Palatine, Illinois-based outdoor cooking company Weber Inc. (WEBR) manufactures and distributes outdoor cooking products, accessories, consumables, and services in North America, Europe, Australia, and internationally. The company sells its products through an omnichannel network comprising wholesale, direct-to-consumer, and e-commerce channels.

On July 25, WEBR announced the departure of CEO Chris Scherzinger amid declining demand for its products in stores and online. The company named Chief Technology Officer Alan Matula as its interim CEO, effective immediately, as its search for a permanent CEO will commence soon.

The rising inflationary and supply chain pressures have adversely affected the grill maker’s financials and workforce. WEBR has withdrawn its fiscal year 2022 net sales, and earnings forecasts as higher consumer prices and other uncertainties are crushing store traffic and margins.

Furthermore, WEBR’s Board of Directors suspended the quarterly cash dividend. The company also announced that it is pursuing several financial transformation initiatives, including workforce reductions, reducing COGS and SG&A expenses, and tightening its global inventory levels and working capital positions.

On July 29, the S&P Global Ratings downgraded WEBR’s credit ratings further into junk territory. The rating agency cut the company’s issuer credit rating to CCC+ from B after it warned that sales and EBITDA for its third quarter (ended June 30) would be far weaker than previous estimates and withdrew its fiscal year 2022 guidance.

Also, last Tuesday, JPMorgan Chase & Co. cut its rating on WEBR to “underweight” from an “equal weight” and lowered its price target for the stock from $7.00 to $4.00. In addition, Bank of America reaffirmed a “downgrade” rating on the stock.

The stock has declined 49.1% in price year-to-date and 61.9% over the past year to close the last trading session at $6.28. WEBR is trading 69.3% below its 52-week high of $20.44, which it hit on August 10, 2021.

Here is what I think could influence WEBR’s performance in the upcoming months:

Poor Financials

For its fiscal 2022 second quarter ended March 31, 2022, WEBR’s net sales decreased 7.2% year-over-year to $607.29 million, and its gross profit declined 27% from the year-ago value to $208.52 million. The company’s adjusted income from operations amounted to $70.89 million, down 46.2% year-over-year.

WEBR’s adjusted EBITDA declined 42.1% year-over-year to $86.39 million. In addition, the company’s adjusted net loss came in at $33.97 million, compared to a $98.06 gain in the prior-year period. Its cash outflows from operating and investing activities amounted to $242.49 million and $62.26 million, respectively.

Weak Growth Prospects

Analysts expect revenues to decline 20.8% year-over-year to $277.39 million in its fiscal 2022 fourth quarter (ending September 2022). The consensus loss per share estimate for the ongoing quarter is expected to come at $0.02. Also, the company's revenue for the fiscal year 2022 (ending September 2022) is expected to decline 14.2% year-over-year.

Furthermore, analysts expect WEBR’s loss per share for the current year to widen 130.4% from the prior-year period to $0.17. The company has missed the consensus EPS estimates in three of the trailing four quarters.

Low Profitability

WEBR’s trailing-12-month gross profit margin of 35.53% is 4.5% lower than the industry average of 37.18%. Its trailing-12-month levered FCF margin of 1.04% is 64.3% lower than the industry average of 2.92%. Its trailing-12-month EBITDA margin of negative 2.35% compared with the 12.01% industry average.

In addition, WEBR’s trailing-12-month asset turnover ratio of 0.98% is 4.4% lower than the 1.02% industry average. And its trailing-12-month ROTC and ROTA of negative 4.63% and negative 3.39% compared with the industry averages of 7.13% and 5.52%, respectively.

POWR Ratings Reflect Bleak Prospects

WEBR has an overall rating of D, which translates to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated considering 118 distinct factors, with each factor weighted to an optimal degree.

WEBR has an F grade for Growth and Sentiment, consistent with its bleak revenue and earnings growth estimates. In addition, the stock has a D grade for Quality, in sync with its lower-than-industry profitability ratios.

WEBR is ranked #59 out of 63 stocks in the Home Improvement & Goods industry.

Beyond what I have stated above, we have also given WEBR grades for Value, Stability, and Momentum. Get all the WEBR ratings here.

Bottom Line

The company is expected to witness contraction and declining margins as it suffers from high inflation, supply chain disruptions, freight cost increases, and shifts in consumer spending patterns. Given its disappointing financials, bleak growth prospects, and low profitability, we think it could be wise to avoid the stock now.

How Does Weber Inc. (WEBR) Stack Up Against its Peers?

WEBR has an overall POWR Rating of D. One could also check out these other stocks within the Home Improvement & Goods industry with an A (Strong Buy) rating: Acuity Brands, Inc. (AYI), Bassett Furniture Industries, Incorporated (BSET), and HNI Corporation (HNI).

WEBR shares were trading at $6.16 per share on Monday afternoon, down $0.21 (-3.30%). Year-to-date, WEBR has declined -51.94%, versus a -12.87% rise in the benchmark S&P 500 index during the same period.

Mangeet’s keen interest in the stock market led her to become an investment researcher and financial journalist. Using her fundamental approach to analyzing stocks, Mangeet’s looks to help retail investors understand the underlying factors before making investment decisions.

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