Q1 2023 Traeger Inc Earnings Call
All participants will have the opportunity to ask questions today and you can do this by pressing star followed by one on your telephone keypad.
I'd now like to hand, the call over to Nick <unk> to begin. Please go ahead.
Good afternoon, everyone. Thank you for joining triggers call to discuss first quarter 2020 results, which were released this afternoon. It can be found on our website at investors Akshay Your dot Com, Nick package, Vice President of Investor Relations that trigger with me on the call today are Jeremy <unk>, our chief executive of.
Officer, Donna <unk>, our Chief Financial Officer.
Before we get started I want to remind everyone that management's remarks on this call may contain forward looking statements, including regarding our anticipated full year 2020 results, which are based on current expectations, but are subject to substantial risks and uncertainties that could cause actual results to differ materially from those expressed or implied herein.
We encourage you to review our annual report on Form 10-K for the year ended December 31, 2022, and our other SEC filings for a discussion of these factors and uncertainties, which are also available on the Investor Relations portion of our website you should not take undue reliance on these forward looking statements we speak only as of today and we undertake no obligation to update or revise them.
Any new information.
This call will also contain certain non-GAAP financial measures, including adjusted EBITDA adjusted net income and adjusted gross margin, which we believe are useful supplemental measures. The most directly comparable GAAP financial measures and reconciliations of the non-GAAP measures contained herein to such GAAP measures are included in our earnings release, which is available on the Investor relations portion of our website at <unk>.
<unk> dot trigger dot com now.
Now I would like to turn the call over to Jeremy Andrus, Chief Executive Officer trigger.
Thank you Nick Thank you for joining our first quarter earnings call.
Today, we will be discussing the first quarter results as well as our progress on executing our long term strategies I will then turn the call over to Don to discuss further details on our quarterly financial performance.
In the first quarter, we continued to execute against our plan as we navigate the challenging environment and position the business for a return to top and bottom line growth in the second half of 2023.
First quarter revenues of $153 million came in towards the higher end of our guidance range, while adjusted EBITDA of $22 million exceeded the high end of our range by $2 million.
I am pleased with our ability to over deliver on our adjusted EBITDA guidance for the quarter and believe our results demonstrate our strong organizational focus on positioning trigger for improved profitability while.
While our top line continues to be pressured by retailer destocking as well as lower consumer demand in our group business. Our first quarter results increase our confidence in our ability to achieve our full year guidance and as a result, we are reiterating our prior guidance.
During the quarter sell through of Grilles remained negative versus the first quarter last year as we continued to lap a very strong multiyear comparisons the.
The impact of lower consumer demand in the first quarter was compounded by continued retailer destocking compared to the first quarter last year when retailers were still building inventories however sell through in the quarter was in line with our forecast coming into the year importantly, following a holiday period in which.
We lean into promotions at retail in an effort to accelerate demand and clear channel inventories, we reverted to a more typical promotional cadence in the first quarter that was similar to prior year.
I am encouraged to see consumer demand returned to a more predictable pattern, despite less aggressive promotions and in the face of what continues to be an elevated promotional environment in the outdoor cooking industry more broadly.
In the first quarter, we continued to execute against our near term tactical priorities, which we have discussed over the last three quarterly calls.
In terms of inventories, we are making substantial progress on our right sizing efforts or initiatives to drive sell through in channel and our retail partners Destocking efforts in conjunction with lower production levels have led to a materially improved picture on inventories with both our balance sheet inventories and inventories in.
The channel declined sequentially relative to last quarter.
We continue to expect that this inventory rationalization process will continue through the second quarter and believe that inventories will be more fully aligned in the second half, which will allow for a more normalized replenishment rates of grills.
On gross margin our team remains highly focused on driving margin improvement in the first quarter, we made a strategic decision to optimize our pellet manufacturing footprint by consolidating a pellet mill portfolio from seven to five.
By divesting of two higher cost mills, and increasing efficiencies in the other five facilities, we expect to drive meaningful improvement in capacity utilization and cost per pound. Moreover, we have ample capacity to fuel strong growth on our pellet business in the coming years.
In terms of our cost structure in the first quarter, we realized the benefit of the cost reduction efforts, we undertook last year, which resulted in an annualized cost savings north of $20 million.
Further we have planned our expense structure prudently for 2023, which will enable the company to deliver growth in adjusted EBITDA, Despite our guidance for lower sales.
We plan to remain highly focused on expense efficiency as we move through the year, while remaining nimble enough to invest them to high priority growth initiatives if investment capacity increases.
Moving on to our strategic growth pillars.
Our largest long term opportunity continues to be accelerating brand awareness and penetration in the United States.
Our strategy is to meaningfully increase household penetration from our current three 5% by driving awareness of the trigger brand and increasing the productivity of our existing distribution network through community engagement enhanced retail merchandising in store marketing and product innovation.
We believe we can materially expand trigger share of space devoted to the outdoor cooking on our retail partners floors.
Our brand awareness remains at an all time high and is up materially from this time last year. Despite our limited top of funnel marketing investment capacity over the last 12 months in the first quarter engagement with our community on social media continued to demonstrate the growing awareness of and participation in our <unk>.
Rand.
We grew our followers by 19% versus last year and user generated content post, which we view as a key medium for our brand evangelists were up by 16%.
For the Super Bowl, we offered up unique content and recipes for the game and encourage our community to post content you can see the trader gameday hashtag, resulting in another record year of UGC posts on the day.
Our awareness also continues to benefit from consistent and increasing media coverage with articles and reviews, covering our new product launches TV spots, featuring trager recipes and cooking tips for the Super Bowl and numerous mentions in top 10 growth of 2023 less our media reach is.
More than doubled versus first quarter of last year.
Trager continues to be the grille brand that everyone is talking about.
Going into our peak summer selling season, the excitement enthusiasm around the trade or brand remains as strong as ever next week on May 20th we will celebrate our sixth annual trigger date, our holiday dedicated to family friends and wood fired food cooked on the trader in anticipation of trade today and ahead of the <unk>.
Grilling season, we've released a series of videos featuring many church barbecues, Matt Pittman with recipes cooked on our new flat rock and Ironwood the.
The content is designed to generate top of funnel awareness and to encourage our massive community to cook together and post about it on may 20th.
Next onto our second growth pillar, which is disrupting outdoor cooking with product innovation. The first quarter was a critical period in their product innovation roadmap with the launch of two new Grilles in February our new Ironwood, and our new flat rock griddle.
These launches where some of the most successful in our brand's history and I am extremely proud of the team's execution of our go to market strategy from product development to commercialization.
Innovation is at the core of our company and the level of innovation that we're bringing to the outdoor cooking market is remarkable the first quarter's product launches cement our position as an industry disruptor.
New Ironwood offers unrivaled flavor and consistency through a series of upgrades and new features building on the innovation of last year's Timberland introduction. The new Ironwood includes features like smart combustion technology free flow fire pot and touch screen user interface, enabling consumers to master their cooks every time.
The response from consumers and retailers has been fantastic. The ironwood had over 400000 views on social media during the launch period and received positive media from Rolling Stone Men's journal GQ and Forbes.
The launch of our premium Flattop grill, the trigger flat rock has been something of a phenomenon.
We have seen the griddle category expand meaningfully over the last few years and in speaking with their community. We understood that there was a gap in the marketplace for a premium griddle and an opportunity for trigger to disrupt this space pop.
Complementing the tried and true dishes of the wood pellet grill, our new Flattop grill opens a trigger hooked up to an entirely new menu.
<unk> like pancakes, Philly cheesesteak, and smash burgers, the flat rock salt several common pain points for grill users with innovations like our true zone heating system with three separate cooking zones, AAA <unk> burner design for even cooking across our cooking surface and flame lot construction, which locks in he.
Heat and blocks out wind.
The launch has been the most engaging in our history with over 838000 video views and over 27000 engagements on social media during the launch period.
We are extremely pleased with the consumer response, thus far and as we have launched flat rock with limited distribution. There is a significant opportunity to increase distribution as we move through this year.
Our next strategic pillar driving recurring revenues as expected our consumables business was pressured by lower demand from a large customer who introduce a private label pellet offering last year.
Outside of this our pellet business remains healthy and sell through in the first quarter was relatively in line with the first quarter last year, excluding this customer demonstrating the recurring nature of this revenue stream.
We also continued to grow distribution of pellets into the grocery channel in the first quarter, we added pellets into nearly 450, new grocery doors across Albertsons, Spartan Nash and release.
We also grew our pellet offering at Kroger by adding our new value size 30 pound barbecue select pellet and over 600 doors.
On the food consumables side, we continue to execute on our growth strategy through channel expansion and new product offerings of note, we secured new distribution for trager, rubs and sauces and over 250 doors of Myer.
We also launched three new rubs focus on the most popular griddle meals to support the launch of flat rock Burger Rub breakfast, Rob and spicy fajita run.
Our final growth pillar is expanding the trigger brand internationally.
Similar to the U S market, our international business was pressured by the retailer Destocking in the first quarter. However results internationally for the quarter were in line with our expectations.
In the first quarter, we introduced our new timberline and European markets, and our new Ironwood in Europe and Canada.
The product newness drove excitement on retail floors and led to improved reorder activity.
Overall, we were pleased to see the consumer respond to new product and while we continue to expect near term softness in our international markets. We do expect meaningful improvement in second half sales trends.
In conclusion I am encouraged by the meaningful progress we have made in the last three quarters on our tactical priorities, our team's focus on right sizing inventories, reducing our cost structure and driving gross margin improvements will position the business for a return to growth in the second half of the year and beyond Mora.
Over the excitement and exceptional consumer response to our new product launches bolsters my confidence and traders long term strategy and positioning as an innovator and disruptor in the outdoor cooking industry and with that I'll turn the call over to Dom Dom.
Thank you Jeremy and good afternoon, everyone.
Today ill review, our first quarter performance and discuss our outlook for fiscal year 2023.
First quarter revenue declined 32% to $153 million.
<unk> revenues declined 40% to $90 million.
Grill revenue was negatively impacted by lower unit volumes as our retail partners continue to destock in an effort to drive lower in channel inventories, partially offset by higher average selling prices.
Consumables revenues were $30 million down 24% to first quarter of last year, driven by lower volume pellets.
Our consumables business was negatively impacted by the loss of volume with a customer who introduced a private label pellet last year as well as lapping the large load enough food consumables into the grocery channel in the first quarter of last year.
Accessories revenue decreased 1% to $33 million due.
Due to lower unit volumes of trigger branded accessories, partially offset by increased sales of the meter.
Geographically North American revenues were down 33%, while rest of world revenues were down 13%.
Gross profit for the first quarter decreased to $55 million from $83 million in the first quarter of 2022.
Gross profit margin was 36, 2% down 80 basis points versus first quarter of 2022.
The decline in gross margin was primarily driven by one lower grill margin due to pricing mix and the timing of some expenses tied to our spring promotion, which negatively impacted gross margin by 240 basis points to increased amortization of 70 basis points and three other unfavorable.
<unk> items worth 110 basis points.
Offsetting these margin pressures were one FX favorability, which positively impacted margins by 170 basis points.
Lower freight and logistics costs, which drove 170 basis points of margin favorability.
Sales and marketing expenses were $22 million.
Compared to $35 million in the first quarter of 2022.
The decrease was driven primarily by lower marketing expense employee costs and lower professional service fees.
General and administrative expenses were $27 million.
Compared to $41 million in the first quarter of 2022.
The decrease in general and administrative expense was driven primarily by lower stock based compensation expense lower professional service fees and reduced employee costs.
First quarter operating expenses benefited from the restructuring and cost savings actions taken last year, and we realize in excess of $20 million in annualized savings.
Net income for the first quarter was $8 million as compared to net loss of $9 million in the first quarter of 2022.
Net income per diluted share was seven cents.
Compared to a loss of eight in the first quarter of 2022.
Adjusted net income for the quarter was $5 million or <unk> <unk> per diluted share as compared to adjusted net income of $19 million or <unk> 17 per diluted share in the same period in 2022.
Adjusted EBITDA was $22 million in the first quarter as compared to $30 million in the same period of 2022.
First quarter adjusted EBITDA was approximately $2 million ahead of the high end of our guidance range.
Outperformance relative to our guidance was driven mainly by lower than expected operating expenses largely due to the timing of expenses between the first and the second quarter.
Now turning to the balance sheet.
At the end of the first quarter cash cash equivalents and restricted cash totaled $28 million.
Compared to $52 million at the end of the previous fiscal year.
We ended the quarter with $404 million of long term debt.
At the end of the quarter the company had drawn down $41 million on your receivables financing agreement and $43 million under its revolving credit facility, resulting in total net debt of $460 million.
From a liquidity perspective, we ended the first quarter with total liquidity of $98 million.
We expect liquidity to ramp as we collect on receivables and reduce inventory moving through the second quarter, which is our peak selling season at retail.
Inventory at the end of the first quarter was $132 million.
Compared to $153 million at the end of the fourth quarter of 2022 and $160 million at the end of the first quarter of 2022.
We're pleased with the progress we made in the first quarter and right sizing our balance sheet inventories and in particular grill inventories, which drove the majority of the sequential decline in total inventories versus the fourth quarter.
In channel, we're seeing continued improvement in our retail partners weeks of supply.
While we expect the inventory rebalancing process to continue in the second quarter, we are well positioned to be in a substantially more balanced position going into the second half of the year.
In terms of our outlook for full year 2023, we are reiterating our guidance for revenues to be between $560 million and $590 million and adjusted EBITDA to be between $45 million in.
$55 million.
As we discussed on our fourth quarter call. We expect our first half sales to be pressured by continued retailer destocking and challenging multi year comparisons before seeing a return to growth in the second half of the year as replenishment rates normalize and we lap a substantial sales decline driven by Destocking in the second half of 2022.
<unk>.
We continue to expect that second quarter sales could decline in excess of 20% versus prior year.
We are reiterating our outlook for gross margins of 36% to 37%.
Which represents 80 to 180 basis points of improvement relative to our fiscal 2022, adjusted gross margin of 35, 2%.
We expect to see the largest gain in gross margin in the third quarter, given the expected improvement in fixed cost leverage as we lap the large sales decline we experienced in the third quarter of 2022.
We expect that lower transportation costs will be the largest driver of gross margin improvement for the year due to the decline in inbound freight rates.
In summary, I am pleased with the solid progress we made in the first quarter on our key tactical priorities and believe we are well positioned as we move through our peak selling season.
We will continue to balance our building confidence in our outlook for the year.
With the continued uncertainty around the macroeconomic environment, which remains highly volatile.
We will remain agile in this rapidly evolving environment as we continue to execute against our strategy and with that I'll turn the call over to the operator for questions operator.
If you would like to ask a question. Please press star followed by one on your telephone keypad now if you change your mind at least here, maybe yourself and the key please press star followed by Chi. Please ask one question I'm going to start a last question for the speakers unless the parent sneak data show that your line is you should make any.
Just last question on the line comes from Simeon Siegel from BMO capital markets. Your line is open. Please go ahead.
Thanks, So much hey, guys good afternoon.
So I was hoping Jim is that we can talk a little bit more about pellets may.
Maybe maybe both sides. So can we talk a little bit more about what you think the consolidation will do.
Mills, so any color there from the supply side thinking through the benefits maybe quantifying some of the costs and then secondarily on the demand side. So can you guys talk through.
The element with a large retailer so when do we lap that maybe any color you have seen from their offering and how people are responding and then lastly, we use pellets.
And engagement proxy so to just still out maybe the change in retailer and timing just help us think through how you are seeing engagement.
Just just usage in general thanks, guys.
Okay. Good.
Good questions.
I'll start with the closure of the two pellet mills right. So I'd first start by saying this ties into the broader strategy that we've been executing over the last call. It 12 months in terms of.
Really optimizing the entire cost structure of our business right and as we think about.
No.
The dynamics during the pandemic as well as what we're seeing now post pandemic and the fact that we're getting a better understanding for the demand pull forward that we experienced I think what we effectively landed on here as part of again, our overall strategy to kind of re optimize our cost structure is.
One we really determined that at this point forward, we just had too much capacity in the system.
And to that that was putting pressure on the unit economics of our pellets and so the <unk> the <unk>.
Opportunity that we identified was to rebalance our capacity in light of what we believe is.
The demand that we can forecast a day for the next call it two to three years.
And.
That capacity.
A level that allows us to optimize the utilization rate of that capacity and in turn we can improve the unit economics on a run rate basis for our pellets and something that we're very very excited about.
And I think the second layer to that is we were we had the luxury of identifying two pellet pellet mills in the portfolio that frankly were less efficient than the remaining.
And so we can actually shift some of the the demand or utilization of capacity in other areas and further pick up gains from a unit economic standpoint on those pellets.
So that's really the driving factor, it's just a component of the broader strategy and something that we wanted to address in line with how we think about just improvements in our operation and continuing to pick up.
Arjun improvements in gross margin in particular.
The second question on.
Sure.
Thank you.
Could you repeat the second question just.
Thank you for your demand or does it.
I was just thinking about the supply side.
Yes.
How are you thinking about engagement, how are you thinking about demand or sell through and again, just helping us basically they talk to their lives from.
Are you actually seeing versus the retailer dynamic.
Sure. So we really look at the usage and sort of the demand of consumables in particular in two ways. The first is through consumables attachment against our installed base.
And what we're seeing right now is a reversion back to pre pandemic attach rates, we've talked about this on previous calls where we saw a spike in attach.
And during during the pandemic and I always believe that that would sort of re normalized post pandemic right. Just given all of the factors associated with why that would be and so I think the good news here as we kind of look ahead than what we're seeing now is that attach against the install is tracking or sort of falling more in.
In line with pre pandemic, where we would expect it to be save a little bit of an incremental pressure.
The private label pellet launched by one of our large customers.
As we think about the second layer to that which is more a tell on consumer demand.
A read into the the Iot data that we collect which is a better measure of usage rates right and I think what we're seeing there continues to be positive. So we kind of look at it in multiple ways. One way is via cohorts, which is kind of like for like over time as you evaluate vintage in and usage of those cohorts as well.
Aggregate cooks month to month.
On the aggregate Cook side, it's pretty consistent with what we've shared in the past in terms of number of <unk> per month and on the cohort data. What we're seeing is what we would expect like as a cohort ages 19 cohorts there.
Is a marginal decline in usage over time and part of that May be explained by the fact that as the agent to say year four they're looking to replace.
A grill given that they are approaching that that lifecycle and may enter into a new cohort. So it's exactly it's playing out exactly as we would expect and I think the second layer to that which we feel is very positive is that you look at each cohort.
And you look at say a pandemic cohort theyre behaving exactly the same as pre pandemic cohorts as our post pandemic cohorts and so I think what we see here is just kind of building installed base of consumers of users of our product who behave the same.
Very similar pattern over time in that first year of Cook behavior really mirrors, what we've seen historically and so that just gives us a lot of confidence that the pull forward did what we hoped it would do at the end of the day, even though there's this overhang of co Florida in demand. We're also picking up consumers that will continue to be active in <unk>.
Engage with our product into the future.
Thats great perfect. Thanks, a lot guys best of luck for the rest of year.
The next question on the line comes from Peter Benedict of Robert W. Baird.
Please go ahead your line is open.
Okay.
Alright, guys. Good afternoon. Thanks for taking the question first just on gross margin.
Nice to see the little over 36% during the first quarter.
Recognize these guys are still expecting 36 37 for the year do you still expect gross margin rate to kind of build sequentially.
As we move through the quarters.
And so Thats. My first question is kind of related to that.
And how you see kind of maybe walk to north of 37% over time.
Longer term.
Sure.
I'd say that we remain I would give a more cautious tone on <unk> I think that's consistent so we're happy with where we landed in Q1.
Really no support surprises as we look at actually.
Actual gross margin versus <unk>.
What our internal models show I would say that that the pressures that we're seeing in Q1 will be consistent in Q2, right. So I wouldn't necessarily look at the first half of the year as sort of the building sequential improvement in gross margin in part due to the fact that as we've talked about in the past we still carry.
The carrying cost of our inventories still remains higher than we'd like it to be.
As you shift towards the back half of the year, where we expect to start realizing sequential improvements in gross margin, that's largely driven by the fact that as we clear this higher cost inventory will begin to take advantage of what are really.
Improved rates in the inbound transportation market, where I wouldn't suggest that they are all the way back to pre pandemic levels, given some of the nuances and dynamics.
Generally around how contracts work et cetera, but there are substantial improvements from what we were paying for containers a year ago six months ago. So that's really the consistent theme.
The viewpoint on how gross margin comps in the first half of the year with sequential improvements in the back half.
And then in terms of just how we think about the future.
Go ahead.
Yes.
Sure.
Got it.
It's consistent with what we spoke to in the past our strategy really is focused on one portfolio management driving gross margin expansion.
Expansion.
In an optimized mix within the portfolio as we launch new products at higher margin, it's strategic sourcing as we continue to lean on and build out.
A highly functioning.
Functioning and really highly.
Expert oriented.
Operations and product team to go out and continue to cost down existing product within the portfolio as well as how do we think about just the manufacturing landscape over time and then lastly, just on general operational improvements again leave you. Just one example of direct import.
Where we cut out one one layer of our value chain, which has proven to be a great element too.
The building tailwind in gross margin.
Sure No that's helpful. Dom and then second word.
<unk>.
The inventory.
Better and cheaper.
Okay.
Seattle.
You talked about a normalization in demand patterns.
Jeremy I think you're probably referring to I assume you're referring to maybe a week to week builds as you kind of start to move into the spring season is that.
And does that what gives you confidence in forecasting that there will be replenishment by retailers in the back half of year, maybe just tease that out a little bit more it's an important dynamic and I want to make sure. We understand what you guys are see here in the early parts of strength. Thank you.
Yeah.
And so I think there are a couple of components to the predictability one is that.
I would say.
This year for the first time in multiple years, where we're seeing predictability. So we track that.
Very carefully week by week and certainly compare against.
Prior years.
Where we've got more normalized seasonality and against our forecast.
I haven't seen.
<unk>.
Point of sale data that just it's reasonably predictable, whereas last last sort of.
Three years have been fairly volatile.
In the pandemic on the upside and then last year to the downside the second component really.
That gives us confidence in our guidance.
Forecast is.
Retailer inventory levels coming back down to Hell.
Healthy levels, which effectively allows us to replenish the units as they're sold through so.
Certainly we've seen the health improve.
Meaningfully in the first quarter in the second quarter we.
We expect that we'll end the quarter feeling like retail inventory levels are in a really good place and that just gives us gives us a view.
Into what into revenue.
Great. Thanks, so much good luck.
And in forecasting that there will be replenishment by retailers in the back half of the year, maybe just tease that out a little bit more it's an important dynamic and I want to make sure. We understand what you guys are see here in the early parts of strength. Thank you.
Thanks.
The next question on the line comes from Peter Keith of Piper Sandler. Please go ahead. Your line is open.
Yeah.
Hi, Thanks, good morning, everyone.
Yes. So I think there are a couple of components to the predictability of one is that.
Sorry long, Dave good afternoon, everyone.
I would say.
The credit environment is obviously something that has kind of a steady drumbeat in the background and we're hearing that smaller retailers are having to pull back on inventory purchases just because of.
This year for the first time in multiple years, where we're seeing predictability itself and we track that.
Very carefully week by week.
Certainly compare against <unk>.
The tighter credit backdrop, you guys do have some big wholesale partners. We also have some small ones and I am wondering is there any issue on order trends with some of your smaller retail partners out there because of this backdrop.
Prior years.
Where we've got more normalized seasonality and against our forecast.
I would say we are seeing.
Point of sale data that just it's reasonably predictable, whereas last last sort of.
No not from our side I mean, we have a really strong partnership with with our retail partners.
Three years have been fairly volatile.
We work on.
In the pandemic on the upside and then last year the downside the second component really.
On terms and it sort of ebbs and flows over the course of the season, where if we're setting larger quantities in say late Q1 for four for promotional periods or just the uptick in demand in Q2.
That gives us confidence in our guidance.
<unk> forecast is.
Retailer inventory levels coming back down to <unk>.
They tend to work on extended dating programs et cetera to sort of optimize their own sort of cash flow positions given the fact that they are smaller retailers.
Healthy levels, which effectively allows us to replenish the units as they're sold through so.
Certainly we've seen the health improve.
In addition to that we tend to think of specialty within our realm as kind of this one to show wanted to go model, where theyre not necessarily going to preload inventory at the levels you would see at a larger big box right because they don't have the storage and therefore that gives them the ability to turn inventory more efficiently and manage their own cash.
Meaningfully in the first quarter in the second quarter, we expect that we'll end the quarter feeling like retail inventory levels are in really good place and that just gives us gives us a view.
Into revenue.
Great. Thanks, so much good luck.
Conversion cycle, Accordingly, and so we want to be great partners here and I think that goes a long way in terms of the trend we're seeing relative to what you are seeing but we haven't necessarily seen anything pop up that would signal a problem from a credit standpoint, <unk> impact order behaviors.
Thanks.
The next question on the line comes from Peter Keith of Piper Sandler. Please go ahead. Your line is open.
Hi, Thanks, good morning, everyone.
Sorry long, Dave good afternoon, everyone.
The.
Okay helpful and then maybe for Jeremy on the marketing side.
Environment is obviously something that has kind of a steady drumbeat in the background and we're hearing that smaller retailers are having to pull back on inventory purchases just because of.
<unk> talked about kind of pulling back on some of the top of funnel marketing what about the bottom funnel marketing I am thinking more.
The tighter credit backdrop, you guys do have some big wholesale partners. We also have some small ones and I am wondering is there any issue on order trends with some of your smaller retail partners out there because of this backdrop.
Specifically around your boots on the ground efforts with retailers I know you would do in store demos. You had trained sales associates you gave sales associates discounts. So they would own the product are those efforts still ongoing or is that something that also you're having to pull back on just given the demand environment.
No not from our side I mean, we have a really strong partnership with with our retail partners.
No I would say that those efforts are still ongoing as we as we think about.
We work on on.
On terms and it sort of ebbs and flows over the course of the season, where if we're setting larger quantities in say late Q1 for for promotional periods or just the uptick in demand in Q2.
Near term versus long term needs obviously in the long term, we do need to medium to long term need to invest more in brand awareness.
Sort of top of funnel customer acquisition in the near term we focus on two components, one is community engagement and <unk>.
They tend to work on extended dating programs et cetera to sort of optimize their own sort of cash flow positions given the fact that they are smaller retailers.
Some of the metrics in my prepared remarks on success that we're seeing in engaging the community.
In addition to that we tend to think of specialty within our realm as kind of this one to show wanted to go model, where theyre not necessarily going to preload inventory at the levels you would see at a larger big box right because they don't have the storage and therefore that gives them the ability to turn inventory more efficiently and manage their own cash.
Around social user generated content.
Cooking.
Just general cooking behavior.
And that's sort of like that that's the Specialness. That's the secret sauce of the platform that we can always lean into.
Conversion cycle, Accordingly, and so we want to be great partners here and I think that goes a long way in terms of the trend we're seeing relative to what you are seeing but we haven't necessarily seen anything pop up that would signal a problem from a credit standpoint, <unk> impact order behaviors.
We built a brand.
Long before we spent spent dollars on top of funnel, we built the brand by executing effectively at retail and we really feel like that is a competitive advantage that we have.
That no other <unk>.
Okay helpful and then maybe for Jeremy on the marketing side.
<unk> Cookie brand has which is national coverage.
And the most important markets.
Talked about kind of pulling back on some of the top of funnel marketing, but what about the bottom funnel marketing and I'm thinking more.
Boots on the ground in retail merchandising training.
Stimulating demand managing partnerships and we Havent, we havent pulled back there and we think thats.
Specifically around your boots on the ground efforts with retailers I know you do in store demos you had trained sales associates you gave sales associates discounts. So they would own the product are those efforts still ongoing or is that something that also you are having to pull back on just given the demand environment.
We believe it's a high returning investment.
In.
As we go from specialty retail to national retail like home Depot for example, the needs change and so we service those accounts on the ground differently.
No I would say that those efforts are still ongoing as we as we think about.
Near term.
Versus long term needs obviously in the long term, we do need to medium to long term need to invest more in brand awareness.
But we continue to make investments in the point of sale I would say, notably with home depot.
We're sort of.
Multiple years into making investments.
Sort of top of funnel customer acquisition in the near term we focus on two components, one is community engagement and <unk>.
At retail in terms of breadth of assortment, but also investment in fixtures. These trigger islands.
<unk> some of the metrics in my prepared remarks on success that we're seeing in engaging the community.
Call them. So the investment on the ground is alive and well and as we progress.
Round social user generated content.
And sort of stabilize and begin to grow and have incremental investment capacity. There is no question. We will begin to lean more into this market are soft strategy, which is really connecting the boots on the ground the retail execution.
Cooking.
Just general cooking behavior.
And that's sort of like that that's the Specialness. That's the secret sauce of the platform that we can always lean into.
We built a brand.
With top of funnel investment in media.
Long before we spent spent dollars on top of funnel, we built the brand by executing effectively at retail and we really feel like that is a competitive advantage that we have that.
Okay.
That's great maybe you mentioned home depot are at at the end has there been any update.
From the.
Not the door expansion, but I guess you call it the the.
No other.
Outdoor cooking brand has which is national coverage.
The building out of the island and the the two bay walls.
The most important markets boots.
The home depot partnership is a strong one.
Boots on the ground in retail merchandising training.
We.
Stimulating demand managing partnerships.
We've made a lot of progress in terms of continuing to add space we launched.
And we Havent, we havent pulled back there and we think thats.
A few hundred incremental fixture doors in the fall.
We believe it's a high returning investment.
And in the second half of this year.
In.
Will.
As we go from specialty retail to national retail like home Depot for example, the needs change and so we service those accounts on the ground differently.
Yeah.
Again, we will meaningfully grow the.
But both for space and the number of fixtures at retail and that's sort of.
That's a very it's a long term.
But we continue to make investments in the point of sale I would say, notably with home depot.
But very predictable form of growth by really driving presence at retail, which we find is directly directly correlated with brand growth.
We're sort of.
Multiple years into making investments.
At retail in terms of breadth of assortment, but also investment in fixed during these trigger islands as we've.
Perfect. Okay. Thank you so much.
Thanks Peter.
The next question comes from Jay Olson of Telsey Advisory Group. Please go ahead. Your line is now open.
Call them. So the investment on the ground is alive and well and as we progress.
It sort of stabilize and begin to grow and have incremental investment capacity. There's no question. We will begin to lean more into this market are soft strategy, which is really connecting the boots on the ground the retail execution.
Yes.
Good afternoon, guys. Thanks for taking my question.
Wanted to ask you a little bit more on some of the innovation with the ironwood and the flat rock brittle.
It sounds like you've seen a great response via social media.
With top of funnel investment in media.
Curious if youre seeing.
Good unit response as well.
Okay. That's great maybe you had mentioned home depot or at the end has there been any update.
As the industry at retail taking it in and Youre seeing pretty decent demand from the end user.
From the.
Not the door expansion, but I guess when you call it.
I would guess the ironwood, probably more so you mentioned flat rock is a little more limited distribution at the moment.
The building out of the island and the two bay walls.
Any thoughts on that.
The home depot partnership is a strong one.
So so.
Well.
We.
We're early.
We've made a lot of progress in terms of continuing to add space. We launched a few hundred incremental fixture doors in the fall and in the second half of this year.
I would say the <unk>.
G that we felt.
On social.
In early innings, we're seeing correlated with sell through.
Our expectation.
We will.
Out of the gate was at Ironwood performed very well.
Again, we will meaningfully grow the.
It is a price point that is accessible to our.
But both for space and the number of fixtures at retail and that sort of.
To our consumer base.
That's just a that's a very it's a long term.
There is a there is meaningful similarities in terms of design.
But very predictable form of growth I really driving presence at retail, which we find is directed directly correlated with brand growth.
Innovation from.
From a timber line, which is nearly twice the.
The retail sales price so.
We're pleased with the consumer response on the Ironwood.
Perfect. Okay. Thank you so much.
Flat rock.
Thanks Peter.
The social response caught us off guard there was a lot more energy around that launch than we had expected which I.
The next question comes from Jay salesman of Telsey Advisory Group. Please go ahead. Your line is now open.
It really speaks to the permission that we have as a brand.
Yes.
Good afternoon, guys. Thanks for taking my question.
With a very engaged community and strong retail retail partnerships to distribute product it gives us confidence in our ability to do something outside of wood pellet.
Wanted to ask you a little bit more on some of the innovation with the ironwood and the flat rock griddle.
It sounds like you've seen a great response at least.
So.
Social media I'm curious if youre seeing.
A complement to the wood pellet grill.
Good unit response as well.
In terms of flat rock.
Is the industry at retail taking it in and Youre seeing pretty decent demand from the end user.
Contributing to upside.
For the year.
We believe that the disciplined approach was to.
Just the ironwood, probably more so you mentioned flat rock is a little more limited distribution at the moment.
Narrowly at retail.
Any thoughts on that.
And and sell through has exceeded our expectation will be relatively constrained.
So so.
Well we're early.
For the next six sort of six to eight months on on inventory, they're long lead time facilities, there, but we really do believe heading into 2004 that this this has the potential to be.
We're early days I would say the energy that we felt.
On social.
In early innings, we're seeing correlated with sell through.
Our expectation.
A meaningful grower for us.
Out of the gate was at Ironwood performed very well.
Yeah.
It is a price point that that is accessible to our.
That's terrific great to hear that.
And then the one other thing.
To our consumer base.
There is there is meaningful similarities in terms of design.
To ask about was I think in your prepared remarks, you made a comment about.
Being nimble and able to jump into new opportunities potentially when they arise and I guess I was curious if you could share any more color on that what you meant.
Innovation from.
From the Timberline, which is nearly twice.
The retail sales price. So we're pleased with the consumer response on Ironwood.
Yes.
Yes.
It's important to sort of think about that within the context of where we've been at notably the last last 18 months.
Flat rock.
The.
The social response caught us off guard there was a lot more energy around that launch than we expected which is.
We have.
We've worked hard to.
It really speaks to the permission that we have as a brand.
Get lean as a business.
To ensure that we are very thoughtful in terms of how we prioritize initiatives and allocate investment dollars behind those initiatives.
It was a very engaged community and strong retail retail partnerships to distribute product gives us confidence in our ability to do something outside of wood pellet grilling sauces.
And as.
As we.
It really motivated to get really focused.
As always intended to be a complement to the wood pellet grill.
We invest back in the core business in a moment like this.
In terms of flat rock.
Contributing to upside.
We are we are constrained from an investment capacity perspective, being nimble suggests that we understand our priorities.
For the year.
We believe that the disciplined approach was to narrow.
Narrowly at retail.
That we are being thoughtful not just to the current moment that we're in.
And and sell through has exceeded our expectation will be relatively constrained.
But we'll be thoughtful to the future trigger has always been a disruptor, it's always been a share gainer.
For the next six sort of six to eight months on on inventory. They are long lead time components, there, but we really do believe heading into 2004 that this has the potential to be.
And it will be going forward and so thinking about long lead time investments.
Product for example, it takes multiple years to get product to market its important for us to continue to lean into.
A meaningful grower for us.
Yes.
Oh.
Those investments and so as we create upside from plan.
Got it.
Terrific great to hear that.
And then the one other thing I was going to ask about was just.
We have a decision to make and Thats, what do we flow through versus what do we invest back in the business.
I think in your prepared remarks, you made a comment about.
Being nimble and able to jump into new opportunities potentially when they rise and I guess I was curious if you could share any more color on that what you meant.
To ensure that we're driving future growth and so what I spoke spoke about being nimble as really being thoughts around our priorities and being willing to reinvest some of the upside to ensure that we continue to view share gain or long term.
Yes, I mean I think.
It is important to sort of think about that within the context of where we've been at notably the last last 18 months.
Got it that's really helpful. Thank you Darren and good luck this quarter guys.
Have.
We've worked hard.
To get lean as a business.
Thanks Chuck.
To ensure that we are very thoughtful in terms of how we prioritize initiatives and allocate investment dollars behind those initiatives.
The next question on the line comes from Brian <unk> from Canaccord Genuity. Please go ahead. Your line is open.
And.
As we.
Hey, good afternoon, guys. Thanks for taking my question.
It really motivated to get really focused and really invest back in the core business.
I'm curious if you could expand a bit on channel inventories relative to where you thought they'd be two months ago. When you reported Q or are they better worse or in line I know April wasn't helpful. From a weather standpoint, what are you seeing sequential improvement into May historically I would imagine there is a contract in may and June when Theres, a late start to spring for this cat.
Moment like this.
We are we are constrained from an investment capacity perspective, being nimble suggests that we understand our priorities.
That we are being thoughtful not just to the current moment that we're in but we'll be thoughtful for the future trigger has always been a disruptor, it's always been a share gainer.
<unk> is that how youre thinking about it as you reaffirm guidance.
Yes, so that's right we over the course of Q1 relative to our plan. We actually saw nice improvements ahead of our plan from an in channel inventory standpoint.
And it will be going forward.
So thinking about long lead time investments product for example, it takes multiple years to get product to market its important for us to continue to lean into it.
Part of that is kind of isolated to certain skus, where we had more of a problem from a weeks on hand standpoint.
Those investments.
So as we create.
Upside from plan.
I think that just really builds our confidence and the fact that as we now enter peak selling season.
We have a decision to make and Thats, what do we flow through versus what do we invest back in the business.
To ensure that we're driving future growth and so what I spoke spoke about being nimble as really being thoughtful around our priorities and being willing to re.
We're sort of position at the front of that in a better spot from an inventory level standpoint, and channel than we thought we'd be in and I think thats really positive news. So we're happy with the progress there and that's also translating into I think.
Reinvest some of the upside to ensure that we continue to view share gain or long term.
Got it that's really helpful. Thank you Jeremy.
An accelerated improvement in on hand balance sheet inventories.
Good luck this quarter guys.
Thanks Chuck.
The next question on the line comes from Brian Zachman not from Canaccord Genuity. Please go ahead. Your line is open.
Got it and I guess just from a unit share perspective, I mean, you guys have three or 4% unit share. So by definition you you can't be the problem in the channel I'm just curious.
Hey, good afternoon, guys. Thanks for taking my question.
As the market resets after we get order after we clear all these channel inventories do you guys expect to gain shelf space of floor space.
I'm curious if you could expand a bit on channel inventories relative to where you thought they'd be two months ago. When you reported Q or are they better worse or in line I know April wasn't helpful. From a weather standpoint, what are you seeing sequential improvement into May historically, I would imagine there was a catch up in May and June when Theres, a late start to spring for this category.
If you're with your retail partners.
A more normalized environment.
Absolutely.
We feel good about our channel our channel level inventories and we are always motivated to add.
<unk> is that how youre thinking about it as you reaffirm guidance.
Floor space, our positioning is very strong.
From a consumer perspective, but also.
Yes so.
That's right we over the course of Q1 relative to our plan. We actually saw nice improvements ahead of our plan from an in channel inventory standpoint.
In correlated fashion at a retail level so.
Not surprisingly if you were to go into some of our highest penetrated markets youre going to see.
Part of that is kind of isolated to certain skus, where we had more of a problem from a weeks on hand standpoint.
The broadest assortment and the most real estate and part of the way that we grow is by adding real estate. So.
That that part of the strategy Hasnt changed.
And I think that just really builds our confidence in the fact that as we now enter peak selling season.
As I said as we add incremental Trager islands and fixtures in the home depot in the third quarter, we will continue to gain <unk> gained share.
We're sort of position at the front of that in a better spot from an inventory level standpoint, and channel than we thought we'd be in and I think thats really positive news. So we're happy with the progress there and that's also translating into I think.
Share of space and we believe that will also drive.
Share of business in the category.
Great Best of luck guys.
An accelerated improvement in on hand balance sheet inventories.
Thanks Ryan.
As a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad now.
Got it and I guess just from a unit share perspective, I mean, you guys have 3% to 4% unit share. So by definition you can't be the problem in the channel I'm just curious as the market resets. After we get orders after we clear all these channel inventories do you guys expect to get.
Thank you everyone. We have no further questions. This does conclude today's conference call. Thank you all for joining you may now disconnect your lines.
Gain shelf space of floor space.
With your with your retail partners.
A more normalized environment.
Absolutely.
Look we feel good about our channel our channel level inventories and we are always motivated to add.
Floor space, our positioning is very strong.
Both from a consumer perspective, but also.
In correlated fashion at a retail level so.
<unk>.
Not surprising if you were to go into some of our highest penetrated markets youre going to see.
The broadest assortment and the most real estate and part of the way that we grow is by adding real estate. So.
That that part of the strategy Hasnt changed.
As I said as we add incremental Trager islands and fixtures in the home depot in the third quarter, we will continue to gain speak gained share.
Share of space and we believe that will also drive.
Share of business in the category.
Great Best of luck guys.
Thanks Ryan.
As a reminder, if you would like to ask a question. Please press star followed by one on your telephone keypad now.
Thank you everyone. We have no further questions that will this does conclude today's conference call. Thank you all for joining you may now disconnect your lines.