By Eric Smith
The ambitious financial goals that Yeti Holdings Inc.’s top executives laid out at the ICR Conference in Orlando, FL, center on four growth strategies plus a key supply chain move that will have the company no longer manufacturing in China by the end of the year.
President and CEO Matt Reintjes and CFO Paul Carbone on Monday outlined the company’s plans for 2019 in a fireside chat hosted by Baird analyst Peter Benedict. The two chronicled Yeti’s meteoric rise since the company’s launch in 2006 with just one category and one product.
First, the company’s financial targets. Yeti, which went public last year, is looking to capitalize on its strong brand positioning in the marketplace, and Carbone listed Yeti’s long-term aspirations:
- Net sales growth: 10-15 percent (right now DTC growth is in the mid 20s, while wholesale is in the mid single digits)
- Gross Margin: 50 percent to 52 percent
- Adjusted EBITDA margin: 19 percent to 22 percent
- Effective tax rate: 23 percent to 25 percent
- Capital expenditure: $35 million to $48 million (right now Yeti is a capex light business; more below)
Knowing where the company wants to go, here is the roadmap that Reintjes and Carbone presented to investors. The company’s four growth strategies are:
- 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 DTC brand and is building the infrastructure to support that, Reintjes said. See below for remarkable DTC growth in the last quarter.
- 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.
One key move that will help Yeti hit those goals is talent. The company recently appointed Melisa Goldie to the newly created role of chief marketing officer; Goldie, who comes to Yeti from Calvin Klein Inc., will report to Reintjes.
Another is financial. Right now, Yeti’s soft coolers, bags and drinkware are produced in China, with soft coolers and bags subject 10 percent tariffs that will rise to 25 percent in March. That’s a $13 million to $15 million impact on gross margin, Carbone said, but the company should be able to offset that hit with three levers.
- FX tailwinds. The company is benefiting here as are others.
- Supply chain. Yeti is adjusting its supply chain for bags and coolers out of China; this was a project the company started last summer as a strategic initiative before it became a mitigation project, Carbone said. “We believe that by the end of 2019 we’ll have our supply chain moved out of China,” he said.
- Product cost negotiations. Yeti is negotiating with manufacturers and shifting cost models as part of the the continuous journey to offset the impact of tariffs (even after sourcing leaves China).
For Reintjes, who took the reins in 2015, the chance to join a growing company that was the dominant player in its category—with plenty of room to grow—was too good to pass up, and it speaks to his bullish outlook on Yeti moving forward in pursuit of its lofty goals.
He recalls thinking at the time, “I don’t think I’m going to see another one of these in my career,” meaning a company that could grow massively in both product and geography.
So far, he is spot on. Before presenting at ICR, Yeti raised its full-year guidance for earnings and sales after reporting preliminary results for the fourth quarter.
Preliminary fourth-quarter net sales increased 19 percent to $241.2 million, with astronomical growth in the DTC channel of 45 percent growth. And preliminary Fiscal 2018 net sales increased 22 percent to $778.8 million, 2-3 points about Yeti’s guidance of an increase between 19 percent and 20 percent.
“We continue to see vitality across our portfolio, we continue to see that brand resonance and we continue to see that geographic reach,” Reintjes said. “We feel good about where the (quarter) ended and how the whole year shook out for Yeti.”
Read more: Yeti Lifts FY Guidance On Healthy Q4 Results
The company now expects adjusted net income per diluted share to be 88 cents to 90 cents (versus the previous outlook of 79 cents to 82 cents), as compared to 28 cents last year, representing an increase of 214 percent and 221 percent, respectively.
And adjusted EBITDA is now expected to be $147 million to $149 million (versus the previous outlook of $141 million to $144 million), as compared to $97.5 million last year, representing an increase of 51 percent and 52 percent, respectively. Meanwhile, the company indeed remains capex light, with capital expenditures still expected to be $21 million to $24 million, as compared to $42.2 million last year.
All of which speaks to a company that knows where it’s going and how it’s going to get there.
“We do believe we have multipronged strategy for growth,” Reintjes said. “We have shown that over the 12 years of Yeti, and that has really accelerated in the last couple of years.”
Analysts agree. Jim Duffy of Stifel wrote in a note to investors: “With continued innovation, new product introduction and marketing reach into new recreational categories, we expect Yeti to expand its addressable consumer audience and range of use cases for the brand. We believe Yeti can achieve a 15 percent three-year revenue CAGR to approach $1 billion in revenue in 2020, with 20 percent EBITDA margins, positive cash flow and ROIC in the high-20 percent range. While tariff risk and insider ownership are an overhang on shares near term, we believe long-term investors will be rewarded by both earnings growth and multiple expansion.”
Photo courtesy Yeti Holdings Inc.