Traeger had a low sales quarter, as expected, but actually beat the top end of their guidance. They’re still dealing with retailer destocking, which is depressing sell-through. While the quarter was one I’m sure Traeger wants to forget, there were some bright spots in 2022.
MEATER is Killing It
In the “win” list for 2022, MEATER has to be at the top. Traeger did that acquisition during the pandemic, and it has exceeded expectations. While Traeger doesn’t break MEATER thermometer sales out from the rest of their accessories, they said that they’re 35.9% revenue in accessories year-over-year was primarily driven by MEATER.
Grill sales were so bad at $48.3 million in Q4 (a 52% decreased from Q4 2021), that they actually sold more accessories than grills. They sold $65.4 million in accessories in Q4 2022.
The MEATER business has performed so well, that Traeger is drawing from their credit facility to pay a big earn-out from the acquisition.
In December, the company drew down $12.5 million from a delayed draw credit facility, which is expected to be used in the second quarter of 2023 to fund the payment of the MEATER earn-out relating to 2022 performance.Dom Blosil, CFO of Traeger
There’s more room to grow for MEATER too. The Home Depot started retailing MEATER products in December, which should increase sales going forward.
Traeger noted on their earnings call that inbound freight rates has normalized back to pre-pandemic levels. That will be an economic tailwind for their business going forward. Unfortunately, as they sell down their inventory, their balance sheet is still strapped with high cost materials and freight from the pandemic that’s hurting margin.
They also noted that long-term they still want to adjust their manufacturing footprint. They had begun nearshoring efforts with a plant in Mexico, but had scrapped that last year in a cost savings efforts. While there isn’t the same urgency with low inbound shipping, they still plan to go to Mexico, and possibly Europe to support the success of their European business.
While Traeger has higher debt levels than they’d like, a positive is they’re in a good interest rate position. While Weber was raising debt last fall at 15%, Traeger got into an interest rate swap in February 2022 that fixed their base rate at 2.08%. That’s a huge win for them.
The overall grill industry enters into a cash trough in Q1, but Traeger still feels with their debt covenants going forward.
On leverage, I would say that as of today we do not — we really don’t anticipate having an issue with our ability to maintain compliance with our covenants.Dom Blosil, CFO of Traeger
They also noted that the adjusted EBITDA calculation for the covenants in their credit agreement is more favorable than for financial reporting purposes.
While Traeger still has a glut of inventory they’re working through, they’re hoping that their new products help buoy sales. They released the redesigned Ironwood pellet grill and the gas powered Flatrock griddle. They noted on the earnings call that both premium priced products had a great reception and positive early indicators.