growth year in 2020, our increased media investment this past year across connected TV, social media Influencer programming and digital video helped drive revenue gains of around 50% in 2021.
We will continue to invest in new store openings with 14, new stores opening in the fourth calendar quarter of 2021, and this will continue to be a meaningful growth platform for us in 2022 and beyond.
Bill is going to share more detail on our e-commerce results as well.
Our emerging geographies, which grew nearly 60% year on year in 2021. These focused markets outpaced total company growth by two times highlighted by wins in Latin America, Southern and Eastern Europe and Asia we.
We continue to be optimistic about our emerging market runway in the future fueled by Weber store growth and increased investments to build awareness of the Weber way of grilling.
And then finally is our strategic platform around value, creating operational initiatives as I noted earlier, our operational infrastructure is a key differentiator for wherever we remained committed to investing here and we're seeing fantastic results I was very proud to attend the official Grand opening of our first Weber owned and operated European manufacturing site in <unk>.
<unk> in October.
This breen certified facility is now producing and shipping Weber grills across Europe for the 2022 season to provide game changing structural cost savings improves working capital requirements and de risks our global supply chain in the face of the current industry challenges.
Before I turn it over to Bill I wanted to close my comments by highlighting our newly created subsidiary $19 52 ventures named for the founding ear or whoever when the first Weber Kettle was invented and revolutionize the outdoor cooking industry.
<unk> 1952 ventures is designed to house, new growth platforms for lever to accelerate innovation and brand extension. This allows us to pursue additional disruptive growth opportunities without distracting the core Weber business team Troy Shay has been appointed as Chief Executive Officer.
Weber will fund 1952 ventures through existing cash flows and leverage capacity staying true to our stated target of three times net leverage importantly, we believe $19 52 ventures activity will be highly value accretive to Webber.
The startup of $19 52 ventures, along with the recent promotions of several key senior leaders builds on our recent success and expands our capacity for continued growth I believe the company's success reflects the talents of the team and I feel strongly that we have the best team in the business.
With that I'll now pass it over to Bill Horton, our Chief Financial Officer to review, the fourth quarter and fiscal year financial results over to you Bill.
Thanks, Chris I will start with a summary of our strong Q4 financial results before going deeper into the regional and channel financial results for our full fiscal year 2021 that ended September 30.
I'm pleased to report that across net sales net income and EBITDA, we delivered results above or in line with our previous guidance.
As a reminder, Weber has a seasonal business and our first and fourth quarters. Historically have each represented approximately 15% of our full year sales with OLED, Australia, New Zealand business being in season during those quarters.
That said, we saw a significant seasonality shift last fiscal year as strong retail sell out throughout Q2, and Q3 combined with pandemic driven supply chain slowdowns.
Retailer inventories are required continued replenishment during our fiscal Q4 last year and into Q1 this fiscal year.
Both Q4 2020 in Q1 2021 sales were up more than 80% versus the same periods in the prior year. Despite this Q4 2020 Cogs we over delivered on our plans for Q4 this year with sales of $350 million down only 5% from last year and up 77%.
On a two year stack basis.
<unk> accomplishment for our teams.
E Commerce and direct to consumer channels continued the strong growth results. We've delivered over the past three years with Q4 sales up 42% versus Q4 last year.
We have a unique mix of growth drivers within our e-commerce and direct to consumer channels with pure play E tail partners in every country, where we operate.
<unk> Dot com now selling our products via our web site in 28 countries and a unique network of 193 Weber stores, Unlike any in our competitive space.
In the fourth quarter direct to consumer sales were up 22% with Weber Dot com up 38% versus the same period last year.
Our strong Q4 sales enabled over delivery of our other key financial metrics for the quarter when compared to the guidance provided during our last quarter's earnings call.
Quarterly sales growth of negative 5% was better than the negative 10%, we guided to during our call and adjusted EBITDA of negative $14 million in the quarter was at the midpoint of our provided guidance.
Again, the sales results in the quarter allowed for over delivery on our full year guidance to drive net sales growth of 30% record EBITDA of $307 million.
And EBITDA margin expansion of 60 basis points to 15, 5%.
Specifically net sales increased by $457 million to $1 92 billion from $1 $5 5 billion last year.
This was our second consecutive year of innovation led growth with our two year sales stack of 48%.
Core growth, which represents business growth, excluding the impact of foreign exchange represented $381 million or 25% increase versus last year.
Foreign exchange accounted for $76 million.
We continue to see progress towards our key strategic growth priorities.
With direct to consumer sales up 46% versus last year.
For fiscal 2021, both growth segments within our direct to consumer channel delivered exceptional results with Weber dotcom up 50% and Weber store sales up 42%.
While we had exceptional growth across all product categories to specific drivers, where our gas grill segment that was up 35% versus last year and our portable segment that was up 600% behind the retail success of the Weber traveler, which continues to outpace our expectations.
In addition for fiscal 2021 emerging geographies were up nearly 60% versus last year, representing 12% of total revenues up from 10% last year.
We are focused on developing markets is something we have discussed previously our proven track record of penetrating and scaling the Weber brand in new or underdeveloped geographies is a clear differentiator for our company.
For example over the last two years, we've driven two year CAGR in the UK, Italy, and France, a 45%, 39% and 24% respectively.
Other developing markets to call out that are in the early to mid stages of their maturity cycles, like Japan, Mexico and Russia.
Collectively grew 48% last year and have delivered two year CAGR of 33%.
Net sales growth was consistently strong across all of our operating segments with the Americas up 25%.
Up 34% and APAC up 49%.
For the Americas, net sales increased 25% or $222 million to $1 1 billion from $881 million last year.
All channels continued to deliver strong year over year sales growth with online sales at <unk> Dot com outpacing the overall region up 64%.
Core growth represented a $212 million increase or 24% increase year on year, while foreign exchange contributed $10 million of the revenue increase.
Leading the growth within the Americas segment was our Canada business, where the continued addition of new retailers to the Weber portfolio successful new product launches and efficient supply chain execution have led to significant market share gains delivering growth of 84% in 2021 and a 42.
7% CAGR over the last two years.
Our EMEA region, net sales increased by 34% or $184 million to $726 million from $542 million last year.
Core sales growth was $129 million up 24%, while foreign exchange represented $55 million of the sales increase.
The consumer sales grew 27% driven primarily by new Weber store openings and increased revenue within existing stores, along with Weber doctoral growth of 25%.
It's worth mentioning that every country in the region delivered double digit growth, but we're very excited about where the brand is positioned for continued future growth.
For the APAC region.
Net sales increased by 49% or $51 million to $154 million from $103 million last year.
Core growth represented $40 million or <unk>, 39% increase.
Foreign exchange represented a $11 million of the sales increase.
From an absolute dollar growth basis, Australia, and New Zealand led the way however are developing countries in Asia grew 85%.
Clear indicator that our accelerated growth strategies for emerging markets are working.
Behind the strong sales growth gross profit for the fiscal year increased by $215 million or <unk>, 35% to $825 million from $610 million last year.
Gross margin increased by 170 basis points versus last year to 41, 6%.
The increase in gross profit dollars was primarily driven by higher sales volumes global productivity initiatives and a decrease in COVID-19 related costs.
The 170 basis point year over year expansion of gross margin was driven by pricing actions to offset cost inflation productivity initiatives favorable mix shift towards EMEA reduced COVID-19 costs.
Favorable FX movement.
Selling general and administrative costs for the fiscal year increased by $294 million or <unk>, 66% to $739 million from $445 million last year.
SG&A as a percent of net sales increased by 810 basis points to 37, 3% this year.
This increase was primarily driven by higher noncash stock based compensation charges of $127 million increased distribution costs of $47 million associated with higher sales volumes.
Higher advertising costs of $41 million to drive revenue and higher research and development costs and other investments to support growth initiatives.
Excluding the impact of noncash stock based compensation charges and other onetime items adjusted SG&A expense as a <unk>.
<unk> net sales increased to 28, 3% in 2021 from 27, 7% in 2020.
Net income declined 94% to $6 million from $89 million in the prior year. The decrease was primarily driven by 131 million of noncash unit based compensation charges, largely driven by valuation methodology changes as a result of the IPO.
As discussed last quarter, the timing of the realization of some June light net operating losses, and R&D tax credits shifted some expected earnings from Q3 to Q4 of this year, while having no impact to the full year earnings figures.
Adjusted net income increased 28% to 161 million from $126 million in the prior year, driven by strong topline growth and gross margin improvement.
Adjusted EBITDA increased 35% to $307 million or 15, 5% of net sales compared to $227 million or 14, 9% of net sales last year.
This 60 basis point improvement was primarily driven by topline growth and margin improvement initiatives across the business, partially offset by increased investments to support our key strategic growth priorities in areas like brand advertising marketing and research and development.
Net cash provided by operating activities decreased to $54 million for the fiscal year ended September 32021 from $305 million for the fiscal year ended September 32020, a decrease of $251 million or <unk>, 82%.
While the company experienced favorable operating results. This was partially offset by the impact of normalizing inventory levels throughout the fiscal year ended September 32021.
Additionally, less favorable impacts from accounts payable balances driven by timing of payments further offset the companys results as compared to the prior year period.
Our inventory position remains healthy and ended 2021 up $99 million versus last year to $333 million due to the strong out of season demand last year that drove low retailer inventories into Q1 of this fiscal year.
Inventory turns again hit a record three six turns for Webber as our focus on supply and demand planning systems and processes and our mix, where you sell strategy continues to drive working capital improvement for our business.
Our ending average net leverage was two nine times with no draw on our revolving credit facilities in line with our long term target leverage ratio of three times.
I would like to wrap up my prepared remarks by providing guidance for 2022 fiscal year. Clearly 2021 was a second consecutive record year for Webber on 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 unique global manufacturing footprint and World class supply chain organization as we continue to navigate the current challenging operating environment.
We anticipate a strong fiscal 2022 with full year net sales growth of between six and 8% and adjusted EBITDA of between $325 million and $345 million.
As in prior years, we anticipate weighted sales activity in our second and third quarters.
On gross margins I expect first half year over year margin contraction that will normalize and improve in the second half as inbound freight variances currently held on the balance sheet roll through the P&L.
Poland play favorably impacts cost of goods sold.
And we allow late Q1, and early Q2 pricing actions across all markets to favorably impact our year over year comps in the second half.
I will now turn it back to Chris to close out our prepared remarks.
Thanks, Bill I'd like to close our comments the same way I opened with a big Thank you to our Weber employees around the world.
We've accomplished so much in 2021 in the face of continual headwinds, but all of you worked so hard to meet the needs of our retail partners and our loyal and consumers the winter fans across 78 countries globally.
It made all the difference and it shows in our performance as a company. So thank you all and with that I'd like to open up the call for questions.
Thank you we will now proceed with the Q&A if you'd like to ask a question you compress star one on your telephone keypad. If you wish to withdraw your question you can press star two.
Please ensure unmetered likely when asking your question.
Our first question for today comes from Robert I'm from Bank of America. Robert Your line is now open.
Hi, This is Alex on for Robbie Thanks for taking our questions and congrats on another strong quarter. So just first I wanted to ask about the fiscal 'twenty two outlook a bit more I think.
U S household penetration of Gorilla is about as high as I've ever been in 2021. According to some surveys.
Although you took.
Fiscal 'twenty to guide up which is very encouraging I guess, just how are you thinking about driving demand from here given the tough comps you are obviously facing and maybe talk about how historically how much replacement grilles versus first time purchases have represented as a percent of the mix and sort of how you see that going forward.
Thanks.
Thanks, Alex Hey, this is Chris.
Good to talk to you and thanks for the questions.
I think youre right that the market has been hot for grills further last for outdoor cooking in general over the last couple of years and there is a well developed household penetration in the U S and so I think your premise on the on the first part of the question is right on here is how do we think about it.
And this is consistent with how we've talked about the business in the past, but I'll try and make it real in the context of 2022, as well given that where youre coming from.
We think about this as a global business clearly we're in 78 countries around the world. We're in 50 million households around the world, where the number one brand in all the key growing markets around the world and there are you heard bill talk about in the prepared remarks emerging geographies. There are a number of markets, where we have had.
Great deal of success in fiscal 'twenty one.
Bill statistic was sales were up about 60% in those emerging geographies. This is kind of a bundle of about a dozen.
Countries that we look at specifically and we focus on accelerated growth. There. So you can you can see in those markets. We're delivering twice the growth rate of the total business, which is which is a key growth lever that will continue for us and we think even grow momentum going forward as one of our key strategies. So so emerging geographies are a big play that's certainly address.
Is expanding households on a global basis, and not just thinking about it as a U S business. So that's one pillar the other pillar I would speak to is innovation and so one of the one of the big investments I talked about in my remarks June and the acquisition of June last year, just a little under a year ago, and what bringing that team into Weber has done.
For our technology capability set and Thats showing up in a number of our Weber connect new product offerings that started in.
It started actually in 2020 with our first product line, but it grew.
Grew in 2021, we saw really great growth behind Webber connect attached to our gas grills, the Weber Genesis and the Weber Spirit E X line of Grilles in 'twenty, one there is a.
A substantial amount of innovation coming for fiscal 'twenty. Two that will also be that will also feature Weber connect embedded on the product and that's something that will accelerate purchase frequency or purchase repurchase cycles. If you will in the marketplace. So we believe that our innovation platforms can drive acceleration of that purchase frequency dynamic and get a household who is in the category.
He already who already has penetration if you will to come back into the category of sooner than they might otherwise come in accelerating the product lifecycle and also trading up frankly, because the technology play adds both.
Higher average average selling price as well as margin accretion for us and so it ends up being kind of a win win for us and it's certainly a win for consumers as well because they get a completely different kind of positive drilling experience.
Learning how to grill a million different types of new foods on their Weber grill on their patio. So innovation is a big piece of that I would also point out the Weber traveler, which was a key innovation for us. It grew our business in the portable segment by 600% last year I think is the statistic and so traveler for US is a great example of how you can.
Take a Weber household who's got.
Barry loyalty in a fondness for the Weber brand and own so maybe a web regenesis on their patio in their backyard, but when they see the traveler operating to add a second grille to their household and so you can accelerate purchase frequency is also by introducing new types of grill to give different use occasions and take that Weber loyalty and accelerated that goes it goes along with our accessory.
The strategy as well both of those are filling in kind of the main grill repurchase cycle with additional revenue revenue opportunities in between that cycle Bill anything that you would add to that I would just emphasize Alex we still we remain highly confident in our 6% to 8% growth target for this year that we provided guidance to on the call.
A couple of other things I would probably add.
I talked about the Canada growth and that just underscores our focus on new customer acquisition, and that's working extremely well for us. So that's another piece that I don't think Chris mentioned that we want to highlight we will continue to drive is that new customer growth and picked up that'll help us and then direct to consumer as another channel for us.
To perform extremely well so all of those taken together give us high confidence in our growth targets that we've set forth.
Thank you that's incredibly helpful. And then just one quick follow up.
EMEA had a had another very strong quarter and I think came in above expectations of.
A 1% growth on top of a 51 last year, just maybe give us a little more color on sort of what continues to drive EMEA growth and and how youre thinking about that region going forward. Thank you.
Sure. It's been the EMEA business is really healthy as you pointed out it's been on a roll to be honest one of the one of the growth drivers. There is the Weber store footprint that we have and so on a global basis Bill talked about our direct to consumer business, a big part of our global direct to consumer business is a network of Webber.
Original stores and Grill academies, and our Weber stores grew on a global basis from around a I'd say a 170 globally at the start of last fiscal year to 193, I think on the by the end of the year and we're adding another another 14. This current calendar quarter and so that a lot of that.
Hum.
That Weber store growth is happening in our European footprint and Thats been a key lever for us as we drive deeper Weber experience the.
Weber stores on a global basis, we're up I think 42%.
Those nodding his head so I'm in the right ballpark were up 42% versus the prior year and Weber stores are are a long standing part of our European footprint and its been a reliable source of Ah Weber Weber growth for years.
Great platform to introduce innovation and so what the store concept does is it pulls in consumers who have a relationship with Weber and it showcases a weber specific in depth experience with our new product launches and so when you think about Weber connector. The launch of smoke fire, which has been really successful for us in Europe or do you think about traveler, which is also off to a great start in Europe.
That exposure to innovation is aided by our store footprint and also I would say, even our dealer partners as well we have a really developed the channel differences in Europe are subtle from North America, but we do have a very strong independent dealer network in Europe, and Thats been very supportive and helpful for us, particularly.
Coming out of out of the sort of the back end of the pandemic. When consumers are more stores are open and consumers are back out in the marketplace. So.
That's a big driver, but what else would you add from a Europe standpoint, no I think you hit it for Europe I think the one thing I would probably just mentioned just to call out to the Americas businesses. If you look at these businesses on a two year stack basis. If you look at the fourth quarter. There's a lot of dynamics over the last couple of years, but on a two year stacked basis. The Americas is actually up 104% so while there.
One year quarter growth rate may seem lighter than normal.
104% growth for the Americas is really strong as well so we feel really good about all of our operating <unk> growth.
Did that hit it <unk>.
Perfect.
Yes, that's really helpful best of luck going forward.
Thank you.
Thank you.
Next question comes from Simeon Siegel from Bank of Montreal Simeon Your line is now open.
Hey, Good morning, this is Dan on for Simeon.
My congrats on a great year.
To the extent that you feel comfortable sharing how should we think about the cadence of new product development and launches into next year I think Chris you mentioned some of the next few months, but anything in the back half and then whats the.
Pricing on this thanks.
So.
Thanks, Dan for the question and say Hi, Simeon for Us.
I would say, we're very excited about the innovation that's coming in for fiscal 'twenty, two I would frame it around our seasonal business.
Generally with the exception of Australia, New Zealand, which is playing a southern hemisphere.
Seasonality and so they are in the peak season literally right now as we talk.
Generally speaking in the northern hemisphere, so the Americas and EMEA.
We will launch new products in the January February timeframe with peak shipments and loading shipments to retailers in what will be our fiscal Q2. So January through March and then.
Run the season, and so typically that would be on floor at retail in the March timeframe, depending on the channel in the independent and the particular retailer and run the peak season from kind of the April through August timeframe in terms of consumer demand.
So what what typically happens is we'll launch our new products in the Jan Fab timeframe, we have a big launch in the gas category, It's a really revolutionary and exciting restaging of our of our Genesis line.
That will I think just sort of knock people's socks off their early response from retailers has been very positive and so.
That that generally is our flagship launch for the year. We have we have four or five new product launches planned I won't get into all the details for each one but youll see the timing come out in terms of market announcements and things like that.
The pricing in general for innovation, we want it to be I mentioned before that when you when you embed technology on a grill. It generally takes the average price pointed out that can range anywhere from $100 premium to a 200 dollar a more premium on a per unit basis, and so you would expect to see particularly in the inflationary environment that we're seeing right now innovation.
Really important lever for us as we absorb the inflationary impact and bring that price to the marketplace in a way that consumers see the value that they it's not just a price increase but it's a real value enhancement from coming from the innovation. It does deliver on what we need from a price accretion standpoint, without having to just sort of take up.
Commodity type price increase and so it's a great lever for us the innovation platform and I think youll see Genesis being a big driver for us.
Going into 'twenty two did I hit all of your question, Dan or was there a second half that I'm forgetting.
No no you got it and then just on Poland is there a way to quantify the Cogs savings from that or how much that helps gross margin.
Thank you.
Yes, you'll see the the Poland impact start to impact our results in Q3, and as we don't provide quarterly guidance and we don't get into specifics on Poland plant productivity, but as we've talked.
In the past during the during the road show and during our IPO process, we expect significant margin improvement from the Poland plant not only just in manufacturing efficiencies, but also.
In freight you know obviously, we've talked a lot about free inbound freight costs escalating and this is one of the significant benefits of the Poland plant that we will see.
Start to impact the P&L in late Q2, and then full year run rate. If you will by Q3 and into Q4.
Awesome, Thanks, very much happy holidays guys.
Thank you.
Thank you next.
Our next question comes from Kate Mcshane from Goldman Sachs. Kate Your line is now open.
Hi, good morning, Thanks for taking our question.
Great question with on the guidance for Hello for.
For the <unk>.
2022 sales growth I know you just went through.
The innovation and the impact of pricing that you can get from that innovation in 2022 is there a way to parse out.
6% to 8% sales growth between sales and units.
Yes.
Generally the 60% is what I should say.
Yes.
Generally most of that topline growth that we've modeled it is coming from pricing that again like Chris said goes into effect.
In Q2 and is fully reflected on the P&L Q3, and beyond so I would say most of the growth is on price.
And then as a reminder, we don't plan on providing quarterly sales or quarterly EBITDA guidance, but we're highly confident in the full year sales growth that we provided given the constantly changing supply chain environment, we anticipate there's going to be fluctuations quarter over quarter versus our prior X.
<unk> and specifically, we expect some continued margin pressure in Q1, but we're really confident in our ability to maintain full year margin and EBITDA targets through Q3, and Q4 performance as our pricing actions as I mentioned in.
Other operational initiatives like Poland take hold and begin to impact the P&L. So generally as in prior years, we expect weighted sales activity. So I think what Youll see cases is generally historically <unk> seen 15% of our sales in Q1, 15% in Q4, and then 70% spread across Q2 and Q3 and that's how we're looking at.
It'll in the business for this year, so I think youll see a normalization normalization towards that kind of split does that help give some perspective.
Yes. That's helpful. Thank you and then our second question was just on the.
Adjusted EBITDA Dag growth guide of $3 25 to $3 45, I think the street is closer to $3 45 for the year. So I'm wondering if you could maybe talk a little bit about.
At the lower end represents.
Versus the higher end in terms of that that range of the guide.
Yes, I think the primary.
The thing we are factoring into all of our guidance as the supply chain challenges that we're all aware of.
While we believe that our unique global manufacturing footprint, we own all of own and operate facilities in the U S and Europe. These are all advantages for us however.
It's a rapidly changing environment. So I would guide that the lower end of our range assumes.
No significant improvement in the supply chain, specifically inbound freight the higher end of our range.
Moves more to a normalization over the next few quarters. So thats really in this environment. A range you might think a range is a little bit wide, but it's really driven by the supply chain, we're just being.
Probably more conservative on the lower end given the fluctuations we're still seeing in the supply chain.
Thank you.
Thank you thanks Kate.
Thank you.
Next question comes from Mike Alexander from J P. Morgan Megan Your line is now open.
Okay.
Hi, Thanks for taking my question just a follow up on that point you talked on the last call about inbound freight being more like towards 15% of Cogs for 5% to 6% normally can you just talk about you know what that looks like now and I guess based on what you. Just said it is just the low end of the guide assume that stance.
And maybe gross margin.
Pressure peaks and <unk> and then can improve sequentially throughout the rest of the year.
Yes, I think like I said I think we're on the lower end of the guide that assumes freight rates stay generally where they are today, which is certainly up significantly versus versus prior years and the higher end of our guide.
Assumes somewhat of a normalization.
Wouldn't say normalization back to historical rates for normalization versus what we're seeing today for perspective, I can give you a few data points.
If you look at our Q4 freight rates, we had a blended average of <unk>.
Something in the 8500 per container, which was up 140% versus Q4 of 2020.
What we saw as the rate escalation in inbound freight at least for US It started to occur back in Q1 of 'twenty one so.
If you go back to Q4 of 'twenty. One we were roughly 4500 per container that then has grown to Q3 at 10000.
It has begun to normalize in Q4 like I said at 8400 per container Q1 will likely be at our peak negative comp on inbound freight just because of what we're comping versus prior year, but then we would expect that to normalize as we get into Q2. So that's what you'll see in our gross margins.
As you know continued pressure in Q1 that starts to normalize in Q2 because of the comp on freight and then in Q3, not only do we still get the favorable comps year on year on freight inbound freight you also start to ramp up the Poland facility and as the Poland facility drives those synergies that we've committed to.
Youll see our gross margin improved versus prior year.
I think also the piece that I would add Megan is Oh. This is Chris the piece I would add is the.
What are we doing about it right. So this is a market wide impact it's impacting all companies across across the consumer goods arena.
What makes us different and unique is the is the manufacturing footprint, that's something that isn't it's coming in particularly in Poland.
Growing in terms of its positive impact on our ability to to offset.
<unk> freight inflation and some of those transportation cost increases that you talked about in the bill talked about and that's going to be at full steam and so if you take if you take a.
A 13 week lens on this it's a really big challenge if you take a one year lens on this we're putting in an infrastructure and really building on an infrastructure. We've already had with them make where we sell strategy that gives us the ability to withstand this over the long haul and be really insulated from this kind of volatility on a long term basis and so that's it's making our.
Really robust footprint, even more robust and I think that's going to be an important lever and then on top of that while we're going through this this.
I won't use the word transitory because I think we are planning that this is going to be a 2020 to challenge for the year, but I would say.
I think that it will normalize eventually but we're also taking price on top of this to accomplish that in the marketplace and Weber is really unique in terms of our pricing power in the marketplace and so we partner really closely with our retail customers to build out plans that can navigate the current environment.
As productively and as consumer friendly as possible.
Consumer friendly way as possible, but.
But the pricing power of the brand is really important in our ability to to leverage that as an offset to the logistics.
Inflationary costs are a really important part of our story so even though it takes some time to get out into the marketplace. So we know we've announced pricing its been accepted by our retail partners as we said in the prepared remarks and should be taking effect over the course of varies by region and by customer, but it takes effect over the course of the next couple of months and so by the time <unk>.
Two hits and when we hit our peak season in that kind of March to July timeframe that I talked about before the pricing will be in place and we will have kind of the structural side from an economic standpoint, the structural revenue side and the offsetting cost sides, both coming to fruition around the mid year timeframe, which gives us a high.
Do we get confidence in the full year story, which is what bill mentioned at the opening.
Okay.
That's really helpful. I guess, just a quick follow up to that point when you. When you announce these price increases and our retailers are you looking to maintain gross profit dollars or do you want to fully offset the pressure and maintain gross margin rate.
And to that point you know you did mentioned you took some price increases already in <unk> can you just talk about consumer response to that I know, it's early and not peak season, but whether you're seeing any elasticity.
Yes, I would say.
Generally over the long term our intent is to protect gross margin rate, although in the environment, where we are with <unk>.
Record inbound freight costs record commodity costs across most of our key commodities.
We're now in a position where for this year, we're protecting gross margin dollars and that's generally what you see in our outlook. So and then your second question around how consumers are reacting a couple of points first as Chris mentioned in most of our markets. We are out of season. So we're not seeing a significant <unk>.
Good.
Positive or negative reaction to the pricing with the exception of Australia, and Australia, which is our one market. That's in season. It's a one key call up for this business versus our competition, which is we have a really strong and large Australia business, they've just come through the season and we've seen favorable results year on year consumer I would take is really strong.
As they are coming out of Covid. So.
So we feel positive it's one data point, but we feel really positive with the results we've seen in Australia as we head into our peak seasons in Australia, or I'm, sorry in Europe, and the Americas does that help.
That's really helpful. Thank you so much.
Thanks for the question.
Yes.
<unk>.
Thank you as a reminder, if you'd like to ask a question you can press star one on your telephone keypad.
Our next question comes from our opinion Coca Ryan from UBS.
Your line is now open.
Hi, Thanks, very much for taking my question.
I was wondering if you could talk about the retail environment.
And what was retail Pos growth for the quarter and what have you seen so far into the quarter and would you expect to see Pos growth in 2022.
Had a quick follow up.
Sure. This is Chris I'll take the first swing at that you know generally speaking.
Pos trends.
They vary across region and they vary across channel and some we have great metrics on and some we have.
The metrics on but generally speaking our Pos has been really strong.
The general dynamic, which I think I've talked about before is that the increase in consumer sellout or point of sale from the from the 2020 to 2021 season I really the 19 to 20 season had such a huge skyrocket and then really what established is.
The.
Well established just sort of a new floor for the category and so.
The ability for us to build on our Pos in 2021 on top of what was a really kind of a new inflated base. If you will in 2020 has been the story and been the objective for US frankly is to retain the momentum that was built during 2020.
The pandemic took hold and people are locked down in their houses and started cooking at home more and that has sustained and we've seen that sustained throughout Q4 and and throughout fiscal 'twenty one.
So we're very encouraged and shortly we like the growth rate won't be the same we're not planning for point of sale to grow in 2022 on top of 21 like we saw in in 'twenty on top of 19, but I think I think the Q4 trends, which would say to give you. One example, that's top of mind, the the Weber spirit, which is a.
Big.
A big part of our Gastro line in the U S. Our point of sale in the most recent data I saw was kind of at mid single digit and that.
That compares and the two year stack on that was was high double digit and so what we've seen is is in line with this this idea of establishing a new floor and growing from there and that's really how we view it as business leaders is our team is.
He is taking the through innovation through emerging geography geographies through the direct to consumer and E. Commerce play our strategies are intending to build upon the base of the business today without looking in a rearview mirror 2018, or 2019 like its really its a new level of consumer engagement with the category and we feel like that's going to sustain.
And fuel continued Pos growth going forward.
Great great.
And then inventory on the balance sheet is up about 43%, which could also be a function of what's going on in the supply chain and what you're trying to do.
On the supply chain front, but could you detail what inventory situations at retail both in terms of dollar in weeks of inventory if you have it handy.
Yeah, we don't have a retailer dollars in weeks necessarily at our fingertips right now we can maybe as a follow up we can talk to look into that but.
Generally first of all I'll hit your question on just overall inventory year on year, and then I'll talk about retailer inventory, which we feel really strong about there's a number of factors in play.
On a cash flow statement certainly our increase in year over year end inventory was one primary driver of our lower than average op cash flow.
But I should mention that we again delivered a record inventory turns resolve at three nine times.
And you also have this dynamic and last year's cash flow, where we had a $200 million.
Favorable cash flow in accounts payable that was due to high purchasing levels at the end of last year. So that's a dynamic that causes this view on op cash that that.
It may not look quote normal if you will our inventory as we've discussed previously in at the end of 2020 was extremely low due to the continued post season strong Pos low retailer inventories due to Pos and supply chain challenges, so that had us last year replenishing well into <unk>.
Into Q1 of this year.
A second factor on our year end inventories that significant as the capitalized variances and higher cost of goods that are in our Q4 related to inbound freight the commodity inflation, which then drives your inventory balances higher year on year as well as longer transit times that we're experiencing so I should call out that unit.
Just look at unit inventory is generally flat across all of our markets.
And from an inventory at trade standpoint, we feel really good about our trade inventories globally.
In almost every market.
Across Europe and across the Americas. So we feel like we're positioned extremely well for the season, we made a decisional.
0.2 to make sure that especially in some of the new gas lines and innovation, Chris talked about that we're gonna be heading into the season with retailers stocked ready to sell through what we believe to be is going to be extremely accessible successful initiative.
One other point on.
On inventory that I should mention is in our Poland plant and the impact that that is having.
We basically have a full raw material investment in finished goods build in inventory in Poland. That's parallel to what we have if you will in our manufacturing and across the globe over in China. So this dual supply of U S built EMEA grills and the Poland plant startup is a bit of a double count.
But it was intentional to make sure that we have a smooth startup to the Poland plant and.
So far as we've and we've now started to produce grilles in Poland. We feel really good about the runway on that plant. So does that hopefully that addresses the question.
Yeah, no absolutely. It does just small clarification here unit inventory flat across all market that comment was referring to your own inventory right not retail you said inventory.
Okay, that's correct retail inventories.
Generally the feedback we're getting from most markets is there they are where they want to be so we you know.
Last year, they were low as I mentioned because of the strong Pos sellout. So now we've got them back in stock ready for the season I would say generally what we're hearing is that our retailers are feeling really bullish on the category. So they want their product early so.
They can be ready for a really strong Pos sellout season that will impact our sales results into Q3.
Okay. Thank you very much.
Yes. Thanks.
Thank you our final question for today comes from Chris Carey from Wells Fargo Securities. Chris. Your line is now open.
Hi, good morning.
The only question I have is can you.
Just.
Help us understand it.
Like how may cause evolved.
Over maybe the past year, and I guess I'm thinking of that as a channel mix standpoint product mix standpoint, your higher margin for accessories, where some of the products.
And really just trying to have a sense of how product or channel mixes is factored into your thinking going into going into next year would you expect it to be a helper.
Neutral.
So I guess I'm getting at is like the broader evolution of our channel and product mix is involved in and how you are thinking about it factoring into the model over the next 12 months. Thanks, so much.
Yeah, Chris I can take the start maybe Chris can jump in.
From a product mix standpoint, we don't share margins across category, but we feel really good about that.
Generally were somewhat neutral as far as product standpoint, we'll love to sell your gas grill smoke fire and electric grille of charcoal grill, because we have strong margins across categories. So we haven't modeled any dramatic change in product mix.
Our financials going forward I will say that with the exception of accessories. So as we've talked before accessories does drive a higher margin for our business. Both at a gross margin level on a contribution basis. So as we see and it's somewhat tied into our development of web stores as well as we see higher penetration of accessories as we get consumed.
There is into our Weber stores so.
It's just an easier sell through and sell out for us on accessories. When we can talk directly to consumers and we see the same dynamic on Weber Dot com. So we expect to see accessories as a percent of our business continue to grow which is factored into our <unk>.
Next three to five year gross margin improvement so thats, one piece from a channel standpoint.
Yes, and again, we've talked this before we do make higher margins in our direct to consumer businesses.
But we have healthy margins across our wholesale partners as well. So so while we're somewhat agnostic there as far as which channel we'd like to drive so.
Again in Europe in particular and across Asia.
We will continue to drive Weber stores, and those Weber stores generally have higher margins not only because we're fulfilling those orders, but also the higher penetration of accessories and then the last piece is the emerging geographies. So as we talked throughout the road show you heard in Chris's comments, we are laser focused.
Driving our developing markets in emerging geographies.
Continued to grow those businesses to <unk> the rate of our core business.
We continue to see.
That two X growth line of sight deliverable in 2022 and beyond.
So in those markets generally for us have higher margins. So that's kind of the mix impact that we're seeing most of it which is favorable and will continue to continue to see that going forward does that answer the question.
Yeah, that's perfect. Thanks, so much.
Thanks, Chris Thanks, Chris.
Thank you all questions have been answered that concludes today's conference call. Thank you for joining you may now disconnect.
Yeah.
Yes.