Q3 2025 Traeger Inc Earnings Call
Speaker #1: Hello everyone , and welcome to the Trager third quarter fiscal 2025 earnings conference call . My name is Charlie , and I'll be coordinating the call today .
Speaker #1: You will have the opportunity to ask a question at the end of the presentation . If you'd like to register a question , please press star , followed by one on your telephone keypad .
Speaker #1: I'll now hand over to our host , Nick Bacchus Vice President of Investor Relations , Treasury and Capital Markets at Trager to begin .
Speaker #1: Nick , please go ahead .
Speaker #2: Good afternoon everyone . Thank you for joining Trager's call to discuss its third quarter 2020 results , which were released this afternoon and can be found on our website at investors .
Speaker #2: Com . I'm Nick Bacchus , vice president of Investor relations , Treasury and Capital Markets at Trager . With me on the call today are Jeremy Andrus , our Chief executive officer .
Speaker #2: And Joey Hord , 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 within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 .
Speaker #2: These statements are based on current expectations and views of future events , including , but not limited to , statements made regarding our organizational focus , our mitigation efforts to offset the direct impact of tariffs , our Project Gravity initiative and its impact on our business and our outlook as to our anticipated full year 2025 results .
Speaker #2: Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied herein . I encourage you to review our annual report on Form 10-K for the year ended December 31st , 2024 and our other filings for a discussion of these factors and uncertainties , which are available on the Investor Relations portion of our website .
Speaker #2: You should not take undue reliance on these forward looking statements , which we speak to only as of today . We undertake no obligation to update or revise them for any new information .
Speaker #2: Now , I'd like to turn the call over to Jeremy Andrus chief Executive officer of Traeger , Jeremy .
Speaker #3: Thanks , Nick . Thank you for joining our third quarter earnings call . On today's call , I will provide an update on our third quarter results .
Speaker #3: I will also discuss our project Gravity streamlining effort and review our outlook for fiscal 2025 . Before turning the call over to Joey this afternoon , we released third quarter results that were ahead of expectations .
Speaker #3: Highlights include a sales increase of 3% to $125 million , driven by growth in our grills and consumables categories . Adjusted EBITDA $14 million was up 12% over the prior year , as our expense reduction initiatives are beginning to flow through the personnel .
Speaker #3: Third quarter results reflect our management team's unrelenting focus on navigating a highly dynamic environment . I am pleased with our ability to grow our revenues and adjusted EBITDA in the face of a challenging backdrop .
Speaker #3: Our results give us the confidence to reiterate our guidance for the fiscal year in this environment , preserving profitability and enhancing cash flow is our highest near-term priority .
Speaker #3: As such , we have made significant progress in executing our tariff mitigation strategies . We continue to believe that we are positioned to offset about 80% of the approximately $60 million in unmitigated tariff exposure in fiscal 2025 , utilizing three main strategies that we have previously discussed .
Speaker #3: First , we are continuing to focus on driving savings and efficiencies in our supply chain , including successful cost reductions . Further , we are planning for and implementing our strategy to diversify our production away from China .
Speaker #3: We have had productive discussions with manufacturing partners and remain committed to materially diversifying production out of China by the end of fiscal 2026 .
Speaker #3: We currently have plans in place to produce all new grill SKUs going forward in Vietnam and will continue to work toward shifting production on existing lines of product out of China as we move through the balance of this year and into next year .
Speaker #3: Next , we took price across our assortment to protect profit in the face of higher costs due to tariffs . As we expected in the third quarter , we saw an impact on grill sell through volumes tied to the pricing increase .
Speaker #3: However, elasticity at the consumer level was largely in line with our expectations. The final strategic pillar of our tariff mitigation strategy is cost management.
Speaker #3: This includes near-term cost savings measures such as a reduction in travel and entertainment expenses , and the deferral of non-essential projects , as well as our project Gravity Streamlining initiative .
Speaker #3: With respect to project Gravity , I continue to believe this effort will be transformative for our business and a significant driver of long term value for the company .
Speaker #3: Last quarter , we discussed the two phases of Project Gravity . Phase one consists of the organizational structure changes . We implemented in the second quarter , as well as the integration of our meter business into Salt Lake City infrastructure .
Speaker #3: In the third quarter, we made significant progress on the meter integration, significantly reducing headcount based in the UK and shifting most of the key functions of the business into our Utah headquarters and Traeger infrastructure.
Speaker #3: We believe meters operations are well positioned to benefit from the significant pool of talent at Traeger . As we look to the future , we believe the integration of meter will reshape its PNL and will unlock the ability to focus on its long term growth drivers , including the expansion of its retail channel penetration and new product development .
Speaker #3: Overall , we continue to target Project Gravity phase one run rate , cost savings of $30 million . Once fully implemented . Turning to phase two of Project Gravity .
Speaker #3: The second phase of our transformation effort is being driven by a broad based review of our business with a focus on increasing efficiency , simplification and return on investment .
Speaker #3: This strategic review is ongoing and we have retained a global consulting firm to assist with the assessment and implementation of phase two initiatives .
Speaker #3: We have also established a transformation management Office , which will act as a coordinating body during the implementation of gravity to help ensure consistency , transparency and accountability between the executive team and working teams .
Speaker #3: Today , we are announcing a run rate cost savings target of $20 million identified in connection with phase two of Project Gravity . These savings are being enabled by channel optimization , supply chain and manufacturing efficiencies , and other streamlining and productivity efforts .
Speaker #3: Phase two savings are incremental to the $30 million of run rate savings tied to gravity . Phase one for a cumulative $50 million run rate savings target .
Speaker #3: We expect to largely implement gravity initiatives by the end of 2026 . One of the largest drivers tied to gravity phase two savings is channel optimization .
Speaker #3: As we reviewed profitability by channel geography and retail customer , it became evident that there is a meaningful opportunity to streamline distribution and exit certain channels which are not accretive to profit on a fully burdened cost basis .
Speaker #3: We are making several shifts to our distribution footprint , which we expect will drive increased efficiency and profitability in the years to come .
Speaker #3: First , we will be exiting the Costco Roadshow business . This program was an early driver of Traegers brand awareness and growth . However , over time , this business has .
Speaker #3: Profitability has been declining . Given increasing costs , including transportation rates and labor . Costco will remain an important partner to us and we will continue to sell Traeger products through Costco's traditional in-line business .
Speaker #3: Next, we are planning to shift our Traeger website to a content and brand storytelling focus and will be exiting the direct-to-consumer commercial aspect of the website after the fourth quarter.
Speaker #3: Consumers seeking to buy Traeger products on Traeger comm will be redirected to our retail partners websites . Our website is a critical asset and it is the first place where many of our consumers go to conduct research on our grills .
Speaker #3: However , profitability in this channel is not where we would like it to be , and we believe that by redirecting consumer traffic to our retail partners websites , we can retain a meaningful portion of these sales at a higher incremental margin .
Speaker #3: While reducing overhead and complexity tied to our own DTC business . We will also be partnering with our retailers to optimize the digital media and advertising strategy for Traeger Online .
Speaker #3: In an effort to drive demand and return on advertising spend . For these partners . Not only do we believe this shift will drive efficiency to our business , but we also believe the change will result in a better experience for our consumers .
Speaker #3: Last , we are shifting to a distributor model in our European markets , which are currently operating under a direct model . We believe employing a 100% distributor model in Europe offers a more cost effective and asset light approach , which will unlock savings going forward while retaining our presence in this key international market .
Speaker #3: By partnering with experienced local distributors , we are also sunsetting certain unprofitable SKUs in the market . As part of this shift . In total , these channel optimization initiatives will drive meaningful simplification and cost savings to our business .
Speaker #3: We expect that these initiatives , along with other phase two strategies , will drive $20 million of run rate savings once fully implemented .
Speaker #3: And while we anticipate a loss of revenue tied to channel optimization , this aligns to our strategy of transforming into a leaner , more efficient , and more profitable business , albeit with a smaller base of revenues .
Speaker #3: In the short term . It is important to note that while the near-term focus on Project Gravity is to . Drive significant savings and efficiencies , this streamlining will serve to optimize our cost structure , which will allow for continued focus on our key growth pillars of product innovation and brand driving .
Speaker #3: Increased household penetration for the Traeger brand remains core to our strategy , and we expect to that will occur as a result of gravity will enable our long term revenue growth .
Speaker #3: Let me now briefly discuss our outlook for fiscal year 2025 . Today , we are reiterating our prior guidance of revenues of 540 to $555 million , or down 8% to 11% , and adjusted EBITDA of 66 to $73 million .
Speaker #3: I am pleased with our ability to reiterate guidance today , and we are planning the balance of the year prudently . Now , let me briefly touch on some highlights from the third quarter in terms of our grilled business .
Speaker #3: We saw 2% growth in revenues versus prior year . Growth in grills was driven by strong shipments of sub $1,000 . Grill units where we continue to see outperformance .
Speaker #3: The quarter also benefited from a resumption of direct import fulfillment with our larger retail partners , which was mostly paused in the second quarter .
Speaker #3: Direct import fulfillment allows for an optimization for both Traegers and our retail partner supply chains , creating value for both parties . Reinstating this process in a heavily tariffed environment demonstrates our resilience and represents a significant win for the team .
Speaker #3: On the consumables front , we achieved 12% revenue growth in the third quarter . We are pleased with our consumables performance , which was driven by positive sell through of pellets and we continue to see this part of our portfolio as a stable and recurring revenue .
Speaker #3: New distribution , including our launch into Walmart late last year , remains a growth driver for consumables , and we are seeing expanded distribution of consumables hitting the shelves across several of our largest grocery partners .
Speaker #3: In terms of consumables , innovation , in August , we launched our first ever source collaboration with our long standing partner and world famous Pitmaster , Matt Pittman of Meat Church Barbecue , and also brought back the fan favorite Meat church pellets .
Speaker #3: Both launches have seen a favorable reaction from consumers with a partnerships Holy barbecue sauce quickly becoming one of our top selling sauces . Last , our accessories business was down 4% , driven by a decline in meter revenues .
Speaker #3: We expect to see continued short term pressure on meter revenues . However , we believe that the integration and PNL reshaping strategy in motion through Project Gravity will drive growth and expand profitability in the long term .
Speaker #3: Notably , Traeger branded accessories demonstrated strong double digit growth in the third quarter as our significant installed base of grills drove these attachment sales .
Speaker #3: In summary , the entire Traeger team is highly focused on navigating the current dynamic backdrop and executing against our plan to transform the business and reshape the PNL via our project Gravity initiatives .
Speaker #3: I am pleased with the progress we have made thus far with respect to gravity , and believe the $50 million in run rate savings targeted thus far will meaningfully unlock significant value for our shareholders .
Speaker #3: And with that , I'll turn the call over to Joey . Joey .
Speaker #4: Thanks , Jeremy , and good afternoon , everyone . Today I'll walk through our third quarter financial performance and provide some additional context on our results and guidance for fiscal 25 .
Speaker #4: We are pleased with our third quarter results and our ability to drive growth in both revenues and adjusted EBITDA . These results , along with additional efforts , we are announcing on Project Gravity , demonstrate our ability to successfully navigate a dynamic environment .
Speaker #4: As a reminder , enhancing profitability and cash flow in the current environment remains our top priority . Third quarter revenues increased 3% year over year to 125 million .
Speaker #4: Growth was led by double digit gain in our consumables business , as well as modest increase in our growth business . Looking at category performance , grow , revenues increased 2% in the third quarter .
Speaker #4: This was primarily driven by an increase in average selling prices tied to the pricing increase implemented earlier this year . As part of our tariff mitigation efforts , which more than offset the decline in unit volumes .
Speaker #4: Third quarter grow revenues also benefited from a pacing shift out of the fourth quarter . Consumables revenues grew 12% to 25 million , with wood pellets seeing healthy replenishment and distribution gains contributing to growth .
Speaker #4: Accessories revenues decreased 4% to 24 million due to lower meter sales . We were pleased with our Traeger branded accessories business in the quarter , which saw growth in excess of 20% gross profit for the third quarter decreased to 49 million from 52 million in the third quarter of 24 .
Speaker #4: Gross profit margin for the third quarter contracted 360 basis points year over year to 38.7% , reflecting the impact of tariffs and other supply chain pressures .
Speaker #4: The reduction in gross margin was driven by tariff costs totaling 8 million and generating 670 basis points of Unfavorability . This cost was partially offset by one pricing actions worth 170 basis points .
Speaker #4: Two supply chain efficiencies worth 90 basis points . Three improved pellet margins were 30 basis points and four other margin positives of 20 basis points .
Speaker #4: In the third quarter , we showed strong expense discipline with our cost reduction and streamlining efforts beginning to flow through , as demonstrated by our ability to drive adjusted EBITDA growth .
Speaker #4: Sales and marketing expenses declined to 20 million , down 6 million year over year , representing a 550 basis point improvement as a percentage of sales , general and administrative expenses were 22 million , down 2 million , or 8% year over year , with a 210 basis point improvement as a percentage of sales in the third quarter , we recorded a 75 million non-cash impairment charge to our goodwill related to a sustained decrease in our stock price and market capitalization .
Speaker #4: As a result of these factors . Net loss for the third quarter was 90 million , as compared to a net loss of 20 million in the third quarter of 24 .
Speaker #4: Net loss per diluted share was $0.67 , compared to a loss of $0.15 in the third quarter of 24 . Adjusted net loss for the quarter was 22 million , or $0.17 per diluted share , as compared to 7 million , or $0.06 per diluted share , in the same period in 24 adjusted EBITDA grew to 14 million , up from 12 million in the prior year , demonstrating our ability to drive profitability even in a challenging macro environment .
Speaker #4: Looking at the balance sheet , we remained in a solid position with liquidity of 167 million , with no outstanding borrowings under our revolver or receivables facilities .
Speaker #4: At the end of the third quarter . Inventory at the quarter end was 115 million , up from 107 million at year end .
Speaker #4: Increased inventory costs tied to tariffs represented the majority of the growth versus the prior year. We are comfortable with our inventory position going into the end of the year.
Speaker #4: As Jeremy spoke to , we continue to make progress on Project Gravity , our comprehensive strategic initiative to drive operational efficiency and long term profitability .
Speaker #4: We previously discussed phase one actions , including headcount reductions and the integration of meter into our headquarters , which are still expected to deliver 30 million in run rate cost savings with approximately $13 million of realized cost savings anticipated in FY 25 .
Speaker #4: Today , we are announcing an incremental cost savings target tied to gravity . Phase two of 20 million . Once fully implemented , the drivers of phase two savings include channel optimization , supply chain efficiencies , and other general productivity measures .
Speaker #4: Phase two implementation will occur through the end of fiscal year 26 , and we expect these initiatives to more fully materialize in our results in the fiscal 27 .
Speaker #4: The strategic review for Project Gravity is ongoing , and we will provide further updates as the plan evolves . It is important to note that Project Gravity is a transformation exercise that will drive a meaningful reshaping of our PNL gravity initiatives are expected to drive material improvements to our cost structure once fully implemented .
Speaker #4: The key pillars of gravity are one . To drive efficiencies and profitability in our business , two to enhance return on investment and three to open up capacity and resources for investment into our highest growth opportunities .
Speaker #4: Some of these actions were intentionally reduced . Our revenue base as we exit unprofitable areas of the business , enabling a smaller but more profitable business and opening up investment capacity to drive our long term growth .
Speaker #4: Given year to date performance , we are reaffirming our full year guidance . Revenue is expected to be between 540 million and 555 million , or down 8% to 11% .
Speaker #4: Gross margin is expected to be between 40.5% and 41.5% for adjusted EBITDA . We are reiterating our guidance of 66 million to 73 million .
Speaker #4: We continue to expect grow revenues to be down high single digits for the year , with expected pressure on unit volumes driven by elasticity following pricing increases taken earlier this year to mitigate tariffs and protect profitability for consumables .
Speaker #4: We are expecting growth for the year in terms of the fourth quarter . Recall that we are facing a difficult comparison from the prior year when we had a large load in of our new Woodridge line .
Speaker #4: We also benefited from a revenue pacing shift in the third quarter of 25 , which will pressure fourth quarter revenues . Second half of 25 performance is expected to be in line with our prior review .
Speaker #4: In closing , I want to thank our team for their dedication . We're encouraged by our third quarter performance and remain confident in our ability to navigate the current environment while laying the groundwork for sustainable growth .
Speaker #4: With that , I'll turn the call back to the operator for questions . Operator .
Speaker #1: Thank you . Of course , if you'd like to ask a question on today's call , please press star , followed by one on your telephone keypad .
Speaker #1: If you'd like to withdraw your question , please press star , followed by two and preparing to ask your question , please ensure you are unmuted locally .
Speaker #1: As a reminder that star followed by one on your telephone keypad . Now we will pause momentarily to allow for any questions to be registered .
Speaker #1: Our first question of the day comes from Brian McNamara of Canaccord Genuity. Brian, your line is open. Please go ahead.
Speaker #5: Hey , guys . Good afternoon . Thanks for taking the question . I just wanted to drill in on your decision to kind of exit DTC and kind of redirect traffic to retail partners websites .
Speaker #5: Is that certain types of retailers or just any clarity there would be helpful ?
Speaker #6: Yeah . Brian , thanks . Thanks for the question . I'd say a couple of things . First of all , well , in many consumer businesses , the direct channel is is the margin monster that that that's not the case in our business just due to the supply chain , you know , the size and weight of shipments and dropping them on .
Speaker #6: You know , it's the last mile that's expensive . Frankly , it's the last mile that's also that also suboptimize the consumer experience .
Speaker #6: And so as we looked at both the economics , you know , the bandwidth and cost needed to drive that channel . From , from , you technology infrastructure through advertising to acquire customers .
Speaker #6: And then we looked at the , the end consumer experience . It was clear to us that this was not the right channel for us to be driving .
Speaker #6: And so as we think about what that will look like , I would say , first of all , we will . We're working with retail partners so that we can offer choice to our end consumers .
Speaker #6: We are we're being thoughtful to the consumer experience that they can provide . First of all , ensuring that we can that we can connect into inventory levels , send a transaction to a retailer that they can , that they can quickly service and that they can service in a high quality way .
Speaker #6: We'll look at capabilities like assembly and delivery , which is clearly a better experience than , you know , the last , last mile outsourced truck or van sort of dropping off a a grill box in someone's back porch .
Speaker #6: We think we can partner with retailers that that improve this experience . And so we're in the process of .
Speaker #3: Defining exactly who that will be . And and we've got technology selected and we're confident that this will this will be an opportunity to continue to drive revenues .
Speaker #3: But at higher margins at better better at better experiences to the consumer . You know , we're certainly going to be attentive to ensuring that we drive as much of that revenue there as we can .
Speaker #3: We want to make sure that that there's minimal breakage in the process . But long term , we really believe in this approach .
Speaker #5: Great . That's helpful . And then just on , you know , your retail partners attitudes towards inventories in the current market , we've heard from other players , obviously smaller price points that , you know , several large retailers kind of are being tight on inventory , shifting their business from direct import to domestic fulfillment .
Speaker #5: I'm curious , like , what are you guys seeing ? Obviously , given a much higher price point . Well .
Speaker #7: I would say there have been some meaningful shifts over the last couple of quarters as the .
Speaker #3: Tariff landscape shifted . It didn't make sense for a period of time for retailers to direct import the inventory , largely because the tariff exposure was so much higher on the the wholesale cost than , than on , on our cost of goods .
Speaker #3: And so a lot of our partners did shift towards a domestic fulfillment model . Fortunately , we've worked very closely with them to , to to implement a first sale process , which is a which is an efficient way to direct import without driving higher aggregate tariff costs .
Speaker #3: And so that's actually one of the things that drove some of the , you know , some of the shift into the into the third quarter .
Speaker #3: We were fulfilling domestically some of the revenue shift . I should clarify , we were filling domestically . But but we've shifted the largest retail partners back to direct import in terms of their , you know , their behavior or their their point of view around inventory in general .
Speaker #3: We're not really seeing that change . You know , we're not seeing any change to the allocation of space at retail to the assortments .
Speaker #3: And we're not seeing a different strategy with regards to inventory than we were seeing pre tariffs .
Speaker #5: Great . And then finally I'm just curious you know it seems like that sub $1,000 price point grill continues to outperform . This is probably three years running .
Speaker #5: Now I'm just curious your thoughts on how that maybe changes or affects your overall pricing strategy . Clearly you have a premium brand status , but does that change how you think about things you want to , you know , a relatively upmarket grill earlier this year ?
Speaker #5: Just curious , your thoughts there .
Speaker #3: So . , you know , we talk a lot about pricing strategy vis a vis our brand position . And we continue to believe that is is well positioned in terms of the product experience , the brand , the perception of the of of the brand to be an accessible premium brand .
Speaker #3: And we believe that will continue and it will continue in part by how we position it , but also in part by how we think about our product roadmap .
Speaker #3: Strategically , what what we learned as in our consumer research and in our pricing studies is that the lower price points getting getting to a sharper opening price point expanded the addressable audience for Traeger .
Speaker #3: I think it does a couple of things . Number one , it's it inspires a consumer who is spending closer to the average of of of a grill in the US , which is , you know , around $325 at retail .
Speaker #3: We're able to migrate them north . A consumer who is probably buying a propane grill before but but has been looking at Traeger , is willing to step up a little bit .
Speaker #3: So we clearly have our reaching a new consumer . But I would also say that , you know , when when we've reached that consumer and they come into the Traeger community , they start to appreciate the benefits and just , just the , you know , the experience of of cooking on Traeger Grill , a wood pellet grill .
Speaker #3: We believe that that they stay . They they stay not only , you know , to to to cook with to the wood pellets , the accessories , the lifetime value of that consumer is meaningful .
Speaker #3: But I would say equally importantly , they tend to upgrade as later on their second purchase as they become committed to the brand and the solution .
Speaker #3: So we we see it as a strategic opportunity to to enhance the size of the market . We don't think we don't think it constrains our ability to position the brand or to grow .
Speaker #3: I do think there's , you know , one of the things that that that is clearly happening , not not only expanding the audience of addressable consumers , but this has been it's been a tough consumer environment for high ticket discretionary , durable products .
Speaker #3: And I think in light of that , high interest rates , we've seen the consumer shift to lower price points . We think that is a temporary phenomenon .
Speaker #3: And we continue to position to drive higher ASPs going forward . But but we we like the strategy of getting a little bit sharper on that opening price point , because we do think it brings in an incremental consumer .
Speaker #5: Thanks very much for the color . I'll pass it on .
Speaker #3: Thanks , Brian .
Speaker #1: Thank you . Our next question comes from Peter Benedict of Baird . Peter , your line is open . Please go ahead . Hey , guys .
Speaker #3: Good evening .
Speaker #8: Thanks for taking the questions . First . I don't know if you could maybe frame this the size of the revenue loss . You're expecting to incur from the from the phase two distribution strategy plans .
Speaker #8: They make sense . Just kind of curious and frame the size of that for us . Maybe the timing on when that that might we should expect that to play out .
Speaker #8: That's my first question .
Speaker #9: Yeah . Thanks for the call Peter . I'll take that question . So overall , we're essentially walking away from approximately $60 million of revenue .
Speaker #9: But we do believe there's going to be a recapture of that revenue in either the either the channels that they're in , i.e. Costco Inline or , or the other channels that we operate in with .
Speaker #9: That said , the timing of this , this is we're making these shifts in January and into February , and then the recapture and the value of this is going to be sequentially within the first half of FY 26 .
Speaker #4: Into 20 or sorry , the first half of 26 into the second half . And then long term into 27 . These are long .
Speaker #4: This is a structural shift in nature , and we just don't want to commit to next year . At the same time this is this is absolutely a value capture of 20 million .
Speaker #3: Let me let me let me just add to that , if I may , it was , you know , as , as we step back and think about what are we trying to get done right now , we're seeing an opportunity that that I would say was originally driven by , originally driven by tariffs and a need to cut costs so that we could preserve profitability and financial health in the moment .
Speaker #3: But as , as we sort of moved into the late second quarter , early third quarter , we were very committed to to doing this because we see a long term benefit from , from , from for the business .
Speaker #3: This project , gravity is , is fundamentally a transformation exercise which , which early innings will drive profit . It'll drive cash flow .
Speaker #3: It will deliver our our balance sheet . But but but but ultimately what it does is it it streamlines the business and it opens up investment capacity so that we can reinvest back in growth .
Speaker #3: And so to the extent that revenues decline in the near term , we're going to be driving higher profitability and we're going to create we're going to be creating capacity to make sure that what the consumer cares about , which is a better product experience , it's a better interaction with the brand .
Speaker #3: The recipe content , all of the content that improves that experience , that we can fund these things , that we can fund the experience that retail , that a consumer has when they walk in there , you know , it's been it's it's been an interesting maybe challenging is a better , better word .
Speaker #3: It's been a challenging few years coming out of the pandemic . And as we've gone through these budget cycles and , and feel like we're not we don't have the investment capacity to adequately fund what we believe is really important to consumer .
Speaker #3: We really saw this as an opportunity to to shift to completely reshape the PNL and to shift how we go after to to shift structurally so that we can really do , do the right thing for the brand long term .
Speaker #3: So we're actually really excited about the process that we're going through . There will be some decline in revenue as both Joey and I have said , but but it will be really an enabler to to medium to longer term growth .
Speaker #8: Got it . Now that's helpful . Perspective . My second question is around maybe you can give us a sense of the margin profile of of going to the distributed model in Europe , kind of how that compares maybe to what you would see as going one , but just kind of curious what the margins on the on the distributor side of things .
Speaker #4: Yeah . So margins when you when you shift to distributor model is obviously an impact to margin overall because that's the third part we're going to work with has to has to drive a profit or deliver a profit as well .
Speaker #4: At the same time , if you look below margin , the cost structure that we're taking out of the business is going to make up for more than the margin loss .
Speaker #4: And so it's back to what Jeremy said . And being smaller but more profitable . This is a perfect example . And then the we're not we believe we can serve the consumer in Europe in the same way that we were serving them in the direct model , but just in a much more profitable way .
Speaker #8: Got it . Makes sense . Last one is just can you maybe expand on the elasticity response you've seen price up . You thought you'd come down .
Speaker #8: Certainly . That was expected . But just I'm curious how that may be informed . Your promotional plan for the fourth quarter and into next spring .
Speaker #8: Just kind of an open ended question there . Thanks .
Speaker #4: Yeah , it's a it's a prudent question . So as far as elasticity and pricing , we took pricing in the low double digits .
Speaker #4: Generally speaking , we're very happy with our with the way sell through is tracking . There is a divergence of above 1000 below 1000 in terms of of of performance .
Speaker #4: Speaking about promo overall though , the consumer reacts when we promo and it's something that we use to think about our inventory management , our profitability in your in your quarter quarter management .
Speaker #4: And so we're going to continue to be committed to promo . Keep in mind as well promo is is funded . We split promo costs with our channel partners .
Speaker #4: So it's a really great it's a good way to get grills into the hands of consumers . And we're committed to to continue promo long term .
Speaker #8: Got it . Thanks . All right . Good luck . Thanks guys .
Speaker #10: Thanks , Steve .
Speaker #1: Thank you . As another reminder , if you'd like to ask a question on today's call , please press star , followed by one on your telephone keypad .
Speaker #1: Our next question comes from Joe Feldman of Telsey Advisory Group . Joe , your line is open . Please go ahead .
Speaker #11: Great . Thank you . Hi , guys . I wanted to clarify something . You mentioned this grill pacing shift that helped the third quarter , but maybe shifts out of the fourth .
Speaker #11: Can you explain that a little more like , was that your your the end market trying to get ahead of tariffs or , and purchasing more goods early or what drove the shift basically .
Speaker #4: Yeah . So very simply put we had around $8 million from Q4 into Q3 . And it's just a organic pacing shift . There was some revenue or girls that were going to ship at the end of Q3 or sorry , in the beginning of Q4 , and they shipped shipped in Q3 .
Speaker #4: There's not there's not a lot more to it than that . At the same time , we have adjusted Q4 and we are reiterating guidance .
Speaker #11: Got it right . Yeah . No , that's fair . Thank you . And then , you know , maybe I know it's maybe a little early for 2026 , but you guys had a lot of newness and innovation this year .
Speaker #11: And I'm wondering how you guys were thinking about next year in terms of lapping that. Obviously, you've got a lot of work ahead with this project.
Speaker #11: Gravity and reshaping the PNL . But and so maybe that's going to be the answer . But I was just curious from a product standpoint and a flow to drive the top line , how do you lap , you know , Woodbridge and Flat Rock launches ?
Speaker #12: So , so a couple of thoughts on that , Joe . The first is , you know , we .
Speaker #3: Really believe that a good product , a good product strategy that that has that is consumer centric , that has innovation at its core , continues .
Speaker #3: It continues in a very consistent , steady fashion . And , you know , we don't we don't think differently in , in , in , in some macroeconomic , in one macroeconomic moment versus another .
Speaker #3: Just because , you know , 2 or 3 years out , we can't anticipate what that moment will look like . And so one of the things that we've really invested in over the last three years is the infrastructure from a team perspective and the process and tools internally so that we can predictably and consistently bring new products to market .
Speaker #3: And so that's that's our intention . We'll continue to do that . You know , if you look at the the strategy that we laid out a few years ago in introducing products at a premium price point and bringing innovation downstream , you've seen us launch , you know , the the Timberline XL , which is a $4,000 grill .
Speaker #3: This year . The year after that , we launched the the Ironwood , which had elements of technology that were inspired by the Timberline .
Speaker #3: And then we saw a similar movement downstream in in Woodridge . And so we will continue to do that . The focus will always be on our core wood pellet grill experience .
Speaker #3: We think that's really what drives our consumer and the community . And we've done some , you know , we've invested in accessories to enable that , to make that experience better .
Speaker #3: We have done a little bit of work in adjacent categories with the flat Rock , three zone and two zone products , but the wood pellet grill is the center of our universe , and we will continue that process to to bring value downstream .
Speaker #3: And then , as is , I think the the circle of life and product development will then go back upstream , launch new innovation and bring it downstream .
Speaker #3: So , you know , we're going to continue that process . And you know , we believe that over time , the consumer will see Traeger as the innovator , as always , being fresh in its portfolio , product portfolio .
Speaker #3: And that that that is an important foundation to our business .
Speaker #11: Gotcha . Thanks . Good luck with this . Next quarter , guys . Thanks .
Speaker #3: Thanks .
Speaker #10: Joe .
Speaker #1: Thank you . As a final reminder , if you'd like to ask a question on today's call , please dial star , followed by one on your telephone keypad .
Speaker #1: We will pause briefly to allow for any final questions to be registered . Our next question comes from Peter Keith of Piper Sandler .
Speaker #1: Peter , your line is open . Please go ahead .
Speaker #13: Hi . Thank you . Good afternoon . Jeremy , I was wondering if you had an assessment of the overall grill market . So far , whether it was Q3 or year to date , maybe .
Speaker #13: How grills the grill industry is trending on a sales basis or unit basis . Are we starting to see some some rebound in demand at this point ?
Speaker #14: Yeah , Peter .
Speaker #3: Boy , as as we came into 2025 and as we think about the the ownership lifecycle of a grill in the pull forward demand that happened in the pandemic , we really viewed this as a category growth year .
Speaker #3: And we were positioning our investments not just in product but but in channel and in brand to to drive growth consistent with what we thought was likely coming .
Speaker #3: Tariffs definitely , definitely shifted the landscape . I think it's , you know , a consumer goes to buy a grill . And if it's not broken they see a grill that 1,015% higher .
Speaker #3: They will they will use what they have for for for another season or so . And so that , that , that , that driver that , that , that , that , that moment of , of a consumer retail , we generally believe has been muted just by the , by the tariff environment .
Speaker #3: We think the market for grills is down slightly . There are there are a number of factors that , you know , that that we think contribute to that .
Speaker #3: And including the higher price points . But the higher interest rates of America , where Americans heavily finance their consumer discretionary purchases , you know , housing relocations continue to be at , an all time lows .
Speaker #3: But fortunately , as we as we think about some of these catalysts going forward , we seem to be entering a period of declining interest rates .
Speaker #3: We think that will be a positive from a , from a from a house transaction perspective , certainly from a consumer borrowing perspective .
Speaker #3: And the further that we get from pull forward of the pandemic , the more our conviction grows that we're entering into a robust replacement cycle .
Speaker #3: But it hasn't happened this year. The market is slightly down, and our share in the market is about flat right now.
Speaker #10: Okay .
Speaker #13: And then I think right at the end there , you're you're mentioning another topic I wanted to ask about , which was the sort of elusive replacement cycle given you can track Traeger customer usage quite closely .
Speaker #13: Are you seeing any green shoots around replacements from some of those 2020 or 2021 purchases ?
Speaker #14: You know , let me step back and .
Speaker #3: First say all of the data that we see on consumer engagement is robust . I think that we see that in in the cook data that , that , that we get from our connected grills .
Speaker #3: And we also see it in , in , in the consumables business , which , which , which grew in the third quarter .
Speaker #3: Both both on a revenue and a sell through basis . But but but I wouldn't say that we are seeing data suggesting the pandemic buyer is is rebuying at this at this point in time , you know , the word that you use is elusive .
Speaker #3: It is elusive . We've we've you know , we've done the math 100 different ways . And we would have expected that absent some of the macro headwinds that have come that this year , we would have entered a sort of 2 to 3 year period of of higher , higher demand , just just based on the pandemic , consumer rebuying the one thing that I'll say that , you know , we view as a positive in our business is , you know , as we look at the market down , we're holding share on what I would consider to be relatively low demand creation investment .
Speaker #3: And in fact , we've actually seen our unaided brand awareness increase . We we do a semi-annual contract out of semi-annual unaided brand awareness survey .
Speaker #3: And we saw that increase by about 100 basis points over the prior six months . So we we continue to feel bullish on our brand position on the products that we're bringing to market .
Speaker #3: And boy , this elusive replacement cycle , it's coming . And so on balance , we look at the next 2 to 3 years and say we like our position , we like the market , and we feel like this project , gravity is really positioning us not only to be to drive greater profitability , but to invest back strategic and strategically in the areas that will help us take advantage of this replacement cycle .
Speaker #3: When it comes .
Speaker #10: Okay .
Speaker #13: Maybe lastly , just with advertising , it's good to hear the The brand awareness is going up . But but do you feel like your advertising is somewhat constrained today and , you know , interesting on the the discontinuation of the Costco road show , which in itself is a big marketing vehicle , would you like to sort of maybe use some cost savings , but also reallocate those dollars to other , perhaps more effective media streams ?
Speaker #4: Yeah , I can take that one . The underpinning of Project Gravity is really what you're speaking about is unlocking . It's really thriving in the tariff environment , and we didn't want tariffs to suffocate the business just financially .
Speaker #4: So unlocking investment capacity , reinvesting . And that's going to be that's something we're starting to think about as we exit 25 into 26 .
Speaker #4: So the short answer is yes .
Speaker #3: Let me just add specifically on Costco Roadshow , since you mentioned it , I think that's a I think that's a really good example of how we're stepping back and really assessing why we do what we do , how we do it .
Speaker #3: You know what what the most profitable , scalable way to run this business is . And Costco Roadshow I think is it's a great example of a program that's been great for our business .
Speaker #3: You know , we're more than a decade doing Costco road shows , and it was it was profitable supply chain costs increased , T&E costs , increased labor costs increase .
Speaker #3: It was neutral . And then we started to think about , you know , just the cost or the value of the impressions that we gained .
Speaker #3: And , you know , I would say that the tariffs were , were were the last sort of the last piece of economics that really just made it not work anymore .
Speaker #3: With that said , it's been foundational . We now get an opportunity to redirect or redeploy the savings from that program and to more scalable ways to drive awareness and conversion .
Speaker #3: So , you know , it's I , I'm actually really proud of the team for digging deep and deeply assessing elements of our business that were important and that have been sacred .
Speaker #3: But but being willing to really think about what is the better way to drive the business going forward .
Speaker #13: Okay , that's a great summary . Thank you very much .
Speaker #10: Thanks , Peter .
Speaker #1: Thank you . At this time , we have no further questions . So therefore this concludes today's call . Thank you for joining .