YETI Holdings, Inc. (YETI) - 11-May-2022 - AWS
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11-May-2022
YETI Holdings, Inc. (YETI)
Q1 2022 Earnings Call
Total Pages: 18
1-877-FACTSET www.callstreet.com Copyright © 2001-2022 FactSet CallStreet, LLCYETI Holdings, Inc. (YETI) Corrected Transcript
Q1 2022 Earnings Call 11-May-2022
CORPORATE PARTICIPANTS
Tom Shaw Paul C. Carbone
Vice President-Investor Relations, YETI Holdings, Inc. Senior Vice President & Chief Financial Officer, YETI Holdings, Inc.
Matthew J. Reintjes
President, Chief Executive Officer & Director, YETI Holdings, Inc.
......................................................................................................................................................................................................................................................
OTHER PARTICIPANTS
Peter S. Benedict Sharon Zackfia
Analyst, Robert W. Baird & Co., Inc. Analyst, William Blair & Co. LLC
Brooke Roach Camilo Lyon
Analyst, Goldman Sachs & Co. LLC Analyst, BTIG LLC
Randal J. Konik John Kernan
Analyst, Jefferies LLC Analyst, Cowen & Co. LLC
Robert F. Ohmes Brian Harbour
Analyst, BofA Securities, Inc. Analyst, Morgan Stanley & Co. LLC
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MANAGEMENT DISCUSSION SECTION
Operator: Greetings and welcome to YETI Holdings' 1Q 2022 Earnings Conference Call. At this time, all
participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator
Instructions] As a reminder, this conference is being recorded.
I would now like to turn this conference over to your host, Mr. Tom Shaw, Vice President of Investor Relations.
Thank you, sir. You may begin your presentation.
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Tom Shaw
Vice President-Investor Relations, YETI Holdings, Inc.
Good morning and thanks for joining us to discuss YETI Holdings' first quarter 2022 results. Before we begin,
we'd like to remind you that some of the statements that we make today on this call, including the statements
relating to the impact of the COVID-19 pandemic on our business, may be considered forward-looking. And such
forward-looking statements are subject to various risks and uncertainties that could cause our actual results to
differ materially from these statements.
For more information, please refer to the risk factors detailed in our most recently filed Form 10-Q and the Form
8-K filed with the SEC today. We undertake no obligation to revise or update any forward-looking statements
made today as a result of new information, future events or otherwise except as required by law.
During our call today, we'll be discussing certain non-GAAP measures pertaining to completed fiscal periods.
Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in
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Q1 2022 Earnings Call 11-May-2022
this morning's press release. We use non-GAAP measures as a lead in some of our financial discussions as we
believe they more accurately represent the true operational performance and underlying results of our business.
Today's call will be led by Matt Reintjes, President and CEO, and Paul Carbone, CFO. Following our prepared
remarks, we'll open the call for your questions.
And now, I'd like to turn the call over to Matt.
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Matthew J. Reintjes
President, Chief Executive Officer & Director, YETI Holdings, Inc.
Thanks, Tom, and good morning. YETI's first quarter results highlight the strong resilient consumer demand that
has been a consistent hallmark of our brand as well as showing the outstanding execution by our team. We are
particularly encouraged with the all-around performance of the business amidst the ongoing challenges and
unpredictability of the current environment. This success continues to display our ability to quickly adapt and
remain nimble without losing sight of our near-term execution and long-term growth. This balance of execution
and action is why we are on track to deliver another strong year of growth and profitability.
As we navigate both the opportunities and challenges of 2022, the core of our diverse growth strategy remains
strong. The combination of our direct, wholesale, corporate and global channels to market gives us unique and
varied ways to stoke consumer demand. As we look forward to the second quarter and back half of 2022; we are
focused on delivering brand and product innovation to our customers, building deep brand engagement with new
and existing customers as we expand our powerful depth and breadth marketing efforts, accelerating our unique
omni-channel strategy including a comprehensive data-driven approach to build strong engagement from
acquisition through retention, and finally, exploiting untapped international growth by capitalizing on the
momentum we have created outside the United States.
Looking at our first quarter financial highlights. Our net revenues increased 19% continuing a consistent trend of
strong top-line growth since 2019, delivering a three-year compounded annual growth rate of 24%. Included in
this quarter's performance, we drove double-digit growth in both our product categories and across both our
channels while our international business reached a record high of nearly 13% of overall sales. As anticipated,
adjusted operating margin was in line with expectations even against higher gross margin headwinds due to
persistent and elevated supply chain costs. Paul will cover this in more detail shortly. Even with this headwind, we
continue to expect improving margins and profitability as we progress through fiscal 2022.
Before sharing the progress against our strategic growth priorities, I wanted to cover three additional areas that
pertain to our business in the first quarter and for the full year. First, even as we rolled over strong demand last
year that benefited from both a product transition and the timing of new product introductions, we outperformed
our expectations for the first quarter. We expect similar growth in the current quarter to be supported by the
broader release of our first half product launches combined with the higher demand periods associated with the
approach of active outdoor summer activities and the moms, dads and grads gift giving occasions.
Second, Paul will outline a non-recurring inbound freight cost that materialized during the period. While in isolation
this is an incremental headwind for the year, we are seeing some offsets including early signs of improving freight
rates and stronger pricing contribution. As we look forward, we have reiterated both our full year gross margin
target of approximately 55% and our full year adjusted operating margin target of approximately 20%. Finally, we
have completed the $100 million share buyback that we announced shortly after our fourth quarter earnings call in
February. Adjusting for lower share count, we have raised our full year adjusted EPS outlook.
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Q1 2022 Earnings Call 11-May-2022
Now shifting to updates across our strategic priorities. As we look at the incredibly strong execution driven by the
YETI brand, we are focused on our diverse network of ambassadors in a range of passion-driven activities,
pursuits and organizations with growing international appeal.
A great example of this strategy continues to play out in our ski and snowboarding communities. Our partnership
with the Natural Selection snowboarding series, which began during its inaugural year in 2021, has since
expanded this year to include serving as the title sponsor for both the Jackson Hole and Alaska wilderness stops.
Both events garnered global exposure with linear and connected TV coverage in addition to an active digital
footprint.
In March, we officially partnered with the Freeride World Tour, a pinnacle worldwide snowboarding circuit that
hosted five international competitions earlier this year. During our recent brand activation in Verbier, Switzerland;
we were able to celebrate our new French ambassador, Victor de Le Rue, who took home the grand finale win in
men's snowboarding.
As in-person activation reopens around the globe, we're making sure YETI is front and center in a real way in the
communities that are core to our brand. We continue to do great things in the world of surfing where we've added
to our roster of ambassadors while simultaneously supporting the resurgence of big event competitions. Our latest
ambassador in this community, Australian seven-time world champion pro surfer, Stephanie Gilmore, recently
partnered with John John Florence and our YETI Australia team to host the first stop on the resurgent YETI Film
Tour held at Bells Beach during the Rip Curl Pro competition.
Turning our attention to the US. We celebrated the return of two YETI brand activations that had been disrupted
during the pandemic. As a part of South by Southwest, we hosted a YETI music showcase featuring 12 live acts
at our flagship store in downtown Austin. A great reminder of how we engage the communities where our stores
are located and use these as both places of commerce and brand platforms. We also announced the return of the
US leg of the YETI Film Tour, which commenced last week in California as part of a 12-stop run. Highlighted by
ambassador appearances and epic storytelling, we're excited to share seven new films focused on the incredible
stories about people and places.
Our expansive brand building works in direct conjunction with our rhythm of new product introductions. For the
first quarter; this included our seasonal color launches, the extension of our bags with the Camino tote family
expansion and fantastic innovation in our soft cooler family. Our color strategy remains rooted in real life
inspiration, giving our colors meaning and purpose, which allows for robust product marketing. Both Offshore Blue
and Bimini Pink performed well and showcased our unique ability to drive customer excitement through authentic
storytelling.
Our third color of the spring was Alpine Yellow, which was accompanied by stories from Chamonix in the French
Alps. We partnered with our ambassador, Conrad Anker, to bring this story to life, celebrating the birthplace of
modern alpinism. As we thoughtfully pace and execute the buildout of our bag business; we recently expanded
our original Camino tote with two new sizes, a more compact Camino 20 and the enlarged Camino 50. This
product family is driving substantial year-over-year gains and remains a fantastic multi-use bag for adventure and
every day.
As we move into the months ahead, two additional developments will support our broader category efforts. We
are refreshing our Panga line of waterproof duffels and backpacks for the first time since the original 2017
introduction by offering a new tan colorway. In addition, we will begin to test select wholesale distribution for our
bag line later this quarter.
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Q1 2022 Earnings Call 11-May-2022
One consistent observation from our YETI retail stores has been the strong level of engagement and performance
across our bags assortment as these moments provide incredible opportunities of discovery about the quality of
our bags. We believe a thoughtful introduction of YETI bags within select wholesale partners will help inform our
future channel expansion opportunity.
We also introduced our next generation of soft coolers with the launch of the Hopper M30 and the Hopper M20
backpack. The new M30 showcases our drive for continuous improvement in our products, taking a great core
product and improving it. The M20 backpack leverages the same magnetic closure system to offer both easy
access and a streamlined product profile while also leveraging our growing expertise in bags to offer great
ergonomic fit.
Playing off of Wear Your Cooler Out tagline, we supported the product launch across a series of key televised
sports events, including during the NCAA March Madness. Overall, the early response to these products has
been above expectations. And we are excited to broaden distribution to wholesale ahead of late spring and early
summer buying. We plan more cooler innovation to come as we progress through the year.
Looking at our omni-channel distribution strategy, both DTC and wholesale posted strong growth at 23% and
14%, respectively. Supporting this growth, we have made ongoing progress in our efforts to drive strong customer
engagement in our direct channels and deliver consistent, high-quality experiences across our wholesale
accounts.
In our YETI e-commerce business; great growth has been supported by our strategic focus on attracting,
acquiring and retaining high-quality customers. As we have aligned the work of our data, e-commerce and
marketing functions; we become more surgical in deploying our tools and tactics to drive customer connections.
Examples of our progress here include improved reactivation of older customer cohorts as well as driving both a
deeper and broader purchase basket within and across product categories.
Our latest step here came in early April with the unveiling of our redesigned yeti.com platform with a mobile-first
experience. Early customer responses have been positive as measured by improved conversion. But we know
the bigger opportunities to drive impactful, individual, personalized experiences remain ahead of us. On the
corporate sales side, we continue to see success in driving this overall business, including strong repeat
purchases across our business verticals. This helps create a more predictable pipeline of orders.
YETI retail stores continue to perform ahead of expectations and are delivering both a great brand platform but
also strong financial results. We have converted our two remaining temporary store locations in Dallas and Fort
Lauderdale to longer-term leases during the first quarter based upon the strong performance and traffic we're
seeing out of those stores.
In addition, we recently opened up our 10th store in San Antonio and remain on track to open at least two
additional locations in 2022. Finally, Amazon growth improved sequentially as we continue to make progress in
reloading inventory into their network. We expect ongoing service improvements will better match up to customer
demand as we move through the year.
On the wholesale side of the business, the execution of our focus and optimization strategy is beginning to
contribute to healthier, more consistent in-stocks across the channel spanning from our national accounts to our
independent partners. At the same time, we continue to look for ways to elevate our overall in-store
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Q1 2022 Earnings Call 11-May-2022
merchandising as we drive better alignment across all points of distribution. Delta in the channel remained
positive for the quarter and we're on track to deliver low double-digit growth for the year.
Looking at our international business, we remain incredibly bullish on the brand's ability to elicit a similar level of
passion and engagement that we see with our domestic customers. As our key international markets open up and
once again host events, we're able to more fully engage with customers across a range of locally relevant
pursuits. This allows us to build upon the existing momentum and to expose new audiences to the brand.
In Canada, this spans from our on-ice partnership with the Toronto Maple Leafs to the return of 60,000-plus
visitors to the Toronto Sportsmen's Show. In Australia, we are activating at legendary surf competitions as well as
the country's largest barbecue festival. And in Europe, our efforts were highlighted by the previously mentioned
mountain-based activities at Verbier and Chamonix as well as driving targeted PR events across the region.
We're making very strong growth progress with international revenues up 45% year-over-year and up more than
3x from the first quarter of 2020. This performance pushes our international mix to nearly 13%, a new high for
YETI, even as our domestic business continued to comp mid-teens growth.
Looking at specific markets. Our Canadian business remain strong and primed for success as we move towards
summer and COVID restrictions give way to the return of live events. As we mentioned last quarter, we launched
our redesigned web platform on yeti.ca, delivering a mobile-first experience and early results are yielding
improved conversion rates.
Performance in Australia remained outstanding with strength in both e-commerce and wholesale supported by
strong brand activations at local events with our Australian ambassadors. We're also making distribution inroads
in urban markets as we begin to expand with our first national account in Australia.
Even with the challenging and fluid backdrop in Europe, our objectives this year are unchanged and reflect our
conviction in utilizing our successful playbook for global market development. Specifically, we are focused on
leading with e-commerce, establishing localized go-to-market wholesale strategies and investing in heightened
brand building activities in Europe as we establish the brand and product to prepare for future scale and growth.
As I hand the call over to Paul to review our financials; I want to first thank our YETI team, our partners and all
those that support our brand. You continue to deliver outstanding results amidst the multitude of pressures,
disruptions and distractions. You all have kept our priorities in sight and continue to be instrumental in driving our
success.
I would also like to emphasize how incredibly excited I am about the opportunities ahead for the brand. This
includes the near term where customers return to seasonal activities and YETI gift-giving accelerates for moms,
dads and grads. We have incredible product which rolls with our customer from their daily life to extreme pursuits,
and importantly, is a catalyst for the human to human avocation that is a hallmark of YETI.
This provides a platform to foster exceptional brand experiences utilizing incredible content about people, product
and places, while leveraging a unique and differentiated network of ambassadors, direct channels and wholesale
partners. This is what enables us to drive YETI's long-term consistent results.
With that, I would now like to turn the call over to Paul.
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Q1 2022 Earnings Call 11-May-2022
Paul C. Carbone
Senior Vice President & Chief Financial Officer, YETI Holdings, Inc.
Thanks, Matt. YETI delivered first quarter results that were slightly above expectations as we continued to drive
strong demand for the brand while managing the ongoing cost pressures in the market. Let me start by reviewing
the details from the quarter followed by our updated outlook and then open the call for your questions.
First quarter sales increased 19% to $293.6 million compared to $247.6 million in the prior year period. Growth
was above plan and was particularly impressive against the 42% growth experienced in the year ago period.
Direct-to-consumer sales grew 23% to $156 million compared to $126.8 million in the same period last year.
Direct-to-consumer performance was led by our Drinkware category and strength across our own YETI
properties. Overall, direct-to-consumer mix increased to 53% of sales for the period compared to 51% last year.
Wholesale sales increased 14% to $137.7 million compared to $120.8 million last year. Our wholesale
performance was balanced across both Coolers & Equipment and Drinkware.
By category, Drinkware sales increased 24% to $184 million compared to $148.9 million last year. New colors
continue to generate category excitement and we continue to see traction with our 2021 introductions, including
our travel mugs and our 26-ounce straw cup. In addition, customization continues to amplify the entire category
with strong demand from both yeti.com customers and across corporate sales.
Coolers & Equipment sales increased 10% to $103 million compared to $93.5 million during the same period last
year. Demand was strong for most of the broader category, including hard coolers. As Matt mentioned, early
receptivity to new products like our soft coolers and Camino totes has been strong as we have ramped up
marketing support and are now moving more fully into the wholesale channel.
Internationally, sales grew 45% to $37.4 million compared to $25.8 million in the prior year quarter and now
represents approximately 13% of total sales. Of note, international sales have been updated to now include
Amazon Canada and some international customers where YETI does not have a physical presence, which were
previously recorded domestically. Full details of these changes, which can be found in the appendix of our
Investor Relations deck, would have resulted in an approximate $10 million increase to fiscal 2021's international
revenue.
Looking at performance. Once again, we saw strong contributions across Canada, Australia and Europe. Gross
profit increased 7% to $154.9 million or 52.7% of sales compared to $145.2 million or 58.6% of sales in the same
period last year. The 590-basis-point year-over-year contraction was primarily driven by a 680-basis-point impact
from higher inbound freight.
In addition to planned freight inflation, we also received some late trailing invoices from our main freight forwarder,
which resulted in a true-up that should have flowed through our P&L in the fourth quarter of fiscal 2021. This
contributed to an additional $6.4 million of freight expense or 220 basis points during the quarter.
In addition to inbound freight, other unfavorable factors included 60 basis points from higher duties related to the
expiration of the GSP program, 50 basis points from other impacts and 30 basis points from higher product costs.
These headwinds were partially offset by 140 basis points from pricing and 90 basis points from channel and
sales mix.
Adjusted SG&A expenses for the quarter increased 15% to $116.8 million or 39.8% of sales compared to $101.4
million or 41% of sales in the same period last year. The 120-basis-point decrease as a percent of sales was
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Q1 2022 Earnings Call 11-May-2022
driven by non-variable expenses leveraging by 180 basis points and variable expenses increasing as a
percentage of sales by 60 basis points mainly driven by DTC sales mix.
Adjusted operating income decreased 13% to $38 million or 13% of sales compared to $43.8 million or 17.7% of
sales during the same period last year. Our effective tax rate was 23.2% during the quarter compared to 21.5% in
last year's first quarter with the higher rate reflecting a discrete income tax benefit in the prior year period.
Adjusted net income decreased 12% to $29.2 million or $0.33 per diluted share compared to $33.3 million or
$0.38 per diluted share in the prior year period. During the quarter, we repurchased approximately 1.7 million
shares of our stock for $100 million at an average price of $59.66. The share buyback did not have a material
impact in the quarter.
Now turning to our balance sheet. We ended the first quarter with $100.3 million in cash compared to $190.3
million in the year ago period. The lower cash position primarily reflects the completion of the share repurchase
during the period as well as ongoing investments in working capital.
Inventory increased 125% to $413 million compared to $183.9 million during the same quarter last year. Similar to
last quarter, nearly two-thirds of the inventory growth for the period reflects the combination of higher in-transit
inventory given the extended lead times and the impact of higher inbound freight costs.
Looking solely at product inventory, which includes the impact of freight, roughly 40% of our product inventory
was in transit at quarter-end, which we believe highlights the quality of our overall inventory position. As we
compare back to a more normalized level from Q1 of 2019, product inventory has grown at a 29% compounded
growth rate compared to sales growth of 24%.
Total debt, excluding unamortized deferred financing fees and finance leases, was $106.9 million compared to
$129.4 million at the end of last year's first quarter. During the quarter, we made principal payments of $5.6
million.
Now, turning to our fiscal 2022 outlook. We continue to expect full year sales to increase between 18% and 20%
compared to fiscal 2021. The inputs to this outlook are consistent, including Coolers & Equipment growing faster
than Drinkware, the direct-to-consumer channel growing in the mid-20% range and ahead of the wholesale
channel growing low double digits and pricing actions adding approximately 200 basis points of growth. From a
cadence standpoint, we expect growth in each of the next three quarters to be generally in line with the 18% to
20% full year range.
On the margin side, we continue to expect gross margins of approximately 55% for the year, down from the
57.8% last year but still trending well above the pre-COVID rate of 52% in 2019. The biggest headwind for the
year remains inbound freight costs. While the first quarter adjustment was incremental to our initial full year
outlook calling for 280 basis points of inbound freight pressure, we have seen early signs of slightly improved
rates in both the spot and contract markets which we believe will benefit mainly into next year if they continue.
Helping offset this incremental freight, we now expect a slightly greater benefit from our pricing actions which we
initially planned to drive 125 basis points of margin improvement for the year. Outside of freight and pricing, we
generally expect other margin drivers to be largely consistent with our original outlook. Looking at cadence, we
continue to expect less year-over-year headwinds as we move through the balance of the year. So from a
magnitude perspective, the second quarter is still planned down slightly more than 450 basis points year-over-
year.
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Q1 2022 Earnings Call 11-May-2022
With gross margin pressures remaining elevated, we will remain disciplined in prioritizing our SG&A expenses.
We still expect to leverage adjusted SG&A by approximately 190 basis points to approximately 35% of net sales,
which equates to double-digit dollar growth as we support our overall strategic initiatives. We expect year-over-
year expense leverage to continue for the balance of the year. Combined, we are maintaining our adjusted
operating margin rate of approximately 20% for the year.
Below the operating line, we continue to expect an effective tax rate of approximately 24% for fiscal 2022 above
the prior year's 20.8% rate that benefited from discrete income tax benefits each quarter. We now expect full year
diluted shares outstanding of approximately 87.4 million, inclusive of the approximately 1.7 million shares
repurchased during the first quarter.
Supported by this lower share count, we now expect adjusted earnings per diluted share to grow 11% to 13% to
between $2.86 and $2.91 compared to $2.57 in fiscal 2021. This incorporates approximately flat second quarter
earnings compared to $0.68 in the year ago period followed by strong growth in both the third and fourth quarters
primarily as gross margin comparisons continue to ease. For capital expenditures, we continue to expect
approximately $60 million of spending with roughly two-thirds of these expenditures focused on investments in
new innovation and expanding capacity of existing products.
In summary, we are optimistic with a solid start to the year and are well-positioned to take advantage of customer
demand across our channels. As always, we remain agile in an ever-changing global environment as we continue
to execute against our growth strategy.
And with that, I would now like to turn the call back over to the operator to take your questions.
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QUESTION AND ANSWER SECTION
Operator: At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first
question comes from the line of Peter Benedict with Baird. You may proceed with your question.
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Peter S. Benedict
Analyst, Robert W. Baird & Co., Inc. Q
Hi, guys. Good morning. Thanks for taking the question. I have two. The first, just can you talk about – maybe
give some color about your ability to get drinkware and other products out of China right now. Obviously, a lot of
disruption there. And then, Paul, maybe how the uptick in stainless steel prices maybe impacts your view on
product margins. It doesn't sound like this year there's any impact. But I don't know if there's any thoughts on
maybe 2023, but just curious on that.
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Matthew J. Reintjes
President, Chief Executive Officer & Director, YETI Holdings, Inc. A
Thanks, Peter. When we think about the drinkware coming out of China and as you heard in our prepared
remarks and in Paul's comments, we feel great about the inventory flow we have and the relationship we have
with our factories. And so with the disruptions that have been talked about recently, we haven't seen any impact
to our drinkware suppliers and continue to have a good flow of inventory both for what we brought in at the
beginning of this year and what we continue to flow for the rest of the year.
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Q1 2022 Earnings Call 11-May-2022
Paul C. Carbone
Senior Vice President & Chief Financial Officer, YETI Holdings, Inc. A
And then – good morning, Peter. And following on to Matt's comments, with that relationship with our suppliers,
we really – and we've talked about this in the past – we leverage our volume and really help with product costs.
So as we look out, we have incorporated product cost headwinds into this year and don't see anything
incremental even from when we spoke in February.
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Peter S. Benedict
Analyst, Robert W. Baird & Co., Inc. Q
Okay. And that's helpful. And then just as a follow-up, what are you guys seeing from a demand elasticity
standpoint? It doesn't sound like there's much. But as you maybe go through the portfolio or the regions;
obviously, there's a lot of talk about consumers starting to balk at maybe some higher ticket stuff. So maybe talk a
little bit about that. Have you seen anything? And is your view for this year just that you're not going to see any or
you have a little bit baked in and you just think you can offset it in other areas? Thank you.
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Matthew J. Reintjes
President, Chief Executive Officer & Director, YETI Holdings, Inc. A
Peter, yeah, that's a great question. I think as we think about the business, one of the things that we've
consistently talked about in the past and Q1 would be no exception is that we're continuing to see good growth
across our regions domestically. We obviously have the international growth which continues to perform very well
in those markets. And some of those newer markets is providing some great growth and great foundation for the
business.
As we think about across the channels, one of the benefits of the diversity of our channels to market between our
direct to consumer, which is inclusive of our corporate sales, our Amazon marketplace, our yeti.com and then you
add in the diversity of incredible wholesale partners that we have; it gives us access to a lot of different purchase
occasions with consumers. We feel good about the demand creation opportunity we have across that spectrum.
And in total, they're performing very well and across those individual pieces, they're performing well.
And as we look through the rest of the year like we do every year; if there's certain areas that are
underperforming, we have other areas that can outperform. And so we look at it as a portfolio approach to our
channels to market. We look across our product portfolio and I would say, as you see in these numbers, Coolers
& Equipment and Drinkware both continue to perform in the quarter and we expect that through the rest of the
year.
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Peter S. Benedict
Analyst, Robert W. Baird & Co., Inc. Q
Okay, great. Thanks so much, guys. Good luck.
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Operator: Our next question comes from the line of Brooke Roach with Goldman Sachs. You may proceed with
your question.
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Brooke Roach
Analyst, Goldman Sachs & Co. LLC Q
Good morning and thank you so much for taking our question. Matt, I'd love to hear a little bit about how you're
thinking about the competitive backdrop for YETI and YETI products in each of your key categories. Where do
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Q1 2022 Earnings Call 11-May-2022
you believe YETI has the most opportunity to gain market share or mindshare among your consumers this year
and into 2023?
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Matthew J. Reintjes
President, Chief Executive Officer & Director, YETI Holdings, Inc. A
Thanks, Brooke. As we think about the markets in which we operate and this goes all the way back to 2006 when
YETI started, we think more about growing markets than a game of share. And the reality is, I think, over 15-plus
years, we've shown that, that we actually can expand consumer consideration. We can draw people in based on
the premium durable nature of our products.
And so when I think about the portfolio; the continued growth opportunity, we had a strong Q1 in hard coolers, 15-
plus years into selling high-end, premium, durable hard coolers, as we talked about during our remarks, continue
to drive innovation in our soft coolers which we think is an incredible opportunity both domestically and
internationally as we expand into new markets.
And then you think about the evolution of our Drinkware portfolio and moving through different occasions and
different uses and penetrating deeper into consumers' lives and how they use it from morning coffee to evening
cocktails and hydration in between. So we like what's going on in our tumbler business. We really like the
opportunity within bottles and the continued focus on individual personal consumption and hydration. So I think
there's things from our perspective as we think about market growth and attracting new consumers and retaining
consumers that we like about the portfolio we have today.
......................................................................................................................................................................................................................................................
Brooke Roach
Analyst, Goldman Sachs & Co. LLC Q
Great. And then maybe a follow-up for Paul. On the gross margin, you mentioned that pricing actions are now
anticipated to be a little bit better than what we had discussed a few months ago. Can you discuss the drivers of
your improved confidence on pricing contribution to margin this year?
......................................................................................................................................................................................................................................................
Paul C. Carbone
Senior Vice President & Chief Financial Officer, YETI Holdings, Inc. A
Yeah, good morning. So a part of it is what we've seen in the first quarter. So the impact was about 140 basis
points and we had two of the three months of the price increase. And this is one of those – it's a little tricky of
elasticity. So we had an estimate in there. It was a little bit better on the pricing. So originally, we said about 125
basis points for the full year. We got 140 basis points in the quarter after two months. So this is – while we don't
change prices a lot, we put out an estimate and it came in a little bit better than expected.
......................................................................................................................................................................................................................................................
Brooke Roach
Analyst, Goldman Sachs & Co. LLC Q
Great. Thank you so much. I'll pass it on.
......................................................................................................................................................................................................................................................
Operator: Our next question comes from the line of Randy Konik with Jefferies. You may proceed with your
question.
......................................................................................................................................................................................................................................................
Randal J. Konik
Analyst, Jefferies LLC Q
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Q1 2022 Earnings Call 11-May-2022
Yeah. Thanks a lot. I got some questions for Paul. Paul, can you just go back over the supply chain costs and the
freight rates? Can you be a little more specific on what you're seeing on the spot and contract trends in the market
there? Can you just give us some perspective there? Just curious. Thanks.
......................................................................................................................................................................................................................................................
Paul C. Carbone
Senior Vice President & Chief Financial Officer, YETI Holdings, Inc. A
Yeah. So Randy, I won't give you a lot of specifics. But what I will say is coming out of last year's when in
February, we said we kind of held rates and we expected them not to get any better or any worse. As we've gone
through the first quarter and looked at contract rates and spot rates, we are seeing some lower rates. I was going
to say softness, but lower rates, which is a good sign now. To my prepared comments, that will take a while to
come through the balance sheet and into the P&L. So that's really a Q4 and into next year. But we are seeing
some opportunity to lock in some rates. And the spot market has ticked down a little bit, which is good.
......................................................................................................................................................................................................................................................
Randal J. Konik
Analyst, Jefferies LLC Q
Got you. And then I guess on – you mentioned balance sheet. I want to ask about thoughts on balance sheet
cash flow because you guys produce a ton of cash flow. And when I look at the CapEx guidance for the year, I
think around $60 million; if you look at the last few years, the average has been, I think, around $30 million. So
just curious on where we are in your kind of CapEx cycle. And with the sales growing, the margins staying firm;
the amount of free cash flow is super impressive.
So just want to understand how you're thinking about the remaining debt on the balance sheet, what you're going
to pay down or not pay down, where you think – what you feel comfortable with leverage? You just completed a
share buyback. Just wanted to get your thoughts on where we are on the CapEx cycle and how you're kind of
thinking about deploying free cash over the next few years. Thanks, guys.
......................................................................................................................................................................................................................................................
Paul C. Carbone
Senior Vice President & Chief Financial Officer, YETI Holdings, Inc. A
Yeah. Thanks, Randy. So on CapEx, this year we have reiterated the outlook of about $60 million. Last year, we
were at about $56 million. And then in 2020, we were significantly lower because of everything that was going on.
I would say, if you think about our CapEx, about two-thirds of it goes to technology and product innovation. And
that product innovation is both for new products and increasing capacity. So I like where we are in that $60 million
range.
We do produce a lot of cash to your point. We expect to produce about $125 million of free cash flow this year.
Again, our cash – capital allocation hasn't changed. We've talked about using it for working capital, rebuilding
inventory, investing in the business, select M&A that Matt has talked about several times. And then we did on an
opportunistic basis, do the share buyback this year.
......................................................................................................................................................................................................................................................
Randal J. Konik
Analyst, Jefferies LLC Q
Great. Thanks, guys.
......................................................................................................................................................................................................................................................
Paul C. Carbone
Senior Vice President & Chief Financial Officer, YETI Holdings, Inc. A
Thanks, Randy.
......................................................................................................................................................................................................................................................
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Q1 2022 Earnings Call 11-May-2022
Operator: Our next question comes from the line of Robbie Ohmes with Bank of America. You may proceed with
your question.
......................................................................................................................................................................................................................................................
Robert F. Ohmes
Analyst, BofA Securities, Inc. Q
Hello. Good morning and thanks for taking my question. I wanted to follow up on wholesale. I think, Paul, you
mentioned soft coolers and Camino totes moving more fully into wholesale. Can you talk about the strategy
there? And maybe Matt could chime in on that.
And also would be – just be curious. Any color you can give us on what wholesale customers are doing different
in this environment, if anything. Are they looking for anything different from YETI given the inflation or anything
like that? And also, I think you guys mentioned the hard cooler strength in the first quarter. Any color on sort of
wholesale ship-in versus sell-through? So is this strength a sell-through or is it somewhat ship-in because you
guys were – the channel was so short on your hard coolers?
......................................................................................................................................................................................................................................................
Paul C. Carbone
Senior Vice President & Chief Financial Officer, YETI Holdings, Inc. A
Hey, Robbie. Thanks. I'll take the first question. And then I'll touch on the last one. And the middle one on
wholesale customers, I'll hand over to Matt. So on soft coolers and Caminos and bags in the wholesale. So we
had planned the transition of the two soft coolers and the addition of the two sizes of Caminos in Q1. And as we
came through the end of last year and you remember the Vietnam shutdown, what that did on soft coolers is it
limited my gen one. So before the new units came out, it limited the number of gen one that I had. So as I came
into this year, the wholesale channel and even my direct-to-consumer channel was very low on inventory.
My newer releases, I released in direct-to-consumer first. And then as I built inventory, they just started moving
really at the end of the quarter and into second quarter into the wholesale channel. So that will fill throughout the
year. But a lot of that was kind of back last summer when Vietnam shutdown and that kind of tail. On hard
coolers, we have seen at – for the company, we were at plus 10%. We've seen great sell-through – Coolers &
Equipment was plus 10%. We've seen great sell-through and some sell-in of reloading the channel. But it was a
strong quarter for hard coolers in particular. And we wanted to parse that out with the soft cooler dynamic going
on.
......................................................................................................................................................................................................................................................
Matthew J. Reintjes
President, Chief Executive Officer & Director, YETI Holdings, Inc. A
Robbie, and then to the conversations we're having with our wholesale channel, I would say they've been very
good. And it's the continuation of the strategy we talked about last year, which was looking to continue to optimize
the partnerships, make sure we have strong representation and strong merchandising. So I'd say the dominant
topics of the conversation are getting inventory back to levels pre-2020 so that we can merchandise the shelves
and display the breadth of the portfolio.
And I would say our wholesale partners continue to be really innovative with us on how we get the brand
represented and how we get the assortment put out there. So I would say there really have been very, very
positive conversations about how we think about taking advantage of this year, particularly in those gift giving
seasons in Q2 and Q4, and then making sure that we're well-merchandised through the rest of the year.
......................................................................................................................................................................................................................................................
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Q1 2022 Earnings Call 11-May-2022
Robert F. Ohmes
Analyst, BofA Securities, Inc. Q
That's great color. Thank you so much.
......................................................................................................................................................................................................................................................
Operator: Our next question comes from the line of Sharon Zackfia with William Blair. You may proceed with
your question.
......................................................................................................................................................................................................................................................
Sharon Zackfia
Analyst, William Blair & Co. LLC Q
Hi. Good morning. On the movement of bags into wholesale and the tests that you're doing there in the second
quarter. Can you talk about what partners you're using and whether that's designed to reach incremental targeted
demographics or just generally raise awareness? And I'm also curious now that we've got kind of more normal
consumer mobility, how you feel about your owned stores as brand amplifiers and how that strategy is likely to
unfold maybe over the next two to three years.
......................................................................................................................................................................................................................................................
Matthew J. Reintjes
President, Chief Executive Officer & Director, YETI Holdings, Inc. A
Thanks, Sharon. On the bags, what we've decided to do and to kind of tie your two questions together – it actually
ties into the second question around the stores. What we've seen in our stores and I mentioned this in my
remarks is that consumer selection and consumer discovery and ultimately consumer transaction, the basket is
slightly different in our stores than we see in even our dotcom and in our wholesale. And bags is one of those
things that – what we saw was that when consumers get a chance to interact with the product to feel the durability
and quality, to see the ergonomic design, to understand the product; that it performs differently. Although they
perform very well on dotcom, we see it rank higher or ranked differently.
And so what we decided to do was we identified a select number of national accounts and independents to go do
a small test of do we see that same dynamic continue to play out in the wholesale channel? And so it's a small
test of what we consider very high quality doors from the national accounts to the independents. So yes, it gives
reach. Yes, it gives awareness. Yes, it brings some diversity of exposure. It's as much to inform what future
rollouts could look like. So we feel great about using that.
It'd also be great that this was a learning that we had from having a select number of our own YETI retail stores.
And as I mentioned, they continue to perform as great brand beacons and in the consumer engagement and the
flow and using those as, as I mentioned, places of commerce where we see really positive transactions, really
positive discovery. And we also get the opportunity to use them as exposure moments to the brand. So I
mentioned South by Southwest. In Austin, we do activations. And as the world continues to open up and the
mobility opens up, we'll have the opportunity to use our stores more and more as brand activation moments
combine with commerce.
......................................................................................................................................................................................................................................................
Operator: Our next question comes from the line of Camilo Lyon with BTIG. You may proceed with your
question.
......................................................................................................................................................................................................................................................
Camilo Lyon
Analyst, BTIG LLC Q
Thanks. Good morning, everyone. I have two questions. Paul, number one, just on the gross margin comment
and pricing as it pertains to Q2. So if I'm thinking about this correctly, I think you guided Q2 margins down 400
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Q1 2022 Earnings Call 11-May-2022
and change basis points and that's worse than the Q1 margin decline when we strip out that incremental freight
invoice. Yet you have a full quarter of pricing benefits that have come in a little bit stronger than you anticipated.
So could you just help me understand why Q2 margins should be worse than the normalized Q1 margins when
excluding the freight component? And then I have a follow-up.
......................................................................................................................................................................................................................................................
Paul C. Carbone
Senior Vice President & Chief Financial Officer, YETI Holdings, Inc. A
Okay. So a couple of things and the main one is the freight piece that we talked about that related to last year, the
220 basis points. There was also some impact. Those were late trailing invoices. Some of it related to Q4 of last
year. Some of those went onto the balance sheet and will go off in the balance of the year and mainly impacts Q2.
So freight also got worse in Q2 overall. So our perspective on freight for the year is more headwind above and
beyond the non-reoccurring charge. And that is offset by some better pricing outlook and everything else is pretty
much in line.
......................................................................................................................................................................................................................................................
Camilo Lyon
Analyst, BTIG LLC Q
Okay, got it. Thanks for that clarification. And then my second question goes to the health of the consumer. And
maybe if you can – maybe, Matt, if you can just share more about your customers' purchasing behavior and how
that's actually evolved over time as you've expanded nationally. And within that, have you seen a change in the
composition of basket size or any sort of indication that there is a trade-down or some sort of reflection of
potential deceleration in the way that consumers are purchasing because of external inflationary pressures?
......................................................................................................................................................................................................................................................
Matthew J. Reintjes
President, Chief Executive Officer & Director, YETI Holdings, Inc. A
Yeah. Camilo, I'd say a couple of things. We actually are seeing a dynamic play out, which is an increasing quality
of our customers. One of the benefits of the investment we made really early in the pandemic was this investment
behind our advanced analytics team. And so the ability to actually quickly discern and understand what's
happening as it relates to customer acquisition, customer retention, the value of those customers. And the
dynamic we've continued to see is really high quality and increasing value in our customer acquisition and in our
retention, strong growth and really good ability to reactivate older cohorts.
So I think that not just the intelligence to be able to actually see those results, but they were actually able to use
that and then affect the way we deploy our performance marketing and our demand creation behind specific
groups. And so I would say, sitting here through the first quarter and from the momentum we had last year, we
continue to see a really high quality consumer for YETI.
......................................................................................................................................................................................................................................................
Camilo Lyon
Analyst, BTIG LLC Q
Great. Thanks for the color. Good luck.
......................................................................................................................................................................................................................................................
Operator: Our next question comes from the line of John Kernan with Cowen. You may proceed with your
questions.
......................................................................................................................................................................................................................................................
John Kernan
Analyst, Cowen & Co. LLC Q
15
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