Q3 2022 Solo Brands Inc Earnings Call
Okay.
[music].
Okay.
Good morning.
Welcome to the solo brands, Inc. Third quarter fiscal 2022 financial results call. My name is Joe Quita I'll be the moderator for todays call all lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question. Please press star followed by one on your telephone keypad.
I would now like to pass the conference over to your host Bruce Williams Bruce. Please go ahead.
Thank you operator, good morning, everyone and thank you for joining our call to discuss solo brands' third quarter results, which we released this morning and can be found on the Investor Relations section of our website at investors got solo brand Dot Com today's call will be hosted by Chief Executive Officer, John Mayer Chief Financial Officer.
Summer web.
We get started I want to remind everyone that statements made on this call and the earnings release contains statements regarding our financial outlook business plans and objectives and other future events and developments, including statements about the market potential of our products anticipated financial performance and our goals and strategies that are forward looking statements under.
The federal Securities laws.
These forward looking statements now involve substantial risks and uncertainties some of which may be outside of our control that could cause actual results to differ materially from those expressed or implied by such statements. These risks and uncertainties include those described in the company's earnings release and other filings with the Yankees speak only.
As of today's date.
In addition, our discussion today includes references to certain supplemental non-GAAP financial measures, including net income as adjusted diluted earnings per share as adjusted adjusted gross profit adjusted gross margin adjusted EBITDA and adjusted EBITDA margin, which should be considered in addition to and not as a substitute for GAAP.
Results, we use these non-GAAP measures in evaluating our ability to generate earnings provide consistency and comparability with our past performance and facilitate a period to period comparison of our core operating results.
Reconciliation of these non-GAAP measures to the most comparable GAAP measures and definition of the reference non-GAAP measures are included in our earnings release, and our filings with the SEC, which are available on the investors portion of our website at investors got solo brand's dotcom.
Now I would like to turn the call over to John .
Thank you Bruce and thank you for joining our call to discuss our third quarter 2022 results.
I will begin with a summary of our third quarter results then discuss the program on our strategic initiatives I will then turn the call over to summer to provide an update on our financial performance and outlook.
During a quarter with a number of macro headwinds we executed our strategy and delivered strong results. These results demonstrate the power of our unique business model, our deep connection with our customers and the benefits of our ongoing strategic investments in product innovation, we talk a lot about the importance of our proprietary first party customer data our customer.
Unless derived from online marketing efforts is now nearly $4 million, which creates a larger and larger competitive moat around our business as it continues to grow our customers not only love our products after their initial purchase but they often come back and purchase more from us.
In addition, our satisfied customers enjoyed telling their friends and family about our products leading to high referral rates are.
Our D to C model is differentiated and allows us to leverage our deep engagement with our customers to get better insights into what innovation matters, most to our current and future customers.
At the end of this year, we will have launched more new products than we ever have released in a year and we are just getting started we plan to continue this strategy into next year with many exciting product release Theres still to come I'm incredibly proud of our team's hard work, especially when you consider we have been able to achieve all of this while generating healthy EBITDA margins.
The new innovations that we launched this year, we will continue to ramp and drive growth and we believe the best is yet to come in 'twenty three and beyond.
For the third quarter net sales increased 47, 1% to $102 2 million or direct to consumer sales increased 48, 6% to $86 3 million.
Sales in our wholesale channel increased 39, 7% up to $15 9 million, both new and existing customers responded to the innovative products. We offered this quarter, enabling us to continue to grow our database of clients and importantly, our sales growth was driven by healthy gross margins of 63.3%.
We are extremely pleased to see our consumer engagement statistics remained at high levels. Our net promoter score remains best in class consistently performing in the eighties. These numbers demonstrate our ability to deliver an experience that our customers value.
We continue to make progress executing our strategic initiatives first innovating and elevating our product offerings.
<unk> and leveraging our data warehouse to drive conversion and marketing efficiency third expanding our wholesale distribution and fourth growing our international business.
Turning to product as mentioned earlier, we are very proud of the amount and quality of innovation introduced during the quarter. We have introduced new products that will improve the experience for our existing customers as well as products that meaningfully expand our total addressable market as.
As an example in Q3, we launched our tabletop Firepit nature not only does it provide our signature 360 degree airflow technology and come in a variety of colors. It has an attractive price point, which gives more solar stuff prospects and entry into the brand that's under $100.
<unk> price point is more accessible and its size and adaptable to many more backyards and patio and the lineup of larger solar cell fire pits. This is not only increasing the Tam and our direct to consumer business, but it's also creating momentum in our corporate business companies can personalize Mesa for ethane, which we believe makes for the perfect corporate <unk>.
We have been very pleased with the initial results and while it is still early we believe this product will drive repeat purchases leading to an increase lifetime value. We have also released additional consumables for me said that we will capitalize on in 'twenty three and beyond.
Our new Pizza oven pie began to ship in the second quarter and we are pleased with the response so far during the quarter, we launched additional accessories, including price stand, which has been well received by our customers. We plan to rollout tied to international markets before the holidays and we similarly look forward to growing our new consumables life of Pi.
23.
In the first half of Q4, we also launched tower, a smokeless tell us the old patio heater and surround a table that goes around the largest fire pits. Additionally, we expanded our color waste program to offer new color options for all our fire pits as you can tell we've been busy and are enthusiastic about our new launches we liked.
Launch timing of these products, especially given the increased traffic and conversion that we historically see in November and December itself. So.
I'll introduce switch in Q3 and the customer response has been good in fact, we've had a hard time, keeping switching stock due to strong demand as with all our brands innovation will be a meaningful catalyst to IL achieving the potential we saw when we acquired it in 2021. In addition to innovation, we have a strong leadership team in place at IL and we felt.
And its future.
Our investments in data are central to our strategy and help differentiate our platform.
We are encouraged to see a continued increase in spending by customers across multiple of our brands by the end of the third quarter 57000 customers have purchased for more than one brand and with over $3 4 million customers. We have significant runway to continue to grow this number.
In addition, we were able to achieve efficiencies in our marketing spend during the quarter in a challenging advertising environment.
As mentioned earlier, our investments in data had been crucial in allowing us to be more precise with our innovation and to achieve a higher probability of success in.
In terms of our channel expansion, we continue to see success expanding doors with retail partners. During the quarter, we entered into an agreement with Costco to sell our legacy sell a stove one point O. A product. We are excited about this opportunity because we believe it broadens our reach to a new customer demographic.
Chevy brand is also gaining momentum in the wholesale channel and we are excited to significantly expand the brand to most doors at Dick's sporting goods in 2023.
Our international business is also beginning to foreign direct relationships with top retailers and we're proud to be kicking off a solo step partnership with Canadian tire.
In closing we are incredibly pleased to deliver strong results this quarter in the face of a challenging economic backdrop, while we recognize that the macro environment is dynamic and quickly evolving. We believe that we are positioned with a compelling collection of products and a range of price points to meet our customers, where they need us to be we are not immune to current market.
Conditions, but we are focused on what we can control, which is continuing to innovate and elevate our product offering to grow organically while at the same time, maintaining a disciplined approach to expense management, allowing us to deliver long term profit and top line growth I will now turn the call over to summer to give a more detailed review of our third quarter results.
And overall outlook.
Thanks, John and good morning, everyone.
I will walk you through our third quarter results and then provide some commentary on our outlook for 2022, we are extremely pleased with our third quarter results. Our performance was driven by both the continued growth of our core products throughout all channels as well as strong response to new products, we introduced to the market.
This led to better than expected top and bottom line results.
We believe that our operating model is a key differentiator for us.
Our healthy margins and low financial leverage allow us to reinvest and to innovation on high returning and strategic initiatives that will benefit us into 2023 and beyond despite the uncertain economic environment.
Our Q3 results begin to demonstrate the returns we expected on our investments in innovation.
Turning to our third quarter results net sales increased 27, 1% to $102 2 million compared to $69 4 million in the prior year period.
In the third quarter were driven by contributions from acquisitions, new customer growth and the launch of new products, including its always don't think huh.
Our direct to consumer sales increased 48, 6% to $86 3 million compared to $58 1 million in the same period in the prior year.
Wholesale net sales increased 39, 7% to $15 9 million compared to $11 4 million in the prior year.
Our direct to consumer business remains roughly 85% of total sales in line with our historical blend and channel mix.
Moving to gross profit gross profit increased 57, 8% to $64 7 million.
Our gross margin rate was 63, 3% compared to 59, 1% in the prior year.
Adjusting for the impact of purchase accounting adjustments related to fair value write up of inventory adjusted gross profit increased 39, 1% to $64 7 million.
Adjusted gross margin was 63, 3% compared to 67% in the prior year, which was impacted by the gross margin profile of our Q3 2021 acquisition and higher inbound freight.
Selling general and administrative expenses for the third quarter increased $59 5 million or 58, 2% of net sales as compared to $28 6 million in the same period last year. The increase included $9 2 million of activity related to businesses acquired in the third quarter of 2000.
'twenty, one and did not have that can be for the full comparative period.
The remaining variance was driven by $13 5 million of higher fixed costs and $8 1 million of the incremental variable cost.
And fixed cost increases were primarily due to investments in long term strategic initiatives, increasing our warehouse footprint across the globe cost associated with becoming a public company and increased head count.
The variable cost increases were primarily due to marketing and distribution expenses.
Our third quarter net loss was $4 million and net loss per share was three.
Third quarter adjusted net income was $7 6 million and our adjusted EPS was <unk> 15.
During the quarter, we continued to invest in our long term strategic initiatives and data product innovation and international and delivered adjusted EBITDA of $11 2 million and adjusted EBITDA margin of 11%.
Now turning to the balance sheet at the end of the period, we had $17 2 million in cash and cash equivalents.
As of September 30th we had $77 5 million in outstanding borrowings under the revolving credit facility and $97 5 million under the term loan agreement.
The borrowing capacity on our revolving credit facility was $350 million as of September 30th.
Leaving $272 5 million of availability.
We have a strong liquidity position and we believe we are able to take advantage of strategic opportunity with a net leverage that remains less than two times.
Inventory at the end of the third quarter was $165 8 million.
Increase is due to a combination of higher in transit inventory and wholesale inventory for Q1 orders driven by international expansion new product launches in 2023 wholesale pre bookings.
We expect the third quarter will be our peak inventory period in dollars and we anticipate levels to be lower in Q4, and Q1 as we exited the holiday season.
Turning to our full year outlook, although we're excited about the pipeline of innovation. We will launch this year, we recognize that consumers are facing a number of pressures in the macroeconomic environment is uncertain.
In addition, we have a significant amount of business in front of us given the fourth quarter has historically accounted for 35% to 40% of our sales.
Taking into consideration these factors and current levels of volatility we are tempering, our revenue expectation and now expect 15% to 20% year over year top line growth.
We continue to expect our adjusted gross margin to be 60% plus and adjusted EBITDA margin in the mid teens for the full year.
In closing I'd be remiss, if I didn't call out our teams for their incredible work and delivering new and exciting products to our customers.
I believe we are just starting to scratch the surface on the arm market potential.
With that said our financial strength is our highest priority and we are actively monitoring the health of the consumer and the shifts in the economy.
We will continue to be nimble and deliberate and navigating the waters ahead.
Solar brands remains focused on our long term growth strategy and initiatives that will drive positive returns for our customers team and shareholders.
I will now turn the call over to the operator to begin Q&A.
Absolutely if you would like to ask a question. Please press star followed by one on your telephone keypad. If for any reason you would like to remove that question <unk>.
Please press star followed by two <unk>.
Again to ask a question press Star one if you screaming today's call. Please dial in is to restore one.
As a reminder, if you're using a speaker phone. Please remember to pick up your handset before asking your question. We will pause briefly our questions are registered.
I'll still be mindful Theres, one question and one follow up question.
The first question comes from the line of Rock Robbie Holmes.
With Bank of America, you May proceed.
Hey, good morning, John in summer and a great quarter.
You know I think I'm going to ask the question that everybody is going to ask which is.
You know the guidance implies.
Fourth quarter revenues will actually decline year over year. After a really strong third quarter can you.
I think number one are there current patterns, you're seeing in either D to C or is they're buying changes with wholesale partners and maybe also could you help us think about.
How you are thinking D to C versus wholesale is going to play out and how we should model that for the fourth quarter.
Yeah. Thanks, Robbie I appreciate the question. So first just talking about the guidance shift that we're putting forth, especially after you know what we're seeing is a very strong quarter in Q3, and the momentum that we had coming out of it.
What youre hearing from us on the guidance is really just our view at wanted to take a balanced approach to looking at the momentum that we had in Q3 and moving forward and even some of the momentum that rolled into Q4 and balancing that with just an ongoing volatility and uncertainty.
That we're hearing everywhere from consumers.
Remember that because theres, so much concentration, especially the last six weeks of the year for our solar stove business in particular because of our seasonality.
Just feel that this balanced approach to guidance is the right move.
Even though we are seeing the momentum obviously coming out of Q3 that we saw.
In terms of and I'll kind of answer the part about are we seeing more softness in wholesale our D to C as well as I talk through the mix.
That we're expecting both both short and long term, but overall its not theres nothing drastic happening in any one area of the business, that's leading to that more than just this overarching thematic.
Volatility that I think all of US are aware of that's happening in the market wholesale.
As you heard in the Q3 results wholesale and DTC, both that we saw a lot of balance there in terms of year over year growth. We're very pleased with how that balance came through you.
Heard.
Some are talk about this but we're maintaining right at that 80 515 mix between the two I think as you think about our mix long term again, we've talked about this but the 80 20 split is kind of where we're continuing to target and expect.
The business to operate at as we look at least out to them to the next year to three years.
With 80% being D to C and 20% ish being wholesale.
Okay.
Got you that's that's very helpful and just a quick follow up.
The liquidity and in terms of being able to take advantage of strategic opportunity can you just sort of remind us.
How are you guys are thinking about further acquisitions.
Yeah, absolutely. So we are continuing to to look and build relationships with founder owned and operated businesses that we see as strategic and additive to our long term growth strategy and overall strategic.
The strategic places that we want to be as a as a family and brands. We also are cognizant of the fact that right now.
The cost of capital cost of cash is going up.
And our our stock itself from a valuation standpoint is just very cheap and so those two factors make acquisitions, probably more more difficult for us than they might otherwise be but we're continuing to evaluate we do believe that especially in the future acquisition opportunities.
<unk> are going to get cheaper, we think that theyre going to be great opportunities for us to lean into and we're continuing to evaluate and talk to companies on a weekly basis. So there is a lot of activity there.
Hard to say you know or lean into we certainly don't feel that we need acquisitions, we're going to continue to focus on driving organic growth right now it feels like investing cash into our strategic initiatives is delivering the best return on that capital, but if we found the right opportunity and we felt like.
Our new acquisition could be additive to those strategic initiatives you can definitely expect to see us lean into that.
Great. Thanks, John Best of luck for the holiday season.
Thanks Ravi.
Thank you.
The next question comes from the line of Peter Keith with Piper Sandler You May proceed.
Hi, Thanks, good morning, everyone.
Wanted to dig in a little bit deeper on the the new Costco relationship certainly it seems like a great opportunity for solar stove although.
Maybe just talk about the balance and how that won't cannibalize your existing DTC business or upset any of your existing wholesale partners where are the prices on a month or two might be a little bit higher than whats offered at Costco.
Yeah, Great question. Thank you Peter.
You know, we've we've been in conversations with Costco for multiple years.
You know in the past, we've been pretty pretty prescriptive about how we wanted this relationship to work.
And initially we ended up deciding collectively costco enough not to move forward in prior years.
Costco had leaned into actually competitive knockoff product in store and.
You know, we kind of felt like it was they had moved on and it was over and then.
We were able to resurrect that partnership this year.
With with.
This opportunity with with our bonfire to start out in 1.0, and you know what I would tell you is what we've said before which is that our focus with wholesale is to be where our customers want and need us to be and in secondary.
Secondarily, we look to to be in partnerships or or with retailers that are bringing us in the audience that we may not already be in front of we believe that Costco does both of these things for us we've been careful with the amount of inventory.
That we're putting there so that we're not over saturating or taken away from our other retail partners. We think we've been careful there. We've also come to a really good arrangement with Costco in terms of the way that they're approaching pricing.
With with the consumers in their stores. So so far so good sell through has been ahead of pace from what Costco or US expected. Initially while we initially thought it would just be a focused effort around the bonfire one point old product we have.
Already started conversations at their request looking into spring of 'twenty three with additional skus as they see opportunities to grow the relationship you're going to see us be very balance here, we're going to be careful to your point not to to threaten the relationships with our other key retail partners and also making sure that we're not under.
Reminding the D to C business. So it is a balance we feel like we're striking that balance well right now and there seems to be significant demand coming through that channel even with that balanced approach.
Okay. It sounds good and then John you had mentioned Costco was selling it knock off product sounds like they've taken that away. There has been some other knockoff products that looked like clear patent violations in the marketplace any updates on your success there and on closing some of those down.
Yeah, Great question, Yes, Costco did remove the knockoff product, which was a big win for us as it is.
We leaned into that partnership, but additionally, we actually had a successful close to some litigation that we were in.
With a with a knockoff product that came through from.
From an organization that was licensing the Derrick Laing trademark and so we're very pleased with the result, there we've had smaller but can consistent significant.
Enforcement wins with other knockoffs as well that are either no names or or you know less well known names, particularly as you mentioned coming through marketplace. So overall, we're pleased with our ability to protect.
The IP that we have and.
Again, not significant win with with Derek Lehmann and SaaS was was important to us.
Okay sounds good thanks, so much and good luck.
Thank you.
Thank you.
Your next question comes from the line of Randy chronic with Jefferies. You May proceed.
Hey, guys. Thanks for the help.
Want to get some perspective on how we should be thinking about.
Just longer term, where you think kind of margins may sit for the business recognizing.
Recognizing you've seen some.
You know freight headwinds.
We've definitely seen some SG&A dollar growth ahead of sales growth just kind of kind of trying to get a feel for.
Maybe where you think long term margins may sit.
Versus the last couple.
Ears, or or and so on and so forth because that because again I think what the market is trying to understand is where the profit margins kind of adjust to longer term after we get through the fourth quarter, and especially considering that the consumer feels.
Feels choppy, but your business.
Okay right now against the more conservative.
Sales backdrop of guidance for the fourth quarter, which probably feels kind of conservative which is great. So just kind of wanted your.
Thoughts on just how we should be thinking about maybe not quantify the margins, but maybe pointed in the right direction on how margins will play out over the next few years. Thanks guys.
Yeah, Great question. So when we're thinking about margins I'll start with gross margin in the inbound freight.
And we had a little bit of a dynamic. This year, we are locked into contracts, we started buying at kind of the higher rate. When freight was so high in the March April May June time frame, obviously, we've seen them come down.
We're working through the inventory on the balance sheet is that with the higher freight we do expect that to abate.
In 2023, as we work through that inventory over the holiday season.
We've quantified that as about 100 to 150 basis points of pressure that we're seeing right now on your gross margin.
As far as EBIT margin.
We are working through the 2023 planning cycle right now so I won't give specific guidance on 'twenty three but what I will say is you know.
We did make significant investments in data product innovation and international Mishear are we do expect to get operating leverage as we continue to move forward and grow the business. Our you know over the long run in the next two to three years.
Expect to be back at 20% EBIT margins, and that's where we believe that the the business will run kind of in that long term, we will continue to make investments in the long term, but we expect that our EBIT margins over the next two to three years will settle out at 20%.
That's super helpful. And then maybe John maybe I could follow up with you around.
Cost to acquire customers trends from your vantage point.
You have a nice healthy.
List of $3 5 million $3 4 million customers I think you said.
We know what's gone on in the market around you with Apple I O S. Privacy changes maybe it would be very helpful to get your perspective on how this kind of plays out broadly speaking.
From a cash perspective from your vantage point and then how you think about what your maybe broad level and then to you. Your company specifically, what you think about your trends of cost to acquire new customers, we'll do it versus the broader trend going forward. Thanks.
Yes, thanks, Randy its a.
Great question and it really is a great opportunity for us to talk about the differentiation of our platform. This is exactly what makes solo brands. So special we've talked on previous calls this year about the rise of the customer acquisition cost that we've seen this year somewhere I think mentioned on our last call that has been roughly 20% ish or so.
More expensive to acquire the customer up through the first half of this year I'm excited to share that in Q3, we actually saw a reversal of that trend. So a lot of people were asking US do you think that it's leveled out is it going to continue to get more expensive. How do you know it's at the bottom Q3, we executed well and we actually saw the reverse.
<unk>, so on a year over year trend basis.
We saw contribution go up we started seeing the consumer convert at a better pace. Let me talk for a second about what drives that and how that's happening I think that.
This is really important, particularly because it's differentiated with the way that's still a branch is executing the first is that we have this direct this direct connection with our customers you've talked about these $3 4 million customers. But these are just customers that have purchased in our store or whatever these are customers that are purchased through our site and so we have their information, we're able to communicate with them.
And where that comes in particular handy.
When we talk about our investments into product innovation in particular.
Let's go to solar stove as an example in Q3 with the launch of Mesa, which we're super excited about.
May so what we saw is it did two things for us it allowed us to.
Reactivate existing cohorts of customers, who were pulled back and to participate with the brand with a really cool lower price point, whether it's that they wanted to use it as a gift or they wanted to add it for an easier faster experience to participate with the brands. But then we also saw a much faster rate out of the acquisition of <unk>.
Customers whenever we can leverage our customer list with new innovation to drive purchases, it's going to lower our our customer acquisition costs and ultimately not only drive customer acquisition cost down, but what we saw with Mesa early signs is that the LTV to CAC ratio goes up.
As we're able to pull those customers those new customers and convert them not only to amasa, but then upgrade them to a larger firepit down the line. So we believe that again as we said in the middle of the year customer acquisition costs have leveled out we don't expect to be back to where we were at 2020 one in terms of the.
<unk> of the customer acquisition cost, but we do believe that we saw a flattening out or a bottoming out of what those costs would look like around the middle of the year and saw slight improvements in Q3 that we're excited about the product innovation that we're launching is a key contributor to keeping customer acquisition costs down because again the cost to acquire new customers through.
Via email is so much lower than relying on only digital channel.
Yes Super helpful. Thank you so much.
Thank you.
The next question comes from the line of Chris <unk> with J P. Morgan.
Please proceed.
Thanks, Good morning, I wish I hadn't bought the propane powered.
Patio heater prior to this latest latest product launch it looks really awesome.
Maybe I could follow up I mean like it's so much. It's so much nicer to burn the wood and obviously the the technology Burns it so well.
Maybe just a follow up on Robbie's question earlier around the the guidance for the fourth quarter. So just to clarify when you talk about momentum exiting the third quarter are you up quarter to date and then you also mentioned volatility where we're hearing a lot of.
Retail category has seen a lot of volatility in the back half of the end of October early November I guess, how would how would you diagnose what's happened in your business to what extent was it you're just lapping all of this early.
Holiday selling that occurred in 2020, one you know versus a change in the consumer and maybe the election, having an overhang on the business.
Yeah, or an overhang on the market at a minimum right whether it's I.
I don't think that it's going to be unique to any one company, but it's.
Summer, we'll layer on here as well I think we both we both have a couple of things to layer on that are consistent but you just nailed exactly the point that I wanted to make what makes this Q4 more challenging to forecast than the prior two years is the two factors you. Just described the first one is <unk>.
Compared to last year the election, obviously, there wasn't anything happening there wasn't a distraction there, but most importantly, the biggest factor that we're seeing that's making it difficult and less predictable is that holiday shopping happened. So much earlier last year because of the supply chain challenges consumers were out shopping even if there's a latter.
Part of October because they were worried that they weren't going to get the items that they wanted for the holidays.
To their houses and so with that and knowing that again, you know black Friday, cyber Monday, and the bulk of holiday shopping is still out in front of us, whereas last year. We had already started seeing some of that it makes it challenging to get that to really be able to predict what the rest of this quarter looks like so I think you're now.
Yeah, it's pretty intuitive and I think everybody understands it but just articulate it from our standpoint.
That's part of the factor on guidance and I'll have some are kind of step in and talk a little bit more about about you know.
What she said.
Okay.
Yeah, I'll, just add that you know to.
To John's point, and you hit it on the head as well is we came out of Q3 and feeling really good and we saw no man and we felt that it was continuing continuing to actually build and then we started seeing kind of a kind of unpredictability and consumers' behavior and so when we looked at guidance and that's what we.
You just kind of a balanced approach of the unpredictable nature of the consumer whether it was the election, whether it was the pull forward whether it was the sense of urgency with holiday spending last year or the consumer is changing we decided to take a balanced view to Q4.
<unk>.
We choice hard with some of the data points that we were seeing coming out of Q3. So we believe this is the balanced approach the consumer seems to be a little bit unpredictable and macroeconomic factors that are going on right. Now are unpredictable until we chose to take a balanced approach for the fourth quarter.
Got it.
That's very helpful and just in terms of like how do you think about that and the potential for you know promotion, we're hearing from a lot of retailers that the consumers really responsive around events and promotion.
To what extent did you.
And that incremental you know promotion activity into the fourth quarter and have you maintained the pricing architecture.
That you you wanted and that you know that you laid out a year ago.
Yeah, Thanks, Chris for the question.
We're really pleased with the discipline that we've shown throughout the year with our promotional strategy. So we have not been more promotional.
This year up to this point and what that is putting us in a position to do is to maintain our promotional levels that we were at this time last year. So we don't have any anticipation of being more promotional than we've been if anything we've been slightly beneath and.
<unk> at the promotional levels that we weren't last year and we anticipate.
Our ability to continue to do that they that consumers are responding well. We also have again like you mentioned a lot of new innovation that's coming through.
You don't have to be as promotional on new innovation, because consumers, especially our existing customers are so excited to come back through and participate with the brands. So again, just going back to the power of those of those investments in innovation that we decided early on this year that we're going to lean into heavily and that is really paying off.
For us in this timeframe, where customers you know on a general basis I'd say, we're hearing consistently across most brands are expecting more promotions.
We're not seeing that we have to do that in order to still achieve our growth targets.
Great. Thank you very much.
Okay.
Thank you.
The next question comes from the line of Ryan Sundby.
With William Blair You May proceed.
Hey, guys. Thanks for the question.
John last quarter, you mentioned Pi was highly incremental to the total database.
One is that still held through today and then two how should we think about that with with other new innovation coming with something like power.
Yeah, obviously.
Completely different categories, so new cohorts of customers. Some are existing customers that are now being participants in new categories. And then we're also seeing with with tower. As an example, a new base of customers that haven't been preparing participants in the past that are excited about us getting into this patio.
Eating game, that's really been unabated over the lot.
Several decades.
<unk> continues to do well, we're really pleased with with the launch of pie This year and what it's what it's done for us in terms of bringing again, new enthusiasts gives us a little bit more into into the kind of the food space the backyard food space.
Which we like at least as it pertains to some of these more gathering good moment lasting memory type products that that pie, obviously creates and allowing families and friends together and make pizza.
What we're especially pleased with with that product is just what people are saying in their reviews.
It's been tremendous in fact unsolicited we actually just got word on Pi in the last couple of weeks that it was selected as Oprah as one of Oprah's best of gifts.
For the holidays, which.
You guys are familiar with is a huge deal it's not an advertising gimmick you don't pay to play it's truly the products that she has that have come on her radar that she's just fell in love with and the fact that she recognized pie is that and threw it in to her gift guide for the holidays, it's pretty awesome. So.
We're happy with that product and looking forward to continue to grow that category next year and beyond.
Yeah.
Got it and then maybe just a follow up on Mesa.
From a psychological standpoint, how important is it to be out there with the sub $100 offering and then is there anything you can point to in the past whether it could be upgrades from from Ranger to Banca Yukon or maybe some of the accessories in terms of.
What we should expect from from kind of a great cycle over time there.
Yeah, I mean, it was so much innovation, we're finding that there's so many ways for us to drive retention in the business. In addition to driving new acquisition, which we all have been saying for the last year that that we're very early and there's a huge.
Addressable market that we haven't tapped into on just our core products, particularly.
Particularly the Firepit business, but Mesa is is definitely.
A fantastic product and really really great from a timing perspective, as well with with the current headwinds and economic conditions.
Conditions that we're facing this this entry level price points of the brand to allow participants to come in and be a part of the silicone community.
And start participating across really all of our brands.
From a timing perspective couldn't have been better. So we're really we're really stoked about that and again I mentioned. This earlier. We're also excited about early signs that we're seeing in the data of customers coming in for the first time, so the adoption with our existing customers on Mesa has been tremendous but we've been equally excited about the acquisition.
<unk> opportunity and increase that it created to attracting new customers New brand participants and what we're seeing early is that those customers are having a great experience with Mesa and they're choosing to then upgrade and get into a ranger or a bonfire. So we like those trends I don't have data off hand.
To share with you in terms of customers upgrading from a range of <unk> part of your color starting with Yukon, and then going more portable downhill bonfire, but what I can tell you is that the average units per order across our customer cohorts is increasing so we are seeing customers purchased more items on their.
<unk> than we have historically, which goes to show you know again the success of this innovation that we're launching and customers willing to be bigger and broader brand participants with us.
Yeah, great. Thanks, Chris.
Thank you.
The next question comes from the line of Jason Bender with Citi. You May proceed.
Great.
Thanks for taking the question I appreciate all the color you guys offered about all the new innovation coming through really exciting stuff and I know you don't talk about it at a brand level, but is there any way you can wrap some commentary around how each of the various brands are performing and how they kind of progressed.
In terms of.
Monthly cadence throughout the quarter.
Yeah, we've talked about this you know in the past.
But still a stove is seasonally Q4 is generally the the brand that's that has most of the offer.
The other three brands are primarily warm mother warm weather brands, but obviously holiday the holiday still offset that slightly so generally.
Solo so we will ramp up throughout the quarter. The same goes for the other brands that are driven again by holiday shopping and sales and so the biggest contributor in the quarter as though particularly because of the seasonality and then all of the brands experienced a very similar ramp in terms of the beginning of the quarter.
You know being the you know the slower part of the quarter and then it ramping throughout the throughout the quarter, probably peaking you know the last week of November early early December and then continuing to be pretty strong through the through the end of December .
Got it thank you for that.
I know, it's still a super small portion of the business, but could you maybe just comment on the international side of the business and how the expansion there was going and then just juxtapose against them.
U S dollar shrink maybe how you're thinking about pricing in those markets. Thanks.
Yeah, I'll, maybe start with pricing and then in reverse back to kind of what we're seeing internationally. So generally the way we are approaching those markets just to have them operate with a very similar financial profile for our domestic business. So as we think about pricing. We're factoring in the same thing we are domestically what is the cost of goods, which includes the.
The freight the freight expense to get the product.
And to those international markets and then ultimately what is the customer acquisition cost so we're driving to.
We're looking to drive to a similar contribution margin as we have here domestically.
International has been.
Interesting and fun to watch this year for us and we have been very pleased with the kickoff of our international business, particularly solar so who leaned in first and then the other brands, which are basically kind of a more of a rinse and repeat so we've been able to kind of use so the stove business as you know as a catalog.
To then drive international expansion for the other three brands on the platform.
I will say that in the last four to six weeks.
It feels that internationally.
There is there has been a shift the macro conditions the macro economic conditions that are that are happening are obviously not just.
Unique here to the U S. But they are definitely impacting international markets and it almost feels like they are being impacted at a at a more severe right.
Then then than domestically so we're continuing to watch it it's been a great year for us internationally.
But as we look into 'twenty three we're definitely keeping an eye on the consumers the international consumers and how the current market conditions are going to impact them in their buying decisions.
The holidays will be important to help indicate that and so we'll talk more about that on future calls.
I appreciate the color.
Okay. Thank you.
There are no questions waiting at this time, so I would like to turn the call back over to John Morris Chief Executive Officer for the closing remarks, followed by Q&A.
Yeah, we appreciate everybody being on the call today and for those of you that that Havent, which we're hearing nobody has but for those of you that haven't started your holiday shopping.
We recommend you go checkout mace, that's a it's a <unk>.
Great price point, it's a great gifts and of course, if you are looking to splurge a little bit.
Oprah says the pie oven is the product of the year to get out there. So but we appreciate everybody being on the call today and look forward to talking to you again in a few months.
That concludes the conference call. Thank you for your participation you may now disconnect your line.