Flipping Traeger into a $1B biz.

Unless new grillmasters step in, Traeger’s toast—and we have the PE BBQ apron at the ready. Plus how much is everyone else growing.

TL;DR

- Macro: eCom is only growing ~10% this year.

- We’re the new grillmasters flipping Traeger

- Launch New Products with Better Data from Particl

?? The Takeaways

Today we’re buying Traeger to flip it into the ultimate backyard store + hit the scale where this biz finally makes sense.

1. Push all consumers to Retail partners. Stop shipping heavy grills all over the country.
2. Make consumables the brands’ DTC focus. Keep people hooked.
3. Roll up outdoor players like Solo to cross $1B in sales.

+ It’s okay if you aren’t growing this year. And how fast everyone else is.

LBAB Community - It’s okay to not grow this year.

I’ve been having the same conversation with a lot of founders this year so I thought I’d share it here as well.?

I know your biz goals are heavily focused on increasing topline by X%, but it’s completely ok if your biz doesn’t grow 50%+ this year. The truth is, most brands aren’t.?

The majority of brands are in between -10% and +10% YoY topline growth this year.?

From what I can gather, the breakdown is roughly:

• ~10% of brands are getting crushed/going bankrupt.
• ~10% of brands are crushing it, growing 50%+.
• 80% of brands are in the -10% to +10% range.

In high-level trend analysis, I’m seeing the same thing over and over.

• Amazon Retail product sales were +4% YoY in Q2.
• Wayflyer Profitability analysis had brands at +4% YoY in Q1.
• All of the public bizs I’m analyzing?

I know how tough that is.?

You made inventory, hiring, and life decisions based on your growth goals. For them to not pan out is a brutal adjustment. The past couple of years had such strong growth that lead to inaccurate forecasts.

But consumers spending less, is what happens when you jack up interest rates so quickly.?This is the exact decrease in consumer demand that the Fed is looking for to know that they’ve broken inflation.

So what can we do about it?

1. Never make Topline growth your #1 goal.
2. Trend to 5-15% Net Income/EBITDA margin
3. Clean out any inventory that has more than 100 days of stock.

What can you expect to happen if you follow this plan?

1. Your topline might decrease. As long as the biz doesn’t go under, that’s ok.
2. The inventory clear out might cause short term unprofitability. Cash flow >>> temp P&L hit.
3. There will be many tough decisions + hard cuts. Find something that reduces your stress outside of work and get through it.

This is the time to make the hard adjustment.

For those in the “Crushing it” camp, make hay while the sun’s out, and build up the war chest just in case.

For everyone else, survival is the name of the game. Getting to the other side of this holiday is the most important goal you can have.

Let’s Make You Money! - sponsored section

Today, we’re going to save you from one of the costliest mistakes you can make in your biz: Not having enough data behind launching new products.

Launching a new product is hard. Most of the time, you’re reading the tea leaves, collecting customer feedback, and going off of your gut. Research usually comes down to checking out a few sites, surveying some customers, and launching the product to see what happens.

But it shouldn’t be that way.?

With Particl you can take a more data-informed approach to understand the potential market for your new product. Answering questions like:

1. How big is the market for this product?
2. What price point should we launch with?
3. How much should we buy? In what colors/sizes?
4. Where are customers currently buying the product?
5. What’s the seasonality of this product?

After seeing a ton of brands like Skims, Away, Hexclad, and Gymshark crushing new product launches with better data, I decided to check it out for some acquisition research.

As we were looking at an Apparel deal (it was interesting but wasn’t a perfect fit), I wanted to get a better idea of the jogger market—it feels like we’ve hit peak yoga pants, but I have this feeling that joggers is a category that is growing and will continue to grow.?

So, I dove into what/how joggers should be priced if we were going to launch them for the new brand. The interesting trends based on 50k products + 600 bizs:

• Joggers are a $1.3B product line that moves 29m units a year.
• They’re strongly seasonal, with uplifts in NA Fall/Winter months + they really move volume over Holiday.

I also wanted to see what the products sell for and what price point the Rev really comes from.

Key insights for me if I was going to get into joggers:

• The Median price of joggers is $40.
• While the majority of products (55%) are priced <$44, the sales really come from $44, $66, and $89 price points.
• There’s an upper tail where 13% of Rev comes from $112+ price point, but <5% of joggers are priced at the premium end.?

If I was going to get into joggers, I’d either introduce a mass-market, affordable jogger at ~$44. Or an attainable-premium one at $89.

There’s a ton more data you can tap into too, like:

1. Competitor intel. Est. total sales. Top selling products. % they discount their products.
2. Market trends on industries and products. What colors or product attributes are selling the best?
3. Benchmarking, so you can see how your store stacks up against competitors.

Unlock these insights free for 14 days and get 20% off your first month using code JEREMY.

Let’s Examine This Biz

Traeger is fending off death after 3 straight years of unprofitable + declining sales. Traeger is a bit of a 1 trick pony in a temporarily declining market.

Trading at $3.33/share with a $431m market cap, Trager is -89% since it’s July ‘21 SPAC. This biz lives & dies by the Retail sword. Let’s bring in a little DTC to save it.

Today we’re going to buy Traeger for $560m and flip it into the profit puppy it always should have been to relist it at $1B valuation.

Financial Summary

2023 Financial Statements (YoY Comparison)

Sales: $605m (-8%) ??

COGS: $382m (-10%) ??

Gross Margins: 37% (+6%) ?? Gross Profits: $223m (-2%) ?? Sales & Marketing: $108m (-17%) ??

G&A: $129m (-22%) ??

OPEX: $279m (-51%) ??

Net Income: -$84m (-78%) ??

EPS: -$0.68 (-79%) ??

Link to Traeger’s earnings

TLDR Analysis: All the wrong trends

• Rev is -23% from ‘21 -> ‘23.
• Gross Margins need to trend back to 40%+
• OPEX is still too damn high at 46% of Rev.

Traeger is the perfect ex. of a biz where no metric is terrible, but when you add up all the costs it’s a sinking ship. For a biz with a 37% Gross Margin all the other costs of the biz have to be incredibly thin. OPEX at 46% of Rev is too heavy for this biz.

Some of this is accounting acrobatics to reduce taxes ($40m of OPEX is in Amortization and Change in Fair Value of Contingent Assets), but if you add up Sales + Marketing + G&A, they’re still $14.5m over their Gross Margins.

That’s a cut-able amount of expenses, which would tighten up the P&L and get Traeger to at least breakeven.

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Let’s Fix This Biz

Here are the 3 things we’ll do to turn Traeger from a grill legend to the backyard party vendor of the decade.

1) Push Customers harder to shop in-store

Traeger intentionally makes it really hard to buy a grill on their website. Don’t believe me? Track how many clicks it takes to get from the Home page to the cart page to buy a grill.

And for good reason. Do you know how expensive it it to ship a 100lb+ grill across the country?

They’re charging a flat $49 before I put my shipping info in. This is really 1 of the big eCom challenges we’ve just swept under the rug. Shipping really heavy equipment.

Say what you want about the old retail model, but 1 enormous benefit of it is that a brand gets to piggyback on a huge supply chain infrastructure that is incredibly costly + capital intensive to build/operate.

No offense to Traeger, but that is never going to be their area of excellence. They’re already in over 13.2k Retail locations across North America. These products also come with 1m questions which = higher sales + support costs. Another area Retail excels in.

I can’t believe I’m saying this (2019 Jeremy would be shocked), but what they really should be doing is turn the Grills section of their site into the ultimate research machine that points consumers directly to where I can buy a grill in store A$AP.

Have the DTC site operate like a marketing partner for the Retail stores to drive foot traffic into stores (almost like their own affiliate). With how little Traeger spends in paid marketing + how community-driven the brand is, keeping it local with their DTC presence will have an outsized impact.?

Especially when you consider that a lot of their sales come from “I ate an amazing XYZ at a friend's BBQ, and now I need to get me one of those.”

Yes, living & dying by Retail is what has gotten this biz into this tough situation, but certain products just don’t fit in certain biz models.?

Traeger violates the core rule of eCommerce. Light, compact, inexpensive products that easily ship to customers.

Takeaway: Play into Channel strengths.

2) Turn DTC into a Consumables machine.

1 Area that their DTC site should excel in is consumables. The beauty of the Traeger model is that customers buy it for the special pellets that Traeger sells. Every time a customer buys a grill, they are a lock-in to buy Pellets as well.

A layup for Traeger to add to their offering is a subscribe-and-save on pellets. Now, these can get heavy as well, coming in 10, 20, 33 lbs bags, but Traeger can leverage their massive retail footprint to test this concept.

They already know the massive retailers where their pellets sell the best. They can take this partnership in 2 routes:

1. Collect the subscriptions + route DTC orders to local stores (i.e., Have Walmart deliver from a store).
2. Take the data from current retail sales and launch local distribution centers (DCs) in the 3-5 key markets where most of their customers are.

They also have many more consumables—from sauces to rubs to accessories—that will need replacement like grill covers and grates.

Either way they go about it, the more important concept is creating a smile curve with their purchasing behavior and LTV.

Essentially, we know that everyone who purchases Traeger will have an incredibly high spend on their first purchase, but not many customers are buying a 2nd & 3rd Traeger grill.

To increase LTV over time, they need to push customers to buy more consumables from the site. For the customer who spends $2k on their grill in their first purchase, we gotta get them to spend another $1k on consumables over their lifetime.

An easy way to trigger this buying behavior is to include free samples of the pellets and rubs with a QR code to buy more from the site in every single grill.?

Retailers might not love it, but if Traeger tapes in small sample packs on the inside of every sold grill lid, It’s the Costco free sample at massive scale.

With how much Recipe content Traeger invests in, there’s a never-ending supply of cross-sell opportunities. As customers expand into other types of food, they’ll need other accessories for their grill as well. (Everyone who’s tried to grill fish knows what I’m talking about).

They only need to hit the 20% obsessed fans for this strategy to print money. Those Traeger power users who grill at every opportunity, use the app, and are always looking for fun new recipes to make.?

Takeaway: Find your whales. Sell as much to them without paid advertising as possible.

3)? Roll up the outdoor market

It’s kind of crazy to say that a biz doing $600m/yr isn’t big enough, but they haven’t hit the Rev scale where reasonable OPEX costs are significantly greater than Gross Margins.

OPEX at 46% of Rev when Gross Margins at 37% will never cut it, but at a Rev/Employee of $945k, there isn’t glaringly obvious waste here. They have to make temporary cuts, but growth is the necessary solution here.

Looking at the market + Traeger’s sales trends, that growth isn’t coming from grill sales anytime soon. Traeger needs to strategically acquire other products that can greatly increase their Rev without greatly increasing their OPEX.

Solo Stove fits that criteria pretty well:

• Mechanical outdoor entertainment equipment
• Operate on high quality fire as their main value prop
• High price point
• Already sell to the Outdoor host who wants to show off entertaining
• Has a natural replenishment angle built into their model

At their current $131m market cap, it’d be a large acquisition, but Solo’s ~$500m in Rev would put the combined entity over $1B in sales.

The beauty is Solo has the opposite sales trend as Traeger.

• Traeger sales are 75% Retail / 25% DTC
• Solo Sales are 25% Retail / 75% DTC

Traeger could greatly grow Solo Stove sales by pushing them through their existing 13.2k retail partners. And Solo Can boost Traeger’s DTC sales.?

Chubbies would need to be divested, which could recoup a generous portion of the acquisition price. The other 2 brands (Oru & Aisle) aren’t big enough to worry about so we’ll package them off as well.

The other big reason it’s important to acquire a brand like Solo Stove is that it makes Traeger a more year-round biz. If customers can sit outside a firepit & keep warm, it takes Traeger from a seasonal summer brand to a year round brand where customers will increase their Traeger usage by buying a Solo Stove.

From there, Traeger will have to be strategic in acquiring other brands that fit this playbook well. A high-end outdoor host’s investment into a great backyard with a consumable back end. Every product Traeger can add to the mix to encourage barbecuers to enjoy their backyard has a solid shot at being included in the portfolio.

Takeaway: Traeger needs to build the Backyard warrior lifestyle. Grills are only 1 piece.

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Final Thought

This type of performance is why so many brands don’t go public. Traeger made the decision to go public at the peak-COVID lockdown moment and grabbed the bag, but it left the biz in a challenging spot now that demand has plummeted.

Don’t forget there’s a literal financial cost to being a public: filings, disclosings, and additional corp requirements of a public biz in the US. And yes, the SPAC provided their shareholders liquidity, but it also put the biz on the chopping block.

Traeger is in a fine financial position to weather the storm with $216k in short-term assets and $133k in short-term liabilities. But how long can they weather this storm as a public biz? In private, it’s much harder to mark the value of a biz, and funding can come down to narrative. There’s always a potential exit that hasn’t been explored yet.

But once your public, that's it. You’ve hit the big leagues. There isn’t any more “up” a biz can go. That, combined with investors seeing the value of the biz on a day-to-day / hourly basis, make long-term bets much harder. The big bold bet to pull them out of this becomes overly scrutinized too early.

Traeger has 2 options to get through this slump:

1. Batten down the hatches and ride this storm out. Greatly reduce costs + make the Topline trade-off. They’ll watch their stock get traded into the ground but survive until the grill market recovers/the outdoor category bounces back.?
2. Make big, bold bets that have a higher risk-reward profile and deal with investors losing their mind short term. If they work, Traeger’s a much more valuable biz.

Or, continue what they’re doing and walk the tightrope of unprofitable attempts to get back to growth while leveraging considerable debt as retailers navigate a difficult consumer climate—the easiest but riskiest decision, especially to keep the banks happy.

If Traeger were still a private biz, they’d have a lot more options to make more bold bets that wouldn't be analyzed to death in infancy.

At the end of the day, I do believe Traeger should be public. I just don’t think they’ve hit that scale yet. Their horrific stock performance and continued subpar financial performance makes them a perfect take-private bid.