Traeger, Inc. (NYSE:COOK) Q4 2023 Earnings Call Transcript

Traeger, Inc. (NYSE:COOK) Q4 2023 Earnings Call Transcript March 7, 2024

Traeger, Inc. misses on earnings expectations. Reported EPS is $-0.19221 EPS, expectations were $-0.03. COOK isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good afternoon, ladies and gentlemen. Thank you for joining today’s Traeger Fourth Quarter and Full Year 2023 Conference Call. My name is Tia and I will be your moderator for today’s call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. [Operator Instructions] I will now pass the call over to Nick Bacchus, Vice President of Investor Relations. Please proceed.

Nick Bacchus: Good afternoon everyone. Thank you for joining Traeger’s call to discuss its fourth quarter and full year 2023 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 annual report on Form 10-K for the year ended December 31st, 2023 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, which speaks only as of today, and we can 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 loss, adjusted net loss per share, adjusted EBITDA margin, adjusted net loss margin, and total net debt, 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 under earnings release, which is available on the Investor Relations portion of our website at investors.traeger.com. Please note that our definition of these measures may differ from similarly titled metrics presented by other companies.

Now, I’d like to turn the call over to Jeremy Andrus, Chief Executive Officer of Traeger.

Jeremy Andrus: Thank you, Nick and good afternoon everyone. On today’s call, I will discuss our fourth quarter results and give an update on our execution against our strategic pillars. I will also provide some perspective on our outlook for 2024. I will then turn the call over to Dom to discuss our quarterly financial performance and to provide more details on our 2024 financial guidance. 2023 was an important year for Traeger, against the challenging backdrop of soft consumer demand for high-ticket goods, our organization executed against our strategic plan to navigate the current environment, putting the company in what we believe is a substantially improved position to drive our long-term strategy to increase household penetration.

I am pleased with our fourth quarter results with our sales up 18% versus the same period last year, exceeding our expectations and allowing us to surpass the high end of our full year revenue and adjusted EBITDA guidance. Overall, for fiscal 2023, adjusted EBITDA grew 47% versus 2022 and we exceeded the midpoint of our initial revenue and adjusted EBITDA guidance ranges by approximately 5% and 22%, respectively. These better-than-expected results were enabled by our organizational focus on driving progress against the near-term strategic priorities we first laid out in mid-2022. At that time, it became evident that post-pandemic consumer spending has shifted dramatically and that the shift, along with gross margin degradation, would put pressure on our financial results.

Given these pressures, we communicated three tactical priorities to ensure financial flexibility and to improve profitability. First, reduce costs; second, right-size inventories in channel and on our balance sheet; and third, drive gross margins. We made significant progress on all three of these strategic priorities in 2023. Following the implementation of our cost savings plan in mid-2022, which reduced run rate expenses by more than $20 million, our operating expenses were tightly controlled in 2023. In terms of inventories, we ended 2023 with our fourth quarter balance sheet inventories, appropriately positioned and down $57 million versus the fourth quarter of 2022. Channel inventories were in line with our targeted ranges at the end of the year, a substantial improvement compared to the end of 2022 when retailers had too much of our product.

Finally, in fiscal year 2023, we grew gross margin by 200 basis points and we implemented a number of margin-enhancing initiatives, which we expect to contribute to gross margin expansion in 2024 and beyond. Despite making significant progress on our initiatives to drive profitability and improve financial flexibility, we faced a difficult grill industry backdrop throughout 2023. Fourth quarter sell-through for our Core Grill business remained below prior year. We believe the U.S. grill industry was down in the high single-digit range for 2023 at retail as consumers continue to shift their spending to services and leisure and away from the high ticket durable goods they over-indexed on during the pandemic. Stepping back, we firmly believe that the grill industry will return to its historical trend of consistent growth.

Americans love to cook outdoors and the pandemic accelerated the trend that was already in place, cooking at home and enjoying meal outdoors with one’s friends. We believe our brand’s superior cooking experience, innovative product and engaged community uniquely positioned Traeger to be the favorite outdoor cooking solution for consumers and to ultimately, benefit from an improved grill market. It is also important to remember that we have a portfolio of products with our consumables and accessories businesses, representing north of 50% of revenues in fiscal 2023. Our strategy to sell our consumers an entire cooking solution including the wood pellets to fuel to grill; sauces and rubs to flavor the protein; Traeger accessories and MEATER smart thermometers creates diversity in our revenue streams.

In the fourth quarter, our consumables business was slightly positive, and our accessories business outperformed our internal expectations. MEATER in particular, had a very successful holiday season with strong growth versus the prior year a very successful launch of its new MEATER 2 Plus. While we have been focused on near-term strategies to navigate the environment, we continue to execute on our long-term plans to drive product innovation to stoke engagement and passion for the Traeger brand. The key points of our story remain in place. We have an evangelical community of consumers in the Traegerhood with a grill industry-leading NPS score that is materially higher than our largest competitors. Our user base remains highly engaged with our brand and we ended 2023 with nearly 2.6 million followers across social channels, also leading the grill industry and up 15% from 2022.

In terms of our products, we continue to innovate and launch new grills. In addition to MEATER’s highly successful MEATER 2 Plus launch, we also entered into the Grill category in 2023 and launched our highly innovative Ironwood XL. Lastly, our company’s culture remains a key competitive advantage. Traeger was recently certified as a Great Place to Work for the third year in a row. The award is based entirely on what employees say about their experience working at Traeger and the results speak to our unique culture and reinforce our ability to retain and attract the best talent in our industry. Turning to our fiscal year 2024 outlook. Our 2024 sales guidance of $580 million to $605 million represents a year-over-year decline of 4% at the low end to approximately flat growth at the high end.

2024 adjusted EBITDA guidance of $62 million to $71 million represents growth of 1% to 16%. Our guidance for 2024 balances our favorable view of gross margins with our near-term caution on grill industry demand. Our outlook assumes that the grill industry will continue to experience headwinds in 2024. Specifically, we expect that the shift in consumer share of wallet from big-ticket home-related products such as grills towards experiences, services, and leisure will continue into 2024. From a profitability perspective, I’m pleased with our ability to project growth in adjusted EBITDA and adjusted EBITDA margins in 2024, driven by an expected improvement in gross margins. Next, I’d like to provide an update on our progress on our four strategic growth pillars in the fourth quarter as well as to provide some color on our 2024 plans.

Our first strategic growth pillar is driving brand awareness and penetration in the United States. We ended 2023 with estimated U.S. household penetration of 3.5%. This remains well below our most penetrated markets and we continue to believe there is substantial potential to increase this number. In the fourth quarter, our content and brand activation focused on Traegering for the holidays. During Thanksgiving, our network of social media influencers was extremely active sharing recipes and techniques for an incredible Traeger Smoked Thanksgiving Turkey. Many of these post went viral, including Bennie Kendrick’s Juicy Turkey and Frog Style Turkey post. Total impressions from influencers in Q4 nearly doubled compared to the same period in 2022.

Our network of influencers and community ambassadors remains an important part of our social media presence and the millions of impressions they generate drive awareness and energy to our brand. In December, we posted our six tips for the Ultimate Prime Rib, providing a guide to making incredible holiday rib roast, cooked on a Traeger. The post went viral with 2.1 million views on Instagram alone. Traeger is certainly not just a summer grilling device and our strong community engagement and amazing content in the fourth quarter demonstrates that Traeger is viewed by consumers as a year-round outdoor cooking solution. Driving awareness and penetration of Traeger by elevating the experience at retail is core to our strategy. The fourth quarter capped a momentous year for Traeger’s positioning at The Home Depot.

In Q4, we added another 275 Traeger Islands at The Home Depot ending the year with more than 1,100 Traeger Islands in Home Depot locations across the U.S., more than doubling the number of our elevated merchandising fixtures versus 2022. Home Depot locations with the Traeger Island continued to outperform the balance of the chain. We expect to have another year of meaningful enhancements of our merchandising at The Home Depot in 2024 with anticipated growth in Traeger Islands complemented by many other merchandising initiatives. In 2024, driving improved selling execution of Traeger products and retail floors will be a key initiative, one that we internally refer to as upgrading the ground game. This includes expanding the team of retail sales specialists.

These specialists are Traeger experts, who visit retail locations, drive improved merchandising in Traeger product, coach and educate store associates, and demo Traeger grills. We believe that investing in the maximization of our selling experience at retail is one of our highest returning activities and that our in-store merchandising and service-oriented upgrades will be key factors in increasing market share and awareness over time. Near-term, we are highly focused on retail execution and customer experience in the field, particularly as we enter peak drilling season over the next several months. Our second growth pillar is disrupting outdoor cooking with product innovation. On November 6th, 2023, we launched the MEATER 2 Plus in time for the holiday season.

MEATER 2 Plus brings significant innovation to the meat thermometer market, and we believe it’s the best wireless meat probe available to consumers today. MEATER 2 Plus had a strong launch and performed well over the holiday period. We launched MEATER 2 Plus with a dual-channel digital strategy with distribution on meater.com and amazon.com, and we have plans to expand distribution to retail locations. On the Traeger side, in the fourth quarter, we continue to build out our product development function. We recently rolled out a new product organization structure under our new EVP of Engineering including standing up our previously discussed platform R&D team. Our product team remains highly focused on new product development, sustaining engineering for cost-down opportunities, and innovation to drive our future product roadmap.

Investing behind our product development engine is a key area of focus in 2024 and is critical to our long-term success as a disruptor and innovator in the outdoor cooking industry. In 2023, our product team nearly doubled in size, underscoring our commitment to long-term innovation. Next, I’ll provide an update on our third strategic pillar, driving recurring revenues through our consumables business. At the consumer level, our pellets business remained healthy in the fourth quarter. In fact, two of our largest retail partners had their highest pellet volume weeks ever during the Thanksgiving holiday week. From a distribution perspective, we continue to expand the footprint of grocery stores, selling Traeger pellets. Overall, for 2023, we added pellet distribution to more than 300 grocery doors, continuing to make progress against our goal of selling pellets where the consumer shops every week, not just where they bought the grill.

We recently gained distribution with KeHe, United Natural, and La Pari, three of the largest grocery distributors in the U.S., who together service more than 45,000 independent grocery stores. We expect these distribution relationships to have meaningful upside over time as we look to drive sales into the independent grocery channel. On the food consumables side, we introduced our new and improved barbecue sauces, which we relaunched earlier this year at The Home Depot. We expect to see additional distribution in retail outlets in 2024. Consumer reaction to the improved packaging, more competitive pricing, and the easy-to-use squeeze bottle has been positive thus far. Our fourth and final strategic growth pillar is to expand globally. In the fourth quarter, our international business showed sequential improvement.

In Canada, we saw improved holiday sell-through in the fourth quarter at The Home Depot and [indiscernible] as well as improved e-commerce sales during Canadian Thanksgiving in October and Black Friday. In Europe, we saw solid growth in Germany and the U.K., which are direct markets in the region. Both markets have improved holiday sell-through and with leaner channel inventories, replenishment activity was healthy. Our distributor markets in the EU, Australia and New Zealand were negatively impacted by continued destocking activity resulting in selling pressure. We expect distributor inventories in our international markets to normalize in 2024 as they continue to clear excess inventories. On the MEATER side, fourth quarter had very strong international growth, driven by MEATERS B2B distribution initiatives.

This includes MEATER’s partnership with Vorwerk. Vorwerk is a German manufacturing distributor of the Thermomix Multi-Cooker and MEATER is providing a digital smart thermometer add-on to the Thermomix Multi-Cooker that both integrates into the guided cooking app and enhances the Thermomix cooking experience. Overall, we have made significant progress on our key strategic initiatives in 2023 and ended the year exceeding our revised guidance in the fourth quarter. We have realigned our cost structure, rightsized inventories, and are demonstrating progress on recapturing gross margin. While we expect the consumer shift and share of wallet away from big-ticket goods will likely continue to create headwinds for the outdoor cooking industry in the near-term, we are focused on the factors we can control in order to drive growth in adjusted EBITDA, while investing behind our key long-term pillars.

As we head into the peak selling season for 2024, my confidence in the long-term potential of our brand remains as high as ever. I’d like to thank the Traeger team for their enormous efforts in executing our plan in 2023. And with that, I’ll turn the call over to Dom.

Dom Blosil: Thanks Jeremy and good afternoon everyone. I am pleased with the progress we made in 2023, particularly given the difficult industry backdrop that we faced during the year. Despite lower sales compared to 2022, our adjusted EBITDA grew 47% year-over-year, with our adjusted EBITDA margin up 380 basis points. Our inventories ended the year down 37% versus the prior year and we believe that both our balance sheet inventories and channel inventories are appropriately positioned to the current demand outlook. In 2023, we executed on several gross margin enhancing initiatives, which we expect will position us for margin growth going forward. Last, we generated $64 million in cash flow from operations in 2023, driven by improved EBITDA and working capital efficiencies.

Shifting now to fourth quarter results. Fourth quarter revenues increased 18% to $163 million. Grill revenue increased 24% to $60 million. Grill revenue benefited from higher unit volumes as we lap aggressive retailer destocking from the prior year, offset by lower average selling prices. Consumables revenues were $25 million, up 1% to the prior year. Our fourth quarter consumables performance represents a material improvement compared to the first half of the year as we have fully lapped the declines, driven by the introduction of a private label pellet offering by a large customer in 2022. Accessories revenue increased 21% to $79 million, driven by strong MEATER growth. Fourth quarter revenues were modestly ahead of our expectations and exceeded the high end of our full year revenue guidance range by $6 million, with the majority of the upside driven by stronger-than-expected revenue growth at MEATER.

Geographically, North American revenues increased 13%, while our rest of world business was up 59% versus the prior year, driven by strong growth in MEATER’s wholesale revenues internationally. Gross profit for the fourth quarter increased to $60 million from $48 million last year. Gross profit margin was 36.8% compared to 34.5% in the prior year or 34.9% when excluding restructuring costs incurred in the fourth quarter of last year. Please note that our fourth quarter 2023 gross margin was negatively impacted by 100 basis points related to the voluntary recall of our Flatrock Griddle in December. The increase in gross margin was driven by; one, lower supply chain costs, which benefited gross margin by 410 basis points. Two, improved pellet margins that we achieved with the optimization of our pellet mill capacity, which drove 150 basis points in margin.

Three, a higher mix of direct import business, which contributed 50 basis points to margin. Four, lapping restructuring costs from the fourth quarter of the prior year, which benefited margin by 40 basis points. And five, other positive factors worth 40 basis points. These margin drivers were offset by; one, inventory obsolescence of 150 basis points; two, grill mix, which negatively impacted margin by 110 basis points; three, grill pricing, which negatively impacted margin by 100 basis points; and four, costs related to recall of Flatrock, which negatively impacted margin by 100 basis points. Sales and marketing expenses were $33 million compared to $28 million in the fourth quarter last year. The increase was driven by higher variable costs and increased demand creation expense at MEATER.

General and administrative expenses were $26 million compared to $24 million in the fourth quarter of last year. The increase was driven by higher professional service fees and employee expense, offset by lower stock-based compensation expense. As a result of these factors, net loss for the fourth quarter was $24 million as compared to a net loss of $29 million in the fourth quarter of last year. Net loss per diluted share was $0.19 compared to a loss of $0.24 in the fourth quarter of last year. Adjusted net loss for the quarter was $9 million or $0.08 per diluted share as compared to adjusted net loss of $13 million or $0.11 per diluted share in the same period last year. Adjusted EBITDA was $13 million in the fourth quarter as compared to $7 million in the same period last year.

Fourth quarter adjusted EBITDA was modestly ahead of our expectations, allowing us to exceed the high end of our full year guidance by approximately $2 million. Moving on to the balance sheet. At the end of the fourth quarter, cash and cash equivalents were $30 million compared to $39 million at the end of the previous fiscal year. We ended the fourth quarter with $404 million of long-term debt. As of the end of the quarter, the company had drawn down $28 million under its receivables financing agreement, resulting in total net debt of $402 million. We ended the year with total liquidity of $157 million, up materially relative to the end of last year when we had $95 million in liquidity. Inventory at the end of the fourth quarter was $96 million compared to $153 million at the end of the fourth quarter last year and $102 million at the end of the third quarter.

I am pleased with the significant progress we made in 2023 to right-size our balance sheet inventories and believe inventory levels are appropriately aligned with demand. In terms of channel inventories, our retail partners are in a substantially improved position relative to a year ago and ended the fourth quarter with weeks of inventory on hand at targeted levels. Next, let me discuss our full year 2024 guidance and provide some context around our operating assumptions. For the year, we are guiding to revenue of $580 million to $605 million or down 4% to approximately flat compared to 2023. Our top line outlook is generally informed by the following themes; first, we expect that the consumer shift away from big ticket home-related expenditures will continue in 2024 and are planning that grill industry growth remains negative.

Second, in the first half of 2024, we are lapping the load-in of our new Ironwood Grills and our Flatrock griddle, which will create some pressure on our year-over-year sales comparison. Additionally, in the second half, we expect to sunset a number of grills ahead of our expected product launches in 2025, which will also be a negative contributor to revenue growth. Finally, we are anticipating declines in grill average selling prices, partially driven by the expansion of our direct import program, which results in lower wholesale selling prices, but higher gross margins that result from lower transportation costs. These factors are driving our expectation for a high single to low double-digit decline in our grill revenue in full year 2024.

We are expecting gross margins of 39% to 40% for full year 2024, up 210 to 310 basis points compared to full year 2023. I am pleased with our ability to meaningfully grow gross margin in 2024, which is being driven by both macro factors as well as internal initiatives. In terms of external drivers, inbound transportation costs have moderated substantially since their peak in 2022. While transportation rates declined in 2023, higher cost inventory was still flowing through our cost of goods for much of the year. As we move into 2024, we will have largely worked through the higher cost inventory, thus creating a material tailwind to gross margin. Additionally, we expect to see gross margin expansion from initiatives we implemented in the last 18 months.

For example, we are expecting improved gross margins in our pellet business, driven by the rationalization of pellet mill capacity in early 2023, as well as improved margin related to the expansion of our direct import program, which leverages the scale of certain retail customer supply chains, thus reducing our transportation costs. From a timing perspective, we expect stronger year-over-year gross margin gain in the first half of the year compared to the back half. We expect full year 2024 adjusted EBITDA of $62 million to $71 million. This represents an adjusted EBITDA margin of 10.7% to 11.7% or up 60 to 170 basis points versus 2023. We expect that growth in adjusted EBITDA margin will be driven by the anticipated gain in gross margin, offset by some expected expense deleverage as we annualize certain investments from 2023 and as we invest behind key strategic pillars in 2024.

For the first quarter of 2024, we are anticipating revenue of $140 million to $145 million, which represents a decline of 5% to 9% versus Q1 of 2023. We are anticipating first quarter adjusted EBITDA of $21 million to $24 million. First quarter sales are expected to be negatively impacted by a shift in the timing of shipments into the second quarter. Overall, I am pleased with our execution against our plan in 2023, with the year ending substantially better than we had originally guided to and adjusted EBITDA growing by 47% versus 2022. While we are planning 2024 top line cautiously, given the expected continued pressure on big ticket spend, we are entering the year with healthy inventories on balance sheet and in channel and are positioned to have significant gains in gross margins going forward.

We expect this will allow us to invest into our growth initiatives while making gains in our adjusted EBITDA. I believe our strategy positions us extremely well to drive long-term value and I remain highly confident in the thesis for Traeger. And with that, I’ll turn the call over to the operator. Operator?

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Q&A Session

Operator: We will now begin the Q&A session. [Operator Instructions] The first question comes from the line of Megan Alexander with Morgan Stanley. Please proceed.

Megan Alexander: Hey good afternoon. Thanks for taking our questions. I was hoping we could just start with grill demand and maybe you can give us some context for how sell-through trended during the holiday season relative to your expectations? And then what you’re seeing now as you get into the spring selling season? And maybe with that shift, Dom, you just talked about into the second quarter, is that more related to doing more direct import? Or is there a change in how retailers are taking on inventory?

Dom Blosil: Yes, thanks for the question, Megan. So, I’d say that sell-through generally met our expectations in the quarter, if not, we’re slightly above what we were expecting. So, we’re happy with how sell-throughs really have stabilized, even though they’re still tracking roughly in line with prior year as measured by 2023. I think our forecast for 2024 really informs they keep underpinning of how we measure and forecast demand in 2024. And I think the key takeaway here really is the fact that we still expect pressure on high ticket items, right? So, that’s really a fundamental underpinning of how we’re forecasting demand over the course of the year. And although there may be some shifts in terms of the negative decline in grills from quarter-to-quarter, we do expect each quarter to be down over the course of the year.

I think there’s some nuances to that with respect to which quarters maybe see a larger decline and/or maybe splitting it up between first half, second half. And I think the dynamic at play in addition to a negative forecast on sell-through is the fact that we have a unique comp in H1 and H2. So in H1, we’re comping the load-in of some new product that we launched last year. And then in H2, we’re forecasting a bleed down of end-of-life SKUs ahead of inventory build and ultimately sales of new products that we plan to launch in 2025. So, those are two kind of nuances that contribute to what is ultimately a greater decline in grill sales as-reported compared to what we’re forecasting and sell-through, which I think is good news. These are just sort of one-time items that we have to address now and again based on comp dynamics.

And then the third piece is really around ASP. So, what we’re seeing better performance in unit volumes relative to dollar volumes, those dollar volumes are being pressured by ASP, which in part is connected to a deliberate change to our pricing strategy where we brought prices across the portfolio of grills back to pre-pandemic levels. Additionally, we’ve been talking a lot about operational excellence and how we unlock profit pools across our supply chain to optimize gross margin, one of which is direct import business. And as that business grows, it does take some ASP investments. That’s just how these contracts are structured and correspondingly, we see an uplift in gross margins. So, in essence, we’re sharing in this profit pool that we can unlock the scale of our retailer supply chain.

In turn, it does come at the cost of some ASP, but a lift in gross margin. So, that’s really the dynamic at play.

Megan Alexander: Okay, got it. That’s really helpful. And then I guess, maybe bigger picture, just trying to understand how you’re thinking about managing the business. You’ve been somewhat constrained than candid in terms of your top-of-funnel marketing, just given the challenges in the industry. So, if the category does end up being better than you expect, how should we think about whether you’d look to take that upside and reinvest it back into the business and just some top-of-funnel marketing and go after share first maybe letting it flow through to the bottom-line and allowing you to deleverage a bit?

Dom Blosil: Sure. A good question. I’ll let Jeremy follow on. Go ahead. Yes, why don’t you hit that?

Jeremy Andrus: First of all, over the last couple of years as working capital has been scarce, there are things that we’ve continued to invest in the business that we think are really important to keep a long-term thesis intact, which is around growth and disruption. We’ve continued to invest meaningfully in product development, feel good about that pipeline. That’s a longer lead-time investment. In terms of marketing and thinking about reinvestment, we continue to invest in brand. As we see industry headwinds start to turn to tailwinds, we will slowly lean into top-of-funnel marketing. As we think about the opportunity that we have with low unaided brand awareness in most markets where we have high unaided awareness, we have high penetration — household penetration in those markets.

So, we are — I would say we are not in a hurry to reinvest in top-of-funnel marketing because we don’t know the return is sufficient at this moment in time, but it’s something that we have the ability to turn on fairly quickly and to the extent that we believe we get returns on our investment in a fairly near-term period of time, then we can fairly quickly pivot into that changing environment.

Megan Alexander: All right. Super helpful. Thank you.

Operator: Thank you. The next question comes from the line of Brian McNamara with Canaccord. Please proceed.

Brian McNamara: Hey, good afternoon guys. Can you provide a little more color on this bleed down of the older SKUs ahead of your new product launches in 2025? Is this typical? And in particular, what is being phased out and what should investors will be getting excited for in 2025?

Dom Blosil: Yes, it’s typical within the context of our product lifecycle strategy. And so typically, if it’s an incremental SKU that we’re launching, you wouldn’t see a corresponding bleed down of product. In certain situations, if there’s an adjustment to our product strategy and/or we’re sort of introducing new innovations at similar price points, we will bleed down the old SKU fairly methodically with the goal to sort of strike a balance between not starving demand, but also ensuring we’re not left with too much inventory when we launched the new product. And this is a part of our strategy. We’ve been doing this since the beginning of time, and we’re pretty good at sort of managing and kind of balancing those two dynamics.