Traeger, Inc. (COOK) Q4 2021 Earnings Call Transcript

Traeger, Inc. (COOK 0.48%)
Q4 2021 Earnings Call
Mar 23, 2022, 4:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Thank you for joining, and welcome to the Traeger fourth quarter and full year 2021 earnings conference call. [Operator instructions] There will be a question-and-answer session at the end. [Operator instructions] I would now like to turn the call over to Nick Bacchus, vice president of investor relations. Sir, please go ahead.

Nick Bacchus -- Vice President, Investor Relations

Good afternoon, everyone. Thank you for joining Traeger's call to discuss its fourth quarter and full year 2021 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 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 that 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 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, which we believe are useful supplemental measures. The most comparable GAAP financial measures and reconciliations of the non-GAAP measures contained herein such that measures are included in our earnings release, which is available on the investor relations portion of our website at investors.traeger.com. This call will also include estimates regarding market and industry data that we prepared based on management's knowledge and experience in the markets in which we operate, together with information obtained from various sources, including publicly available information released by independent industry analysts and third-party sources, as well as data from our internal research. Now, I would like to turn the call over to Jeremy Andrus, chief executive officer of Traeger.

Jeremy Andrus -- Chief Executive Officer

Thank you, Nick. Thank you for joining us for our fourth quarter earnings call. Today, I will discuss highlights from our full year and quarterly results and share our progress in executing our long-term growth strategies. I will then turn the call over to Dom to discuss details on our fourth quarter financial performance and to provide an outlook for fiscal 2022.

2021 was a pivotal year for Traeger, and we are pleased to have capped it off with a strong fourth quarter performance. We reached several milestones during the year, and I'm exceptionally proud of our team for driving the company to the next level as we continue to transform the way people cook at home. An important milestone in the history of Traeger was our successful IPO in July 2021. We also delivered record sales in 2021 and grew the top line by 44% on top of 50% growth in 2020, with grill revenues up 85% on a two-year stacked basis.

We finished the year with strong momentum and grew fourth quarter sales by 31%, exceeding the high end of our sales guidance for the year. This growth came despite the significant challenges we faced in the global supply chain. We estimated that in 2021, we grew our sales faster than the category, and our market share at the end of the year increased by more than 50% relative to 2018. We also believe we are effectively increasing the grill industry's total addressable market as Traeger's premiumization of the category continues to drive industry ASPs.

Furthermore, in 2021, we expanded our offering by launching our DTC business concept, Traeger Provisions; and by acquiring MEATER, a highly innovative player in the wireless smart thermometer category. We believe these new business lines will enhance our relationship with our existing customer installed base and drive incremental lifetime value and increased engagement beyond our core grill and consumables business. Looking beyond the incredible progress we made in 2021, I remain as excited as ever about the future of Traeger. We are still in the early stages of growth, and we have just scratched the surface in terms of our plans to penetrate the global outdoor cooking market.

Before Dom discusses our fourth quarter results and our outlook for 2022, I want to spend some time reviewing our progress on our key strategic initiatives. As we continue to drive toward our long-term objectives, our growth strategy remains centered around four strategic pillars. I will briefly touch on each of these pillars. Our first strategic growth pillar is to accelerate brand awareness and penetration in the United States.

We believe driving penetration in the U.S., with an estimated TAM of 75 million grill-owning households, is our largest growth opportunity. We ended 2021 with an installed base of 2.5 million grills, up from 2 million in 2020. Our 3.5% household penetration in the U.S. implies that we have a long runway ahead of us, as evidenced by the mid-teens penetration rates we have achieved in some of our heritage markets.

And what's more, in 2021, growth continued to be strong in our most penetrated markets, indicating that we haven't yet come close to hitting the ceiling in these markets. The momentum behind the Traeger brand is evidenced by the growth in unaided awareness, which increased meaningfully to 13% in 2021, up from 11% in 2020 and 7% in 2019. Our increasing share has been driven by our significant brand-building efforts, with a large emphasis on social. Our top-of-funnel efforts are working.

In 2021, we added 138,000 Instagram followers and 67,000 Facebook followers, an increase of 14% and 16%, respectively. Yet, more than 1 million people are Instagram follower base is the largest in the outdoor cooking sector and outpaces our largest competitor by two and a half times. Engagement on our social channels remains very healthy. In the fourth quarter, Traeger had its most successful Thanksgiving campaign in brand history, which resulted in 7 million video views, more than double than Thanksgiving 2020, and a mid-teens percentage increase in user-generated content submissions.

Our market assault strategy continues to drive strong results and legitimizes our view of material upside opportunity, awareness, and market growth. Despite pulling back on incremental marketing spend as we entered a seasonally slower period during the fourth quarter, we continue to see awareness and demand in our [Inaudible] markets, well in excess of the company average, and we are pleased with the lift in sales we saw in the quarter relative to control markets. In 2022, we intend to expand our market assault program to additional geographies, including eastward expansion to markets in the Midwest and Southeast where we see tremendous upside opportunity and awareness of the Traeger brand. Our efforts to increase awareness are bearing fruit as our most important retail partners continue to allocate more floor space to the Traeger brand.

Traeger continues to focus on driving productivity in the growing category at retail. And we are not only selling more SKUs for our largest retailers, but our partners are investing alongside us in premium merchandising of our brand. For example, at The Home Depot, we are materially increasing our SKU count across 350 doors in 2022. These doors will have a more expansive merchandising assortment, which historically has driven twice the productivity versus Home Depot doors with a more limited assortment.

Furthermore, we are quadrupling the number of Home Depot doors with high-end [Inaudible], prominently displaying the Traeger assortment in a Traeger island. These premium doors are significantly more productive than average, with materially higher conversion and a better brand presence. Our retail partnerships continue to strengthen, and we have a significant runway in front of us to expand our penetration. Moreover, we are also adding new channels of distribution.

We recently launched at Best Buy in the fourth quarter and are encouraged by early results. Our next growth pillar is to disrupt outdoor cooking through game-changing product innovation. Innovation is in our DNA, and we have a demonstrated track record of continually bringing innovation to the market. We expect that 2022 will be an inflection point in our innovation cycle, as next week, we will be launching a new grill platform, which we believe will be one of the most important launches in the company's 35-year history.

We are extremely excited about this new grill launch as it truly represents the innovation leadership of Traeger. This new grill line incorporates attributes from years of investment into consumer research and customer feedback. To put it simply, we listened to what our customer wants from a Traeger, and we are delivering. Our confidence in the strategy is reflected in the fact that our consumer replaces their Traeger grill at a 20% faster rate than the overall grill industry average.

We believe this is largely driven by our history of innovating the grill category and continually improving the consumer experience, thus setting the company up well for a strong multiyear replacement cycle. It's important to note that this launch will be a driver of innovation and newness in our grill assortment for several years, not just 2022. As in the past, Traeger's strategy is to launch powerful innovations with a select number of premium SKUs initially and to cascade new features through the rest of the assortment over the next few years. In the fourth quarter, we launched Traeger Provisions and activated influencers in social media, as well as email campaigns, to drive awareness.

We continue to be optimistic around the long-term growth potential for Traeger Provisions, and we will continue to refine the offering as we move through 2022. We aim to grow our Provisions business in a thoughtful manner, focusing on perfecting the consumer experience and the unit economics before scaling and investing into the business more aggressively. We are also driving innovation in the connected cooking space through our MEATER acquisition. Much like Traeger, MEATER is a disruptive and premium player that is using technology to enhance both the outdoor and indoor cooking experience.

MEATER has seen strong growth since our acquisition, and this growth will continue in 2022 as we expand distribution into some of Traeger's best retailer doors. Furthermore, in 2022, our new grill line will incorporate elements of MEATER's technology into the Traeger app and ecosystem. The third pillar of our growth strategy is to drive recurring revenue through our consumables business. Based on continued success, we are increasing distribution of our consumables offering in the grocery channel.

Our research shows that the Traegerhood wants consumables available where they shop every week, not just where grills are sold. In 2021, we doubled the number of grocery doors where Traeger sauces and rubs are sold. We are excited to share their distribution into the grocery channel is planned to increase this year, driven by the launch of sauces and rubs in Kroger in March of 2022. We are extremely excited to partner with Kroger and see tremendous opportunity to grow our consumables' penetration and drive brand awareness beyond our existing retail footprint.

As evidenced by this expansion in consumables distribution, Traeger's innovation extends across all our product categories, not just grills. We launched a number of successful consumables in the fourth quarter. These include two premium-priced limited edition pellet offerings in the fall, followed by our launch of two more this quarter, a bold blend and a brisket blend. Traeger also entered into the hot sauce category with Traeger Original Hot Sauce and launched two new sauces, Show me the Honey and Liquid Gold; plus two new rubs, Anything Rub and Perfect Pork Rub.

Our fourth growth pillar is to expand the Traeger brand globally. 2021 was a banner year for our international business, which made up more than 10% of revenues for the year. We see a large opportunity to use the playbook that has been so successful in the U.S. to capture share abroad.

In the fourth quarter, our international business continued its strong growth and more than doubled year over year. Our Canadian business, which is our largest market outside the U.S., is showing extremely strong momentum, with sales more than tripling versus prior year in the fourth quarter. Our European business also continued to see strong growth in the fourth quarter. In 2022, we plan to continue driving awareness and penetration of the Traeger brand across international markets through targeted marketing and localized social campaigns.

We remain highly enthusiastic about the opportunity to grow Traeger across the globe. While I'm very confident in our long-term prospects and our ability to execute on the strategic growth pillars, we are more cautious in how we are guiding to full year due to emerging macro headwinds facing the consumer. These include higher inflation, the conflict in Ukraine, and asset-price volatility. These headwinds are coming at a time when our business is comparing to a two-year period that saw accelerated demand, which benefited from government stimulus and COVID restrictions.

Despite the near-term headwinds, our three-year revenue CAGR remains very healthy and significantly above industry trends. I'd like to now discuss a topic that is impacting many companies: global supply chain and inflationary pressures. As we discussed during last quarter's call, we faced significant supply chain challenges and inflationary pressures related to our supply chain in the second half of 2021. I am proud of how well our team has navigated these unprecedented challenges.

We have continued to prioritize delivery of product to ensure that we can adequately fulfill strong demand by increasing production and by warehousing product in Asia. This has been a winning strategy, as evidenced not only by our fourth quarter top-line growth but also by the record level of on-time and full shipments we experienced during the quarter. As Dom will discuss, we are not building in any improvement in the supply chain environment or related cost pressures in 2022 into our outlook. At the same time, we are not standing still.

Rather, we are focusing on driving forward our key long-term growth strategies while simultaneously managing the business for the new near-term reality. We are actively implementing cost mitigation strategies to help bolster our short and medium-term gross margin profile. These strategies include price increases, which are the most immediate mitigation tool, as well as manufacturing, logistics, warehousing, and product design efficiencies, which will benefit margins over the medium to long term. We plan to open our new Mexico facility for mass production at the end of this year and are evaluating long-term opportunities to bring more of our manufacturing closer to our core market in the U.S.

Further, our product team is bringing innovation to our production model, with a focus on creating game-changing product more efficiently. The organization is hyper-focused on identifying and executing on gross margin-enhancing initiatives. Additionally, in the face of increased costs and an uncertain macroenvironment, we are aggressively managing our cost structure. We are strategically reducing and deferring certain nonessential expenses and are thoughtfully reprioritizing near-term SG&A to manage the P&L.

We believe this discipline is prudent given the environment. It is critical to note that we are focused on protecting the core drivers of our brand's health and are not compromising in any way our customer experience or product innovation engine. Stepping back, we hit several major milestones in 2021 and ended the year with strong growth in the fourth quarter, allowing us to exceed our full year revenue and EBITDA guidance. We are making significant progress on our key strategic growth pillars, yet remain in the early stages of achieving our potential.

Despite near-term challenges, I am extremely bullish on our business and on our ability to capitalize on our tremendous long-term growth opportunity. With that, I'll turn the call over to Dom.

Dom Blosil -- Chief Financial Officer

Thanks, Jeremy, and good afternoon, everyone. As Jeremy noted, we are pleased with our performance in the fourth quarter and remain confident in the long-term growth opportunity for Traeger. As an organization, we are focused on driving toward our long-term goals while also navigating a highly fluid near-term environment. I will start by reviewing our fourth quarter results, and then we'll discuss our 2022 outlook, as well as provide an update on our first quarter trends.

Fourth quarter revenues increased 31% to $175 million, driven primarily by growth in grills and accessories. Grills' revenue was up 9% to $101 million, following a 70% increase in the fourth quarter last year. Growth was attributable to a higher average selling price, driven by price increases taken in the second half of 2021, partially offset by slightly lower unit volumes. Fourth quarter unit volumes were impacted by the exit of an unprofitable distribution channel and would have been up low double-digits, excluding prior-year sales to this channel.

Consumables revenues declined 19% to $26 million compared to the fourth quarter of last year, reflecting a normalization of seasonal ordering patterns against a very strong fourth quarter 2020 when our consumables revenue was up 121%. Finally, accessories revenues increased 425%, driven by incremental revenue from the acquisition of MEATER and strong growth in Traeger accessories. Looking at performance by market, we continued to see strong momentum in the U.S., as well as exceptional growth in Canada and rest of world. We are in the early stages of growth abroad, and we remain highly optimistic about the opportunity to grow globally.

Gross profit for the fourth quarter increased to $65 million, from $51 million last year. Gross profit margin was 37.4%, down 80 basis points to last year. As we've discussed previously, inbound freight rates spike to unprecedented levels in the second half of 2021 and continued to be our largest year-over-year margin headwind in the fourth quarter. Higher inbound freight costs negatively impacted gross profit by over 550 basis points in the fourth quarter.

Amortization of intangible assets related to the MEATER acquisition and increased warehousing expense, driven by investments in additional capacity, were also dilutive to margin. Offsetting these pressures was margin favorability of 380 basis points, driven by our pricing actions in grill mix. Other positive drivers of gross margin include lower outbound freight, driven by the exit of a higher cost sales channel; a higher mix of customer orders fulfilled via our direct import program; and favorability in WiFIRE connectivity cost per grill, largely due to a one-time accrual true-up. Sales and marketing expenses were $39 million, compared to $29 million in the fourth quarter of last year.

The increase was primarily driven by advertising costs related to MEATER, which is not a component of the 2020 comparable period. The increase was also driven by higher equity-based compensation expense of $3 million due to the restricted stock units issued under the Traeger 2021 Incentive Award Plan, as well as higher personnel-related expenses associated with an increase in headcount in our marketing, customer experience, and sales functions. General and administrative expenses were $44 million, compared to $15 million in the fourth quarter of last year. The increase in general and administrative expenses was driven primarily by higher equity-based compensation expense of $16 million due to the restricted stock units issued under the Traeger 2021 Incentive Award Plan, higher personnel-related expenses, increased professional service fees related to nonroutine costs for our Traeger Provisions platform, and nonroutine legal expenses.

As a result of these factors, net loss for the fourth quarter was $34 million, as compared to a net loss of $3 million in the fourth quarter of last year. Net loss per diluted share was $0.29, compared to $0.03 in the fourth quarter of last year. Adjusted net income for the quarter was $4 million, or $0.03 per diluted share, as compared to adjusted net income of $4 million, or $0.03 per diluted share, in the same period last year. Adjusted EBITDA was $14 million in the fourth quarter, as compared to $14 million in the same period last year.

Adjusted EBITDA for fiscal year 2021 was $109 million, above the high end of our prior guidance range of $103 million to $108 million. Now, turning to the balance sheet. At the end of the fourth quarter, cash and cash equivalents totaled $17 million, compared to $12 million at the end of the previous fiscal year. We ended the year with $379 million of long-term debt.

Additionally, at the end of the year, the company had drawn down $9 million on its revolving credit facility and $41 million under its receivables financing agreement, resulting in total net debt of $413 million and a net leverage ratio of 3.8. Inventory at the end of the fourth quarter was $145 million, compared to $69 million at the end of the previous fiscal year. The increase in inventory was driven by three factors. First, we have made a deliberate decision to lean into higher inventory levels to ensure adequate supply for demand due to supply chain constraints.

Second, the cost of inventory has increased due to certain macro pressures I referenced earlier, largely driven by higher inbound transportation expense and higher input costs. Lastly, approximately $12 million of the inventory increase is related to MEATER, which was not in the inventory base in 2020. We remain confident that we have the right inventory balance to meet expected demand, and we continue to invest in the higher levels of safety stock in response to persistent supply chain challenges. Turning to our guidance for fiscal year 2022.

For the year, we expect revenues of $800 million to $850 million, implying a year-over-year increase of 2% to 8%. We expect adjusted EBITDA of $70 million to $80 million. And we provide additional color around our operating assumptions. In terms of sales, we are guiding to top-line growth that is below our historical growth rate.

So, that implies growth that is well in excess of our long-term targets on a multiyear basis. There are two central factors that are influencing our 2022 sales guidance. Firstly, we are comparing against a two-year period of extremely strong growth, and therefore, expect some normalization in our multiyear growth rate. This is reflected both in sell-through, which benefited from government stimulus and accelerated materially in the first half of 2021, as well as sell-in, which outpaced sell-through in the first half of 2021, as retailers restock low channel inventories.

Secondly, we are taking a more cautious approach relative to consumer behavior in our 2022 planning given emerging pressures on consumer confidence. These include broad-based inflationary pressures and growing geopolitical risks. Looking at current trends, we have seen a deceleration in sell-through at retail over the last several weeks, coinciding with these growing pressures on the consumer, and are assuming a continuation of these trends in our 2022 revenue guidance. These dynamics will disproportionately impact first quarter revenue growth, which was our strongest growth quarter last year.

We expect that quarterly revenue seasonality after the first quarter in 2022 will look similar to 2019, with lower seasonality in Q2 versus 2019 and higher seasonality in Q4, which is MEATER's largest quarter. Specifically for grills, the midpoint of our full year guidance assumes that grill revenues in the first half of 2022 are down double digits as we lap a strong sell-in experienced in the first half of 2021. We expect sequential improvement in grill revenue growth in the back half of the year relative to the first half. However, we are assuming negative grill revenue growth for the full year.

We know that our grill business has delivered strong multiyear growth. And even with this decline, 2022 grill revenues are expected to have grown at a three-year CAGR in the low to mid-20% range. In terms of gross margins, we are expecting continued pressure versus 2021's full year growth rate and are modeling a full year gross margin range of 34% to 35%. In order of magnitude, we expect the annualization of higher inbound freight rates and increased input costs to be the largest drags on our gross margin.

We expect these pressures to be partially offset by pricing actions taken in the second half of 2021 in the first quarter of 2022. For a pacing perspective, we expect gross margin in the first half of 2022 to be higher than our full year rate. I'd like to spend a moment putting inbound freight costs into perspective, as this is the largest driver of gross margin decline relative to our 2020 gross margin rate of 43.1%. Compared to pre-pandemic levels, container costs have increased by a factor of three or four times, and we are seeing increases in excess of $10,000 per container.

Having shipped over 6,000 containers in 2021, the cost of inbound transportation materially impacted both gross margin and EBITDA. We expect that inbound container rates will track above $10,000 through 2022, which will continue to pressure gross margins. In terms of SG&A, we are tightly managing expenses to help offset the continued margin headwinds. We'll continue to invest in the core growth engine but will delay other investments as we navigate a highly fluid macroenvironment.

Note that SG&A in the first half of 2022 will be comparing to the period before MEATER was in our expense space. While we typically do not give quarterly projections, we are providing first quarter guidance as we are 11 weeks into the quarter. We are expecting first quarter revenues to be between $208 million and $212 million, implying a decline of between 10% and 12%, with grill revenues expected to decline in the low to mid-20% range, offset by materially higher accessories revenue driven by MEATER. We expect first quarter gross margins to decline sequentially compared to fourth quarter's rate and expect EBITDA in the range of $22 million to $24 million.

Looking beyond 2022, I want to touch on some of the medium to long-term gross margin drivers we have in place. Firstly, price is a key lever that we will continue to evaluate to manage margins. We implemented two price increases in the back half of last year and raised the price again on certain grills and accessories and on pellets in early 2022. Secondly, we were thinking transformationally around design and production.

We are working together to drive changes in design, manufacturing, and supply chain processes, which we believe will result in higher product margins and lower costs. Further, we will work to optimize the assortment over the medium to long term, launching products that are accretive to our overall margin profile. Overall, we continue to feel extremely optimistic about Traeger's long-term growth path as we continue to disrupt the outdoor cooking industry with new product innovation of the Traegerhood, increase brand awareness and penetration, and expand Traeger abroad. And with that, we'll open the call to questions.

Operator.

Questions & Answers:

Operator

Thank you. [Operator instructions] We have our first question on the phone lines from Randy Konik of Jefferies. Sir Randy, your line is open.

Randy Konik -- Jefferies -- Analyst

Yeah. Thanks a lot. I guess, Dom, this question is more for you. You know, can you give us some added perspective and color on just how much sell-through has slowed and then just how much that has caused sell-in to change? Just curious there.

And then I think last quarter, in the third quarter, there was this trend line where you were seeing ASPs up through mix shift. So, is the mix shift now changing to where the consumer is becoming more price-sensitive that's informing you to get a little bit more guarded on the macro, or -- I'm just trying to get a sense of how much of this revenue caution is a function of, you know, a true change in how the consumer is buying and becoming maybe more price-sensitive rather than maybe there are some COVID demand hangover in the outlook or what have you? So, just curious there. Thanks.

Dom Blosil -- Chief Financial Officer

Yeah. Yeah, definitely. See, on the first question, with regards to sell-through. We -- you know, how we model demand internally is we sort of fit the model between sell-in and sell-through trends, and we forecast sell-through.

And we've been watching this obsessively really since the beginning of time, you know, when Jeremy and I started. But certainly, as we implemented price increases starting in late Q3 and then with a second price increase in Q4 and then subsequently a new -- a price increase in early Q1 of this year. And I would say, you know, two things. One, there were really no outliers when we implemented price that would suggest that it was potentially the wrong decision.

We understood that there were some trade-offs between volume and price, you know, that, in effect, is helping sort of offset the cost pressures. And so, right decision for sure. And, you know, largely, the sell-through trends were tracking in line with our forecasted expectations until about three weeks ago, in which case, you know, we were surprised to see a fairly substantial deviation from our sell-in -- our sell-through forecast. And so, you know, we're sort of reacting to that without, you know, recognizing that it's based on two data points, with a third positive data point based on the latest sell-through trend.

And so, it's something that we're trying to get a little bit smarter on, but believe that it's important to react based on limited points of data to ensure that we can stay nimble throughout the course of the year in the event that these sell-through trends continue to decline beyond our expectations. And, you know, in conjunction with that, we actually believe that over the last three weeks, these trends coincide with some of the macro factors that are probably placing additional pressure on consumers. In terms of, you know, channel mix, I'd say two things. I think the first is that, you know, when we raised price about $1,000, I think we validated a fair amount of inelasticity at those price points.

I think what we've learned, and I think this is something that's accelerating in the sell-through trends, is that there's a little bit more price sensitivity below $1,000. And that's something that, you know, we're sort of thinking through as the year progresses in the event that, you know, we want to pivot or make a different decision there. So, that's something that we'll continue to evaluate. But there are multiple factors baked into, you know, these trends that we believe require patience, but certainly, prudence as we manage our P&L and potentially reshape it based on new these sort of new -- these new norms and then 2022.

And I think what gives us comfort is that although we recognize there was a pandemic pull forward, if you look at kind of a two and a three-year stack on sell-through trends, they're incredibly strong, right? And so, we're dealing with a very challenging Q1 comp from a sell-through standpoint. But there has been sort of, you know, an increase to the watermark at which this business can perform that we believe, you know, sort of reset the bar at a higher level. And obviously, that doesn't change the fact that Q1 comps will be challenging regardless. And, you know, we anticipated some of that.

They just can't -- they're just accelerating. And so, it's something that we'll continue to watch. But that's sort of the dynamics that that play today.

Randy Konik -- Jefferies -- Analyst

Got it. And then just last question is on the down year-over-year anticipated EBITDA dollar guide. Is that effectively -- you know, is that all freight kind of increases factoring into that number being a lot lower? Just want to -- just unpack that a little bit more. Obviously, there's a lower sales kind of expectation.

But I'm sure there's a margin compression angle. So, I'm just curious what that is.

Dom Blosil -- Chief Financial Officer

Yeah, there definitely is. So, you know, as we think about gross margin for a full year, we're sort of pegging a range of between 34% and 35%. It's really a tale of two halves, right? I think when you look back to 2021, H2 is when we really felt and we were somewhat surprised by the dramatic increase in inbound transportation costs. That, clearly, is annualizing, you know, for full year 2022, which is placing, you know, extra sort of pressure on the first half of this year.

And that certainly is one of the larger factors. I'd say the second factor that, you know, we're sort of anticipating, which isn't fully reflected in what we're seeing in Q1 per se. But just based on where oil prices have gone and the fact that we have seen steady increases in outbound transportation costs, we're anticipating in our model that that becomes a somewhat more substantial headwind in 2022. So, those are a few factors that we're watching closely.

Clearly, there are other components to the gross margin pressure as we annualize some of the input costs or commodity costs tied to our grill, specifically, where we felt more of that in the back half of last year, which is now annualizing this year. And so, you know, fortunately, the price offset is a nice addition to how we sort of manage through this period of volatility. But there are, you know, pressures persisting on the transportation side that we don't anticipate to alleviate this year. In fact, there are signals that they may increase relative to what we were seeing last year, especially on the fixed side of contracts.

Randy Konik -- Jefferies -- Analyst

Understood. Thank you so much.

Operator

Thank you, Randy. We now have the next question from the phone lines from Peter Benedict of Baird. Sir Peter, please go ahead.

Peter Benedict -- Baird -- Analyst

Hey, guys. Thanks for taking the question. So, I guess two questions. One, I'm curious if you have any stats to share around grill usage trends, maybe what you saw last year, how that's compared? Is that kind of top out? Does it continue to improve or is it slowing, and a read on consumables from that? And then can you give us more color on what channel you exited? I think, Dom, you had mentioned that as a factor in 4Q.

That's our first questions.

Dom Blosil -- Chief Financial Officer

Yeah, definitely. Yeah, so on grill usage, yeah, we haven't measured any trends that are contrary to what we've seen in -- what we've measured over the last, you know, call it 18 to 24 months. I think the trends are still positive. Consumers continue to be engaged with the product.

And I think, you know, for -- you know, based on the IoT connected grills that we can sort of measure usage by, it's positive. And so, we're certainly happy with that. There really hasn't been -- you know, if you think about these macrodynamics, they don't necessarily impact how consumers engage with our product post-purchase. On the consumables side, we have been anticipating some normalization of attach.

You know, as you look at '19 compared to '20 and then certainly the overhang in '21, there was definitely a spike in attach. And we're seeing that normalize somewhat, you know, as we kind of track through the back half of '21 and anticipate that that may sort of find the right normal in 2022. And we never, you know, believe that the 2020 levels were going to persist. So, you know, no red flags there.

We're happy with how, you know, our consumables business is tracking, the attachment rates, as well as just grill usage, generally, across our connected products.

Jeremy Andrus -- Chief Executive Officer

You know, I would just add one other data point that I think is relevant. Super Bowl of this year was our largest cooking day, a brand engagement day ever. Connected cooks were up 55% year over year from the prior year's Super Bowl. So, you know, I shared some of the brand engagement statistics on social.

We're seeing it validated from a cooking behavior perspective as well.

Dom Blosil -- Chief Financial Officer

And then can you repeat the second question?

Peter Benedict -- Baird -- Analyst

Yeah. I'm just curious on the channel -- the unprofitable channel that you exited.

Dom Blosil -- Chief Financial Officer

Oh, yeah, yeah. Sorry. Yup. Yeah, we won't give specifics on the channel.

It's been a great channel for the brand for a number of years. Unfortunately, the way the program is configured, it just doesn't work in this macroenvironment from a transportation cost standpoint. And so, it became unprofitable, and we made a decision to shutter that business. And so, you know, when you normalize for that component, both on a full year basis, as well as in Q4 specifically, there's actually a fairly meaningful return to growth on the Traeger side of the business, both from a unit and a revenue standpoint.

We -- it was definitely the right decision, especially in this environment. You know, we don't want to operate in channels that are dragging profitability and/or operating at a loss. And that was the genesis of the decision to pull away.

Jeremy Andrus -- Chief Executive Officer

Yeah, I would just add, it was not a core channel to our business, and it was not a growing channel. Yup.

Peter Benedict -- Baird -- Analyst

OK. Great. Thanks, guys.

Operator

Thank you. We now have another question from Simeon Siegel of BMO Capital Markets. Sir, please go ahead. I've opened your line.

Simeon Siegel -- BMO Capital Markets -- Analyst

Great. Thanks a lot, guys. A quick -- few quick ones from me. So, do you guys have a view -- the latest data point, the sell-through, do you have a view of whether that was Traeger or industry? So, we'd love to hear that.

The second thing, I think you mentioned pricing on the pellets. What do you -- what are you seeing on that supposed that test or that price? And then just a little higher level, Jeremy, your comments about this coming year sound really exciting qualitatively. So, maybe as you think about within that guidance and the conservatism as appreciated, so as you think about that. Dom, any way to think about units versus price, how you're thinking about that built into your grill revenue? Thank you.

Jeremy Andrus -- Chief Executive Officer

Yeah, so, Simeon, let me hit the first one. You know, we do track market share. And, you know, we will -- we'll know more when we see the first quarter market share. I can say a couple of things qualitatively.

What we hear from our retail partners is that the category is down and that Traeger is down less than the category. So, our expectation is that we will continue to take share as we have done historically. You know, the other piece I would add, and again, this is anecdotal. I have been to two trade shows over the last three weeks.

And we've spoken to hundreds of retail partners and shop owners, shop managers, and the brand energy is as strong as it's ever been. So, our belief is that the position is exactly what it has been, that it's growing, and that we will fare better than the category in 2022.

Dom Blosil -- Chief Financial Officer

Yeah, on grill ASPs, I mean, when we made the decision to raise price, you know, there was clearly -- that decision was clearly made in an effort to obviously manage the higher costs to sell our product. And we understood that that would come at the cost of some unit volume. And so, that was definitely deliberate. As we fast forward to 2022, you know, we will look at kind of sub-$1,000 and determine, you know, as we, you know, better understand data if we need to make adjustments to our entry price points.

Certainly not something we're going to do in the immediate term, but something that we will look at kind of -- well, I should say short term, but kind of we'll look at medium to long term. And, you know, from an ASP standpoint, we are seeing meaningful growth in ASP for grills in 2022, which is certainly driven by the price increases that we made, as well as the introduction of new innovations, which from a channel mix standpoint, will also elevate ASPs.

Jeremy Andrus -- Chief Executive Officer

Yeah, and I would just add, our expectation is that units will be up double digits on a three-year CAGR in 2022 based on the guidance that we've shared.

Simeon Siegel -- BMO Capital Markets -- Analyst

Great. Thanks. And, Dom, did I mishear, did you talk about taking pricing on pellets as well?

Dom Blosil -- Chief Financial Officer

Oh, yeah, we did take price on pellets. Yup.

Jeremy Andrus -- Chief Executive Officer

Yup.

Simeon Siegel -- BMO Capital Markets -- Analyst

Any year-over-year impact?

Dom Blosil -- Chief Financial Officer

And I think -- yeah, yeah, no -- yeah, no signals that it had really any impact, whatsoever. I think that that continues to be a great sort of embedded revenue stream for the brand. I think we've -- we have permission to take price there in part because, you know, I think the offering, as we think about price pack architecture and sort of premiumization of the experience with our pellets, the quality, the packaging, you know, we invest in that product. And therefore, we believe that we have some permission to take price.

I think when you look at kind of an average or a blended average price increase for the 2022 period, it's probably like $1.50 to $2. And that really hasn't impacted, you know, unit volumes based on what we can measure.

Simeon Siegel -- BMO Capital Markets -- Analyst

Great. Thanks a lot, guys. Best of luck for the year and looking forward to seeing you [Technical difficulty]

Operator

The next question comes from John Glass of Morgan Stanley. Sir, please go ahead when you're ready, John.

John Glass -- Morgan Stanley -- Analyst

Thank you. Good afternoon. First, Jeremy, your grill that you're launching next week, can you already provide what the ASP is? Like what is that relative to your baseline high-end grills? And how meaningful is that in your forecast -- the sales forecast for '22? Is that a meaningful contributor this year or do you think this is in your investment, you sort of get ahead of it and talk about the grill, the marketing perspective, but you think the impact is more in '23 from a sales perspective?

Jeremy Andrus -- Chief Executive Officer

So, first off, I would love to tell you much more about it. What I can tell you is that it is premium. It is meaningfully premium to the top end of our line right now. And again, as I said, you know, if you look at our history of cascading innovation, we launched Timberline in 2017.

We brought all of that technology, plus additional technology in the Direct Drive, all the way down to our Pro 7 -- 575, which was priced at 799 at the time. So, this is premium. It will contribute to sales. We believe those sales will come mostly from specialty given that's where it's going to be largely distributed.

And, you know, we -- it's not a meaningful driver of sales in the year, but we expect that the platform will create very meaningful sales in '23 and beyond.

John Glass -- Morgan Stanley -- Analyst

That's helpful. Thank you. Would you also remind us what proportion of your sales are in that sub-$1,000 category where you're seeing price sensitivity? And, Dom, did you, for conservatism's sake, baked in, you know, into the forecast if there is going to be maybe pricing actions? I'm assuming you're thinking reductions to stimulate sales. Did you forecast that in your gross margin, you know, forecast so to be conservative, or would we have to rethink gross margin if you were to do some pricing actions in the sub-$1,000 grills?

Dom Blosil -- Chief Financial Officer

Yeah. So, it's Dom. On the first question, no, that is not in the model. Again, this is sort of a reaction to a couple of weeks of sell-through data.

So, it's something that we'll watch. You know, there are other ways to manage the margin to the extent that we do lower price on entry-level grills, where we're learning that our consumers are more sensitive, which I think is also compounded by the fact that, you know, we're in this period of record inflation, at least over the last 30-plus years, as well as just maybe some of the other aspects to the macro that are putting pressure on consumer. And so, again, it's something on the table. And to the extent that we lower price and believe that's the right decision, it may come with some offsets that allow us to sort of manage the margin impact accordingly.

And then, you know, obviously, from a unit volume standpoint, as you sort of look at the spread across our various price points, we certainly do a lion's share of the volume below $1,000. And I would say that it's probably, you know, weighted slightly higher to products below $1,000 on a revenue basis and maybe slightly less above $1,000. But there's more parity between the two price bands on a dollar basis than on a unit basis.

John Glass -- Morgan Stanley -- Analyst

OK. Got it. Thank you.

Operator

Thank you, John. We now have Peter Keith of Piper Sandler. Sir, please go ahead when you're ready, Peter. Your line is now open.

Unknown speaker

Hi, guys. This is Matt on for Peter. Just two quick ones from me, kind of both related to gross margin. I think the trajectory of your input costs, we're kind of just curious on what we should be monitoring and maybe what are the main components in your grill steel? And then also kind of in regards to freight, can you remind us of your exposure in terms of your contract versus spot market exposures? And I guess will there be a difference in 2022 versus last year? Thanks.

Dom Blosil -- Chief Financial Officer

Yeah. So, on the commodity side, I would say that, you know, steel represents, you know, a large component of the landed cost or the material cost of our grills. And we're certainly sensitive there. And, you know, as you think about the rising cost of components, which we're reliant on, electronics, you know, chipsets, you know, those are factors that will, you know, anniversary this year and create some incremental margin pressure.

On the inbound transportation side, you know, we are heading into a period where we'll start to lock in, you know, more fixed rates. Those fixed rates will be, you know, well above where we locked fixed rates in 2021. And, you know, we're also feeling some pressure as a lot of these carriers are asking for two and three-year contracts, which could be signaling that they believe there is maybe some pressure that they could feel on the pricing power that they've benefited from up to this point, especially if, you know, we enter into a recession and there's maybe a shock to demand, which we believe would potentially put pressure on those prices and would benefit, you know, consumer goods manufacturers. And so, we're navigating what is a fairly complex environment right now because the trade-off really is do you lock in rates that are fairly unfavorable and, you know, lock those in for two to three years, knowing that there's a probability that rates come down for a variety of reasons, one of which would be demand, and balancing that with the need to ensure that we can lock in capacity because that has been a risk.

And I think where we're leaning is we'd prefer to float more of our mix of containers versus lock in at elevated rates at two and three years. You know, it certainly creates a little bit of risk. But to the extent that we believe we're in a good inventory position, which we'll continue to lean into for a period of time, we prefer to avoid a situation where we're locked in at, you know, $10,000 to $13,000 a container for the next three years if things -- you know, if those container rates shift south. So, it's a little bit of a bet, but we believe it's the right one, and we are locking in some fixed at higher rates just to sort of secure a baseline of predictable containers.

But the other component that we believe as a benefit is our DI program, right? So, we launched that program with Home Depot. That takes multiple touches out of our supply chain. We believe that's an important initiative. We're evaluating it with other key partners that can offset, you know, meaningful volume on an annual basis that we're bringing into the U.S.

And therefore, you know, that would provide a little bit more flexibility where we can lean on their pricing power, you know, bargaining power to drive their -- you know, to take advantage of their lower container costs and shift that risk away from Traeger. So, that's kind of the balance that we're navigating. And I think, you know, patience is really important because, again, it's hard to believe that these rates persist for the next three years. And there's a reason carriers are asking for two and three-year contracts, right? And so, that's kind of how we're positioning it today, manage risk that we're comfortable with, but provide enough, you know, sort of cushion within our needed capacity on containers to take advantage of any downward trend in prices over time.

Unknown speaker

That makes sense. I appreciate it.

Jeremy Andrus -- Chief Executive Officer

Operator.

Operator

Thank you. We now have Sharon Zackfia from William Blair. Sir, please go ahead when you're ready, Sharon.

Sharon Zackfia -- William Blair -- Analyst

Hi, good afternoon. Not a sir yet, but the year is still young. So, on the door count. You talked about entering Kroger in March and Best Buy in the fourth quarter.

Can you talk about as we think about grills and accessories and consumables, how much do you expect the door count to increase in 2022 for those categories relative to '21 when all is said and done? And then on the Mexico facility, you know, just assuming things are where they are as it relates to trade and so on, how much benefit would you see to gross margin from Mexico in '23 and how much of your production can you actually flow through Mexico?

Jeremy Andrus -- Chief Executive Officer

It's Jeremy. Great questions. On the consumable side, I would say, you know, over the past couple of years, we've been focused on driving pellets into grocery just given the convenience and what we've learned in our consumer research. On the rubs and sauces, you know, we really haven't sold them meaningfully outside of our core channels.

And so, they will -- it will increase dramatically in terms of distribution, number of doors. So, that is -- that will be meaningful. In terms of Mexico, I guess I would step back and say, you know, it takes time to both open a facility, refine process, get efficient, and meaningfully scale volume. And so, I would expect, you know, to -- as we see the macroconditions, particularly around transportation move in our favor, that we will see more of that first as a contributor to cost.

But I would also say that, you know, the -- if there is a positive to what we're experiencing right now, we are absolutely thinking about configuring our business differently longer term. And so, more methodical and thoughtful design for manufacturing from a product perspective. We're thinking differently about how and where we manufacture, where we assemble. Those won't impact '23.

But we certainly believe that they will impact '24 and beyond and that they will be very meaningful. So, we are innovating on how we manufacture. But I would expect '23 to be driven more by the microenvironment, and we'll see what it looks like when we get there.

Dom Blosil -- Chief Financial Officer

And I think I would just maybe add to that, you know, I think long term, the goal is to diversify our sourcing base. And to the extent that, you know, we've built and sort of configured Mexico in a way to scale appropriately, you know, we could envision sort of an equal weighting of volumes -- or sort of manufacturing volumes across each location. And I would just add to Jeremy's comment, too, this isn't simply about, you know, optimizing the cost of -- you know, that sort of the material cost of the grill, excluding the burden, which is largely transportation. I mean, that piece, in and of itself, you know, coming, you know, pre-pandemic was certainly a manageable component of landed costs.

It is substantial. And to the extent that there are structural changes to inbound transportation prices, where they may not, you know, sit at $10,000 to $15,000 but could find their way down to 5,000, depending on which port -- you know, which coast they're shipping to, that is a massive opportunity that ties into what Jeremy is talking about, where, you know, we design for manufacturability but also explore ways to increase loadability on a container which, you know, I think, there are some really exciting learnings there that could dramatically improve the cost structure and help manage through both medium and long-term risk to the extent that these container rates become structural, you know, longer term. So, we have some really exciting levers that I think are the, you know, sort of build off of this environment. And it's requiring a rethinking.

And I think we can find some real nice margin improvements as we sort of track toward these initiatives.

Sharon Zackfia -- William Blair -- Analyst

Can I ask one quick follow-up? Are there any provisions, start-up costs that we should expect bleeding into '22?

Dom Blosil -- Chief Financial Officer

Yeah, great question. So, you know, I think as we look at 22, we're clearly reconfiguring SG&A, or I should say sort of resizing it based on our long-term financial model, right? I mean, that really guides how we manage investment capacity. And, you know, with 800 basis points of sort of margin compression from, you know, kind of 2020 to 2022, at least as forecasted, it just requires that, you know, our SG&A reset so that it's in line with our long-term financial model. And so, that's kind of goal No.

1. And within that, you know, we are going to focus directly on the core, right? Like that's a guiding principle. We want to ensure that, you know, within our -- that focus, you know, we're really driving in year high return investments and maybe saving other longer-term investments or pacing those differently because certain things can wait, right? Like I think priority No. 1 is navigate through what is becoming a fairly challenging 2022.

And we'll stay nimble to the extent that trends improve and sort of, you know, increase investment capacity to then maybe accelerate certain investments that we're going to delay. And that ties into provisions as well, right? Like in this environment, it's just hard to, you know, keep a new initiative or a new business unit sort of pacing from an investment standpoint as it was previously designed. And just given the size of the TAM and the belief that this could be something that's meaningfully accretive in the business long term, there's sufficient time and, I think, permission to be patient. So, we're going to scale that back fairly dramatically and really focus, you know, with the team in place on continuing to test product-market set, optimize unit economics, and keep kind of overhead low, and really manage burn rate well below, you know, what you saw in 2021 to the point where it just won't be impactful to SG&A.

So, that is a component of sort of how we're reconfiguring or resizing SG&A this year.

Sharon Zackfia -- William Blair -- Analyst

OK.

Operator

Thank you. We now have our final question on the line from Joe Feldman of Telsey Advisory Group. Sir, please go ahead, Joe.

Joe Feldman -- Telsey Advisory Group

Great. Thanks for taking the question, guys. I wanted to ask, on the inventory, you did a great job of explaining, you know, why it's elevated. But I guess I'm just curious, have you leaned in a little too much at this point considering the sell-through that you're forecasting for this year? And maybe how should we think about, you know, the inventory level through the year? Like, will it end more at a flattish level just given the big increase we just saw this quarter? How should we think about that?

Dom Blosil -- Chief Financial Officer

Yeah, it's a great question. I would say, no, we haven't leaned in too heavy. I mean, when you look at how uncertain the macro is and the fact that even, you know, the COVID-19 piece continues to kind of rear its ugly head in Asia or in China specifically, and just how draconian they are when there's a single case and, you know, suddenly they're shutting down offices and closing ports, you know, maintaining a heavier inventory balance is definitely the wise thing to do. And I think it's a real advantage we have today.

And so, you know, it's taken -- it's definitely an investment that we've made. And we are carrying higher inventory levels than ever before. Obviously, there have been some shifts in our forecast this year based on the sell-through trends, which we'll continue to watch. But I think I'd say two things to answer your question.

One, you know, we don't deal with obsolescence, right? And so, this is full-price, healthy inventory. It's just heavier. I'd say, two, we do have -- you know, we are resetting, you know, the inventory levels to the extent that what we're seeing in these sell-through trends persist, and anticipate that by year-end, we will bring those inventory levels down. So, you know, where last year, you're looking at DSOs on an annual basis of roughly, you know, 111 days.

You know, we think that, you know, it's appropriate to maybe target something closer to four terms by year-end and to ensure that there's a positive sort of cash flow component to working capital by end of year. So, we'll definitely rightsize inventory as we persist through the year and sort of learn new things. And our demand planning team is, you know, tied to the hip with the sales team, with our factories in China. This is something that we manage on a weekly basis and have, you know, real sort of -- you know, we have, you know, levers and/or, you know, flexibility to sort of fine-tune our inventory position as we track through the year, as we sort of marry kind of the macro risk with, you know, trends either north or south, based on what we're seeing in sell-through.

So, we don't -- we feel comfortable with our inventory position. But clearly, with the pressure that gross margin is placing on cash flows and on EBITDA, that is something that we will be focused on to ensure that we're optimizing working capital in accordance with that dynamic.

Joe Feldman -- Telsey Advisory Group

Got it. That's really helpful. Thanks for explaining that. And then just the follow-up I had was I know you guys talked a lot about new doors, both for grills, for consumables.

Can you quantify like just the number of new doors you're thinking of this year or roughly? It just might be helpful for us.

Dom Blosil -- Chief Financial Officer

Yeah. I mean, I think what -- yeah, where you'll see the largest increase in doors would be on the consumables side. So, you know, the relationship with Kroger. You know, I wouldn't anticipate significant, you know, door increases on the grill side.

I think, you know, our points of distribution for grills are largely locked in. And, you know, we continue to explore new opportunities. But in 2022, you won't see much retail expansion on the grill side.

Joe Feldman -- Telsey Advisory Group

OK. That's helpful. Thanks, guys. Good luck with this quarter.

Thank you.

Dom Blosil -- Chief Financial Officer

Thank you.

Operator

I'd like to hand it back to the team for some closing remarks.

Jeremy Andrus -- Chief Executive Officer

I just want -- thank you. I wanted to say, first of all, we appreciate the thoughtful questions and conversation. And just add that from my original -- my initial comments, I not only have deep confidence in the position of this business, this brand long term, but even more confidence in the quality of our team. This team is committed.

They're fired up. They're ready to not just grind out the current moment, but build something significantly more compelling for the future. And we're excited about it. So, we appreciate it.

Look forward to being in touch over the coming weeks.

Operator

[Operator signoff]

Duration: 69 minutes

Call participants:

Nick Bacchus -- Vice President, Investor Relations

Jeremy Andrus -- Chief Executive Officer

Dom Blosil -- Chief Financial Officer

Randy Konik -- Jefferies -- Analyst

Peter Benedict -- Baird -- Analyst

Simeon Siegel -- BMO Capital Markets -- Analyst

John Glass -- Morgan Stanley -- Analyst

Unknown speaker

Sharon Zackfia -- William Blair -- Analyst

Joe Feldman -- Telsey Advisory Group

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