What happened
Shares of grill company Weber (WEBR) popped on Monday after the company reported financial results for the fiscal third quarter of 2022. Results were pre-announced, so the market likely isn't celebrating these numbers. Rather, the market seems encouraged with the company's cost-saving initiatives, and that is likely why Weber stock was up 12% as of 11:45 a.m. ET today.
So what
In the third quarter, Weber generated net sales of $528 million, which was down a whopping 21% year over year. But this wasn't a surprise; the company released preliminary third-quarter results on July 25. And third-quarter results were inside the pre-announced range.
Falling far faster than sales were Weber's adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). In the third quarter, it had adjusted EBITDA of just $11 million compared to $134 million in the same quarter last year. Consumers have stopped buying grills, which has led to an oversupply of inventory. To move inventory, Weber management has offered discounts. And with costs rising because of inflation, lowering prices has decimated Weber's profitability.
The real news today was not the problems in the third quarter but rather what management plans to do about it. It is cutting its dividend, sourcing materials at lower costs, and cutting corporate overhead, all in an effort to deliver at least $110 million in benefits starting in fiscal 2023.
To be clear, the market appears to have given up on Weber stock. According to Yahoo! Finance, roughly 40% of the stock's float was sold short -- these are investors betting against Weber. However, it seems the market hadn't expected a positive $110 million development. And that's why Weber stock popped today.
Now what
For nearly two years, a subset of investors has obsessed with finding and buying stocks with high amounts of short interest, in hopes of inducing a short squeeze. Weber certainly fits the bill here, and it's possible the stock could have further near-term upside as investors pile in and shorts cover their positions.
However, if I were buying Weber stock, it wouldn't be because of its short squeeze potential but rather for its business fundamentals. On one hand, the company is going through a tough time right now. That said, financial results from competitors show the problem isn't specific to Weber.
Therefore, the company's struggles in 2022 could just be temporary setbacks. And if business picks back up, Weber's cost-cutting now could yield outsize results in the future.
