<span style="color: #a3a3a3;">Yeti Holdings Inc. became the latest billion-dollar brand in the third quarter, crossing $1 billion in net sales for the trailing 12-month period ended September 26, as the company posted strong double-digit growth with balanced contributions from Drinkware, Cooler & Equipment.

“We continue to see sustained strength across Drinkware, Coolers & Equipment,” said company President and CEO Matt Reintjes. “The underlying demand for YETI was strong before the pandemic, and we are now seeing the strength continue through the third quarter as a result of more fully-open channels, positive trends in digital engagement, outdoor pursuits, a focus on hygiene and individual use, and people taking near-home vacations. These dynamics support the robust demand we are seeing across the product portfolio and, in particular, both hard and soft coolers.”

Net sales increased 29 percent to $294.6 million, compared to $229.1 million in the prior-year period, representing the highest growth rate as a public company. Sales topped Wall Street’s consensus estimate of $260.2 million. Management said the momentum that built throughout the second quarter accelerated into the third, given what its believes is a “sustainable shift in consumer behavior towards outdoor leisure activities and related products.”

“This trend was highlighted by balanced growth across our product categories and continued direct-to-consumer (DTC) momentum, even as our wholesale channel returned to growth and experienced even stronger sell-through during the quarter,” explained company CFO Paul Carbone.

DTC net sales grew 62 percent to $150.4 million in the period, compared to $92.9 million in the comp period last year, driven by strength in both Drinkware, Cooler & Equipment. The increase was said to be primarily due to the “continued strong demand for outdoor recreation and leisure lifestyle products and an increasing shift to online shopping as a result of the ongoing COVID-19 pandemic.” Within DTC, the yeti.com business reportedly continued to lead the way, while the Amazon marketplace posted strong growth and corporate sales increased slightly for the period. Corporate sales revenues turned slightly positive for the quarter as healthy demand was said to be limited by inventory availability. Increased capacity and delivery for custom is reportedly a focus as Yeti ramps up through the holiday season. Yeti retail added its eighth location in West Palm Beach, FL in August.

Overall, DTC reached 51 percent of net sales for the period, compared to 41 percent in last year’s Q3 period.

Wholesale net sales increased 6 percent to $144.2 million, compared to $136.2 million in Q3 last year, primarily driven by strong gains in Drinkware that helped offset declines in Cooler & Equipment sales in the period, which were largely driven by inventory constraints. Channel sell-through was reportedly up double-digits for the quarter, and channel inventory finished the quarter down double-digits on a year-over-year basis.

Reintjes said sell-through in the wholesale channel performed in line with its overall top-line results leading to demand for channel replenishment. He continued by saying its international business also performed well, posting triple-digit growth to reach 7 percent of sales on broadening demand in Canada, Europe, the U.K., and Australia.

Turning to category performance, Drinkware returned to strong growth during the quarter with net sales increasing 31 percent to $165.9 million, compared to $126.4 million in Q3 last year, primarily driven by the continued expansion of Drinkware product offerings including the introduction of new colors, sizes and strong demand for customization.

“We are very pleased with the continued strength of our original Drinkware SKUs even as we introduce new products to address additional use cases for our customers,” said Carbone. And Reintjes also called out the performance of its Bottles business. “Our expanded Colster lineup and updated bottle styles with chug caps remained big winners this year. And we are also excited to see the early receptivity of our 10-ounce Rambler during the period.”

Coolers & Equipment net sales increased 27 percent to $124.2 million, compared to $97.8 million in the comp period last year, driven by strong performance in hard coolers, soft coolers, outdoor living products, cargo, and bags.

“Our overall coolers business remains vibrant led by our new Roadie 24 and the Tundra Haul in hard coolers and our Flip and BackFlip lines in soft coolers,” detailed Carbone. “We also saw strong results in our outdoor living category led by our Trailhead Camp Chair which, we believe, supports the broader opportunity of the brand as we develop and expand deeper into new categories.”

Gross margin expanded 670 basis points to 59.1 percent of net sales in Q3, compared to 52.4 percent of net sales in the comp period last year, driven by a 290 basis point increase from channel mix, a 110 basis points from product cost improvements, 90 basis points from lower tariffs, 70 basis points from lower inbound freight, 70 basis points from higher inventory reserves in the prior period and lower warranty expenses in the current period, and 40 basis points from all other impacts.

<span style="color: #a3a3a3;">Adjusted SG&A expenses for the third quarter increased by 22 percent to $101.6 million, or 34.5 percent of net sales, compared to $83.5 million, or 36.4 percent of net sales, in the year-ago quarter. Variable SG&A expenses reportedly deleveraged 150 basis points driven by the significant shift in channel mix toward faster-growing DTC channel primarily with higher outbound freight. Non-variable SG&A expenses leveraged 350 basis points driven by the overall strength of the company’s top-line results.

Adjusted net income more than doubled to $53.5 million, or 61 cents per diluted share, compared to $23.2 million, or 27 cents per diluted share, in the prior-year period.

Yeti had cash and cash equivalents totaling $234.8 million at quarter-end, compared to $34.6 million at third quarter-end last year.

Yeti ended the quarter with $134.6 million in inventory, compared to $209.2 million at the end of Q3 last year. Inventory declined 36 percent year-over-year reflecting both the comparison to a 33 percent growth in the year-ago period as well as ongoing efforts to match supply with the above-forecasted demand seen across the business.

Reintjes said it expects inventory to remain tight through the holidays. “We also remain laser-focused on working toward rebuilding in-stock levels,” he said. “As a reminder, to protect our balance sheet in late Q1, we initially reduced purchase orders at the start of the pandemic and as demand recovered, we have worked to flex our supplier capacity to meet rising demand. With demand accelerating in the third quarter, coupled with some pandemic-driven supply disruptions through the summer and early fall production, we expect inventory to remain tight through the holidays.” He said the company has taken additional action to mitigate risk and increase the visibility of its supply chain during the holidays but does expect its overall restocking initiatives will extend into early 2021.

Carbone reiterated the inventory conversation, “Going forward, our focus remains on flexing our supply chain to not only match the strong demand we have seen for the brand but also rebuild more consistent in-stock levels across our channels. As such, we expect to be in a constrained inventory position across certain products as we work through the fourth quarter.”

Total debt, excluding unamortized deferred financing fees and finance leases, was $238.8 million at quarter-end, compared to $298 million at the end of Q3 last year. The ratio of total net debt to adjusted EBITDA for the trailing 12-months was said to be “essentially zero times compared to 1.6 times in the prior-year quarter.”

Photos courtesy Yeti