Yeti Inc. reported earnings on an adjusted basis increased 23 percent in the second quarter ended June 29 on a 12 percent revenue gain.

Matt Reintjes, president and chief executive officer, commented, “Yeti delivered strong second quarter results, highlighted by our DTC business and demonstrating the brand’s growing reach and relevance during the important gift giving period for moms, dads, and grads. We made meaningful progress across our growth strategies during the period including the integration of our e-commerce platforms, the opening of our second retail store in Charleston, and the successful launch of a new category with the LoadOut GoBox. With an even stronger product lineup ahead, ongoing enhancements in our ability to service the business, and further advancements across our retail and international strategies, we are incredibly excited about the second half of 2019 as well as the foundation we are creating for long-term growth.”

For the Three Months Ended June 29, 2019

Net sales increased 12 percent to $231.7 million, compared to $206.3 million during the same period last year.

  • Direct-to-consumer (DTC) channel net sales increased 43 percent to $82.5 million, compared to $57.5 million in the prior year quarter, led by strong balanced performance in both product categories.
  • Wholesale channel net sales were flat at $149.2 million, compared to $148.8 million in the same period last year.
  • Drinkware net sales increased 16 percent to $117.0 million, compared to $100.9 million in the prior year quarter, primarily driven by the continued expansion of our Drinkware product offerings, including the introduction of new colorways, sizes, accessories, and strong demand for customization.
  • Coolers & Equipment net sales increased 9 percent to $109.1 million, compared to $99.6 million in the same period last year, primarily driven by strong performance in bags, hard coolers, outdoor living and cargo products.

Gross profit increased 16 percent to $116.3 million, or 50.2 percent of net sales, compared to $100.6 million, or 48.8 percent of net sales, in the second quarter of 2018. The 140 basis point increase in gross margin was primarily driven by cost improvements, particularly in our Drinkware category, a favorable shift in our channel mix led by an increase in DTC channel net sales, partially offset by higher tariff rates, and the unfavorable impact of inventory reserve reductions in the prior year quarter.

Selling, general, and administrative (“SG&A”) expenses increased to $81.3 million, or 35.1 percent of net sales, compared to $67.4 million, or 32.7 percent of net sales, in the second quarter of 2018. SG&A as a percent of net sales increased 240 basis points, and approximately 90 basis points of the increase was attributable to costs incurred in our transition to a public company. The balance of the basis point increase was primarily due to higher selling expenses, increased personnel and infrastructure to support long-term growth in our business, and increased depreciation and amortization expense, partially offset by lower third-party logistics fees, marketing expenses, and other general and administrative cost savings.

Operating income increased 5 percent to $35.0 million, or 15.1 percent of net sales, compared to $33.2 million, or 16.1 percent of net sales, during the prior year quarter.

Adjusted operating income increased 12 percent to $43.4 million, or 18.8 percent of net sales, compared to $38.9 million, or 18.9 percent of net sales, during the same period last year.

Net income increased 18 percent to $22.2 million, compared to $18.8 million in the prior year quarter; earnings per diluted share increased 14 percent to $0.26, compared to $0.23 per diluted share in the prior year quarter.

Adjusted net income increased 23 percent to $28.6 million, compared to $23.2 million in the prior year quarter; adjusted earnings per diluted share increased 19 percent to $0.33, compared to $0.28 per diluted share in the prior year quarter.

Adjusted EBITDA increased 13 percent to $50.8 million, or 21.9 percent of net sales, from $45.0 million, or 21.8 percent of net sales, during the same period last year.

Adjusted EPS of 33 cents topped Wall Street’s consensus target of 30 cents. Sales of $231.65 million also topped Wall Street’s consensus target of $224 million.

For the Six Months Ended June 29, 2019

Net sales increased 13 percent to $387.0 million, compared with $341.5 million during the same period last year.

  • Direct-to-consumer (“DTC”) channel net sales increased 36 percent to $144.2 million, compared to $105.8 million in the prior year period, led by strong performance in both primary product categories.
  • Wholesale channel net sales increased 3 percent to $242.8 million, compared to $235.8 million in the same period last year, primarily driven by Coolers & Equipment.
  • Drinkware net sales increased 18 percent to $207.9 million, compared to $176.7 million in the prior year period, primarily driven by the continued expansion of our Drinkware product offerings, including the introduction of new colorways, sizes, accessories, and strong demand for customization.
  • Coolers & Equipment net sales increased 10 percent to $168.7 million, compared to $153.3 million in the same period last year, primarily driven by strong performance in bags, outdoor living, hard coolers, and cargo, as well as the introduction of the Camino Carryall to our wholesale channel during the first quarter of 2019.

Gross profit increased 22 percent to $192.9 million, or 49.8 percent of net sales, compared to $157.8 million, or 46.2 percent of net sales, in the prior year period. The 370 basis point increase in gross margin was primarily driven by cost improvements, particularly in our Drinkware category, and a favorable shift in our channel mix led by an increase in DTC channel net sales, and lower inbound freight, partially offset by higher tariff rates.

Selling, general, and administrative (“SG&A”) expenses increased to $149.1 million, or 38.5 percent of net sales, compared to $121.3 million, or 35.5 percent of net sales, in the same period last year. SG&A as a percent of net sales increased 300 basis points, and approximately 90 basis points of the increase was attributable to costs incurred in our transition to a public company. The balance of the basis point increase was primarily due to higher selling expenses, including increased marketing expenses, increased headcount to support growth in our business, increased depreciation and amortization expenses, partially offset by lower third-party logistics fees and other general and administrative cost savings.

Operating income increased 20 percent to $43.8 million, or 60 basis points, to 11.3 percent of net sales, compared to $36.4 million, or 10.7 percent of net sales, during the prior year period.

Adjusted operating income increased 25 percent to $58.1 million, or 140 basis points, to 15.0 percent of net sales, compared to $46.6 million, or 13.7 percent of net sales, during the same period last year.

Net income increased 57 percent to $24.4 million, compared to $15.6 million in the prior year quarter; earnings per diluted share increased 51 percent to $0.28, compared to $0.19 per diluted share in the prior year period.

Adjusted net income increased 50 percent to $35.2 million, compared to $23.5 million in the prior year quarter; adjusted earnings per diluted share increased 45 percent to $0.41, compared $0.28 per diluted share in the same period last year.

Adjusted EBITDA increased 23 percent to $72.0 million, or 18.6 percent of net sales, from $58.4 million, or 17.1 percent of net sales, during the prior year period.

Balance Sheet and Cash Flow Highlights

Inventory increased 21 percent to $181.4 million, compared to $149.4 million at the end of the second quarter of 2018. Inventory levels reflect the strategic buildup of Drinkware in advance of potential additional tariffs as well as investments to support anticipated sales growth, including new product introductions planned for the second half of 2019. Excluding the Drinkware buildup, inventory growth was in-line with our expectations and less than our reported sales growth for the quarter.

Total debt , excluding unamortized deferred financing fees, was $309.1 million, compared to $435.4 million at the end of the second quarter of 2018. During the first half of 2019, we made $23.8 million in mandatory debt payments. Our ratio of net debt to adjusted EBITDA for the trailing twelve months was 1.7 times at the end of the second quarter of 2019, compared to 3.0 times at the end of the same period last year.

Cash flow provided by operating activities was $9.8 million and capital expenditures were $16.8 million for six months ended June 29, 2019.

Updated 2019 Outlook

  • Net sales are now expected to increase between 13.5 percent and 14 percent compared to 2018, with growth across both channels and led by the DTC channel (versus the previous outlook of between 11.5 percent and 13 percent);
  • Operating income as a percentage of net sales is now expected to be between 13.9 percent and 14.1 percent, reflecting margin expansion of 80 to 100 basis points, primarily driven by higher gross margin, partially offset by higher public company costs, including costs related to our May 2019 secondary offering, as well as investments to support our international expansion (versus the previous outlook of 14.2 percent and 14.5 percent);
  • Adjusted operating income as a percentage of net sales is now expected to be between 16.3 percent and 16.6 percent, reflecting margin expansion of 40 to 70 basis points, primarily driven by higher gross margin (versus the previous outlook of 16.2 percent and 16.5 percent);
  • An effective tax rate at a more normalized level of approximately 24.5 percent, which remains unchanged from the previous outlook;
  • Net income per diluted share is now expected to be between $0.88 and $0.90, reflecting 27 percent to 31 percent growth (versus the previous outlook of $0.87 and $0.90); assuming a normalized tax rate of 24.5 percent in 2018 (the effective tax rate for 2018 was 17 percent), earnings growth would be between 40 percent to 43 percent;
  • Adjusted net income per diluted share is now expected to be between $1.07 and $1.09, reflecting 18 percent to 21 percent growth (versus the previous outlook of $1.02 and $1.06, reflecting 13 percent to 17 percent growth); assuming a normalized tax rate of 24.5 percent in 2018 (the effective tax rate for 2018 was 17 percent), adjusted earnings growth would be between 27 percent and 30 percent (versus the previous outlook of 21 percent and 26 percent);
  • Diluted weighted average shares outstanding of 86 million, which remains unchanged from the previous outlook;
    Adjusted EBITDA is now expected to be between $174.8 million and $177.7 million, or between 19.8 percent and 20.0 percent of net sales reflecting 17 percent to 19 percent growth (versus the previous outlook of $171.9 million and $176.3 million, or between 19.8 percent and 20.0 percent of net sales, and reflecting growth of 15 percent to 18 percent);
  • Capital expenditures are expected to remain between $35 million and $40 million; and
  • Debt repayments are expected to be approximately $80 million and the ratio of net debt to Adjusted EBITDA is expected to be approximately 1.0 times at the end of 2019, which remains unchanged from the previous outlook, compared to 1.7 times at the end of 2018.

Ratio of Net Debt to Adjusted EBITDA Trailing Twelve Months

Net debt as of June 29, 2019, which is total debt of $309.1 million less cash of $38.0 million, divided by adjusted EBITDA for the trailing twelve months, was 1.7 times. Adjusted EBITDA for the trailing twelve months ending June 29, 2019 was $162.7 million and is calculated using the full year 2018 adjusted EBITDA of $149.0 million less adjusted EBITDA for the first six months of 2018 of $58.4 million, plus adjusted EBITDA for the first six months of 2019 of $72.0 million.

Net debt as of June 30, 2018, which is total debt of $435.4 million less cash of $71.3 million, divided by adjusted EBITDA for the trailing twelve months, was 3.0 times. Adjusted EBITDA for the trailing twelve months ending June 30, 2018 was $122.0 million and is calculated using the full year 2017 adjusted EBITDA of $97.5 million less adjusted EBITDA for the first six months of 2017 of $33.8 million, plus adjusted EBITDA for the first six months of 2018 of $58.4 million.

Photo courtesy Yeti