Q1 2020 Earnings Call
Greetings welcome to yeah, the first quarter 2020, <unk> earnings conference call.
This time, all participants are in listen only mode.
Question and answer session will follow the formal presentation.
Hey, what's your car operator assistance during the conference. Please press Star Zero on your telephone keypad. Please note. This conference is being recorded.
I'll now turn the conference over to Tom Shaw, Vice President Investor Relations. They can you may begin.
Good morning, Thanks for joining us to discuss Yeti holdings first quarter 2020 result.
Before we began we'd like to remind you that some of the statements that we make today on this call, including those statements related to the impact of the cobot 19 outbreak on our business maybe considered forward looking at 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 regarding these forward looking statements. Please refer to the risk and uncertainties detailed in this mornings press release.
Well the risk factors discussed in our form 10-Q for the quarter ended March 28, 2020 filed with the FCC earlier this morning.
We undertake no obligation to revise or update any forward looking statements made today as a result at new information future events or otherwise except as required by law.
During our call today, we'll be discussing getty's adjusted EBITDA and certain other non-GAAP measures pertain to complete fiscal period.
Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the press release issued this morning as well as in the supplemental reconciliation both of which are available any investor relations section of the website.
We use non-GAAP measures as a leading some of our financial discussions as we believe there more act more accurately represent the true operational performance and underlying results of our business.
Today's call will be led by Matt Righteous, President and CEO of Yeti and Paul Carboni CFO.
Following our prepared remarks, we'll open the call for your question.
With that I'll turn the call over to Matt.
Thanks, Tom Good morning, everyone. We appreciate you joining us.
Like to start by speaking directly to our employees their families. Our customers partners and vendors just say thank you for all you have and continue to do for Yeti.
We will be here for you as a wall gets back outside and back to chasing New adventures.
And this time of incredible uncertainty our full focus remains steadfast on addressing the things we can control.
Acting with the same tenacity adaptability and resilient that has been a hallmark of yeti since our inception.
Regardless of the external threats, we believe what matters, most or a powerful innovative and lasting brand financial strength and flexibility and making a positive impact on our customers and the yeti community.
That's our focus.
Well, let me first step back and give you a little perspective on the first quarter, we enter 2020 with incredible momentum and a clear operating plan.
Through mid March quarter to date sales were up 21% year over year with low double digit gains in wholesale and 31% growth and direct to consumer.
Even with the disruption that began in March Yeti ended Q1, with 12% topline growth and D to C plus 29%.
In mid March is the cobot 19, pandemic began to significantly and directly impact consumer behavior and business operations. We quickly turned to executing a number of discrete and impactful decisions to position Getty for this new an uncertain environment and ensure we are playing for the long run.
To actively addressing unknowns in demand, we started tightening our cost structure.
After we closed our retail locations on March 16.
And saw the potential extent of the closures, we furloughed a portion of retail staff and reallocated the balance of our retail to support customers and our growing ecommerce business.
We aggressively tightened operating costs in capex, reducing noncritical spend but also continued investment in demand creation product innovation in our ecommerce and digital technology.
In a moment, Paul will discuss our cost efforts in more detail, including the withdrawal of our 2020 outlook and additional proactive moves we have taken to support our liquidity position through this period.
Today, we also announced that Yeti senior leadership team and its board of directors have agreed to voluntary compensation reductions to support the company's plans through this period of disruption.
In addition, following a thorough review our organizational structure. We've also made several moves to adapt to the near term realities and to build the structure to position yeti for the future.
We have stopped all noncritical hiring and as part of this transformation, taking a difficult decision to eliminate certain positions through all levels in the company.
We had a very tough calls to make and I cannot think those yet employees impacted by these changes enough for all their contributions.
Through these changes we're transforming many parts of yet he's organization, allowing us to put heavy focus on our continued digital transition expanding our innovation pipeline and driving thoughtful global expansion.
We unequivocally believed this mindset and focus on the future will allow us to emerge strong from the current global crisis with full alignment behind our growth trajectory as we move into 2021.
As part of this hyper focused on executing against what we can control.
Starting in March we pivoted, our brand marketing and product launches to fully digital in a work from home world.
We believe the investment, we're making and talent and capabilities, resulting in powerful digital engagement and meaningful connections with our customers will continue the acceleration of our digital transformation.
When a pandemic hit for the first time, we knew exactly where our entire audience was.
Oh.
And we knew they were looking for a positive distraction.
Online content has become more important and relevant than ever. So we went to work with our internal digital and creative teams and key partners to win digitally.
What was a well curated social channel rapidly shifted into an immediate house almost overnight.
We began releasing multiple unique pieces of content through our digital channels, Evan and have continued to do so over the past 10 weeks.
First.
We released 15 classic Yeti present films over 15 days.
We translated our former in person events into unique digital experiences for our fans and followers.
Included with a series of lunch and learns and how to choose whether ambassadors, allowing them to share their passions and pursuits virtually.
On social and yet you dot com, we introduced a free yeti streaming service of actual streams to offer serenity and levity during a chaotic time plus to provide a small tasted the outdoors tore fans, while we're all stuck inside.
We continued highlighting product stories and gave our yeti community of voice in a way to expressed through user generated content launching hashtag yeti W. FH.
We house all this new content within our social channel and in the process Athena roughly eight fold increase in video views when comparing the six weeks prior to mid March and the six weeks post as well as an approximately 50% increase impressions.
Our blend of depth within our communities and breadth with our storytelling is a unique and powerful combination that has allowed us to engage and entertain our fans impact the communities who have given so much to us and allowed us to successfully introduced new product throughout the cobot 19 crisis.
Outside of providing a welcome distraction during these very uncertain times, we also asked ourselves.
How do we help.
He has always provided product as relief during natural disasters from hurricanes to fires Weve donated thousands of coolers to support community when basic needs were on that.
Our breakthrough point for this pandemic was when we received a heartfelt direct message from an exhausted nurse in Boston and wanted to simply thank us for making a product the capture a coffee warm.
We saw this is our inspiration to support those on the front lines.
So.
We began asking the heroes, who set us messages to tell us who else needed to pick me up.
To date, we have donated roughly 25000 bottles and tumblers directly to healthcare workers first responders and others impacted directly by this pandemic.
We also know there are a lot of food and beverage workers, who are in need of direct support our food beverage barbecue and beer partners at a time when they themselves are under duress have maybe effort to do what they do best provide a free hot meal and a little repreve.
We had stood with a number of these incredibly talented people by helping support meal outreach efforts in their communities and the U.S. and in Canada today and into the future. We will continue to find ways to make a meaningful and broad contribution to the people that are central to who we are the brand.
Before providing additional detail on our fourth strategic drivers I wanted to provide a few thoughts on the current quarter.
While we expect overall results in the second quarter to be significantly below the prior year due to wholesale and corporate sales disruption. We are seeing very strong quarter to date traction with our online businesses. This includes extraordinary year over year growth on yet he dotcom and coolers equipment and Drinkware, so far in the quarter as well as positive year on year to.
Trends on our Amazon marketplace and sell through by our wholesale partners E Commerce.
The momentum we're seeing from our brand efforts excellent new product receptivity and its outstanding ecommerce performance gives us confidence about the opportunity that will be there as a wholesale and corporate market dislocation correct.
Paul will discuss in more detail the trend we saw through the end of March and the extension into April.
Now turning to our strategic drivers.
Keeping hyper focused on our customers has never been more important.
As I alluded to earlier, we began to shift more of our resources in focus to digital in March as we position our social platform to be a positive distraction for consumers.
Of note, we lost a lot of four part series, highlighting surfer and sailor, John John Florence, and his transpacific voyage and short films such as can area of the Prairie showcasing Dale Robbins mission to protect the future of Bob White quail in West Texas.
I'd be remiss not to mention one of our films Navajo Sun, featuring a basket or Derica gay is up for two brands Billboards. It Tonight virtual event in New York City.
We also developed a series of showcases our ambassadors on topics from fly fishing set up to life at home to sustainability practices at Carter country meats.
Driving this connectivity within our community has never been more relevant as we highlighted how these pros pros were adjusting to quarantine life.
Enhancing our breadth and depth strategy, we remain proud of our diverse portfolio of ambassadors and partnerships.
As highlighted are our most recent yeti dispatch backlog, we partnered with Keith Rose Ns one of the world's most respected and high profile fishermen and his alfonse fishing company out of the say shale islands.
We also added to our ambassador roster with Joe's Avi toward let me PBR rider currently ranked number one in the world.
We added two fantastic female ambassadors to our team with Alex Brittingham, a Texas based professional dog trainer and Jesse Young a hunting guide in the U. Conn.
On the product side.
Let me first recap how early 2020 introductions are resonating before providing a framework of how we're adapting our rollout cadence to help maximize the success of our category expansions.
In Q1, we successfully executed two key product evolutions with our Rambler bottles and culture can't cooler, both performing very well.
We introduced three new colors, with coral Chartreuse and Pacific Blue and.
We also debuted a great new portable chair with our trailhead capture.
Our second quarter product plans are largely unchanged highlighted by the end of life of our roti 20 hard cooler and the introduction of the Rodis 24 cooler.
We took our best in class best selling roti, 20, and made it even better.
The 24 is 10% lighter, 20% more capacity and 30% better thermal performance in late April. We also introduced our Rambler elements collection, which adds a new coating process to create a premium brush metal finish to our drinkware portfolio.
As we look at the demand unknowns for the balance of the year, we're laser focused on building the brand and driving the success of key products. This includes a strong product in color assortment in the second half as well as shifting certain product expansions into 2021.
We do believe the alignment of new category expansion opportunities and optimal customer receptivity will be stronger as we move further from the current environment.
From an investment and innovation standpoint, we're not slowing down.
Nurturing the power of the brand in a connection with customers holds firm.
Great example of this came last month when yet he was named the 2020 Harris poll equity trend cooler brand of the year and insulated Drinkware brand of the year.
For the past 32 years this pull measures and compares brand equity consumer connection brand momentum and other indicators across a multitude of brands and categories. We're proud our customers provide us with such trust and confidence.
As we think about distribution some of our near term focus will naturally shift to winning where consumers can access the brands.
With direct to consumer becoming more important than ever we see an incredible work behind our social digital and ecommerce teams.
Around brand product and the customer.
This will serve us well as we emerge from this time.
As part of our changes we've increased the frequency of our customer communications balancing storytelling and product.
The important around moms grads in dads timeframe, we've introduced focus creative and product stories for each.
At wholesale the disruptions in business have created unprecedented challenges many have endured reduced operations low foot traffic and extended store closures.
Our focus will remain on supporting these retailers with the right product for both their online and brick and mortar strategies today and as the business begins to return.
Clearly our yeti retail efforts have installed with store closures commencing on March 16th.
We were able to hold the soft opening of our new Fort Lauderdale location, though our decision to close all of our stores limited operations there to just two days.
Construction of our Denver location is complete awaiting final permitting and when we deem ready to open.
Given current conditions, we paused further retail expansion in 2020, and we'll focus on optimizing our existing stores at each reopens.
For the first quarter International sales increased just over 40%, but like the U.S. the business was not immune to the pandemic.
Well the crisis is having varying degrees of impact to our existing international markets. We continue to make meaningful progress, particularly in ecommerce and Canada, Australia and the UK.
Looking ahead, we will be thoughtful and disciplined and how we approach future international opportunities and pacing. We believe this approach allows for optimal brand control relevant distribution choices and localized customer engagement, which is more important than ever right now as the world adjust and recovers from this pandemic.
Yes. He has always been a brand that focuses on people and pursuits.
While we're faced with the near term uncertainty we are certain that the innate desire to come together whether in the backyard at the back country will return as important and cherished is ever as we emerge from this moment.
By making decisions now with a focus on our customers and on the future of our brand and innovation, we're positioning yet to be there as strong as ever.
I would now like to turn the call over to Paul.
Thanks, Matt and good morning, everyone.
To start I'd like to add my sincere thanks to the entire yeti team as we have learned to adapt in these unprecedented times I'm incredibly proud of the resiliency energy and dedication that I've seen across the organization over the past two months.
Given the importance of our action plan in response to the covert 19 pandemic I'd like to prioritize the time. This morning by first covering how we are planning our business and this constantly involving environment and then review the details of our first quarter results.
Well then open the call up for your question.
Coming off a strong 2019 in ongoing momentum into early 2020. The challenge we now faces the unpredictability of the shape and speed of the reopening a physical retail across our wholesale channel.
Utilizing a range of scenarios.
We have had to ascertain challenge and implement a level of expense discipline that gives us the financial flexibility and liquidity to not only support the near term reality, but also allows us to continue to invest in our brand.
To accomplish these financial objectives, we announced several expense initiatives today across executive compensation other compensation areas and cost management initiatives. In addition, we provided an update on our liquidity position.
Starting with executive compensation.
Matt has agreed to reduce is base salary by 50% well each of the senior Vice presidents have agreed to reduce his or her base salary by up to 25%.
In addition, our board of directors have agreed to waive any cash compensation beginning at this month annual meeting of shareholders.
Our other compensation actions come following a thorough review of our employee base.
This includes furloughing certain employees beginning on April 4th primarily from our retail and customization operations.
We have also suspended all non critical hiring and eliminated select roles across all levels in the organization.
Other cost initiatives include the aggressive management of discretionary operating cost capital expenditures in working capital.
This includes having ongoing dialogue with our manufacturing partners to calibrate supply with anticipated demand.
Our working capital efforts will also focus on balancing the extension of turns anticipated across both payables and receivables.
Without liquidity measures, we have substantially improved our overall position over the past two years as measured by our leverage ratio improving from four times in the first quarter of 2018 to just 1.3 times in the first quarter of 2020.
Inclusive of our pre cautionary decision to drive down 50 million of our 150 million dollar revolving line of credit in March.
We ended the quarter with a strong cash position of 118 million.
As a reminder, we expanded our line of credit last December while also extended the maturity to December 2024.
With the flexibility of having 100 million undrawn on our revolver.
In factoring in our combined expense in working capital initiatives.
We expect to be well positioned to remain in compliance with our debt covenants for the remainder of the year.
Additionally, we have no near term debt maturities.
These difficult, but prudent actions have been thoughtfully developed by our leadership team with Board Council.
We will continue to diligently moderated changes in the environment that we'll continue to inform how we involve our thinking in both near and long term.
However, the high degree of uncertainty remaining in the month in quarters ahead have informed our decision to withdraw our our previous full year fiscal 2020 outlook provided on our last earnings call.
Now shifting over to our first quarter results.
Let me first remind you that weve updated our definition of certain non-GAAP financial measures starting this quarter.
This includes the elimination of the following add backs that are now included in our consolidated non-GAAP results.
Investments in new retail locations in international market expansion.
Expenses related to the transition to the ongoing senior management team.
And expenses related to transitioning to a public company.
Historical information from 2019 has been updated to provide directly comparable results.
First quarter net sales increased 12% to 174.4 million compared to 155.4 million in the year ago period.
Performance was highly bifurcated with quarter to date trends through March 15 up a strong 21%.
With the remainder of the quarter through March 28 down 25%.
By channel wholesale net sales for the quarter increased 1% to 94.8 million.
Appear to 93.6 million last year.
Results were up 13% through mid March then down 43% thereafter as wholesale partners closed retail locations in order to flow was interrupted.
Direct to consumer net sales for the first quarter increased 29% to 79.6 million.
Compared to 61.7 million in the same period last year.
Results were up 31% through mid March and then up 15% thereafter.
Channel performance for the quarter was led by our Drinkware category and we continue to like the balance growth, we are seeing across our DTC businesses.
Overall, DTC reached 46% of net sales for the period.
By category first quarter Drinkware net sales increased 24% to 112.6 million.
Compared to 91 million in the prior year quarter.
Strength was broad based with sub category growth across bottles tumblers and mugs.
Who is an equipment net sales were relatively flat at 59.5 million compared to 59.7 million during the same period last year.
We had another strong quarter in soft coolers led by our lineup of Hyperflex.
As well as an outdoor living supported by the launch of our new trailhead chair.
Offsetting these gains we saw a lower hard cooler sales and lower bag sales, primarily given the introduction of the Camino carry on into the wholesale channel last year.
Gross profit increased 21%.
92.5 million or 53% of net sales.
Compared to 76.6 million or 49.3% of net sales during the same period last year.
The 370 basis point year over year gross margin expansion.
It was primarily driven by the following favorable impacts.
170 basis points from cost improvements.
80 basis points from channel mix.
70 basis points from lower inbound freight and other impacts.
In 50 basis points from lower inventory reserves.
Adjusted SGN a expenses for the first quarter were 74.4 million or 42.7% of net sales.
As compared to $63.7 million or 41% of net sales in the same period last year.
Variable SGN, a expenses de leveraged 180 basis points.
Primarily driven by higher sales related expenses.
Side to our faster growing direct to consumer business.
Including online marketplace fees and outbound freight.
Non variable SGN, a expenses leveraged 10 basis points with lower marketing expenses offsetting increases in non variable third party logistic fees wages and benefits and depreciation and amortization.
Adjusted operating income increased 40% to 18 million or 10.3% of net sales.
Compared to 12.9 million or 8.3% of net sales during the same period last year.
Our effective tax rate was 24.4% during the quarter.
Compared to 22.1% in last year's first quarter.
Adjusted net income grew to 9.9 million or 11 cents per diluted share compared to 5.3 million last year or six cents per diluted share.
Adjusted EBITDA increased 22% to 23.8 million or 13.7% of net sales.
Compared to 19.5 million or 12.5% of net sales and the same quarter last year.
Now turning to our balance sheet.
As of March 28, 2020, we had cash and cash equivalents of 118 million compared to 19 million in the year ago period.
As mentioned this includes a $50 million drawdown on our revolver.
We ended the quarter with 202 million, an inventory compared to 164.3 million last year.
Inventory growth of 23% was inline with our expectations and down from 28% growth in the prior year quarter.
While sales characteristics are significantly different than originally planned.
The composition of this inventory remained strong.
With products that are non seasonal in nature as well as the buildup to support new product introductions.
With the extended life of our product styles, we are now focusing on managing the flow of forward inventory.
We ended the quarter with total debt, excluding unamortized deferred financing fees and finance leases.
346.3 million.
Compared to 321.8 million in last year's first quarter.
The year over year increase was driven by the 50 million revolver draw down during the quarter.
Including our cash balance.
The ratio of total net debt to adjusted EBITDA for the trailing 12 months improved to 1.3 times compared to two times in the prior year quarter.
While we're not providing a full year outlook. We believe it is important to provide some visibility into our topline performance registered for April.
As well as where we stand from an operational standpoint.
For the five week period, ending may 2nd.
Sales decreased further relative to the 25% year over year decline experienced during the last two weeks of the first quarter.
Driven by continued store closures and limited operations in the wholesale channel.
Why historically, a relatively small part of the wholesale business. It was a sharp increase in our retail partners ecommerce sales in the month of April.
Which we believe is continued validation of the demand for the brand.
Within our direct to consumer channel.
Our online businesses have contributed strong positive year over year growth due to product innovation and digital performance.
Led by Yeti Dot com and the Amazon marketplace.
With particular strength in the cooler than equipment category.
However, these gains have been somewhat tempered by the year over year declines in our corporate sales business.
As for where we stand with our current operations today, our corporate employees continue to work from home all necessary supply chain and logistic partners are open in functioning in a significant portion of our customization capacity continues to operate with the remaining local capacity expected to reopen.
Later this month.
Our retail stores currently remain closed and we will continue to monitor each individual location in conjunction with local opening mandates.
In summary, our focus has evolved in sharpened as we navigate through these uncharted waters.
As we always strive to do we are making decisions that we believe are in the best interest at the long term health of our brand.
In the near term this means looking at the yeti opportunity through a different lens than we envisioned at the beginning of the year.
But we firmly believe in the power of the brand and our ability to manage the business. During this time will allow us to reemerge stronger than ever.
And with that we will now open the call for questions.
Thank you if he would like to ask your question. Please press star one and your telephone keypad and confirmation Tele indicate your line is another question Q.
The press star to if he would like to remove your question friendly Hill.
Participants using speaker equipment may be necessary to pick up the handset before pressing the star he is.
Our first question is from Robby Ohmes with Bank of America Merrill Lynch. Please proceed.
Hey, good morning, guys.
A couple of questions.
Maybe Matt.
I don't I.
I don't know Theres, a whole lot of recession history for yeti, but I would love to hear your thoughts on.
How you think the brand can perform.
In the kind of recessionary environment and also if you could give us some color lows. Obviously has remained open any any kind of color on how yeti has been performing.
In that channel.
Relative to your expectations.
Any signs you're you're seeing in terms of.
Acquiring new customers online maybe just some.
Just some thoughts on what you're seeing right now that might give us some help on how that how to think about how you can perform if things stay challenging. Thanks.
Thanks, Robbie Good morning, Let me, let me hit those in the order you you had gave you as far as recession history as we've talked about in the past yeti during the last during the last recession was and continued through a growth mode.
As a much much smaller business than it is that is today, but as we think about disruptions we've seen and we think about the last eight to 10 weeks and how the business has performed what we have really liked about what we've seen is that.
Our products in our brand remains in demand.
We believe our price points, albeit we are premium in our categories are very accessible meeting about our average drinkware product is between 25 and $30.
Our average consumer coolers that 200 to $250, leading even in tougher environment. Those are those are really accessible accessible price points and and they set us up between the combination of brand premium and also the gifting nature of the product and what what we've seen through April as we've led into the front end of what.
We call Moms grads and dads.
We really like what we're seeing for the business from the business so far.
And it's everything from you know them building.
For Drinkware stainless and then coloring at the last moment before.
Shipped so I can make that last minute call. So we have we have a few levers and really feel good about our operations team our supply chain team and how we can react to different levels of business.
That's great. Thanks, so much guides.
Thanks.
As a reminder to start one on your telephone keypad. If you like to ask a question and we asked that you. Please limited to one question and one fella question and re queue for additional questions.
Our next question is from Peter Benedict with Bared. Please proceed.
Oh you guys. Thank you I guess my first question just looking at the wholesale channel trying to understand the help of those Oh those partners outside some of the major ones I mean, it looks like in the first quarter.
It was probably you know when your main partners was was the reason for the declines there at the end of a quarter how are the what percentage I guess, if you're wholesale business or their doors still open.
Hmm is or where you can kind of frame that and and maybe how the cell through his and those those stores. That's my first question.
Yeah, Peter Matt. Thanks, The you know obviously, it's it's a moving thing as far as who's open and and frankly, the definition of what open really means open curbside.
Allowing people in the stores are are consumers coming into it but you know it at the height of of the last two weeks. We think we believe that the majority of our wholesale was significantly disrupted and and even if even if they were open the foot traffic was was as you've seen in other places tearfully impacted what I would say is weird.
Seeing as you're hearing in the news more and more stores open up we're seeing more and more states open up in his local governments open up we're seeing some foot traffic return what I would say from us sell through perspective that we've seen that's been very positive is those who have you commerce businesses seem to have performed very well and even those who.
Building their E. commerce business isn't it we we like the way our brand is performing.
In relation to the rest of their fleet other E. commerce business.
And at the stores that remained open an essential.
A number of our hardware stores from independence, all the way up to the National accounts of remained open and we seen we've seen good good sell through there and you know, it's it's evolved a bit in what that mixes early in the in in the March in early April period, we still a lot of large coolers going out as you can imagine people were up pairing for what.
May come and and we seem to be seen what were the builds week over week. Since then we're really really like it and give us a lot of a lot of positive competence and how the new products are resonating, how the existing portfolios resonating and and how the brands doing.
But that that's helpful. Thanks, Mad and then just can you clarify the the the product <unk> introduction plans you have for the year kind of mentioned that something some were being slid to next year I. I mean are <unk> are you planning to the extensions of existing lines or the buildouts of existing lines that still gonna happen, but I guess when we think.
About maybe a new product those are are gonna be pushed just a little more Colorado would be helpful facts.
Yeah, Peter Great Great question, and and yes, that's about the that you've got it kind of nailed down will continue from a product line extension from a colorways all of those plans remain largely unchanged you've seen you seen some of it happening in the first half and that'll continue into the second half.
We think about bigger category expansions, well, we did and it just started in the middle March when there were more unknowns then maybe there are today, we started look at strategically what do we have coming in the second half of 2020, what do we have planned for the first happened second half 2021, and we took the opportunity to optimize.
Bringing some collections and some things together that we think will allow us when those product expansions come to market to come to market in a more folsom from an assortment way, but also a chance to put the the marketing support and marketing focus behind it. So we feel good about what we have coming in the second half the this year and.
By by definition I think we're incredibly excited about what we have coming in the first half of 2021.
Okay. Thanks, so much good luck.
<unk>.
Oh My next question is from Camilo lying it's P.T.I.G. Please proceed.
Hi, Thanks, good morning, everyone.
Formants in a tough environment.
<unk> you you mentioned and you gave some great detail on D. accent reduction in mitigation efforts that you guys are undertaking.
I was hoping you should maybe provide some kind of all in.
Locations on how would you think about the expense line unfolding. This year, maybe from a a gross restrictive or even from some sort of commentary amount well you might expect from a leverage prospectus.
Yeah. Thanks for the question, so I'd say with the fluid nature of the business environment, we're not providing specific expense targets. It reflects you know part of this is to reflect the flexibility would like to preserve should we see an opportunity to go more on the office of and what the back half of the.
Looks looks like so you know we're balancing prudent expense management, we're keeping an eye on the future. If I think of the law, though Cogs is we've talked about is primarily tied to product cost.
Say that that is relatively variable 80% of Cogs is truly variable and on the S.G.N.A. side, you know, we break it down into variable and Nonvariable the variable we'll move with business.
And as we've talked about in the month of April we had a very strong R.E. com properties were very strong anatomy impacts the S.G.N.A. line on the Nonvariable piece of it you know some of the actions that we announced this morning through executive compensation changes.
The furloughing of of people here are retail staff and things of that nature. So while while we don't have we're not sharing specific expense targets. We are laser focused on managing the p. and now I'm driving.
High quality, so unless out the truck driving high quality sales are down through gross margin and laser focused on the expense piece, but also focused on driving the business and ensuring that when we get on the other side of this we're set up the innovation the product and things of that nature.
God I think you and then that you talked about you prepared remarks, how you've seen.
Have you diverted a lot of demand creation dollars more towards the digital engagement and you see great success. There I was hoping if he could provide a bit more color on maybe the direct linkage that you're seen at the end their response to those digital campaigns and outreach programs as you would type two online.
You're online sales as well as if you're able to determine the relative engagement of new customers versus existing <unk> customers as as a result of those efforts.
Yeah, the the all Oh, I'm, a little a little bit there you know be one of the things that we did when we talk about shifting demand creation shifting to digital was we basically took our online and offline playbook in digitize the entire thing. So we took the things that we thought worked really well.
Off line events consumer Activations, and we looked for ways to leverage our our resources are content or creative and and kind of replicate that in a in a fully digital world what we've seen as across our medium social email incredibly high engagement and improving engage.
<unk> off levels that that we liked before before this all started to play out we seen continued strengthen our conversion rates significant increases in traffic to our dot com properties around the world or E. com properties around the world.
Which has led to a significant conversion and led to the strength that we're seeing in that E. Commerce channel. When we look at new versus existing we've also seen in increase in new customers.
And <unk> and first time buyers on our on our Dot Com properties, which is a trend we had been seeing but has been accelerated by the so it gives us a lot of confidence that the playbook be digital playbook. We're running now both is brand valuable. It also from from a content and engagement and from a product.
Introduction is kind of firing and all on all those cylinder. So we feel the feel good about what our team in a in a very short period of time shifted and leveraged internal resources in general content and has put out but we think some really really high quality work.
<unk> does that create a a sense of urgency in terms of permanently shifting some of those investment dollars to this category into you have the infrastructure to support accelerated growth accelerated growth in your in your digital business.
Yeah, I think the in some of the comments I made my prepared remarks that that continued digital evolution of something we've been we stated is one of our our strategic priorities that something we've been doing the last five years.
And and we feel great about the infrastructure, we have we feel good about the technology investments that we're continuing to make them or not slowing down on we're going to invest in in capabilities in talent in these areas to to take advantage of it and yeah. We settle along we're a nominee channel business, we want to be where the consumer wants to shop, we value our wholesale partners.
Evaluate our corporate sales partners, but we know that the direct to consumer business is the fastest growing in a large opportunity. So we're going to lean we're gonna need heavily into it.
As a reminder, in the interest is highly I sent you ask one question and one follow up question. Our next question is from Randy Tonic with Japanese. Please proceed.
Yes, Thanks, a lot in the morning, everybody I guess, Paul can you just again repeat the the components of gross margin change in the quarter and then when you think about those components, maybe just high level. How we should think about those components you know go forward.
Sure. So we had a great corridor in the gross margin expansion expanding 370 basis points really for drivers number one was cost improvements, which was 170 basis points. The channel mix two D.T.C. was 80 basis points.
In bound freight and all other impacts was 70 basis points, and then lower inventory reserves, we're 50 basis points.
And as I think forward, Randy and we haven't you know we've withdrawn our outlook and we haven't given a new outlooks I won't talk to specifics on gross margin, but for you know we would continue to see in believe we will continue to see benefits from cost improvements.
Benefits from a channel mix.
And then.
Tariffs will continue to be and it's really enough and back three quarters and really the the second half tariffs continue to be expected to be a tailwind expected to be a tail wind in 2020. So we feel really good about our gross margin expansion in the first quarter.
And we feel very good about the overall thesis of expanding gross margins for the company.
That was a super helpful.
You know next question when I last question I guess I would say here is.
Did you guys don't any analysis around looking through the trends around D.T.C. by either specific states or you know heritage versus non heritage markets and you know anything you're seeing either you know really telling from what they're buying or the dinner.
And I eat are you seeing like let's say in South Dakota, you know not ravaged by October 19 that the demand profile looks kind of normalized or or has not changed that much just any kind of flavor.
That you're seeing or to give us in the D.T.C. numbers by geography, and and and making it tells you would be super helpful.
Yeah, Randy you know, let me all preface all this a little bit by saying highly unusual times and we're we're talking about things that wouldn't normally be intraquarter kinda updates, but we feel like it's a valuable now to give to give a window into into where the businesses and so all all.
My remarks are saying these are these or whatever call.
Quarter to date cue to April type type color, because we think that's the relevant the relevant period for right now <unk> not surprising to us what we're seeing as we look across our yeah E. commerce in in Amazon a platform is we're seeing largely consistent growth across all regions and so we're not seeing.
Big variability big variability region to region, our <unk> well when we used to to refer to as our heritage regions are growing as well as are are not heritage reasons, our heritage regions represent significantly less than 50 per cent closer to 40% of our sales and so we're we're seeing all the things that we've been talking about for years.
Which is growth in the growth your regions broad base consistent growth across across the market. You know, we've we have an e. commerce business right. Now. This this posting triple digit growth and and that is you know I think a sign of the strength of the brand assign to the the strength of the product launches and that the consumers the consumers.
Still out there and active so you know not not without the broad omni channel disruption or not ignoring the broad Ami channel destruction, and we see a lot of a lot of things that give us confidence as we continue forward.
Oh Super helpful. Thank you guys.
Oh and next question is from Sharon's Axia with William Blair. Please proceed.
Hi, Good morning, just one clarification on the the corporate scandals could you give us any kind of guidelines as to how we should think about that upsetting that triple digits D.T. cigarettes, you're seeing right now I don't think you provided them apart kind of 1% of them next.
Hmm.
<unk>.
Think about the wholesale channel and obviously the destruction there what is your a line of sight on and then Tory. That's currently in that channel and you know, it's yeah I guess.
I'm trying to get you know as as.
Business resumes in in a more normal lay in brick and mortar you know how long have a gap you think there is between the current environment and retailers starting to to re order a product that makes sense.
Yeah, Sharon <unk>, one thing to to clarify as I said in my prepared remarks, you know, we on Yahoo, Dot com or seeing extraordinary growth a quarter to date. So what I said that triple digit that's a yeti dot com comment. We also we're seeing as I said in the prepare mikes very strong growth on on Amazon.
On also but want to make sure I was clear about that because our our d. to see has a number of components one of which was relayed your question and corporate sales and all that <unk> in the morning shared so we haven't to your to your point other than at the I.P.O. talked about the per cent of corporate.
Sales that was seen I think at that point. It was about 20% of our total D.T.C. business and you can gather through the commentary. It was that momentum was really strong through Q1 of 20, even the last two weeks because those orders were in the queue.
But as many businesses have shifted operations remotely and taking actions to cancel conferences events and things of that nature. It has been impacted we haven't dimensionalize that impact, but it is it has been impacted in in offsetting it is.
Negative for the month.
And offsetting those gains is mass talked about both and yet he dot com and then the overall web property also it's I.D.T.C.I. stories remain close a small piece of it but our stores remain closed on your second question on inventory in the channel.
So what I would say there is the channel inventory reflects the overall impact of closures.
Of those stores, we feel good about their ability to work through that and there's a couple of things.
You know give me confidence in that the first is the long the nonseasonal nature of that him and Tory is number one and then the second is if you think about when those closures occurred in call. It mid March and as those.
Stores reopen call. It mid may into June we are entering are busy season. So we're coming into you know grads mother's day grads and father's day. So we feel really confident with what's in the channel and it's not a bubble of inventory and.
When we're entering the busy season, so we feel good about.
As we look and we modeled as a potential cell and and then really importantly to sell through at the wholesale to retailers level.
Oh My next question is from Peter Heath with paper Sandler. Please proceed.
Hi, Thanks, guys nice comments today seems like you're managing the environment well, Paul just a follow up on that the question about a wholesale it'd been tore it fiftyk, there's been bester concerned that that as towards reopened there might be some markdowns on on yeti.
Just with some panic selling and I guess, there would be helpful. If you guys could refresher son sort of your your protocol and and policies with with retailer discounts and and you know if you work with anyone to to help provide some sell through with with some level of mark down support.
So let me, let me start and I'm going to start where on your last part of the question of what his band our practicing continues to be a practice of we do not support markdowns at the wholesale level at their retail stores.
I think as stores reopen you'll see a few things in in the big pieces, you've seen this from us as with introduce new products. So are.
Bestselling Roti 20, which now has become end of life and we've introduced the roti 24, I you see that and yet he dot com, we have it at 20% off and that again normal cadences items go to.
Items go to end of life. So you will see in it's up to the wholesale or retail partners. If they match that and if they want to reduce the price have some have not again, it's all on their their income statement and then as we go into father's day.
What you have traditionally seen at the retail level they continue to adhere to map.
If they do a closed channel offered to.
Like a membership I think of R.E.I. in their anniversary sale of their membership.
They can include yet a most if it happens in cart. So it can't be you know on the front of the website or the or something like that you know it has to be in Carter or close that point of sale. So.
Nothing has changed with our map policies nothing has changed as we think about going into the going into the father's day and nothing has changed most importantly, I think for this conversation of us.
Burning or shouldering any of those discounts if they do occur.
Okay. That's helpful. Thank you and I wanted to then ask a separate question on the the margin balance between your your T.T.C. and wholesale channels today at least you there's quite a massive shift occurring right now, there's probably more permanent shift towards due to see.
That's going to continue so the heart of the question is where do we stand today from kind of a little bit margin flow through between those two channels. The D.C. higher they bought the same and also on on a similar matter what does that mean for operating profit dollars.
Yeah.
So we do see this you know we continue to see the shift in the quarter. The D.T.C. business was 46% mix.
Which are really happy with we've talked about gross margins being about a thousand to 1500 basis points higher and I.D.T.C. channel versus the wholesale channel and then that is somewhat offset by as you look at adjusted S.G.N.A. and we you know we talk about this we delivered.
Uh-huh, but 180 basis points due to variable so the faster growing D.T.C. and that's from online marketplace fees outbound freight three P.L. bank fees things of that nature.
So it comes with some S.G.N.A. overall <unk> from a contribution margin.
And we don't allocate corporate resources between the channels on a contribution dollar and margin. The D.T.C. channel continues to 'em drop incremental dollars to the bottom line.
And why we like that channel shift.
So it is a profitable channel for us and I agree with you I do think with this as we come out of this pandemic I do think there is even a faster shift to our D.T.C. properties.
Okay very helpful. Thank you good luck.
Thanks.
Our next question is from Alexandria, well. This this Goldman Sachs. Please proceed.
Hi, there good morning.
That's for for all it takes so much particular question for my first question I was wondering if we could take into the component of the acceleration that you're serving at D.T.C. gets at all.
Typically inflection that is cool so that categories from one to Trenton.
<unk> on performance, the tool, new and existing products and drink rare and colors equipment and also the impact on the road he cooler price point repositioning on your friends right. So far this quarter.
Yeah, Let me address cut broadly, we don't break it down to that to that level, but I can provide some color on on what we're seeing which is is we send our prepared remarks broad based grow between coolers equipment and drink where.
And really with with strength in coolers and equipment and what we really like and what we're seeing and coolers equipment is the contribution from new products and products that we're are retiring so.
Things like the way, our bags or soft coolers, our new really 24 performing in conjunction with our end of life Roti 20, So I would I would generally say, it's broad based growth across schools and equipment Drinkware with a particular strengthen inclusion equipment and some really positive receptivity to to our new innovation.
And and some of the oldies, but goodies continuing to continue to deliver growth for so across the board we feel we feel good.
We have reached the end of our question and answer session I would like to turn the conference back over to map for closing remarks.
Thank you all for joining us today.
Just the the last thing we would say from yet is that we hope everyone stays safe and healthy as we all continuing work through this unprecedented time. So thanks for time, this morning, and and best of luck.
This does conclude today's conference you May disconnects July into this time and thank you for your participation.