Yeti Holdings, Inc. provided an update on its previously reported product recall while reporting its fourth quarter and full-year results as reserves related to the recall unfavorably impacted gross profit by $13.2 million in 2023 and $97.0 million in 2022. The company said the net impact of the recall reserves had a 480 basis point impact on the increase in gross margin compared to the prior-year quarter. The recall reserves are associated with the stop sale of certain soft coolers included in the recalls initiated during the first quarter of 2023.
“In the fourth quarter, we saw strength in a number of key areas of our business,” offered company President and CEO Matt Reintjes in a release. “Our Drinkware business grew 12 percent, pushing the category to over $1 billion in annual sales. Also, our international expansion continued in the fourth quarter, with our business outside the US growing 39 percent. Despite strong topline performance in these areas, our fourth quarter results were below our guidance, primarily as a result of more cautious and inconsistent spending on high-priced ticket items in our Coolers & Equipment category. Gross margins continued to expand in the fourth quarter, reaching an all-time high of over 60 percent, which supported a return of adjusted operating margin expansion. And we exited the year with our strongest balance sheet to date, including a record cash position of nearly $440 million.”
Fourth quarter sales increased 16 percent to $519.8 million, compared to $448.0 million in Q4 2022. The recall reserves favorably impacted sales by $2.8 million in the fourth quarter of 2023 and unfavorably impacted sales by $38.4 million in the prior-year quarter.
- Adjusted sales, which exclude the impacts of the recall reserves in both the current and prior-year quarters, increased 6 percent to $517.0 million.
- Sales and adjusted sales for the fourth quarter of 2023 include $6.5 million of sales related to gift card redemptions in connection with recall remedies.
Direct-to-consumer (DTC) channel sales increased 11 percent to $344.9 million in Q4, compared to $309.5 million in the prior-year quarter, due to growth in Drinkware. Excluding the impacts related to the recall reserves, DTC channel-adjusted sales increased 9 percent to $344.1 million.
Wholesale channel sales increased 26 percent to $174.9 million in Q4, compared to $138.5 million in the year-ago quarter. Excluding the impacts of the recall reserves, wholesale channel-adjusted sales increased 1 percent to $172.9 million.
Drinkware sales increased 12 percent to $346.0 million for the three-month period, compared to $308.2 million in the prior-year quarter, said to be driven by the continued expansion and innovation of the Drinkware product offerings, including Rambler straw lid mugs, Rambler and Yonder bottles, new specialty coffee cups and tabletop solutions, as well as new seasonal colorways.
Coolers & Equipment sales increased 26 percent to $165.0 million in the Q4 period, compared to $130.5 million in the corresponding period in 2022. Excluding the impacts of the recall reserves, Coolers & Equipment adjusted sales decreased 4 percent to $162.2 million. This decrease was said to be primarily due to a decline in hard coolers, which were impacted by “more cautious and inconsistent spending for higher-priced ticket items.” These impacts were said to be partially offset by strong performance in the new Hopper M12 Soft Backpack Cooler and M15 Soft Cooler, cargo, and bags.
Gross profit increased 89 percent to $315.2 million, or 60.6 percent of sales, compared to $167.0 million, or 37.3 percent of sales, in the fourth quarter of 2022. The recall reserves favorably impacted gross profit by $4.1 million in the fourth quarter of 2023 and unfavorably impacted gross profit by $97.0 million in the prior-year quarter. The net impact of the recall reserves had a 1,740 basis point impact on the increase in gross margin compared to the prior-year quarter. The remaining increase in gross margin was primarily due to lower inbound freight costs, lower product costs, and the increased mix of the higher-margin DTC channel, including the company’s growing Amazon Marketplace business.
- Adjusted gross profit, which excludes the impacts of the recall reserves in both the current and prior-year quarters, increased $47.1 million to $311.1 million, or 60.2 percent of adjusted sales, compared to $264.0 million, or 54.3 percent of adjusted sales, in the fourth quarter of 2022.
Selling, general, and administrative (SG&A) expenses increased 3 percent to $217.1 million in Q4, compared to $210.8 million in the fourth quarter of 2022. The recall reserves favorably impacted SG&A expenses by $0.8 million in the fourth quarter of 2023 and unfavorably impacted SG&A expenses by $31.9 million in the prior-year quarter. As a percentage of sales, SG&A expenses decreased 520 basis points to 41.8 percent from 47.0 percent in the prior year period. Excluding the impact of the recall reserves, SG&A expenses increased $39.0 million primarily due to higher variable expenses on higher sales, higher employee costs, including incentive compensation costs, and marketing expenses.
- Adjusted SG&A expenses, which exclude the impacts related to the recalls and certain other items in both the current and prior-year quarters, increased 19 percent to $208.5 million, compared to $174.9 million in the fourth quarter of 2022. As a percentage of adjusted sales, adjusted SG&A expenses increased 430 basis points to 40.3 percent from 36.0 percent in the prior year period. This increase is said to be primarily due to the mixed impact of higher DTC-adjusted sales on variable expenses, higher employee costs, including employee incentive compensation costs, and marketing expenses.
Operating income was $98.2 million, or 18.9 percent of sales, compared to an operating loss of $43.7 million, or 9.8 percent of sales during the prior-year quarter. Operating income includes a $4.9 million favorable impact related to the recall reserves in fourth quarter of 2023 and a $128.9 million unfavorable impact related to the recall reserves in the prior-year quarter.
- Adjusted operating income, which excludes the impacts related to the recalls and certain other items in both the current and prior-year quarters, increased 15 percent to $102.6 million, or 19.8 percent of adjusted sales, compared to $89.1 million, or 18.3 percent of adjusted sales during the same period last year.
Net income, which includes the impacts from the recall reserves, was $78.6 million, or 15.1 percent of sales, compared to a net loss of $27.7 million, or 6.2 percent of sales in the prior-year quarter; Net income per diluted share was 90 cents a share, compared to a net loss per diluted share of 32 cents a share in the prior-year quarter.
- Adjusted net income increased 16 percent to $78.8 million, or 15.2 percent of adjusted sales, compared to $67.7 million, or 13.9 percent of adjusted sales in the prior-year quarter; Adjusted net income per diluted share increased 15 percent to $0.90, compared to $0.78 per diluted share in the prior-year quarter.
Reintjes continued, “In 2023, we continued to show the strength of our customer base, the success of our product expansion, and the momentum behind our global brand. During the year, we evolved our diverse commercial channels to market through existing and new wholesale partners, continued to make investments in our DTC channels, and further developed our international markets. We delivered a robust lineup of new product innovations while maintaining our focus on durability, performance, and design. Importantly, we broadened and extended the reach of Yeti drinkware with new offerings in hydration, coffee, barware and tabletop, which resonated with both new and existing customers. Additionally, we made foundational international investments across brand awareness, logistics, and DTC to support international growth into 2024 and beyond.”
Full Year 2023 Results
Yeti reported sales increased 4 percent to $1.66 billion in full-year 2023, compared to $1.60 billion in the prior year. The recall reserves unfavorably impacted sales by $21.7 million in 2023 and $38.4 million in 2022.
- Adjusted sales, which exclude the unfavorable impacts of the recall reserves in both the current and prior-year quarters, increased 3 percent to $1.68 billion.
The company’s 2023 financial results were said to be materially adversely impacted by the stop sale of the soft coolers included in the recalls initiated during the first quarter of 2023. In addition, Yeti said sales and adjusted net sales for 2023 include $25.3 million of sales related to gift card redemptions in connection with recall remedies.
DTC channel sales increased 9 percent to $997.7 million for the full year, compared to $917.7 million in the prior year, due to growth in Drinkware. Excluding the impacts related to the recall reserves, DTC channel adjusted sales increased 9 percent to $1.01 billion due to growth in both Drinkware and Coolers & Equipment.
Wholesale channel sales decreased 2 percent to $661.0 million in 2023, compared to $677.5 million in 2022. Excluding the impacts related to the recall reserves, wholesale channel adjusted sales decreased 5 percent to $675.4 million due to a decline in Coolers & Equipment, partially offset by growth in Drinkware.
Drinkware sales increased 8 percent to $1.02 billion, compared to $947.2 million in the prior year, said to reflect strong demand for the continued expansion and innovation of Yeti Drinkware product offerings, including Rambler straw lid mugs, Rambler and Yonder bottles, specialty coffee cups and tabletop solutions, as well as new seasonal colorways.
Coolers & Equipment sales decreased 2 percent to $597.5 million for the year, compared to $612.5 million in 2022. Excluding the impacts of the recall reserves, Coolers & Equipment adjusted sales decreased 5 percent to $619.2 million. This decrease was said to be primarily due to the stop sale of the products affected by the recalls, partially offset by the introduction of the Hopper M12 Soft Backpack Cooler and M15 Soft Cooler, and strong performance in the Hopper Flip soft cooler line, cargo and bags.
Gross profit for the year increased 24 percent to $943.2 million, or 56.9 percent of sales, compared to $763.4 million, or 47.9 percent of sales in the prior year. The recall reserves unfavorably impacted gross profit by $13.2 million in 2023 and $97.0 million in 2022. The net impact of the recall reserves had a 480 basis point impact on the increase in gross margin compared to the prior-year quarter. The remaining increase in gross margin was primarily due to lower inbound freight costs, lower product costs, and the increased mix of the company’s DTC channel, including its growing Amazon Marketplace business
- Adjusted gross profit, which excludes the impacts related to the recall reserves in both the current and prior-year quarters, increased $96.1 million to $956.5 million, or 56.9 percent of adjusted sales, compared to $860.4 million, or 52.7 percent of adjusted sales, in the prior year.
SG&A expenses increased 13 percent to $717.7 million, compared to $637.0 million in the prior year. The recall reserves favorably impacted SG&A expenses by $11.4 million in 2023 and unfavorably impacted SG&A expenses by $31.9 million in 2022. As a percentage of sales, SG&A expenses increased 340 basis points to 43.3 percent from 39.9 percent in the prior year. Excluding the impact of the recall reserves, SG&A expenses increased $124.0 million primarily due to higher employee costs, including incentive compensation costs and investments in headcount to support future growth, higher variable expenses on higher sales, and marketing expenses.
- Adjusted SG&A expenses, which exclude the impacts related to the recall reserves and certain other items in both the current and prior-year quarters, increased 18 percent to $693.7 million, compared to $586.1 million in the prior year. As a percentage of adjusted sales, adjusted SG&A expenses increased 540 basis points to 41.3 percent from 35.9 percent in the prior year period. This increase is primarily due to the mixed impact of higher DTC-adjusted sales on variable expenses, higher employee costs, including employee incentive compensation costs, and marketing expenses.
Operating income increased 78 percent to $225.5 million, or 13.6 percent of sales, compared to $126.4 million, or 7.9 percent of sales during the prior year. Operating income includes a $1.9 million unfavorable impact related to the recall reserves in 2023 and a $128.9 million unfavorable impact related to the recall reserves in 2022.
- Adjusted operating income, which excludes the impacts related to the recalls and certain other items in both the current and prior-year quarters, decreased 4 percent to $262.8 million, or 15.6 percent of adjusted sales, compared to $274.3 million, or 16.8 percent of adjusted sales during the same period last year.
Net income, which includes the impacts from the recall reserves, increased 89 percent to $169.9 million, or 10.2 percent of sales, compared to $89.7 million, or 5.6 percent of sales in the prior year. Net income per diluted share increased 88 percent to $1.94 a share, compared to $1.03 per diluted share in the prior year.
- Adjusted net income decreased 4 percent to $197.0 million, or 11.7 percent of adjusted sales, compared to $205.7 million, or 12.6 percent of adjusted sales in the prior year. Adjusted net income per diluted share decreased 5 percent to $2.25 a share, compared to $2.36 per diluted share in 2022.
Balance Sheet and Other Highlights
Cash at year-end increased $204.2 million to $439.0 million, compared to $234.7 million at the end of Fiscal 2022.
Inventory decreased 9 percent to $337.2 million at 2023 year-end, compared to $371.4 million at the end of Fiscal 2022.
Total debt, excluding finance leases and unamortized deferred financing fees, was $82.3 million at year-end, compared to $90.0 million at the end of Fiscal 2022. Yeto reported it made mandatory debt payments totaling $1.1 million during the 2023 fourth quarter.
Fiscal 2024 Outlook
“Thus far in the first quarter of 2024, through two targeted acquisitions, we have added a great addition to our bags and packs product family, and made our first move in cookware with a best-in-class cast iron offering,” Reintjes commented, “These deals illustrate Yeti’s strategy to pursue acquisitions as an extension of our product line up while complementing our organic product expansion. Combining the talent and product portfolios of these two deals with YETI’s brand strength, existing product portfolio, product marketing capabilities, and unique omnichannel model, provides an opportunity to accelerate expansion in the bags and cookware families.
“Also, as we look to leverage the strength of our balance sheet while maintaining flexibility, our Board of Directors has authorized the repurchase of up to $300 million of Yeti’s common stock. We plan to utilize this authorization as part of our overall capital allocation strategy, which prioritizes investing in growth, using targeted product acquisitions as part of our brand extension, and opportunistic stock repurchase.
“Given the uncertainties of the current environment, our outlook for 2024 balances a cautious approach with the ongoing opportunities that we see to drive growth through brand, product, and geographic expansion. We expect to see a positive reaction to innovation across our entire product portfolio in 2024. Sales are projected to grow across all of our categories, channels, and geographies. We expect both adjusted gross margin and adjusted operating margin expansion, as well as strong earnings per share growth, even as we continue to strategically invest in our teams and our business across the globe. We also expect to remain in a very strong balance sheet position, which gives us flexibility going forward to continue to support future growth and drive shareholder value.”
Reintjes concluded, “Finally, and most importantly, we enter the year as excited and committed as ever to the strength of the Yeti brand, and the long-term sustainable opportunities that we have in front of us to expand our brand to more products, more customers, and more geographies around the globe.”
For Fiscal 2024, Yeti expects:
- Adjusted sales to increase between 7 percent and 9 percent;
- Adjusted operating income as a percentage of adjusted sales of approximately 16.0 percent;
- An effective tax rate of approximately 25.3 percent (compared to 24.8 percent in the prior year period);
- Adjusted net income per diluted share between $2.45 and $2.50, reflecting a 9 percent to 11 percent increase;
- Diluted weighted average shares outstanding of approximately 87.4 million; and
- Capital expenditures of approximately $60 million primarily to support investments in technology and new product innovation.
2024 Acquisitions
During the first quarter of 2024, Yeti completed the acquisitions of Mystery Ranch, Ltd. and Butter Pat Industries, LLC, a designer and manufacturer of cast iron cookware. The total purchase consideration for both transactions was approximately $48.5 million in cash.
2024 Share Repurchase Program
Yeti also announced that its Board of Directors has approved a share repurchase program of up to $300 million of Yeti’s common stock.
Repurchases of shares of common stock may be made through various methods, including, but not limited to, open market, privately negotiated, or accelerated share repurchase transactions. The timing, manner, price, and actual amount of share repurchases will be determined by management based on various factors, including, but not limited to, stock price, economic and market conditions, other capital management needs and opportunities, and corporate and regulatory considerations. YETI has no obligation to repurchase any amount of its common stock, and such repurchases, if any, may be suspended or discontinued at any time. YETI expects to fund repurchase from YETI’s existing cash position or future cash flow generated from operations.
Product Recall Updates
New and Expanded Hopper M Series Soft Cooler Line
In the fourth quarter of 2023, Yeti introduced a redesigned and improved Hopper M30 Soft Cooler, Hopper M20 Soft Backpack Cooler, and SideKick Dry gear case, and also launched two new sizes with the Hopper M15 Soft Cooler and the Hopper M12 Soft Backpack Cooler.
“We believe the improved design of these products adequately addresses the potential safety concerns caused by the magnet-lined closures of the previous-generation products, which were affected by the product recalls,” the company said in a statement.
Product Recall Reserve
In February 2023, Yeti proposed a voluntary recall of the Hopper M30 Soft Cooler, Hopper M20 Soft Backpack Cooler, and SideKick Dry gear case. As a result, the company established reserves for unsalable inventory on-hand and estimated product recall expenses as of December 31, 2022. In connection with the recognition of these reserves, for the fourth quarter and year ended December 31, 2022, Yeti recorded a reduction to net sales for estimated future returns and recall remedies (i.e., estimated gift card elections) of $38.4 million; recorded costs in cost of goods sold of $58.6 million primarily related to the inventory write-off and estimated costs of future product replacement remedies and logistics costs; and recorded $31.9 million associated with estimated other recall-related costs in SG&A expenses.
In March 2023, the company initiated voluntary recalls of the affected products. During the second quarter of 2023, Yeti began processing recall returns and claims, and based on such experience and trends, it reevaluated its assumptions and adjusted its estimated recall expense reserve. These trends included higher-than-anticipated elections to receive gift cards in lieu of product replacement remedies, variations in individual product participation rates, and lower logistics costs than previously estimated. As a result, the company updated its initial recall reserve assumptions, which increased the estimated recall expense reserve by $8.5 million in the second quarter of 2023. However, the overall consumer recall participation rate remained consistent with expectations.
During the fourth quarter of 2023, the company experienced lower-than-anticipated consumer recall participation rates and a further shift to gift card elections in lieu of product replacement remedies. Based on such experience and trends, Yeti again reevaluated its assumptions, which decreased the estimated recall expense reserve by $4.9 million.
The reserve for the estimated product recall expenses was $13.1 million and $94.8 million as of December 30, 2023 and December 31, 2022, respectively.
Image courtesy Yeti Holdings
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For more SGB Media coverage of the Yeti recalls and prior-year results, see below.
EXEC: Yeti CEO Talks Return to Double-Digit Growth in Fourth Quarter
Yeti Issues Stop Sale On Three Products Due To Safety Concerns
Yeti Recalls 1.9 Million Coolers And Cases For Magnet Hazard
