Waiting for the countdown clock. All right. Good morning and welcome to another session of the Goldman Sachs 32nd Annual Global Retailing Conference. My name is Brooke Roach, and I cover the software and brand sector here at GS Research. I'm thrilled to introduce our next session with SharkNinja. Here on stage with me is Mark Barrocas, CEO, and Adam Quigley, Interim CFO. Welcome, Mark, and welcome, Adam.
Thanks for having us.
Mark, maybe we can kick it off with a question about the business. You've delivered incredibly strong growth since your public listing a few years ago. As you look across each of those core growth pillars, what gives you confidence in this strategy continuing to deliver sustainable growth ahead?
Yeah, look, I mean, we haven't just delivered great growth since our public offering, but really over the last 17 years, we've delivered great growth. We have a compounded annual growth rate of 21% a year during that period of time over the last 17 years. When we think about the three pillars of growth for us that we talk about, which is gaining share in the existing categories that we're in, expanding into new and adjacent categories, and international expansion, I'll start with international growth. Let's start with our products are resonating with consumers globally. I think that was always the big question as I went back six, seven years ago when we started expanding outside of North America. How do our products translate to a German consumer, a Mexican consumer, a consumer in the Middle East? Consumers are really engaging with Shark and Ninja products globally.
It's the same products that we make. 90% of the products that we make every year are sold globally or sold in 25 different countries around the world. The only difference is the plug. We've started this approach of taking countries direct, like the UK and Germany and France, and now we've started pulling back some of the distributor markets that we've had and moving those to direct markets like Poland and the Nordics and Benelux. We'll accelerate that further as we get into the end of this year and into the beginning of next year with places like Spain and Italy. I think on the international side, this is a business that, in the reasonable short term, is going to generate close to 50% of our revenue from outside of the U.S. I think there's a very clear growth trajectory for us to be able to achieve that number.
The second is expanding into new categories. We get asked the question all the time, have you gone into all the categories that are out there? I think our business and our innovation is based on finding the next consumer problem to solve. I think there's an unlimited amount of consumer problems to solve both in the home and outside of the home. I think a great example of that, Brooke, is the Ninja Fireside that we just came out with. People would say, if we were sitting here, I don't think you would expect that Ninja would be reinventing outdoor heating and fire pits. We developed a product called the Ninja Fireside.
It takes these kind of big patio heaters that you would normally see, where the heat's kind of coming down just on your head, and it puts it into this, where the heat should be around your body. It also has this ambiance approach with a fire pit. We launched that product basically 10 days ago, and the product already has 90 million impressions on social media. When you hit on this kind of problem solution, it really resonates with the consumer. We had great success in the spring with the expansion of our outdoor fans. Now, we're hoping we're able to translate that into success as we go into the fall and winter months with outdoor heating. There are lots and lots of more categories for us to be able to expand into.
I think what is probably most misunderstood by investors, because they look at a lot of our hit new products, is that we've got a really strong base business. We can't grow double digits at the scale that we're growing at if it wasn't underpinned with just a very healthy base vacuum business and base blending business and kind of the core categories that are very healthy. If you look at the second quarter, the industry in the second quarter in North America, if you exclude SharkNinja, was down 8%. Our business domestically grew double digits. In spite of what has been kind of a challenged market, there's still a lot more white space within the existing categories that we're in to take share and to make sure that that core business is as healthy as possible.
There's a lot to dig in on that. Maybe we'll start with that key debate, which is this question and focus some investors have on some of the key product hits. How are you approaching portfolio management? How do you make sure that not a single product becomes too important to the business unless you have a tough time calming the calm?
Yeah, look, diversification is, I think, probably one of the biggest strengths of SharkNinja. No one product category is any meaningful share of our overall business. No one customer, no one market. There's lots of diversification. I mean, there's brand diversification. We built two $3 billion+ brands in Shark and Ninja. There's product category diversification. We're in 37 different product categories. There's country diversification. We're selling in 25 different countries. There's channel diversification. Our direct-to-consumer business is growing, but we're also the most searched brands on Amazon in our space. We're in 150 different retail outlets around the world. I think a great case study on that, Brooke, is take our air fryer business. Our air fryer business this year is going to grow globally, but it's comping huge growth numbers in 2024 in the U.K. We came into the first quarter of this year.
We didn't have the innovation in 2024 because we left a lot of that innovation in North America, and we didn't launch it in the U.K. Our business was down slightly in the U.K. in the first quarter. We bounced back and we grew the business in the second quarter. We came out of the second quarter trending double-digit growth in the U.K. It just points to that, in spite of very strong growth in one category, our business in the U.K. continued to diversify. I mean, we expanded into beauty, and we expanded into our fan business grew, and our vacuum business continued to grow, and so many other businesses grew to kind of make up for what was the largest category in the U.K. business, air fryers, being down 25%.
You touched on the international business, and that is one of the areas where you expect it to be 50% of your business in a quite quick time. What are the most important countries in achieving that goal? How should we be thinking about the contribution from some of these international market distribution switches versus the growth in your core geographies that you're already in?
I mean, I don't know that any of our countries want to be called not important. I'll say that they're all important. I would say there's maybe a hierarchy of size or opportunity. At the top of that is really Germany and France. Our business this year in the U.K. is going to approach $1 billion in revenue. The market in Germany is bigger than the U.K. The market in France is just a little bit smaller than the U.K. Collectively, we think there's kind of an over $2 billion opportunity just between Germany and France. There's still lots and lots of growth for us in those two markets. At least from a size and scale standpoint, those are the biggest opportunities. Now, there's others. Lots of our retailers, as all of you may know, in Europe, the retailers don't stay in one country.
Retailers like MediaMarkt have a huge presence in Spain. Fnac Darty just made a big acquisition in Italy. Companies like EURONICS are all through the continent. Those relationships are kind of driving us into lots of other countries. We think that places like the Nordics could be a $150 million business for us. We think Poland could be a $100 million business for us. These are all starting from very, very small bases that we have today. I think we're really excited about Latin America and the expansion into Latin America. We took back our distributorship. I think there was a huge learning for us of how to now do these distributorship changes moving forward. I think we kind of took too much of a big bang approach by moving from distributor to direct.
Our business in Q3 in Mexico is going to be up triple digits, and our business is expanding. I'll give you an interesting fact that I think is really relevant. We did a whole bunch of research around how consumers consume social media globally. You would be surprised to see that in the Nordics, as an example, 40% of all social media is consumed in English. They're getting that social media content from the U.K, from the United States. Before we even launch a product into places like Norway and Sweden and Finland, they've already been exposed to lots of this innovation through the English social media content that they're listening to on their feeds. I mean, same thing when it comes to Spain. Our Latin American, you know, Spanish-speaking social media is all translating over into Spain. The Middle East is a great example.
The Middle East consumes, you know, 30%- 40% of their social media in the Middle East is coming from the U.K. Our ability to kind of drive this content, it's not being contained by kind of geographic borders. The content is going out. That's why in a place like Norway, when we launched our Ninja SLUSHi back a couple of months ago, and it got wind on social media that the product was for sale at a retailer called Power, there were 400 people waiting outside of a Power store, you know, in negative degree weather to buy a Ninja SLUSHi machine.
Wow. That's incredible. You talked a lot about social media as a driver of some of your ability to launch new products, launch them quickly, and scale very quickly. It seems like a big competitive advantage for you from a marketing perspective relative to peers, especially in the categories that you play in. How should we be thinking about the investments that you're making in social media marketing looking ahead? How should we be thinking about what's changing in your strategy such that you can make sure that you maintain that lead that you have versus peers in social media marketing?
OK, I think one of the things that's misunderstood is you could say, can't other people just spend the amount of money that you spend? First off, we spend $700 million a year on advertising as a company. I mean, we spend over 11% of sales on advertising. If you think about companies that have margins in the low 30%, it would be very hard for them to spend that kind of money. I think there's a competitive moat just in terms of our gross margin level and the amount of money that we're able to invest in advertising and creating consumer demand. Number two is it's not just on social media about investing. Take something like Fireside. We go, we launch the product, and the product has to be something that resonates intently with the consumer. This is not just about advertising some kind of off-the-shelf cheap product.
When the consumer sees what we did with Fireside, and I'd invite all of you to go on to TikTok or Instagram and look at that product and see, we have posts that have generated 6, 7, 8 million impressions, an enormous amount of engagement because the consumer is looking at the product and the consumer is saying, that's my problem. We came out with a product called the Shark Turbo Blade. It's a bladeless fan that starts in the vertical position, allows you to be able to tilt it, allows you to be able to move it back and forth. When we went into consumer homes, what consumers started doing is they put the fan at the end of their bed. We said, why are you putting it at the end of their bed? They said, we're a hot sleeper.
They might have been a hot sleeper, but their partner is cold. We adjusted the product so that one side could shoot straight air at you, and the other side could tilt up so the air went up. This whole idea of, we created an air blanket. We go on social media, and influencers start posting about this idea of, I'm finally not sleeping hot. When the consumer goes and looks at that post, the consumer is not saying, Shark's developed an amazing fan. The consumer is saying, that's my problem. I'm a hot sleeper. That's the solution to my problem. Now the conversation is not just, do I need a fan? The conversation is, I need to be cool when I sleep. Shark or Ninja has developed the solution to that. It's this problem-solution thing that resonates so well on social media. How is that evolving?
We're putting content creators, you know, we're hiring them ourselves. We're generating massive amounts of content globally. We're getting much better at localizing content. We're not just taking English content and then dubbing it in French. We have SharkNinja content creators in France, in Germany, in Spain, in Mexico that are developing content. If I think back kind of three years ago, we were using a lot of outside agencies to develop content for us. Then it went to kind of we're paying influencers. Right now, you know, the two biggest pieces, I mean, we're still using some agencies. We're still using influencers. We now have a team of internal content creators that are just all day long developing content on our products. I think it's that localized content.
It's being able to say that, like, wow, in the U.S., they might like protein ice cream coming out of their CREAMi. You know, in France, you know, they're not bulking with protein all day long. They're focused on more decadent desserts. Making sure the kind of localized content is really resonating with those consumers around the world. I don't think there's anyone doing it at a global scale to the degree that SharkNinja is doing that.
Adam, one question for you on international as we wrap part of the international discussion. Given the heavier investments that SharkNinja has been making in international for the last two years, including marketing, can you provide an update on where international margins currently stand and where you think that opportunity lies ahead?
Sure. Yeah, so as you've heard before, as we enter a new market, we're going to overinvest in media, right? We have that ability to overinvest in media in new markets because we have a core market where we're starting to leverage that same media. When Mark talks about 11% of sales is spent on advertising, that varied a lot across our different geographies. As we enter into a new market, we're overinvesting to build brand awareness, to launch the product themselves. Over time, two to three-year horizon, we expect that maturity curve to develop and to grow and then to start leveraging, you know, within those countries again. That then allows us to overinvest in the next country. We're not, you know, taking a scattershot approach and investing, you know, that degree of media across every country.
We're doing it in kind of a thoughtful, you know, well-measured plan where we can roll off one mature market, bring on another one. You're seeing that as we, you know, develop Germany, France, as we take on, you know, a country like Poland, all of that enabled by continuing to scale at our core markets, developed markets, U.S., U.K., getting media efficiencies from what Mark just talked about on social media is a huge lever for us. Overall, that 11% of media, it looks very different per country. That two to three-year trajectory is what we kind of look at as we enter the new markets.
Listen, I think, Brooke, also to what Adam's pointing out is we're also getting product development scale. There really is not any incremental cost from a product development standpoint to take that product and then launch it into the next country and the next country. Yes, there's initial startup investment when it comes to things like media. In a new market, we might spend upwards of 25% of sales on media for a period of time. That number then kind of cascades down. When you think about a market, a more mature market like the U.S., we're investing 6.5%, 7% of sales on media. Media is kind of the big variable. Again, SharkNinja hasn't historically bought businesses. We kind of greenfield them. We enter a new market. We enter a new product category ourselves.
The investment in those is really how do we create demand for that, and that's marketing and advertising.
That's really helpful. Let's shift to North America. You've seen some really nice expansion in that business through a couple of different drivers: new products, new categories, but also new distribution. What do you see as the sustainable run rate of your U.S. business going forward? How should we be thinking about the contribution from new distribution and new shelf space?
OK, so in terms of the way we think about distribution and shelf spaces, we want to be relevant wherever the consumer chooses to shop for our products. It's not for us to say that, like, if you want to buy a cooler from SharkNinja, you have to buy it here. We want to—there's people that are buying coolers everywhere. There's people that are going into Wegmans and buying coolers in the supermarket. We want to be relevant wherever the consumer chooses to shop for these products. Our job is to create this demand out in the marketplace and then to make sure that we show up in those places that the consumer—so as an example, if you take the cooler category, there's demand that's being fulfilled in sporting goods. We want to be in sporting goods shops. There's demand that's being filled in places like Bass Pro and Cabela's.
We want to be—these might not have been traditional retailers that were carrying, that we had sold to in the past. As we enter into a new category like that, we now want to find our way into that shelf space. As we think about the domestic business, I remember kind of years ago, people would say, the North America business is a slow-growth business. Even if you can grow kind of low single digits in North America, and then you can kind of grow a couple of times faster than that internationally. I think we've demonstrated that we're growing double digits in the domestic business, in the North America business. Yes, it's coming from entering new categories. Yes, it's coming from expanding into new distribution partners. I'll be honest with you, it's also coming from a really healthy base business. Take a business like our upright vacuum cleaner business.
It's growing. It's throwing off very healthy margins. It's maintaining strong average sell prices, and a category like that is then funding kind of the next investment categories that we have through the portfolio. I'll keep going back and pointing to the understandable thing for investors is, sure, this company can keep growing internationally, and there's white space internationally. Maybe they can come up with a whole bunch of different new categories to be able to enter into. I want to keep putting a button on the fact that the core base business, the health of a core base business provides this really strong, stable foundation for us to build off of. There's no way that we could grow the domestic business double digits by coming from just distribution expansion. It's coming because, you know, there's this really healthy, high margin, high ASP, you know, base business.
Let's turn to a couple of questions that we're asking every company at our conference today. The first one is the health of the consumer. What are your expectations for the environment in the back half of 2025 by geography? Do you expect things to be better, the same, or worse?
Yeah, look, I mean, I've been leading this company now for 17 years. Other than for a year during COVID, I've never experienced kind of a frothy consumer environment. I mean, you have to work hard to earn the consumer's hard-earned dollar. I don't think of it as we're competing against other appliance companies for that dollar. I think we're competing against Olive Garden, and going out to dinner a couple of extra times, or apparel or something like that. There's this whole universe of consumer discretionary spending. I think when the consumer sees one of our products, the average sell price of a Shark or Ninja product is $199 to $229. You could buy a Ninja product for $49. You could buy a Ninja product for $999. There's such a wide swath of consumers and socioeconomic groups and demographic groups that are buying into our brands.
We need the consumer to look at our products and say, hey, you know what? For $199, I think having a Ninja CREAMi in my house would be great for my family. Yeah, I might go out to dinner two times less versus having that at home. I think as long as we continue to keep developing disruptive, innovative products, if we keep the quotient of market-leading performance, high-quality products at an extraordinary value, and if we continue to keep creating consumer demand through our viral marketing, I think in whatever consumer environment, there's some discretionary dollars for us to get our fair share.
That's great to hear. One of the topics of the year has been tariffs. I was wondering if we could quickly touch on that. You've reached your target of sourcing 90% outside of China in the second quarter, but we've also seen tariff rates in other Southeast Asia countries increase. Can you help parse apart the magnitude of the impact that you expect from tariffs this fiscal year and also on an annualized basis?
Yeah, I mean, look, I will say that I think we're getting to kind of a more understandable playing field as it relates to tariffs. I think there was a period of time through April and May and June that the news cycle was coming out every day. You really couldn't make kind of strategic plans around tariffs. I think that we started down a path four and a half years ago to diversify outside of China. At the end of the second quarter, we were able to make 90% of our production outside of China. I think that's proved to be a wise choice. I think that the tariff landscape is that China is going to be at elevated tariff levels, which today for our products is anywhere from 30%- 55%.
I think the other countries that we're in, which are primarily Vietnam, Thailand, Malaysia, Indonesia, and Cambodia, are roughly 19%, 20% tariff. I think that's a world that we—that's the new world that we are living in. I think that we've been able to navigate that quite well through opportunities to drive buy-side savings, opportunities on the sell side, and then tightening our belt on the operating expense side. Our gross margin rate grew in the second quarter. I think that we're not out of the woods as it relates to tariffs. I think we have tried through a series of 1,500 initiatives in the company to try to minimize the impact on consumers, but also to make sure that we're able to mitigate that. That's everything from lowering discounting rates on our products. We've passed on some price increases.
We have another round of price increases that we're going to be passing on come October 1 in advance of the holiday selling season. I think we've changed out a lot of product. We've removed certain product and put in kind of higher margin product in its place. I think this is a period of time that plays to SharkNinja's strengths. We're nimble and we're agile and we move quickly and we reacted. When April 4 came out, a week later, we shut down our entire business roughly. The top 250 executives of the company did a hack week and we came up with 1,500 ideas. Within a week, we mitigated 80% of the tariff. Adam was one of the key leaders and architects in that.
I think we're in a world right now of we just have to continue to stay agile and react to the deck of cards that are dealt us.
You have some additional price increases coming in the back half. How should we be thinking about your forward pricing strategy? Have you seen any signs of price elasticity of demand as a result of recent price increases?
Yeah, we started price increases actually before tariffs went into effect. I think you have to take inspiration from things. I was listening to an Acquired podcast on LVMH, and I was inspired by our nose point of view on companies don't know what they're able to actually sell their products for. I remember listening to that on the weekend, and I pulled my team together on Monday, and I said, look, I mean, we're making some really disruptive viral products. Are we truly getting paid the right amount for those products? We don't want to move away from an extraordinary value to the consumer, but we also feel like maybe there's some price that we've left on the table. We took prices up on a few products at that point. That was in February at the time. We've been very careful to do it.
I think that on our viral marketing products, yes, we've taken price and we haven't seen an impact in demand. We've taken things like our Luxe Cafe Espresso coffee maker from $499- $599. New products that were coming out, we were going to launch our Shark CryoGlow at $299. We launched it at $349. I think we're finding opportunities to raise price. I think we looked at certain categories where we might have had a product, a vacuum cleaner that we were selling at $139, and we said, hey, let's move it to $149 and let's kind of watch demand. There might have been price promotions that we've done, 25% off. We said, let's not go that deep. Let's do 10% off in those price promotions. I think it's a lot of trial and error. Not everything has worked. I think we've had to retrench on certain things.
I think on the whole, we've been able to do it. If you went out and you asked 100 consumers, did SharkNinja raise price? I think they would say to you, no, SharkNinja's prices are roughly the same. I think we've tried to do this with very, very minimal consumer disruption.
That's really helpful. As you think about that backdrop, what are you seeing in the competitive backdrop today? Do you think that the competitive environment will be tougher, the same, or less competitive into next year?
I think the competitive environment is always tough. You have to earn the right to stay in business. Just because we had a great year or great brands, when the circus comes to town every Christmas, you've got to have the next great innovative products. We're launching 25 new products a year. We're not letting up on our innovation. In spite of all the tariff upheaval this year, we'll still launch 25 new products. We have a great pipeline of innovation in 2026. We're working now on our 2027 innovation. I think we are worried about everyone from a competitive standpoint. More so than that, it's are we giving the consumer a compelling reason to invest in a Shark or Ninja product? I think that over the last 17 years, that's what we've learned is the key to our success.
One question that we're getting regularly is about the mixed commentary that we've heard from brands about wholesale order books into the back half and into 2026. Given the success of some of your new products, how are your conversations going with wholesale partners as you contemplate that forward demand?
Look, I think we're really fortunate. I think just recently in the last couple of weeks, you might have heard the earnings calls of Target that mentioned SharkNinja, the earnings calls of Ulta that mentioned us, the earnings call at Best Buy that mentioned us. I think that's great that they recognize SharkNinja as a company that is driving growth for them and driving consumers into their stores or online. I think it's always tricky between Q3 and Q4. Just where the holidays fall this year, you may have shipments that wind up going out in October versus September from a timing standpoint. You'll continue to see that level of uncertainty happening today where a retailer might decide, hey, I thought I would take this product on September 20, but I'm going to take it on October 10. Underlying demand is strong from the consumer.
Retailers are leaning in to support SharkNinja and our innovation. What I'm most excited about is the international expansion of SKUs. It's the retailers like Fnac Darty in France, Euronics in Germany, Currys in the UK, and Elkjøp in the Nordics that are really expanding the number of SKUs that they carry from SharkNinja, Christmas 2025 versus Christmas 2024.
That's great to hear. Adam, let's bring you into the conversation a little bit more. If you put tariffs and some of the transitory impacts aside, how should we be thinking about the long-term structural drivers of gross margin within SharkNinja? What do you view as the sustainable gross margin rate of the business? What's the path to getting there?
Sure. I mean, you know, I've been at SharkNinja almost 11 years now, and gross margin focus has been a cornerstone of everything that I've done. It's a cornerstone of everything we do within the company. It is the lifeblood, and that enables us to launch in the new categories, launch in the new geographies, fund the media, fund the R&D. Gross margin is at the core of everything we do, right? Mark spent a lot of time talking about the gross margin impacts and how we offset tariffs. Gross margin starts at the very beginning of a product's inception. We're in product reviews looking at gross margin. We've got product developers presenting gross margin paths without caveats of with and without tariffs. It's with that, right?
We have every goal of every new product is to launch that at the company average or better, as well as better than a SKU that it potentially would replace. With gross margin so entrenched in what the company does and the lifeblood of what we do, it's our core KPI. It's something that everybody at the company is focused on, and it's our path to continue to grow. We know there's always going to be headwinds, whether it's commodities, whether it's freight, whether it's labor, whatever it might be. We continue to plan every year as if it's going to be bad, right? We prepare as if it's going to be bad because we prepare to make sure that we have the flexibility so that when something does come up, tariffs is one example, we were already moving. We weren't caught flat-footed there.
Margin trajectory for us, we're going to keep doing what we've been doing, which is expanding gross margin rate, which allows us to continue to invest in other areas of the business.
What does that mean for EBITDA path opportunity from a reinvestment perspective versus non-margin drivers?
Our path long-term is to continue to expand EBITDA rate, right? I think over the years, last year you saw an incredible amount of investment in OpEx. You saw an incredible expansion in gross margin. We're looking at those two things together as two of the major levers within the P&L. At the end of the day, those two levers are going to equal EBITDA expansion. That's where our target is.
That's really helpful. Mark, I think we're about out of time. Any final comments or closing thoughts that you want to leave with the audience?
Look, to understand our business, go shop the retail stores. See the number of pallets, for example, that are at Costco that are positioned. Go on social media. Look at the comments section in these social media posts in terms of what consumers are saying about Shark or Ninja products. At the end of the day, this is all about engaging with the consumer. To really understand our business, yes, you could read a P&L or a balance sheet, but go and look at what consumers say about the brands and the products. I think you'll get a much better sense of who we are.
Great. Thank you, Mark. Thank you, Adam. Thank you to all of the audience for tuning in.
Thanks, Mark.