Good is all relative, but Traeger’s quarter that ended in June was a good sign for their business. They saw growth in grill sales for a change, raised guidance, and have new products in the pipeline.
New Grill Speculation
The most exciting part of Traeger’s earnings call was there is a new “grill product” scheduled to start shipping in Q4 of this year. My guess is it’s going to be a new version of the Traeger Pro Series.
Traeger released a new Timberline two years ago at the top of their range, and a new Ironwood last year in the middle. That gives them two nice looking grills, with beautiful touchscreens, and then the Pro Series with the old look and the old tech.
I was cooking ribs on my Pro 575 over the weekend, and while it still works really well, it does look and feel a little old. Traeger likes to start upgrades at the top of the product range and trickle the innovation down to lower models. That’s why I’m guessing it’s the Pro Series’ turn in Q4.
MEATER Performance
Traeger’s revenue growth distribution flip-flopped from previous quarters. Grill sales were up, but consumables were down a little and accessories were down 8.8%. MEATER had some great gains since their acquisition, but that growth hit a stumbling block.
In the second quarter, MEATER experienced lower-than-anticipated sales in its e-commerce channels, which make up a majority of its revenue base. We believe that MEATER is being impacted by changes in our demand creation strategy implemented earlier this year, which proved ineffective in driving top line. The good news is that we believe we have diagnosed the issues impacting the business and have implemented strategies to drive improvement going forward. This includes adjusting our demand creation strategy as well as driving new product innovation in the second half of the year.
Jeremy Andrus, CEO of Traeger
Jeremy Andrus was asked to go into more detail about the demand creation strategy and how it’s being adjusted. It has to do with what segment of the demand funnel they’ve been targeting.
So first of all, MEATER is largely an online business. We are certainly in the process of leveraging our channel synergies, Traeger being heavily a traditional retail business. But we came into the year with the hypothesis that we could more efficiently drive sell-through, focusing on – more on sort of lower funnel conversion and less on upper funnel prospect marketing. I think that strategy just didn’t play out as expected. We certainly have plenty of history with the brand in investing more, prospecting in advance of key selling seasons. And we’ll probably be back into that strategy that’s been effective for us in the past.
Jeremy Andrus, CEO of Traeger
It wasn’t mentioned on the call, but it’s worth noting that there is much more competition on the horizon for MEATER. Their wireless meat probes have always been a premium product, and technologically better than the competition. Both ThermoWorks and FireBoard are releasing new wireless temp probes that are squarely aimed at taking share from MEATER.
Traeger has plans of their own to get MEATER back to square footing, beyond their demand creation strategy. They have new MEATER products planned for the second half of the year, when they sell MEATER the most.
They also plan to expand their wholesale distribution of MEATER. It’s largely an online product today, but Traeger has plans to change that.
Also, we are doubling down on expanding MEATER’s wholesale distribution and we’ll be relaunching our retail offering with improved packaging and in-store fixtures ahead of holiday. We remain confident in the long-term opportunity for MEATER and believe the changes we are making position the business for improvement. It is important to note that the majority of MEATER’s year is in front of us, with more than two-thirds of full year revenues occurring in the second half, and so there is ample time to pivot effectively.
Jeremy Andrus, CEO of Traeger
Grill Industry Macro Environment
As I noted previously, Traeger saw a revenue increase in grill sales on the quarter. They achieved that by recognizing consumer price sensitivity and leaning more heavily into promotions.
As a premium brand, they try to balance promotional activity with maintaining that premium image and pricing. Rather than increasing their number of promotions, they ran their Q2 promotion for longer. This lowered their average selling price (ASP) in the quarter, but increased their unit volume.
grill sales grew slightly 2%. The volume – grill volumes did increase kind of high-double digits. The offset was ASP, which declined kind of mid-double digits. And we understood that dynamic going into the quarter. It’s how we sort of designed our promotional strategy. We want to ensure that we’re focusing and strategically planning our promotion around where consumer appetite is, there’s pressure on high ticket durables. We’ve seen a trend toward lower and opening price point grills for our brands of $1,000, and we leaned into that. And that proved to be an effective strategy, which drove a fairly nice lift to volumes, albeit offset by the decline in ASPs given that mix shift.
Dom Blosil, CFO of Traeger
It’s no secret that the consumer is deferring purchases and trading down. They’re also feeling pressure from expensive debt, which Traeger feels both from financed purchases, but also in home purchases. This is a dynamic that Middleby often notes in their Residential division.
The first is, yes, there are absolutely direct sort of correlations between interest rates and grill demand. One is certainly consumer financing. Americans finance just about everything in some way from low price points all the way up to houses. And $1,000 purchase often is financed either on our website through a financing partner, at retail through financing programs that they offer. And there is no question that headline news would suggest American consumers have spent their cash. They have spent – they are meaningfully in debt, and financing costs do matter. There is also a correlation between housing transactions and new grill purchases. And while that doesn’t drive most of our business, it certainly influences 15% to 20% of the business. And given where interest rates have been, housing transactions are very low. But I think the – and so certainly some direct impact from a broader consumer health perspective, I think that’s where we see lower interest rates. We begin a new cycle where interest rates come down, the consumer gets healthy. Their debt is more manageable and they – and consumers begin to buy again. And I would say notably in durables, which tend to have some cyclicality around interest rates and health of the consumer, oftentimes when rates are – when interest rates are high and consumer is relatively weak, purchases are pushed out unless they are absolutely necessary. And so we expect to benefit from that. And I think the combination of a healthier consumer, but also as investments that we have been making in product and increased investments in brand and top of funnel that we plan, we believe that we will take share. And I think the combination of the two will be meaningful for our business.
The last thing I would say is just in sort of zooming out and thinking about where the industry is from a unit volume perspective relative to where it’s been historically, unit volumes are still meaningfully below pre-pandemic levels, somewhere in the 20%-plus range. And that’s simply a function of pull-forward demand which is probably now intersecting with a weakened consumer. But if you look at the decade of industry data prior to the pandemic, this is a really resilient industry that just chugs along and grows at low-single digits. And we expect that the industry will rebound, and it will. And it will ultimately be larger than it was in 2019 simply because of the adoption of outdoor cooking that happened during the pandemic. So, I think there are multiple industry and macro drivers that will work in our favor. They have been headwinds, but those headwinds will ultimately turn to tailwinds. And it will be good for the business when they intersect with the investments that we have been making to bring new product to market.
Jeremy Andrus, CEO of Traeger
Another market dynamic that I’ve written about previously is the brewing tailwind of the grill replacement cycle. It will be delayed by macroeconomic factors, but the accelerated grill buying through the Pandemic started four years ago at this point. That’s knocking on the door of when people usually replace their grills.
Yes, you are right in that, we have continued to validate that about – there is about a 5-year replacement cycle for Traeger and for our consumer, and it’s 7 years to 8 years for the broader industry. And yes, we are looking at that as part of our strategy heading into the next couple of years is how do we capitalize on, what could be a wave of consumers who purchased 4 years or 5 years ago that are looking to upgrade. And that lines up nicely with our innovation cycle. So, that presents a nice opportunity to convert people on a new product that may have a legacy product and certainly speaks to the benefit of having a more condensed innovation cycle within what is largely a slow-moving category, and something that we do value. That loyalty loop is certainly something that we care about, and we want to ensure that we are designing strategies around how we unlock that growing base of consumers that are ready to upgrade and something that we are most definitely focused on and have looked at it the same way as you in that those pandemic purchases are coming up on a period of time where they may be looking to upgrade. And as our installed base grows, as consumers age out, as that installed base grows, that represents a larger and larger opportunity over time.
Dom Blosil, CFO of Traeger
It gets back to Traeger’s intersection with tech. I have a Weber kettle grill that I bought almost ten years ago at this point, that I don’t really think about replacing. My Traeger Pro 575 on the other hand is approaching four years old, I’m comparing it to the new Traeger grills, and find myself wanting to replace it.