Shares of Yeti Holdings shot up $9.64, or 31.8 percent, to $39.98 on Thursday after reporting third-quarter earnings and sales that beat expectations on robust sales momentum. The drinkware and cooler specialist also maintained its guidance for the year.

“We saw very balanced sell-in and sell-through at wholesale inclusive of some earlier-than-planned shipments to support inventory at retail ahead of the holidays,” said Matt Reintjes, Yeti Holdings president and CEO, on a conference call with analysts. “Our direct-to-consumer business was highlighted by strong customer retention and acquisition across our DTC channel. And we saw excellent international contribution from what is still a relatively young part of our business. As we look forward, our current view of the second half and full-year revenue remains consistent and intact from our prior outlook.”

Reintjes also noted that gross margins and operations “remained strong” despite significant headwinds, partially offset by ongoing expense discipline. He added, “Importantly, we are increasingly optimistic on gross margin tailwinds building in 2023. We expect this will help support margin expansion and investment in future growth.”

He further noted that Yeti “made good progress” in aligning inventories ”as we balance order flow against lowering transit times to drive working capital efficiency going into next year.”

Q3 Results Exceed Plan
In the quarter ended October 1, sales grew 19.6 percent to $433.6 million, surpassing Wall Street’s consensus estimate of $414 million.

Net income decreased 14.1 percent to $45.5 million, or 52 cents a share, from $53.0 million, or 52 cents, in the year-ago quarter. On an adjusted basis, earnings were down 5.8 percent to $54.7 million, or 63 cents a share, from $58.0 million, or 65 cents a share, in Q3 last year. Still, the company exceeded Wall Street’s consensus target of 59 cents.

Adjustments exclude charges associated with a new distribution facility in Memphis and costs to exit a facility in Dallas, as well as foreign currency gains and losses, and some related tax impacts.

The earnings decline largely reflects a 580 basis point decrease in gross margin, to 51.3 percent of sales, due to higher inbound freight, higher product costs and the unfavorable impact of foreign currency exchange rates, partially offset by price increases.

SG&A expenses increased 11 percent but shrunk 260 basis points as a percent of sales to 35.5 percent due to non-variable expense leverage on higher sales, partially offset by higher variable expenses driven by higher distribution and logistics costs.

Operating income decreased slightly, to $68.5 million from $68.7 million. On an adjusted basis, operating income dipped 1.2 percent to $73.3 million, or 16.9 percent of sales, compared to $74.2 million, or 20.5 percent, during the comparable period last year.

By channel, direct-to-consumer (DTC) sales grew 15.4 percent to $227.4 million, led by strong performance in Drinkware. DTC accounted for 52 percent of sales, against 54 percent in the prior-year comp period. Wholesale channel sales increased 24.6 percent to $206.2 million, driven by Coolers & Equipment.

Drinkware sales climbed 16.6 percent to $239.0 million, primarily driven by the continued expansion of offerings, including the introduction of new colorways and sizes, and strong demand for customization. Coolers & Equipment sales jumped 24.6 percent to $185.7 million, driven by strong performance in soft coolers, bags and hard coolers.

Inventory increased 65.2 percent to $439.4 million, primarily driven by higher freight costs, the mix of inventory shifting to Coolers & Equipment units from Drinkware, and total inventory unit growth of 17 percent across both Coolers & Equipment and Drinkware. On a sequential basis, total inventory declined approximately $50 million, or 10 percent versus the prior-year quarter-end.

Upbeat Holiday Outlook
Looking to the holiday quarter, Reintjes remained confident despite grimmer economic conditions. He said, “As we head into the final stretch of the year and plan for the holiday season, we recognize a heightened level of uncertainty persists across the market. As consumers make purchase decisions in this environment, we will continue doing what we do best, stoking the brand and delivering product innovation. Our goal remains focused on winning this season’s gifting occasions. We have a great lineup of product and brand activities we’re deploying toward these efforts.”

Holiday offerings reportedly include the completion of the full channel rollout of the company’s two flagship soft coolers, extensions of the successful Camino tote, Yeti’s two newest wheeled coolers, the recent debut its Straw Lid Rambler drinkware and this week’s introduction of Yeti’s first lightweight bottle, Yonder.

“We will show these products through our unique and diverse marketing channels to engage both new and existing customers throughout the quarter and into 2023,” Reintjes added. “This includes expanding the reach of our brand through our fall Yeti Dispatch mag-a-log dropping in homes next week, special finds in our seasonal gear garage during Black Friday week, and activating our holiday brand campaign, use your gifts. Our overarching holiday message underscores the value, versatility, and desirability of products.”

Four Strategic Growth Priorities
As usual, Reintjes provided an update on the progress being made on Yeti’s four strategic growth priorities.

In marketing, Reintjes detailed that Yeti continues to engage new and existing customers through social media, including expanding its popular social series of how-to videos that inform and educate customers on the functionality of Yeti products.

“The campaign spotlights the broad range of our offering, including our Camino totes, Roadie hard coolers, and our Crossroads Duffels, and provides tangible examples of the versatility for a variety of activities and adventures,” he said.

The brand also received significant media exposure during the recent Alabama Crimson Tide / Texas Longhorns game with one of Yeti’s ambassadors, Matt Pittman, the founder of Meat Church, showcasing the new Roadie wheeled coolers.

Yeti also added Nora Vasconcellos as its first female skate ambassador and two other ambassadors, Australian surfer Stephanie Gilmore and Australian weightlifter Tia-Clair Toomey, recently won titles in their sport. Yeti’s official sponsorship of Austin FC is also driving exposure as the team made the MLS Western Conference Finals.

On product, growth in the Cooler & Equipment category was helped by improved in-stocks across the core Tundra hard coolers range, which were particularly depleted in the wholesale channel last year.

“Our latest soft coolers, the M30 Tote and the M20 backpack, continue to resonate with customers and have just recently become fully assorted in the wholesale channel,” Reintjes offered. “The new Roadie 48- and 60-wheeled hard coolers have captured strong early reviews for both the trade and consumer.”

Yeti bags debuted in limited distribution at nearly 100 doors with positive early results.

In Drinkware, strong trends apparently continue across its bottles business and travel mugs.

“Our new innovation builds upon this momentum starting with the new Rambler 25-ounce and 35-ounce straw lid mugs that were launched in DTC in late October,” said Reintjes.

Yeti’s first lighter-weight Yonder bottle came after feedback from ambassadors and customers that weight can matter more than thermal performance when exploring nature. He said, “We have worked hard to develop a line of drinkware that would be both lighter than our core offerings while retaining Yeti’s superior durability and performance qualities to truly disrupt the marketplace.”

Drinkware is also expected to gain a boost as customers will be able to customize their bottles in 2023 with full-color printing options on yeti.com.

On channels, Reintjes said wholesale benefited by efforts to rebalance inventories.

“We saw excellent sell-through trends during the period, supported by much healthier in-stock positions relative to last year,” the  CEO noted. “As we have seen historically, our brand performs best in this channel when we are in stock, and our product is merchandised well. We continue to work closely with our key wholesale partners to optimize delivery and the customer experience.”

As expected, growth was aided by a strong recovery in its Amazon business, which faced similarly limited inventory positions last year.

Strong ongoing momentum was seen within corporate sales and Yeti-owned stores. Said Reintjes, “We remain pleased with the level of retention we are seeing across DTC, particularly yeti.com, as well as the underlying quality of those transactions. As we head into 2023 with a more normalized inventory position, we are taking a fresh look at the roles and scope of each part of our omni-channel to ensure that we are amplifying and differentiating to drive accelerated growth for the long term.”

Finally, Reintjes noted that Yeti remains focused on maintaining a healthy balance sheet, “which we see as an asset that creates flexibility and one that strengthens as we work down the inventory pressures driven by supply chain costs. As we think through the working capital opportunity in the near term, we believe the business is set up once again for strong cash flow in 2023.”

Outlook Narrowed
Looking ahead, Yeti is maintaining and narrowing its Fiscal 2022 outlook, with all components remaining within previous outlook.

For Fiscal 2022, Yeti’s updated outlook calls for:

  • Sales to increase approximately 16 percent (Previous guidance, 15 percent and 17 percent);
  • Operating income as a percent of sales is expected to be approximately 16 percent (prior, 16 percent) and operating income to decrease approximately 6 percent (prior, 3 percent to 7 percent);
  • Adjusted operating income as a percent of sales to be approximately 17 percent (prior, 17 percent and 17.5 percent) and adjusted operating income to decrease approximately 6 percent (prior, 2 percent to 7 percent);
  • The effective tax rate to be approximately 24.6 percent (prior, 24.6 percent), compared to 20.8 percent in the prior year period;
  • Adjusted EPS to be approximately $2.36 (prior, $2.34 and $2.46), reflecting a 9 percent decrease;
  • Diluted weighted average shares outstanding is expected to be 87.3 million (prior 87.3 million; and
  • Capital expenditures are now expected to be approximately $50 million (prior, $60 million), primarily to support investments in technology and new product innovation and launches.

Photo courtesy Yeti