COOK - Traeger Finds Destocking Coming To An End

2023-10-13 17:10:18 ET

Summary

• Traeger, Inc. designs and sells outdoor grills for consumer use, including wood pellet and gas grills.
• The global market for barbeque grills is expected to reach $7.0 billion by 2030, driven by social gatherings and younger demographics.
• Traeger has produced declining revenue and continued operating losses.
• But, management sees a return to more normal inventory replenishment activity ahead.
• I remain Neutral [Hold] on Traeger, Inc.

A Quick Take On Traeger

Traeger, Inc. ( COOK ) designs and sells outdoor grills for consumer use.

I previously wrote about Traeger with a Neutral Hold outlook.

While retailers are showing signs of stabilizing inventories, a return to previous replenishment levels is likely to be a slow process, especially as the busiest period of the year is now over.

I remain Neutral [Hold] on Traeger, Inc. for the near term.

Traeger Overview And Market

Utah-based Traeger was founded to develop a family of wood pellet grills and gas grills for consumer use, along with digital controls and related cooking products.

The firm is led by Chief Executive Officer Jeremy Andrus, who has been there since January 2014 and was previously president and CEO of Skullcandy.

The company’s main product offerings include:

• Wood pellet grills

• Gas grills

• Digital content

• Consumables

• Cooking control.

Traeger pursues an omnichannel approach, selling its products through retailers including Ace Hardware, The Home Depot, Wayfair and Williams-Sonoma and direct-to-consumer through the firm's website and mobile app.

According to a 2022 market research report by Grand View Research, the global market for barbeque grills was an estimated $4.6 billion in 2021 is forecast to reach $7.0 billion by 2030.

This represents a forecast CAGR of 4.8% from 2022 to 2030.

The main reasons for this expected growth are a growing trend of social gatherings and outdoor parties, as well as younger demographics driving growth.

Also, below is a chart showing the recent historical and projected future growth trajectory of the U.S. barbeque grill market from 2020 to 2030:

Major competitive or other industry participants include:

• Weber

• Kingsford

• Dansons

• Blackstone

• Others.

Traeger’s Recent Financial Trends

Total revenue by quarter has continued to trail previous year’s results; Operating income by quarter has fluctuated seasonally in negative territory:

Gross profit margin by quarter has moved higher in recent quarters; Selling and G&A expenses as a percentage of total revenue by quarter have fluctuated materially in recent quarters:

Earnings per share (Diluted) have varied seasonally, while remaining materially negative in recent quarters:

(All data in the above charts is GAAP.)

In the past 12 months, COOK’s stock price has been highly volatile, ending up down 12.33% net of all activity:

For balance sheet results, Traeger, Inc. ended the quarter with $14.5 million in cash and equivalents and $437 million in total debt, of which $40.3 million was categorized as the current portion due within 12 months.

Over the trailing twelve months, free cash flow was $46.2 million, during which capital expenditures were $14.8 million. The company paid a hefty $101.2 million in stock-based compensation in the last four quarters.

Valuation And Other Metrics For Traeger

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha.)

Sentiment Analysis

The chart below shows the frequency of various keywords in management’s most recent earnings conference call:

The chart shows substantial macroeconomic environment pressures on the company's results since the end of the pandemic.

Analysts asked management about lowering its grill pricing, gross margin dilution and inventory dynamics.

Leadership said that while it increased pricing during the pandemic to offset costs, it is now bringing pricing down to pre-pandemic levels, presumably to increase volume.

Management stated that its gross margin dilution is due to channel mix changes and promotions.

It expects second half 2023 inventory to move faster as a result of lapping the previous year’s destocking effects rather than growth of new sell-through.

Management believes that sell-through has basically stabilized and sees a return to more normal replenishment dynamics over time, driving growth through improved replacement rates.

Commentary On Traeger

In its last earnings call (Source - Seeking Alpha ), covering Q2 2023’s results, management’s prepared remarks highlighted better-than-expected results as consumers purchased grills in anticipation of the summer season.

The firm sees continued consumer spending dynamic on travel and services at the cost of consumer durables like its products.

In response, management increased forward guidance, which assumes a return to top line revenue growth in the second half of 2023.

Total revenue for Q2 2023 fell by 14.4% year-over-year, while gross profit margin increased by 0.3%.

Selling and G&A expenses as a percentage of revenue increased a substantial 10.1% YoY, and operating losses worsened sharply to $25.8 million for the quarter.

The company's financial position is moderate, with the firm rather limited in cash, with significant debt but reasonably good cash flow.

Looking ahead, management upped its full-year 2023 revenue guidance to $593 million at the midpoint of the range, or a decline of 9.6% YoY.

If achieved, this would represent a lower revenue decline rate than 2022’s decline rate of 16.5% over 2021.

Adjusted EBITDA is expected to be $57 million at the midpoint.

In the past twelve months, the firm's EV/Sales valuation multiple has risen a net of 15%, as the chart from Seeking Alpha shows below:

A potential upside catalyst to the stock could include improved inventory replenishment as retailers begin to return to normal operating levels.

However, going into the colder periods of the year and with consumer confidence still dropping, I’m not optimistic about a meaningful catalyst for Traeger.

I’m therefore Neutral [Hold] on Traeger, Inc. for the near term.

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