Vista Outdoor, the parent company of Camp Chef, presented at the Morgan Stanley Global Consumer & Retail Conference today. While they noted some challenges with the consumer environment, they are seeing signals of the business returning to pre-pandemic norms.
From manufacturers down to retailers, a theme amongst the conference calls this cycle is looking at 2019 for business comps rather than during the pandemic. It’s the right way to look at performance and something that we noted in the early summer.
Consumer Spending
Vista Outdoor is seeing some inflationary pressures, but mainly with entry level products. That’s also a phenomenon that Traeger noted earlier this year, noting a $1,000 threshold.
we certainly do see a bifurcation in this inflationary environment that we’re in, where the more well-healed consumers and the more well-healed products we have, higher-end premium products are doing better than the entry level
Chris Metz, Chief Executive Officer, Vista Outdoor
Chris Metz, referenced that the job market remains strong. It’s an issue where some of the consumer disposable income may have shifted to necessities like fuel and food.
That’s led to environment where there’s heavy promotion across Vista Outdoor’s brands. Despite this, they noted a Black Friday that exceeded expectations.
Well, suffice it to say that everything is on sale. I mean, so we had muted expectations for Black Friday. It was actually better than we thought. But the word on the street is if you didn’t have a discount or promotion attached to that product, you’ve less of a chance of it selling.
Chris Metz, Chief Executive Officer, Vista Outdoor
Inventory Levels
Every large outdoor cooking company has struggled with inventory levels. Traeger noted on their last earnings call that retailers were destocking. Vista Outdoor projects that inventory levels will get back to normal over the next three quarters.
we’re saying, certainly through the next 2 quarters. And if — we haven’t guided to next year, but we feel it’s a 2- to 3-quarter type of issue. And as we start moving into summer and certainly in the late summer, early fall, every retail partner that we talk to says they feel like they’re going to be in a very clean position.
Chris Metz, Chief Executive Officer, Vista Outdoor
Some of the current problems with inventory were blamed on Traeger and Weber, which is something that we haven’t heard before.
the third category is Outdoor Cooking, where there’s just been 2 big competitors who went public, flooded the markets, and there’s a little bit of overhang of inventory, all of which we think are — is going to work itself out here.
Chris Metz, Chief Executive Officer, Vista Outdoor
Return to Normal
Similar to what American Outdoor Brands said on their earnings call last week, Vista Outdoor noted dramatic decreases in inbound shipping rates. This will benefit the balance sheet health this year, because it’s capitalized, and create some income statement tailwinds heading into fiscal year 2023.
I mean, container rates where we might pay an average of, say, $8,000 for a container from China to Long Beach, it was upwards of $30,000 with spot rate during COVID. Now spot can go down to $2,000 and right? So it’s changed that dramatically.
Chris Metz, Chief Executive Officer, Vista Outdoor
The normalization of the supply chain and consumer demand will allow the business to return to normal operations. This is a shift away from the hectic procurement environment of the last couple years. It gives them a chance to look at business improvement initiative again.
So over the last couple of years, we never asked about productivity. We just said, how do we get the product in faster? How do we get it in faster? Because we know we have the ability to price at whatever airfreight premium we’re absorbing. Now it’s different.
Chris Metz, Chief Executive Officer, Vista Outdoor
Innovation Leads to Margin
When talking about improving margin, Chris Metz emphasized the importance of innovation. Camp Chef has been one of the more innovative brands recently with their release of the gas and pellet hybrid, the Apex, and the Woodwind Pro that has a built in smoker box.
But first and foremost, you need to work on product innovation. We market to customers that don’t necessarily need the product, but they want the product because it’s better. It’s new. It’s unique. It’s different. It’s experience enhancing, it’s game enhancing, performance enhancing. So we have to obsolete ourselves.
Chris Metz, Chief Executive Officer, Vista Outdoor
The benefit of innovation on margin is it allows you to take price on your products. With increasing input costs, there’s only so much that can be passed on to the consumer before it hurts demand. With a new product it establishes a new set point.