Good afternoon. Thank you for attending today's Traeger first quarter fiscal 2022 earnings conference call. My name is Hannah, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with 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 would now like to pass the conference over to our host, Nick Bacchus, Vice President of Investor Relations of Traeger Grills. Please go ahead.
Good afternoon, everyone. Thank you for joining Traeger's call to discuss its first quarter 2022 results, which were released this afternoon and can be found on our website at investors.traeger.com. I'm Nick Bacchus, Vice President of Investor Relations at Traeger. With me on the call today are Jeremy Andrus, our Chief Executive Officer, and Dom Blosil, our Chief Financial Officer. Before we get started, I want to remind everyone that management's remarks on this call may contain forward-looking statements that are based on current expectations but are subject to substantial risks and uncertainties that could cause actual results to differ materially from those expressed or implied herein.
We encourage you to review our annual report on Form 10-K for the year ended December 31st, 2021, and our other SEC filings for a discussion of these factors and uncertainties, which are also available on the investor relations portion of our website. You should not take undue reliance on these forward-looking statements. We speak only as of today, and we undertake no obligation to update or revise them for any new information. This call will also contain certain non-GAAP financial measures, which we believe are useful supplemental measures. The most comparable GAAP financial measures and reconciliations of the non-GAAP measures contained herein to such GAAP measures are included in our earnings release, which is available on the investor relations portion of our website at investors.traeger.com. Now I'd like to turn the call over to Jeremy Andrus, Chief Executive Officer of Traeger.
Thank you, Nick. Thank you for joining our first quarter earnings call. Today, we'll discuss highlights from our first quarter results and share our progress in executing our long-term growth strategies. I will then turn the call over to Dom to discuss details on our quarterly financial performance and to provide an update on our fiscal 2022 guidance. The Traeger team continues to work relentlessly to deliver an incredible experience to our consumers and to drive forward our key long-term growth initiatives. In the first quarter, while we face several near-term headwinds, including continued inflationary pressures and supply chain challenges, a highly dynamic consumer backdrop, and tough year-over-year comparisons, we are pleased with our execution. Our first quarter sales of $224 million were down 5% versus prior year, with particular softness in our grill business, with revenues down 16%.
First quarter year-over-year growth was negatively impacted by lacking a period where our retail partners were aggressively restocking channel inventory and consumer demand was enhanced by government stimulus. Looking at first quarter's three-year CAGR of 32% and grill revenue CAGR of 27% demonstrates the strong gains that Traeger has experienced since 2019. We are pleased to have exceeded our first quarter guidance, which we provided in March. Despite beating our quarterly guidance, we are maintaining our full year 2022 sales and EBITDA outlook. There are three central factors I'll touch on as it relates to our reiteration of guidance. First, our beat relative to guidance in the first quarter was largely driven by timing of shipments of grills and was not based on a change in underlying demand relative to our assumptions when we shared our outlook.
Second, we remain cautious on the macro environment with continued pressures on the consumer and tightening financial conditions, as well as a shift in consumer spending away from durables towards services. Lastly, we are in the beginning of our seasonally strongest selling period with our most important weeks at retail ahead of us. Therefore, it is early in the year to adjust our outlook. Despite near-term headwinds, our brand health has never been stronger. Our consumer continues to increase engagement with Traeger, with connected cooks continuing to grow in the first quarter, led by an incredible 55% increase in connected cooks on Super Bowl 2022.
Moreover, our customers continue to tell their friends and family that they love their Traeger, and our NPS score is now at an all-time high, well above other players in the outdoor cooking category and in line with great consumer brands like Starbucks, Airbnb, and Netflix. The excitement and passion around the Traeger brand continue to build momentum as we approach our summer selling season. In March, we launched our new Timberline grill, which is Traeger's most innovative product since I've been with the company and is truly a game-changer in outdoor cooking. The launch's reception for our consumers, our retail partners, and outdoor cooking influencers has been incredible and cements Traeger's status as a disruptive force in the grilling category. Looking forward, we are optimistic about our plans as we head into the summer grilling season.
Whether smoking a 15-pound brisket overnight for a block party or using one of our fast and easy dinner recipe ideas for a weeknight meal to be enjoyed outdoors with the family, our wood pellet grill's versatility, consistency, and ease of use make Traeger the go-to grill for the summer. Similar to last year, we kicked off the beginning of the season with a promotion, this year centered around Mother's Day, with $150 off select grills and $2 off pellets and sauces. The promotion was a great gift-giving opportunity and directly addressed consumers looking to buy a Traeger grill or consumable ahead of the summer. On May 14th, we will be celebrating our 5th annual Traeger Day.
Traeger Day is dedicated to bringing the global Traeger community together to cook outdoors and to share wood-fired foods with friends and family as they celebrate the start of the grilling season. Consumers and influencers share pictures and videos of their meals on social media and can win prizes based on their spread. We expect significant growth in consumer engagement, especially after two years of virtual Traeger Days. We remain highly enthusiastic about the enormous upside potential for the Traeger brand and are confident in our growth strategy. Having said that, as we discussed in March on our fourth quarter earnings call, the near-term environment remains highly dynamic. We are seeing numerous companies across multiple parts of the consumer sector speak to a less favorable backdrop for the consumer, with inflation and geopolitical turmoil impacting consumer confidence.
Furthermore, as the pandemic subsides, it is becoming evident that the consumer is shifting spend away from durable home-related goods towards leisure and travel, which is also negatively impacting the grill category. On our fourth quarter call, we discussed having seen a deviation from our forecast in sell-through trends at retail in March, which coincided with worsening geopolitical headlines and a sharp rise in prices at the pump. Since then, sell-through trends have remained volatile but are trending in line with the expectations we provided when we gave our 2022 guidance. It is important to note that it's still very early in the year with our highest volume sales weeks at retail ahead of us. In fact, in a typical year, we would expect retail sell-through volumes between now and Labor Day to make up nearly 50% of our yearly sell-through.
In terms of supply chain dynamics, as we have discussed on previous calls, given the size and weight of our product, Traeger is especially sensitive to the cost increases in freight and transportation that many companies are facing today while we do expect that increased freight costs will normalize to cost out of logistics, supply chain, and manufacturing. Specifically, earlier this year, we formed a gross margin task force led by our Chief Supply Chain Officer, Jim Hardy, to identify and execute on cost savings initiatives across the supply chain. While it is early in the process, we are encouraged by some initial learnings and wins, and we expect to leverage efficiencies driven by this team over the medium to long term. Critically, while the team is focused on driving cost savings, we are committed to doing so without compromising the quality of our products or our consumer experience.
Furthermore, given cost increases and the uncertain consumer backdrop, we are managing our expenses to better align the cost structure to the current environment. This includes reexamining our investment spend for the year and reducing, deferring, and reprioritizing certain expenses. We remain committed to fueling our long-term growth and continually improving our product and consumer experience. However, we believe that thoughtful cost discipline is appropriate given the highly dynamic backdrop. I want to shift my discussion to progress on our key strategic growth pillars, accelerating brand awareness and penetration in the United States, disrupting outdoor cooking through product innovation, driving recurring revenue through our consumables business, and expanding the Traeger brand globally. Increasing brand awareness and penetration in the United States remains our largest single growth driver.
It is important to note that while door growth in the U.S. is a long-term opportunity for Traeger, increasing penetration in our existing retail footprint is at the core of our growth strategy. In the first quarter, we reset roughly 350 stores at The Home Depot with an expanded assortment of Traeger products and improving signage and fixturing. As we have noted, these locations have a larger assortment with more than double the number of Traeger SKUs and a significantly improved brand presence, which allows these locations to drive more than twice the sales productivity for Traeger products compared to the average Home Depot door. We will continue to drive future growth in Home Depot by increasing the product assortment across stores, particularly those with minimal brand presence and sales, and by investing in visual merchandising, fixtures, and retail training.
On the marketing side, in the first quarter, we launched a new brand campaign, the Traegerhood Tales, featured in TV spots and digital ads. The campaign focuses on funny family moments with a Traeger spin, and I would encourage everyone to watch these entertaining commercials on our YouTube channel. Going into the summer season, we will focus our media efforts in the social, digital, and connected TV channels. Lastly, our DTC business continues to gain momentum, and in the first quarter, traeger.com U.S. saw solid growth with increases in both returning customer transactions as well as new customer transactions. We launched several new products across pellets, consumables, and apparel in our DTC channel, including Meat Sweats, a limited edition run of Traeger-branded joggers that are the perfect pants to wear when grilling on a Traeger. Our consumers love the idea, and Meat Sweats sold out in eight hours.
These types of creative and limited-run offerings bring significant energy to the Traeger brand. Our next growth pillar is product innovation. The launch of the new Timberline and Timberline XL in March was an enormous occasion in the history of the company. Our new Timberline brings incredible innovation to the market, offering consumers an unparalleled level of consistency, convenience, and versatility. Full stainless steel insulation and a redesigned heat delivery system allow for hotter temperatures and improved searing. The grill includes the first outdoor certified induction cooktop, which provides fast heating for sautéing, simmering sauces or searing, as well as a proprietary grease and ash keg system for easy cleanup, a new Wi-Fi enabled controller for precision temperature control, and two wireless MEATER probes for easy monitoring of internal temperature, among other innovations.
There is nothing else in this space that has all the innovative features that are included in this new Timberline. The excitement around the launch of the new Timberline was palpable, with 1.2 billion press coverage impressions and 70 million influencer driven impressions in the first week post-launch. The reception of the new Timberline has been fantastic, with significant excitement from our retail partners who have sent Timberline hero moment fixtures in over 1,000 doors, as well as strong advocacy from influencers like Sam the Cooking Guy, Matt Pittman at Meat Church, and HowToBBQRight's Malcom Reed. Importantly, we expect the innovations introduced in this product will power several years of upgrades and newness as technologies and features cascade to the rest of the Traeger product assortment.
Shifting to our consumables business, we remain focused on driving recurring revenues through expanded distribution and new product introductions. In the first quarter, we added 2,200 grocery doors where Traeger rubs and sauces are being sold, led by our rollout at Kroger. We saw strong growth in our rubs and sauces business in Q1, driven by this increased distribution. We are also increasing distribution in our pellet business and added 600 additional grocery doors where pellets are sold. It is early in our consumables expansion at grocery. However, we are encouraged by early results and continue to believe that the consumer wants to buy our consumables where they shop every week, not just where they are buying their grill. In addition to distribution growth, we continue to expand our consumables assortment with new innovation.
In February, we launched two new rubs, the Anything Rub and the Perfect Pork Rub, and two new sauces, Liquid Gold and Show Me the Honey. Moving to our final growth pillar, expanding the Traeger brand globally. Our international business had a strong first quarter with healthy growth both in Canada and Europe. The quarter benefited from strong pre-book and early season load-ins, and our team did a great job delivering product on time and in full to our international retailers and distributors. In the first quarter, we saw a deceleration in sell-through in our international markets as we believe consumer sentiment in global geographies is being negatively impacted by the war in Ukraine and inflation. Similar to the U.S., we planned our international business more conservatively for fiscal 2022 based on the macro backdrop.
We would note we have no direct exposure to Russia or Ukraine, and the European market makes up well below 5% of our total sales. We continue to see a significant long-term opportunity to grow the Traeger brand globally. In summary, the Traeger team continues to execute on our growth strategy, which we believe will drive meaningful value for our shareholders, consumers, and retail partners. In the first quarter, we launched our most innovative product in the company's history, which we believe sets the stage for a multi-year innovation cycle and puts us significantly ahead of the competition. Despite facing near-term challenges, Traeger continues to be strongly positioned for long-term growth as a disruptor in the outdoor cooking sector.
Before I pass it over to Dom, I'd like to thank the entire Traeger team for their hard work and passion in executing on our vision to bring people together to create a more flavorful world. With that, I'll turn it over to Dom. Dom?
Thanks, Jeremy, and good afternoon, everyone. As Jeremy discussed, in the first quarter we faced several headwinds which negatively impacted our year-over-year growth rates and margins. These pressures include comparing against the period when sell-in materially outpaced sell-through as retailers restocked low channel inventories in the first quarter of last year, lapping stimulus-driven retail demand, an uncertain consumer environment, and continued inflationary pressures on our supply chains. Despite these headwinds, we are pleased with our first quarter execution as we move into our strongest seasonal period. While the near-term environment remains highly fluid, we are focused on the things that we can control, as well as maintaining an appropriate balance of short-term and long-term investment. I will start by reviewing our first quarter results, and then we'll provide an update on our 2022 outlook.
First quarter revenues declined 5% to $224 million, driven primarily by a decline in grill revenues. Grill revenues declined 16% to $150 million, with revenues impacted by lower unit volumes, partially offset by higher average selling prices, driven by price increases taken in the second half of 2021, as well as the first quarter of 2022. First quarter unit volumes were impacted by the anniversary of difficult unit comparisons as retailers were restocking grill inventories in the first quarter last year, and sell-through benefited from government stimulus. Consumables revenue declined 3% to $40 million, reflecting the lapsing of a strong 72% increase in the first quarter of last year, with a decline in our pellet business somewhat offset by growth in our rubs and sauces business.
We note that the decline in first quarter consumables revenues of 3% represents an acceleration from our fourth quarter's 19% consumables decline. Finally, accessories revenues increased 109%, driven by incremental revenue from the acquisition of MEATER and continued strong growth in Traeger accessories. First quarter revenues beat the high end of our guidance by $12 million. The upside in sales was largely driven by timing of shipments of grills relative to our plans when we guided in March, as we released orders for certain accounts earlier than expected to ensure on-time delivery given continued constraints in domestic carrier capacity, as well as earlier loading of our new Timberline XL to certain accounts. Geographically, in the first quarter, we saw strong growth in Canada and rest of world, while growth in the U.S. was impacted by the aforementioned headwinds.
We remain highly optimistic about the long-term opportunity to grow Traeger globally. We are, however, planning our international business more conservatively this year, given the growing macroeconomic pressures the consumer is facing in many of our international markets. Gross profit for the first quarter decreased to $84 million from $101 million last year. Gross profit margin was 37.4%, down 530 basis points to last year. Higher inbound freight costs continue to be the largest pressure on our gross margin and contributed 870 basis points of negative margin impact. Amortization of intangible assets related to the MEATER acquisition was also dilutive to margin.
Offsetting these pressures was margin favorability of 370 basis points, driven by our pricing actions, as well as favorability driven by a higher mix of customer orders fulfilled via our direct import program. First quarter gross margin was modestly better than our expectations, driven by slightly lower inbound freight expense compared to our forecast. Sales and marketing expenses were $33 million compared to $31 million in the first quarter of last year. The increase was primarily driven by advertising costs related to MEATER, which is not a component of the 2021 comparable period. The increase was also driven by higher equity-based compensation expense of $2 million due to the restricted stock units issued under the Traeger 2021 Incentive Award Plan. General and administrative expenses were $43 million compared to $14 million in the first quarter of last year.
The increase in general and administrative expense was driven primarily by higher equity-based compensation expense due to the restricted stock units issued under the Traeger 2021 Incentive Award Plan, higher personnel-related costs, and increased professional services. As a result of these factors, net loss for the first quarter was $8 million as compared to net income of $39 million in the first quarter of last year. Net loss per diluted share was $0.07 compared to net income per diluted share of $0.36 in the first quarter of last year. Adjusted net income for the quarter was $20 million or $0.17 per diluted share as compared to adjusted net income of $45 million or $0.41 per diluted share in the same period last year.
Adjusted EBITDA was $31 million in the first quarter as compared to $64 million in the same period last year. Now turning to the balance sheet. At the end of the first quarter, cash and cash equivalents totaled $11 million compared to $17 million at the end of the previous fiscal year. We ended the quarter with $379 million of long-term debt. Additionally, as of the end of the first quarter, the company had drawn down $47 million on its revolving credit facility and $49 million under its receivables financing agreement, resulting in total net debt of $464 million and a net leverage ratio of 6.2x.
It's important to note that our first quarter is typically our peak leverage point, given elevated working capital needs ahead of our strongest seasonal selling period, with debt levels historically coming down thereafter. Inventory at the end of the first quarter was $164 million compared to $76 million at the end of the first quarter last year. As we have discussed previously, the increase in inventory was driven by three factors. First, given supply chain constraints, we have intentionally leaned into inventory to ensure we have adequate supply. We believe this strategy is the right one, given the supply chain environment remains highly fluid, as evidenced by recent warehouse and port shutdowns in Shanghai. Second, inventory costs are higher versus last year, driven by increased freight and input costs.
Finally, about $18 million of the inventory increase was due to MEATER, which is not in the comparable inventory base last year. We remain comfortable with our inventory levels and balance. We are closely monitoring the supply chain environment and will be managing our level of safety stock based on how the landscape evolves over the balance of the year. Turning to our guidance for fiscal year 2022. We are reiterating our full year revenue guidance of $800 million-$850 million and our adjusted EBITDA guidance of $70 million-$80 million. Given that the upside in first quarter revenues was largely based on timing, we are not flowing through the beat to our full year outlook.
Furthermore, we remain cautious given the uncertain macro environment and its impact on consumer behavior and confidence, as well as shifting consumer spending patterns towards services and away from durable and discretionary goods. We continue to expect grill revenues to be down double digits in the first half of the year, with declining grill revenue growth for the full year and sequential improvement in the second half of the year relative to the first half as comparisons normalize. On our fourth quarter earnings call, we discussed having seen a deviation in sell-through in March relative to our forecast. Since that time, sell-through trends have remained volatile, but are generally in line with the expectations embedded into our guidance. As Jeremy spoke to, it's important to note that our business is fairly seasonal with the next 18 weeks of sell-through typically representing nearly half of our yearly sales at retail.
We are early in our key selling season, and therefore, we'll be reading and reacting to sell-through trends during the summer. In terms of gross margin, we are reiterating our prior guidance for full year gross margins of 34%-35%. Despite modestly better than expected first quarter gross margin, the supply chain environment remains highly fluid, and we believe it is prudent to maintain our prior margin outlook. We continue to expect gross margin in the first half of 2022 to be higher than the full year. Next, I'd like to give an update on our gross margin drivers. We expect that inbound container rates will continue to track above $10,000 through 2022, which will continue to put pressure on gross margin rates. We continue to be focused on working to offset these cost pressures.
As Jeremy mentioned, we have formed a task force which is charged with evaluating changes in design, manufacturing, and supply chain processes to drive higher product margins and lower costs. We are encouraged by the team's initial findings in these areas and expect that we will begin to realize savings in 2023. In terms of SG&A, we will continue to rightsize our expense structure to help offset near-term top line and gross margin headwinds. Given the current macro backdrop, we will delay certain investments that have a less quantifiable in-year return profile, and further, we'll be nimble in our approach to managing the P&L. Our focus is to balance investing behind growth while protecting profitability and acknowledging the uncertain macro environment. We continue to feel extremely optimistic about Traeger's long-term growth as we disrupt the outdoor cooking industry, as evidenced by the successful launch of our new product innovation.
Furthermore, I remain highly encouraged by the long-term opportunity to gain market share by increasing penetration within the U.S. With that, we will open the call to questions. Operator?
Certainly. If you would like to ask a question, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, press star one. We kindly ask that participants limit themselves to one question with one follow-up today before reentering the queue. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question. We will pause here briefly as questions are registered. The first question is from the line of Simeon Siegel with BMO. Please proceed.
Thanks. Hey, guys. Hope you're having a good afternoon. Jeremy, maybe it's early, but anything you can speak to on that sales uplift you're seeing with the 350 Home Depots that get expanded. Maybe just giving some color around what you, what you're seeing with those. Then how are you guys thinking about the sell-in and sell-through dynamics for pellets? Basically, how are you thinking about when consumables should return to growth and just any help there? Thank you.
Hey, Simeon. Look, we track sell-through weekly, and you know, we cut it by customer, by door, by region, and no question, we're seeing a lift in those 350 doors. By the way, we've been seeing this for years. I mean, every time we grow assortment, we improve merchandising, we see lift in sell-through. It's fortunately a fairly predictable formula to drive growth. We are seeing that lift and it will continue to drive our strategy with Home Depot. One of the things that we talked about, in addition to increasing assortment has been the testing, and I would say now investment of sort of store-in-store fixtures within Home Depot.
We tested about 35 stores last year, really liked the return that we saw, both in terms of lift in sales as well as return on investment on the investment in those fixtures. That has continued to roll out. There are a couple hundred in market now and we'll be sort of 500 by end of year. That's our strategy. I mean, that is. I think it's marked in Home Depot because there's so much traffic and there's such a conversion opportunity, but it's foundational to our brand in terms of building a branded presence in retail and really capturing the opportunity to speak to the foot traffic walking through the retail. In terms of, Dom, do you wanna hit on the pellet question?
Yes, we have. Well, I'll speak in terms of consumables. I would say that, you know, the first half of this year is a challenging comp, you know, across our different categories, say, where we're seeing, you know, nice momentum on the accessories side in addition to acquired revenue with MEATER. You know, as we look ahead, I think you start to see some normalizing comps in the back half of the year. You know, we won't go into detail around guidance, but, you know, I guess I would say two things. First, we expect to see some normalization of consumer consumption of pellets as we measure attachment in the back half of the year.
You know, we're lapping two years of elevated attach just given the dynamics around the pandemic and, you know, cooking behaviors as, you know, consumers shift to a more normal world where, you know, some of that discretionary spend as well as their discretionary time is moving to services. We think that will, you know, continue to put a little bit of pressure on the comps. Again, in the back half, we think those will normalize. On the food consumable side, I think one of the tailwinds that we expect to see over the course of the year is just the growing penetration within retail, and more specifically, you know, Kroger and our grocery strategy, which will buoy up our consumables business through the course of the year.
Great. Thanks a lot, guys. Best of luck for the year ahead.
Thanks, Simeon.
Thank you, Mr. Siegel. The next question is from the line of John Glass with Morgan Stanley. Please proceed.
Thanks very much. You talked about the still volatile consumer environment generally on trend. You're reading and going to react to those. What does react mean, I guess, in your minds? What levers do you have if we start to see slippage again in consumption of grills, you know, whether it's promotional activity or reexamining some price points? What are the levers you think you have to stimulate demand if you know, if needed?
Yeah. I mean, I think just stepping back, like, the growth thesis hasn't changed. We still you know, feel highly confident in the thesis and it's a long-term thesis. I think the in-year dynamic will require a shift in strategy. That's not necessarily a signal for how we'll manage the business long term. But when you think about and something we talked about on the last call, you know, we experienced some acceleration in unit growth on the grill side. You know, ultimately, that correlates to the installed base of grills. The household penetration that we sort of measure on a quarterly basis continues to reinforce the opportunity. You know, we'll be lapping some challenging comps over the course of this year.
Obviously, we're changing our in-year strategy around how we manage the P&L, and more specifically within SG&A, which in part requires a you know, renewed focus on kind of middle and bottom funnel investments on the demand creation side. That's to really ensure that where we make investments, we have a high degree of confidence. To the extent that there's excess capacity within the P&L, we'll look to continue to kind of build top of funnel and/or rebuild top of funnel given some of the acceleration we've seen over the last two years. Ultimately, what I would say is in year, the strategy will be slightly different than longer term. In year, we'll be focused more on performance marketing where we see high kind of one-to-one conversion. You know, price is always something that we evaluate.
We've really configured a fairly sophisticated pricing strategy internally where we can simulate, you know, based on historical moves, based on the price increases we've made, how that could, in theory, impact both demand as well as, you know, mix shift across our products, and then in turn, how that impacts profits, our products, and then in turn, how that impacts profits generally. I'd say the in-year lever is really, you know, doubling down on how we sort of shift spend to performance marketing as well as where we're seeing highest returns there. We'll always evaluate price. I think we feel pretty good about our price, how we've configured our price this year, but something that we'll continue to look at.
You know, on the last call, we spoke to you know kind of maybe the more pressure on the consumer sub $1,000 versus above, where we have probably more inelasticity. It's something that we'll continue to evaluate as a potential in-year lever. Ultimately, it's the long-term focus that I think will guide our strategy. You know, coming out of some of the in-year challenges, we'll sort of reconfigure our top of funnel strategy. You know, build that funnel and continue to execute on the formula that we believe works and ultimately aligns to our growth algorithm long term.
Thank you for that. Just a quick follow-up. You mentioned timing of shipments, which was a benefit to the first quarter. What was the amount of that? Was that just the overage versus your guidance or could you quantify what that timing difference was?
Yeah. It's effectively the overage. Yep. That, that's right. It's just really a shift between Q1 and Q2. As we said, it's tied to orders that had on, you know, ship dates in kind of early Q2 that we chose to move late Q1. They were sort of on the cusp of the two quarters, and that's really an effort to ensure we're taking advantage of, you know, capacity which is constrained among our carriers as it becomes available. That was the primary driver.
Thank you.
Thank you, Mr. Glass. The next question is from the line of Peter Keith with Piper Sandler. Please proceed.
Hey, thanks. Good afternoon, everyone. Understanding there's a lot of business to be done in the next 18 weeks, I guess I'm curious, just if things don't go well, how you work with retailers on their inventory levels. If you have some of your big box players with a lot of excess grills, is there any markdown risk? Do you enforce MAP pricing? Or, is it just simply you'd stop shipments and just kinda let the inventory levels bleed down into the holiday season?
Yeah. One of our core principles is not to be promotional, right? We've been very disciplined to that, and it's evolved between kind of two to four promotional periods per year, kind of our biggest promotional periods. We're not gonna deviate from that. We think that drives healthy brand long term, which is why our collaborative planning process, which we've configured internally, as we work with our retail partners in lockstep to ensure that in-channel inventory levels don't exceed a certain range that we're uncomfortable with. That holds true. The goal for us is always to ensure that, you know, we don't find ourselves in a position where we're too heavy on inventory and channel in one quarter at the sacrifice of another.
Now, as we look at, you know, the data that comes out of our collaborative planning process as well as sell-through trends and in-channel inventory, we're within, you know, a band that we're comfortable with, but we are heavier than, you know, what you see historically. That's in part driven by our retailer strategy, which has also been to lean more into inventory given the fact that, you know, over the last two years, they've found themselves in some challenging positions with lack of inventory, missed turns, et cetera. You know, we watch this closely. We're a bit heavy, but we're also ahead of our peak selling season. By no means is it a manageable position.
Even if the trend deviates from expectations in Q2, it's still something that we can manage within an appropriate sort of band of weeks on hand within channel and believe that it's really a specific issue to 2022 versus something that would linger or persist.
Okay. That's helpful. Maybe pivoting over to freight. You did give the comment that you're factoring in container costs running above $10,000 for the year. What are you seeing as of late with your container costs? Has there been any near-term relief, or are you still above that level?
Yeah. No near-term relief, but near-term stabilization. I think where we're building confidence is that the problem isn't becoming worse. It's stabilized, which leads us to believe that, you know, 2023 and beyond, we may start to see some building tailwinds on the container side. In this year, we're holding guidance where it is on gross margin because, you know, one, we're sort of locked in, not contractually, but effectively locked into kind of these elevated rates, which are holding a little bit of volatility from kind of week to week, month to month, but we expect the trend to hold through full year. To the extent that we see some tailwinds build, those will likely be captured in 2023.
The good news is there's some stabilization within some of these inflationary pressures in transportation in particular, and that, at minimum, provides for some additional predictability within the year, but nothing that would necessarily lead us to believe that there's incremental, you know, benefit to gross margin just based on what we know today.
Okay. Sounds good. Thanks so much, and good luck.
Thanks.
Thank you, Mr. Keith. The next question is from the line of Sharon Zackfia with William Blair. Please proceed.
Yeah. Hey, guys. This is Alex on for Sharon. Just a quick one for me. So based on the sell-through that you guys are seeing now, could you maybe just qualify any of that, any improvements that you're seeing with the sub-1,000 category? Have you seen anything coming out of that that's improved?
Look, I would say from a sell-through perspective, you know, the data points remain mixed as we discussed on the last earnings call. You know, we're still early in the season. Our sell-through is predominantly still in front of us, but no clear direction that's deviated from what we reported on the last call. Still within the range of guidance that we've provided.
Okay. Got it. Thanks. That's helpful. I'll pass it on.
Thanks.
Thank you. The next question is from the line of Anna Glaessgen with Jefferies. Please proceed.
Hi. Good afternoon. Thanks for taking our questions. I guess appreciate the color on the pellets attach rate. Could you give some color on what you're seeing on the rubs and sauces side of the consumables segment in terms of, repurchase behavior, and attach as well?
I mean, I would say it's early days, but you know, we're feeling really confident in our food consumable strategy. You know, as we you know roll out more product within grocery and expand those doors, we think that this is a kind of a growing tailwind for the business. There's a real appetite for food consumables, especially Traeger-branded food consumables. This is an exciting component of our strategy that is beginning to mature from the standpoint of how we believe the strategy should be configured and how we will ultimately execute on that strategy to continue to drive growth, which you know ultimately is part of our long-term growth algorithm. I think we're early days in terms of this strategy in particular.
Makes sense. Could you remind us what, you know, the average SKU count is in the grocery channel for the door and potentially where that could see upside?
Yeah. We don't have the specific data in front of us, but you know, I think ultimately the strategy will evolve over time, where we'll set probably our most important kind of highest moving SKUs and then sort of build the strategy from there, whether it be, you know, adding kind of linear footage within retail where it makes sense, or, you know, updating based on, you know, seasonal offerings, things like that. I would say, you know, the core set is established, and that will evolve over time based on, you know, how we measure, you know, turns within grocery in particular and where we see success across the portfolio.
Got it. Thanks.
Thank you. The next question is from the line of Kaumil Gajrawala with Credit Suisse. Please proceed.
Hi. Thanks for having me on. Is there a way for you guys to kind of normalize sell-through versus sell-in? I think some of what you talked about was you have this difficult comp 'cause retailers were replenishing last year, but on kind of a sell-through or sell-in basis, are you able to give us an indication on what volumes you're doing for grills?
What do you mean by sell-through versus sell-in?
Well, it sounds like.
Do you mean in-
Replenishing inventory at retail last year, and that's part of the difficult comp for this year.
Yeah. Are you kinda-
[crosstalk]
You're trying to compare. Right. So you're comparing sell-in versus sell-through. Is that right? That's your question?
Yeah. I'm just trying to clean them up.
Okay. Got it.
Just clean up those questions.
Yeah. I mean, ultimately I would think about it in terms of, you know, seasonality within kind of our GAAP financials, right? So Q1, Q2 are our largest quarters. Q3 tends to be our lowest, and then there's an uptick in Q4. We, you know, this brand benefits from nice kind of a fairly you know consistent seasonal curve over the course of the year versus where maybe you see other brands have a massive load in early in the year, and then their seasonality drops fairly consistently. So we see nice replenishment as well as high usage across the year, which, you know, we benefit from. You know, Q1 is our load-in season, right?
It's one of our biggest quarters because we're loading in meaningfully ahead of our peak season, which is Q2. Q2 is equally as a meaningful quarter from a seasonal standpoint. To your point, that's driven mostly by replenishment. When you think about marrying sell-in versus sell-through, you're not necessarily going to see the same seasonal pattern take shape in Q1, right? Because we're loading in product. Whereas in Q2, we're replenishing what is ultimately higher velocity at point of sale, where you're seeing kind of the peaks, you know, the peak season from a sell-through standpoint as you measure seasonality. That kind of normalizes over the course of the remainder of the year. Ultimately, you know, 50% or so of sell-through typically happens kind of in Q2 during those summer periods. Definitely weighted more heavily to Q2 from a sell-through standpoint.
Okay. Got it. Maybe I'll follow up to try to just make sure I got a, I'm understanding properly. On inventory, are you able to talk about how much, like, what your inventory volume looks like? Because obviously the freight figures have inflated the dollar amount, but how do you feel about the actual units or volume of inventory at the moment?
Yeah. We feel good about our inventory position. I mean, we're definitely, you know, have higher inventory than what you would typically see historically, just given the environment. We've talked in the past about leaning into inventory. There's also a higher cost to purchase inventory given the inflationary pressures we're facing and obviously capitalizing in the higher cost of transportation. I would also add that, you know, there's a decent component of the inventory increase in Q1 based on Apption, the Apption Labs acquisition, you know, which added, you know, a meaningful component to the growth. As you kind of break down inventory in Q1, you need to account for the, you know, the MEATER piece.
You know, what we've kind of leaned into or, you know, how we've built safety stock in excess of what we normally would would kind of account for the second layer. As you kind of normalize then the inflationary pressures, so those kind of three components, we're really in line with, if not slightly better, on a normalized inventory basis compared to last year from a turn standpoint. I'd say that all in, we're feeling pretty good about our inventory position. It's a deliberate strategy. We don't have obsolescence risk.
To the extent that we see improving macro trends, whether it be reduced risk out of Asia, to just, you know, a more fluid environment as we kind of move product from point A to point B across the value chain, we'll begin to work those inventory levels down by year-end. If for some reason, you know, that does not happen, then we think it's prudent to continue to maintain a higher balance of inventory. It comes at the, you know, at the cost of cash and some of our liquidity, but it's the right place to put resources right now. In an effort to just navigate the unknowns throughout the course of the remainder of the year. At this point, you know, our goal is really to begin to work those inventory levels down as we are seeing some stabilization, at least within the value chain.
Excellent. Thank you.
Thank you. The next question is from the line of Joe Feldman with Telsey Advisory Group. Please proceed.
Hey, good afternoon, guys. Thanks for taking my questions. You had mentioned that with some of the investment spending, you're going to defer some of it. I apologize if I missed, but could you share, you know, what some of those deferments are or maybe the amount of deferments or both, if you could?
Right. I mean, we can't share the amount, but I'll provide you with our strategy. First it starts with our core principles and what we're going to protect, and that's really the growth engine, right? That starts with product and R&D. We don't wanna, you know, sacrifice the long term, you know, by cutting too deep into product development, R&D, et cetera. That's core to our business long term, and that's something that we wanna protect and prioritize. I'd say, second, marketing and demand creation are critical to the growth thesis as well as the long-term, you know, growth of the business.
However, you know, top-of-funnel and sort of the marketing assets that are core to our strategy long term as we build, you know, top-of-funnel will shift to performance-based marketing, where there's just a higher return, a higher measurable return, and it's a more immediate return, where top-of-funnel tends to be oriented more toward prospecting, so there's a longer tail to the value of the brand awareness that you're building. That's the kind of the second layer. I'd say third, because we're in our peak season, we're being very cautious in where we invest on the fixed side, and we've really slowed the pace of those investments.
You know, if we learn that, you know, throughout the course of Q2, we see nice, you know, nice growth in either in line with our guidance model or in excess of, you know, that will set us up nicely in the back half of the year to begin to make decisions on, you know, fixed investment or otherwise ahead of 2023. Until you know we have you know better line of sight coming out of Q2, we're really kind of hitting pause on a lot of these fixed investments as well as, like I said, redirecting top of funnel into kind of middle and bottom funnel to ensure that, you know, where we're investing is highly predictable and we have real confidence in those investments.
Got it. No, that's helpful. Thank you. The other one for me, I wanted to ask, are you seeing anything new from a competitive standpoint, you know, with some of the other players out there for, you know, I'm sure there's the typical Memorial Day sales and such, but, you know, anything deeper than you've seen in the past or different than you've seen in the past?
We're not, you know, I'd say, generally not seeing new innovation from a product perspective and no visibility into deeper discounting or general shifts in pricing strategy other than some of the price increases that we've seen over the last 12 months.
Got it. Thanks, guys. Good luck with this quarter. Thank you.
Thank you. The next question is from the line of Jim Duffy with Stifel. Please proceed.
Thank you. Good afternoon. I have two questions for me on working capital and cash flow management. Dom, DSOs up meaningfully. Is that simply a function of the late quarter shipments? I believe in the past you've used an AR facility to factor some of the receivables. Is that an opportunity from here?
Yeah. On your first question, yeah, DSOs are up, at least, you know, our measure of DSOs. They're up about 18, call it, you know, 18 days over Q4. But they're actually down, you know, as per our measurements year-over-year. Ultimately, our AR is incredibly healthy. We have, you know, strong, you know, a strong landscape of distribution and retail partners with, you know, strong balance sheets, and we've never had an issue with, you know, on-time payments or the ability to collect cash. I just wanna make sure that that's clear. I'd say, too, AR tends to grow.
Understood. For sure.
In accordance with revenue. It's certainly a little bit higher than, you know, our growth rate in Q1. You know, we're comfortable with where the DSOs are through Q1. Ultimately we expect to see some meaningful cash generation over the course of Q2 and then into the part of Q3. Go ahead.
You were answering the question. Go ahead.
Yeah. We don't factor receivables. We have an AR credit facility. Effectively our receivables. It sets kind of the borrowing base and it moves based on the growth and/or contraction in AR, and that ultimately dictates the availability in our AR facility. It's really kind of like a revolver or an asset-based facility that, you know, we have access to based on that borrowing base and how it evolves over the course of the year. Really it's set up to support, you know, higher working capital needs in peak season. You know, we obviously pay that down over the course of the year as AR comes down. It's lower cost, you know, debt than what we have with our revolver. That's typically what we tend to let lean into for working capital.
Okay. Thanks for that clarification. I wanted to follow up on your comments on inventory management strategies. I know you're at a seasonal working capital peak here. The comments make it seem like the strategy is still offense. I'm curious, are you doing anything to manage working capital as contingency, you know, just in case sales get worse? We're in a dynamic environment, and there's a lot of uncertainty. You know, what I'm curious is if sales fall short, does your leverage just blow out further, or is there working capital offsets you can use to bring that down?
Yeah. There will be working capital offsets, most definitely. I mean, we're at a point in the season where we will begin to reduce our inventory levels. You know, we'll probably maintain some higher component of safety stock, but it won't be to the extent that, you know, we've kind of built up inventory levels through Q1. So we are focused on bringing those down. As we learn, you know, as we sort of watch signals coming out of Asia in particular, if for some reason they get worse, I still think we're in a position to, you know, bleed down inventory, thereby, you know, driving, you know, cash from lower working capital. We may, you know.
You know, right now we're probably pumping the brakes a little bit, given some growing confidence. We may be tapping the brakes if for some reason something gets worse. To the extent that things continue to get better, then we'll really focus on bringing those inventory levels down more aggressively by year-end. Either way, we expect that to be a source of cash throughout the year.
Understood. Thank you.
Yep.
Thank you. The next question is from the line of Justin Kleber with Baird. Please proceed.
Yeah. Hey, guys, it's Justin Kleber. Thank you for taking the question. Was hoping to get an update on your Mexico production facility, when that goes live. Then just how long does it take for that facility to materially change your sourcing mix for grills?
Yes, great question. We'll start to have production come off the line in third, fourth quarter timeframe. Look, in terms of how fast we can scale it's a function of how quickly we can get to efficiency from a process perspective. Our belief is that it will have some nominal impact to 2023, and that we should expect a much more meaningful positive impact to the business in 2024 and beyond.
Okay. Thanks for that, Jeremy. Somewhat related, you discussed the gross margin task force and the early learnings and wins you're seeing from that initiative. I'm still trying to understand, as we look out over the next few years, I mean, do you think you guys can get gross margins, like, back to, you know, the 2019, 2020 levels in that low 40% range? I mean, is that reasonable, or has the cost environment just changed so dramatically, you know, the past few years that that's not a reasonable assumption? Thank you.
Yep. Yeah. No, it's a reasonable assumption independent of the provision side of the business, which is in early days. In terms of, you know, the core business, which I would include MEATER in that equation, we still think that, you know, pre-pandemic gross margin levels make sense, and that's something that we're targeting. I would say that, you know, we can't really pinpoint whether that's a 2023 rebound or, you know, 2024 rebound. I think it requires, you know, a few sort of exogenous tailwinds as well as, you know, the things we're doing internally to execute, to ensure that, you know, we're making progress toward our internal targets on gross margin.
The things that we can control really tie back to the gross margin task force, as well as just some strategic initiatives that we have in place as we think about, you know, gross margin levers, you know, one of which is just continuing to drive operational efficiency, which includes, you know, removing, you know, touches from the supply chain. It's about assortment. As you think about, the work that Jim and team are doing around, you know, design for manufacturability and things that we can do to unlock, you know, greater, you know, margin, either through how we de-design the product, and how it's built for manufacturability, to how we transport that product more efficiently, you know, knowing that to a certain extent, we will experience elevated container rates, at least above pre-pandemic levels.
We don't think that those are necessarily going to revert back to pre-pandemic levels. I think that's an important unlock, independent of where freight, you know, freight container rates go. You know, we have meaningful levers in addition to just, you know, continuous improvement across kind of sourcing, global diversification of our manufacturing base. These are consistent with, you know, how we've thought about gross margin and kind of how we unlock future expansion. We also, you know, hope would rely to a degree on improving macro trends, whether that be in FX, which we're actually seeing currently and could, you know, create a nice 2023 tailwind. You know, hopefully container costs come down somewhat, which would also provide for a nice tailwind in the future.
It's really a combination of the controllables and the uncontrollables. With the controllables, we have a high degree of confidence. The uncontrollables, TBD. You know, in summary, we do believe we can get back to those pre-pandemic levels. It's just a question of when, based on the macro environment, as well as just kind of how these initiatives internally mature, as they do take some time to come together.
Okay. Great color. Thanks for that, Dom, and best of luck, guys, the rest of the year.
Thanks.
Thanks.
Thank you. That concludes the question and answer session. I will turn the call over to Jeremy Andrus for closing remarks.
Great. Thanks for participating in today's call, and for the robust conversation. We appreciate your trust in us. We continue to work hard, to build a great business. Have a great day. Thanks.
That concludes today's call. Thank you for your participation. You may now disconnect your lines.