In The Outdoor Cooking Market, It’s Weber (NYSE:WEBR)

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Thesis

Weber Inc. (NYSE:WEBR) went public in August 2021, raising $250,000.

In 2022, the overall outdoor cooking market will be challenged to increase unit sales while balancing continued supply chain issues.

However, Weber is the only outdoor cooking brand with a significant global scale in both manufacturing and distribution, giving it a key advantage.

If I have to buy one player in this market, it’s Weber.

Company

Weber Inc. (WEBR) has a long storied history, with its original charcoal grill dating back to 1951. Since then, the company has morphed itself into the most well-known manufacturer of charcoal, gas, and electric outdoor grills.

Management is headed by Chris M. Scherzinger who has served as Chief Executive Officer and a Director of the Company and previously Weber-Stephen Products LLC since April 2018. Prior to this, Mr. Scherzinger held a variety of executive leadership roles at Jarden Corporation, Newell Brands from 2008 to 2018, including President and CEO of the Appliances & Cookware operating unit in Newell Brands from 2016 to 2018.

From a product standpoint, Webber breaks its net sales down into two main categories

  • Grills- including gas, charcoal, electricity, smokers, and wood-fired pellet variations.
  • Accessories, Consumables, and Services – including its smart grilling hub, tools, cookware, and gear.

Below is a full breakdown of the company’s offerings, taken from its S-1 filing:

Weber: industry leading product portfolio

(Source)

According to Weber’s most recent annual report, the company distributes its product through an omnichannel network consisting of the following:

Wholesale: This consists of both global and international retailers as well as independent retailers.

Direct-to-Consumer: A bit surprisingly, Weber has achieved much success through this channel. The company sells its products directly to consumers through Weber.com, which relaunched in 2021 with a new digital experience, as well as its 193 Weber branded retail stores and Grill Academy sites.

E-commerce: This includes retailers such as Amazon and Wayfair.

Market

At the time of its IPO, Weber boasted the following stat line:

  • 50 million global install base of its grills
  • 78 countries where its products are sold
  • 24% market share
  • $1.5 billion in yearly revenue

In terms of an addressable market, Weber considers its Total Addressable Market to be in the range of $49 billion globally and $9 billion in the United States, while its serviceable addressable market sits at $15 billion globally and $7 billion in the United States, with an Expected 4.5% CAGR from 2020 to 2025. All of this equates to 7% penetration in its global TAM and 18% penetration in its US TAM.

Recent Performance

Topline Revenue is highly seasonal with overall growth retracting when comparing Q4 2021 with Q4 2020. While retracting growth is never a great sign, it is understandable given the tough comps brought on by the pandemic fueled buying of grills:

WEBR revenue by quarter

Gross Profit followed the same trajectory:

WEBR gross profit by quarter

Operating Income took a huge dive in Q4 2021, primarily reflecting the non-cash, stock-based-compensation charge associated with the August 2021 IPO:

WEBR operating income by quarter

Data Used For Above Charts

Since going public in August of 2021, Weber has declined over 26% while the S&P 500 is up nearly 10%.

WEBR and SPDR S&P 500 ETF Trust: total return
Data by YCharts

Competitors & Valuation

Weber plays in a market that is highly fragmented. Within its S1 filing, it lists the following as its main competition: Big Green Egg, Broil King, Campingaz, Char-Broil, Landmann, Napoleon, Nexgrill, Pit Boss, Traeger, and Ziegler & Brown. Because Traeger (COOK) came public around the same time as Weber, many see these two as the main players in this space. On one hand, you have Weber, an established player with a majority market share. On the other hand, you have Traeger, appearing to have better growth prospects but has yet to build out the scale and efficiency of manufacturing that Weber possesses. With that in mind, here is how the two line up in terms of valuation and profitability:

Weber vs Traeger valuations

(Source)

Weber Grills vs Traeger Grills profitability

(Source)

Notice that Weber possesses a better gross profit margin. This is most likely due to Weber’s global manufacturing footprint. In addition to this, Weber has a much better price-to-sales ratio. I attribute this to the fact that Traeger is working off a much smaller base in sales. With less market penetration, investors are forecasting much larger percentage growth from Traeger.

Final Commentary

In its Q4 2021 year-end earnings call, management noted some of the following key figures:

  • Fiscal year 2021 net sales increased 30%, to $1.98 billion.
  • Net sales increased 25% in the Americas, to $1,102 million, from $881 million in the prior year; EMEA increased 34%, to $726 million, from $542 million in the prior year; and APAC increased 49%, to $154 million from $103 million in the prior year.
  • 46% DTC growth versus last year.
  • Gross profit increased 35% to $825 million, or 41.6% of net sales, compared to $610 million or 40.0% of net sales in the prior year.

For Q4 specifically, Weber was able to offset lower unit sales with price increases. It plans to do the same in 2022. In fact, most of the company’s forecasted six to eight percent topline growth for 2022 is expected to come from an increase in pricing as opposed to increasing the number of units sold.

Investors can also expect some continued pressure on margins in 2022. This was an issue in Q4 2021 as all companies saw an increase in inbound freight costs. In a normal year, the company would see inbound freight as five to six percent of COGS. However, for the back half of 2021, it was closer to twelve percent and is expected to be the same in the first half of 2022.

Taking all this into account, I am neutral on all outdoor grill stocks. Just like many other businesses, future growth prospects pulled forward during the pandemic. This factor, paired with continuing supply chain challenges temper my expectations for future growth in earnings. It is not encouraging to see unit sales down, but Weber has the brand power to increase pricing and that should show in 2022. In addition to this, Weber is the only outdoor cooking brand with a significant global scale in both manufacturing and distribution. This means it should be able to withstand the increases in inbound freight costs better than other players in the space. While I am neutral on the stock, if I had to buy one player in this space, it is Weber.

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