Yeti, Inc.’s third-quarter results topped analyst targets, boosted by newer categories, including bags, barware, and cookware. Matt Reintjes, president and CEO, said on an analyst call that the company’s efforts to diversify its supply chain continue to have half of the brand’s drinkware production sourced outside of China by 2025.

Yeti first announced the company’s supply chain diversification efforts on its second-quarter analyst call, but the subject received greater attention with President Trump’s re-election, which could increase tariffs on goods manufactured in the region and shipped to the U.S.

Reintjes noted that 40 percent of Yeti’s total cost of goods has historically been tied to products sourced from China, primarily related to its drinkware portfolio.

“This supply chain initiative gives us the opportunity to support greater global scale, target end markets for cost and service optimization and evolve our supply base,” said Reintjes, “Notably, we commenced production at our second drinkware facility outside of China during the quarter. We have great partners in this effort and are encouraged by the process and automation improvements over the past few years to enable these successful moves. All in all, we are pleased with the performance of this initiative and, as a result, we remain confident that, by the end of this year, approximately 20 percent of our global drinkware capacity will be located outside of China and by the end of 2025, 50 percent of our drinkware capacity will be outside of China.” Reintjes added, “This initiative is a key priority for Yeti and will be actively managed to ensure we are supporting our growing global business and positioning for long-term success.”

Asked in the Q&A session of the analyst call to further elaborate on the potential margin implications from the potential of larger tariff on Chinese exports under President Trump’s administration, CFO Mike McMullen said there’s a “lot of unknowns,” including the number of tariffs, which categories, and the timing. He also said ongoing supply chain diversification efforts and “price potentially” could mitigate tariff risks.

McMullen added, “The other thing that I would lay out, just as a reminder, is we have been through this before in the 2018/19 timeframe with soft goods, and we navigated that successfully. And we believe the plan that we have in place today would allow us to do that again. But again, there’s just a lot of unknowns right now to lay out a specific number.”

Third-Quarter Results
Sales increased 10 percent to $478.4 million in the quarter, exceeding analysts’ consensus estimate of $471.3 million.

Net income increased 32 percent to $56.3 million, or 11.8 percent of sales, compared to $42.7 million, or 9.8 percent of sales in the prior-year quarter. Adjusted EPS increased 18 percent to 71 cents a share, topping analysts’ consensus estimate of 67 cents. Yeti kept its sales guidance for the year while raising its EPS to the upper end of its range.

Reintjes said the gains reflected strength across channels and categories.

“On the product side, innovation continues to be a catalyst with drinkware delivering several highly anticipated launches in bar and tableware, underscoring the expansion opportunities we see,” said the CEO. “In coolers and equipment, we saw good performance from both legacy and newer products, including several newly launched accessories that complement our existing lineup.

“On the International front, we saw our fourth consecutive quarter of over 30 percent growth outside of the U.S. while also delivering solid growth in a more challenging U.S. market where we continue to see high quality but more discerning buyers.

Reintjes added, “Taken together, Yeti’s brand strength, strong product innovation cadence and global growth position us to remain on track to deliver on our full-year top and bottom-line outlook. As a reminder, our top-line outlook takes into consideration an expectation of more intentional consumer buying in Q4 as we closely watch spending in this shortened holiday season.”

Product Performance
Coolers and equipment sales increased 12 percent in the quarter to $193 million, marking Yeti’s third quarter in a row of double-digit growth in this category.

Hard coolers had a strong quarter supported by recent innovation, particularly with the Roadie 15 hard cooler. The Tundra range also performed well. Soft coolers benefited from continued good demand for its line of backpack coolers, with strength in newer backpack formats as well as smaller-sized thermal lunch-style bags.

Reintjes added, “Our LoadOut Bucket Swivel Seat, which launched in September, has been in high demand due to the range of use cases from garage to sideline to the field. And last month our food organization and storage containers went live to complement the functionality and versatility of our hard and soft coolers and tie to our food expansion theme.”

Bags had a strong quarter, exceeding expectations with continued strong performance in the SideKick, Camino and Panga product lines. Mystery Ranch-branded products also continued to perform in line with expectations. Reintjes said Yeti remains on track to launch a new range of Yeti every day and all-weather bags in 2025 inspired by Yeti and Mystery Ranch designs.

In cookware, Reintjes said the initial performance and feedback received around its cast iron skillet has been “extremely encouraging.”

Drinkware sales increased 9 percent to $275 million, supported by the continued expansion into barware and tableware with a pitcher in two sizes and the full release of flask and shot glasses, following the successful limited release in Q2. Reintjes said Yeti Drinkware has launched 18 new products over the last 12 months.

“Early performance and feedback on barware has been extremely positive and fits with our tableware and drinkware expansion. As we enter the gifting season, we are optimistic about the potential of these products,” said Reintjes.

McMullen noted that as Yeti expands its range of Drinkware products intended for group sharing, such as its beverage bucket, wine chiller, French press, and pitcher, the brand has seen “a nice lift” in other parts of its portfolio, including its stackable cups in six sizes. He said, “We believe that this dynamic will only build as the awareness of our full portfolio continues to grow.”

Channel Performance
By channel, Wholesale sales increased 14 percent to $197.6 million, due to growth in Drinkware and Coolers & Equipment. McMullen said, “In the U.S., we continue to benefit from the strength and diversity of our wholesale channel, diversity in terms of size, pursuits and location. We think this positions us well to capture the demand that is in the market regardless of macroeconomic conditions. Longer term, we also believe that this puts us in a great position to grow our shelf space with our wholesale partners as we expand our product portfolio.”

Reintjes said the Wetlands collection saw “exceptional demand” during the quarter with partners such as Bass Pro Shops, Academy Sports and independent doors. He added, “Channel inventory remained in good shape as we managed product distribution and new innovation launches. Wholesale plays an incredibly significant role for Yeti as we want to be where consumers shop and intersect with them during buying occasions, whether those are impulse or intentional.

McMullen said that outside the U.S., wholesale dealer growth “remains a focal point of our strategy as we continue to see plenty of opportunity for new partnerships around the globe. Finally, inventory in the channel remains healthy and is well-positioned to support demand as we enter the holiday season.”

DTC channel sales increased 8 percent to $280.8 million, compared to $259.5 million All DTC channels posted growth in the quarter, led again by the Amazon business.

Income Statement Highlights
Gross margin was flat at 58.0 percent as higher customization and other costs offset lower inbound freight costs and lower product costs.

Adjusted gross margins improved 40 basis points to 58.2 percent due to lower inbound freight costs and lower product costs, partially offset by higher customization costs and other costs.

SG&A expenses decreased 20 basis points to 43.5 percent, primarily due to higher employee costs and marketing expenses. Adjusted SG&A expenses increased 40 basis points to 41.7 percent, primarily due to higher employee costs.

Operating income increased 13 percent to $69.6 million while adjusted operating income increased 11 percent to $79.2 million.

Updated 2024 Outlook
For Fiscal 2024, Yeti expects:

  • Adjusted sales to increase approximately 9 percent (versus its previous outlook of between 8 percent and 10 percent);
  • Adjusted operating income as a percentage of adjusted sales of approximately 16.5 percent (consistent with previous outlook);
  • An effective tax rate of approximately 24.8 percent (compared to 24.8 percent in the prior year period);
  • Adjusted net income per diluted share of approximately $2.65 (versus its previous outlook of between $2.61 and $2.65), reflecting an 18 percent increase;
  • Capital expenditures of approximately $50 million (versus its previous outlook of between $50 million and $60 million) primarily to support investments in technology and new product innovation.

Image courtesy Yeti