Yeti Lowers 2022 Outlook On Weakening Consumer Trends

Yeti Holdings, Inc. reported sales grew 17 percent in the second quarter, but both sales and earnings were slightly below Wall Street’s consensus estimates. Yeti also slashed its earnings guidance and lowered its sales guidance for the year due to “macroeconomic conditions and the state of the consumer.”

Matt Reintjes, President and CEO, commented, “Yeti delivered strong growth of 17 percent during the second quarter, comping last year’s significant 45 percent growth and driving a three-year compounded annual growth rate of 22 percent. We believe this performance continues to demonstrate the incredible resilience and vitality of the brand as well as the durability of demand for Yeti. Nevertheless, sales were slightly below our expectations, primarily due to softer digital traffic and new customer acquisition trends after several years of strong growth.

“On the cost side, our gross margin and operating expenses continue to be impacted by elevated logistics and distribution costs. Additionally, the marginal channel shift towards wholesale and the product mix towards coolers and equipment in the period was greater than we expected and negatively impacted gross margin. We now expect this dynamic to continue throughout the balance of the year as we service the demand for coolers particularly in the wholesale channel. On a positive note, our new innovation across the portfolio has resulted in strong consumer reaction and we have begun to see signs of meaningful container cost decreases which will positively impact gross margin as we exit the year and enter Fiscal 2023.”

Reintjes continued, “As we continue to navigate this dynamic environment, we are increasingly focused on several factors that are foundational to drive near-term execution as well as to support durable, long-term growth. This includes an unwavering focus on brand expansion across our diverse multi-channel distribution points, prioritizing and sustaining investments in marketing, people and innovation and maintaining high customer value. These areas differentiate Yeti in the market and will be integral to our leadership position in the quarters ahead.”

For the Three Months Ended July 2, 2022
Sales increased 17 percent to $420.0 million, compared to $357.7 million during the same period last year.

  • DTC channel sales increased 14 percent to $224.8 million, compared to $196.9 million in the prior year quarter, led by strong performance in Drinkware. The DTC channel represented 54 percent of sales, compared to 55 percent in the prior year period;
  • Wholesale channel sales increased 21 percent to $195.2 million, compared to $160.8 million in the same period last year, driven by Coolers & Equipment;
  • Drinkware sales increased 12 percent to $216.1 million, compared to $192.9 million in the prior year quarter primarily driven by the continued expansion of Drinkware products, including the introduction of new colors and sizes and demand for customization;
  • Coolers & Equipment sales increased 23 percent to $193.4 million, compared to $157.8 million in the same period last year, driven by strong performance in bags, soft coolers and hard coolers.

Gross profit increased 5 percent to $219.1 million, or 52.2 percent of sales, compared to $209.1 million, or 58.5 percent of sales, in the second quarter of 2021. The 630 basis point decrease in gross margin was primarily driven by higher inbound freight, higher product costs and the unfavorable impact of foreign currency exchange rates, partially offset by price increases.

SG&A expenses increased 10 percent to $150.8 million, compared to $136.7 million in the second quarter of 2021. As a percentage of sales, SG&A expenses decreased 230 basis points to 35.9 percent from 38.2 percent in the prior year period, primarily driven by non-variable expense leverage on higher sales, partially offset by higher variable expenses driven by higher distribution and logistics costs.

Operating income decreased 6 percent to $68.3 million, or 16.3 percent of sales, compared to $72.4 million, or 20.2 percent of sales during the prior year quarter.

Adjusted operating income decreased 5 percent to $73.8 million, or 17.6 percent of sales, compared to $77.4 million, or 21.6 percent of sales during the same period last year.

Other expense increased to $5.8 million compared to $1.0 million in the second quarter of 2021, primarily due to foreign currency losses related to intercompany balances.

Net income decreased 18 percent to $46.3 million, or 11.0 percent of sales, compared to $56.2 million, or 15.7 percent of sales in the prior year quarter; Net income per diluted share decreased 16 percent to $0.53, compared to $0.63 per diluted share in the prior year quarter.

Adjusted net income decreased 10 percent to $54.8 million, or 13.0 percent of sales, compared to $60.7 million, or 17.0 percent of sales in the prior year quarter; Adjusted net income per diluted share decreased 7 percent to $0.63, compared to $0.68 per diluted share in the prior year quarter.

Adjusted earnings of 63 cents a share were below Wall Street’s consensus target of 68 cents a share. Sales of $420 million were below Wall Street’s consensus target of $424.6 million.

For the Six Months Ended July 2, 2022
Net sales increased 18 percent to $713.7 million, compared to $605.2 million in the previous year.

  • DTC channel net sales increased 18 percent to $380.8 million, compared to $323.7 million in the prior year period, driven by both Drinkware and Coolers & Equipment. The DTC channel remained at 53 percent of net sales, for both periods;
  • Wholesale channel net sales increased 18 percent to $332.9 million, compared to $281.6 million in the same period last year, primarily driven by both Drinkware and Coolers & Equipment;
  • Drinkware net sales increased 17 percent to $400.1 million, compared to $341.8 million in the prior year period, due to the continued expansion of its Drinkware product offerings, including the introduction of new colors and sizes, and strong demand for customization; and
  • Coolers & Equipment net sales increased 18 percent to $296.4 million, compared to $251.3 million in the same period last year. The strong performance was driven by growth in bags, soft coolers, outdoor living products, and hard coolers.

Gross profit increased by 6 percent to $374.0 million, or 52.4 percent of net sales, compared to $354.3 million, or 58.5 percent of net sales in the previous year. The 610 basis point decrease in gross margin was primarily driven by higher in-bound freight, higher product costs and the unfavorable impact of foreign currency exchange rates, partially offset by price increases.

SG&A expenses increased 13 percent to $272.3 million, compared to $241.8 million in the previous year. As a percentage of net sales, SG&A expenses decreased 180 basis points to 38.2 percent from 40.0 percent in the prior year period, primarily driven by non-variable expense leverage on higher sales, partially offset by higher variable expenses driven by higher distribution and logistics costs .

Operating income decreased 10 percent to $101.6 million, or 14.2 percent of net sales, compared to $112.5 million, or 18.6 percent of net sales during the previous year.

Adjusted operating income decreased 8 percent to $111.9 million, or 15.7 percent of net sales, compared to $121.1 million, or 20.0 percent of net sales during the same period last year.

Other expenses increased to $4.9 million compared to $1.3 million in the second quarter of 2021, primarily due to foreign currency losses related to intercompany balances.

Net income decreased 17 percent to $71.9 million, or 10.1 percent of net sales, compared to $86.8 million, or 14.3 percent of net sales in the previous year. Net income per diluted share decreased 16 percent to $0.82, compared to $0.98 per diluted share in the previous year.

Adjusted net income decreased 12 percent to $83.3 million, or 11.7 percent of net sales, compared to $94.2 million, or 15.6 percent of net sales in the prior year period. Adjusted net income per diluted share decreased 10 percent to $0.95, compared to $1.06 per diluted share in the same period last year.

Balance Sheet and Other Highlights
Cash decreased to $92.0 million, compared to $233.8 million at the end of the second quarter of 2021. During the first quarter of 2022, Yeti initiated and completed its previously announced $100.0 million share repurchase program by repurchasing 1.7 million shares.

Inventory increased 121 percent to $490.0 million, compared to $221.7 million at the end of the prior-year quarter. Excluding capitalized freight, the value of inventory grew approximately 90 percent to $370 million compared to the prior year’s quarter, representing approximately 70 percent growth on a unit basis for its two main product categories. Unit growth is significantly driven by longer transit times and its focus on improving stock levels, particularly in hard and soft coolers, to support demand.

Total debt, excluding finance leases and unamortized deferred financing fees, was $101.3 million, compared to $123.8 million at the end of the second quarter of 2021. During the first half of 2022, Yeti made mandatory debt payments of $11.3 million.

Updated Fiscal 2022 Outlook
Reintjes concluded, “As we continue to assess macroeconomic conditions and the state of the consumer, we are taking prudent actions to adjust our outlook for Fiscal 2022. This now includes sales growth of between 15 percent and 17 percent and an adjusted operating margin of 17.0 percent to 17.5 percent, which are levels we believe help preserve disciplined actions and investments for the near-, mid- and long-term. As we look at the balance of the year, we remain encouraged with our product launches and impactful brand reach, which we believe will keep the brand at the forefront of consumer spending consideration.”

  • Sales are now expected to increase between 15 percent and 17 percent (versus the previous outlook of between 18 percent and 20 percent);
  • Operating income as a percentage of sales is now expected to be approximately 16 percent (versus the previous outlook of approximately 18.5 percent) and operating income is now expected to decrease between 3 percent to 7 percent (versus the previous outlook of an increase between 13 percent that 15 percent);
  • Adjusted operating income as a percentage of sales is now expected to be between 17 percent and 17.5 percent (versus the previous outlook of approximately 20 percent) and adjusted operating income is now expected to decrease between 2 percent to 7 percent (versus the previous outlook of an increase between 13 percent and 15 percent);
  • The effective tax rate is now expected to be approximately 24.6 percent (versus the previous outlook of 24 percent and compared to 21.8 percent in the previous year period);
  • Adjusted net income per diluted share is now expected to be between $2.34 and $2.46 (versus the previous outlook of between $2.86 and $2.91), reflecting a 5 percent to 10 percent decrease;
  • Diluted weighted average shares outstanding is now expected to be 87.3 million (versus the previous outlook of 87.4 million); and
  • Capital expenditures are expected to remain at approximately $60 million primarily to support investments in technology and new product innovation and launches.

Photo courtesy Yeti

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