Is Grill Giant Weber (WEBR) Undercooked or Overdone?
Photo by Oliver Sjöström from Pexels
The pandemic MAY HAVE markED THE SMOKE pOINT for the newly public outdoor products company
Call us old fashioned, but a $848 million market capitalization for cooking meats and vegetables on an open fire feels like a lot of money. But that’s what Illinois-based Weber Inc. argued, as newly minted public shares came to market early this year.
No question, Weber cooked with gas during the recent pandemic: Stuck-at-home families invested heavily in staycation grills and cookware. Weber’s last-quarter sales were up 19%. The company tells an exciting entrepreneurial story of founder, George Stephens, inventing his Weber grill while working at an iron works factory. And CEO Chris Scherzinger, claims the operation now serves 50 million users, in 78 countries, serving 24% of the total global market.
Our interviews in the outdoor equipment supply chain confirm Scherzinger’s claims that Weber managed some serious pandemic supply-chain logistics. Retailers like Home Depot and Lowe’s reported plenty of availability, even during the darkest hours of the covid lockdown. And pricing leverage was always steep. Mid-level grill makers like Even Embers, Napoleon, and Nexgril fetched about half of what Weber charged.
The none-too-fancy 4-burner Weber grill we bought ran north of $1,200. We did not feel at all cheated.
Rich margins and deep market penetration resulted in lots of cash in hand. Weber’s cash flow from operations has jumped about 300% since 2018. And recent earnings guidance put 2021 full-year net sales at around $1.96 billion, that’s up 28% or so versus the prior year.
Out Oozes the Grease
But like any well-used piece of outdoor equipment, if you disassemble it, gunk emerges. Sure enough, grills are some of the most deeply researched consumer products available. There is a vast grill-media culture. And research outfits, like Consumer Reports, maintain fantastic datasets on grill usage. Of 5,000 users surveyed, over the past several decades, 70% used gas and 30% grilled with charcoal. Customers expected to keep their grills for 7 to 10 years.
Such low turnover immediately makes growth challenging. Weber likes to brag in its annual filings that its “wholesale channel is made up of 4,710 retailers with 31,690 physical locations.” Assuming 2021 predicted sales of $1.96 billion, per location annual revenue works out to a brisk $60,000 each. Assuming an average cost of $500 per grill, that’s 120 grills sold per location each year.
But those sales were after nearly 3 billion potential consumers were locked in their homes for nearly a year. How many additional grills can Weber be expected to sell? Our random surveys of retail locations throughout the Northeast detected plenty of overstocked Weber grills. Indeed its financials are already showing the sign of swelling supply chain: Accounts receivable jumped by around 30% from 2019 to 2020.
Company executives claim that these grills form a robust installed base, a la smartphones. So, add-ons like accessories, replacement parts, and training will drive revenues. But yet again, we detected plenty of available off-brand grilling mitts, wire brushes, and grill covers that were perfectly suitable and aggressively priced.
There is no shortage of excellent grilling training available from sophisticated media companies. Our favorite is New York City BBQ: These are serious grilling professionals, who share their opinions, with no bias toward one grill solution or another.
Weber has some odd financial bumps and bruises: The operation carries serious debt. Just after its IPO, the operation went to market with $1.2 billion in long term bonds. As of 2020, roughly 40% or so of total assets were wrapped in intangibles like trademarks, goodwill and other non-real pieces of intellectual property.
None of which scale particularly well. Attempts at a Weber restaurant have been semi-successful. There are three Weber Grills in Chicago. One is in Indianapolis. They are not bad, if you don’t mind paying $14.00 for a cheeseburger. But the Weber Grill in Saint Louis recently shuttered this past summer, another victim of slow pandemic sales.
Its grilling app Weber Connect attempts to bring grilling information to smart phones. But the Web has not been kind to this company. We remember the Weber Grills App winning a Webby award back in 2013. It was a spiffy experience that offered recipes, an online community called “Weber Nation,” grilling tips and videos. But by 2019 company statements disclosed the operation “recognized a non-cash impairment loss of $12.6 million” on its Web products.
Photo by Adam Rothbarth, via Weber Grill Restaurant
Rushed to Market
Investors need not wonder why a successful private company like Weber might try to tell a half-cooked story to a dubious public market. Heirs to the business, the Stephen family, sold the Weber brand to private equity 10 years ago. But roughly 85% of the stock is still controlled by the family heirs. From what we have heard in local community circles, the family pushed for the IPO as a means to monetize their shares, while investing fires were hot.
Suddenly the recipe for investor success is clear. Here’s a classic well-established, cash rich brand, with plenty of sales ahead, that never should have gone public in the first place. Plenty of return will be available to those who understand that it is only a matter of time before Weber returns to private ownership.
How Weber’s grills cook and why is probably beside the point.