Profits at Yeti Holdings, Inc. fell 46 percent on an adjusted basis in the first quarter ended April 1 on a 3 percent sales gain. Results were impacted by a massive recall, but earnings topped analyst targets. Yeti reiterated its goal to return to double-digit growth by the fourth quarter.

Sales of $302.8 million topped Wall Street’s consensus target of $291.69 million. Adjusted EPS of 18 cents per share, topping Wall Street’s consensus estimate of 14 cents. The maker of cooler and drinkware reiterated its guidance for the year.

Matt Reintjes, president and chief executive officer, commented, “While Yeti’s first quarter results were impacted by the voluntary recalls, we continued to demonstrate our ability to execute against our strategic priorities while also adapting with urgency as challenges arise. So far in 2023, we expanded the breadth of our product portfolio through the successful introduction of our GoBox cargo family, built new color customization capabilities for our Yonder bottles, and continued our growth trajectory outside of the U.S. At the same time, our rapid collaboration, iteration, and development of a solution to the products affected by the voluntary recalls resulted in production commencing this month on our updated soft coolers and puts us on track to deliver these popular products back to the market for the fourth quarter. We are incredibly proud of our team’s effort to drive this execution.”

Reintjes continued, “Even with the impact of the voluntary recalls, first-quarter sales growth was positive and above our expectations, inclusive of the resiliency of our soft cooler products that remain in the market. Gross margin inflected positive year-over-year for the first time in seven quarters, and we remain bullish on future gains as freight tailwinds continue. We also remained firmly focused on investing back in the business, resulting in planned expense deleverage for the period as we keep our sights firmly on the future global opportunity for our brand. Finally, with a strong cash position and lower inventory levels, our balance sheet remains a source of strength and flexibility for Yeti.”

First Quarter 2023 Results
Sales increased 3 percent to $302.8 million, compared to $293.6 million during the same period last year. As previously disclosed, 2023 results were impacted by the stop sale of certain soft coolers included in the voluntary recalls issued on February 8.

Direct-to-consumer (DTC) channel sales increased 7 percent to $167.0 million, compared to $156.0 million in the prior year quarter, due to growth in both Coolers & Equipment and Drinkware.

Wholesale channel sales decreased 1 percent to $135.8 million, compared to $137.7 million in the same period last year, primarily driven by a decline in Coolers & Equipment, partially offset by Drinkware growth.

Drinkware sales increased 3 percent to $190.3 million, compared to $184.0 million in the prior year quarter, primarily driven by strong demand for Rambler bottles, as well as introductions of its new Yonder bottles and Rambler straw lid mugs.

Coolers & Equipment sales increased 1 percent to $104.4 million, compared to $103.0 million in the same period last year. The strong performance in cargo, bags, and in its soft coolers which were not impacted by the voluntary recalls, was partially offset by a decline in hard coolers and outdoor living products.

Gross profit increased 5 percent to $161.9 million, or 53.5 percent of sales, compared to $154.9 million, or 52.7 percent of sales, in the first quarter of 2022. Gross profit was positively impacted by lower inbound freight, partially offset by higher product costs and the unfavorable impact of foreign currency exchange rates. Gross profit also included a $1.2 million, or 40 basis points, favorable impact from adjustments to inventory reserves related to the voluntary recalls.

Adjusted gross profit, which excludes the impact related to the voluntary recalls, increased $5.8 million to $160.6 million, or 53.0 percent of adjusted sales, compared to $154.9 million, or 52.7 percent of adjusted sales, in the first quarter of 2022.

Selling, general, and administrative (SG&A) expenses increased 21 percent to $146.8 million, compared to $121.6 million in the first quarter of 2022. As a percentage of sales, SG&A expenses increased 710 basis points to 48.5 percent from 41.4 percent in the prior year period. This increase was due to an increase in variable expenses, driven by the increased mix of its faster growing and higher gross margin DTC channel, coupled with increased non-variable expenses driven by higher employee costs, including investments in headcount to support future growth, warehousing costs, and marketing expenses.

Adjusted SG&A expenses increased 19 percent to $139.0 million, compared to $116.8 million in the fourth quarter of 2022. As a percentage of adjusted sales, adjusted SG&A expenses increased 610 basis points to 45.9 percent from 39.8 percent in the prior year period.

Operating income decreased 55 percent to $15.1 million, or 5.0 percent of sales, compared to operating income of $33.3 million, or 11.3 percent of sales during the prior-year quarter.

Adjusted operating income decreased 43 percent to $21.7 million, or 7.2 percent of adjusted sales, compared to $38.0 million, or 13.0 percent of adjusted sales during the same period last year.

Net income decreased 59 percent to $10.6 million, or 3.5 percent of sales, compared to $25.7 million, or 8.7 percent of sales in the prior year quarter; Net income per diluted share was $0.12, compared to $0.29 in the prior-year quarter.

Adjusted net income decreased 46 percent to $15.5 million, or 5.1 percent of adjusted sales, compared to $28.6 million, or 9.7 percent of adjusted sales in the prior year quarter; Adjusted net income per diluted share decreased 44 percent to $0.18, compared to $0.32 per diluted share in the prior-year quarter.

Balance Sheet and Other Highlights
Cash increased to $167.8 million, compared to $100.3 million at the end of the first quarter of 2022.

Inventory decreased 16 percent to $347.0 million, compared to $413.0 million at the end of the prior-year quarter. On a sequential basis, inventory decreased $24.4 million, making this the third consecutive quarter with a sequential decline in Yeti’s inventory balance.

Total debt, excluding finance leases and unamortized deferred financing fees, was $84.4 million, compared to $106.9 million at the end of the first quarter of 2022. During the first quarter of 2023, Yeti made mandatory debt payments of $5.6 million.

Voluntary Recalls Update
As previously disclosed, in February 2023 Yeti proposed a voluntary recall of its Hopper M30 Soft Cooler, Hopper M20 Soft Backpack Cooler, and SideKick Dry gear case (“affected products”). As a result, Yeti said it established reserves for unsalable inventory on hand and estimated product recall expenses as of December 31, 2022.

In March 2023, Yeti initiated voluntary recalls of the affected products. The voluntary recalls did not have a material impact on its first quarter of 2023 results, with the exception of a $1.2 million favorable impact from a reserve adjustment. Yeti said it has developed solutions to address the potential safety concern of the affected products and intends to resume the sale of the redesigned products in the fourth quarter of 2023.

2023 Outlook
Reintjes concluded, “We believe we are in a strong position to deliver upon our full-year outlook. In an environment with ample uncertainty remaining across macroeconomic and consumer behavior, we continue to take a prudently cautious approach to our outlook, particularly with our largest quarters ahead. Supported by our ongoing execution across brand and product, we remain confident in our path ahead as we look to return to double-digit sales growth in the fourth quarter with the return of our full soft cooler line. In addition, we also remain confident in our ability to steadily improve our gross margin profile as we go through the year. Finally, we believe the investments we are making this year will fuel our future growth on a global basis as we look out over the longer term.”

For 2023, Yeti reiterates:

  • Adjusted sales to increase between 3 percent and 5 percent with adjusted sales growth weighted to the second half of the year, inclusive of an approximate 500 basis points unfavorable impact on its growth rate from the stop sale of the affected products by the voluntary recalls;
  • Adjusted operating income as a percentage of adjusted sales between 15 percent and 15.5 percent and adjusted operating income to decrease between 3 percent and 8 percent. While adjusted gross margin is expected to expand through the remainder of the year, this benefit is expected to be more than offset by increases in adjusted SG&A expense due to strategic investments and the unfavorable topline impact from the stop sale of the affected products by the voluntary recalls;
  • An effective tax rate of approximately 24.9 percent (compared to 22.8 percent in the prior year period);
  • Adjusted net income per diluted share between $2.12 and $2.23, reflecting a 5 percent to 10 percent decrease, with earnings growth beginning in the fourth quarter of the year;
  • Diluted weighted average shares outstanding of approximately 87.2 million; and
  • Capital expenditures of approximately $60 million primarily to support investments in technology and new product innovation and launches.

Photo courtesy Yeti