Good morning. My name is Chris. I'll be your conference operator today. At this time, I'd like to welcome everyone to the Hamilton Beach Brands Holding Company Q4 2022 earnings call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question-and-answer session. If you'd like to ask a question during this time, simply press star, then the number one on your telephone keypad. To withdraw your question, please press star one again. Thank you. Lou Anne Nabhan, Head of Investor Relations, you may begin.
Thank you, Chris. Good morning, everyone. Welcome to our fourth quarter 2022 earnings conference call and webcast. Yesterday, after the market closed, we issued our earnings release for the quarter and full year and filed our Form 10-K with the SEC. Copies are available on our website. Our speaker today is Greg Trepp, President and Chief Executive Officer. Also joining us this morning is Sally Cunningham, who will become Senior Vice President and Chief Financial Officer on March 17th. Our presentation includes forward-looking statements. These statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed in either the prepared remarks or during the Q&A. Additional information regarding these risks and uncertainties is available in the earnings release and our annual report on Form 10-K that was filed yesterday.
The company disclaims any obligation to update these forward-looking statements, which may not be updated until our next quarterly conference call, if at all. Now I will turn the call over to Greg.
Thank you, Lou Anne. Good morning, everyone. Thank you for joining us. Before I begin my prepared remarks, I would like to introduce Sally Cunningham and give her a chance to say a few words. Sally joined us on February 13th, initially as Senior Financial Advisor, and she will become our CFO on March 17th. Sally is an accomplished senior finance leader, who also brings a strong track record in value creation, digital transformation, and M&A integration. Sally most recently was engaged by the private equity firm One Rock Capital Partners as a finance operating partner. Prior to that, she was Senior Vice President and Chief Financial Officer at Synalloy Corporation. We expect to benefit significantly from Sally's breadth and depth of experience. Sally.
Thank you, Greg. I just wanted to take a few minutes to say hello and that I'm very excited to join Hamilton Beach Brands. I think this is a time of great opportunity as the company continues to expand its brands and product offerings and make further progress with its strategic initiatives. I look forward to meeting many of you and working with our shareholders, the analysts who follow the company, and other investors who are interested in learning more about Hamilton Beach Brands. I will be a full participant on our call when we announce first quarter results. Now back to Greg.
Thank you, Sally. I plan to take the next few minutes to provide an overview of our performance for the fourth quarter of 2022, the full year of 2022, and our outlook for 2023. After that, we'll take your questions. While the small kitchen appliance market proved to be slightly softer than we anticipated in the fourth quarter, we were pleased with our results. Our total revenue was virtually flat to the fourth quarter of 2021. We attribute our results to our investments in several areas, including the global commercial and premium products market, which I will elaborate on in a moment. Additionally, we believe our performance underscores the strength of our business model, the value of our portfolio of trusted, well-known brands and products, and the ability of our team to execute well in the face of industry-wide challenges.
Our investments in our strategic initiatives over the past several years generated important support. In the fourth quarter, the softer consumer demand was due to households adjusting spending patterns in response to inflationary pressures and economic uncertainty. Many retailers slowed replenishment orders in order to control their inventory levels. While we were on track to significantly reduce inventory in response to retailer and consumer trends, we decided to provide additional promotional support. These efforts, while successful, put short-term pressure on our gross profit margin. We expect our gross profit margin to return to its historical range as the year unfolds. Operating profit in the fourth quarter was $11.3 million compared to $17.9 million in the 2021 period. This reflected the short-term gross profit margin contraction, partially offset by lower SG&A expense.
By the end of 2022, our inventory position improved significantly at a slightly better rate than expected. Our post-holiday inventory levels at retail are clean. At the end of December, our inventory level was $156 million compared to $183 million at the end of 2021, and $245 million at the end of September. Our debt came down as well. Debt was $111 million at the end of 2022, compared to $97 million at the end of 2021, and $146 million at the end of September. As of today, we have further decreased our debt and expect to end the first quarter at approximately $90 million. We're also excited about several other important accomplishments in the fourth quarter.
In the global commercial market, we finished the year at a record level, and revenue increased 57%. Our premium market initiative continued to generate strong results, and sales increased 14.5%. E-commerce sales accounted for 45% of total revenue. While our core brand revenue declined slightly, we grew our retail dollar share in the North American market. For the full year 2022, revenue was the second highest in our company's history and decreased only 2.6% compared to the record revenue of $658.4 million in 2021. Our operating profit increased 23% to $38.8 million compared to $31.5 million in 2021, including a $10 million insurance recovery.
Net income was $25.3 million, or $1.81 per diluted share, compared to net income of $21.3 million or $1.53 per diluted share. Navigating the year 2022 successfully required significant effort on the part of our team. Early in the year, we still faced supply chain disruptions. We implemented pricing actions in response to rapidly and significantly rising costs. Our team worked tirelessly, often above and beyond normal job performance. I thank everyone for their extraordinary performance, diligence, and commitment to our good thinking culture. With major investments in infrastructure behind us, including our new ERP system and our new U.S. distribution center, we were able to decrease capital investments to $2.3 million compared to $11.8 million in 2021.
Next, I wanna highlight the many successes we achieved in 2022 due to the investments we have made in our six strategic initiatives. These initiatives are ongoing programs that have helped us stay strong over the past several years. They are designed to increase revenue, expand operating margin, and generate strong cash flow over time. We made significant progress in each initiative and are in very good position to continue to build upon the momentum. We believe each of our strategic initiatives will provide growth in 2023 and beyond. First, our initiative to lead in the global commercial market. Our revenue in the global commercial market increased 50% and accounted for 9.6% of total revenue. Both our food service and the hotel amenity businesses experienced significant revenue and profit growth in 2022.
We have made important progress expanding our business with new and existing customers in both industries. This growth is partly due to strong post-pandemic demand and a backlog of orders coming into 2022. It is also due to our success in expanding our category coverage. Examples of new commercial products that are gaining traction include our MixStation, which makes milkshake treats, high-performance blenders, and our new BigRig line of immersion blenders that we introduced as part of our strategy to expand into back-of-the-house products. We have secured incremental wins as we increase our focus on meeting the needs of global and regional restaurants and hotel chains. Our growth plans for this market include new products and expanding customer relationships. We also continue to invest in e-commerce, which is becoming increasingly important to the commercial products market.
We expect our commercial business to continue to grow in 2023. Next, our initiative to gain share in the premium market. We continue to develop, license, and acquire brands and products to increase participation in the premium market. New products and digital marketing support underpin the strategy to grow this business. Premium brand revenue increased 16% in 2022 and accounted for 15% of total revenue. Sales of Bartesian premium cocktail machines continued to increase significantly. We launched the Bartesian Professional Duet models. It has been exciting to partner with Bartesian on the creation of the fast growth in this new category. A key growth driver has been Bartesian's commitment to develop more than 50 cocktail flavors. The CHI brand continues to grow in sales and share for the garment care category and has established itself as a leading premium brand.
Our newest CHI products include a mini iron and full-size handheld steamer. Our Hamilton Beach Professional line leverages our commercial products expertise for the benefit of home cooks. Their product portfolio now includes 14 high-demand categories. We continue to aggressively pursue new placements in the U.S. and Canada, and we are focused on building the brand in the e-commerce channel. We remain focused on driving higher sales of our Weston brand products that are targeted to hunters and gardeners. This includes maximizing online growth opportunities, increasing distribution in the sporting goods channel, expanding promotional opportunities, and launching new innovations in the core preservation, processing, and prep categories. The Wolf Gourmet brand covers 10 high-demand categories and continues to generate steady sales with the luxury market. Almost 40% of sales for this brand now occur online.
This week, we announced an agreement with a company known as Numilk, which produces raw ingredients that combine with water to create a variety of plant-based milk products. They needed a partner to design next-generation specialty appliances for use by consumers at home and in commercial establishments. We are delighted they have chosen to work with us. This market is fast-growing, and we are excited about the potential. Numilk's products are known for their high quality and excellent taste. The Numilk system also saves customers money, reduces shipping costs, and has a positive environmental impact. We are in the design and engineering phase for in-home and commercial appliances and expect to launch the new products in early 2024. Our initiative to expand in the home health and wellness market.
We are pleased with the progress we are making to increase our participation in the large and fast-growing home health and wellness market. Our focus is on the air purification, water filtration, and home medical markets. We have expanded our participation in the air purifier category through an exclusive multiyear trademark licensing and product development agreement with The Clorox Company. In 2022, we introduced six new Clorox models. This year, we plan to introduce an extra large size model. The air purifier category is expected to continue to be strong given the benefits these machines provide to address numero U.S. consumer concerns. This year, we are introducing a countertop Clorox steam sanitizer that consumers can use to kill bacteria on brushes, sponges, and other kitchen items that still have a useful life. In 2022, we signed a trademark licensing agreement with Brita.
We have designed a new electric countertop water filtration system, creating a new category of easy-to-use appliances for consumers to access clean, great-tasting water from their tap while reducing plastic bottle waste. Last month, we introduced the innovative Brita Hub electric countertop water appliance. This product is available online. We are presenting to retailers for in-store placements later in 2023. We've entered the home medical market through an agreement with a company called HealthBeacon Limited. HealthBeacon is a leading developer of smart tools for managing injectable medications at home. The home medical market has tremendous growth potential as home-based medical management continues to grow. We expect to become a larger participant over time. The trends are well known. The aging population is increasingly living with and managing chronic health conditions. Demand for personalized healthcare solutions is rising in lockstep.
The need exists in younger demographics as well. The healthcare industry increasingly is looking for new ways to enable patients to manage their medical needs in their homes due to a scarcity of healthcare professionals. Our product is called the Smart Sharps Bin from Hamilton Beach Health, powered by HealthBeacon. The system provides revenue from the appliance sale and from monthly subscriptions that help patients manage adherence to their personal medication regimen using an app. It recently became Medicare and Medicaid eligible for certain applications, which is expected to drive increased adoption. We've also secured recent placements with specialty pharmacies. Our partner, HealthBeacon, is a global leader in digital technology. We are exploring additional opportunities to collaborate with HealthBeacon in the at-home medical adherence and monitoring market. I'll turn to our initiative to drive core growth.
We remain intently focused on accelerating the growth of our core brands, Hamilton Beach and ProctorSilex. They have competed successfully in our heritage North America marketplace for over 100 years. Innovation and new product development have always been the lifeblood of this business. In 2022, we introduced 40 new product platforms, 32 for Hamilton Beach and eight for ProctorSilex. While sales of our core Hamilton Beach and ProctorSilex brands decreased slightly, in 2022, we outperformed the industry and gained dollar share in North America. For both brands, we increased our support for marketing communications, including online content, visuals, and video to engage shoppers. We also increased focus on SEO optimization, social media advertising, and influencer campaigns, gaining important endorsements, awards, and recommendations from a number of known trusted sources.
Hamilton Beach continued to hold the number one brand position for small kitchen appliances in 2022 based on units sold. In the e-commerce channel, our flagship co- consumer products earned a average 4.3 star rating. Plans are in place to drive growth of our Hamilton Beach and ProctorSilex brands, including innovative new product development and continued investment in digital marketing. Moving on to our initiative to accelerate our digital transformation. The e-commerce channel represents a very strong and fast-growing part of our business. Brand reputation, product features, innovation, and star ratings all play a critical role in driving online sales. These are all areas where we excel. We also are investing in digital marketing and online selling capabilities. In 2022, e-commerce sales accounted for 38% of total revenue and increased 3% on top of 22% growth in 2021.
We have a presence across multiple e-commerce platforms. All of our brands are earning star ratings of 4.3 or better, and five of our brands are at 4.5 stars or better. Our products receive favorable reviews from consumers, experts, and influencers. Our e-commerce capabilities have become increasingly sophisticated. We are continuing to invest in them. We're supporting growth in digital engagement with online marketing programs, expanding our direct-to-consumer distribution operation, and increasing our participation with pure play and omni-channel customers. Finally, we have an initiative to leverage partnerships and acquisitions. We have significantly increased our focus on this initiative. We prioritize opportunities that will provide entry into consumer or commercial markets where we can become stronger participants. We're actively engaged in the pursuit of additional collaborations for acquisitions. At this time, I'll turn to our outlook for 2023.
I'll start with a few comments about the marketplace. As we consider the 2023 landscape, we see a number of headwinds and tailwinds to manage. The overall retail in the marketplace trends for general merchandise, home goods and small appliances are difficult to predict. We believe that over time, the small appliance industry will remain resilient, even in a soft economy. However, it is challenging to predict the impact a softening economy will have on our industry over the next several quarters. We don't believe there will be a significant falloff in demand for small appliances, but there likely will be some softening. Retailers are acting cautiously across their portfolio, which can impact HBB and all companies in the short term.
It is clear that the U.S. consumer is pulling back to some degree, and we're basing our outlook on an expected moderate decline in industry demand this year. I'll discuss the company outlook. For the full year 2023, we expect total revenue to be flat to 2022, including a more challenging first half of the year, particularly in the first quarter. We expect a stronger back half to offset the softer first half. Specifically, in the first half of 2023, we see a continuation of soft consumer consumption trends. As a result, we have taken a more conservative view and expect a moderate decrease in revenue compared to the first half of 2022, particularly in the first quarter. The second half of 2023, we expect to benefit from continued progress with our strategic initiatives.
We are optimistic about our new product offerings and potential placements for the second half selling season. Our plan anticipates that revenue in the second half will increase modestly compared to the second half of 2022. Operating profit for the full year 2023 is expected to increase compared to 2022, excluding the $10 million insurance recovery. In 2023, we expect gross profit margin expansion compared to full year 2022. We expect moderately higher SG&A expense, mostly due to increased employee-related costs and some investment in new product advertising. Again, we expect a stronger back half to offset a softer first half, with the first quarter being the most challenging period. Product costs for small kitchen appliances and transportation expenses have been moderating as many of the supply chain challenges of the past few years have subsided.
We're working with our retail partners on appropriate rollbacks of previous price increases in ways that will keep us competitive while also protecting margins. It is difficult to predict the outcome of the decline in prices. We believe the most important action is to remain competitive and work closely with our retail partners. Cash flow before financing in 2023 is expected to increase significantly compared to 2022 as a result of improvements in net working capital. As always, our outlook could change if consumer demand or retailer replenishment orders are softer than currently expected. That concludes our prepared remarks. We'll now turn the line back to the operator for the Q&A.
Thank you. As a reminder, if you would like to ask a question, please press star then one on your telephone keypad. The first question is from Justin Kleber with Baird. Your line is open.
Hey, good morning, everyone. This is Zach on for Justin. Thanks for taking our questions. Congrats to Sally.
Thank you.
First off, on top-line guidance. Greg, you mentioned a few puts and takes that are leading to flat revenue for 2023. Just curious if you can speak to how much growth you're expecting in commercial this year, and then overall, how much contribution are you assuming from newness and innovation?
Sure. Good morning, Zach. I think, you know, commercial is expected to grow for the year. You know, it's, we feel that it'll be not as strong as 2022, but certainly strong probably somewhere in the mid to high single digits, is the way it's currently looking, but that could change, of course. We expect it to be, you know, a solid contributor. Our other programs that we're investing in, some of these newer areas of innovation, like the home health area, like some of our premium categories are also expected to grow. We had some nice success, and we've got to see how things offset each other.
In general, I feel that we have enough areas working for us that once we get through the first quarter and the first half of this year, where there's, you know, tough to know what the consumer is doing and retailers are doing to rebalance things. I think we have enough of these programs working that should help not only the core business, Hamilton Beach and ProctorSilex, but some of these newer areas as well. I will say that we're also in the next month or two or three, we'll have a better picture on placements for the back half of the year. We're, you know, in the middle of line reviews, just starting promotional discussions for the back half of the year.
I think also we'll be able to talk more in the future about what direction we're going on core placements. Far, you know, we're pleased with the way things are going, but nothing's firm and we have a lot of good things to talk about with our retail partners. We just need to firm things up. Generally speaking, I think we've got to get through the first quarter and the first half, and then a lot of the things we've been working on should provide us some support in the back half of the year.
Gotcha. Thanks, Greg. Maybe on those placements, kind of somewhat related, how do you think your sell-through at retail during the holidays in 4Q compared to that of some of your peers? Can you maybe share a bit more on how customers responded to promotions for the category overall?
Sure. You know, our performance in the fourth quarter this past year was better than the market. Our share, our dollar share increased in the full year as well as the fourth quarter. That was due to really strength of many of the programs we talked about during the prepared remarks. A softer marketplace than we expected. I think in general, we got good support from our retail partners. A very strong online business, which is, you know, the, you know, sort of is the best place for us to showcase our products, quality, star ratings, et cetera. I think, you know, solid performance both in store and online helped us, you know, do better than the marketplace in the fourth quarter.
It was less than we were hoping for, expecting. I guess in general, there was the overall lower performance of the overall industry as we talked about. I think in general, we did better. We'll see how this year unfolds. We hope to. Our goal is to grow share all year long. Quarter- by- quarter can always be a challenge, but we have enough things going for us where I'm hopeful that we'll do better than the marketplace.
Gotcha. Kinda on that note, you also mentioned rolling back pricing. Can you share any color on maybe the magnitude of those rollbacks? Are you guys seeing any others in the marketplace start to change their pricing as well? How elastic do you think demand typically is for the category? Do you guys expect maybe to see a rebound in units from taking prices down this year?
Sure. Zach, on this front, it's always a little hard to know how it's gonna play out. A few things to point out. One is, you know, costs, product costs have come down. As you know I'm sure, transportation costs have come down significantly. What we've always tried to do is whether costs are going up or down, to work closely with our retail customers to just stay whole when it comes to those cost changes. As they've come down, we've proactively worked with retailers to, you know, price our products to be sure we're competitive, protect our margins, but also try to be sure that we're, you know, putting pricing out there that's gonna excite customers to purchase more.
As we went into last year and we had to raise prices, it was very difficult to know whether that would drive top line and units would hold, or whether consumers would just trade up and down, and it really wouldn't impact sell-through or hurt sell-through. It turns out the market was a little softer, so clearly the price increases that we took and everybody took, were not additive to the marketplace. The, you know, consumers just changed their purchase habits to buy different products, and the market's still a little soft, softer than expected. As we go into 2023, as we reduce prices, there's two things that we'll have to figure out.
In the short-term, month-to-month, you know, we're gonna be dropping our invoices to retailers, and that'll flow through their on hands. There could be some short-term ups and downs on our performance as we pass along those price decreases. It is hard to know whether the consumers will continue to purchase the same way they were, so therefore those lower prices will actually hurt our performance revenue ongoing. Early on, we're seeing some response by consumers that when we reduce prices, the units are picking up and they're responding favorably to those.
Our general set of thought is that, just like when prices went up, it was not all additive, that when prices go down, it will not decrease from our performance, that the consumers will move around their purchase desires and, it'll be a modest change up or down. That's a big assumption and, right now we're seeing that consumers, as prices come down, consumers are responding to those products that are now at lower prices. Competitively, you know, everyone's buying from the same part of the world for the most part. Everyone's experiencing lower transportation costs. The retailers are very good at, you know, demanding competitive prices.
I'm not 100% sure where all our peers are, but my sense is that, you know, sooner or later, they're all gonna be either with us or following suit because, you know, just the marketplace is gonna drive drive all of us to be competitive on pricing.
Gotcha. Makes sense. Thanks for that, Greg. Shifting over to margins, what gives you guys the confidence that gross margin pressure in the fourth quarter related to those promotions will be short-lived? You mentioned anticipating a return to a more normal gross margin level in the first half. Is that view based on trends you guys have seen so far in the first quarter?
Good question. I think really our view is that's probably a full year 2023, where we'll end up for the full year. As I mentioned, the first quarter we're working through balancing retailers' demand here earlier in the year, sort of uncertain how things are going. Expect a more challenging first quarter. As second quarter goes on, the back half of the year, we think that's where the chance is gonna be to balance out our full year performance. I think right now as we've as costs have come down and we pass along price decreases and we also monitor our promotional cadence. We're starting with how do we protect our margins and stay competitive. Right now we feel we can do both those things.
The big challenge will be is just, if demand softens further, then do we have to promote some more? If demand is like we think it's gonna be, then we really can have our traditional level of promotional support and make sure our margins are normal. I think all in all, I think the first quarter and first half will probably be a little softer. It'll be a little bit stronger in the back half, and the full year should come in in our normal range.
Gotcha. Makes sense. Last one from us on SG&A. You expect this to grow moderately in 2023. Is that off of last year's GAAP number, which includes that $10 million insurance recovery? Or should we expect dollars to grow off of the adjusted base excluding that recovery? Thank you.
Yeah. Everything is thanks, Zach. Everything is excluding the $10 million recovery. We've got a little bit of, you know, inflation on comp in this environment. We're finding ways to save money elsewhere to offset some of that. We're investing a little more in some of our programs. We do think that there, you know, putting aside the $10 million recovery, that, we'll see a little bit of SG&A increase, but nothing that's too out of the ordinary. Thank you, Zach, for those questions.
Okay. Yeah. Thanks for having me. Good luck to you guys.
Thank you.
Again, that's star one if you'd like to ask a question. It appears that we have no further questions. I'll turn it over to Mr. Trepp for any closing comments.
Thank you. While the macro environment in 2023 remains uncertain as consumers continue to adjust spending patterns due to inflationary pressures, we've always said our company's focused on long-term value creation. I'm very proud of our team. I have no doubt our employees will continue to be agile and resilient and demonstrate good thinking every day in all aspects of our business. I am confident that we are stronger than ever and well-positioned to build on the successes we have achieved. Our investments in infrastructure, combined with our asset-light model as well as our net working capital returning to historical ranges and continued progress with our strategic initiatives, should enable us to resume generating strong cash flow and higher returns on total capital employed in the coming years. That concludes our report for today. Thank you again for joining our call.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.