Martin Marietta Materials Q1 2023 Earnings Call Transcript

Quartr
Provided by Quartr
May 10, 2023

There are 8 speakers on the call.

Operator

All participants will have the opportunity to ask a question today. I would now like to hand the call over to Nick Backus to begin. Please go ahead.

Speaker 1

Good afternoon, everyone. Thank you for joining Traeger's call to discuss its Q1 2022 results, which were released this afternoon and can be found on our website atinvestors.traeger.com. I'm Nick Backus, Vice President of Investor Relations at Traeger. With me on the call today are Jeremy Andress, our Chief Executive Officer Don Wassell, 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 2023 results, which are based on current expectations but are subject to substantial risks and uncertainties that could cause actual results differ materially from those expressed or implied herein.

Speaker 1

We encourage you to review our annual report on Form 10 ks 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 for 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

Speaker 2

are included in our earnings release, Which is available on

Speaker 1

the Investor Relations portion of our website at investors. Trigger.com.

Speaker 3

Now, I'd like to

Speaker 1

turn the call over to Jeremy Andress, Chief Executive Officer of Trigger.

Speaker 4

Thank you, Nick. Thank you for joining our Q1 earnings call. Today, we'll be discussing the Q1 results as well as our progress on executing our long term I will then turn this call over to Dom to discuss further details on our quarterly financial performance. In the Q1, 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 twenty twenty three. 1st quarter revenues of $153,000,000 Came in towards the higher end of our guidance range, while adjusted EBITDA of $22,000,000 exceeded the high end of our range by $2,000,000 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 Traeger for improved profitability.

Speaker 4

While our top line continues to be pressured by retailer destocking As well as lower consumer demand in our Grille business, our first quarter results increased 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 grills remained negative versus the Q1 last year, As we continue to lap our very strong multiyear comparisons, the impact of lower consumer demand in the Q1 It's compounded by continued retailer destocking compared to the Q1 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.

Speaker 4

We reverted to a more typical promotional cadence in the Q1 That was similar to prior year. I'm encouraged to see consumer demand return 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 Q1, we continue 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 rightsizing efforts. Our 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 declining 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 second half, which will allow for more normalized replenishment rates of grills.

Speaker 4

On gross margin, Our team remains highly focused on driving margin improvement. In the Q1, we made a strategic decision to optimize Our pellet manufacturing footprint by consolidating our pellet mill portfolio from 7 mills to 5, By divesting of 2 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 in our pellet business in the coming years. In terms of our cost structure, in the Q1, we realized the benefit of the cost reduction efforts we undertook last year, Which resulted in annualized cost savings north of $20,000,000 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 into high priority growth initiatives If investment capacity increases.

Speaker 4

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 3.5 percent by driving awareness of the Traeger 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 Traeger's share of space devoted to outdoor cooking on our retail partners' floors. Our brand awareness remains at an all time high and is done materially from this time last year despite our limited top of funnel marketing investment capacity Over the last 12 months, in the Q1 engagement with our community on social media continued to demonstrate The growing awareness of and participation in our brand. We grew our followers by 19% versus last year And user generated content posts, which we view as a key medium for our brand evangelists, were up by 16%.

Speaker 4

For the Super Bowl, we offered up unique content and recipes for the game and encouraged our community to post content You can see the Traeger game day 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 Traeger recipes and cooking tips for the Super Bowl and numerous mentions in top 10 Grills of 2023 less. Our media reach has more than doubled versus Q1 of last year. Traeger continues to be the Grille brand that everyone is talking about.

Speaker 4

Going into our peak summer selling season, The excitement and enthusiasm around the Traeger brand remains as strong as ever. Next week on May 20th, we will celebrate our 6th Annual Traeger Day, Our holiday dedicated to family, friends and wood fired food cooked on the Traeger. In anticipation of Traeger Day And ahead of the grilling season, we have released a series of videos featuring Meat and Church Barbecue's Matt Pittman with recipes Cooked on our new Flat Rock in Ironwood. 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 20. Next, on to our second growth pillar, which is disrupting outdoor cooking with product innovation.

Speaker 4

The Q1 was a critical period in our product innovation roadmap with the launch of 2 new grills in February, our new Ironwood and our new Flat Rock Griddle. These launches were some of the most successful in our brand's history and I'm extremely proud of the team's execution of our go to market strategy From product development to commercialization,

Speaker 2

innovation is at

Speaker 4

the core of our company and the level of innovation that we are bringing to the outdoor cooking market is remarkable. The Q1's product launches cement our position as an industry disruptor. Our new Ironwood offers unrivaled flavor and consistency Through a series of upgrades and new features, building on the innovation of last year's Timberline introduction, the new Ironwood includes features like smart combustion Technology, free flow Fire Pot and a touch screen user interface and enabling consumers to master their cooks every time. The response from consumers and retailers has been fantastic. The Ironwood had over 400,000 views on social media During the launch period and received positive media from Rolling Stone, Men's Journal, GQ and Forbes.

Speaker 4

The launch of our premium flat top grill, the Traeger 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 our community, we understood that there was a gap in the marketplace Freight premium griddle and an opportunity for Traeger to disrupt the space. Complementing the tried and true dishes of the wood pellet grill, Our new flat top grill opens a trailer hood up to an entirely new menu of foods like pancakes, Philly cheesesteaks and Smash Burgers. The Flat Rock solves several common pain points for griddle users with innovations like our TruZone heating system with 3 separate cooking zones, Triple U burner designed for even cooking across the cooking surface and flame lock construction, which locks in heat and blocks out wind.

Speaker 4

The launch has been the most engaging in our history with over 838,000 video views and over 27,000 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's a significant opportunity to increase distribution as we move through this year. Our next strategic pillar is driving recurring revenues. As expected, our consumables business was pressured by lower demand from a large customer who introduced a private label pellet offering last year. Outside of this, our pellet business remains healthy and sell through in the Q1 was relatively in line with the Q1 of 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.

Speaker 4

In the Q1, we added pellets into nearly 450 new grocery doors across Albertsons, SpartanNash and Raley's. We also grew our pellet offering at Kroger by adding our new value size 30 pound barbecue select pellet in over 1600 doors. On the food consumable side, we continue to execute on our growth strategy through channel expansion and new product offerings. Of note, we secured new distribution for Traeger rubs and sauces in over 250 doors of Meijer. We also launched 3 new rubs focused on the most popular griddle meals to support the launch of Flat Rock, Burger Rub, Breakfast Rub And spicy fajita rub.

Speaker 4

Our final growth pillar is expanding the Traeger brand internationally. Similar to the U. S. Market, Our international business was pressured by the retailer destocking in the Q1. However, results internationally for the quarter were in line with our expectations.

Speaker 4

In the Q1, we introduced our new timberline in European markets and our new ironwood in Europe and Canada. The product news 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'm encouraged by the meaningful progress we have made In the last three quarters on our tactical priorities, our team's focus on rightsizing inventories, reducing our cost structure And driving gross margin improvements will position the business for return to growth in the second half of the year and beyond.

Speaker 4

Moreover, the excitement and exceptional consumer response to our new product launches bolsters my confidence in Traeger's 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?

Speaker 5

Thank you, Jeremy, and good afternoon, everyone. Today, I'll review our Q1 performance and discuss our outlook for fiscal year 2023. 1st quarter revenue declined 32 percent to $153,000,000 Grille revenues declined 40% to $90,000,000 Grill revenue was negatively impacted by lower unit volumes as our retail partners continued to destock in an effort to drive lower in channel inventories,

Speaker 6

Partially offset by higher average selling prices.

Speaker 5

Consumables revenues were $30,000,000 down 24% To Q1 of last year, driven by lower volume of pellets, our consumables business was negatively impacted by the loss of volume of a customer introduced a private label pellet last year, as well as lapping the large load in the food consumables into the grocery channel in the Q1 of last year. Accessories revenue decreased 1% to $33,000,000 due to lower unit volumes of Frigga branded accessories, Partially offset by increased sales of METER. Geographically, North American revenues were down 33%, While Rest of World revenues were down 13%, gross profit for the Q1 decreased to $55,000,000 From $83,000,000 in the Q1 of 2022, gross profit margin was 36.2%, Down 80 basis points versus Q1 of 2022. The decline in gross margin is primarily driven by 1, Lower Grille margin due to pricing, mix and the timing of some expenses tied to our spring promotion, which Negatively impacted gross margin by 2 40 basis points 2, increased amortization of 70 basis points And 3, other unfavorable items were 110 basis points. Offsetting these margin pressures were 1, FX favorability, which positively impacted margins by 170 basis points and 2, lower freight and logistics costs, Which drove 170 basis points of margin favorability.

Speaker 5

Sales and marketing expenses were $22,000,000 Compared to $35,000,000 in the Q1 of 2022. The decrease was driven primarily by lower marketing expense, employee costs And lower professional service fees. General and administrative expenses were $27,000,000 compared to $41,000,000 in the Q1 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. 1st quarter operating expenses benefited from the restructuring and cost Savings actions taken last year and we realized in excess of $20,000,000 in annualized savings.

Speaker 5

Net income for the Q1 was $8,000,000 as compared to net loss of $9,000,000 in the Q1 of 2022. Net income per diluted share was $0.07 compared to a loss of $0.08 in the Q1 of 2022. Adjusted net income for the quarter was $5,000,000 or $0.04 per diluted share as compared to adjusted net income of $19,000,000 Or $0.17 per diluted share in the same period in 2022. Adjusted EBITDA was $22,000,000 in the first quarter As compared to $30,000,000 in the same period of 2022. 1st quarter adjusted EBITDA was approximately $2,000,000 ahead of the high end of our Guidance range.

Speaker 5

Outperformance relative to our guidance was driven mainly by lower than expected operating expenses, Largely due to the timing of expenses between the 1st and the second quarter. Now turning to the balance sheet. At the end of the Q1, cash, cash equivalents and restricted cash totaled $28,000,000 compared to $52,000,000 at the end previous fiscal year, we ended the quarter with $404,000,000 in long term debt. At the end of the quarter, The company had drawn down $41,000,000 under its receivables financing agreement and $43,000,000 under its revolving credit facility, Resulting in total net debt of $460,000,000 From a liquidity perspective, we ended the first quarter with Total liquidity of $98,000,000 We expect liquidity to ramp as we collect on receivables and reduce inventory moving through the 2nd quarter, Which is our peak selling season at retail. Inventory at the end of the Q1 was $132,000,000 Compared to $153,000,000 at the end of the Q4 of 2022 $160,000,000 at the end of the Q1 of 2022, We are pleased with the progress we made in the Q1 and rightsizing our balance sheet inventories and in particular, Grille inventories, Which drove the majority of the sequential decline in total inventories versus the 4th quarter.

Speaker 5

In channel, We are 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 $560,000,000 And $590,000,000 and adjusted EBITDA to be between $45,000,000 $55,000,000 As we discussed on our Q4 call, we expect our first half sales to be pressured by continued retailer destocking In challenging multi year comparisons before seeing a return to growth in the second half of the year as replenishment rates normalize and we lap We are reiterating our outlook for gross margins of 36% to 37%, Which represents 80 basis points 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 Q3 given the expected improvement in fixed cost leverage as we lap the large sales decline we 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.

Speaker 5

In summary, I am pleased with the solid progress we made in the Q1 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 continue to execute against our strategy. And with that, I'll turn the call over to the operator for questions. Operator?

Speaker 2

Thank

Operator

you. Please ask one question and one follow-up question for the speakers. And while preparing to speak, please ensure that your line is unmuted locally. The first question on the line comes from Simon Siegel from BMO Capital Markets. Your line is open.

Operator

Please go ahead.

Speaker 2

Thanks so much. Hey guys, good afternoon. So I was hoping that

Speaker 4

we could talk a little bit more about pellets, Maybe both sides. So can we talk a little bit more about what you think the consolidation will do of the 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 obviously the element with the large retailer. So when do we lap that?

Speaker 4

Maybe any color you've seen from their offering, how people are responding? And then lastly, we use pellets as Engagement proxy, so to distill out maybe the change in retailer and timing, just help us think through how you're seeing engagement of Just usage in general. Thanks guys.

Speaker 6

Thanks. Good questions. I start with the 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 just really optimizing the entire cost structure of our business, right? And as we think about 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 and rebalance our cost structure is, 1, we really determined that At this point forward, we just had too much capacity in the system.

Speaker 6

And 2, that was putting pressure On the unit economics of our pellets. And so the opportunity that we identified was to rebalance our capacity in light of What we believe is the demand that we can forecast today for the next call it 2, 3 years and adjust that capacity To 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 Our pellets, it's something that we're very excited about. And I think that the second layer to that We had the luxury of identifying 2 pellets and pellet mills in the portfolio that frankly were less efficient And the remaining portfolio and so we can actually shift some of the demand or utilization of capacity in other areas and further pickup 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 margin improvements In gross margin in particular.

Speaker 6

The second question on

Speaker 3

Sorry,

Speaker 6

can you repeat the second question?

Speaker 4

Just thinking through demand. Is this the last question? Yes, just think so that's the supply side. Just How are you thinking about engagement? How are you thinking about demand, maybe selling versus sell through?

Speaker 4

And again, just helping us basically to actually realize From the what you're actually seeing versus the retailer dynamic?

Speaker 6

So we really look at the usage and sort of the demand Of consumables in particular in 2 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 the pandemic and always believed that that would sort of renormalize 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 and what we're seeing now Is that attached against the install is tracking or sort of falling more in line with pre pandemic where we would expect it to be, Save a little bit of incremental pressure via the private label pellet launched by one of our large customers.

Speaker 6

As we think about the second layer to that, which is more a tell on consumer demand, it's a read into The IoT data that we collect, which is a better measure of usage rates, right? And I think what we're seeing there continues 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 and usage of those cohorts As well as sort of aggregate cooks month to month. On the aggregate cooks side, it's pretty consistent with what we've shared in the past In terms of number of cooks per month and on the cohort data, what we're seeing is what we would expect Like as a cohort ages, say 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 4, they're looking to replace a grill Given that they're approaching that life cycle and may enter into a new cohort. So it's exactly it's playing out exactly as we would expect.

Speaker 6

I think the second layer to that, which we feel is very positive is as you look at each cohort, and you look at, say, a pandemic cohort, They're 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 In a very similar pattern over time, in that 1st year of cook behavior really mirrors what we've seen historically. 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 pull forward and demand. We're also picking up consumers that will continue to be active and highly engaged with our product into the future.

Speaker 1

That's great. Perfect. Thanks a lot guys. Best of luck for the rest of the year.

Operator

The next question on the line comes from Peter Benedict of Robert W. Baird and Co. Please go ahead. Your line is open.

Speaker 2

Hi, guys. Kathleen, thanks for taking the question. First, just on gross margin. Don, nice to see it a little over 36% there in the Q1. Recognize these guys are still expecting 36%, 37% for the year.

Speaker 2

Do you still expect gross margin rate to kind of build sequentially as

Speaker 3

we move through the quarters?

Speaker 2

And so that's my first question kind of related to that and how you see kind of maybe the walk So north of 37% over time longer term?

Speaker 6

Sure. So I'd say that we remain I would give a more cautious tone on H2. I think that's consistent. So we're happy with where we landed in Q1. Really no surprises as we look at actual gross margin versus what our internal models show.

Speaker 6

I would say 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 a building sequential improvement in gross margin in part due to the fact that as we've talked about in the past, We still carry a high the carrying cost of our inventory still remains higher than we'd like it to be. Where as you shift forward to 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're all the way back to pre pandemic levels given some of the nuances and dynamics Internally around how contracts work, etcetera, but there are substantial improvements from what we were paying for containers A year ago, 6 months ago. So that's really the consistent theme. A cautious viewpoint on how gross margin comps In the first half of the year with sequential improvements in the back half.

Speaker 6

And then in terms of just how we think about the future. Okay. Go ahead.

Speaker 2

Yes, so

Speaker 6

in terms of the Yes. It's consistent with what we've spoke to in the past, right? Our strategy really is focused on 1, portfolio management, Driving gross margin expansion via an optimized mix within the portfolio as we launch new product at higher margin, It's strategic sourcing as we continue to lean on and build out a highly 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 we about just the manufacturing landscape over time. And then lastly, just general operational improvements. Again, we've used one example of direct import Where we cut out one layer of our value chain, which has proven to be a great element to the building Tailwinds

Speaker 2

in gross margins. Sure. That's helpful. I mean, the second question is, let's see the The inventory is better in shape of the channel. You talked about a normalization in demand patterns.

Speaker 2

Jeremy, I think you were probably referring to I assume you're referring to maybe week to week builds as you kind of start to move into The spring season is that and is that what gives you confidence in forecasting that there will be replenishment Sorry, 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 seeing here in the early parts of spring. Thank you.

Speaker 4

Yes. 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, we're seeing predictability itself and 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. And I would say we are seeing point of sale data that's just it's reasonably predictable, whereas Last sort of 3 years have been fairly volatile in the pandemic on the upside and then last year the downside. The second component really that gives us confidence in our guidance, in our forecast is Retailer inventory levels coming back down to healthy levels, which effectively allows us to replenish The units as they're sold through.

Speaker 4

So we certainly we've seen the health improve meaningfully in the Q1. In the second quarter, We expect that we'll end the quarter feeling like retail inventory levels are in a really good place, and that just gives us a view Into revenue.

Speaker 1

Great. Thanks so much. Good luck. Thanks.

Operator

The next question on the line comes from Peter Keith of Piper Sandler. Please go ahead. Your line is open.

Speaker 7

Hi, thanks. Good morning, everyone. Sorry, long day. Good afternoon, everyone. 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 Just because of the tighter credit backdrop.

Speaker 7

You guys do have some big wholesale partners. We also have some small ones. I'm wondering is there any Issue on order trends with some of your smaller retail partners out there because of this backdrop?

Speaker 6

No, not from our side. I mean, we have a Really strong partnership with our retail partners and we work on terms and then it sort of ebbs and flows over the course of the season where if we're setting Larger quantities in say late Q1 for promotional periods or just the uptick in demand in Q2, We tend to work on extended dating programs, etcetera, to sort of optimize their own sort of cash flow Given the fact that they are smaller retailers, in addition to that, we tend to think of specialty within our realm as Kind of this one to show, one to go model where they're 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 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're seeing, but we haven't necessarily seen anything pop up that would signal a problem from a credit standpoint and or impact Order

Speaker 4

behaviors.

Speaker 7

Okay, helpful. And then maybe for Jeremy on the marketing side, you've talked about Kind of pulling back on some of the top of funnel marketing. What about that bottom funnel marketing? I'm thinking more specifically around your boots on the ground efforts with retailers. I know you do in store demos, you would train sales associates, you gave sales associates discounts so they would own the product.

Speaker 7

Are those efforts still ongoing or is that Something that also you're having to pull back on just given the demand environment?

Speaker 4

No, I would say those efforts are still ongoing. 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, sort of top of funnel customer acquisition, in the near term, we focus on 2 components. 1 is community engagement. And I shared some of the metrics in my prepared remarks on success that we're seen in engaging the community around social, user generated content, cooking, Just general cooking behavior and that's sort of like that's the specialness, that's the secret sauce of the platform That we can always lean into. We built the brand long before we 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 outdoor cooking brand has, which is national coverage in the most important markets, Boots on the ground in retail, merchandising, training, stimulating demand, managing partnerships And we haven't pulled back there and we think that's we believe it's a high returning investment.

Speaker 4

And 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, 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 At retail in terms of breadth of assortment, but also investment in fixturing these Traeger Islands as we've Call them. So the investment on the ground is alive and well. And as we progress And 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 assault strategy, which is really connecting the boots on the ground, the retail execution, with top of funnel investment in media.

Speaker 2

Okay.

Speaker 7

That's great. Maybe you just mentioned Home Depot right at the end. Has there been any update From the not the door expansion, but I guess as you call it the building out of

Speaker 5

the island and the 2 bay walls?

Speaker 4

The Home Depot partnership is a strong one. We've made a lot of progress in terms of continuing to add space. We launched a few 100 incremental fixture doors in the fall. And in the second half of this year, we will again, we will meaningfully grow Both floor space and the number of fixtures at retail, that's sort of that's just a that's a very it's a long term, Very predictable form of growth by really driving presence at retail, which we find is Directly correlated with brand growth.

Speaker 7

Perfect. Okay. Thank you so much. Thanks Peter.

Operator

The next question comes from Joe Feldman of Telsey Advisory Group. Please go ahead. Your line is now open.

Speaker 2

Yes. Hey, good afternoon, guys. Thanks for taking the question. I wanted to ask you a little bit more on some of the innovation with the Ironwood and the Flat Rock Riddle. It sounds like you've seen a great response at least via social media.

Speaker 2

I'm curious if you're seeing A good unit response as well. Is the industry at retail taking it in and you're seeing pretty decent demand from the end user? I would guess the Ironwood probably more so you mentioned Flat Rock is a little more limited distribution at the moment, but any thoughts on that?

Speaker 4

So, well, we're early. We're early today, but I would say The energy that we felt on social in early innings were seen correlated with sell through. Our expectation Out of the gate was that Ironwood would perform very well. It is it's a price point that is accessible To our consumer base, there's meaningful similarities in terms of design innovation From the Timberline, which is nearly twice the retail sales price. So we're pleased with the consumer response On Ironwood, Flat Rock, candidly, the social response kind of soft guard.

Speaker 4

There was A lot more energy around that launch than we expected, which I think really speaks to permission that we have As a brand with a very engaged community and strong retail partnerships that distribute product, it gives us confidence in Our ability to do something outside of wood pellet grilling, but again something that was always intended to be a complement to the wood pellet grill. In terms of Flat Rock contributing to upside to the year, We believe that the disciplined approach was to launch it narrowly at retail And sell through has exceeded our expectation, we'll be relatively constrained For the next 6 sort of 6 to 8 months on inventory, there are long lead time components there. But we really do believe heading to 2024 that this has the potential to be a meaningful grower for us.

Speaker 2

That's terrific. Great to hear that. And then the one other thing I was going to ask about was, think in your prepared remarks, Jeremy, 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 may have meant?

Speaker 4

Yes. I mean, I think it's important to sort of think about that within the context of where we've been notably the Last 18 months. We have worked hard to 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. And as we it really it motivates us to get Really focused and really invest back in the core business. In a moment like this, where 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're being thoughtful to the future, Traeger has always been a disruptor.

Speaker 4

It's always been a share gainer And it will be going forward. And so thinking about long lead time investments product for example, takes multiple years to get product to market. Important for us

Speaker 2

to continue to lean into some

Speaker 4

of the into those investments. And so as we create Upside from plan, we have a decision to make and that's what do we flow through versus what do we invest back in the business To ensure that we're driving future growth. And so when I spoke about being nimble is really being thoughts around our priorities And being willing to reinvest some of the upside to ensure that we continue to be a share gainer long term.

Speaker 2

Got it. That's really helpful. Thank you, Jeremy. And good luck this quarter, guys.

Speaker 4

Thanks, Joe.

Operator

The next question on the line comes from Brian McNamara from Canaccord Genuity. Please go ahead. Your line is open.

Speaker 3

Hey, good afternoon guys. Thanks for taking the question. I'm curious if you could expand a bit on channel inventories relative to where you thought they'd be 2 months ago when you reported Q4. Are they better, worse or in line? I know April wasn't helpful from a weather standpoint, but are you seeing sequential improvement into May?

Speaker 3

Historically, I would imagine there's a catch up in May June when there's a late start to spring for this category. Is that how you're thinking about it as you reaffirm guidance?

Speaker 6

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. Part of that is kind of isolated to certain SKUs where we had more of a problem from a weeks on hand standpoint. And I think that just really builds our confidence in the fact that as we now enter peak selling season, We're sort of positioned at the front of that in a better spot from an inventory Level standpoint and channel than we thought we'd be and I think that's really positive news.

Speaker 6

So we're happy with the progress there and that's also Translating into, I think, an accelerated improvement in on hand balance sheet inventories.

Speaker 3

Got it. And I guess just from a unit share perspective, I mean you guys have 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 or after we clear all Channel inventories, do you guys expect to gain shelf space or floor space with your retail partners In a more normalized environment?

Speaker 4

Absolutely. Look, we feel good about our channel level Torees, 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 not surprising if you were to go into Some of our highest penetrated markets, you're 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 part of the strategy hasn't changed.

Speaker 4

We will as I said, as we add incremental Traeger Islands and fixtures In the Home Depot, in the Q3, we'll continue to gain share of space and we believe that will also drive Share of business in the category.

Speaker 3

Great. Best of luck guys.

Speaker 5

Thanks, Ray.

Operator

Thank you, everyone. We have no further questions. Therefore, this does conclude today's conference call. Thank you all for joining. You may now disconnect your line.

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Earnings Conference Call
Martin Marietta Materials Q1 2023
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