Yeti is taking its second crack at going public after seeing sales plunge 22 percent in 2017 and witnessing a robust recovery so far this year.
Yeti had previously filed to go public in July 2016, but officially withdrew its initial filing in March of this year. The company never provided a reason for postponing its offering, but the prospectus shows that the company saw a sharp slowdown in business in the second half of 2016.
Driven by strong customer demand and a shortage of product in 2015, retailers wound up aggressively stocking up on Yeti products during 2016. That helped drive up sales in 2016 by 74.6 percent to $818.9 million.
But the aggressive buys led to excess inventory in the wholesale channel and drove many of the company’s retail partners to reduce purchases in the first half of 2017.
Yeti added, “During this period, we were also impacted by a challenging wholesale marketplace generally, notably the delayed merger of Bass Pro Shops and Cabela’s, which slowed ordering, negative trends in the U.S. retail environment, including several retailer bankruptcies and the repositioning by a major retail partner towards ‘every day low prices’ and private label products at the expense of our premium products.”
Finally, Yeti said the company settled several lawsuits it had initiated against competitors over copyright allegations. While the settlements were favorable to Yeti over the long-term, during the first half of 2017 they resulted in competitors being allowed to liquidate the disputed inventory at low prices.
As a result, revenues in 2017 dropped 21.9 percent to $639.2 million. Wholesale revenues in 2017 tumbled 40 percent, offsetting a 149 percent gain in DTC. Net income dropped to $15.4 million from :$48.8 million. On an adjusted basis excluding many items tied to the IPO process, earnings slid to $23.1 million from $134.6 million.
In response, Yeti took several steps to basically reset the company’s business model that helped reduce retailer and its inventory levels to targeted levels, enhanced liquidity and reinvigorated growth by year-end 2017.
The steps included:
- Implementing a series of pricing actions to stimulate demand and re-balanced inventories;
- Introducing new products in existing product families, specifically an expanded line of Hopper soft coolers, new colorways, sizes and accessories for Rambler drinkware and limited-edition Hard Cooler and Drinkware products;
- Growing its DTC business by increasing digital marketing investment, re-platforming Yeti.com, increasing the brand’s presence on the Amazon Marketplace and further developing its customer and corporate customization business through the acquisition of Rambler On;
- Culling approximately 1,100 underperforming retailers;
- Increasing its engagement with Dick’s Sporting Goods;
- Rationalizing its manufacturing supplier base to support greater manufacturing capacity and lower product costs;
- Strengthening its management team by adding several key executives and increasing its overall employee count from 269 at the end of 2015 to 507 at the end of 2017, including “material investments in our new product development staff”;
- Investing in enhanced information systems, including new enterprise resource planning (ERP), customer relationship management (CRM) and business improvement systems to support growth.
“These initiatives enabled us to successfully expand our customer base, both demographically and geographically, enhance existing product lines, accelerate new product innovation and improve customer service,” Yeti wrote. “Furthermore, despite the challenges during 2017, our brand remained strong and Yeti awareness continued to grow. Today, we operate a more balanced omni-channel distribution model, anchored by a stronger and more diversified retailer network and more powerful DTC platform, with a wider range of products. As a result, we believe that we are better positioned to achieve sustainable long-term growth.”
The prospectus shows that the business has turned around with sales ahead 35 percent in the first six months of this year on healthy profitability gains. The prospectus also details that the brand has further diversified the company’s product mix and customer base well beyond its roots in hunting and fishing that brothers Roy and Ryan Seiders founded the brand on in 2006 and beyond the original hard cooler the brand was first known for.
The company wrote, “Today, we are a rapidly growing designer, marketer, retailer and distributor of a variety of innovative, branded, premium products to a wide-ranging customer base. Our brand promise is to ensure each Yeti product delivers exceptional performance and durability in any environment, whether in the remote wilderness, at the beach or anywhere else life takes you.”
Yeti’s prospectus also detailed a number of surveys that showed the brand still has a passionate fan base. Indeed, the company’s passionate following was cited as a main reason the brand stands out from competitors.
“The Yeti brand stands for innovation, performance, uncompromising quality and durability,” the company wrote in the prospectus. “We believe these attributes have made us the preferred choice of a wide variety of customers, from professional outdoors people to those who simply appreciate product excellence. Our products are used in and around an expanding range of pursuits, such as fishing, hunting, camping, climbing, snow sports, surfing, barbecuing, tailgating, ranch and rodeo and general outdoors, as well as in life’s daily activities”
According to the prospectus, the Yeti brand is embodied and personified by its Yeti Ambassadors, a diverse group of men and women from throughout the U.S. and select international markets, comprised of world-class anglers, hunters, rodeo cowboys, barbecue pitmasters, surfers and outdoor adventurers. The brand said its successful brand-building strategy is partially demonstrated by the approximately 1.4 million new customers to Yeti.com since 2013 and approximately 1.0 million Instagram followers as of June 30, 2018. In 2017 and the first six months of 2018, Yeti added approximately 0.5 million and 0.2 million new customers to Yeti.com, respectively.
Yeti further pointed to a May 2018 Yeti owner study that indicated that 95 percent say they have proactively recommended Yeti products to their friends, family and others through social media or by word-of-mouth. The company stated, “Their brand advocacy, coupled with our varied marketing efforts, has consistently extended our appeal to the broader ‘Yeti Nation.’ As we have expanded our product lines, extended our Yeti Ambassador base and broadened our marketing messaging, we have cultivated an audience of both men and women living throughout the United States and, increasingly, in international markets.”
Finally, Yeti noted that based on annual owner studies, from 2015 to 2018, Yeti’s customer base has evolved from 9 percent female to 34 percent and from 64 percent aged 45 and under to 70 percent. While continuing to expand with heritage hunting and fishing communities, Yeti’s customer base has evolved from 69 percent hunters to 38 percent during that same time period as appeal broadened beyond those heritage communities. Further, based on the company’s quarterly Brand Tracking Study, Yeti’s unaided brand awareness in the coolers ands drinkware markets in the U.S. has grown from 7 percent in 2015 to 24 percent in 2017, representing 243 percent growth during that period and “indicating significant opportunity for future expansion, particularly in more densely populated United States markets.”
A second reason Yeti stands out is its design capabilities and product development. The company expanded well beyond the original hard cooler offering and beyond its hunting and fishing heritage with a number of new products, including soft coolers, drinkware, travel bags, backpacks, multipurpose buckets, outdoor chairs, blankets, dog bowls, apparel and accessories.
According to the prospectus, “Our current product portfolio gives customers access to our brand at multiple price points ranging from a $20 Rambler tumbler to a $1,300 Tundra hard cooler. We expand our existing product families and enter new product categories by creating solutions grounded in consumer insights and relevant market knowledge. We believe our product families, extensions, variations and colorways, in addition to new product launches, result in repeat purchases by existing customers and consistently attract new customers to Yeti.”
Yeti also believes it benefits from the company’s balanced distribution. As of June 30, 2018, Yeti sold through nearly 4,800 independent retail partners, including outdoor specialty, hardware, sporting goods and farm and ranch supply stores among others. DTC has grown from 8 percent of sales in 2015 to 30 percent in 2017. DTC also helps Yeti directly interact with customers, more effectively control the brand experience, better understand consumer behavior and preferences and offer exclusive products, content and customization capabilities. Said Yeti, “We believe our control over our DTC channel provides our customers the highest level of brand engagement and further builds customer loyalty, while generating attractive margins.”
Finally, Yeti said the company stands out for its scalable infrastructure that is expected to support future growth and experienced management team, led by President and CEO Matt Reintjes.
The prospectus listed four growth strategies:
- Expanding Brand Awareness and Customer Base: Yeti said it has significantly invested in increasing brand awareness, spending $156.5 million in marketing initiatives from 2013 to 2017, including $50.7 million in 2017. This has helped drive significant growth since 2013 outside its heritage markets, which includes the South Atlantic, East South Central and West South Central. But Yeti noted that its quarterly brand study shows that unaided brand awareness, or consumers’ awareness of the brand without prompt, in non-heritage markets remains “meaningfully below” unaided brand awareness in heritage markets. Yeti said, “We believe our sales growth will be driven, in part, by continuing to grow Yeti’s brand awareness in these non-heritage markets.”
- Introduce New and Innovative Products. In 2017, Yeti expanded its Drinkware line to new colorways, launched the Hopper Two soft cooler, added new Hopper Flip sizes and colors and entered the Coolers & Equipment category with the Panga submersible duffel and LoadOut multipurpose bucket. In 2018, introductions included the Camino Carryall bag, Hondo base camp chair, Hopper Backflip backpack, Rambler wine tumblers, Haul wheeled cooler, Silo water cooler, Panga submersible backpack, Tocayo backpack, Boomer dog bowl and Lowlands blanket. Advanced customization capabilities through Yeticustomshop.com are yielding a broad assortment of custom logo Drinkware and coolers to individual and corporate clients. Yeti wrote, “As we have done historically, we have identified several opportunities in new, adjacent product categories where we believe we can redefine performance standards and offer superior quality and design to customers.”
- Increase direct-to-consumer and corporate sales: DTC represents Yeti’s fastest growing sales channel and consists of Yeti.com, Yeticustomshop.com, Yeti Authorized on the Amazon Marketplace, corporate sales initiatives, increasing the number of own retail stores and international Yeti websites. In 2017, Yeti had nearly 29.5 million visits to Yeti.com and Yeticustomshop.com, of which 16.7 million were unique visitors and 0.8 million resulted in purchases. Yeti Authorized on the Amazon Marketplace was launched in late 2016 and has “enjoyed rapid reach expansion and sales growth since that time.” Yeti’s first store, a flagship in its hometown of Austin, was opened in 2017 and has seen sales continue to grow. A company store for employees and additional retail stores are being planned for the second half of 2018 or in 2019.
- International expansion: In 2017, Yeti successfully entered Canada and Australia, and in 2018 sales have continued to grow in both of these countries. Also in 2018, Yeti entered Japan. Yeti added, “We believe there are meaningful growth opportunities by expanding into additional international markets such as Europe and Asia, including China, as many of the market dynamics and premium, performance-based consumer needs that we have successfully identified domestically are also valued in these markets.”
In the six months ended June 30, sales jumped 34.4 percent to $341.5 million. The increase was driven by growth across both wholesale and DTC channels.
Net sales in wholesale channel increased 22 percent to $235.8 million, primarily driven by increased Drinkware sales. Overall, wholesale channel net sales grew as a result of replenishment orders from retail partners caused by strong product sell-through, sales of new products and additional colorways for existing products.
Net sales through DTC jumped 75 percent to $105.8 million. DTC sales were driven by an increase in customer purchases on Yeti’s website and Yeti Authorized on the Amazon Marketplace as well as increased consumer and corporate customized Drinkware and hard cooler sales primarily from Yeticustomshop.com.
By product category, Coolers & Equipment sales in the half increased 21 percent to $153.3 million. The overall category benefitted from a continued increase in hard cooler sales and the expansion of soft cooler products, as well as the introduction of several storage, transport and outdoor living products.
Drinkware sales increased 49 percent, to $176.7 million and benefitted from the expansion of Drinkware product line, new Drinkware accessories and the introduction of new Drinkware colorways.
Gross margins in the period decreased 70 basis points to 46.2 percent from 46.9 percent. Price reductions on select hard cooler, soft cooler and Drinkware products in the second half of 2017 and in 2018 to reposition these products in the market to create pricing space for planned new product introductions reduced gross margin by approximately 570 basis points. Increased inbound freight expense on incoming Drinkware colorways to meet increased demand reduced gross margin by approximately 120 basis points.
These reductions in gross margin in the six months were partially offset by the favorable benefit of 320 basis points from leveraging fixed costs on higher net sales, 180 basis points from increased higher margin DTC channel sales and 70 basis points incurred in the prior period for price protection related to the first-generation Hopper.
SG&A in the six months increased 17 percent overall but was lowered by 540 basis points to 35.5 percent as a percent of sales due to sales leverage.
Net income came to $15.6 million against $156,000 a year ago. Adjusted to exclude including stock-based compensation expense, transition expenses in becoming a public company, costs related to recruiting new additions to management, investments in new retail locations and international market expansion and other non-recurring items, adjusted net income was $24.5 million against $5.3 million a year ago.
Overall, from 2013 to 2017:
- Net sales have grown from $89.9 million to $639.2 million, representing a compound annual growth rate, or CAGR, of 63 percent;
- Operating income grew from $15.2 million to $64.0 million, representing a CAGR of 43 percent;
- Net income grew from $7.3 million to $15.4 million, representing a CAGR of 21 percent, Adjusted Operating Income grew from $16.3 million to $76.0 million, representing a CAGR of 47 percent;
- Adjusted Net Income grew from $8.0 million to $23.1 million, representing a CAGR of 30 percent and
- Adjusted EBITDA increased from $21.8 million to $97.5 million, representing a CAGR of 45 percent.
The company has filed with the SEC to raise up to $100 million in an initial public offering. However, according to Renaissance Capital, that deal size is likely a placeholder for an IPO that the research firm estimates could raise upwards of $300 million.
The amount of shares to be sold, shares being sold by the company versus selling shareholders, as well as projected offering price, has not yet been revealed. In 2012, the founding Seiders brothers sold majority ownership in Yeti to private equity firm Cortec Group Management Services LLC. Cortec will control more than 50 percent of the total voting power of Yeti’s common stock following the offering and remain its largest stockholder.
Yeti plans to list on the New York Stock Exchange under the ticker “Yeti.” Bank of America Merrill Lynch, Morgan Stanley, Jefferies, Baird, Piper Jaffray Cos, Citi and Golden Sachs are underwriting the deal.
Photo courtesy Yeti