COOK - NYSE

Hello, and welcome to Traeger's First Quarter Fiscal 2023 Earnings Conference Call. My name is Terry, and I'm the conference operator for today. [Operator Instructions] I would now like to hand the call over to Nick Bacchus to begin. Please go ahead.

Good afternoon, everyone. Thank you for joining Traeger's call to discuss its first quarter 2023 results, which we released this afternoon and can be found on our website at investors.traegers.com. I'm Nick Bacchus, Vice President of Investor Relations at Traeger. With me on the call today are Jeremy Andrus, our Chief Executive Officer; and Dom Blosil, our Chief Financial Officer. Before we get started, I want to remind everyone that management's remarks on this call may contain forward-looking statements, including regarding our anticipated full year 2023 results which are based on current expectations but are subject to substantial risks and uncertainties that could cause actual results to differ materially from those expressed or implied herein. We encourage you to review our annual report on Form 10-K for the year ended December 31, 2022, and our other SEC filings for a discussion of these factors and uncertainties which are also available on the Investor Relations portion of our website. You should not take undue reliance on these forward-looking statements. We speak only as of today, and we undertake no obligation to update or revise them for any new information. This call will also contain certain non-GAAP financial measures, including adjusted EBITDA, adjusted net income and adjusted gross margin, which we believe are useful supplemental measures. The most directly comparable GAAP financial measures and reconciliations of the non-GAAP measures contained herein to such GAAP measures are included in our earnings release, which is available on the Investor Relations portion of our website at investors.traeger.com. Now I'd like to turn the call over to Jeremy Andrus, Chief Executive Officer of Traeger.

Thank you, Nick. Thank you for joining our first quarter earnings call. Today we'll be discussing the first quarter results as well as our progress on executing our long-term strategies. I will then turn the call over to Dom to discuss further details on our quarterly financial performance. In the first quarter, we continued to execute against our plan as we navigate a challenging environment and position the business for a return to top and bottom line growth in the second half of 2023. First quarter revenues of $153 million came in towards the higher end of our guidance range, while adjusted EBITDA of $22 million exceeded the high end of our range by $2 million. I am pleased with our ability to overdeliver on our adjusted EBITDA guidance for the quarter and believe our results demonstrate our strong organizational focus on positioning Traeger for improved profitability. While our top line continues to be pressured by retailer destocking as well as lower consumer demand in our grill business, our first quarter results increase our confidence in our ability to achieve our full year guidance. And as a result, we are reiterating our prior guidance. During the quarter, sell-through of grills remained negative versus the first quarter last year as we continue to lap our very strong multiyear comparisons. The impact of lower consumer demand in the first quarter was compounded by continued retailer destocking compared to the first quarter last year when retailers were still building inventories. However, sell-through in the quarter was in line with our forecast coming into the year. Importantly, following a holiday period in which we lean into promotions at retail in an effort to accelerate demand in clear channel inventories, we reverted to a more typical promotional cadence in the first quarter that was similar to prior year. I am encouraged to see consumer demand return to a more predictable pattern despite less aggressive promotions and in the face of what continues to be an elevated promotional environment in the outdoor cooking industry more broadly. In the first quarter, we continue to execute against our near-term tactical priorities which we have discussed over the last three quarterly calls. In terms of inventories, we are making substantial progress on our rightsizing efforts. Our initiatives to drive sell-through in channel and a retail partners destocking efforts in conjunction with lower production levels had led to a materially improved picture on inventories with both our balance sheet inventories and inventories in the channel declining sequentially relative to last quarter. We continue to expect that this inventory rationalization process will continue through the second quarter and believe that inventories will be more fully aligned in the second half which will allow for more normalized replenishment rates of grills. On gross margin, our team remains highly focused on driving margin improvement. In the first quarter, we made a strategic decision to optimize our pellet manufacturing footprint by consolidating our pellet mill portfolio from seven mills to five by divesting of two higher cost mills and increasing efficiencies in the other five facilities, we expect to drive meaningful improvement in capacity utilization and cost per pound. Moreover, we have ample capacity to fuel strong growth in our pellet business in the coming years. In terms of our cost structure, in the first quarter, we realized the benefit of the cost reduction efforts we undertook last year, which resulted in annualized cost savings north of $20 million. Further, we have planned our expense structure prudently for 2023, which will enable the company to deliver growth in adjusted EBITDA despite our guidance for lower sales. We plan to remain highly focused on expense efficiency as we move through the year while remaining nimble enough to invest into high priority growth initiatives if investment capacity increases. Moving on to our strategic growth pillars. Our largest long-term opportunity continues to be accelerating brand awareness and penetration in the United States. Our strategy is to meaningfully increase household penetration from our current 3.5% by driving awareness of the Traeger brand and increasing the productivity of our existing distribution network through community engagement, enhanced retail merchandising, in-store marketing and product innovation we believe we can materially expand Traeger's share of space devoted to outdoor cooking on our retail partners' floors. Our brand awareness remains at an all-time high and is up materially from this time last year, despite our limited top-of-funnel marketing investment capacity over the last 12 months. In the first quarter, engagement with our community on social media continue to demonstrate the growing awareness of and participation in our brand. We grew our followers by 19% versus last year and user-generated content post, which we view as a key medium for our brand evangelists were up by 16%. For the Super Bowl, we offered up unique content and recipes for the game and encourage our community to post content using the Traeger game day hashtag, resulting in another record year of UGC post on the day. Our awareness also continues to benefit from consistent and increasing media coverage with articles and reviews covering our new product launches, TV spots featuring Traeger recipes and cooking tips for the Super Bowl and numerous mentions in top 10 grills of 2023 list, our media reach has more than doubled versus first quarter of last year. Traeger continues to be the grill brand that everyone is talking about. Going into our peak summer selling season, the excitement and enthusiasm around the Traeger brand remains as strong as ever. Next week, on May 20, we will celebrate our Sixth Annual Traeger Day, our holiday dedicated to family, friends and wood-fired food cooked on the Traeger. In anticipation of Traeger Day and ahead of the grilling season, we have released a series of videos featuring Meat Church barbecues Matt Pittman with the recipes cooked on our new Flatrock and Ironwood. The content is designed to generate top of funnel awareness and to encourage our massive community to cook together and post about it on May 20. Next, on to our second growth pillar, which is disrupting outdoor cooking with product innovation. The first quarter was a critical period in our product innovation road map with the launch of two new grills in February, our new Ironwood and our new Flatrock griddle. These launches were some of the most successful in our brand's history, and I'm extremely proud of the team's execution of our go-to-market strategy from product development to commercialization. Innovation is at the core of our company and the level of innovation that we are bringing to the outdoor cooking market is remarkable. The first quarter is product launches cement our position as an industry disruptor. Our new Ironwood offers unrivaled flavoring consistency through a series of upgrades and new features. Building on the innovation of last year's Timberline introduction, the new Ironwood includes features like Smart Combustion technology, FreeFlow Firepot and a touchscreen user interface, enabling consumers to master their cooks every time. The response from consumers and retailers has been fantastic. The Ironwood had over 400,000 views on social media during the launch period and receive positive media from Rolling Stone, Men's Journal, GQ and Forbes. The launch of our premium Flat Top Grill, the Traeger Flatrock has been something of a phenomenon. We have seen the grill category expand meaningfully over the last few years. And in speaking with our community, we understood that there was a gap in the marketplace for a premium griddle and an opportunity for Traeger to disrupt the space. Complementing the Tried and True dishes of the Wood Pellet Grill, our new Flat Top Grill opens a Traeger hood up to an entirely new menu of foods like pancakes, philly cheesesteak and smash burgers. The Flatrock solved several common pain points for grill users with innovations like our true zone heating system with three separate cooking zones, Triple U-burner design for even cooking across the cooking surface and FlameLock construction, which locks in heat and blocks out wind. The launch has been the most engaging our history with over 838,000 video views and over 27,000 engagements on social media during the launch period. We are extremely pleased with the consumer response thus far. And as we have launched Flatrock with limited distribution, there is a significant opportunity to increase distribution as we move through this year. Our next strategic pillar is driving recurring revenues. As expected, our consumables business was pressured by lower demand from a large customer who introduced a private label pellet offering last year. Outside of this, our pellet business remains healthy and sell-through in the first quarter was relatively in line with the first quarter last year, excluding those customer, demonstrating the recurring nature of this revenue stream. We also continue to grow distribution of pellets into the grocery channel. In the first quarter, we added pellets into nearly 450 new grocery doors across Albertson's, Spartan Nash, and Raley's. We also grew our pellet offering at Kroger by adding our new value-sized 30-pound barbecue select pellet in over 1,600 doors. On the food consumables side, we continue to execute on our growth strategy through channel expansion and new product offerings. Of note, we secured new distribution for Traeger rubs and sauces in over 250 doors of Myer. We also launched three new rubs focused on the most popular griddle meals to support the launch of Flatrock, Burger Rub, Breakfast Rub, and Spicy Fajita rub. Our final growth pillar is expanding the Traeger brand internationally. Similar to the U.S. market, our international business was pressured by the retailer destocking in the first quarter. However, results internationally for the quarter were in line with our expectations. In the first quarter, we introduced our new Timberline in European markets and our new Ironwood in Europe and Canada. The product munis drove excitement on retail floors and led to improved reorder activity. Overall, we were pleased to see the consumer respond to new product. And while we continue to expect near-term softness in our international markets, we do expect meaningful improvement in second half sales trends. In conclusion, I'm encouraged by the meaningful progress we have made in the last three quarters on our tactical priorities. Our team's focus on rightsizing inventories, reducing our cost structure and driving gross margin improvement will position the business for a return to growth in the second half of the year and beyond. Moreover, the excitement and exceptional consumer response to our new product launches bolsters my confidence in Traeger's long-term strategy and positioning as an innovator and disruptor in the outdoor cooking industry. And with that, I'll turn the call over to Dom. Dom?

Thank you, Jeremy, and good afternoon, everyone. Today, I'll review our first quarter performance and discuss our outlook for fiscal year 2023. First quarter revenue declined 32% to $153 million. Grill revenues declined 40% to $90 million. Grill revenue was negatively impacted by lower unit volumes as our retail partners continue to destock in an effort to drive lower end channel inventories partially offset by higher average selling prices. Consumables revenues were $30 million, down 24% to first quarter of last year, driven by lower volume of pellets. Our consumables business was negatively impacted by the loss of volume with a customer who introduced a private label pellet last year as well as lapping the large load-in of food consumables into the grocery channel in the first quarter of last year. Accessories revenue decreased 1% to $33 million due to lower unit volumes of Traeger branded accessories, partially offset by increased sales of meter. Geographically, North American revenues were down 33%, while Rest of World revenues were down 13%. Gross profit for the first quarter decreased to $55 million from $83 million in the first quarter of 2022. Gross profit margin was 36.2%, down 80 basis points versus first quarter of 2022. The decline in gross margin is primarily driven by, one, lower drill margin due to pricing mix and the timing of some expenses tied to our spring promotion, which negatively impacted gross margin by 240 basis points. Two, increased amortization of 70 basis points; and three, other unfavorable items worth 110 basis points. Offsetting these margin pressures were: one, FX favorability, which positively impacted margin by 170 basis points; and two, lower freight and logistics costs, which drove 170 basis points of margin favorability. Sales and marketing expenses were $22 million compared to $35 million in the first quarter of 2022. The decrease was driven primarily by lower marketing expense, employee costs and lower professional service fees. General and administrative expenses were $27 million compared to $41 million in the first quarter of 2022. The decrease in general and administrative expense was driven primarily by lower stock-based compensation expense, lower professional service fees and reduced employee costs. First quarter operating expenses benefited from the restructuring and cost savings actions taken last year, and we realized in excess of $20 million in annualized savings. Net income for the first quarter was $8 million as compared to a net loss of $9 million in the first quarter of 2022. Net income per diluted share was $0.07 compared to a loss of $0.08 in the first quarter of 2022. Adjusted net income for the quarter was $5 million or $0.04 per diluted share as compared to adjusted net income of $19 million or $0.17 per diluted share in the same period in 2022. Adjusted EBITDA was $22 million in the first quarter as compared to $30 million in the same period of 2022. First quarter adjusted EBITDA was approximately $2 million ahead of the high end of our guidance range. Outperformance relative to our guidance was driven mainly by lower-than-expected operating expenses largely due to the timing of expenses between the first and the second quarter. Now turning to the balance sheet. At the end of the first quarter, cash, cash equivalents and restricted cash totaled $28 million compared to $52 million at the end of the previous fiscal year. We ended the quarter with $404 million of long-term debt. At the end of the quarter, the company had drawn down $41 million under its receivables financing agreement and $43 million under its revolving credit facility, resulting in total net debt of $460 million. From a liquidity perspective, we ended the first quarter with total liquidity of $98 million. We expect liquidity to ramp as we collect on receivables and reduce inventory moving through the second quarter which is our peak selling season at retail. Inventory at the end of the first quarter was $132 million compared to $153 million at the end of the fourth quarter of 2022 and $160 million at the end of the first quarter of 2022. We are pleased with the progress we made in the first quarter and rightsizing our balance sheet inventories and, in particular, grill inventories which drove the majority of the sequential decline in total inventories versus the fourth quarter. In channel, we are seeing continued improvement in our retail partners' weeks of supply. While we expect the inventory rebalancing process to continue in the second quarter, we are well positioned to be in a substantially more balanced position going into the second half of the year. In terms of our outlook for full year 2023, we are reiterating our guidance for revenues to be between $560 million and $590 million and adjusted EBITDA to be between $45 million and $55 million. As we discussed on our fourth quarter call, we expect our first half sales to be pressured by continued retailer destocking and challenging multiyear comparisons before seeing a return to growth in the second half of the year as replenishment rates normalize and we lap the substantial sales decline driven by destocking in the second half of 2022. We continue to expect that second quarter sales could decline in excess of 20% versus prior year. We are reiterating our outlook for gross margins of 36% to 37% which represents 80 to 180 basis points of improvement relative to our fiscal 2022 adjusted gross margin of 35.2%. We expect to see the largest gain in gross margin in the third quarter given the expected improvement in fixed cost leverage as we lap the large sales decline we experienced in the third quarter of 2022. We expect that lower transportation costs will be the largest driver of gross margin improvement for the year due to the decline in inbound freight rates. In summary, I am pleased with the solid progress we made in the first quarter on our key tactical priorities and believe we are well positioned as we move through our peak selling season. We will continue to balance our building confidence in our outlook for the year with the continued uncertainty around the macroeconomic environment, which remains highly volatile. We will remain agile in this rapidly evolving environment as we continue to execute against our strategy. And with that, I will turn the call over to the operator for questions. Operator?

[Operator Instructions] The first question on the line comes from Simeon Siegel from BMO Capital Markets. Please go ahead.

Thanks so much, guys. Good afternoon. So I was hoping that we could talk a little bit more about pellets. Maybe both sides. So can we talk a little bit more about what you think the consolidation will do of the mills? So any color there from the supply side, thinking through the benefits, maybe quantifying some of the costs? And then secondarily, on the demand side, so can you guys talk through obviously, the element with a large retailer. So when do we lap that? Maybe any color you've seen from their offering, how people are responding? And then lastly, we use pellet as an engagement proxy. So to distill out maybe the change in retailer and timing? Just help us think through how you're seeing engagement of just usage in general?

Good questions. I'd start with the closure of the two pellet mills, right? So I'd first start by saying this ties into the broader strategy that we've been executing over the last, call it, 12 months in terms of just really optimizing the entire cost structure of our business, right? And as we think about the dynamics during the pandemic as well as what we're seeing now post pandemic and the fact that we're getting a better understanding for the demand pull forward that we experienced. I think what we effectively landed on here as part of, again, our overall strategy to kind of reoptimize and rebalance our cost structure is, one, we really determined that at this point forward, we just had too much capacity in the system; and two, that was putting pressure on the unit economics of our pellets. And so the opportunity that we identified was to rebalance our capacity in light of what we believe is the demand that we can forecast today for the next, call it, two, three years. And adjust that capacity to a level that allows us to optimize the utilization rate of that capacity. And in turn, we can improve the unit economics on a run rate basis for our pellets and something that we're very excited about. And I think that the second layer to that is we were -- we had the luxury of identifying 2 pellet mills in the portfolio that, frankly, were less efficient than the remaining portfolio. And so we can actually shift some of the demand or utilization of capacity in other areas and further pick up gains from a unit economic standpoint on those pellets. So that's really the driving factor. It's just a component of the broader strategy and something that we wanted to address in line with how we think about just improvements in our operation and continuing to pick up margin improvements in gross margin, in particular. The second question on -- sorry, can you repeat the second question?

Just -- may be through demand..

Is it the last...

I just think that's the supply side. Just how are you thinking about engagement? How are you thinking about demand maybe selling or sell-through? And again, just helping us basically to textualize from the what you're actually seeing versus the retailer dynamic?

So we really look at the usage and sort of the demand of consumables, in particular, in two ways. The first is through consumables attachment against our installed base, and what we're seeing right now is a reversion back to pre pandemic attach rates. We've talked about this on previous calls where we saw a spike in attach and during the pandemic and always believe that, that would sort of renormalize post pandemic, right, just given all of the factors associated with why that would be. And so I think the good news here, as we kind of look ahead and what we're seeing now is that attach against the install is tracking or sort of falling more in line with pre-pandemic where we would expect it to be, save a little bit of incremental pressure via the private label pellet launched by one of our large customers. As we think about the second layer to that, which is more a tail on consumer demand, it's a read into the IoT data that we collect, which is a better measure of usage rates, right? And I think what we're seeing there continues to be positive. So we kind of look at it in multiple ways. One way is via cohorts, which is kind of like-for-like over time as you evaluate vintage and usage of those cohorts as well as sort of aggregate cooks month-to-month. On the aggregate cook side, it's pretty consistent with what we've shared in the past in terms of number of cooks per month. And on the cohort data, what we're seeing is what we would expect. Like as a cohort ages, a 19 cohorts there is a marginal decline in usage over time. And part of that may be explained by the fact that as they age in to say, year four, they're looking to replace a grill given that they're approaching that life cycle and may enter into a new cohort. So it's exactly -- it's playing out exactly as we would expect. And I think the second layer to that, which we feel is very positive is as you look at each cohort and you look at, say, a pandemic cohort, they're behaving exactly the same as pre-pandemic cohorts as are post-pandemic cohorts. And so I think what we see here is just kind of building installed base of consumers, of users of our product who behave the same in a very similar pattern over time. And that first year of cook behavior really mirrors what we've seen historically. And so that just gives us a lot of confidence that the pull forward did what we hoped it would do at the end of the day, even though there's this overhang of pull forward in demand, we're also picking up consumers that will continue to be active and highly engaged with our product into the future.

That's great. Perfect. Best of luck for the rest of the year.

The next question on the line comes from Peter Benedict of Robert W. Baird & Co.

The question first, just on gross margin, Dominic, see a little over 36% during the first quarter. I recognize you guys are still expecting 36%, 37% for the year. Do you still expect gross margin rate to kind of build sequentially as we move through the quarters. And so that's my first question, kind of related to that and how you see kind of maybe the walk to north of 37% over time longer term?

Sure. So I'd say that we remain -- I would give me more cautious tone on H2. I think that's consistent. So we're happy with where we landed in Q1. Really, no surprises as we look at actual gross margin versus what our internal models show. I would say that the pressures that we're seeing in Q1 will be consistent in Q2, right? So I wouldn't necessarily look at the first half of the year as sort of the building sequential improvement in gross margin in part due to the fact that, as we've talked about in the past, we still carry a high -- the carrying cost of our inventory still remains higher than we'd like it to be. Where as you shift forward to the back half of the year where we expect to start realizing sequential improvements in gross margin, that's largely driven by the fact that as we clear this higher cost inventory, we'll begin to take advantage of what our really improved rate in the inbound transportation market, where I wouldn't suggest that they're all the way back to pre-pandemic levels given some of the nuances and dynamics internally around how contracts work, et cetera, but there are substantial improvements from what we were paying for containers a year ago, six months ago. So that's really the consistent theme, a cautious viewpoint on how gross margin comps in the first half of the year with sequential improvements in the back half. And then in terms of just how we think about the future -- in terms of the future. Yes. It's consistent with what we spoke to in the past, right? Our strategy really is focused on: one, portfolio management, driving gross margin expansion via an optimized mix within the portfolio as we launch new product at higher margin. It's strategic sourcing as we continue to lean on and build out a highly functioning and really highly expert-oriented operations and product team to go out and continue to cost down existing product within the portfolio as well as how we think about just the manufacturing landscape over time. And then lastly, just general operational improvements. Again, we've used one example of direct import where we cut out 1 layer of our value chain, which has proven to be a great element to the building tailwinds in gross margin.

No, that's helpful. I mean the second question is the inventory getting better in shape of [indiscernible]. You talked about a normalization and demand patterns. Jeremy, I think you were probably referring -- I assume you're referring to maybe week-to-week build as you kind of start to move into the spring season. Is that -- and is that what gives you confidence in forecasting that there will be replenishment by retailers in the back half of the year? Maybe just tease that out a little bit more. It's an important dynamic, and I want to make sure we understand what you guys are seeing here in the early part of spring?

Yes. So I think there are a couple of components to the predictability. One is that, I would say, this year, for the first time in multiple years, we're seeing predictability itself. And we track that very carefully week by week and certainly compare against prior years where we've got more normalized seasonality and against our forecast. And I would say we are seeing point-of-sale data that's just -- it's reasonably predictable, whereas last sort of three years have been fairly volatile in the pandemic on the upside and then last year on the downside. The second component really that gives us confidence in our guidance -- in our forecast is retailer inventory levels coming back down to healthy levels, which effectively allows us to replenish the units as they're sold through. So we certainly -- we've seen the health improve meaningfully in the first quarter, in the second quarter. We expect that we'll end the quarter feeling like retail inventory levels are in a really good place, and that just gives us a view into revenue.

The next question on the line comes from Peter Keith of Piper Sandler.

Thanks. Good morning, everyone. Sorry, long day. Good afternoon, everyone. The credit environment is obviously something that has kind of a steady drumbeat in the background. And we're hearing that smaller retailers are having to pull back on inventory purchases just because of the tighter credit backdrop. You guys do have some big wholesale partners, but you also have some small ones. And I'm wondering, is there any issue on order trends with some of your smaller retail partners out there because of this backdrop?

No, not from our side. I mean we have a really strong partnership with our retail partners, and we work on terms and it sort of ebbs and flows over the course of the season, where we're setting larger quantities in, say, late Q1 for promotional periods or just the uptick in demand in Q2, we tend to work on extended dating programs, et cetera, to sort of optimize their own sort of cash flow positions given the fact that they are smaller retailers. In addition to that, we tend to think of specialty within our realm as kind of this one to show one to go model where they're not necessarily going to preload inventory at the levels you would see it a larger big box, right, because they don't have the storage and therefore, that gives them the ability to turn inventory more efficiently and manage their own cash conversion cycle accordingly. And so we want to be great partners here, and I think that goes a long way in terms of the trend we're seeing relative to what you're seeing, but we haven't necessarily seen anything pop up that would signal a problem from a credit standpoint and/or impact order behaviors.

Okay. Helpful. And then maybe for Jeremy, on the marketing side, you've talked about kind of pulling back on some of the top of funnel marketing. What about that bottom funnel marketing? I'm thinking more specifically around your boots on the ground efforts with retailers. I know you do in-store demos, you would train sales associates, you gave sales associates discounts, so they would own the product. Are those efforts still ongoing? Or is that something that also you're having to pull back on, just given the demand environment?

No, I would say those efforts are still ongoing. As we think about near-term versus long-term needs. Obviously, in the long term, we do need to -- medium to long term, we need to invest more in brand awareness through top-of-funnel customer acquisition. In the near term, we focus on two components. One is community engagement. And I shared some of the metrics in my prepared remarks on success that we're seeing in engaging the community around social, user-generated content, cooking, just general cooking behavior, and that's sort of like -- that's the specialness, that's a secret sauce of the platform that we can always lean into. We built the brand long before we spend dollars on top of funnel, we built a brand by executing effectively at retail. And we really feel like that is a competitive advantage that we have that no other outdoor cooking brand has, which is national coverage. In the most important markets, boots on the ground, in retail, merchandising, training, stimulating demand, managing partnerships and we haven't pulled back there. And we think that's -- we believe it's a high returning investment. And as we go from specialty retail to national retail like Home Depot, for example, the needs change. And so we service those accounts on the ground differently. But we continue to make investments in the point of sale, I would say notably with Home Depot were sort of multiple years into making investments at retail in terms of breadth of assortment but also investment in fixturing these trigger islands as we've called them. So the investment on the ground is alive and well. And as we progress and sort of stabilize and begin to grow and have incremental investment capacity. There's no question we will begin to lean more into this market or sell strategy, which is really connecting the boots on the ground, the retail execution with top of funnel investment in media.

Okay. That's great. Maybe you just mentioned Home Depot or at the end. Has there been any update from the -- not the door expansion, but I guess, as you call it, the building out of the island and the two bay walls?

The Home Depot partnership is a strong one. We've made a lot of progress in terms of continuing to add space. We launched a few hundred incremental fixture doors in the fall. And in the second half of this year, we will again, we will meaningfully grow the both floor space and the number of fixtures at retail. And that's sort of -- that's just -- that's a very -- it's a long-term but very predictable form of growth by really driving presence at retail, which we find is directly correlated with brand growth.

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

Yes. I wanted to ask you a little bit more on some of the innovation with the Ironwood and the Flatrock griddle it sounds like you've seen a great response, at least via social media. I'm curious if you're seeing a good unit response as well. Is the industry at retail, taking it in? And you're seeing pretty decent demand from the end user. I would guess the Ironwood probably more so, you mentioned Flatrock is a little more limited distribution at the moment. But any thoughts on that?

Well, we're early. We're early in May. But I would say the energy that we felt on social, in early innings, we're seeing correlated with sell-through. Our expectation out of the gate was that Ironwood would perform very well. It is -- that's a price point that is accessible to our consumer base. There's meaningful similarities in terms of design and innovation from the Timberline, which is nearly twice the retail sales price. So we're pleased with the consumer response on Ironwood. Flatrock, candidly, the social response caught us off guard, there was a lot more energy around that launch than we had expected, which I think really speaks to permission that we have as a brand with a very engaged community and strong retail partnerships to distribute product. It gives us confidence in our ability to do something outside of wood pellet grill, but again something that was always intended to be a complement to the wood pellet grill. In terms of Flatrock contributing to upside to the year, we believe that the disciplined approach was to launch it narrowly at retail and sell-throughs exceed our expectation will be relatively constrained for the next six -- sort of six to eight months on inventory. There are long lead time components there but we really do believe head into '24 that this has the potential to be a meaningful grower for us.

That's terrific. Great to hear that. And then the one other thing I was going to ask about was I think in the prepared remarks, Jeremy, you made a comment about being nimble and able to jump into new opportunities. Potentially when they arise. And I guess I was curious if you could share any more color on that, what you may have meant?

Yes. I mean I think it's important to sort of think about that within the context of where we've been notably the last 18 months. We have -- we've worked hard to be lean -- to get lean as a business to ensure that we are very thoughtful in terms of how we prioritize initiatives and allocate investment dollars behind those initiatives. And as we -- it really -- it motivates us to get really focused and really invest back in the core business. In a moment like this, where we are constrained from an investment capacity perspective, the nimble suggests that we understand our priorities, that we are being thoughtful not just to the current moment that we're in, but we'll be thoughtful to the future. Traeger has always been a disruptor. It's always been a share gainer and it will be going forward. And so thinking about long lead time investments product, for example, it takes multiple years to get product to market. It's important for us to continue to lean into some of the -- to those investments. And so as we create upside from plan, we have a decision to make, and that's what do we flow through versus what do we invest back in the business to ensure that we're driving future growth. And so when I spoke about being nimble is really being thought around our priorities and being willing to reinvest some of the upside to ensure that we continue to be a share gain or long term.

The next question on the line comes from Brian McNamara from Canaccord Genuity.

I'm curious if you could expand a bit. On channel inventories relative to where you thought they'd be two months ago when you reported Q4. Are they better, worse or in line? I know April wasn't helpful from a weather standpoint, but are you seeing sequential improvement into May. Historically, I would imagine there's a catch-up in May and June when there's a late start to spring for this category. Is that how you're thinking about it as you reaffirm guidance?

Yes. So that's right. We -- over the course of Q1 relative to our plan, we actually saw a nice improvements ahead of our plan from an in-channel inventory standpoint. Part of that is kind of isolated to certain SKUs where we had more of a problem from a weeks on hand standpoint. And I think that just really builds our confidence in the fact that as we now enter peak selling season, we're sort of positioned at the front of that in a better spot from an inventory level standpoint and channel than we thought we'd be. And I think that's really positive news. So we're happy with the progress there. And that's also translating into, I think, an accelerated improvement in on-hand balance sheet inventories.

Got it. And I guess just from a unit share perspective, I mean, you guys have 3% to 4% unit share. So by definition, you can't be the problem in the channel. I'm just curious as the market resets after we clear all these channel inventories, do you guys expect to gain shelf space or floor space with your retail partners in a more normalized environment?

Absolutely. Look, we feel good about our channel level inventories, and we are always motivated to add floor space, our positioning is very strong both from a consumer perspective but also in correlated fashion at a retail level. So not surprising if you were to go into some of our highest penetrated markets you're going to see the broadest assortment in the most real estate and part of the way that we grow is by adding real estate. So that part of the strategy hasn't changed. We will -- as I said, as we add incremental Traeger islands and fixtures in the Home Depot in the third quarter, we'll continue to gain share of space, and we believe that will also drive share of business in the category.