Yeti Holdings Inc. reported a sharp jump in net earnings in the fourth quarter as revenues climbed 19 percent. The company expects sales to climb between 11.5 percent and 13 percent in 2019.

Fourth Quarter Fiscal 2018 Highlights as Compared to Fourth Quarter Fiscal 2017

  • Net sales increased 19 percent to $241.2 million
  • Gross margin improved 690 basis points to 53.0 percent
  • Net income increased 533 percent to $25.2 million, or $0.30 per diluted share
  • Adjusted Net Income grew 379 percent to $32.0 million, or $0.38 per diluted share
  • Adjusted EBITDA increased 58 percent to $52.2 million

Matt Reintjes, president and chief executive officer of Yeti Holdings, Inc., commented, “We finished 2018 with significant momentum in our business as we delivered full-year results well above our original outlook and solidly at the high end of the revised outlook. We are extremely pleased with the strength in our business as our brand and products continue to resonate with consumers across all markets. We look forward to building on that momentum throughout 2019 as we continue to expand our customer base, drive product innovation, grow our direct-to-consumer business, and expand internationally.”

For the Three Months (Thirteen Weeks) Ended December 29, 2018

  • Net sales increased 19 percent to $241.2 million compared with $202.1 million during the same period last year.
  • Direct-to-consumer (“DTC”) channel net sales increased 45 percent to $110.5 million compared to $76.0 million in the prior year quarter with strong performance in both product categories, particularly Drinkware.
  • Wholesale channel net sales increased 4 percent to $130.7 million compared to $126.1 million in the prior year quarter primarily driven by Coolers & Equipment.
  • Drinkware net sales increased 24 percent to $143.5 million compared to $115.9 million during the same period last year, primarily driven by the expansion of our Drinkware product offerings, new Drinkware accessories, and the introduction of new Drinkware colorways during Fiscal 2018.
  • Coolers & Equipment net sales increased 10 percent to $91.2 million compared to $83.0 million during the same period last year, primarily driven by the expansion of our hard cooler and soft cooler products, as well as the introduction of several new bags and outdoor living products during Fiscal 2018.
  • Gross profit increased 37 percent to $127.8 million, or 53.0 percent of net sales, compared to $93.1 million, or 46.1 percent of net sales, in the prior-year quarter. The 690 basis point increase was primarily driven by cost improvements across our product portfolio, the non-recurrence of inventory reserves taken last year, and an increased mix of DTC channel net sales. These were partially offset by price reductions taken earlier in 2018 on select hard and soft coolers in anticipation of new product introductions as well as higher tariffs.
  • Selling, General, and Administrative (“SG&A”) expense increased to $90.2 million, or 37.4 percent of net sales, compared to $69.3 million, or 34.3 percent of net sales, in the prior-year quarter. As a percentage of net sales, SG&A expenses increased 310 basis points. Approximately 180 basis points of the increase were attributable to higher costs associated with our transition to becoming a public company and a non-cash asset impairment charge. The remaining balance of the increase was primarily due to increased performance marketing and employee expenses to support the growth of our business partially offset by other SG&A cost savings.
  • Operating income increased 58 percent to $37.6 million, or 380 basis points to 15.6 percent of net sales, compared to $23.9 million, or 11.8 percent of net sales, during the same period last year.
  • Adjusted Operating Income increased 63 percent to $45.9 million, or 510 basis points to 19.0 percent of net sales, compared to $28.1 million, or 13.9 percent of net sales, during the same period last year.
  • Net income increased 533 percent to $25.2 million, or $0.30 per diluted share, compared to net income of $4.0 million, or $0.05 per diluted share, in the prior-year quarter.
  • Adjusted Net Income increased 379 percent to $32.0 million, or $0.38 per diluted share, compared to Adjusted Net Income of $6.7 million, or $0.08 per diluted share, in the prior-year quarter.
  • Adjusted EBITDA increased 58 percent to $52.2 million from $33.1 million during the same period last year.

For The Twelve Months (Fifty-Two Weeks) Ended December 29, 2018

  • Net sales increased 22 percent to $778.8 million compared with $639.2 million during the same period last year.
  • DTC channel net sales increased 48 percent to $287.4 million compared to $194.4 million during the same period last year. Wholesale channel net sales increased 10 percent, to $491.4 million compared to $444.9 million in the prior fiscal year.
  • Drinkware net sales increased by 37 percent to $424.2 million compared to $310.3 million during the same period last year. Coolers & Equipment net sales increased by 6 percent, to $331.2 million compared to $312.2 million during the same period last year.
  • Operating income increased 60 percent to $102.2 million, or 13.1 percent of net sales, compared to $64.0 million, or 10.0 percent of net sales, in the prior fiscal year. The 310 basis point improvement was driven by gross margin expansion.
  • Adjusted Operating Income increased 63 percent to $124.2 million, or 15.9 percent of net sales, compared to $76.0 million, or 11.9 percent of net sales, in the prior fiscal year. The 400 basis point improvement was driven by gross margin expansion coupled with expense leverage.
  • Net income increased 275 percent to $57.8 million, or $0.69 per diluted share, compared to net income of $15.4 million, or $0.19 per diluted share, during the same period last year. This reflects an unusually low effective tax rate of 17 percent for Fiscal 2018, which was primarily driven by a significant tax benefit from the exercise of stock options in connection with our initial public offering (“IPO”) and the reduction of the U.S federal income tax rate in 2018 as a result of the U.S. Tax Cuts and Jobs Act.
  • Adjusted Net Income increased 227 percent to $75.7 million, or $0.91 per diluted share, compared to Adjusted Net Income of $23.1 million, or $0.28 per diluted share, during the same period last year. As mentioned above, this reflects an unusually low effective tax rate of 17 percent for Fiscal 2018, which was primarily driven by the significant tax benefit from the exercise of stock options in connection with our IPO, and the reduction of the U.S. federal income tax rate in 2018.
  • Adjusted EBITDA increased 53 percent to $149.0 million from $97.5 million during the same period last year.

Balance Sheet and Cash Flow Highlights

Inventory was $145.4 million at the end of Fiscal 2018 compared to $175.1 million at the end of Fiscal 2017, which represents a 17 percent decline. This reduction was driven by improved demand forecasting, better inventory control across all product categories, and sales above plan.

Total debt, excluding unamortized deferred financing fees, was $332.9 million at the end of Fiscal 2018 and our ratio of total net debt, which is total debt less cash of $80.1 million, to Adjusted EBITDA for the trailing twelve months was 1.7 times at the end of Fiscal 2018 compared to 4.4 times at the end of the prior fiscal year. During the fourth quarter of Fiscal 2018, we voluntarily paid down in full the $47.6 million outstanding balance of Term Loan B and made voluntary and mandatory payments of $2.4 million and $11.1 million, respectively, to Term Loan A using the net proceeds from our IPO plus additional cash on hand.

Cash flow provided by operating activities was $57.2 million and capital expenditures were $7.5 million for fourth quarter Fiscal 2018. For Fiscal 2018, cash flow provided by operating activities was $176.1 million and capital expenditures were $20.9 million.

Fiscal 2019 Company Outlook 

  • Net sales to increase between 11.5 percent and 13 percent compared to Fiscal 2018 with growth across both channels led by the DTC channel;
  • Operating income as a percentage of net sales between 13.9 percent and 14.4 percent, reflecting margin expansion of 80 to 130 basis points, primarily driven by higher gross margin;
  • Adjusted Operating Income as a percentage of net sales between 15.9 percent and 16.3 percent, reflecting margin expansion of flat to 40 basis points, primarily driven by higher gross margin;
  • An effective tax rate at a more normalized level of approximately 24.5 percent;
  • Net income per diluted share between $0.84 and $0.89, reflecting 22 percent and 29 percent growth; assuming a normalized tax rate of 24.5 percent in 2018, earnings growth would be between 34 percent and 42 percent (the effective tax rate for 2018 was 17 percent);
  • Adjusted Net Income per diluted share between $0.99 and $1.04, reflecting 10 percent to 15 percent growth; assuming a normalized tax rate of 24.5 percent in 2018, adjusted earnings growth would be between 18 percent and 24 percent (the effective tax rate for 2018 was 17 percent);
  • Diluted weighted average shares outstanding of 86 million;
  • Adjusted EBITDA between $169.0 million and $174.3 million, reflecting 13 percent to 17 percent growth;
  • Capital expenditures between $35 million and $40 million; and
  • Debt repayments of approximately $80 million and a ratio of net debt to Adjusted EBITDA of approximately 1.0 times at the end of Fiscal 2019 compared to 1.7 times at the end of Fiscal 2018.

Photo courtesy Yeti