Traeger earnings: CEO talks headwinds facing grilling industry

Traeger (COOK) posted mixed fourth-quarter results, with revenue topping estimates, but reporting a larger-than-expected loss in the quarter.

Traeger CEO Jeremy Andrus says the company "had a solid quarter in a tough environment." "High-ticket consumer durables is a tough space to be in in the moment," Andrus told Yahoo Finance. Andrus highlights a few reasons why the grilling sector is facing headwinds right now, including demand being pulled forward due to the pandemic and high interest rates. Overall, he calls the grilling industry "resilient," given that "Americans have always cooked outdoors." He expects that "as interest rates come down" the category will return to growth, which he expects will happen in 2025.

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Editor's note: This article was written by Stephanie Mikulich.

Video transcript

- Shares of Traeger off just about 13% on the back of its quarterly results, the grillmaker warning of softer demand this year. The latest sign of a more cautious consumer. Joining us now, we want to bring in Jeremy Andrus. He's the CEO of Traeger Grills. Jeremy, it's great to have you here.

So the stock reaction, a lot of that because of the guidance that you gave expecting softer than expected demand for the year. Can you give us just a little bit more context about the spending trends that you're seeing from consumers and when you expect potentially to see that tick back up once again.

JEREMY ANDRUS: Absolutely. Good to be here. I would start by saying we had a solid quarter in a tough environment. Sales grew by 18% in the quarter. EBITDA grew from $7 million to $13 million over the prior year quarter. And if you step back and look at the year, in an 8% decline on top line, we grew EBITDA by 47% and expanded gross margins by 200 basis points.

So I say that to sort of set the context for the environment that we're in, which is high ticket consumer durable is a tough, tough, tough space to be in the moment. There is a lot of pull forward demand that came from the pandemic. Consumers were home-buying. And that's created some pressure on these categories, outdoor cooking included.

And so we've taken this moment, as the industry sorts through the pull forward demand, to really focus on financial health, financial flexibility, to drive profitability, to create a more efficient P&L with better margins, and that feels like the prudent thing to do in this environment.

In terms of the trend and how we think about the industry longer term, I'd say a couple of things. Number one, this is a resilient industry. Americans have always cooked outdoors. If you look at the last 20 years of market data, it's been a steady grower with very few exceptions.

And so right now, we're playing in an industry that's meaningfully smaller than the industry of 2019, and it will recover. Our expectation is that as interest rates come down, that we return to growth, that the category returns to growth. And that for us feels like a moment in time to also lean more into growth type of investments.

- Jeremy, I wonder right now, what type of order volume moderation you're seeing from your wholesale partners for the big ticket items, the known items that Traeger has made its way into many backyards, and decks, and porches for years, and how long that type of environment might last from your purview?

JEREMY ANDRUS: Well, look. The industry accelerated meaningfully in '20 and '21, and it's declined the last two years. 2022, it declined high teens. 2023, last year, declined high single digits. And we expect to see some decline in the industry again this year.

Our expectation is that in 2025, the industry begins to return to growth. And I think it's fair to say that it is consistent with other similar industries. We've heard Home Depot on their earnings call a couple of weeks ago suggested weakness in high ticket consumer durables. We play in a similar space.

And so it will return to growth. Calling the timing is not an easy thing to do, but we do believe that at some moment, we will return to more traditional replacement cycles. Interest rates tend to stimulate purchasing in high ticket durables. Consumers do tend to finance these things.

It seems like based on everything we're seeing in the macro and sort of commentary from the Fed, that we start to experience some reductions in interest rates this year. And so we still look at this year and say, let's make sure that we're focusing on what matters for Traeger.

Investment in product. We are investing in product innovation because we're a disruptor. We win with great experience. Community and brand. We have this incredibly passionate base of consumers. You talk to a Traeger owner, first thing they'll do is pull up their iPhone, and they'll start flipping through the pictures of amazing food that they produced last night, last week, last month.

And so in a moment, we're very focused on what's sacred to our business, product investment, community engagement. And as we start to see the macro turn in terms of high ticket durables, we'll begin to lean into top of funnel investments to drive more growth.

- Jeremy, what are you seeing just in terms of how retailers are taking on inventory at this stage of the economic cycle?

JEREMY ANDRUS: You know what? Our retailers for the Traeger brand are healthy in terms of inventory. And so we work very closely with them to ensure that they're carrying the right levels of inventory. Particularly as we move into our key season, we really accelerate during the second quarter.

And so I would say that Traeger was actually one to get back to a healthy inventory level sooner than our competition, and that's helped a lot. That's created a more productive conversation with our retailers to ensure that they're holding the right levels of inventory to support the demand.

- Jeremy Andrus, who is the Traeger Grill CEO. Jeremy, great to have you here with us. You've gotten us all hungry, so I guess I've got to do something about that now.