Weber Inc. Class A

Hello and welcome to the Webber Inc. fourth quarter and full year 2021 earnings conference call. My name is Alex and I will be coordinating the call today. If you would like to ask a question at the end of the presentation, you can press star 1 on your telephone keypad. If you wish to withdraw your question, you can press star 2. I will now hand over to our host, Brian Eichenlaub, Vice President of Investor Relations and Treasurer of Webber Inc. Brian, over to you.

Good morning, and thank you for joining us today for our fourth quarter and full year fiscal 2021 earnings call. I am joined this morning by Chris Scherziner, our Chief Executive Officer, and Bill Horton, our Chief Financial Officer. I'll start with our forward-looking statements disclaimer. As you are aware, certain statements made today, such as projections for Weber's future performance, are forward-looking statements. Actual results could be materially different from those projected. For further information concerning factors that could cause results to differ, please refer to our public 10-K SEC filing, our earnings release, and to our SEC filings, all of which are available on the company's website. During the call today, the company may also discuss certain non-GAAP financial measures. For a reconciliation of these measures to GAAP reporting, please refer to the company's earnings announcement, which has been posted on the company's website at investorsatweber.com and can be found in the company's SEC filings. A recording of today's webcast and supporting documents will be archived for at least 90 days on Weber's investor relations website. And now I'd like to turn the call over to Chris.

Thanks, Brian, and good morning, everyone. I'd like to start today's call by thanking our team around the world for delivering another strong quarter and a record-setting year for Weber, delivering 30% revenue growth in fiscal 2021 on top of last year's strong 18% growth rate for a two-year revenue growth stat of plus 48%. And despite the well-known challenges in this global operating environment, our revenue growth converted to record-setting gross profit and EBITDA as well, Our Weber team around the world worked tirelessly to meet customer needs and to grow our iconic brand while delivering fantastic financial results. In fiscal 2021, we generated net sales of $1,982,000,000, again, a 30% increase versus last year. Adjusted EBITDA reached a record $307 million, and we expanded EBITDA margins by 60 basis points to 15.5%, while at the same time increasing our strategic investments in new product development, digital marketing, and supply chain initiatives that yield current and future benefits for our company. Our ability to drive growth today, invest in our future, and deliver these results is a testament to our strategies and also our people and their ability to execute in tough environments. Given these strong financial results, last month our Board of Directors declared a quarterly cash dividend of $0.04 per share to common stockholders, implying a $0.16 per share annual dividend. The initiation of a dividend reflects the confidence we have in the performance of our business and the strong cash flow generation we expect to achieve, which affords us the ability to return value to our shareholders while also investing in our future growth. In recent months, there's been much discussion around global supply chain challenges and inflationary pressures, and like many businesses, we have been affected. However, we believe our unique global manufacturing footprint and world-class supply chain organization is a valuable competitive advantage. It has uniquely positioned us to navigate the current environment favorably relative to the broader market, and we've continued to supply our customers and consumers in the face of record demand. To help mitigate the supply chain pressures that we expect to linger throughout 2022, we have leveraged a unique broad network of supply partners and proactively engaged with new carriers and landside transportation partners to manage both availability and rates. In addition, we've increased rail moves within regions and are flexing a variety of alternate container depots and port pairs to limit terminal congestion delays. As a result, we are current with all global shipments and have healthy inventory levels to meet 2022 demand. We are the only large-scale grill brand who owns and operates our own US manufacturing facilities, which has been a distinct advantage in this tough environment. In addition, in October, we began production at our new Poland manufacturing facility, which I will speak to in a moment. We're now the only major grill brand to operate our own European manufacturing facility as well. This is a real unlock for our large and growing EMEA business, and it strengthens and diversifies our entire global network. Regarding inflation and commodity price increases going into 2022, these supply chain advantages help us on this front, and we remain focused on improving our operational efficiency as the first line of defense to help offset rising input costs. In addition, as we've discussed in the past, Weber is a premium brand that has pricing power in the marketplace on a global basis. We have implemented price increases this quarter to offset the current inflationary environment as we enter the 2022 season, and these have been accepted in planning discussions with our retail partners across geographies. The combination of supply chain productivity and pricing actions will help protect gross profit dollars in 2022 and set up longer-term structural accretion. Our strong financial results for fiscal 2021 continue to demonstrate the strength of the Weber brand and our products across all key segments of the outdoor cooking category and all key grilling markets globally. And they validate the five key growth strategies that we've discussed since going public a few months ago. I'd like to provide some highlights on the progress we've made against these. First is disruptive new product innovation. We are a company of inventors and have been for 70 years, and innovation played a big role in our 2021 success, with successful new launches that included the Weber Traveler Portable Grill, the Weber Genesis and Spirit EX line of smart gas grills, which feature embedded Weber Connect technology, the Weber Summit Kamado Charcoal Grill, and the second-generation Weber Smokefire Wood Pella Grill, among others. These new products won a number of industry awards, and consumer ratings and reviews are excellent. and we're on track to unveil several exciting new products for 2022 over the next few months. So there's a lot of positive momentum here. The Weber Connect platform is worth a special call-out. As a reminder, in January 2021, we acquired 100% of June Life, the Silicon Valley inventors of the June Oven, and our longtime partner in the creation of Weber Connect, the first true smart grilling technology platform. Weber Connect continues to be recognized as the best-in-class smart grilling experience by influential media, and it keeps getting better. This month, we are releasing our largest ever update to the Weber Connect app. Consumers can access new recipes and guided cook programs for a variety of dietary preferences, and they'll enjoy new experiential benefits, including a new fuel monitoring feature. The stream of Weber Connect updates and added functionality continually makes your grill smarter over time, which tees up exciting opportunities for Weber and our loyal consumers. Our next key growth platform is direct-to-consumer sales and e-commerce, which includes both Webber.com and our global network of roughly 200 Webber stores and grill academies. Growth here was up substantially in 2021, even lapping a strong growth year in 2020. Our increased media investment this past year across connected TV, social media, influencer programming, and digital video helped drive revenue gains of around 50% in 2021. We'll continue to invest in new store openings, with 14 new stores opening in the fourth calendar quarter of 2021, and this will continue to be a meaningful growth platform for us in 2022 and beyond. Bill's going to share more detail on our e-commerce results as well. Next are emerging geographies, which grew nearly 60% year-on-year in 2021. These focused markets outpaced total company growth by two times, highlighted by wins in Latin America, Southern and Eastern Europe, and Asia. We continue to be optimistic about our emerging market runway in the future, fueled by Weber store growth and increased investments to build awareness of the Weber way of grilling. And then finally is our strategic platform around value-creating operational initiatives. As I noted earlier, our operational infrastructure is a key differentiator for Weber. We remain committed to investing here, and we're seeing fantastic results. I was very proud to attend the official grand opening of our first Weber-owned and operated European manufacturing site in Zopsia, Poland, in October. This Breen-certified facility is now producing and shipping Weber grills across Europe for the 2022 season. It provides game-changing structural cost savings, improves working capital requirements, and de-risks our global supply chain in the face of the current industry challenges. Before I turn it over to Bill, I wanted to close my comments by highlighting our newly created subsidiary, 1952 Ventures, named for the founding year of Weber when the first Weber kettle was invented and revolutionized the outdoor cooking industry. 1952 Ventures is designed to house new growth platforms for Weber to accelerate innovation and brand extension. This allows us to pursue additional disruptive growth opportunities without distracting the core Weber business team. Troy Shea has been appointed its Chief Executive Officer Weber will fund 1952 Ventures through existing cash flows and leverage capacity, staying true to our stated target of three times net leverage. Importantly, we believe 1952 Ventures activity will be highly value accreted to Weber. The startup of 1952 Ventures, along with the recent promotions of several key senior leaders, builds on our recent success and expands our capacity for continued growth. I believe a company's success reflects the talents of its team, and I feel strongly that we have the best team in the business. With that, I'll now pass it over to Bill Horton, our Chief Financial Officer, to review the fourth quarter and fiscal year financial results. Over to you, Bill. Thanks, Chris. I will start with a summary of our strong Q4 financial results before going deeper into the regional and channel financial results for our full fiscal year 2021 that ended September 30th. I'm pleased to report that across net sales, net income, and EBITDA, we delivered results above or in line with our previous guidance. As a reminder, Weber is a seasonal business, and our first and fourth quarters historically have each represented approximately 15% of our full year sales, with only the Australia and New Zealand business being in season during those quarters. That said, we saw a significant seasonality shift last fiscal year. A strong retail sellout throughout Q2 and Q3, combined with pandemic-driven supply chain slowdowns, depressed retailer inventories and required continued replenishment during our fiscal Q4 last year and into Q1 this fiscal year. Both Q4 2020 and Q1 2021 sales were up more than 80% versus the same period in the prior year. Despite this Q4 2020 cost, we over-delivered on our plans for Q4 this year, with sales of $350 million, down only 5% from last year, and up 77% on a two-year stack basis, a significant accomplishment for our teams. E-commerce and direct-to-consumer channels continued the strong growth results we've delivered over the past three years, with Q4 sales up 42% versus Q4 last year. We have a unique mix of growth drivers within our e-commerce and direct-to-consumer channels, with pure play retail partners in every country where we operate. Webber.com now selling our products via our website in 28 countries and a unique network of 193 Webber stores, unlike any in our competitive space. In the fourth quarter, direct-to-consumer sales were up 22%, with Webber.com up 39% versus the same period last year. Our strong Q4 sales enabled over-delivery of our other key financial metrics for the quarter when compared to the guidance provided during our last quarter's earnings call. Quarterly sales growth of negative 5% was better than the negative 10% we guided to during our call. An adjusted EBITDA of negative 14 million in the quarter was at the midpoint of our provided guidance. Again, The sales results in the quarter allowed for over-delivery on our full year guidance to drive net sales growth of 30%, record EBITDA of 307 million, and EBITDA margin expansion of 60 basis points to 15.5%. Specifically, net sales increased by 457 million to 1.982 billion from 1.525 billion last year. This is our second consecutive year of innovation-led growth with our two-year sales stack of 48%. Core growth, which represents business growth excluding the impact of foreign exchange, represented $381 million, a 25% increase versus last year, and foreign exchange accounted for $76 million. We continue to see progress towards our key strategic growth priorities, with direct-to-consumer sales up 46% versus last year, For fiscal 2021, both growth segments within our direct-to-consumer channel delivered exceptional results, with Weber.com up 50% and Weber's store sales up 42%. While we had exceptional growth across all product categories, two specific drivers were our gas grill segment that was up 35% versus last year and our portable segment. It was up 600% upon the retail success of the Weber Traveler, which continues to outpace our expectations. In addition, for fiscal 2021, emerging geographies were up nearly 60% versus last year, representing 12% of total revenues, up from 10% last year. The focus on developing markets is something we have discussed previously. Our proven track record of penetrating and scaling the Weber brand in new or underdeveloped geographies is a clear differentiator for our company. For example, over the last two years, we've driven two-year CAGRs in the UK, Italy, and France of 45%, 39%, and 24%, respectively. Other developing markets to call out that are in the early to mid-stages of their maturity cycles like Japan, Mexico, and Russia, collectively grew 48% last year and have delivered two-year keggers of 33%. Net sales growth was consistently strong across all of our operating segments, with the Americas up 25%, EMEA up 34%, and APAC up 49%. For the Americans, Net sales increased 25%, or $222 million to $1.1 billion from $881 million last year. All sales continued to deliver strong year-over-year sales growth, with online sales at Weber.com outpacing the overall region up 64%. Core growth represented a $212 million increase, or a 24% increase year-on-year, while foreign exchange contributed $10 million of the revenue increase. Leading the growth within the American segment was our Canada business, where the continual addition of new retailers to the Weber portfolio, successful new product launches, and efficient supply chain execution have led to significant market share gains, delivering growth of 84% in 2021 and a 47% trigger over the last two years. Our EMEA region net sales increased by 34%, or $184 million, to $726 million from $542 million last year. Core sales growth was $129 million, up 24%, while foreign exchange represented $55 million of the sales increase. Direct-to-consumer sales grew 27%, driven primarily by new Weber store openings and increased revenue within existing stores, along with Weber.com growth of 25%. It's worth mentioning that every country in the region delivered double-digit growth, and we're very excited about where the brand is positioned for continued future growth. For the APAC region, net sales increased by 49%, or 51 million, to 154 million from 103 million last year. Core growth represented 40 million, or a 39% increase. while foreign exchange represented 11 million of the sales increase. From an absolute dollar growth basis, Australia and New Zealand led the way. However, our developing countries in Asia grew 85%. A clear indicator that our accelerated growth strategies for emerging markets are working. Behind the strong sales growth, gross profit for the fiscal year increased by 215 million, or 35%. to $825 million from $610 million last year. Gross margin increased by 170 basis points versus last year to 41.6%. The increase in gross profit dollars was primarily driven by higher sales volumes, global productivity initiatives, and a decrease in COVID-19 related costs. The 170 basis point year-over-year expansion of gross margin was driven by pricing actions to offset cost inflation productivity initiatives, favorable mixed shift towards EMEA, reduced COVID-19 costs, and favorable FX movement. Selling, general, and administrative costs for the fiscal year increased by 294 million or 66% to 739 million from 445 million last year. SG&A as a percent of net sales increased by 810 basis points to 37.3% this year. This increase was primarily driven by higher non-cash stock-based compensation charges of $127 million, increased distribution costs of $47 million associated with higher sales volumes, higher advertising costs of $41 million to drive revenue, and higher research and development costs and other investments to support growth initiatives. excluding the impact of non-cash stock-based compensation charges and other one-time items, adjusted SG&A expense as a percent of net sales increased to 28.3% in 2021 from 27.7% in 2020. Net income declined 94% to $6 million from $89 million in the prior year, The decrease was primarily driven by 131 million of non-cash unit-based compensation charges, largely driven by valuation methodology changes as a result of the IPO. As discussed last quarter, the timing of the realization of some June life net operating losses and R&D tax credits shifted some expected earnings from Q3 to Q4 of this year, while having no impact to the full year earnings figures. Adjusted net income increased 28% to $161 million from $126 million in the prior year, driven by strong top-line growth and gross margin improvement. Adjusted EBITDA increased 35% to $307 million, or 15.5% of net sales, compared to $227 million, or 14.9% of net sales last year. This 60 basis point improvement was primarily driven by top line growth and margin improvement initiatives across the business, partially offset by increased investments to support our key strategic growth priorities in areas like brand advertising, marketing, and research and development. Midcast provided by operating activities decreased to 54 million for the fiscal year ended September 30th, 2021, from 305 million for the fiscal year ended September 30th, 2020, a decrease of 251 million, or 82%. While the company experienced favorable operating results, this was partially offset by the impact of normalizing inventory levels throughout the fiscal year ended September 30th, 2021. Additionally, less favorable impacts from accounts payable balances driven by timing of payments further offset the company's results as compared to the prior year period. Our inventory position remains healthy and ended 2021 up $99 million versus last year to $333 million due to the strong out-of-season demand last year that drove low retail inventories into Q1 of this fiscal year. Inventory turns again hit a record 3.6 turns for Weber, as our focus on supply and demand planning systems and processes and our make-for-use-sell strategy continues to drive working capital improvement for our business. Our ending average net leverage was 2.9 times, with no draw on our revolving credit facilities, in line with our long-term target leverage ratio of three times. I would like to wrap up my prepared remarks by providing guidance for the 2022 fiscal year. Clearly, 2021 was the second consecutive record year for Weber on nearly all key financial measures. We drove strong financial results throughout our P&L. Our entire organization is making great strides against our key growth initiatives. And we're leveraging our unique global manufacturing footprint and world-class supply chain organization as we continue to navigate the current challenging operating environment. We anticipate a strong fiscal 2022 with full year net sales growth of between 6% and 8% and adjusted EBITDA of between $325 million and $345 million. As in prior years, we anticipate weighted sales activity in our second and third quarters. On gross margins, I expect first half year-over-year margin contraction that will normalize and improve in the second half. As inbound freight variances currently held on the balance sheet roll to the P&L, the Poland plant favorably impacts cost of goods sold, and we allow late Q1 and early Q2 pricing actions across all markets to favorably impact our year-over-year comps in the second half. I will now turn it back to Chris to close out our prepared remarks. Thanks, Bill. I'd like to close our comments the same way I opened, with a big thank you to our Weber employees around the world. We've accomplished so much in 2021 in the face of continual headwinds, but all of you worked so hard to meet the needs of our retail partners and our loyal end consumers, the Weber fans, across 78 countries globally. Your effort made all the difference, and it shows in our performance as a company. So thank you all. And with that, I'd like to open up the call for questions.

Thank you. We will now proceed with the Q&A. If you'd like to ask a question, you can press star 1 on your telephone keypads. If you wish to withdraw your question, you can press star 2. Please ensure you're unmuted locally when asking your question. Our first question for today comes from Robert Ohms from Bank of America. Robert, your line is now open.

Hi, this is Alex. I'm for Robbie. Thanks for taking our questions and congrats on another strong quarter. So just first, I wanted to ask about the fiscal 22 outlook a bit more. I think, you know, US household penetration of grills is about as high as it's ever been in 2021, according to some survey data. Although you took the fiscal 22 guide up, which was very encouraging, i guess just how are you thinking about driving demand from here given the tough comps you're obviously facing and maybe talk about um how historically how much replacement grills versus first-time purchases have represented as a percent of the mix and sort of how you see that going forward thanks

Thanks, Alex. Hey, this is Chris. Good to talk to you, and thanks for the questions. I think you're right that the market's been hot for grills for outdoor cooking in general over the last couple of years, and there is a well-developed household penetration system in the U.S. And so, I think your premise on the first part of the question is right on. Here's how we think about it. And this is consistent with how we've talked about the business in the past, but I'll try and make it real in the context of 2022 as well, given that's where you're coming from. We think about this as a global business, clearly. We're in 78 countries around the world. We're in 50 million households around the world. We're the No. 1 brand in all the key grilling markets around the world. And there are, you heard Bill talk about in the prepared remarks, emerging geographies. There are a number of markets where we have had a great deal of success in fiscal 21. I think Bill's statistic was sales were up about 60% in those emerging geographies. This is kind of a bundle of about a dozen countries that we look at specifically, and we focus on accelerated growth there. So, you can see in those markets, we're delivering twice the growth rate of the total business, which is a key growth lever that will continue for us. And we think even grow momentum going forward is one of our key strategies. So, emerging geographies are a big play that certainly addresses expanding households on a global basis and not just thinking about it as a U.S. business. So that's one pillar. The other pillar I would speak to is innovation. And so one of the big investments I talked about in my remarks, June, and the acquisition of June last year, just a little under a year ago, and what bringing that team into Weber has done for our technology capability set. And that's showing up in a number of our Weber connections. new product offerings that started in uh started actually in 2020 with our first product line but it grew in 2021 we saw really great growth behind weber connect attached to our gas grills the weber genesis and the weber spirit ex line of grills in 21 there is a substantial amount of innovation coming for fiscal 22 that will also be that will also feature weber connect embedded on the product and that's something that will accelerate purchase frequency or repurchase cycles, if you will, in the marketplace. So we believe that our innovation platforms can drive acceleration of that purchase frequency dynamic and get a household who's in the category already, who already has penetration, if you will, to come back into the category sooner than they might otherwise come in, accelerating the product lifecycle, and also trading up, frankly, because the technology play adds both higher average selling price as well as margin accretion for us. And so it ends up being kind of a win-win for us, and it's certainly a win for consumers as well because they get a completely different kind of positive grilling experience in learning how to grill a million different types of new foods on their Weber grill on their patio. Innovation is a big piece of that. I would also point out the Weber Traveler, which was a key innovation for us. It grew our business in the portable segment by 600% last year, I think is the statistic. And so, Traveler for us is a great example of how you can take a Weber household who's got a very – a loyalty and a fondness for the Weber brand and owns maybe a Weber Genesis on their patio in their backyard – But when they see the traveler offering, they add a second grill to their household. And so you can accelerate purchase frequencies also by introducing new types of grills to give different use occasions and take that Weber loyalty and accelerate it. That goes along with our accessory strategy as well. Both of those are filling in kind of the main grill repurchase cycle with additional revenue opportunities in between that cycle. Bill, anything that you would add to that? I would just emphasize, Alex, that we remain highly confident in our 6% to 8% growth target for this year that I provided guidance to on the call. A couple other things I'd probably add. I talked about the Canada growth, and that just underscores our focus on new customer acquisition, and that's working extremely well for us. So that's another piece that I don't think Chris mentioned that we want to highlight and will continue to drive is that new customer growth and pickup that will help us. And then direct-to-consumer is another channel for us that continues to perform extremely well. So all of those taken together give us high confidence in our growth targets that we've set forth.

Thank you. That's incredibly helpful. And then just one quick follow-up. EMEA had another very strong quarter and I think, you know, came in sort of above expectations, you know, a 1% growth on top of a 51 last year. Just maybe give us a little more color on sort of what continues to drive, you know, EMEA growth and how you're thinking about that region going forward. Thank you.

Sure. The EMEA business is really healthy, as you pointed out. It's been on a roll, to be honest. One of the growth drivers there is the Weber store footprint that we have. And so on a global basis, you know, Bill talked about our direct-to-consumer business. A big part of our global direct-to-consumer business is a network of Weber original stores and grill academies. And our Weber stores grew on a global basis. from around, I'd say, 170 globally at the start of last fiscal year to 193, I think, by the end of the year. And we're adding another 14 this current calendar quarter. And so a lot of that Weber store growth is happening in our European footprint. And that's been a key lever for us as we drive a deeper Weber experience. The Weber stores on a global basis were up, I think, 42%. Bill's nodding his head, so I'm in the right ballpark, up 42% versus the prior year. And Weber stores are a longstanding part of our European footprint and have been a reliable source of Weber growth for years. It's a great platform to introduce innovation. And so what the store concept does is it pulls in consumers who have a relationship with Weber and it showcases a Weber-specific product in-depth experience with our new product launches. And so when you think about Weber Connect or the launch of SmokeFire, which has been really successful for us in Europe, or you think about Traveler, which is also off to a great start in Europe, that exposure to innovation is aided by our store footprint. And also, I would say, even our dealer partners as well. We have a really developed you know the channel differences in europe are subtle from north america but they we do have a very strong independent dealer network in europe and that's been very supportive and helpful for us particularly coming out of out of the on sort of the back end of the pandemic when more stores are open and consumers are back out in the marketplace. So that's a big driver. Bill, what else would you add from a Europe standpoint? I think you hit it for Europe. I think the one thing I'd probably just mention just to call out to the America's businesses, if you look at these businesses on a two-year stack basis, if you look at the fourth quarter, there's a lot of dynamics over the last couple of years, but on a two-year stack basis, The Americas is actually up 104%. So while their, you know, one-year quarter growth rate may seem lighter than normal, that 104% growth for the Americas is really strong as well. So we feel really good about all of our operating seven growth. Did that hit it, Al? Perfect.

Yes, that's really helpful. Best of luck going forward. Thank you.

Thank you. Our next question comes from Simeon Siegel from Bank of Montreal. Simeon, your line is now open.

Hey, good morning. This is Dan on for Simeon. I echo my congrats on a great year. To the extent that you feel comfortable sharing, how should we think about the cadence of new product development or launches into next year? I think, Chris, you mentioned some of the next few months, but anything in the back half, and then what's the pricing on this? Thanks.

So Thanks, Dan, for the question, and say hi to Simeon for us. I would say we're very excited about the innovation that's coming for fiscal 22. I would frame it around it's a seasonal business. Generally, with the exception of Australia and New Zealand, which is playing a southern hemisphere seasonality, and so they're in the peak season literally right now as we talk. Generally speaking, in the northern hemisphere, so the Americas and EMEA, We will launch new products in the January, February timeframe with peak shipments and loading shipments to retailers in what will be our fiscal Q2, so January through March, and then run the season. And so typically that would be on floor at retail in the March timeframe, depending on the channel and the particular retailer, and run the peak season from kind of the April through August timeframe in terms of consumer demand and And so what typically happens is we'll launch our new products in the Jan-Feb timeframe. We have a big launch in the gas category. It's a really revolutionary and exciting restaging of our Genesis line that will, I think, just sort of knock people's socks off. Their early response from retailers has been very positive. That generally is our flagship launch for the year. We have four or five new product launches planned. I won't get into all the details for each one, but you'll see the timing come out in terms of market announcements and things like that. The pricing in general for innovation, we want it to be – I mentioned before that when you embed technology on a grill, it generally takes the average price point up. That can range – anywhere from $100 premium to a $200 or more premium on a per-unit basis. And so you would expect to see, particularly in the inflationary environment that we're seeing right now, innovation is a really important lever for us as we absorb the inflationary impact and bring that price to the marketplace in a way that consumers see the value, that it's not just a price increase, but it's a real value enhancement from consumers. coming from the innovation, it does deliver on what we need from a price accretion standpoint without having to just sort of take a commodity-type price increase. And so it's a great lever for us, the innovation platform, and I think you'll see Genesys being a big driver for us going into 22. Did I hit all of your questions, Dan, or was there a second half that I'm forgetting?

No, you got it. And then just on Poland, is there a way to quantify the COG savings from that or how much that helps gross margin? Thank you.

You know, you'll see the Poland impact start to impact our results in Q3. And, you know, as we don't provide quarterly guidance and we don't get into specifics on Poland plant productivity, but as we've talked in the past during the roadshow and during our IPO process, we expect significant margin improvement from the Poland plant, not only just in manufacturing efficiencies, but also in freight. You know, obviously we've talked a lot about freight, inbound freight costs escalating, and this is one of the significant benefits of the Poland plant that we'll see start to impact the P&L in late Q2 and then full year, you know, run rate, if you will, by Q3 and into Q4.

Awesome. Thanks very much. Happy holidays, guys.

Thanks. Thank you.

Thank you. Our next question comes from Kate McShane from Goldman Sachs. Kate, your line is now open.

Hi, good morning. Thanks for taking our question. Our first question was on the guidance for the 2022 sales growth. I know you just went through the you know, the innovation and the impact of pricing that you can get from that innovation in 2022, is there a way to parse out that 6% to 8% sales growth between sales and units?

Yes. You know, generally the 68% is – Yes, and generally, most of that top-line growth that we've modeled is coming from pricing that, again, like Chris said, goes into effect in Q2, and it's fully reflected on the P&L Q3 and beyond. So I would say most of the growth is on price. And then, as a reminder, we don't plan on providing quarterly sales or quarterly EBITDA guidance. but we're highly confident in the full-year sales growth that we've provided. You know, given the constantly changing supply chain environment, we anticipate there's going to be fluctuations quarter over quarter versus our prior expectations. And specifically, we expect some continued margin pressure in Q1, but we're really confident in our ability to maintain full-year margin in EBITDA targets through Q3 and Q4 performance as our pricing actions, as I mentioned, and other operational initiatives like Poland take hold and begin to impact the P&L. So generally, as in prior years, we expect weighted sales activity. So I think what you'll see, Kate, is generally, historically, you've seen 15% of our sales in Q1, 15% in Q4, and then 70% spread across Q2 and Q3. And that's how we're looking at modeling the business for this year. So I think you'll see a normalization. normalization towards that kind of split. Does that help give some perspective?

Yes, that's helpful. Thank you. And then our second question was just on the adjusted EBITDA growth guide of 325 to 345. I think the street is closer to 345 for the year. So I wondered if you could maybe talk a little bit about what the lower end represents, you know, versus the higher end in terms of that range of the guide.

Yeah, I think the primary, you know, factor, the thing we're factoring into all of our guidance is the supply chain challenges that, you know, we're all aware of. You know, while we believe that our unique global manufacturing footprint, we own and operate facilities in the U.S. and Europe, these are all advantages for us. However, you know, it's a rapidly changing environment. So I would guide that, you know, the lower end of our range assumes, you no significant improvement in the supply chain, specifically inbound freight. The higher end of our range moves more to a normalization over the next few quarters. So that's really, you know, in this environment, our range, you might think our range is a little bit wide, but it's really driven by the supply chain. We're just being probably more conservative on the lower end given the fluctuations we're still seeing in the supply chain.

Thank you.

Thank you. Thanks, Kate.

Thank you. Our next question comes from Megan Alexander from JP Morgan. Megan, your line is now open.

Hi. Thanks for taking my question. Just a follow-up on that point. You talked on the last call about inbound freight being more like 12% to 15% of COGS versus 5% to 6% normally. Can you just talk about what that looks like now? And I guess based on what you just said, does the low end of the guide assume that stays flat and maybe gross margin pressure peaks in 1Q and then can improve sequentially throughout the rest of the year?

Yeah, I think, like I said, I think we're on the lower end of the guide. That assumes freight rates stay generally where they are today, which is certainly up significantly versus prior years. And the higher end of our guide assumes somewhat of a normalization. I wouldn't say normalization back to historical rates, but normalization versus what we're seeing today. For perspective, I can give you a few data points. If you look at our Q4 freight rates, we had a blended average of something in the 8,500 per container, which was up 140% versus Q4 2020. What we saw is the rate escalation in inbound freight, at least for us, it started to occur back in Q1 of 21. So, you know, if you go back to Q4 of 21, we were roughly 4,500 per container. It then has grown to Q3 at 10,000 and has begun to normalize in Q4, like I said, at 8,400 per container. Q1 will likely be at our peak negative top on inbound freight just because of what we're topping versus prior year. But then we would expect that to normalize as we get into Q2. So that's what you'll see in our gross margins is continued pressure in Q1 that starts to normalize in Q2 because of the top on freight. And then in Q3, not only do we still get the favorable comps year on year on freight, inbound freight, you also start to ramp up the polling facility. And as the polling facility drives those synergies that we've committed to, you'll see our gross margin improve versus that prior year. I think also the piece that I would add, Megan, is, this is Chris, the piece I would add is the you know, what are we doing about it, right? So this is a market-wide impact. It's impacting all companies across the consumer goods arena. And what makes us different and unique is the manufacturing footprint. That's something that isn't, you know, it's coming particularly in Poland. It's growing in terms of its positive impact on our ability to offset freight inflation and some of those transportation cost increases that you talked about and that Bill talked about. And that's going to be at full steam. And so if you take a 13-week lens on this, it's a really big challenge. If you take a one-year lens on this, we're putting in an infrastructure and really building on an infrastructure we've already had with a make where we sell strategy that gives us the ability to withstand this over the long haul and be really insulated from this kind of volatility on a long-term basis. And so it's making our really robust footprint even more robust. And I think that's going to be an important lever. And then on top of that, while we're going through this, I will not use the word transitory because I think we're planning that this is going to be a 2022 challenge for the year. But I would say I think that it will normalize eventually. But we're also taking price on top of this to accomplish that in the marketplace. And Weber is really unique in terms of our pricing power in the marketplace. And so we partner really closely with our retail customers to build out plans that can navigate the current environment as productively and as consumer friendly as possible in as consumer friendly way as possible but the pricing power of the brand is really important and our ability to to leverage that as an offset to the logistics and and inflationary costs are a really important part of our story so even that though takes some time to get out into the marketplace so we've you know we've announced pricing it's been accepted by our retail partners as we said in the prepared remarks and should be taking effect over the course of, you know, it varies by region and by customer, but it takes effect over the course of the next couple of months. And so by the time Q2 hits and when we hit our peak season in that kind of March to July timeframe that I talked about before, The pricing will be in place and we'll have kind of the structural side from an economic standpoint, the structural revenue side and the offsetting cost sides both coming to fruition around the mid-year timeframe, which gives us a high degree of confidence in the full year story, which is what Bill mentioned at the open.

That's really helpful. I guess just a quick follow-up to that point. When you announce these price increases and go to retailers, are you looking to maintain gross profit dollars, or do you want to fully offset the pressure and maintain gross margin rate? And to that point, you did mention you took some price increases already in one queue. Can you just talk about consumer response to that? I know it's early and not peak season, but whether you're seeing any elasticity there.

Yeah, I would say, you know, generally, over the long term, our intent is to protect gross margin rate, although in the environment where we are with, you know, record inbound freight costs, record commodity costs across most of our key commodities, you know, we're now in a position where for this year we're protecting gross margin dollars, and, you know, that's generally what you see in our outlook. So, and then your second question around how consumers are reacting is, A couple points. First, you know, as Chris mentioned, in most of our markets, we are, you know, out of season. So we're not seeing a significant, you know, positive or negative reaction to the pricing, with the exception of Australia. You know, in Australia, which is our one market that's in season, it's a one key call out for this business versus our competition, which is we have a really strong and large Australia business. They've just come through the season, and we've seen favorable results year on year. Consumer outtake is really strong as they're coming out of COVID. So we feel positive. You know, it's one data point, but we feel really positive of the results we've seen in Australia as we head into our peak seasons in Australia, or I'm sorry, in Europe and the Americas. Does that help?

That's really helpful. Thank you so much.

Thanks for the question. Thank you. As a reminder, if you'd like to ask a question, you can press star 1 on your telephone keypad. Our next question comes from Arpeen Kokharine from UBS. Arpeen, your line is now open.

Hi, thanks very much for taking my question. I was wondering if you could talk about the retail environment a bit. What was retail POS growth for the quarter and what have you seen so far into the quarter And would you expect to see POS growth in 2022? And I have a quick follow-up.

Sure. This is Chris. I'll take the first swing at that. You know, generally speaking, the POS trends They vary across region and they vary across channel, and some we have great metrics on and some we have fuzzy metrics on. But generally speaking, our POS has been really strong. The general dynamic, which I think I've talked about before, is the increase in consumer sellouts or point of sale from the 2020 to 2021 season, or really the 19 to 20 season, had such a huge skyrocket. And then really what established is what established is sort of a new floor for the category. And so the ability for us to build on our PLS in 2021 on top of what was a really kind of a new inflated base, if you will, in 2020 has been the story and been the objective for us, frankly, is to retain the momentum that was built during 2020 As the pandemic took hold and people locked down in their houses and started cooking at home more, and that has sustained. And we've seen that sustained throughout Q4 and throughout fiscal 21. So we're very encouraged. In short, the growth rate won't be the same. We're not planning for point of sale to grow anymore. in 2022 on top of 21, like we saw in 20 on top of 19. But I think the Q4 trends, which would say, to give you one example that's top of mind, the Weber Spirit, which is a big part of our gas grill line in the U.S., our point of sale in the most recent data I saw was kind of at mid-single digit. And And the two-year stack on that was high double-digit. And so what we've seen is in line with this idea of establishing a new floor and growing from there. And that's really how we view it as business leaders is our team is – It's taking through innovation, through emerging geographies, through the direct-to-consumer e-commerce play. Our strategies are intending to build upon the base of the business today without looking in a rearview mirror at 2018 or 2019. It's a new level of consumer engagement with the category, and we feel like that's going to sustain and fuel continued POS growth going forward.

Great, great. And then inventory on the balance sheet is up about 43%, which could also be a function of what's going on in the supply chain and what you're trying to do on the supply chain front. But could you detail what's inventory situation at retail, both in terms of dollar and weeks of inventory, if you have it handy?

Yeah, we don't have retailer dollars and weeks necessarily, you know, at our fingertips right now. We can maybe as a follow, we can look into that. But, you know, generally, first of all, I'll hit your question on just overall inventory year on year, and then I'll talk about retailer inventory, which we feel really strong about. There's a number of factors in play on our cash flow statement. Certainly our increase in year-end inventory was one primary driver. of our lower than average op cash flow but i should mention that we again delivered a record inventory terms result of 3.9 times and you also have this dynamic in last year's cash flow where we had a 200 million dollar favorable cash flow and accounts payable that was due to high purchasing levels at the end of last year so that's a dynamic that's that causes this view on op cash that that may not look you know quote normal if you will Our inventory, as we've discussed previously, you know, at the end of 2020 was extremely low due to the continued postseason strong POS, low retailer inventories due to POS and supply chain challenges. So that had us last year replenishing well into Q1 of this year. A second factor on our year in inventories that's significant is the capitalized variances in higher cost of goods that are in our Q4 related to inbound freight, the commodity inflation, which then drives your inventory balances higher year on year, as well as longer transit times that we're experiencing. So I should call out that unit you know if you just look at unit inventory is generally flat across all of our markets and from an inventory at trade standpoint we feel really good about you know our trade inventories globally in almost every market across europe and across the americas so we feel like we're positioned extremely well for the season we we made a decisional um point to make sure that, especially on some of the new gas lines and innovation that Chris talked about, that we're going to be heading into the season with retailers stocked, ready to sell through what we believe to be an extremely successful initiative. I guess one other point on inventory that I should mention is on our Poland plant and the impact that that is having. We basically have a full raw material investment in finished goods build and inventory in poland that's parallel to what we have if you will in our huntley manufacturing and across the globe over in china so this dual supply of u.s built emea grills and the poland plant startup is a bit of a double count um but it was intentional to make sure that we have a smooth startup to the poland plant and you know so far as we we've now started to produce grills in poland we feel really good about the runway on that plant so that hopefully that addresses the question yeah no absolutely it does um just small clarification your unit inventory flat across all markets that comment was referring to your own inventory right not retail you said unit inventory okay okay That's correct. Retail inventories, you know, generally the feedback we're getting from most markets is they're where they want to be. So, you know, last year they were low, as I mentioned, because of the strong POS sellout. So now we've got them back in stock ready for the season. I would say generally what we're hearing is our retailers are feeling really bullish on the category. So they want their product early so that they can be ready for a really strong POS sellout season that will impact our sales results in the Q3.

Excellent. Thank you very much.

Yep. Thanks for everything.

Thank you. Our final question for today comes from Chris Carey from Wells Fargo Securities. Chris, your line is now open.

Hi, good morning. The only question I have is can you just – help us understand maybe like how mixes evolved, you know, over maybe the past year. And I guess I'm thinking about it as a channel mix standpoint, product mix standpoint, you know, you have higher margin for accessories versus other products.

And really just trying to have a sense of how product or channel mixes is factored into your thinking going into next year, which you expect it to be a helper, you know, uh neutral um so so i guess what we're getting at is like the broader evolution of how shale and product mixes has evolved and and you know how you're thinking about it you know factoring into the model over the next you know 12 months thanks so much yeah chris i can take the start maybe chris can jump in um

From a product mix standpoint, we don't share margins across categories, but we feel really good about generally we're somewhat neutral as far as product standpoint. We'll love to sell you a gas grill, a smoke fire, an electric grill, a charcoal grill because we have strong margins across categories. So we haven't modeled any dramatic change in product mix. into our financials going forward i will say that with the exception of accessories so as we talked before accessories does drive a higher margin for our business both at a gross margin level and a contribution basis so as we see and it's somewhat tied into our development of web restores as well we see higher penetration of accessories as we get consumers into our Weber stores. So, you know, it's just an easier sell-through and sell-out for us on accessories when we can talk directly to consumers and we see the same dynamic on Weber.com. So we expect to see accessories as a percent of our business continue to grow, which is factored into our, you know, next three- to five-year gross margin improvement. So that's one piece. From a channel standpoint, you know, yes, and, again, we've talked this before, we do make higher margins in our direct-to-consumer businesses, but we have healthy margins across our wholesale partners as well. So while we're somewhat agnostic there as far as which channel we'd like to drive. Again, in Europe in particular and across Asia, we'll continue to drive Weber stores, and those Weber stores generally have higher margins, not only because we're fulfilling those orders, but also the higher penetration of accessories. And then the last piece is on emerging geographies. So as we talked throughout the roadshow, you heard it in Chris's comments, we are laser focused on driving our developing markets and emerging geographies. We've continued to grow those businesses to 2x the rate of our core business. We continue to see that 2X growth minus night deliverable in 2022 and beyond. And those markets generally for us have higher margins. So that's kind of the mixed impact that we're seeing, most of it which is favorable, and we'll continue to see that going forward. Did that answer your question? Yeah, that's perfect. Thanks so much. Thanks, Chris. Thanks, Chris.

thank you all questions have been answered that concludes today's conference call thank you for joining you may now disconnect