Traeger CEO on supply chain: Lowering transitory costs will be a benefit
Yahoo Finance Video
Yahoo Finance’s Julie Hyman, Brian Sozzi, and Brian Cheung speak with Traeger CEO, Jeremy Andrus, about the company’s first earnings report since its public debut, outlook, and more.
Video Transcript
BRIAN SOZZI: Shares of grillmaker Traeger are getting hit after the company's first earnings report since going public in July. Analysts have told me, though, the reaction looks overdone as Traeger beat on sales and profits, and guidance was also ahead of estimates due to strong grill demand. Let's check in with Traeger CEO Jeremy Andrus. Jeremy, good to see you again here. Just let's start on the market response here. Are you surprised?
JEREMY ANDRUS: Look. I gotta be honest. I haven't checked our stock since we went public. And so nice to see it up there. Am I surprised? You know what? I'm a big believer you build these things for the long-term, and you do what's right for the business every day. And some days, the market likes you. And some other days, they don't. Apparently, they don't this morning.
But we had a good quarter. I mean, Traeger's about market share. It's about growth. It's about disruption. And there are some natural headwinds that we're facing in the business right now from a macroperspective, which every other company in the world who produces a consumer durable, particularly ships from Asia, is facing. And so I think we're doing a good job working around these pieces. Perhaps the market doesn't like that.
But great quarter. I mean, we grew 39% top line in the quarter. And we guided full year to grow approximately 40%. That's a good company. That's a thesis of this business.
BRIAN SOZZI: Jeremy, if you're not checking your stock price, that means you're not on the Yahoo Finance app. And we're gonna have to take that offline. We'll save that for a different [INAUDIBLE]
JEREMY ANDRUS: No. I check other people's stock. I check other people's, just not my own.
BRIAN SOZZI: OK, fair enough, fair enough. But talk to us about, so you are seeing strong demand, accessories and grills, but can you get enough components? Where are you sourcing your products from? I know there continues to be a lot of bottlenecks coming out of China.
JEREMY ANDRUS: Yeah, look. It's a complicated environment right now. And it's not a single thing. It's components. It's access to port capacity, to vessel and container capacity. And so I think we're doing a really good job in this environment. Our operations team has been very thoughtful around all of the components or the levers that we have access to manage this.
And so I will say that we feel good about our inventory position. We're building at high utilization rates in our factories. We're shipping effectively to the US. There are some bottlenecks, but we've chosen to take on some warehouse capacity in Asia so that we can continue to produce and build up inventories, bring them over as we have vessel capacity.
So I'd say it's complicated. It's not easy right now. But we feel like in the guidance that we gave that we're able to deliver an unconstrained demand number, and our inventory positions are building. And so relative to what I hear from other CEOs in the market, we're in a pretty good spot. I think we've managed through some difficult market conditions pretty well.
BRIAN CHEUNG: Hey, Jeremy. Brian Cheung here. So when it comes to just the expense side of things, you've got a gross margin of 39.1%. You had a net loss of 4.9 million here. So when it comes to the outlook on managing the cost-- and I understand that, given everything you just said, there are some things that are a bit idiosyncratic to the pandemic that we're facing right now. But how do you expect the company to manage those going forward?
JEREMY ANDRUS: Look. I think there are a few things. Number one, our goal is growth and market share-- not at all costs. This is disciplined growth. It's important that we protect the consumer and that we can deliver product. And so, to some extent, we're taking these higher costs, and we think that's the right thing to do in the near-term.
But there are things, there are some levers that we're accessing. We're implementing a price increase. And I would say we're a little bit late relative to competition. We didn't want to be first to drive price increase, but we're implementing a price increase in the fourth quarter. That will help a little bit.
We're managing the expenses as well as we can, and we believe they're transitory. It's very unlikely to impossible to believe that the cost of inbound freight from Asia, for example, continues where it is. A year ago, we were spending $1,500 per 40-foot container. Spot rate on those containers, some cases, is north of $20,000. We're not paying for the $20,000 containers. But in some cases, we're paying north of $10,000. And so we're incurring those costs. We're being smart about which ones we're willing to incur.
And we want to make sure that we are disciplined around SG&A in the business, particularly in a moment where margins are challenged. But we believe that, over time, great brands benefit from these headwinds as they go away. And so we continue to grow. We continue to take share. And as these transitory costs come down to earth, we think, ultimately, that's a benefit.
We'll see that flow through particularly some of the price increases that we've had to take just to manage through the environment at a certain point in time. Great brands are able to keep those increases, and they get the margin back. And our bet is that that happens with Traeger and that this environment comes down to earth at some point in time.
JULIE HYMAN: And, Jeremy, I want to switch gears for the final question because this is something we're asking all the CEOs today. It's Julie here, by the way. Given President Biden's talk last night about mandating that corporations in America tell their employees to get vaccinated or tested, I'm just curious what your policy is on that front and whether you're going to have to make any changes.
JEREMY ANDRUS: Yeah, look. I mean, since the very first day, health and safety of our team has been the number one priority above all. And we've certainly made-- we have programs in place to support vaccination. We encourage it. I've been vaccinated. I'm glad I was.
In terms of mandating vaccination, we'll wait and see where that goes. But, look. We think vaccination is smart, and we're encouraging it. In some cases, we will put some incentives in place to ensure that that happens. But we feel very good about our policies in place.
We haven't had meaningful COVID issues within the office, on the team. We do track that. We asked employees to notify us. And we've got good procedures in place, and we feel good about where we are.
BRIAN SOZZI: Good to see it. Traeger CEO Jeremy Andrus. Good to see you, as always. Have a great weekend of grilling, my friend.