Traeger, Inc.

25 earnings conference call. My name is Matt and I'll be the moderator for today's call. All lines be muted in the presentation portion of the call for an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I'll now have to pass the conference over to our host, Nick Bacchus with Traeger. Nick, please go ahead.

Good afternoon, everyone. Thank you for joining Traeger's call to discuss its first quarter 2025 results, which were released this afternoon and can be found on our website at .traeger.com. I'm Nick Bacchus, vice president of investor relations, treasury and capital markets at Traeger. With me on the call today are Jeremy Andrus, our chief executive officer, and Don Blossel, our chief financial officer. Before we get started, I wanna remind everyone that management's remarks on this call may contain statements within the meaning of the safe harbor provisions of the Private Securities and Litigation Reform Act of 1995. These statements are based on current expectations of views of future events, including but not limited to statements regarding our mitigation efforts to offset the direct impact of tariffs, our implementation of strategic actions to stabilize meter sales and profitability, our expectations regarding the impact of our European product partnership with meter, and the release of updates to our outlook as we better understand macroeconomic dynamics. Such statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied year in. I encourage you to review our annual report of Form 10K for the year ended December 31st, 2024, and our other filings for discussion of these factors and uncertainties, which are available on the investor relations portion of our website. You should not take undue reliance on these forward-looking statements, which we speak to only as of today. We undertake no obligation to update or revise them for any new information. This call also contains certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income or loss, adjusted net income or loss per share, and net debt, which we believe are useful supplemental measures. The most comparable GAAP financial measures and reconciliation of the non-GAAP measures contain air into such GAAP measures are included in our earnings release and our investor presentation, which are available on the investor relations portion of our website at .trigger.com. Please note that our definition of these measures may differ from similarly titled metrics presented by other companies. Now I'd like to turn the call over to Jeremy Andrus, Chief Executive Officer of Trigger.

Jeremy? Thank you, Nick. Thank you for joining our first quarter earnings call. Today, I will be discussing our first quarter results and will provide an update on our strategic priorities in our outlook for 2025. I'll then turn the call over to Dom to provide further details on the quarter's results. First quarter results were in line with our expectations. As we discussed on our fourth quarter earnings call, we expected a decline in first quarter sales and adjusted EBITDA. During the quarter, we delivered solid growth in our grills business, which was offset by a decline in our accessories business driven by softness and meter. This resulted in a 1% decline in revenues versus the first quarter of 2024. Adjusted EBITDA of $23 million was down slightly versus last year's $24 million, largely driven by a decline in meter and was in line with our expectations. Let me start by discussing the topic that is likely most front and center for everyone participating on this call, tariffs. The severity and rapidly evolving nature of trade policy in addition to declining consumer sentiment are contributing to a highly uncertain macroeconomic backdrop. In the face of uncertainty, we are controlling what we can control and are focused on both navigating the near-term environment as well as making progress on our long-term initiatives. It's important to note that over the last several years, our team has faced a variety of macroeconomic shocks, including COVID, the post-pandemic grill industry normalization and the supply chain hyperinflation of late 2021 and 2022. We have proven our ability to navigate challenging environments over time. It is our highest priority to successfully navigate the current macro climate. Let me provide some context on our exposure to the current tariff landscape as it stands today. The majority of our tariff exposure is tied to our grill business. As we have disclosed previously, approximately 80% of our grills were produced in China in fiscal 2024 with a balance of production in Vietnam. Based on current policy, our grills are subject to a 25% section 232 steel tariff. Additionally, grills sourced from China are subject to the 20% IEPA tariff on all Chinese imports. On the accessory side, the majority of this product is sourced from Taiwan and thus is currently subject to a 10% reciprocal tariff. Finally, our consumables business is largely sourced domestically and therefore is not subject to tariffs. Given that we face a meaningful headwind due to tariffs, our team has been tirelessly working on mitigation strategies to offset the impact over the last several months. Many of these mitigation efforts are already actioned while some are still being worked through and others will be actioned as we get a better sense of consumer demand over the next several months. Overall, we believe we can offset a majority of the tariff impact via our mitigation strategy and mitigation initiatives with the largest unknown factor being consumer demand and behavior going forward. Our mitigation efforts center on several key areas. First, we are finding savings and reducing costs in our supply chain. This includes negotiations with our contract manufacturers and identifying cost opportunities and efficiencies across the supply chain. We are well positioned to drive savings here given our strong relationships with our manufacturing partners. We are also pursuing sourcing diversification. We are assessing plans to migrate production away from China to other geographies where we expect tariffs and overall costs will be lower. While it is too early to discuss any specific targets here, we are fully committed to shifting production away from China and are planning to materially reduce the portion of our production that occurs in China by 2026 while also lean into the quality of our partners we currently have. Next, in collaboration with our retail partners, we have implemented strategic pricing increases. The analysis that went into a broad-based pricing increase was extensive and decisions were made on a -by-skew basis taking into consideration product features and competitive positioning. Stepping back, while we are always very mindful when adjusting price to the consumer, the incremental expense associated with tariffs require us to increase price. We believe the health of our brand, our premium positioning, and the innovation we bring to the market will be assets to Traeger in an inflationary environment. We also believe that many of our outdoor cooking competitors have or will be raising price, as many are also significantly exposed to tariffs. Our next mitigation strategy is cost reduction. We are aggressively managing our expense structure given the volatile environment. This includes strategically reducing certain non-essential expenses, as well as materially reducing any new hiring activity. Given the broader environment and the uncertainties surrounding the impact of tariffs on the consumer, we believe that expense discipline is prudent and we will continue to identify additional opportunities to gain efficiency as we move through 2025. This doesn't imply, however, that we are limiting investment into key strategic growth pillars. We will continue to allocate resources to non-negotiable areas of priority, including product development, to ensure we are well positioned for growth as the macro environment normalizes. As you've seen in our first quarter earnings press release issued this afternoon, we have withdrawn our prior financial guidance, which did not include the impact of tariffs, and are temporarily suspending forward guidance for fiscal 2025. Generally, we seek to provide as much transparency as possible, and therefore have provided financial guidance every quarter since going public in 2021. However, given the lack of visibility into the broader macroeconomic and consumer environment, as well as rapidly evolving trade policy, we are not in a position to provide guidance. The exact outcome of policy is a moving target, and with consumer sentiment near historic lows, and prices set to increase in many product categories, accurately forecasting consumer demand is a challenge. We expect to have greater visibility into consumer demand as we get through our peak season at retail over the next few months. Moreover, we continue to assess and action mitigation efforts with certain of these efforts ongoing. On to first quarter results. In the first quarter, our grill sales were up 13% versus prior year. From the consumer demand perspective, first quarter tend to be seasonally slower in the outdoor cooking industry. However, we watched sell through closely to gauge demand as we head into seasonally larger months. We were pleased to see that consumer demand for our grills in the first quarter was positive to prior year. I would also like to note that sell through of grills remains healthy into the second quarter, which we view as a positive sign, given the difficult macro backdrop. Conversion at retail continues to be aided by our boots on the ground initiatives. This includes our retail sales specialist program. Our team of RSSs were out in the channel in the first quarter, training associates at our retail partners, conducting product demos, and helping to drive improvements to merchandising on the floor. Going into the peak selling season, these activities will continue to accelerate, and we are planning to materially increase the number of selling events and product demos as compared to last year. We also continue to lean into our roadshow program at Costco, where our brand ambassadors set up product demonstrations in Costco warehouses to educate and sell grills to members on a consignment basis around the country. In Q1, we increased the number of roadshows by nearly 50% as compared to prior year. We believe this not only benefits near-term sales, but also is a meaningful driver of brand awareness. Each brand ambassador talks to dozens of potential customers each day, raising awareness of the brand to new consumers. In fact, many of our consumers say the first time they heard about Traeger was in their local Costco in conversations with our brand ambassadors. The first quarter also benefited from the launch of Woodridge, our new woodpeller grill, which we released in January. As we discussed on our last call, this new line brings significant innovation to the market at a more attainable price point. Woodridge is a great example of our product innovation engine at work, and consumer reception has been strong with demand outperforming our expectations. This is evidenced by the extremely high product reviews the Woodridge series gets from customers. The Woodridge series has an average rating of 4.8 stars, looking at our DTC and several retailer websites. This is the highest rating for product launch we've ever had. Additionally, on the topic of innovation, in early April, we announced the introduction of the Flat Rock 2 Zone. The Flat Rock 2 Zone is the next addition to our griddle lineup, and offers the same premium performance as the Flat Rock 3 Zone in a more compact and accessible design, making high quality outdoor cooking on a flat top more efficient and versatile than ever. Following the launch of the original three burner Flat Rock, it was clear that there was significant consumer appetite for a Traeger griddle offering, and the two burner offers the same innovation as the original in a smaller footprint and at a lower price point. Overall, our innovation pipeline is strong, and we remain very excited about future introductions over the next few years. On the consumable side, first quarter revenues were down 6%, however, these results were largely in line with our expectations. In the first quarter, we continued to innovate in our consumables business. We launched Oak and Whiskey Blend pellets, a new flavor in Traeger's core lineup, which fills a gap in our portfolio with the oak flavor and attacking the whiskey trend in barbecue. We also brought back the much requested Whiskey Dust Rub as a new flavor in Traeger's line of rubs. Lastly, our revamped rubs line with a new, easier to use bottle and a better value to the consumer rolled out into retail in the quarter. Moving on to our accessories business, revenues were down 27% in the quarter, driven by a decline at meter. As we have discussed, meter continues to be pressured by a slowing backdrop in the smart thermometer category, as well as heightened competition. We continue to implement strategy changes at meter, including shifting the promotional calendar to drive the increased conversion, as well as bringing on a new digital agency ahead of key upcoming selling periods. We are also implementing cost reduction efforts at meter as we reposition the business and seek to stabilize demand. Overall, we recognize that the broader economic environment presents a lot of uncertainty, but we continue to focus on what we can control. Our organization's top priority is to effectively navigate the volatile environment. We have significant tariff mitigation efforts in place, and we'll seek to reduce costs further as we move into the balance of the year. Additionally, we will continue to execute on our long-term growth strategies to drive innovation in the outdoor cooking market and increase brand awareness. And with that, I'll turn the call over to Dom. Dom?

Thanks, Jeremy, and good afternoon, everyone. Today I will review our first quarter performance and our strategies to navigate the current dynamic macro environment. First quarter revenues declined 1% to $143 million. Real revenues increased 13% to $87 million. Real revenues benefited from sales of our new Woodridge series, positive sell-through at retail, as well as some benefit from pacing of shipments out of the second quarter. Consumables revenues were $30 million, down 6% to the first quarter of last year. A decline was due to a reduction in both wood pellet and food consumables, partially due to a timing shift, and was generally in line with our expectations heading into the quarter. Accessories revenue decreased 27% to $26 million, due to continued decline in the meter, offset by growth and trigger branded accessories. It's important to note that while meter's core DTC business remained challenged in the first quarter, the -over-year decline in our accessories category was affected by the lapping of a sales load-in related to a European product partnership with meter that benefited the first quarter of 2024. Moving forward, the impact from lapping this partnership will diminish over the balance of the fiscal year 2025. Geographically, North American revenues were up 6%, while rest of world revenues were down 47%, with rest of world revenues pressured due to meter. Gross profit for the first quarter decreased to $59 million from $63 million in the first quarter of 2024. Gross margin was negatively impacted by one, unfavorable mix shift in grills of 180 basis points, two, increased marketplace investment of 140 basis points, and three, unfavorability related to meter of 30 basis points. These negatives were offset by one, lower warranty expense of 110 basis points, two, supply chain related improvement of 50 basis points, and three, other benefits of 20 basis points. Sales and marketing expenses were $22.2 million compared to $21.7 million in the first quarter of 2024. During the quarter, increased employee related expense was partially offset by decreased demand creation costs. General and administrative expenses decreased to $25 million compared to $32 million in the first quarter of 2024. The decrease in GNA expense was driven by a reduction in stock-based compensation expense, primarily related to the earned invested performance shares in the prior period, as well as lower legal costs. Net loss for the first quarter was $1 million compared to a net loss of $5 million in the first quarter of 2024. Net loss per diluted share was one cent compared to a loss of four cents in the first quarter of 2024. Adjusted net income for the quarter was $7 million, or five cents per diluted share, as compared to adjusted net income of $5 million, or four cents per diluted share in the same period in 2024. Adjusted EBITDA was $23 million in the first quarter as compared to $24 million in the same period of 2024. Moving on to the balance sheet. At the end of the first quarter, cash and cash equivalents totaled $12 million compared to $15 million at the end of the previous fiscal year. We ended the quarter with $404 million of long-term debt. At the end of the quarter, the company had drawn down $25 million under its receivables financing agreement, resulting in total net debt of $416 million. From a liquidity perspective, we ended the first quarter with total liquidity of $168 million. Inventory at the end of the first quarter was $127 million compared to $107 million at the end of the fourth quarter of 2024, and $100 million at the end of the first quarter of 2024. Moving on to tariffs. As Jeremy discussed, we have material exposure given our grills and accessories are imported from abroad. For example, a grill that is produced in China is currently subject to a 45% tariff, comprised of a 20% AIIPA tariff and a 25% Section 232 tariff. Given our exposure, our organization has been focused on developing and actioning mitigation strategies to protect profitability and to promote balance sheet health. We believe that we can offset a majority of the impact with our mitigation efforts, and I'm confident in our team's ability to navigate the highly volatile environment. We will be extremely nimble in our approach to operating the business this year, and we'll be planning for a variety of outcomes. From the cost perspective, we have implemented measures to drive near-term savings, including a substantial reduction in hiring and the deferral of non-essential expenditures. We are continuing to assess incremental opportunities to reduce costs in fiscal 2025 and beyond. Given the tremendous economic uncertainty related to trade policy and the potential effects that tariffs could have on inflation and consumer sentiment, we are withdrawing our forward guidance for fiscal year 2025. We feel that there are too many unknowns currently to provide a guidance range that we feel confident in. This includes how consumer demand and sentiment change in the face of price increases, the exact outcome of trade policy, and the timing and evolution of our mitigation efforts, which we are continually assessing. As is always the case, but particularly in an uncertain economic environment like we are currently in, prioritizing balance sheet help is of utmost importance. Our tariff mitigation strategies will serve to enhance cashflow, and those efforts will also extend to inventory management. We are planning inventory conservatively and have significantly reduced purchase orders until we have a better read on consumer demand and trade policy. Our inventory on hand is sufficient to serve as near-term demand. While we have a leveraged balance sheet, we believe that we have ample liquidity to navigate the current environment. For example, we are currently undrawn on our $125 million revolver, and based on our current expectations, we do not anticipate using our revolver this year. Overall, while we are operating in a highly uncertain environment, our team has proven its ability to navigate challenging macro circumstances. With a robust set of mitigation strategies, we believe that we can offset a majority of the tariff headwind. Further, we will continue to assess cost savings opportunities, and we'll take a highly nimble approach to operating the business, with the overarching goal of preserving EBITDA, cashflow, and balance sheet health. And with that, I'll turn the call over to the operator. Operator?

If you'd like to ask a question, please press star followed by one on your telephone keypad. If for any reason you'd like to remove that question, please press star followed by two. Again, to ask a question, press star one. As a reminder, if you're using a speakerphone, please remember to pick up your handset before asking your question. We'll pause here briefly as questions are registered. First question is from the line of Philip Blee with William Blair. Your line is now open.

Hi, this is Sabrina Ahn for Philip. Thanks for taking our question. Can you provide some color around some of the strategic price increases across your product portfolio, and how much we can expect this to increase? And then also given the importance of newness, how do you think about new price points going forward?

Yeah, this is Jeremy. I'm happy to take that. So first of all, I would say that, this environment, it is not a typical approach to pricing analysis, just given that there will be prices going up around us in our category and other categories. To the extent that we were able to, we were very sophisticated in really understanding elasticity at a product and a price level. And so it certainly wasn't an even price increase across the board. We tried to understand where we thought elasticities would fall based on historical sell-through data. And I would say that as a premium brand that's bringing innovation to the market, we certainly thought about where we had permission to move price more than, on some skews, more than others. We recognize that in opening price points, we're gonna see more price sensitivity. And we had the ability to go back and look at price increase data from just post pandemic, as we saw supply chain, inflation in the supply chain. So we had some data points there. And so feeling good about the decisions we've made, we took price recently, but it will take many weeks for the prices to be reset in the market. So we don't have an update there yet. You know, we think it is very likely that competition will also be raising price right around the same time. So we've done our best to anticipate through the analysis that we could. It's a challenging environment, given that everything is dynamic, but we have the ability to sort of test and make adjustments as we go. In terms of- Okay, that's helpful, thank you. Let me get to the next part in terms of- Mm-hmm. Yeah, you're welcome. I'll just hit the second part in terms of product strategy. You know, our product strategy is set many years in advance. You know, we are, you know, it can take as long as 36 months for a complicated product to go from concept to launch in the market. In less complicated products, shorter, but in a durable, we really don't build our product roadmap with any intent to react to the environment that we're in. We're trying to create experiences. We invest in innovation. And as we said in the Woodridge launch, really trying to bring not only innovation, but value down to sort of lower mid-price point. So that's our intent. And then we react to the market and we're opportunistic around pricing and promotion, but the product strategy continues in good markets in a bad.

Got it, that's helpful, thank you. And then switching gears, you acquired METR back in mid-2021. It's been pressured the past few quarters. Can you talk about how the team is thinking about that segment and capital allocation going forward?

Yeah, I mean, definitely focused on our strategy around how we navigate some of the short-term pain we're feeling on the demand side with METR. We still have a point of view that's long-term in nature and the thesis really hasn't changed. I think what has changed is the amount of competition within direct to, or on online channels that we believe isn't necessarily the long-term future for METR. We believe that the unlock really isn't how we drive roadmap through the wholesale channels where we have a competitive strength and where there's less competition. So we may see some continued pressure on top line as we navigate and sort of shift the mix from online sales, Amazon, DTC to wholesale accounts, again, where we have a competitive strength, in addition to really thinking through how to unlock efficiency and optimize the cost structure, really in an effort to centralize the operation and evaluate where there are profitability unlocks so that we can stabilize from a profitability standpoint, reset on how we think about long-term growth and then begin to fuel that engine long-term. So it is going to take on some short-term pain as we navigate some of the short-term realities that we're facing, especially from a competitive landscape standpoint online, but believe that this brand has longevity and ultimately some of the ankle brighter brands may or may not survive the moment because they operate on skinny margins. And one strategy certainly isn't a race to the bottom to try to compete. We believe this brand has long-term sustainable value that we wanna protect. And so we just really need to balance the short-term with a long-term effort as we unlock long-term value with meter.

Got it, thanks guys, best of luck.

Thank you for your question. Next question is from the line of Anna Glaskin with B Riley, here on the line, is that open?

Hey, good afternoon guys. Thanks for taking my questions. I'd like to touch on the retail environment. Have you sensed or has there been a shift in a retailer willingness to take on inventory in light of the current uncertainty?

Yeah, so it's a good question. I wouldn't say that we have sensed a reluctance of retailers to take on inventory. There has been really a shift from, in our largest retailers from direct import back to domestic fulfillment. And this is, it's really a function of the tariff situation and how tariffs are assessed. And so I would say we have found sort of an interim solution to fulfill domestically as we sort of unpack the process of what we've called direct import. In the case with tariffs, it's defined as first sale, where then a retailer is able to import directly but pay a tariff at our cost of goods, not at their wholesale price. So we're sort of working through it. This thing came so fast that we really chose to focus on having inventory in our retailers on time for the season. And we'll sort of manage this over time. I think we're one of many, many brands that are figuring out how do we import inventory in a cost efficient way from a tariff perspective. But now we're really not seeing in the consumer, sorry, retailer behavior change. And we haven't seen consumer demand slow down at this point.

Great, thanks. And then in the prepared remarks, you noted that inventory on hand is sufficient to serve near term demand. Wondering if retail stays consistent with where it is today, if you could put a finer point on how long you would be able to fulfill that demand.

Well, I think that was in the context of pre-tariff inventory. I'd say that our inventory on hand may provide some relief in the short term before we start to see the true impact of tariffs take shape within our cost of sales. I think the broader point here is that our inventory position on balance sheet is healthy. Say maybe some slightly heavier inventory on the meter side. But to piggyback on Jeremy's point, the broader conversation here is really around how we strategically built our organization and the management of inventory, how we balance supply versus demand, how we partner with our retail, but with our retail partners is really all input into an iterative demand plan process that happens on a weekly basis so that we can make adjustments according to demand signals, which also requires a feedback loop from our retail partners. And so I think that the broader point here is that, we react in kind to these signals and can adjust our inventory balance accordingly. And in addition to that, I think what we're currently doing is sort of risk adjusting as well based on an unknown future. And we started to pull back on POs from Asia just to ensure that we're not over-inventory and then create a de-stocking issue down the road in the event that we sort of missed forecast. And so I'd say that the theme here is prudence and reducing purchase orders will allow us to sort of navigate the short term before we get better signals through our peak selling season, which we then can turn back on to the extent that we start to see either stabilizing sell through that's meeting or exceeding plan, or if it's missing, our expectations heading into peak season, we've already sort of course corrected on the amount of inventory that we're bringing in. And that I think just wraps around your point, which is the inventory we have on hand allows us to pull back on POs and then react in kind as we measure these demand signals through the course of FQ2.

Great, thanks guys.

Thank you for your question. Next question is from the line of Peter Benedict with Bayard. Your line is now open.

Hi guys, thanks for taking the question. I'm gonna go to Terrace. There's a lot we don't know, but there is a lot we do know. And one that was helpful there, you gave us some perspective on the rate that you're paying. I'm still a little confused. So a product coming in from China, a grill coming in from China gets 45% in total, and that includes section 232. Is that the way to think about it?

That is correct. And stepping back more broadly, 232 is assessed on all non-US steel products. It's 25% and it supersedes other tariffs. So 232 is not stacked on top of other tariffs, except in the case of China, the IEPA tariffs are stacked on top. The two 10% tariffs. So it's 45% out of China, 25% out of Vietnam. And then of course, accessories have various tariffs depending upon where they're coming from.

And obviously the second layer to that is that doesn't, sorry, I think we spoke to this as well, just obviously adjusting for the mix between Vietnam and China is an important component as you sort of, as you calculate the potential impact, as well as the fact that grills were -ish% of revenue. So making those adjustments is also important, right? To kind of derive a unmitigated exposure here. And then obviously we've layered on the fact that we have mitigants to offset that.

Yeah, no, absolutely. So a Vietnam grill would be 25% plus the 10% that's everywhere, so 35. That's the way to think about that in Taiwan, the meter stuff probably comes in at 10%. China, China

it's 45.

Right, Vietnam.

Vietnam is, no, so Vietnam is 25%. And the difference is that the reciprocal tariff is not assessed on top of the 232 steel tariff. I understood, understood. All right,

that's good. Yeah, so the

only, yeah, the only time there's taxes in China, it's the two IEPA tariffs of 10 and 10, so it's 45 there, 25% on grills outside of China.

Awesome, very good to know. Thanks for setting us straight on that. And then maybe there was no mention of kind of the Walmart pellet rollout. I was curious kind of maybe how that's been going. And then how do you assess if there's any of this demand strength that you've seen of late is kind of pulled forward? I mean, a lot of companies we talk to are seeing good trends here in April, or saw good trends in April on bigger ticket items. I mean, is there any measure of like, hey, this is what normally would sell through at this time of year? Was it well above that? Just any perspective you could share on that, Jeremy, would be great, thank you.

Yeah, so Walmart rolled out late December through January, it was January, or early mid-January. And I would say we're excited about the partnership. You know, we're selling pellets and rubs in Walmart. And it was really an answer to consumer research that we did that demonstrated there's a trigger consumer shopping in Walmart, and they wanted to buy their pellets when they grocery shopped. And so it was part of our grocery strategy. And I would say we're excited about the partnership and it's meeting our expectations. In terms of the trends on grills, I mean, boy, it's so hard to know. You know, the shoulder season is always volatile and it tends to be more driven by weather, especially in sort of the months of March and April. And so I would say the trend has been solid. I don't know that there's any way to sort of unpack how much of that is just consumer demand. And we also, we sort of believe that the further removed we get from the pandemic, the more we'll see a normalization of the replacement cycle. So there could be some of that in there. And there, you know, we certainly see the broader trend, at least the headlines, that brands believe that there is some pull forward just as a result of Americans trying to buy products before prices go up. So really hard to unpack. Boy, I, you know, I'll let you know in a quarter.

Nah, fair enough. Appreciate it. Thanks for the color.

Sure. Thank you for your question. Next question is from the line of Brian McNamara with Kenna Core Genuity. You're always open.

Hey, good afternoon, guys. Thanks for taking the questions. Just a clarification on China. That's a great question to follow up on. So China is just 45% in terms of tariffs and the 125% reciprocal does not impact you?

It impacts us a little bit. So let's sort of separate grills and accessories. The grills get hit by the 232 tariff. And so out of China, that means we get two 10% IEPA tariffs or 20%. And then we get 25% on the grills. Accessories are subject to all of the, to the other tariffs. And so in the case of, you know, a cover, for example, sourced out of China, that would have a 145% tariff on it. And so it's, you know, I'd love to say that there's nuance and it's not quite as, it's not quite as simple as I could define. But generally speaking, our accessories, the majority of our accessories have a 10% tariff in part because the majority are sourced outside of China. And so they're subject to a, currently a 10%, the 10% reciprocal tariff. And so the other accessories are sort of, they bounce around between 10% and 145%. And of course you can imagine that in an effort to not pay 145% tariffs, we are moving those, our highest priority is to look at the accessories that drive the most volume and attached to grills that are subject to 145% out of China. And that's

just

generally our strategy. I mean, like we are, we are, fortunately, last couple of years, we've been working on developing partnerships outside of China and we've made progress and we are definitely accelerating that progress right now.

So our, can you give us an idea of how much of your cogs are exposed to tariffs? I know some folks are just slapping the tariff rate on your total cogs and I don't think, that's obviously not the way to look at it, but there's other costs in your cost of goods sold. Can you give us a decent idea there, if possible?

I mean, we can't, I don't know that we're in a position to break down the composition of cogs, save to say that certainly product cost is a majority of our cogs, but again, you have to recognize, and maybe a proxy for this is just how kind of accessories or our categories from a revenue standpoint break down. When you think about the fact that consumables are all manufactured in the US, 80% of our grills are manufactured in China, 20% are in Vietnam. Nick, we talked about the component that's non-China for accessories, right? Should we share that number? Yeah. Percentage.

Yeah.

So 75% of accessories are manufactured non-China. And then, as you sort of extend your math from there, you'd have to make some assumptions around what percentage of cogs is driven by the product and then you can use similar breakdowns to sort of define each one of those buckets, but most definitely our product cost drives a lion's share of our cogs.

And then last one for me, are all of your grills, like all your SKUs produced in both China and Vietnam, or are there certain SKUs produced in one country and not the other?

You know what, it's a good question. We don't have redundant sourcing for all of our SKUs outside of China. I would say for our highest volume SKUs, we do have redundant sourcing outside of China, and we're focused on building more capacity for those. And where we don't have redundancy out of China, we are laser focused, at least where there's adequate volume, we're laser focused on taking those outside of China. We've got multiple suppliers in Vietnam, at some phase in sort of development through mass production, and they're also, we've got supplier options outside of China and Vietnam, but within Southeast Asia that we're working on.

All right, Al, thanks for that,

guys. Thank you for your question. Next question is from the line of Simeon Segal with BMO Capital, your line is now open.

Okay, this is Dan for Simeon, thanks for taking our question. Understandably, you're not providing guidance, but did want to see if there's anything high level you could speak to in terms of gross margin, maybe X tariffs, so things we should be aware of in terms of mix shifts, or plan promo days. And then on the cost reduction plan, is that all bucketed in SG&A, or are there pieces in CODS as well? Thanks.

So to the first question, yeah, we can't really provide any color, we suspended guidance, I think we'll leave it at that. I mean, that's just where we are, and hopefully we can provide some updates at a later point. But on your second question, cost reductions,

a

majority of the cost reductions that we're focused on are around controllables, which really is in SG&A. There may be things within in cost of sales that we can evaluate, but those are likely medium to longer term in nature. When you think about supply chain, mitigants, really we're focused on, tariff sharing with sourcing partners, first sale, sourcing diversification. Again, these aren't things that happen as quickly as levers we can pull within SG&A controllables. But we do believe that we have ample room to make adjustments as needed, as we build our plan to sort of navigate the future. And there's things that we know today, and there may be things that we'll learn tomorrow that will inform an evolving plan. But we do feel that there are ample sort of controllables in place to really support and help navigate the tariff situation in addition to the pricing levers, which we've pulled as well as I had mentioned, some of the supply chain slash COGS levers that are in works.

Got it, thanks. Maybe just one on marketing. Anything you could share in terms of how you're approaching that this year, even if it's qualitatively, if it's top of funnel or more targeted, and then also in light of one queue demand creation being down. Thanks, Gus.

Well, I'd say first off, we came into this year really leaning into sales activation activities. So we've talked about investment in retail, at the point of sale, in visual assortment, education with retail associates, cooking demos. We have we've immediately increased the number of Costco roadshows that we do. And that really the intent behind the roadshow program is to educate consumers, some of whom will convert in Costco, but many of whom will learn about the brand there and purchase elsewhere. And so we continue to lean into the sales activation activities. I would say that we continue to make baseline investments in brand marketing in our community. Top of funnel marketing is a lower priority right now in this uncertain environment. And there's no question that we are being like very diligent as we think about OPEX. And so we are monitoring return on activities very carefully. And we're pulling back where we can't see a very clear return in period. We're not spending that money, but I would say a lot less top of funnel and certainly less than we'd expected, just given the environment and more focus on in-store retail activation. In terms of marketing spend for the quarter down.

Yeah, I think it's really connected to Jeremy's comment, which is ensuring that we're prioritizing high returning more immediate marketing initiatives, leaning into kind of the fixed infrastructure that we have in place. I mean, one of the beauties of this brand is just our ability to leverage an influencer to build and continue to protect and kind of grow brand awareness, et cetera. I think that's a lower cost avenue that allows us to hit some top of funnel. And then just a shift to middle lower funnel continues to be a priority. I would note that in the gross margin walk that we shared in my remarks, if we talked about some marketplace investments. So there has been a shift as well. And it's really geography based where we have some programs promotional wise, as well as a program with ACE that we're funding, but those dollars came through COGS that will be a component of our marketing strategy in Q2.

Appreciate the color, best of luck.

Thanks. Thank you for your question. There are no additional questions waiting at this time. So that will conclude the conference call. Thank you for your participation. You may now disconnect your lines.