Yahoo Finance

I am pleased with our team's execution of our near-term tactical priorities and I believe we have made demonstrable progress, positioning us to successfully navigate what likely will be a continued volatile environment in 2023 and to emerge a more efficient company. It is important to note that we feel strongly that the current environment does not impact our long-term opportunity to significantly grow the Traeger brand globally. Our brand is healthier than ever and despite a tough backdrop in 2022, we successfully launched our new Timberline grill, drew up a brand awareness to an all-time high, saw meaningful growth in social media engagement, drove an industry-leading Net Promoter Score and realized strong growth in our MEATER business. We ended 2022 with fourth quarter results that were better than anticipated, which allowed us to exceed our annual guidance.

Fourth quarter sales were $138 million, putting full year revenue $16 million higher than the upper end of our guidance range while fourth quarter adjusted EBITDA was $7 million putting the year $7 million ahead of the high end of our annual range. During the quarter, we strategically increased our promotional cadence extending our holiday promotional period. As we discussed previously, we leaned into promotions to activate consumer demand in an effort to accelerate the reduction in our retail partners' inventories. Our approach was strategic and targeted with a particular focus on promoting real SKUs where inventory balances were greatest. Our strategy was successful and contributed to better-than-expected sell-through of grills in the quarter, which drove upside in replenishment activity.

Sell-through grills significantly outpaced sell-in the fourth quarter as retailers continue to aggressively destock resulting in materially improved inventory levels in the channel at year end. Additionally, we saw upside in our direct-to-consumer business through the holiday period. Finally, our accessories business outperformed driven by a very strong performance at MEATER. MEATER is a holiday-driven business and the MEATER team delivered outstanding results in the fourth quarter closing off a great first full year under Traeger ownership with strong double-digit growth and solid margin performance. Over the last two quarters, we have discussed our key near-term priorities to position Traeger for the current environment. These initiatives are rightsizing inventories, reducing our cost structure and driving improvement in gross margins.

The organization's universal focus on these tactical priorities in the fourth quarter allow us to make significant progress in these areas. In terms of rightsizing inventories better-than-expected sell-through of grills in the quarter as well as continued destocking by our retail partners drove meaningful improvement in weeks of supply in the channel. Furthermore, lower production levels in Asia combined with improved replenishment activity drove a reduction in our balance sheet inventories with grill inventories and particular declining meaningfully versus the third quarter. In terms of our cost structure, our actions in 2022 as well as ongoing expense discipline contributed to our ability to drive EBITDA upside in the fourth quarter. As we look to 2023, we will continue to be highly focused on managing expenses.

In addition to the $20 million in annualized cost savings measures, we have already implemented we have identified additional savings opportunities for 2023. The team is hyper-focused on driving efficiencies in the business and we will stay highly disciplined as we move through the year. Our final near-term strategic priority is to drive gross margin. Over the last year, our gross margin task force has evaluated and implemented over 75 initiatives across product, packaging, transportation, logistics and design. As Dom will discuss, we are anticipating gross margin expansion in 2023. We expect this expansion to be driven by both internal initiatives as well as a benefit of lower input costs including materially lower inbound freight rates. As we've noted previously, we expect that we won't see the full benefit of lower input costs until after we work through the higher cost inventory on our balance sheet, which we believe should be in the second half of 2023.

While we are encouraged by the progress we made in the fourth quarter, we are taking a cautious approach to our 2023 planning. Our sales guidance of $560 million to $590 million implies a 10% to 15% decline versus 2022. There are several factors driving our cautious top-line outlook. First, it is unclear when consumer spending patterns will normalize and when the outdoor cooking category will return to sustained growth. Second, the outlook for the macroeconomic environment remains highly uncertain with the full impact of the Federal Reserve's monetary tightening policies yet to be felt, inflation still elevated and the housing market showing deteriorating fundamentals. Finally, as we discussed last quarter, retail destocking will continue to pressure our selling in the first half of the year as our retail partners continue to reduce inventories.

We expect that 2023 will be a tale of two halves for Traeger and we are planning to return to topline growth in the second half of the year. It is important to note that the expected growth in the second half is not predicated on an improvement in the macro environment, but as a reflection of our expectation for more normalized channel inventories, as well as lapping the large topline declines we experienced in the second half of 2022 due to retailer destocking. Despite forecasting a decline in sales for the year, we are guiding to an increase in EBITDA. In the current environment, we are focused on efficiency, profitability, and cash flow and our ability to drive this improvement is a direct result of our cost and gross margin initiatives as well as a more favorable input cost environment.

Thus far I have discussed our progress on our tactical initiatives, which will allow us to navigate the current environment. However, we also remain committed to executing against our long-term opportunity and this ties back to our strategic growth pillars. Our first growth pillar is to accelerate brand awareness and penetration in the United States. We ended 2022 with 3.5% penetration of the 76 million grill-owning households in the U.S. with our most penetrated markets in the mid-teens. Despite a softer marketplace and reduced capacity for top of funnel marketing, our brand awareness continues to grow and we believe that the energy around trade is stronger than ever. Engaging our community is one of our most effective tools to drive awareness as we know that Traeger owners are vocal advocates for our brand.

In the fourth quarter, community engagement and the Traeger of his passion for the brand was particularly evident during Thanksgiving. We're not traditionally thought of as an important grilling day, Thanksgiving is one of our largest peak days of the year with members of the Traeger and across the country delighting their friends and family with Traeger smoked Turkey in sites. This year, we created unique content with our Traeger Thanksgiving cooking series, featuring Matt Goodman and Chef Timothy Hollingsworth with recipes and techniques focused on perfecting Thanksgiving on your Traeger. The Traeger that was at full force on Thanksgiving and engagement on social networks was strong with video views up 80% year-over-year across social platforms and influencer impressions up 25% to last year.

Fourth quarter capped a phenomenal year in terms of engagement and we saw impressive growth in our social KPIs with 18% growth in followers across platforms, user-generated content post up nearly 50%, impressions up 33%, and video views more than doubling for the year. We continue to drive awareness and penetration through enhancing our in-store merchandising with key retail partners. At Home Depot, we made serious inroads in elevating the retail experience for Traeger customers in 2022. We ended the year with 500 Traeger Island doors, which prominently display Traeger product on an elevated fixture and we now have 900 two-bay pellet cluster doors with Flex Wall, our Traeger branded bay experience. Our merchandising strategies are not only elevating the Traeger brand to the consumer, but they are driving sales productivity as Home Doors with these merchandising enhancements materially outperformed standard doors in the fourth quarter.

Moreover, in the fourth quarter, we launched a national merchandising program for MEATER at the Home Depot, with MEATER's best-selling SKU, MEATER Plus, now available in Home Depot stores across the country. Our next growth pillar is to disrupt outdoor cooking through product innovation. After a big year for innovation at Traeger in 2022, with the introduction of our new Timberline, we have kicked off another year of meaningful innovation, with two new grill launches in 2023. First, on February 15, we launched our new Ironwood grill. Our new Ironwood feature several key innovations, that have been cascaded down from the new Timberline at an affordable price. This includes our smart combustion technology, the integration of the pop-and-lock accessory rail and the easy clean grease and ash keg.

Vacancylizm/Shutterstock.com

The new Ironwood brings significant innovation, and technological advancements at an attractive price. Next on February 22, we launched the new Traeger Flatrock, our premium flat top grill. The griddle segment has been growing very strongly in the last several years. However, our Flatrock is like nothing else in the marketplace and solve several consumer pain points. Our griddle features are in-house design true zone cooking areas, which allow for greater precision across separate temperature zones, a system of stainless steel burners, which eliminates having cold spots at our FlameLock construction, which recesses a cooktop inside the cooking cavity, locking in heat and blocking out wind. We believe our Flatrock is the best and most innovative griddle on the market.

Early -- the product has been fantastic, and the buzz-generating on social media, has been greater than any other launch in our history. We have taken a disciplined approach to launching Flatrock, with a limited launch at the start, we see significant runway in terms of expanded distribution going forward. Our next strategic pillar is, driving recurring revenues. In the fourth quarter, our consumables business modestly outperformed our expectations. Sell-through pellets remained stable and sales at retail, were in line with prior year in the fourth quarter, which demonstrates the resiliency of this product segment. Further, our line of Sauces & Rubs continues to see strong growth, thanks to new flavor additions and growing distribution in Kroger and other grocery accounts.

In the fourth quarter, we launched two new hot sauces, Carolina Reaper & Garlic and Jalapeno & Lime. In 2023, we expect that distribution will continue to build for rubs & sauces in the grocery channel as Traeger seeks to grow brand awareness, and ensure consumables products are always convenient to purchase. Our last strategic pillar is to expand the Traeger brand globally. In the fourth quarter, we were encouraged to see sell-through of our grills and our retail partners in Canada and Europe, that was ahead of expectations, which allowed for an improvement in in-channel inventories in these markets. While we believe the macroeconomic environment in our international markets will remain challenging in the near-term, we are excited about our 2023 initiatives to drive awareness and growth of the Traeger brand abroad.

We continue to add points of distribution, in key international markets, but remain highly focused on driving same-store sales growth in 2023 and beyond. We are driving productivity through several key initiatives. First, we are bringing innovation to our overseas markets. In January, we launched our new Timberline in European markets. And in February, we launched our new Ironwood in Europe and Canada. Next, we are empowering our international sales team, to focus on in-store growth drivers including merchandising, demos and retail associate training. Last, we are segmenting our international retailer base to incentivize increased investment into the Traeger brand, from our most productive retail partners. Overall, we remain incredibly excited about the long-term opportunity for Traeger.

As we move into 2023, we are focused on executing against our near-term strategy, which will drive efficiencies in our business and position the company for growth in the second half of the year and beyond. I remain as confident as ever in the Traeger brand, and I believe we have the right plans in place to position the company for both near and long-term success. And with that, I'll turn it over to Dom. Dom?

Dom Blosil: Thanks, Jeremy, and good afternoon, everyone. Today, I will review our fourth quarter performance, before providing an update on our outlook for fiscal year 2023. Fourth quarter revenue declined 21% to $138 million. Grill revenue declined 52% to $48 million. Grill revenue was negatively impacted by lower unit volume as our retail partners destocked in an effort to lower end channel inventories. This decline was partially offset by higher average selling prices. Consumable revenues were $24 million, down 7% to prior year, due to lower pellet volumes offset by increased volume of food consumables. Accessories revenue increased 36% to $65 million driven by strong growth at MEATER. Fourth quarter revenues were ahead of our expectations, which allowed us to exceed the high end of our full year guidance range by $16 million.

Upside was driven by better-than-expected revenue growth at MEATER, stronger replenishment sales in our grill business, as our holiday promotions drove improved sell-through, as well as better-than-expected sales in our digital channel. Geographically, North American revenues were down 22%, while Rest of World revenues were down 14%. Gross profit for the fourth quarter decreased to $48 million from $65 million in 2021. Gross profit margin was 34.5% down 250 basis points to 2021. Excluding $600,000 of costs related to restructuring actions, gross margin would have been 34.9%. The decline in gross margin was primarily driven by one, higher logistics costs, due to deleverage, and increased freight costs, which resulted in 530 basis points of margin pressure; two, a true-up related to our warranty reserve, which negatively impacted gross margin by 130 basis points; and three, restructuring costs of 40 basis points.

These pressures were offset by: one, pricing and mix benefit of 230 basis points; two, 110 basis points of favorability related to MEATER, which generated a higher than company average gross margin in the fourth quarter; and three, currency favorability and 110 basis points due to the strengthening of the US dollar versus renminbi. Sales and marketing expenses were $28 million compared to $39 million in the fourth quarter of 2021. The decrease was driven primarily by lower stock-based compensation, lower professional fees, and reduced employee costs. General and administrative expenses were $24 million, compared to $44 million in the fourth quarter of 2021. A decrease in general and administrative expense was driven primarily by lower equity-based compensation, lower professional service fees, and reduced employee costs.

Fourth quarter operating expenses benefited from a restructuring and cost savings actions taken in early third quarter of 2022, and we are on track to achieve more than $20 million in annualized run rate cost savings. As a result of these factors, net loss for the fourth quarter was $29 million, as compared to a net loss of $34 million in the fourth quarter of 2021. Net loss per diluted share was $0.24 compared to a loss of $0.29 in the fourth quarter of 2021. Adjusted net loss for the quarter was $8 million or $0.07 per diluted share as compared to adjusted net income of $3 million or $0.02 per diluted share in the same period in 2021. Adjusted EBITDA was $7 million in the fourth quarter as compared to $13 million in the same period of 2021.

Fourth quarter adjusted EBITDA was better than our expectations, which allowed us to exceed the high end of our annual guidance by $7 million. Adjusted EBITDA upside was driven by outperformance in fourth quarter sales relative to what we've implied in guidance as well as gross margin upside relative to our expectations. Now turning to the balance sheet. At the end of the fourth quarter cash, cash equivalents, and restricted cash totaled $52 million compared to $17 million at the end of the previous fiscal year. We ended the quarter with $404 million of long-term debt. In December, the company drew down $12.5 million from a delayed draw credit facility, which is expected to be used in the second quarter of 2023 to fund the payment of the MEATER earn-out relating to 2022 performance.

Additionally, as of the end of the quarter, the company had drawn down $12 million under its receivables financing agreement and $72 million under its revolving credit facility, resulting in total net debt of $436 million. From a liquidity perspective, we ended the fourth quarter with total liquidity of $95 million. Inventory at the end of the fourth quarter was $153 million compared to $142 million at the end of the fourth quarter of 2021 and $156 million at the end of the third quarter of 2022. While we expect that the process of inventory optimization will continue in the first half of 2023, we are pleased with the progress we made in the fourth quarter as grill inventory declined substantially versus the third quarter and the year-over-year increase in total inventory moderated to 8% from 40% in the third quarter.

We are also encouraged by the progress we made in terms of channel inventory in the fourth quarter as our strategies to drive consumer demand combined with our retail partner destocking efforts is opening a meaningful improvement in weeks of supply. During the quarter, sell-through and grill has outpaced our plan, which allows retailers to work down existing inventory on hand. While improved inventories in the channel remain above target levels. We, therefore, are planning for continued retailer destocking in the first half of 2023. While this will negatively impact our sell-in during this period, we believe that it will allow for a healthier retail channel and set the company up for growth in the second half of the year and beyond. Next, let me discuss our guidance for full year 2023.

For the year, we expect revenues to be between $560 million and $590 million implying a year-over-year decline of 10% to 15%. This outlook is being driven by several factors. First, we expect that retailer will continue to normalize grill inventories in the first half of 2023, which will pressure our sell-in. Second, our assumptions around sell-through reflect ongoing macroeconomic risks to the consumer and uncertainty around spending patterns for goods versus services and experiences. Last, we are expecting our consumables business to decline in 2023, primarily driven by an expected sales decline at a large customer, who introduced a private label pellet offering in the second half of 2022, as well as the lapping of load-in into the go-through channel due to new distribution in 2022.

We expect that we will see a sales decline in the first half of the year, followed by sales growth in the second half. Our assumption for growth in the second half of the year is being driven by our expectation that channel inventories and retail replenishment activity will return to normalized levels. We will also be lapping the substantial negative impact to our top line due to retailer destocking in the second half of 2022. We are not assuming a materially different macro or consumer environment in the second half of the year as compared to the first half. Gross margin for the year is expected to be 36% to 37%, which represents 80 to 180 basis points of improvement relative to our fiscal year 2022 adjusted gross margin of 35.2%. We expect to see the largest year-over-year growth 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.

The largest driver of forecast expansion in gross margin for the year is the decline in inbound transportation rates, which have applied significant pressure on our gross margin over the last two years. We expect adjusted EBITDA for the year of $45 million to $55 million. This represents adjusted EBITDA growth of 8% to 32% compared to our 2022 adjusted EBITDA of $41.5 million. From a margin perspective, our guidance implies an adjusted EBITDA margin of 8% to 9.3%, as compared to our 2022 adjusted EBITDA margin of 6.3%. The improvement in EBITDA is being driven by the anticipated expansion in gross margin, as well as our focus on expense control. Given the lower revenue outlook for 2023, we are aggressively managing expenses and we have identified opportunities for further efficiencies beyond the $20 million in annualized savings we've already discussed.

We expect the first quarter will be our most challenging quarter of the year. For Q1, we are anticipating sales of $145 million to $155 million, which represents a decline of 31% to 35% versus Q1 of 2022. First quarter top line will be particularly pressured by continued retailer destocking against a very strong multiyear comparison. We are anticipating first quarter adjusted EBITDA of $16 million to $20 million. Looking at the balance of the year, we anticipate that the second quarter will also be challenging from a top line perspective and believe sales could decline in excess of 20% versus prior year. We expect double-digit sales growth in the second half of the year. From a balance sheet perspective, we expect to meaningfully work down inventory levels in the first half of the year, with the largest decline expected to occur in the second quarter, which is our largest selling period at retail.

Overall in the face of significant headwinds in 2022, we took swift action to positioning the company to navigate a challenging environment. I am pleased with the progress we made to improve the financial flexibility and efficiency of the business, and I believe we will continue to see improvements in these areas as we move through 2023. With forecasted improvements in gross margin and the benefit of our cost discipline, we expect to drive growth in EBITDA this year and we look forward to the second half of the year when we expect to return to positive top line growth. I remain highly confident in the opportunities in the Traeger brand and believe we have the right strategies in place to position this business for long-term success. And with that, I'll turn it over to the operator for Q&A.

Operator?

See also 15 Dividend Zombies and Kings With Longest Dividend Payouts and 14 Best American Dividend Stocks to Buy Now.

To continue reading the Q&A session, please click here.