Weber has some work to do if they want to dig themselves out of the hole they’re in. They took on a bunch of debt, and are going private as they rebuild. As part of that process they worked through a strategy with Centerview Partners. As we noted last week when we showed Weber’s financial forecast, those documents have been made public. Now we’ll take a look at what Weber’s management views as their opportunities and risks going forward.
New Products in 2024
This year, Weber’s new products are the Lumin electric grill and their first griddle. If that list feels underwhelming, it could be because Weber is focused on 2024 for new products. As they note in the slide above though, that leaves exposure in 2023 for sales by not realizing the new product pipeline.
The also list the risk of the new product launches with expectations. Their forecast likely includes an increase in units sold and margin based on the expected performance of their new products. If those expectations aren’t realized, it leaves a hole in their forecast.
Advertising Spend and R&D
As part of Weber’s turnaround efforts, they cut advertising spend and likely R&D. When a business is running out of cash, those are some of the first items to go because they cost money, cutting them doesn’t interfere with operations, and the return is often delayed. It appears that they plan to increase spending levels on both of those items in conjunction with their new product releases in 2024.
A downside of running a lean operation is that while it helps the bottom line in the short time, it’s at the expense of the future. Weber could lose market share in 2024 because they cut ad dollars in 2022 and 2023.
They also run the risk that their products could be leapfrogged because of reduced people and spend in R&D. Much of new grill development isn’t even on the hardware side anymore, with tremendous effort being put into software development.
Liquidity Challenges with Customers and Suppliers
Weber notes that a risk to their outlook is the reaction from customers and suppliers from their liquidity challenges. We think the reaction from customers is probably pretty minimal. We’d guess many of Weber’s customers aren’t even aware, or don’t care, that they have liquidity challenges.
On the supplier side, that is a challenge for any business that has cash problems. It’s more impactful in a bankruptcy scenario, but suppliers get more leverage with cash problems. We haven’t seen Weber’s agreements with their suppliers, but generally speaking, if a buyer misses a payment with a supplier, there are penalties attached to it. If it’s severe enough, it’s possible the whole agreement can get reworked with even worse terms for the buyer. A buyer in distress may also get worse credit terms or none at all. That all translates to worse margins for the buyer and more cash tied up.
Beyond the economics of the deals, suppliers are more important than ever in a cash crunch. A company needs to turn raw materials or finished product inventory into cash as quickly as possible. Any delay by a supplier, intentional or otherwise, ties up cash for the buyer.
Other Items
Beyond the items listed above, Weber is betting an improved product strategy and supply chain. They have three opportunities in the list that are all supply chain related. They also have some macroeconomic risk that they list out. It appears that this list and their financial forecast all point to a bet on 2024 being good for them.