By Eric Smith

Yeti Holdings Inc. executives laid out aggressive growth strategies and ambitious benchmarks earlier this year at the ICR Conference in Orlando, FL, and the company’s first-quarter earnings report, released Thursday morning, shows it is on the right path to achieving them.

First, a recap of said strategies and goals. Yeti, which went public last year, said in January it was looking to capitalize on its strong brand positioning in the marketplace. At the investor conference, CFO Paul Carbone listed Yeti’s long-term aspirations:

  • Net sales growth: 10-to-15 percent
  • Gross margin: 50-to-52 percent
  • Adjusted EBITDA margin: 19-to-22 percent
  • Effective tax rate: 23-to-25 percent
  • Capital expenditures: $35-to-$48 million

So far, so good for Yeti. The company in Q1 reported significant improvement in earnings on an adjusted basis in the first quarter ended March 31 as gross margins expanded 700 basis points and revenues grew 15 percent to $155.4 million, beating Wall Street’s targets by $12.2 million.

Net income was $2.2 million, or 3 cents per diluted share, compared to a net loss of $3.3 million, or a 4 cent net loss per diluted share, in the prior-year quarter. Adjusted net income increased to $6.6 million, or 8 cents per diluted share, compared to adjusted net income of $0.3 million, or 0 cents per diluted share, in the prior-year quarter. Adjusted EPS beat Wall Street’s targets by 6 cents.

The company also lifted its guidance for the year. More on this below.

“We are off to a great start in 2019 with solid growth across our product categories and distribution channels,” said Matt Reintjes, president and CEO. “Additionally, our ongoing focus on disciplined growth allows us to drive stronger profitability while making the investments required to expand brand and product awareness to existing and new customers. As we continue to execute our strategic plan, we are raising our full-year outlook and remain excited about the tremendous opportunities ahead for the company.”

Read the detailed report about Yeti’s Q1 earnings here.

Yeti in January explained how it would achieve those marks when company leaders outlined four growth strategies. Here’s where they said the company would focus its efforts in 2019:

  • Expand the consumer base and engagement. “We’re continuing to find places to push where the Yeti brand belongs and where the consumer can change the nature of the consumer’s engagement with the product,” Reintjes said, adding that the company wants to continue becoming much more than a South and Southeast brand, as it was in the beginning, while also continuing to draw in younger customers and more women.
  • Introduce new products to existing and new customers. “Product is the heart of what we do,” he said. “We’ve invested heavily in the resources and infrastructure to continue to innovate and continue to expand the product portfolio.” Case in point: the company’s new 20,000-square-foot innovation center, a structure that “allows us to not only innovate but to bring those innovations to market.”
  • Accelerate DTC and corporate sales. While the company has historically been focused on wholesale, it is becoming much more of a direct-to-consumer (DTC) brand and is building the infrastructure to support that, Reintjes said.
  • Expand internationally. “Up until 2017, international wasn’t a focus for Yeti because we were historically supply constrained and we had focused on addressing the domestic demand,” Reintjes said. Now the company is looking to leverage its growth in Canada and Australia to emerging markets like Japan, China and Europe.

Clearly those strategies are working, based on Yeti’s Q1 performance, so let’s break down each of Yeti’s 2019 financial goals and growth strategies in light of its Q1 report card:

  • Net sales growth: Net sales increased 15 percent to $155.4 million compared with $135.3 million during the same period last year. DTC channel net sales increased 28 percent to $61.7 million, compared to $48.3 million in the prior year quarter, led by strong performance in drinkware. Wholesale channel net sales increased 8 percent to $93.6 million, compared to $87 million in the same period last year, led by coolers and equipment.
  • Gross margin: The company said, “The 700 basis point increase in gross margin was driven by cost improvements across our product portfolio, a favorable shift in our channel mix led by an increase in DTC channel net sales, the absence of an inventory charge taken in the prior year due to a fire at a vendor’s warehouse facility, and lower inbound freight expenses, partially offset by higher tariff rates.”
  • Adjusted EBITDA margin: Adjusted EBITDA increased 58 percent to $21.3 million from $13.4 million during the same period last year.
  • Effective tax rate: The company said its effective tax rate was “at a more normalized level” of approximately 24.5 percent, which is also what it projects for the rest of 2019.
  • Capital expenditure: CapEx was only $8.4 million for the first quarter of 2019.

A deeper dive into Yeti’s earnings report reveals the company notched broad strength across its categories. Drinkware net sales increased 20 percent to $91 million compared to $75.8 million in the prior-year quarter. This category was primarily driven by the continued expansion of drinkware offerings, including the introduction of new colors and solid demand for customization.

And coolers and equipment net sales increased 11 percent to $59.7 million, compared to $53.7 million in the same period last year, primarily driven by color updates across several hard and soft cooler lines, as well as the introduction of the Camino Carryall bag to the wholesale channel. Net sales during the period include $1.2 million of net sales related to the Boomer 8 Dog Bowl, which was previously reported in Yeti’s “other” category.

After executing across categories and channels, Yeti lifted its guidance for the year; however, net sales are still expected to increase between 11.5 percent and 13 percent compared to 2018, with growth across both channels and led by the DTC channel.

Also, net income per diluted share is now expected to be between 87 cents and 90 cents, reflecting 25 percent and 31 percent growth (versus the previous outlook of 84 cents and 89 cents, reflecting 22 percent and 29 percent growth). 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 38 percent and 44 percent (versus the previous outlook of 34 percent and 42 percent).

Yeti now expects adjusted net income per diluted share to be between $1.02 and $1.06, reflecting 13 percent to 17 percent growth (versus the previous outlook of 99 cents and $1.04, reflecting 10 percent to 15 percent growth). Assuming a normalized tax rate of 24.5 percent (the effective tax rate for 2018 was 17 percent), adjusted earnings growth would be between 21 percent and 26 percent, up from the previous outlook of 18 percent and 24 percent. The company also said capital expenditures are still expected to be between $35 million and $40 million.

Despite the earnings and revenue beat, investors weren’t exactly bullish on Yeti Thursday. The company’s shares tumbled $2.98, or 8.8 percent, to $30.94 at market close.

Photo courtesy Yeti Holdings Inc.

 

[author] [author_image timthumb=’on’]https://s.gravatar.com/avatar/dec6c8d990a5a173d9ae43e334e44145?s=80[/author_image] [author_info]Eric Smith is Senior Business Editor at SGB Media. Reach him at eric@sgbonline.com or 303-578-7008. Follow on Twitter or connect on LinkedIn.[/author_info] [/author]