Yeti Holdings Inc. reported adjusted net income rose 31 percent in the fourth quarter on a 23 percent revenue gain.

Matt Reintjes, president and chief executive officer, commented, ” Yeti’s 23 percent net sales growth during the quarter reflects the strength of our brand and innovation. Throughout the year, we outperformed topline expectations, generated sizable gross margin expansion, and consistently executed across our strategic growth drivers thanks to the incredible support of our customers. This momentum is reflected in our fiscal 2020 outlook, highlighted by 13 percent to 15 percent net sales growth and ongoing adjusted operating margin expansion. We have set the bar high for the brand and look forward to once again exceeding customer expectations in 2020.”

For the Three Months Ended December 28, 2019

  • Net sales increased 23 percent to $297.6 million, compared to $241.2 million during the same period last year. Sales topped Wall Street’s consensus target of $279.5 million.
  • Direct-to-consumer (“DTC”) channel net sales increased 35 percent to $149.0 million, compared to $110.5 million in the prior-year quarter, driven by both Coolers, Equipment and Drinkware.
  • Wholesale channel net sales increased 14 percent to $148.7 million, compared to $130.7 million in the same period last year, driven by both Coolers, Equipment and Drinkware.
  • Drinkware net sales increased 34 percent to $192.0 million, compared to $143.5 million in the prior-year quarter, primarily driven by the continued expansion of product offerings, including the introduction of new colors and sizes, and strong demand for customization.
  • Coolers and Equipment net sales increased 12 percent to $102.3 million, compared to $91.2 million in the same period last year, primarily driven by strong performance in soft coolers, outdoor living products, bags, and cargo.
  • Gross profit increased 27 percent to $162.3 million, or 54.5 percent of net sales, compared to $127.8 million, or 53.0 percent of net sales, in the fourth quarter of Fiscal 2018. The 150 basis point increase in gross margin was primarily driven by cost improvements in the Drinkware category, a favorable shift in channel mix led by an increase in DTC channel net sales, and lower inbound freight, partially offset by higher inventory reserves and increased tariff rates.
  • Selling, general, and administrative (“SG&A”) expenses increased to $150.4 million, or 50.5 percent of net sales, compared to $90.2 million, or 37.4 percent of net sales, in the fourth quarter of Fiscal 2018. Fourth-quarter Fiscal 2019 included $40.7 million of one-time non-cash stock-based compensation expenses related to pre-IPO performance-based awards that vested, and were fully recognized, in the fourth quarter of Fiscal 2019. The balance of the increase was primarily due to higher variable selling expenses driven by faster-growing DTC channel, partially offset by lower costs incurred in the ongoing transition to a public company and other general and administrative cost savings.
  • Operating income, including the aforementioned stock-based compensation expense, decreased 68 percent to $12.0 million, to 4.0 percent of net sales, compared to $37.6 million, or 15.6 percent of net sales, during the prior-year quarter.
  • Adjusted operating income increased 30 percent to $59.7 million, to 20.1 percent of net sales, compared to $45.9 million, or 19.0 percent of net sales, during the same period last year.
  • Net income, including the aforementioned stock-based compensation expense, decreased 81 percent to $4.7 million, or 1.6 percent of net sales, compared to $25.2 million in the prior-year quarter; Net income per diluted share decreased 82 percent to $0.05, compared to $0.30 per diluted share in the prior-year quarter.
  • Adjusted net income increased 31 percent to $42.1 million, or 14.1 percent of net sales, compared to $32.0 million in the prior-year quarter; Adjusted net income per diluted share increased 29 percent to $0.48, compared to $0.38 per diluted share in the prior-year quarter. Adjusted earnings of 48 cents toppled Wall Street’s consensus target of 43 cents.
  • Adjusted EBITDA increased 29 percent to $67.5 million, or 22.7 percent of net sales, from $52.2 million, or 21.7 percent of net sales, during the same period last year.

For the Twelve Months Ended December 28, 2019

  • Net sales increased 17 percent to $913.7 million, compared to $778.8 million in the prior year.
  • DTC channel net sales increased 34 percent to $386.1 million, compared to $287.4 million in the prior-year period, driven by both Coolers, Equipment and Drinkware.
  • Wholesale channel net sales increased 7 percent to $527.6 million, compared to $491.4 million in the same period last year, driven by both Coolers, Equipment and Drinkware.
  • Drinkware net sales increased 24 percent to $526.2 million, compared to $424.2 million in the prior-year period, primarily driven by the continued expansion of Drinkware products, including the introduction of new colors, sizes, accessories, and strong demand for customization.
  • Coolers and Equipment net sales increased 11 percent to $368.9 million, compared to $331.2 million in the same period last year, primarily driven by strong performance in outdoor living products, bags, soft coolers, and cargo.
  • Gross profit increased 24 percent to $475.3 million, or 52.0 percent of net sales, compared to $383.1 million, or 49.2 percent of net sales, in the prior year. The 280 basis point increase in gross margin was primarily driven by cost improvements, particularly in the Drinkware category and a favorable shift in channel mix led by an increase in DTC channel net sales, partially offset by higher tariff rates.
  • SG&A expenses increased to $385.5 million, or 42.2 percent of net sales, compared to $281.0 million, or 36.1 percent of net sales, in the prior year. Fiscal 2019 included $40.7 million of one-time non-cash stock-based compensation expenses related to pre-IPO performance-based awards that vested and were fully recognized in the fourth quarter of Fiscal 2019. The balance of the increase was primarily due to higher variable selling expenses driven by faster-growing DTC channel, higher costs incurred in the ongoing transition to a public company and increased marketing expenses partially offset by lower third-party logistics fees and other general and administrative cost savings.
  • Operating income, including the aforementioned stock-based compensation expense, decreased 12 percent to $89.8 million, to 9.8 percent of net sales, compared to $102.2 million, or 13.1 percent of net sales, during the prior-year.
  • Adjusted operating income increased 27 percent to $158.1 million, to 17.3 percent of net sales, compared to $124.2 million, or 15.9 percent of net sales, during the same period last year.
  • Net income, including the aforementioned stock-based compensation expense, decreased 13 percent to $50.4 million, or 5.5 percent of net sales, compared to $57.8 million in the prior-year; Net income per diluted share decreased 16 percent to $0.58, compared to $0.69 per diluted share in the prior year.
  • Adjusted net income increased 37 percent to $103.4 million, or 11.3 percent of net sales, compared to $75.7 million in the prior-year period; Adjusted net income per diluted share increased 32 percent to $1.20, compared $0.91 per diluted share in the same period last year.
  • Adjusted EBITDA increased 25 percent to $187.0 million, or 20.5 percent of net sales, from $149.0 million, or 19.1 percent of net sales, during the prior year.

Balance Sheet and Cash Flow Highlights

  • Inventory increased 28 percent to $185.7 million, compared to $145.4 million at the end of Fiscal 2018. Inventory levels include the strategic buildup of Drinkware in advance of potential additional tariffs as well as investments to support anticipated sales growth. Excluding the Drinkware buildup, inventory growth was below reported sales growth for the quarter.
  • Total debt, excluding finance leases and unamortized deferred financing fees, was $300.0 million, compared to $332.9 million at the end of Fiscal 2018. During Fiscal 2019, $34.9 million in debt payments were made. The ratio of net debt (as defined below) to adjusted EBITDA for the trailing twelve months, was 1.2 times at the end of Fiscal 2019 compared to 1.7 times at the end of the prior fiscal year.
  • During the fourth quarter of Fiscal 2019, its credit facility was amended and extended the maturity to December 2024. Other changes included increasing the principal amount of the term loan from $298.0 million to $300.0 million, increasing the revolving credit facility from $100.0 million to $150.0 million and reducing the interest rate spreads.
  • Cash flow provided by operating activities was $86.9 million and capital expenditures were $32.1 million for the twelve months ended December 28, 2019.

Fiscal 2020 Outlook

Following Yeti’s initial full-year as a public company and beginning with the first quarter of Fiscal 2020, Yeti will revise its definitions of certain non-GAAP financial measures by eliminating several adjustments. These revisions are intended to align with how management will evaluate the performance of the business going forward. Specifically, Yeti will no longer include adjustments for investments in new retail locations and international market expansion, the transition to the ongoing senior management tea, and transition to a public company.

These anticipated changes to Yeti’s definitions of non-GAAP financial measures will be implemented when Yeti reports its financial results for the first quarter of Fiscal 2020. The Fiscal 2020 outlook and growth rates from Fiscal 2019 financial results are based on these revised definitions. Please see “Revised Non-GAAP Financial Measures Beginning in Fiscal 2020” below for additional information.

For Fiscal 2020, a 53-week period, compared to a 52-week period in Fiscal 2019, Yeti expects the following:

  • Net sales to increase between 13.0 percent and 15.0 percent compared to Fiscal 2019 (including the impact of the 53rd week, which is expected to contribute approximately $7 million) with strong growth across both channels and led by the DTC channel;
  • Operating income as a percentage of net sales between 15.3 percent and 15.6 percent;
  • Adjusted operating income, as a percentage of net sales, between 16.3 percent and 16.6 percent, reflecting margin expansion of 70 to 100 basis points, driven by higher gross margin;
  • An effective tax rate of approximately 25.0 percent;
  • Net income per diluted share is now expected to be between $1.24 and $1.29, reflecting 112 percent to 122 percent growth;
  • Adjusted net income per diluted share between $1.34 and $1.39, reflecting 26 percent to 30 percent growth;
  • Diluted weighted average shares outstanding of 87.7 million;
  • Adjusted EBITDA between $202.1 million and $207.9 million, or between 19.6 percent and 19.8 percent of net sales, reflecting 18 percent to 21 percent growth;
  • Capital expenditures between $30 million and $35 million; and
  • The impact of the 53rd week, which is included in this outlook, is expected to contribute approximately $7 million to net sales and have a nominal contribution to earnings.

Photo courtesy Yeti