Traeger, Inc. Q2 FY2025 Earnings Call

Hello, and welcome to the Traeger Second Quarter Fiscal 2025 Earnings Conference Call. My name is Alex, and I will be coordinating today's call. I will now hand it over to Nick Bacchus to begin. Please go ahead.

Good afternoon, everyone. Thank you for joining Traeger's call to discuss its second quarter 2025 results, which were released this afternoon and can be found on our website at investors.traeger.com. I'm Nick Bacchus, Vice President of Investor Relations, Treasury and Capital Markets at Traeger. With me on the call today are Jeremy Andrus, our Chief Executive Officer; and Joey Hord, our Chief Financial Officer. Before we get started, I want to remind everyone that management's remarks on this call may contain forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations and views of future events, including, but not limited to, our outlook as to our anticipated full-year 2025 results. Such statements are subject to risks and uncertainties and that could cause actual results to differ materially from those expressed or implied herein. I encourage you to review our annual report on Form 10-K for the year ended December 31, 2024, and our other filings for a discussion of these factors and uncertainties which are available on the Investor Relations portion of our website. You should not take undue reliance on these forward-looking statements, which we speak to only as of today. We undertake no obligation to update or revise them for any new information. This call also contains certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income or loss, adjusted net income or loss per share, adjusted EBITDA margin and net debt, which we believe are useful supplemental measures. The most comparable GAAP financial measures and reconciliation of the non-GAAP measures contained here into such GAAP measures are included in our earnings release and our investor presentation, which are available on the Investor Relations portion of our website at investors.traeger.com. Please note that our definition of these measures may differ from similarly titled metrics presented by other companies. Now I'd like to turn the call over to Jeremy Andrus, Chief Executive Officer of Traeger. Jeremy?

Thanks, Nick, and thank you for joining our second quarter earnings call. During today's call, I will provide an update on key trends in our business, review second quarter results and share our outlook for fiscal year 2025. I will also provide an overview of Project Gravity, a major streamlining effort aimed at driving efficiencies and improving margins in our business. You'll then be hearing from Joey Hord who is joining for his first quarterly call since stepping into the CFO role. As we entered the second quarter, uncertainty around the macroeconomic environment and trade policy was high. The rapidly changing tariff landscape and the potential downstream impacts on the consumer created challenges to our business. Amid that backdrop, we executed on two major imperatives. First, executing successfully at retail and driving healthy consumer sell-through in our peak season. And second, executing on our tariff mitigation strategies with the goal of preserving profitability and enhancing cash flow. Despite pressure on our results for the quarter, I am pleased with our team's efforts on these two critical fronts. I'll start by providing you with more detail around our tariff mitigation efforts. Overall, based on the current tariff regime, we expect the unmitigated impact of tariffs to be approximately $60 million in fiscal 2025. We believe that our mitigation efforts will allow us to offset approximately 80% of this impact during the fiscal year. Given the magnitude of the exposure, I am pleased with our expectation for mitigation of the substantial majority of the impact to adjusted EBITDA. Our tariff mitigation efforts are centered around three main pillars: first, supply chain efforts, which include identifying savings and efficiencies across the supply chain and cost negotiations with our contract manufacturers. We are also diversifying our manufacturing mix away from China over time and expect a meaningful reduction in the portion of our production in China by the end of 2026. Our second tariff mitigation strategy was pricing. As we discussed on our last call, we were extremely thoughtful when analyzing price changes, looking at features and product positioning on a SKU-by-SKU basis. We continue to believe that we have pricing power given the quality and innovation we bring to the market as well as our premium positioning. And we expect that many of our competitors in the outdoor cooking industry have or will be increasing price. While our outlook does prudently assume a negative impact to grill volumes based on the price increases, we believe protecting our profitability is paramount. Last, we have implemented near-term cost savings measures, such as reduction in travel and entertainment expenses and the deferral of nonessential projects as well as meaningful cost savings expected to be derived from Project Gravity. Moving on to our Project Gravity efficiency and margin improvement initiative. We believe that there is a meaningful opportunity to drive strategic transformation and to simplify processes and functions across our business. Project Gravity will elevate our entire company's focus on return on investment. And over time, this initiative will open up capacity to invest into the core long-term growth drivers of our business, including product innovation and brand. I firmly believe that Project Gravity will unlock significant long-term shareholder value. There are two phases to project gravity. The first phase consists of actions already taken or underway. This includes the very difficult decision to implement a reduction in force in the second quarter. Parting ways with many very talented and dedicated team members was not taken lightly, however, it was the right thing to do for our business. Next, we are centralizing MEATER's operations into our Traeger infrastructure. This integration consists of closing MEATER's headquarters in Leicester, United Kingdom, and substantially reducing MEATER personnel based in the U.K. MEATER will continue to be an important part of our product portfolio, and we will leverage our strong expertise in marketing and brand management at Traeger to stabilize revenues and return the business to growth. Simultaneously, we will reshape the P&L and drive profitability via cost savings related to our integration efforts. Overall, the first phase of Project Gravity is expected to drive approximately $30 million in run rate cost savings. Phase 2 of Project Gravity is a broad-based review of our business with a goal of driving efficiency, simplification and margin enhancement. While it is too early to discuss details today, as this review is ongoing, larger picture, we believe there is a meaningful opportunity to realize significant structural improvements that can result in material cost efficiencies over time. Our review is comprehensive, and we will be evaluating everything from SKU level productivity to corporate overhead broadly. We expect that initiatives for Phase 2 of Project Gravity will be implemented over the next 18 months. More to come on this front. Now let me touch on our outlook. Today, we are reinstating guidance for fiscal year 2025. Our guidance for fiscal year 2025 includes revenues of $540 million to $555 million or down 8% to 11% versus prior year. Our revenue outlook for the year is being impacted by our assumption of pressure on grill volumes, driven by the price increases we implemented to offset the cost of tariffs as well as the assumption of continued softness in accessories revenue due to MEATER. In terms of adjusted EBITDA, we are guiding to $66 million to $73 million. Joey will provide more detail here. However, while our guidance does imply a reduction in year-over-year adjusted EBITDA in fiscal 2025, our actions to mitigate the large majority of the tariff exposure as well as our Phase 1 Project Gravity cost savings are allowing us to successfully navigate the near-term environment while positioning us for significant improvement in 2026 and beyond. Turning to our second quarter results and highlights. Second quarter revenues were down 14% versus prior year in the quarter and adjusted EBITDA was $14 million. Second quarter results were impacted by a number of factors. First, revenues were pressured by pacing shifts out of the quarter into both the first quarter and the third quarter. Much of these revenue pacing shifts were tied to tariff-related dynamics including certain of our retail partners temporarily shifting to domestic fulfillment away from direct import or DI fulfillment. This shift impacts the timing of sales as we recognize the revenue when the retailer takes ownership of the product abroad versus after we transport and import the product in the domestic model. Lower mix of DI also impacts the gross margin as DI carries a higher margin rate. We also incurred tariff expenses of more than $3 million in the quarter, further pressuring gross margin. The good news is that we are expecting a return to a more normalized mix of direct import fulfillment in the second half of the year as we have worked with our retail partners to reduce overall tariff exposure and that our tariff mitigation and cost reduction efforts will more meaningfully benefit second half results. The second quarter is our peak selling season and despite grill revenues being down 22%, we saw better-than-expected consumer demand of grills at retail with positive unit sell-through growth. In particular, consumers reacted favorably during our Memorial Day promotion period, which kicks off the grilling season and during the Father's Day promotional period. One trend we continue to experience is strength at our lower price point grill offering with substantial outperformance of grills under $1,000 versus those priced over $1,000. We continue to see this shift as strong evidence of meaningful consumer appetite for Traeger grills at attainable price points. During the quarter, sell-through was aided by our boots on the ground activation strategy. Our team of retail sales specialists were out in full force during peak grilling season, and we conducted thousands of weekend selling events where we train and educate retail associates and demo Traeger grills to drive awareness of the brand. We also continue to leverage brand partnerships to engage new consumers and broaden our brand reach. Notably, we launched a partnership with Bud Light and Budweiser, two of America's best-selling beer brands with extremely large audiences. Bud's Grill Like a Pro campaign partnership with Traeger features content integration, retail displays and cross-merchandising efforts. We also established a partnership with Pepsi Frito-Lay, which highlights outdoor cooking and features Traeger products. This campaign includes significant retail displays, a large media campaign and product sweepstakes. Partnering with brands like Bud and Pepsi allows Traeger to reach a huge global audience in a cost-effective manner. On the consumables front, we achieved 7% revenue growth in the second quarter. We saw healthy replenishment of pellets across our retail channels. We also continue to benefit from expanded distribution in our consumables business with a launch at Walmart late last year and additional distribution gains in the grocery channel. Finally, our accessories business continues to be pressured by declines in MEATER and was down 12% year-over-year. Having said that, the revenue declines at MEATER sequentially improved versus the first quarter. Our goal for MEATER in the next 6 months will be a successful integration of the business into our Salt Lake City infrastructure and strong execution in the critical holiday period. This will ultimately allow MEATER to return to growth and importantly, will allow for significant and improved profitability. Overall, while there are a number of crosscurrents from a macroeconomic and trade policy perspective, our brand remains extremely strong and consumer appetite for our grills was healthy in our peak season. Moreover, our team has executed well on an aggressive strategy to mitigate tariffs that will allow us to navigate the current environment. Finally, we believe Project Gravity will act as a powerful catalyst for transformation and efficiency and believe it will drive meaningful long-term value at Traeger. Before I finish, I'd like to thank the entire Traeger team for their hard work and commitment. And with that, I'll hand the call over to Joey. Joey?

Thanks, Jeremy, and good afternoon, everyone. Today, I will review our second quarter performance, discuss our updated outlook for fiscal 2025 and share our thoughts on Project Gravity. Second quarter revenues declined 14% to $145 million. Grill revenues decreased 22% to $74 million. Grill revenues were negatively impacted by revenue pace and shifts out of the second quarter. These timing shifts were largely tied to tariffs as retailers ordered product ahead of tariff implementation in the first quarter and revenues were pushed into the third quarter as our retail partners shifted to domestic fulfillment from direct import. We also saw lower unit volumes of higher-priced grills during the second quarter. With respect to consumer demand, as Jeremy discussed, we saw better-than-planned sell-through in grills, and we're generally pleased with peak season performance at retail. Consumables revenues were $36 million, up 7% compared to the second quarter last year. Growth in consumables was driven by an increase in wood pellet revenues as we saw strong sell-through and benefited from increased distribution. Pellet revenues also benefited from revenue pacing out of the first quarter. Strength in pellets was partially offset by a decline in food consumables. Overall, we were pleased with consumables performance in the second quarter. Accessories revenues decreased 12% to $35 million, largely driven by lower sales in MEATER. Geographically, North America revenues were down 12%, while Rest of World revenues were down 32%. Gross profit for the second quarter decreased to $57 million from $72 million in the second quarter of 2024. Gross profit margin was 39.2%, down 380 basis points versus the second quarter of 2024. Our gross margin was negatively impacted by several factors, including the impact of tariffs, and we expect our mitigation efforts will drive sequential improvement in gross margin performance in the second half. Drivers of the decline include: one, the shift from direct import to domestic fulfillment, which negatively impacted margin by 210 basis points; two, tariff costs worth 190 basis points; three, promotional investment of 40 basis points. These were offset by: one, improved pellet margins of 30 basis points; and two, other margin positives of 40 basis points. Sales and marketing expenses were $25 million compared to $28 million in the second quarter of 2024. Lower sales and marketing expenses in the quarter were driven by a decrease in demand creation and employee expense. General and administrative expenses were $26 million compared to $30 million in the second quarter of 2024. The decrease in G&A expense was driven by lower stock-based compensation expense and lower costs related to legal matters, partially offset by higher employee costs. Net loss for the second quarter was $7 million as compared to a net loss of $3 million in the second quarter of 2024. Net loss per diluted share was $0.06 compared to a loss of $0.02 in the second quarter of 2024. Adjusted net loss for the quarter was $2 million or $0.01 per diluted share as compared to adjusted net income of $7 million or $0.06 per diluted share in the same period in 2024. Adjusted EBITDA was $14 million in the second quarter as compared to $27 million in the same period of 2024. Let me now discuss the balance sheet. At the end of the second quarter, cash and cash equivalents totaled $10 million compared to $15 million at the end of the previous fiscal year. We ended the quarter with $412 million of short- and long-term debt, resulting in total net debt of $402 million. From a liquidity perspective, we ended the second quarter with a very healthy liquidity position of $180 million. Inventory at the end of the second quarter was $116 million compared to $107 million at the end of the fourth quarter of 2024 and $91 million at the end of the second quarter of 2024. We are comfortable with our inventory levels and believe we are appropriately positioned. When looking at the second quarter's inventory balance, it is important to note that increased costs driven by tariffs account for approximately 30% of the year-over-year increase. Furthermore, the shift from direct import to domestic fulfillment is contributing to the increase as we carry the inventory related to domestic fulfillment sales on our balance sheet. Moving on to Project Gravity. Larger picture, as the newly appointed CFO at Traeger, I am extremely excited about the significant opportunity we have to drive meaningful efficiencies and savings in our business with this effort. I believe the Traeger brand is the best in the grill industry and the company's largest opportunity long term is to drive increased household penetration and brand awareness. In order to achieve this, we need to optimize the business and the shape of the P&L by sharpening our focus on return on investment. I believe that Project Gravity will allow us to unlock value and will position us to continue to invest in our long-term growth drivers. As Jeremy discussed, Phase 1 Gravity actions include a headcount reduction implemented in the second quarter and the integration of MEATER into our Traeger infrastructure. We expect these actions will result in $30 million of run rate cost savings once fully implemented. Full implementation of Phase 1 actions will continue through the end of 2026, and we expect to realize as much as $13 million of these savings in fiscal 2025. Phase 2 of Gravity will consist of initiatives identified as part of an ongoing analysis of our operations with the goal of driving efficiency and simplification. We will provide updates as the strategic plan further develops in the coming quarters. Overall, I believe the review will bring to light a significant opportunity to unlock value at Traeger. Now turning to our outlook for fiscal 2025. Today, we are issuing guidance for fiscal year 2025. For revenues, we are guiding to $540 million to $555 million or a decline of 8% to 11%. Our revenue is being impacted by several factors. First, we expect a decline in the high single-digit percentage range for grill revenues. The expected decline in grill revenues is being driven by our assumption of pressure on grill volumes due to the price increases we implemented to offset increased costs related to tariffs. It's important to remind everyone that the guiding principle of this year has been to enhance profitability and cash flow in the face of a challenging backdrop. Our efforts to mitigate tariffs with price increases are driving an expectation of lower grill volumes in the second half of the year. However, this is allowing us to offset a substantial majority of the tariff impact. Additionally, we are facing a challenging comparison in the fourth quarter of last year when we had a large load-in of our new Woodridge grill. For consumables, we're expecting positive growth in FY '25 and continue to believe in the recurring revenue nature of our wood pellet business. Accessories are expected to decline due to an anticipated decrease in MEATER sales. On gross margin, we are assuming 40.5% to 41.5%, which implies a decline of 80 to 180 basis points. This pressure on gross margin is being driven by the impact of tariffs as well as the mix shift out of direct import to domestic fulfillment. For adjusted EBITDA, we are guiding to a range of $66 million to $73 million. While this implies a reduction in adjusted EBITDA versus fiscal 2024, given that we faced a $60 million tariff headwind, I believe we are demonstrating our strong ability to control what we can and manage the P&L effectively in a difficult environment. I'd like to comment briefly on quarterly pacing for the balance of the year. In the third quarter, we expect a modest sequential improvement in year-over-year sales relative to the second quarter, given the revenue timing dynamic we've discussed from Q2 into Q3. However, we are still expecting a decline in revenues for the quarter. We are forecasting a decline in adjusted EBITDA as compared to the third quarter of last year. For the fourth quarter, we are assuming that we will have a larger sales decline as we are lapping the load-in of Woodridge from the prior year. Despite this, we expect that adjusted EBITDA will improve versus prior year as we are anticipating to benefit from growth in gross margin as well as to more fully benefit from cost savings actions. Overall, I believe our organizational focus on protecting profitability and cash flow in the current year will allow us to successfully navigate the current environment. Moreover, we are positioning the business for significant improvement going forward as we seek to drive efficiency and reshape the P&L. Our Project Gravity initiatives can drive meaningful value and ultimately will allow us to reignite both top and bottom line growth. I'll now turn the call over to the operator for questions.

Our first question for today comes from Phillip Blee of William Blair.

Can you provide more details about the reaction to the price increases, especially in the wholesale channel? You noted that sell-through was positive, so I’m looking to understand the response to the price changes and any differences between the consumer reactions in the wholesale and direct channels.

Yes, I’d be happy to. Let’s start with wholesale. First, it’s important to differentiate between sell-in and sell-through, especially considering the revenue dynamics in the first quarter as retailers tried to get ahead of tariff pricing and the transition from direct import to a domestic model, which shifted revenue into the third quarter when we return to a direct import model. There are pacing dynamics that don't fully convey the consumer health and brand perspective. As we mentioned, sell-through was strong compared to our expectations, especially after not knowing what to expect from consumers or the environment after Liberation Day. We closely monitor sell-through wherever we have direct data from our retailers, which represents about two-thirds of our business. Sell-through unit growth was slightly positive, while revenue from sell-through in the second quarter was slightly negative. This suggests that the consumer remains active and that our brand is performing well in challenging conditions, driving positive unit sell-through at retail. We’ve also noticed a trend over the last 12 to 18 months towards lower price points due to factors affecting consumer financing and the nature of nonessential durable goods. Overall, we're pleased with our broad-based retail success based on sell-through. Regarding the direct channel, it underperformed retail, largely because we adjusted prices early in the quarter. Since we sell through major retailers and there's a process for price changes and retail execution, we wanted to take the lead in setting higher prices to protect profitability. We recognized that if we ask retailers to increase prices, we need to do so on our own website as well. It’s challenging to compare the two, but when retail prices aligned with our website, we saw consistent performance.

Okay. Great. That's super helpful. And then you mentioned that your plans were to significantly reduce your exposure to China by the end of 2026. Can you provide a bit more color maybe around the progress you expect to make this year? And then as some of those tariff costs begin to fall off, should we think about those mitigation savings as more variable along with that? Or would they be kind of fixed and permanently embedded in the model?

Yes, let me address the first part, and then Joey can provide input on the second piece. We began diversifying away from China a couple of years ago. This process involves consumer durables, which require careful management of the supply chain and production lines. Transitioning manufacturing locations takes time. This year, we've accelerated our efforts. We've previously mentioned that by 2024, our sourcing mix for grills is around 80% from China and 20% from Vietnam. We’ve made significant progress this year, and I believe by 2026, we will be almost entirely diversified away from China. The transition will be gradual over the next 12 to 18 months as we deplete existing inventory and introduce new stock. Regarding tariffs, China and Vietnam's situations aren't drastically different. Vietnam has stabilized its tariff situation, whereas China's may remain volatile. We will continue pushing this transition as quickly as possible.

Yes. I'll add in on the if they're permanent or structural. They're permanent in nature. The three mitigating actions around our tariffs are supply chain efficiencies, BOM savings, just negotiation with our factories, pricing, which we've spoken about in the opening remarks and then overall cost reductions. And that leads into Project Gravity and the $30 million run rate, which we called out. So long-term in nature, the actions that we're taking, we want to be long-term in nature and structural, which will yield fruit for quarters and years to come.

Our next question comes from Brian McNamara of Canaccord.

First, on grills, I know we're coming off a few years of a rough grill market. So why do you think the market was so tough in Q2? A smaller competitor mentioned this morning its grill business was on a growth trajectory at the beginning of the season before having "the full force of the tariffs." But why would tariffs matter much as significant price increases really weren't visible in the marketplace, at least for the important Memorial Day weekend period. And I believe even Traeger went back to pre-tariff pricing promotion there. So why do you think consumers just didn't come out during peak season this year?

Brian, great question. There are a couple of points to address. First, from a timing perspective, we believe the consumer performed better than expected. However, if you look at consumer sentiment in April and May, it was quite poor. May even reached a record low since the early 1950s when they began tracking consumer sentiment. The volatility following Liberation Day coincided with our peak season, which likely had an effect. Regarding the grill industry, as we analyze the post-pandemic landscape and replacement demand, it seems we are starting to return to a more normalized state for the first time since the pandemic. We think the results would have been different without the tariff disruptions in the second quarter, which definitely influenced our performance. Concerning promotions, we were not operating at pre-pandemic levels, with only a few SKUs at those prices. Our pricing strategy was quite intentional, focusing on being competitive at the entry price point to counteract consumer sentiment, and we believe that was the right approach. When looking at our other products, for instance, we launched the Woodridge at higher price points compared to a year ago. Last year, we had the Pro 780 and Pro 575 discounted between $150 to $200. The replacement products were positioned at higher prices; the Woodridge Pro replaced the 780 but was priced at $1,149 instead of the previous $999. When we promoted it, we brought it down to $999, which is still 25% higher than the product it replaced. Pricing was elevated, and we aimed to be strategic about price points. As we move away from the pandemic pull forward, we feel increasingly optimistic about industry growth as consumers begin to enter a more standard replacement cycle, especially those who purchased in 2020 and 2021. Given a 5- to 6-year replacement window, we are at that point now, which gives us hope, particularly as we navigate the challenges posed by tariffs.

That's helpful. Secondly, on MEATER, what's going on there? We have 5 straight quarters of pretty significant year-over-year declines. Are prices there just too high? Is it simply competitive intensity increasing? Is it a combination of both? Is it something else?

I think high prices and the competitive situation are closely linked. The industry has changed significantly since we acquired the business. We remain the market leader, but we have noticed an influx of low-priced competitors. This typically occurs in crowded categories at lower price points, and we expect that over time, some of these entrants will exit the market. Many of them likely didn't foresee the level of competition that would come in, creating a challenging competitive landscape for us. We are facing considerable low-cost competition, which has prompted us to refine our product roadmap and pricing strategy, ensuring we have the right brand while becoming more competitive in the category. We continue to feel this pressure, but we have seen some stabilization, with the rate of decline decreasing significantly. We believe we are nearing the bottom in terms of revenue and have opted to focus on cost management and integration. As mentioned earlier, we are closing our Leicester office, which was the headquarters for MEATER, and are integrating its functions into our Salt Lake City office. This move offers substantial cost benefits and enhances our sales, marketing, and brand-building capabilities, which will benefit MEATER as part of our organization. It’s crucial to emphasize that MEATER will remain a significant part of our business. We believe in its long-term potential and have worked to reshape its profit and loss structure to build it more efficiently. We are also focused on leveraging our retail capabilities, which account for over 90 percent of Traeger’s business, so that MEATER can grow sustainably and be less vulnerable to low-cost competitors that primarily operate online.

Got it. And then one quick one. Finally, Jeremy, I admire the fact that you're regularly out in the open market kind of eating your own cooking, buying back stock. You bought stock in June at a level similar to where the stock is trading at after hours. What would be your message to current and prospective shareholders on the investment merits here? Is the worst behind us, including kind of your view on the back half here?

Brian, that's a great question. Let me address it from a few different perspectives. I joined this company nearly 12 years ago, and we experienced steady and consistent growth for many years. The pandemic brought us all back to reality, presenting challenges since 2022. I believe that, from a macro standpoint, we have more advantages than disadvantages ahead of us, considering our past experiences and my firm belief that this category remains strong over time. While it does go through cycles, the one we are emerging from has been particularly intense due to the pandemic’s significant upward influence. We are optimistic about the tariff situation, hoping it is just a temporary phase, and it appears to be stabilizing, allowing us to make long-term decisions regarding pricing, product strategy, and sourcing. We are confident about the long-term potential of our category, and historical trends show that there are more opportunities than risks from external factors impacting this area. Regarding Traeger, my conviction in our brand position remains strong. We are innovative in our products and consistently score high in Net Promoter Scores that surpass industry averages, which we believe will pay off in the long run. We've prioritized product investment over the last few years, even during tougher times, and we see it as a strong long-term advantage. Our consumer base is very passionate, and while we haven’t fixed everything yet because the challenges have been significant, we are dedicated to making the right long-term decisions for this business. Moments like 2022 and 2025 provide perspective, demonstrating how challenges refine our team. We are not handling this by sticking to the status quo or making short-term decisions. As we've mentioned, we took aggressive steps on operating expenses in April, some of which were reactive due to uncertainty in the economy. However, as we navigated these changes, I observed a strong commitment from the team to innovate and enhance efficiency. This approach gives us the resources we need to highlight the unique aspects of our brand. I personally hold significant stock in this business, and while it might not be the most diversified investment approach to buy more right now, I have faith in the company. When I see our stock trading at its current levels, I feel compelled to invest further.

Our next question comes from Joe Feldman of Telsey Advisory Group.

Great. I wanted to touch base on some of the new products like the Flatrock and the Woodridge, like how have those been performing? Maybe the answer is the sub-$1,000 is working, but I know you've said that a few times about the grills. But can you talk about those two new lines and the reception you're seeing?

Yes, of course, Joe. I'll focus primarily on Woodridge since wood pellet grills are central to our business, and then I'll briefly discuss Flatrock. Woodridge is the best product this company has developed in nearly 40 years. I'm very proud of our product and operations teams for their ability to produce cost-effectively while delivering high-quality products that resonate with consumers. We had a significant Woodridge product launch event in mid-April during a challenging time. The response to Woodridge has been outstanding. Unfortunately, there’s a lot of distraction in the category due to tariffs, especially given our reliance on imports from China and Southeast Asia and the use of non-U.S. steel, which makes us vulnerable to tariffs. Nonetheless, the response to Woodridge has been exceptional. Product reviews online have been very favorable from the start. We have a hypercare program in place where we focus intently on learning everything we can about the product, improving it, and ensuring it meets consumer needs. We are confident about this platform, which has a lifespan of five years. We’re over 100 days into the launch, and we like what we’re observing. We are experiencing some pressure at higher price points. The Woodridge Pro originally launched at $999, but due to tariff issues, it has increased to $1,150, which is not only $150 more but also crosses an important psychological price point for consumers. It’s been interesting to see how the sales mix develops between the Pro and the base model given the price difference. Overall, I'm very optimistic about Woodridge; it's a fantastic product, and consumer feedback supports this. We sometimes receive inquiries about how our product strategy aligns with consumer trends or economic fluctuations. These price points are high relative to the industry but are acceptable for our brand's positioning. We believe we've launched a product that will perform exceptionally well over the next two to three years. Regarding Flatrock, we are still in the process of establishing our brand in griddle cooking. This product, which started at $900, has now increased to $1,000 after tariffs, while the average selling price of the largest competitor in this category is around $250. Our pricing is significantly higher, but we are gradually gaining traction. As indicated by online reviews, we've successfully matched the product with market needs, and the innovation aligns perfectly with the price point.

Okay. And then just a follow-up. With regard to the price increases you guys have made, you made a comment a couple of times that you're assuming some unit decline with it, obviously, makes sense with the elasticities. But do you guys have a framework that you could share with us like, I don't know if it's a 10% price increase, units are going to go down 10% or down 15%? Or how are you guys thinking about it from that standpoint?

I want to share a few thoughts. First, we were very deliberate in developing our pricing strategy. It was not simply a blanket price increase, and it wasn't solely based on tariffs for each SKU. Instead, we concentrated on understanding price elasticity and consumer behavior to optimize our product portfolio. We conducted pricing research in the second quarter with the assistance of outside consultants, but it was a challenging time for such studies, given the tariff activity. We are still learning about elasticity and unit volumes. While we started raising prices in May, the market didn't truly reflect these new price levels until the first week of June, while we were also running promotions. We know we have more to learn, and we anticipate the price increases will have a more significant impact in the latter half of the year. It is important to note that we take a conservative approach when there is uncertainty, and consumer behavior varies significantly between lower-priced and higher-priced segments. We consider all historical data as we develop our elasticity model.

Got it. Got it. That makes sense. So at this point, all the price increases you think for this year are baked in at this point, right, related to tariffs?

Correct. Yes, yes.

Our next question comes from Peter Benedict of Baird.

So first, just back on the replacement cycle. You kind of alluded to it a couple of times. I mean all your grills are connected. So you guys have kind of a unique way to see. Are you seeing any of the Woodridge buyers being those who are basically turning off an older grill that maybe was purchased in 2020 or 2021? I know it's early, but just curious if you're seeing any of that.

Yes, that's an insightful question. We do have access to data on cooking engagement. While I haven't reviewed the latest figures, I can share that early in the launch of Woodridge, we noted an influx of new buyers compared to those replacing older models. This trend seems to be influenced by the pandemic, during which many customers upgraded their grills. Consequently, when we introduce new innovations, they're often appealing to new buyers. The demand created during this time likely attracted more customers to our brand. We believe that over time, those who bought early versions of our products will find significant value in Woodridge at its price point. So, while we expect a greater upgrade path for current owners in the future, thus far, the mix seems to remain relatively balanced based on our last analysis.

That's helpful. And then maybe, Joey, one for you. Just any sense for kind of the CapEx spending plans for this year, free cash flow, kind of latest view on that and maybe where you would see kind of cash landing at the end of the year, given what you guys have put in place here?

Yes. So thanks for the question. So first off, we're prioritizing financial health, profitability, hence, our pricing shifts, what Jeremy spoke to. We're going to be cash flow positive, and that's something that we're focused on this year is just overall financial health. As far as CapEx, there's no really deviation versus prior year in CapEx. We're a CapEx-light business, little CapEx investments around fixtures, some mill investments, but no significant CapEx shifts from prior year.

That makes sense. And then just, I guess, one last one, just be one that, when we think about the $30 million in Phase 1 savings and $13 million are evident in this year's numbers. Do we just get the full balance in '26? Do you reinvest some of that? Just trying to how we should be thinking about that? And then any early sense for the size of Phase 2? I mean say Phase 2 is something that could be larger than Phase 1. Should we not be expecting it to be larger? Just any kind of high-level comments around that would be helpful.

Yes, the $13 million is what we are using to guide our expectations for in-year savings, which is accounted for in our guidance. Regarding the $30 million, that will be realized in the second half of fiscal year 2025 and into 2026, primarily as we centralize the MEATER business and utilize our fixed-cost infrastructure. This process will take time, but we anticipate steady improvement throughout 2026, with the full $30 million being realized during that fiscal year. As for the second part of your question regarding Gravity, it's too early to provide specific figures for that initiative. However, we believe there is significant value to be gained through streamlining and increasing efficiency, and we will offer more details as the project develops.

At this time, we'll currently take no further questions. Therefore, this concludes today's conference call. Thank you all for joining. You may now disconnect your lines.