Yeti Holdings Inc. reported earnings on an adjusted basis more than doubled in the third quarter ended September 26 as sales jumped 29 percent. Earnings were well above Wall Street’s consensus estimates. Yeti expects sales in the range of 15 percent to 16 percent in the fourth quarter.

Matt Reintjes, president and chief executive officer, commented, “Yeti continued to successfully harness both the momentum we experienced pre-pandemic and the accelerating interest in active, outdoor activities during the pandemic. During this dynamic period, we generated a very strong third-quarter revenue growth of +29 percent and expanded operating margin by 900 basis points. In addition, we continued to strengthen our balance sheet by amassing $235 million of cash and voluntarily paid down $50 million of debt in the process. We are now focused on continuing the momentum through the 2020 holidays and into 2021 as we build supply to meet demand across our omnichannel and invest in the long-term, sustainable growth of the brand.”

Reintjes concluded, “Yeti’s performance in the quarter and throughout 2020 is a result of the incredible efforts of our global employees who have not only adapted but thrived in this extraordinary environment, and our customers and partners who have continued to show their support and confidence in our innovation and our brand.”

For The Three Months Ended September 26, 2020

  • Net sales increased 29 percent to $294.6 million, compared to $229.1 million during the same period last year. Sales topped Wall Street’s consensus estimate of $260.23 million.
  • Direct-to-consumer (“DTC”) channel net sales increased 62 percent to $150.4 million, compared to $92.9 million in the prior-year quarter, driven by strong performance in both Coolers & Equipment and Drinkware. The increase was 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.
  • Wholesale channel net sales increased 6 percent to $144.2 million, compared to $136.2 million in the same period last year, primarily driven by Drinkware.
  • Drinkware net sales increased 31 percent to $165.9 million, compared to $126.4 million in the prior-year quarter, primarily driven by the continued expansion of its Drinkware product offerings, including the introduction of new colorways and sizes, and strong demand for customization.
  • Coolers & Equipment net sales increased 27 percent to $124.2 million, compared to $97.8 million in the same period last year, driven by strong performance in hard coolers, soft coolers, outdoor living products, cargo, and bags.
  • Gross profit increased 45 percent to $174.0 million, or 59.1 percent of net sales, compared to $120.1 million, or 52.4 percent of net sales, in the third quarter of Fiscal 2019. The 670 basis point increase in gross margin was primarily driven by a favorable shift in its channel mix led by an increase in DTC channel net sales, product cost improvements, decreased tariffs, and lower inbound freight.
  • Selling, general, and administrative (“SG&A”) expenses increased 21 percent to $103.9 million compared to $86.1 million in the third quarter of Fiscal 2019. As a percentage of net sales, SG&A expenses decreased 230 basis points to 35.3 percent from 37.6 percent in the prior period. This decrease was primarily due to 380 basis points of non-variable expense leverage on higher net sales, including leverage on higher expenditures in areas such as employee costs, marketing, distribution costs, and professional fees. Variable expenses deleveraged by 150 basis points, driven by its faster-growing DTC channel which grew to 51 percent of net sales during the period.
  • Operating income increased 106 percent to $70.1 million, or 23.8 percent of net sales, compared to $34.0 million, or 14.8 percent of net sales, during the prior-year quarter.
  • Adjusted operating income increased 98 percent to $72.4 million, or 24.6 percent of net sales, compared to $36.6 million, or 16.0 percent of net sales, during the same period last year.
  • Net income increased 142 percent to $51.4 million, or 17.5 percent of net sales, compared to $21.3 million, or 9.3 percent of net sales, in the prior-year quarter; Net income per diluted share increased 137 percent to $0.58, compared to $0.25 per diluted share in the prior-year quarter.
  • Adjusted net income increased 130 percent to $53.5 million, or 18.2 percent of net sales, compared to $23.2 million, or 10.1 percent of net sales, in the prior-year quarter; Adjusted net income per diluted share increased 126 percent to 61 cents a share, compared to 27 cents per diluted share in the prior-year quarter. Wall Street’s consensus estimate had been 37 cents.
  • Adjusted EBITDA increased 84 percent to $80.2 million, or 27.2 percent of net sales, from $43.7 million, or 19.1 percent of net sales, during the same period last year.

For The Nine Months Ended September 26, 2020

  • Net sales increased 16 percent to $716.0 million, compared to $616.1 million in the prior year.
  • DTC channel net sales increased 53 percent to $363.1 million, compared to $237.2 million in the prior-year period, driven by both Drinkware and Coolers & Equipment. The increase was 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.
  • Wholesale channel net sales decreased 7 percent to $352.9 million, compared to $379.0 million in the same period last year, primarily driven by Coolers & Equipment. The decline in wholesale channel net sales was mainly driven by the effects of COVID-19 on temporary store closures during the first half of the year.
  • Drinkware net sales increased 18 percent to $392.9 million, compared to $334.3 million in the prior-year period, primarily driven by the continued expansion of its Drinkware product offerings, including the introduction of new colorways and sizes, and strong demand for customization.
  • Coolers & Equipment net sales increased 17 percent to $312.3 million, compared to $266.6 million in the same period last year. The strong performance was driven by growth in hard coolers, soft coolers, and outdoor living products, partially offset by a decline in bags.
  • Gross profit increased 29 percent to $404.0 million, or 56.4 percent of net sales, compared to $313.0 million, or 50.8 percent of net sales, in the prior year. The 560 basis point increase in gross margin was primarily driven by a favorable shift in its channel mix led by an increase in DTC channel net sales, product cost improvements, lower inbound freight, and decreased tariffs.
  • Selling, general, and administrative (“SG&A”) expenses increased by 15 percent to $271.2 million compared to $235.2 million in the prior year. As a percentage of net sales, SG&A expense decreased 30 basis points to 37.9 percent from 38.2 percent in the prior period. This decrease was primarily due to 270 basis points of non-variable expense leverage on higher net sales, including leverage on marketing expenses, higher employee costs, lower non-cash stock-based compensation expense, partially offset by deleverage on higher distribution costs. Variable expenses deleveraged by 240 basis points, driven by its faster-growing DTC channel which grew to 51 percent of net sales during the period.
  • Operating income increased 71 percent to $132.8 million, or 18.5 percent of net sales, compared to $77.8 million, or 12.6 percent of net sales, during the prior year.
  • Adjusted operating income increased 58 percent to $139.8 million, or 19.5 percent of net sales, compared to $88.7 million, or 14.4 percent of net sales, during the same period last year.
  • Net income increased 104 percent to $93.4 million, or 13.0 percent of net sales, compared to $45.7 million, or 7.4 percent of net sales, in the prior year; Net income per diluted share increased 101 percent to $1.07, compared to $0.53 per diluted share in the prior year.
  • Adjusted net income increased 83 percent to $99.0 million, or 13.8 percent of net sales, compared to $54.0 million, or 8.8 percent of net sales in the prior-year period; Adjusted net income per diluted share increased 80 percent to $1.13, compared to $0.63 per diluted share in the same period last year.
  • Adjusted EBITDA increased 48 percent to $162.0 million, or 22.6 percent of net sales, from $109.8 million, or 17.8 percent of net sales, during the prior year.

Balance Sheet and Cash Flow Highlights

  • Cash increased to $234.8 million, compared to $34.6 million at the end of the third quarter of 2019.
  • Inventory decreased 36 percent to $134.6 million, compared to $209.2 million at the end of the third quarter of 2019. During the final weeks of the first quarter of 2020, Yeti took decisive actions in response to government mandates and retail store closures due to COVID-19 by reducing purchase orders to align with demand forecasts at the time and to provide enhanced financial flexibility. This disruption contributed to the inventory decline during the third quarter, which was further exacerbated by the overall strong demand during the period. Yeti continues to work to replenish its distribution channels to meet customer demand during the current quarter and into fiscal 2021.
  • Total debt, excluding finance leases and unamortized deferred financing fees, was $238.8 million, compared to $298.0 million at the end of the third quarter of 2019. During the first nine months of 2020, Yeti made mandatory and voluntary debt payments of $11.3 million and $50.0 million, respectively, and fully repaid all precautionary first quarter borrowings of $50.0 million under its revolving credit facility. Accordingly, at the end of the third quarter of 2020, Yeti had no outstanding borrowings and $150.0 million available for borrowing under its revolving credit facility. Yeti’s ratio of net debt (as defined below) to adjusted EBITDA for the trailing twelve months was 0.0 times at the end of the third quarter of 2020 compared to 1.6 times at the end of the same period last year.
  • Cash flow provided by operating activities was $239.1 million, compared to $26.6 million for the nine months ended September 28, 2019. Capital expenditures were $10.9 million, compared to $24.2 million during the same period last year.

Fourth Quarter Fiscal 2020 Outlook

  • Due to the uncertainty of the duration and severity of COVID-19, Yeti is only providing the following limited outlook for the fourth quarter of Fiscal 2020:
  • Net sales are expected to increase between 15 percent and 16 percent, reflecting expectations for strong demand balanced by inventory constraints and including the impact of the 53rd week in Fiscal 2020;
  • Net income per diluted share is expected to be between $0.55 and $0.58, compared to $0.05 in the fourth quarter of Fiscal 2019; and
  • Adjusted net income per diluted share is expected to be between $0.57 and $0.60, reflecting 31 percent to 38 percent growth compared to the fourth quarter of Fiscal 2019.

Ratio Of Net Debt To Adjusted EBITDA

  • Net debt as of September 26, 2020, which is total debt, excluding finance leases and unamortized deferred financing fees, of $238.8 million less cash of $234.8 million, divided by adjusted EBITDA for the trailing twelve months, was 0.0 times. Adjusted EBITDA for the trailing twelve months ended September 26, 2020 was $223.8 million and is calculated using the full year 2019 adjusted EBITDA of $171.6 million, less adjusted EBITDA for the first nine months of 2019 of $109.8 million, plus adjusted EBITDA for the first nine months of 2020 of $162.0 million.
  • Net debt as of September 28, 2019, which is total debt, excluding finance leases and unamortized deferred financing fees, of $298.0 million less cash of $34.6 million, divided by adjusted EBITDA for the trailing twelve months, was 1.6 times. Adjusted EBITDA for the trailing twelve months ending September 28, 2019 was $162.0 million and is calculated using the full year 2018 adjusted EBITDA of $149.0 million, less adjusted EBITDA for the first nine months of 2018 of $96.8 million, plus adjusted EBITDA for the first nine months of 2019 of $109.8 million.

Photo courtesy Yeti