Dom Blosil: Yeah. So I guess I’ll answer that second question. I’ll let Jeremy hit the first. But I think ultimately, we’re not guiding to category level growth in 2023. But from an Accessories standpoint, it’s segmented obviously between Traeger Accessories and MEATER. And MEATER has been a nice grower in this business. And you’ll — if you look at Accessories growth in Q4 for example of 2022 relative to say 2019 pre the acquisition of MEATER there’s been a substantial increase or the CAGR is fairly robust, right? But independent of that we’ve actually seen growth on the Traeger Accessory side as well. And so I think we’re really happy with kind of the portfolio of Accessories and how those are performing. And I’m particularly excited about the addition of MEATER and what that could mean as part of kind of our long-term growth algorithm in the future.
Jeremy Andrus: Yeah. I would add, we’ve got a great business. It’s a great product. It’s a phenomenal team. I was in our UK office about a month ago and continue to believe more in that opportunity and really the thesis behind why we acquired it. MEATER is mostly — most of their revenue is digital in nature of e-commerce. And that hasn’t changed much since we bought it. We are undoubtedly — given our capabilities in traditional retail managing accounts from specialty up through large accounts such as Ace and Home Depot, we have a capability there that we’re beginning to bring to bear. But it’s early. And so most of MEATER’s growth is really driven by the channels that it has been in for a number of years. And it’s not really — it’s not yet driven by the synergies that we have in our retail footprint, but those are coming.
And we’ve got a lot of confidence in our ability to bring that product to retail, the same way that we did a wood pellet grill innovation which is, it’s premium, it’s innovative. It requires training at retail. It requires education from retail associate all the way to consumer. So we think there’s a lot to unlock still in front of us, but that’s — it’s really not what’s been driving the growth.
Brian Harbour: Thank you.
Operator: Thank you. Our next question comes from the line of Randy Konik with Jefferies. Your line is now open.
Randy Konik: Hey, guys. Thanks for taking my questions. I guess first on back — just quickly back to the balance sheet. Just can you just remind us any kind of payments or anything you need to kind of get done in 2023? And any kind of availability under the existing credit facility just curious there. And then, I guess on the €“ I remember, when you guys announced your postponing near-shoring with Mexico, how do you think about when to reconsider or potentially reconsider Mexico once again? Is that something a couple of years away? Just curious there. And then just finally, on inventory, do you anticipate inventory growth matching up with sales growth by the second half of the year or more like the end of 2023? Thanks for the help guys.
Dom Blosil: Yeah. So, first question was around any obligations or payments. The only kind of meaningful one is the payment of MEATER earn-out, right? So that’s structured in a way such that, there’s a component of 2021 that they’re able to catch up in 2022. So they were able to achieve that. So that’s one component of the payment. And so we’ve drawn partially down on our delayed draw facility, and which has subsequently expired in order to fund that payment, which would probably happen in around April time frame. So that’s one. And then to your last question on inventory growth, I mean, I think what we expect in ultimately over the course of 2023 is that, it’s growing or declining relative to the base, right? So I’d say that, it’s sort of a moderate percent decrease in Q1, and then it’s a fairly sizable double-digit decrease between Q2 and Q4.
So it wouldn’t necessarily track with inventory that makes sense, because again we’re still sort of cleaning up the balances and driving to what we look at internally, which is sort of a days in inventory on a forward kind of three-month basis to ensure that we’re covered over say a 90-day period, which we feel comfortable with, but nothing more, right? And we’re not there yet. But we think by the €“ by Q3, we’ll be in kind of that position where our inventory levels are at a point where we’re comfortable with both the composition and the quantum of inventory. But you’ll see ultimately, a fairly decent sized decrease year-over-year on a quarterly basis between Q2 and Q4.
Randy Konik: Great. And just on the near-shoring at the Mexico €“ yeah, the Mexico production, say you perform? Sorry.
Jeremy Andrus: Yeah. So, yeah, the answer is we think near-shoring is absolutely a strategy long term not just in Mexico, but as we see our base of business grow both here in Europe, we will evaluate opportunities for more efficient sourcing closer to consumer, but certainly with cost and margin in mind. So next is something that, we continue to evaluate we have a very good base of sourcing currently between China and Vietnam, and as you know, container rates have declined meaningfully. So it takes some pressure on time, but we do believe sort of medium to long term that Mexico is a viable opportunity for us and it’s something we continue to evaluate.
Randy Konik: Great. Thanks, guys.
Jeremy Andrus: Thanks, Randy.
Dom Blosil: Thank you.
Operator: Our next question comes from the line of Peter Keith with Piper Sandler. Your line is now open.
Peter Keith: Thanks. Good afternoon, guys. I appreciate taking the question. I wanted to explore the topic of the ocean freight costs. I actually can’t think of anyone that I research has been more negatively impacted from ocean freight. So, I was wondering if you could frame up two things. Number one, when you look back over the last two years, what you think the impact has been, maybe on a dollar basis or a gross margin basis. And then looking forward, how much recovery do you have from lower ocean freight costs baked into the 2023 outlook?
Dom Blosil: Yes, good questions. I’d say, on the first one, I don’t have kind of orders of magnitude in front of me, the kind of the dollar amount that ultimately put pressure on our business. I think, we’ve referenced numbers in the past that we can certainly share offline, if need be. But it’s been fairly substantial, right? And I guess, if I were to recall back to Q4, when this really kicked in, I mean I think we alluded to like 800 or 900 basis points of impact, right? So, it’s been fairly — it’s been a fairly meaningful, if not the biggest driver of gross margin erosion, over the last 18 months as you mentioned. I’d say that, going forward, what we’re seeing is, again kind of this tale of two halves around gross margin where we’re still locked in and/or have higher inbound transportation costs capitalized in our inventory.
And so, we’re still carrying a higher basis from that standpoint in our inventory. But as we work through those heavier levels and that bleeds off, we’ll begin to capture these fairly I would say, favorable spot rates that have emerged. And in certain cases we’re seeing spot trend back to kind of pre-pandemic levels. A slightly more complicated picture, because we did lock in some fixed component of our allocation of containers. And that was in an effort to hedge risk against the unknown of, can we even access or procure containers. There’s a small percentage, but we do factor that into the kind of run rate over the course of 2023. But based on that mix, we don’t expect to be necessarily paying at spot markets at least based on what we’re seeing today, but they’ll be dramatically better than what we’ve experienced over the last 18 months or so.
And on the gross margin front, I mean we’re not going to share specific numbers especially around the quarters. But if you look at our guidance range of 36% to 37%, you can bet that a large majority — a majority of the gross margin expansion year-over-year, is tied to inbound transportation improving.
