SharkNinja, Inc. (SN) Earnings Call Transcript & Summary

Got it. So the company invests a lot in marketing and R&D much more than your peers. I remember before you guys listed 3 years, I think you have like roughly 750 R&D engineers. Today, you have about 1,100, 1,200. Are your engineers assigned to certain categories? Or does everybody kind of do everything? Tell us about your R&D organization?

So when you look at the R&D organization, it's really split into 3 buckets. There's product development and so call this the strategy arm of the group, right? They're the ones that are acting on the consumer insight, they're finding the consumer insights. They're working with the consumer, they're testing, they're talking with the consumer. They're kind of shaping what does the product need to be, what problem are we trying to solve? How might we solve that problem? That is then handed to the engineering organization to then do it, right, to then develop the product, to then bring it to fruition, to then meet the needs of the issue that we're trying to solve. And then also to try to make the next generation of that better, right, to find efficiencies in that. So that's kind of the engineering side of that puzzle overall. The third 1 is then product excellence. So product excellence is the quality arm, if you will, but going much further than that to after the product launches, we're looking at every single consumer review, we're reacting to every single consumer review. We're communicating with the consumers at that point. We're ensuring that our product in the marketplace is upholding the value that we sold the consumer on to begin with. So when we think about R&D in that regard, every organization will say that quality is part of R&D, but it absolutely is to us because that quality organization, product excellence organization, they're feeding information back and engineering, they're feeding it back into park development, and they're helping even influence the road map because again, all cycles at the beginning and at the end, we're communicating with the consumer. And so keeping the consumer at the forefront engineering, I've seen them do it. And it's great, right? Their minds are -- think, very different than mine does, but they can create an amazing technology, an amazing product. But if the consumer does not want it, you don't need it, right? And they can make the best mode or possible. But if it doesn't solve a consumer problem, it's not going to ultimately drive the turnover that we're looking for. So I think those 3 together in terms of just keeping the consumer at the forefront and then ensuring that we're continuing to drive new innovation, create new ideas, that to me is we'll keep that flywheel spinning within the overall R&D organization. And -- and yes, absolutely. I mean we invest more than our peers. Our gross margin, I think, is greater than the majority of our peers as well. That's the lifeblood. That's what we feel that with, and that's an area that we've said before -- maybe there's some years that we leverage R&D as a percentage of sales. But ideally in the long run, we probably pace it with sales because, again, there's so many opportunities out there for us to get into.

So yes. So let's shift gears to international. I think the U.K. is our largest international market. You started out as a distributor market there, you transitioned to a direct model in 2014. Mexico and several other markets I've seen similar shifts over the last year or 2. So walk us through kind of your strategy when you enter a new market and then kind of when you feel comfortable to transition it to a direct model?

Yes. U.K. is the largest international market. And overall, so our strategy, even with U.K. going back 10 years ago, has been distributor first, right? It's a low capital means of expanding internationally. It's a way of getting in learning the consumer, learning the retail landscape. And I think over the last decade, that has been the traditional way, right? You've got to get in with the retailers, to learn the consumer, learn the market and sort of play by their rules, I would say, in a way. I think what we've learned over the last year is that we have a way to get to the consumer directly faster. Through D2C, through peer players like Mercado Libre and Amazon and others like that as well as through TikTok shop. And so getting to the consumer quicker. It also is a little bit of a duty because social media is global in many regards, right? And so there's a lot of countries over the last couple of years that the demand is pent up, right? You see the comments. When you come into my country? When you come into this country? And for us, the quickest way to do that is DTC. It's the pure players out there, and it's through TikTok shop. And so I think our path to market has accelerated in terms of how we've transitioned our distributors now to a direct model. One of the most exciting things about perhaps Q2 and even reflecting on the last year is Mexico. We got a lot of questions. Q1 2025 on Mexico, you might have asked a couple of yourself, rent because it was messy, right? We did buy back inventory. It wasn't really clean. I think we were still only 1.5 years into our public company life. And so it looked a little odd to us, we knew it was the right thing to do because we just wanted to move quickly. But look choppy. Fast forward to today, that's 1 of our most exciting markets, right? They're hitting on all cylinders. That transition couldn't have gone better in hindsight, sitting where we're sitting today. The team has the SharkNinja mindset -- the MD of Mexico is actually someone at a mentor on a monthly basis. And I come out of that conversation, so amped up. I don't know he does. I hope he does, but I am more energized talking to him because of what they're building there, you get that with a distributor. -- right? You don't get that level of excitement because he's cascaded into his team. He's cascading to the retailers. I think maybe more importantly, he's cascading it back to headquarters, right? He's bringing to the product teams to bring it to the marketing teams, engineering teams to help them, help them ultimately drive that business. So why talk about Mexico is that that's the playbook that we've now proven out. We knew it was a good playbook that was going to work. Now it's really proof point to where, as we transition now officially Spain, Italy, Poland, other countries, -- we now know that, that playbook is working, and we're seeing it work. But I think it's -- what's changed in the last year is this kind of direct-to-consumer model that allows us to get in quicker and not necessarily -- we still need the retailers, absolutely. But we're able to not just teens we build the relationship, we can do it much faster.

So you might have already answered the front part of this next question, about what international markets are you most excited about? And secondarily, what international markets are you not in currently that you should be in?

It's next to Mexico. Germany and France, honestly, I mean we want to talk about the new distributor markets and absolutely, that's super exciting. But I look at Germany and France as countries that now are starting to get to the level of category diversification early innings still, but the category diversification that the U.K. has started to build, we saw the period of a year ago, 2 years ago, where the U.K. was having some tough comps with air fryer. They were too dependent on the air fryer category. Inevitably, there for our category, just it grew super fast. But now you look at Germany and France, there's so much white space there. the new categories that we've entered into recently, it's low market share, right? So there's low penetration for us. So I think there's a ton of white space. I think we've got the right foundation framework in those countries. And it's the same story really on some of the new direct markets. We've got a handful of categories that are driving the business today. But I think the white space is probably the most compelling thing. As far as what countries we're not in today, Africa, I think, will be a big piece for us, a big focus for us as we look at 27 and beyond. We've started to plant some seeds in South Africa this year. And I think there's more to come in that regard. There's more across Latin America. We still have a number of distributors operating for us in Latin America yet direct. So look, our model is plant a lot of seeds, allow us to grow, develop and also for us to learn and pivot our model if we need to. But right now, the markets that we're in today as a direct company, there's still so much white space to capture there.

So tell us how your marketing strategy has evolved. I remember being at your Investor Day 3 years ago, I was shocked at like how important infomercials were not too long ago in QVC, like today, you're doing tick top shop influencers, social media all kind of discuss that evolution?

Yes. It's interesting. We've always talked about an omnichannel presence. I remember back when private equity came into the business in 2017, I think, and we talked about the omni-channel. I think at a time, it was the first time we're kind of using that terminology. That still is the focus today, right? It's be where the consumer wants to shop. -- right? We're not going to force the consumer to our website. We're not going to force the consumer to Amazon. We're not going to all these retail exclusives. That's not our model. Our model is to be where the consumer wants to shop. That's why we sell across perhaps the broadest spectrum of retailers of anybody in our space. And so being where the consumer wants to shop, that's where the consumer trend has changed, right? The consumer wants to buy on social commerce. That's new as of the last year. We didn't sell $1 on TikTok a year ago. Now it's becoming a decent chunk of the business. Direct-to-consumer, we didn't give the consumer a reason to shop on our website a year ago, right? It was not a great website. I think our CEO called to a terrible website at 1 point. But today, it's a desirable landing spot. It also brings the 2 brands together and I think that's super exciting. But I think to your point on what hasn't changed, what hasn't changed is the product. So when I think about the informational business, that was the largest spend of media when I joined long form, right, the 20-minute commercial has the biggest chunk of media we spent. And what we talked about at the time was is the product infomerciable, which is a real word, I'm sure. And what it meant was can you talk about it for 20 minutes and still be interesting right? Can you talk about the product for 20 minutes and still be interesting. And if that was the case, that had a lot of consumer value, right? The 8-in-1 product, the 3-in-1 product, you were able to capitalize on all the different things that product brought to the consumer so that the consumer had no reason to convert and say, "Yes, I can't live without this." That's what's happening today on forum like TikTok Shop and Meta and even our own D2C site, some of the influencer work that we're doing, is that you've got people in the world that are now showcasing our products in many different ways, much more than we could do in 20 minutes, right? You look at all the different product demos, you can do in a 20-minute infomercial. Think about putting 200 products and 200 influencers hands or affiliates hands, that's 200 different demonstrations. That's 2 different people that maybe look and feel different to their consumer base than what an infomercial was. So I think -- what's happened now is our products were built for this new world and I think that's what we're seeing come to fruition. And that's why we've had such a great head start on the social commerce as that started to shift.

So your company is going to a CAGR north of 20% since 2008. That's like really tough to do in consumer. Your CEO, Mark Barrocas spent a lot of time on last week's earnings call kind of defending why he thinks you're a double-digit growth company. as the revenue base gets larger, though, right, those incremental sales get a lot more meaningful. So like how do you do it?

Just to say since he cannot be here today, he's been defending why we're a double-digit growth company for the last 18 years. well. He's ready to keep doing that. Honestly, Brian, it is kind of some -- I assume that's the last question because it's a nice period on explanation exit point. Because it is a culmination of everything that we just talked about, right? It is broad-based. It's no one thing. It's no one hit product. If we were a one-hit product company, a viral product company, it's boom and bust. If we're one category company, it's boom and bus. We are focused on 1 consumer 1 demographic, 1 geography, like we wouldn't be able to do what we're doing today. So to be able to grow that amount and to be able to comp 2026 and 2027 it's going to come from 50 different things. And I think, again, that's the beauty of the business because over the last 18 years, it's come from an exponentially larger amount of things every single year.

But keep in mind, it's that existing base that fuels everything, right? If you can -- if you 20 of the 25 new products you release every year are intentionally designed to keep the core fresh. You're going to compel people to come back and upgrade and maybe prematurely before the end of the useful life by a new unit. That's almost like a same-store sale type of number. That's really is the bedrock of everything else.

I'm going to squeeze 1 last 1 in. We're asking all of our consumer companies. That's on consumer health. How healthy is your consumer today versus a year ago? And how do you see consumer spending shaping up overall as we head into the back half and into '27?

Yes. Look, I think that is a tough one because I think the consumer overall, in our opinion, they have money to spend, but they're discerning. And I think the sharpened consumer, you can't overgeneralize the entirety of consumer. But I do believe we have a discerning consumer. I do believe that this is a consumer that is well educated. It breeds the reviews, and I think it's on us to earn those dollars. We talk about competing with Olive Garden. We talk about competing with vacations, certainly competing with the competition, but for us, it's a matter of how do we earn that dollar and how we earn the dollar is through innovation and the consumer value that we're bringing.

Great. We'll leave it there. Thank you so much, guys.