Traeger, Inc. Q3 FY2024 earnings call

Management Statement and Operational Highlights

• Top Line Growth: Returned to top-line growth with 4% revenue increase in Q3, led by 32% growth in grills.
• Profitability: Gross margin expanded by 440 basis points to 42.3% in Q3. Adjusted EBITDA was $12 million, a significant improvement from $5 million in the prior year.
• Brand and Innovation: Unaided brand awareness increased ~20% since 2022. Launched Traeger GameDay and Traeger Kitchen; MEATER introduced new products like MeterPro XL and MEATER Pro Duo.
• Inventory and Channel: Channel inventories were healthy post-strong sell-through in Q2 and Q3, positioning well for Q4 and 2025 product launches.

Segment Performance

• Grills: Revenue grew 32% to $75 million in Q3, contributing significantly. Driven by strong sell-through and favorable consumer response to promotions.
• Consumables: Revenues were $23 million, down 11% in Q3. Underlying demand remained healthy, with expected positive growth in Q4.
• Accessories: Revenues decreased 31% to $25 million, primarily due to softness at MEATER. Anticipated decline in Q4 as MEATER faces ongoing challenges.

Guidance

• Revenue: Increased guidance to $595 million to $605 million for fiscal 2024.
• Adjusted EBITDA: Raised to $78 million to $81 million, driven by improved gross margin.
• Gross Margin: Full year gross margin expected to be 41.8% to 42.3%, up from prior range of 40.5% to 41.5%.
• Grills Outlook: Positive low single-digit growth expected for full-year grills, benefiting from strong Q2 and Q3 performance.

Risks

• Tariffs: Exposure to tariffs, particularly on accessories; efforts to diversify manufacturing sources in Vietnam and other regions.
• MEATER Performance: Continued pressure on MEATER sales due to past demand creation strategy, but initiatives in place to improve Q4 and future performance.
• Consumer Demand: Uncertainty in consumer spending on big-ticket items and home goods, impacting category growth.

Question and Answer

Q: Implied guidance for grills in Q4 A: Directionally, Q4 grill growth will moderate from Q3, but still expect marginal growth, predicated on strong sell-through in Q2 and Q3.

Q: Competitive landscape in pellets A: Competition exists, but Traeger believes in brand loyalty and vertical integration in pellet production, with low barriers to entry for competitors but strong brand positioning.

Q: Category recovery and EBITDA margins A: Category found bottom, expecting better 2025 than 2024; EBITDA margins depend on top-line growth signals and guardrails around profitability.

Q: MEATER marketing transition and installed base A: Working on prospect marketing to drive Q4 performance; small percentage of Traeger grill owners own MEATER probes, with opportunity to cross-pollinate brands.

Q: Tariffs and manufacturing diversification A: ~80% of grills manufactured in China, 20% in Vietnam; diversifying with partnerships in Vietnam and other regions, proactive in reacting to tariff changes.

Q: Gross margin drivers and Q4 outlook A: Drivers include supply chain costs, one-time credits, warranty, and pellet mill efficiency; Q4 gross margin below prior quarters due to promotional activity and product mix shifts.

Q: Consumables sales reconciliation A: Q3 consumables sales down due to pacing, but sell-through positive; expected growth in Q4 as timing of orders shifts.

Q: Grill market 2025 outlook A: Category found bottom, expecting recovery next year with macro catalysts like lower interest rates and replacement cycles.

Q: Gross margin differential and new product impact A: Differential due to MEATER's seasonality and variable investments; new product development to drive future growth through improved product strategy and execution.