Weber Inc. (WEBR), the leading outdoor cooking company, has faced a challenging period recently, with the company reporting annual net income of -$329.98 million, annual revenue of $1.59 billion, annual operating cash flow of -$363.14 million, and annual free cash flow of -$464.06 million. However, the company's long-standing brand recognition and innovative product portfolio suggest potential for a turnaround, provided it can navigate the current macroeconomic environment effectively.

Business Overview

Weber Inc. has a rich history, tracing its roots back to the invention of the original charcoal grill by George Stephen, Sr. over 70 years ago. The company has since built a loyal global following, offering a diverse range of outdoor cooking products, including traditional charcoal grills, gas grills, smokers, pellet grills, and electric grills, as well as a wide array of accessories. Weber's products are sold in 78 countries through an omni-channel network consisting of wholesale, direct-to-consumer, and e-commerce channels.

The company operates in the global outdoor cooking market, which encompasses a variety of outdoor products, such as gas grills, charcoal grills, wood pellet grills, electric grills, smokers, grilling accessories, and solid fuel products. Weber's mission is to lead the outdoor cooking industry by innovating breakthrough new products and services that enhance its global consumers' grilling experiences.

Quarterly Performance

In the latest quarter, Weber reported net sales of $164.9 million, a significant decrease of 42% compared to the prior-year period. This decline was primarily attributable to higher retailer inventory carried over from the previous fiscal year, which led to lower customer orders, as well as slowed consumer sales due to macroeconomic factors such as rising inflation, supply chain constraints, higher fuel prices, and geopolitical uncertainty.

Gross profit for the quarter decreased by 44% to $35.9 million, with gross margin declining by 81 basis points to 22%. The decrease in gross profit and gross margin was driven by the lower sales volumes, partially offset by pricing actions implemented across all regions.

Selling, general, and administrative (SG&A) expenses decreased by 17% to $122.4 million, primarily due to lower stock-based compensation, reduced advertising spending, and lower distribution costs on lower sales. However, SG&A as a percentage of net sales increased by 2,192 basis points to 74% due to the significant decline in net sales.

The company reported a net loss of $113.9 million for the quarter, compared to a net loss of $74.6 million in the prior-year period. This increase in net loss was driven by the lower gross profit, higher income taxes, and higher interest expense, partially offset by favorable foreign currency impacts and reduced SG&A costs.

Segmental Performance

Weber's performance varied across its three reportable segments:

Americas:

Net sales in the Americas segment decreased by 38% to $97.5 million, primarily due to higher retailer inventory, slowed consumer demand, and delayed timing of shipments related to the deployment of the company's new ERP system. Segment adjusted income from operations decreased by 93% to $1.5 million.

EMEA:

Net sales in the EMEA segment decreased by 58% to $26.7 million, impacted by higher retailer inventory, slowed consumer purchases, and unfavorable foreign exchange rates. Segment adjusted loss from operations was $9.8 million, compared to adjusted income from operations of $10.3 million in the prior-year period.

APAC:

Net sales in the APAC segment decreased by 36% to $40.7 million, driven by lower revenues in Australia due to slowed consumer traffic, both in-store and online, as well as unfavorable foreign exchange rates. Segment adjusted income from operations decreased by 43% to $11.0 million.

Liquidity

As of the latest quarter, Weber had $37.7 million in cash and cash equivalents, with $12.8 million of borrowing capacity available under its Revolving Loan and an additional $230.0 million available under its Unsecured Revolving Loan. The company also has $120.0 million available under its Unsecured 15% Term Loan.

In November 2022, Weber entered into a loan agreement with BDT Capital Partners for an unsecured term loan of $61.2 million, and in December 2022, the company entered into a loan agreement with Ribeye Parent, LLC for an unsecured delayed draw term loan of $120.0 million and an unsecured revolving credit facility with an initial aggregate commitment of $230.0 million. These new loan agreements have increased the company's liquidity position.

Risks and Challenges

Weber faces several risks and challenges that could impact its future performance. The company operates in a highly competitive outdoor cooking market, where it competes with both established players and emerging brands. Macroeconomic factors, such as rising inflation, supply chain disruptions, and geopolitical tensions, have already had a significant impact on the company's recent results and could continue to do so.

Additionally, Weber's success is closely tied to consumer demand for its products, which can be influenced by factors such as weather, disposable income, and consumer confidence. The company's ability to innovate and introduce new products that resonate with its customer base will be crucial in maintaining its market leadership.

Outlook

Despite the current headwinds, Weber remains well-positioned to capitalize on the growing global demand for outdoor cooking products. The company's strong brand recognition, diverse product portfolio, and omni-channel distribution network provide a solid foundation for future growth.

Weber's focus on innovation, such as the introduction of its Weber Connect™ technology-enabled grills, could help drive consumer engagement and differentiate the company from its competitors. Additionally, the company's expansion into new geographic markets and the development of complementary product categories, such as accessories and consumables, present opportunities for revenue diversification and growth.

Furthermore, the company's recent investments in its global ERP system and operational transformation initiatives are aimed at improving efficiency, reducing costs, and enhancing its supply chain resilience, which could positively impact its financial performance in the long term.

Conclusion

Weber Inc. is facing a challenging period, with declining sales, profitability, and cash flow. However, the company's strong brand, innovative product portfolio, and strategic initiatives suggest that it has the potential to navigate the current macroeconomic environment and capitalize on the growing demand for outdoor cooking products. Investors will be closely watching Weber's ability to execute its turnaround plan and deliver sustainable growth in the years ahead.