Good afternoon and welcome to another session of our Goldman Sachs Global Retailing Conference. My name is Brooke Roach and I cover apparel and accessories and brands here at Goldman Sachs Research. And I'm thrilled to introduce our next session with SharkNinja. Here with me today is Mark Barrocas, CEO, and Larry Flynn, CFO. Welcome, Mark. Welcome, Larry.
Thanks so much, Brooke.
Thanks for coming today. You know, Mark, given that SharkNinja is a recent public listing, I was wondering if you could kick off the session today with a brief overview of business.
Sure, sure. Well, first off, thanks for having us here. This is our first event, as you said, as a U.S. public company. We really think of SharkNinja as a consumer problem-solving engine. We solve problems that others can't. We see problems that others are unable to. And, you know, we go to market under two really well-respected brands. The first is the Shark brand, a market leader in cleaning, floor care, home environment, and beauty. And the Ninja brand, which is the number one market share brand of kitchen appliances in the United States, and has also recently launched into outdoor cooking as well with our Ninja Woodfire grills and ovens. The business operates in 28 different product categories. We sell in 26 different markets around the globe. Product, you know, diversification is something that's really important to us as a business.
I mean, product category diversification, geographic diversification, customer diversification. We sell to over 150 retail outlets around the globe, as well as a robust D2C business. And also brand diversification with two multi-billion dollar brands being Shark and Ninja.
That's really great. Maybe you could dive a little bit further into how the Shark and the Ninja brands are positioned today and how you think about the key points of differentiation of those brands relative to competitors?
Sure. So, you know, we feel that we really bring, you know, first and foremost, disruptive product innovation into all the categories that we're in. You know, today the business is nearly a $4 billion business. Fifteen years ago we were a $200 million business. We've grown 14 out of the last 15 years, and we've grown over the last 15 years at a compounded annual growth rate of 20% a year. From a product innovation side, I mean, we look at ourselves in kind of four ways that we think are quite unique. I mean, one is speed to market. You know, we bring products to market in as fast as 12 months, and you know, just the scale of product development that we bring to market, nearly 25 new products a year. The second is kind of market-leading performance and multi-functionality that we deliver to the consumer.
Third is high-quality and reliable products. I mean, it sounds cliché, but we've really built our business one five-star review at a time, and fourth is delivering extraordinary value to the consumer. You know, that's something that is really important to us and has helped us both, you know, pull opening price consumers up and also attract premium consumers as well, but it's not enough just to have disruptive product innovation. I mean, we invest over $320 million a year in media and advertising to create consumer awareness and excitement for our products. That's everything from social media and influencers to short-form advertising to kind of our legacy form of long-form advertising as well, and we feel like that in itself is not enough.
Just to have innovative products and, you know, the ability to create strong consumer demand, it's really putting together a dominant omnichannel strategy, both in brick and mortar. We're the most searched brands in our categories on Amazon and the other dot-coms and a strong direct-to-consumer business. And I think when you kind of pull all of those pieces together, you know, we really feel like it's been a winning strategy for us.
You mentioned innovation. And innovation can be a key competitive differentiator when you're in a market that is highly competitive. I'm curious if you can expand a little bit more on your innovation pipeline. How robust is it? How do you identify what areas to innovate in within your product portfolio? And what should we be thinking about balancing those innovation opportunities between the Shark and the Ninja brands or outdoor home kitchen or cleaning?
Well, look, I mean, the business, you know, continues to reinvent itself. I mean, if you look back, you know, 15 years ago, I mean, we were Shark, the steam mop company. And, you know, Ninja didn't exist. Ninja was established in 2009. And then we were kind of, you know, Ninja the blender company and we evolved into Ninja the coffee company and the heated cooking appliance company. I mean, we've entered into 10 new product categories just in the last three years. So, you know, innovation, you know, is really the lifeblood of the business. You know, the business, you know, comes about innovation through a number of different ways. I mean, the first is I think we have a really unique consumer insights model.
The ability to be able to mine consumer feedback both in the home through social media, through reviews, and kind of identify real consumer problems that exist that might not have been apparent to others or even to the consumer sometimes. I mean, these are known or unknown consumer problems. And then the second is a team of 750 engineers around the globe that are based in Boston, London, and China that are really developing 24/7. When you take any individual product from Shark and Ninja, there's a team of engineers in Boston that works on it. When they go home at night, the CAD passes on to a team in China. They work on it. They pass it along to a team in London. And so, you know, that rapid innovation cycle is something that I think is really quite unique to the business.
And then the third is really looking at where our product development team feels that our brand can expand into. What categories we can expand into. I mean, if you looked at our business just a few years ago, you know, you wouldn't have seen things like our beauty business. I mean, we're the fastest hair care company, you know, fastest growing hair care company in the United States. We weren't in the outdoor cooking business. We weren't in the cookware business. And so the business, through innovation, you know, continues to keep reinventing itself. And fortunately, the consumer and our customers, you know, are going on that journey with us.
New category expansion is one of your three growth pillars. And you mentioned the beauty business there. You mentioned outdoor a few moments ago. I'm curious, how do you decide to enter a new category? Where do you think that you have the most permission to enter from the customer today? And what proportion of your forward growth do you anticipate will be coming from these new category expansions?
Yeah. So, look, I mean, the company has a real demonstrated track record of being able to enter a market. I mean, we have never acquired a dollar of revenue in the company's history. So everything that we've grown has developed, you know, from ourselves, entering new categories and growing share into those categories. As I said, you know, the innovation is coming from, you know, these consumer insights teams, these engineering teams that are innovating, you know, around new ideas, and the product development teams. And it really starts with the idea of answering a key question in product development, which is, what gives us the right to be in that category?
I mean, what are we bringing that is unique or differentiated to the consumer that they're not able to get today through either solving some problem that they're unable to solve today, offering them to be able to do something different, like, for example, our Ninja CREAMi ice cream maker? You know, we found that consumers more and more were having problems with allergies and dietary restrictions and simply just wanted a fun experience in the home. And you take a category like that. When we entered into it, the at-home ice cream business in the United States was a $50 million category. And retailers said to us, well, even if you gain 50% of the market, you know, it's a $25 million opportunity. You know, this year the Ninja CREAMi will be a $150 million business for us today.
So it's not just looking at what the category is, but it's looking at, you know, what we believe we can grow that category in terms of size and scale by bringing something really exciting to the consumer.
As you've grown some of these new categories, you've become a market, a dominant market leader in some of your existing categories. Can you bridge that from maybe the CREAMi or other new categories that you've recently entered? How do you create market category dominance over time? Can you give us a few examples of where you've done that and how you achieved that?
Sure. Look, you're right, Brooke. I mean, you know, we are the number one market share in floor care and cleaning in the United States. We're the number one market share in kitchen appliances in the United States. You know, we have been able to enter markets, you know, starting with kind of one core disruptive product in a category. So, you know, an example of that, I mean, people have asked us, you know, a few years ago we entered into the cookware business. And the obvious question is, you know, why does the world need another pot and pan? And, you know, we looked at the market and we saw that, you know, the largest portion of that market was non-stick cookware.
We talked to consumers and said, well, you know, they noticed to us that they loved their pots and pans on day one, but as they got to day 180 or day 200, the pans started performing quite different. You know, they started sticking a lot more or chipping or flaking. We spent about a year and we really started to figure out what type of disruptive technology could we develop that would give us the right to be able to enter into that category. We developed a product that actually, after five years, doesn't change its performance in terms of sticking, chipping, or flaking. We called it the Ninja NeverStick cookware. We launched that product a few years ago at a $299 price point, which is kind of a premium price point in the cookware space.
We really disrupted that category quite a bit. We continued to grow share. As we grew share in that, we started recognizing that we needed to go into different price point areas. Today, you know, as you look for in the market, you can find Ninja NeverStick cookware for as low a price as $149 all the way up to $399. It allows, as I said, kind of opening price consumers to kind of enter into our brands and our categories. It also appeals to a premium consumer. I think what's so interesting about the Shark and Ninja brands is we're not the highest priced products in the market. We're not the lowest priced products in the market.
But the available consumer that we engage with our products, because of the price points that we're in and because of the value that we're delivering, I think, has been something very compelling and has allowed us to keep gaining share in some of these new categories.
Larry, let's bring you in here. As you think about developing these new categories from the time that you enter the market, such as a beauty or a CREAMi, which is a little bit newer, to maybe the cookware item, how do you think about the margin contribution to the P&L of these new categories? What do they start at? How do they scale over time? And what is the ultimate P&L impact?
Sure. Yeah. Great question. I think, you know, first it's important to note that, you know, we have strong industry-leading margins both at the gross margin level and at the EBITDA margin level. You know, from a gross margin perspective across all of our categories, we actually see a pretty tight band of where those gross margins are. So fairly consistent across categories. The one exception to that is actually in the beauty category. We do see slightly higher margins, gross margins in the beauty category. As Mark mentioned, that's, you know, a fastest growing or one of the fastest growing portions of our business. So we do see some, you know, kind of gross margin mixed benefit there.
From an EBITDA dollar perspective, you know, our more mature categories are higher contribution margins for us as we do invest kind of less in, you know, sales and marketing, you know, less advertising that we need to kind of support those brands as they gain, you know, higher levels of market share. In our newer product categories, you know, the contribution margin is lower at the front end in the early days as we continue to kind of really build the brand and really take market share in those new product categories. And then we see that, you know, kind of expand over time as those categories mature.
And Larry, you have grown marketing spend quite a bit this year as you've been investing behind outdoor and beauty. How should we be thinking about marketing spend growth and the right run rate of marketing spend for the business overall?
Yeah. So, you know, I think in answering that, one of the important things to think about is actually, you know, how we've expanded gross margin as well, kind of from 2022 into 2023. So we've had gross margin expansion of about 330 basis points in the first half of 2023. And we've actually invested, you know, some of that back into the business in marketing to support both new products as well as new markets that we've entered into, so expanded EBITDA margins by over 100 basis points in the first half of the year, so it's a place where we think about, you know, investing in the business for the long term and ensuring that, you know, we're setting those new product categories up for success, you know, as we go forward.
Excellent. Let's turn to one of your other pillars of growth, which is market share expansion in your existing product categories. Where do you see the biggest opportunity to grow share in your existing categories? And is there really an opportunity for continued growth in some of your longstanding categories like blenders or vacuums?
Yeah. Yeah. I mean, look, it's interesting. You know, today in the U.S., you know, the average household owns about 2.5 vacuum cleaners, and you know, when we say the vacuum category, you know, we're a market leader in upright vacuums and cordless vacuums and robotic vacuums, but you know, consumer habits are changing, and you know, consumers are moving more to cordless vacuums, and you know, we feel like there'll be more accessibility into robot vacuums, you know, as we continue to move forward, so you know, our innovation, I mean, as I said, you know, we launch nearly 25 new products a year. You know, we're launching lots of products in these existing categories. You take a category, for example, like upright vacuums, we own 40% market share, yet we're the only company in the industry that still advertises in that category.
You know, and we continue to keep innovating and find the next consumer problems to put our prior products into retirement before their usable life. And I think we've done that with our innovations like self-cleaning brush roll, you know, that doesn't wrap hair, you know, our odor neutralizer technology that was a consumer problem that, you know, we found that consumers that own pets, you know, were finding that their vacuum cleaners were smelling, you know, and we had to be able to help them manage with that and deal with that. And so, you know, through these, you know, areas of innovation, you know, even in these existing businesses where we hold the dominant market share position, you know, we're still finding other opportunities for growth and to raise up average sale price.
Let's put all of this category commentary together and wrap a bow on it. As you think about operating against your four operating segments, cleaning, cooking, beverage, food prep, and other, which includes beauty, how should investors be thinking about the growth contribution from each of those core categories?
Yeah. So you know, I want to take a step back and you know, Brooke, you mentioned you know, kind of our growth pillars. You know, it's important to note that kind of a number of years ago you know, we refocused the business around what we call our three key organic growth pillars. I mean, those are first, gaining share in the existing categories that we're in. We have a demonstrated track record of growing share in these existing categories. Second is expanding into new and adjacent product categories. As I said, we've entered 10 new categories just in the last three years. And third is international expansion. You know, today we're in 26 markets around the globe. So as you think about you know, the categories that you mentioned there, I mean, I really believe that there's growth potential in all of those.
I mean, we're innovating across all of those. I mean, and I'll give you an example. You know, people said to us, well, you know, hold on. I mean, in motorized kitchen appliances, you're already number one market share. You know, where's the opportunity to grow it? And, you know, all of a sudden the CREAMi came about, you know, and we kind of enlarged the size of that market. You know, as we think about the cooking business, you know, we just entered into outdoor cooking appliances with our Ninja Woodfire Grill and our Ninja Woodfire Oven. We weren't in the outdoor cooking business last year at this time. We only launched at the end of September in 2022. You know, and by the end of this year, we'll have a $150 million outdoor cooking business.
I think the ability to be able to find new subcategories within those categories that you mentioned is something that's really important to us. Now, you also mentioned this category called other, which we've got to come up with a better name for because other for us is our Shark Beauty business. I mean, we've got an incredibly fast-growing hair care business in Beauty, both in North America as well as in Europe. It also includes our home environment business where we're growing things like air purification. You know, there's also lots and lots of additional categories for us to be able to take the Shark and Ninja brands into.
Great. You mentioned your final growth pillar. So let's go there next. International. It's a sizable opportunity for you. You have a big business in the U.K. How do you plan to leverage your learnings in the U.K. market as you build out or enter additional markets? And how do you think about the highest priority list for growth and expansion?
Yeah. So look, growth for us in the international markets, it's the same playbook. You know, if you looked at our product roadmap and lineup maybe seven, eight years ago, it was more geared towards a U.S. consumer. Today, you know, 80% of the products that we're developing are global products. The Shark FlexStyle will sell in 21 different countries. The Ninja CREAMi will sell in 19 different countries. So the roadmap, you know, is really a global roadmap for a global consumer. But it's the same playbook. It's disruptive innovation. It's investing significantly in creating consumer demand. And it's driving this dominant omnichannel strategy. We think about the international growth in terms of two ways. I mean, one is the direct markets that we sell in, markets like the U.K., Germany, France, Spain, and Italy.
And then we think about distributor markets, you know, markets like the Middle East and Israel and the Nordic countries and Mexico, where we work through a distributor to ultimately get to the end consumer. So for us, I mean, we came out of the second quarter, we grew our international business 80%. You know, our business is fast approaching $1 billion outside of North America. So there's real scale to that business. We're investing heavily, you know, particularly in continental Europe. And, you know, we really think we've got, you know, a consumer base that is loving our products in those markets and giving us as high a five-star reviews as we're seeing in the U.S.
Let's talk a little bit about your go-to-market strategy. Can you talk a little bit about how big the wholesale business is relative to DTC and how you think about wholesale channel dynamics in the market?
So years ago, we very much took the strategy that we want to be relevant and sell our products where consumers choose to shop for our products. We've never offered any channel exclusivity. We've never offered any customer exclusivity. You know, we are distributed everywhere from Walmart, you know, to Sephora and Macy's and Amazon and everyone in between. So we take a very kind of channel agnostic view of the business and take a very consumer-centric view of the business. Now, that being said, you know, our direct-to-consumer business is the fastest-growing portion of our business right now. And I think there, you know, are kind of various reasons for that, including our ability to be able to offer the consumer more customization when they come direct-to-consumer than when they might shop, for example, in a retail store. Look, the wholesale channel, you know, obviously is continuing to evolve.
You know, we've seen destocking, you know, at the wholesale channel. I mean, some of that has led to some movement to direct-to-consumer where the consumer is able to make sure that they can find the product available to ship to them. But it's a very, you know, it's the same model in every market that we sell, a very channel agnostic model that, you know, really kind of puts the consumer at the center of deciding where they want to purchase our products.
You mentioned destocking. It's been a hot topic in retail recently. Where are we on the destocking basis, particularly for the industry? And how is your sell-in versus sell-through trending maybe by key customer type in U.S. wholesale?
So we started seeing destocking at the end of the second quarter of 2022. We really saw that accelerate in Q3, Q4 of last year, and even into Q1 of this year. The second quarter of this year was the first quarter that we started to see POS match shipments. So we didn't see any restocking. But for the first time, we weren't seeing destocking. We have heard anecdotally from many of our retail partners that they've gone too far and that they've lost sales. I mean, our products are not kind of fashion-driven. I mean, the life cycle is quite long. I mean, we have products in some retailers that are the same products for 10 years.
So I think, you know, retailers are starting to recognize that, you know, we have a retailer that at the end of Q2 came out of, you know, with a 65% in-stock rate. I mean, there's no doubt that they're losing business as a result of that, where we should be at kind of 93%-94%. Where or when that turns around, you know, our forward guidance doesn't assume any restocking through the balance of this year. We'd like to believe, though, that retailers, you know, will see that, you know, there really isn't a risk with Shark and Ninja products. And, you know, we are driving consumers into the store through our advertising that it's prudent for them to have the products available when the consumer comes in.
We're asking every company at our conference today a few questions on their outlook. So maybe we can pivot to that. First, do you think that the consumer is going to face more headwinds or fewer headwinds next year in comparison to 2023? And how are you thinking about that opportunity for trade-up or trade-down by income cohort within your business?
Look, I mean, first is I think we've been highly empathetic to what the consumer has been dealing with for the last 18 months. I mean, we've worked very hard from a supply chain perspective to, you know, hold down costs when we were seeing, you know, big cost increases, particularly at the end of 2021 and 2022. You know, so we're very, very conscious of that. Now, that being said, you know, we believe that these are times where Shark and Ninja kind of excel. You know, the consumer is not necessarily looking for the cheapest option. They're looking for the best value. And I think the Shark and Ninja products really deliver the best value to the consumer.
And so I think it's our job, you know, to continue to give the consumer a reason to purchase, you know, a reason to say, "Hey, I might have walked into Walmart and thought I was going to spend $99 for a product, but Shark or Ninja has a product for $149. And, you know, the value of what I'm getting, you know, just seems so exciting. I'm willing to step up to that." You know, that's what I think we've been very effective at over the course of the last 15 years. And I think we just have to continue to work really hard to make sure the consumers see that.
That ties in directly to one of the other questions that we're asking all companies, which is how they're thinking about pricing into next year. I think your pricing strategy is very clear. You've explained it a few times today. But as you look into 2024, do you expect to maintain, raise, or lower prices next year?
Well, look, I think we have seen, you know, some cost tailwinds, you know, this year. I mean, you know, freight has normalized. Commodity pricing has normalized. Component shortages have, you know, come back to historical levels. And so, you know, we feel that kind of by Q4, you know, we will see the full impact flow through of, you know, kind of more normalized costs, you know, through our P&L, and we'll see our gross margins reflecting that. We would very much hope to kind of keep pricing stable for the consumer on a like-for-like basis. Now, that being said, you know, I think through innovation, you know, it's always our job to try to drive up average sale price. And even this year, you know, as a company, as a total company, we're seeing average sale price increase, mainly as a result of mix.
But I think on a like-for-like basis, we would expect to see pricing kind of flat.
The last question that we're asking all companies at our conference this year is one on share of wallet, and I think that one's actually particularly relevant for your categories given the pandemic tailwinds that the categories had and then followed by some of the compares that we had to cycle through. As you look into next year, what is the one most important factor to drive higher spending in the core categories that SharkNinja plays in?
So look, I would first say that, you know, SharkNinja entered the pandemic, you know, as a double-digit growth company. I mean, the, you know, 11 years prior to COVID, you know, we were a 19% compounded annual growth rate company. And today, when we look at the last 15 years, we're a 20% company. You know, we did see, you know, growth in 2020 and 2021. But even in 2022, you know, we grew our business on a constant currency basis. And, you know, we've had a very strong first half of this year, you know, growing over 12% in the first half of the year and nearly 20% just in the second quarter.
You know, we think from a share of wallet standpoint, look, we are seeing more and more consumers buying multiple products within our brands, you know, owning more than one Shark or Ninja product. We're seeing consumers buying products across brands, across Shark and Ninja. And I think the same kind of performance, quality, value ethos, you know, streams through in every product that we bring to market. And I think if we continue to keep doing that, you know, we'll earn the right, you know, and we'll earn the consumers hard-earned money, you know, with the products that we offer. But, you know, I say this to the team all the time, and we talk about this. You know, we have to be very, very cognizant that what we're developing is, you know, beyond what the consumer expects.
I mean, I think that any company in the consumer space today, you know, has to go above and beyond.
That makes a lot of sense. Let's tie this all together. There's been a few comments that we've heard on gross margins from new category commentary. You talked a little bit about that when it came to inflation and pricing and costing. But Larry, can you talk a little bit more about the key drivers of gross margin that you see as you look ahead and how we should be thinking about a sustainable long-term gross profit rate for the business?
Sure. Yeah. So our target is really to return to kind of the pre-COVID gross margin levels of 45%, right? So, you know, what we saw, I guess to give some context there, in 2022, adjusted gross margin was at 40%. So a lot of cost headwinds that we had in the business, as Mark mentioned, you know, freight rates, component shortages driving up component costs, and commodities as well were kind of the three big headwinds that we faced. We've seen that kind of reverse here in the first half of 2023 with some, you know, kind of tailwinds on the gross margin side, expanding gross margin again over 300 basis points in the first half.
As Mark said, I think, you know, we see that, though, the pace of that accelerating in the second half as some of those cost pressures kind of really make their way fully through the P&L. You know, so I think, you know, good line of sight back to that 45%, you know, kind of range, you know, whether it's, you know, back half of this year or into next year.
And then on SG&A, can you provide an outlook for the key moving pieces there, both the back half of this year and into next? Where do you expect to see ongoing investments, and what are the opportunities for leverage?
Yeah. So I think that comes back to what we talked about before from a marketing perspective, right? So we have, you know, really strong expansion at the gross margin level, and we're choosing to invest some of that back into the business in sales and marketing. So we saw, you know, kind of marketing spend up a couple hundred basis points in the first half of the year. I think we expect to see that as we continue to invest in the, you know, into the business in the second half of the year. But our, you know, guidance for 2023 from an EBITDA level is about 200 basis points of expansion on the full year. Again, first half up about 100 basis points. So that implies, you know, kind of strong EBITDA growth in the second half of the year.
So it's really all about that sales and marketing, you know, side of it. From an R&D perspective and from a G&A perspective, we see a, you know, a little bit of leverage there, obviously continuing to invest in R&D kind of over the long term, but, you know, at a slightly slower pace than we see revenue top-line growth.
And then understanding that you don't provide long-term targets, can you help contextualize or frame the opportunity for long-term revenue and operating margin as we think about product innovation and gross margin drivers, SG&A leverage, etc.?
Yeah. So look, as you said, I mean, we haven't provided kind of long-term guidance. I mean, as I said, historically, you know, over the last 15 years, we've grown at a compounded annual growth rate of 20%. You know, we, you know, we feel that through this three-pillar growth strategy of gaining share in the existing categories, you know, expanding into new categories, and we think there's many, many new places for the Shark and Ninja brands to expand into. And growing internationally, I mean, you know, there's a, you know, total available market in our space for about $100 billion. I mean, our guidance this year puts us at about a $4 billion company. And so, you know, it's a very small share, you know, in terms of the overall, you know, available market size for our products.
And as a business, you know, this is a business that keeps reinventing itself and keeps evolving, you know, and expanding into new markets. So you could see that total available market opportunity, you know, even growing in size over the course of the next couple of years. But we feel like, you know, as an investor, you know, to really understand, you know, those three pathways of organic growth, you know, is what we're going to be focused on over the next few years.
Great. We've got about a minute left of the session. So, Mark, any closing comments or thoughts that you'd like to share with the audience that we haven't yet touched upon?
Look, we just appreciate, Brooke, you having us here, and you know, for the folks in the audience, you know, listening to hear our story. I mean, we, you know, spun out, you know, of a Hong Kong publicly listed company. We think we have a great story to tell. I mean, it's a story of scale, you know, a $4 billion business, you know, highly diversified company, strong profitability profile, great cash flow that the business is able to generate. You know, a demonstrated track record of organic growth. You know, as excited as we are about what we've accomplished in the past, we think that we're just getting started in terms of what the business is capable of, you know, as we move forward, so we appreciate the time.
Great. Well, thank you, Mark. Thank you, Larry. And thank you to all of you in the audience for joining in.