Q3 2020 Yeti Holdings Inc Earnings Call
[music].
Greetings and welcome to the Yeti third quarter 2020 earnings Conference call.
At this time all participants are in a listen only mode a key.
Question and answer session will follow the formal presentation if.
If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
I would now like to turn the conference over to your host Mr., Tom Shaw Vice President of Investor Relations. Please go ahead Sir.
Good morning, and thanks for joining us to discuss Yeti holdings third quarter 2020 results.
Before we begin we would 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 COVID-19 pandemic honor 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 regarding these forward looking statements. Please refer to the risks and uncertainties detailed in this mornings press release as well as the risk factors discussed in our form 10-Q for the quarter ended September 26, 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 of new information future events or otherwise except as required by law.
During our call today, we'll be discussing eddies, adjusted EBITDA and certain other non-GAAP measures pertain to completed fiscal periods.
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 on the Investor Relations section of the website.
We use non-GAAP measures as a lead in some of our financial discussions as we believe the more accurately represents a true operational performance and underlying results of our business.
Today's call will be led by Matt branches, President and CEO, the Eddie and Paul Carbone CFO.
By our prepared remarks, we'll open the call for your questions.
We're also working remotely and connecting with you for different locations. Today. So please bear with us should we experienced any delays during the call.
And with that I'll turn the call over to Matt.
Good morning, everyone. We appreciate you joining us today Yeti had a great quarter highlighted by excellent performance across our four strategic growth drivers.
Our quarter was punctuated by 29% sales growth with balanced across coolers and equipment and drinkware, coupled with strong sustained margin expansion.
Thanks to the incredible work of our yet 18, and amazing support from our customers and partners Yeti crossed $1 billion in net sales for the trailing 12 months.
In the quarter, our direct to consumer business continues to lead the way with 62% growth we.
We drove mid single digit wholesale growth for the period as we continued to flex our supply chain and work to replenished channel inventories.
Importantly sell through in the wholesale channel performed in line with our overall topline results leading to the aforementioned demand for channel replenishment.
Our international business also performed very well posting triple digit growth to reach a yeti high of 7% of sales showing broadening demand in Canada, Europe, the UK and Australia.
Gross margin expanded 670 basis points to reach a record 59.1%, while our adjusted EPS Gionee rate decreased 200 basis points.
Finally, we ended the quarter with $235 million in cash on the balance sheet following a voluntary debt payment of $50 million.
Overall, we saw excellent demand for our products in all our channels.
Importantly, we're continuing to invest in evolving our business to support our long term growth ambitions.
Now.
Let's discuss our strategic growth priorities.
We continue to deepen the connection of our brand with our customers.
This is highlighted by our breadth and depth strategy, where we extended to new customers across diverse pursuits, while also deepening ties within our existing active outdoor communities.
As we have discussed the pandemic has focused us on digitally relevant engagement and we have further supported this trend with accelerated investments to build out our in house content and creative teams.
We're seeing impact of this investment with our ability to drive geographic growth and the evolving diversity of our customer base.
When we are in our most effective we tell powerful brand stories that inspire our customers.
Connectors product storytelling and extend a positive impact on our communities.
Let me give you a few recent examples.
In August displaying the broadness of our appeal and audience.
Culture Aficionados Hisun abide you published an article titled how Yeti beat Street, where the business of making things cool.
While driving awareness will continue to be a priority. We also balance of focus on the depth of engagement with our long standing customers, which keeps us centered.
From a storytelling perspective, the pandemic created a unique opportunity to launch our latest collection of Yeti present film.
After the pandemic caused us to cancel or in person Getty film tour in March This summer we release the eight new films through a you tube life premiere.
Featuring video introductions from our ambassadors filmmakers and film subjects. This event showcased the power and reach of the community.
To complement you to an extension of the virtual tour was aired in partnership with Vice media and CBS in September. We also launched a socially distanced drive in film tour across eight stops from la to Mon talk to central Texas, creating a safe uniquely yeti experience for our fans.
From the product introduction side, we partner with our ambassadors for our caffeine and cocktails campaign, where our brand partners shared their favorite drink recipes to help introduce our newest tumbler the 10 ounce Rambler.
From Conrad anchors classic coffee pour over to Hilary Hutchison's Huckleberry Whiskey. These short social videos are a tremendous example of how we use our internal content creation ambassadors to showcase our product in real and engaging ways.
Our efforts have positively impacted communities, we reached often matters most when those communities face adversity.
As we mentioned on our last call in July we launched our one for the Roes campaign in partnership accrue nation to benefit out of work touring and venue workers.
After securing 37 music artist to customized 42 of our Roti 24 coolers for online auction the.
The program raised $135000. The campaign was an incredible success and attracted interest from additional top tier artists, who are eager to support future efforts.
We have also focused on finding ways to ensure the wildest open welcoming accessible to all.
We continue to support our relationships with both thrive outside and Big City Mountaineers, two organizations committed to driving diversity in the outdoors.
We also launched a new partnership with Black outside incredible organization based out of San Antonio, Texas, which connects Black youth to the outdoors.
Moving to get innovation, we continue to see sustained strength across drinkware coolers and equipment.
The underlying demand for yeti was strong before the pandemic and we're now seeing the strength continue through the third quarter as a result of more fully open channels.
Plus positive trends in digital engagement outdoor pursuits, a focus on hygiene and individually use and people taking near home vacations.
These dynamics support the robust demand, we are seeing across the product portfolio, and particularly both hard and soft coolers.
In Drinkware, we've seen the success with the performance of our bottles business, where we included the popular chug cap as the standard lid and our expanded colstrip can insulator line, where we now offer broader products for heart filters and large cans.
Well currently limited to DTC. We're also encouraged by the early success of our Rambler 10 ounce tumblers, which as mentioned earlier was supported by our caffeine and cocktails digital campaign.
Color remains an important part of our innovation mix followed.
Following the July launches of North Woods, Green, and Drinkware and sagebrush Green and coolers, we launched our third second half color ice pink in mid September.
Demand for this extremely popular color extended into our breast cancer awareness initiatives throughout October we're excited to once again support boarding for breast cancer and casting for recovery, our fourth year with both of these incredible organizations.
We also expanded our rambler elements metallic collection to the culture, and low vol and extended sagebrush from coolers into Drinkware.
I would like to take a moment to address the voluntary recall, which was announced yesterday in partnership with the US consumer product Safety Commission of the Rambler 20 ounce travel mug with our strong willed lit.
We launched the travel mug on October Onest, as our newest travel ready product.
However, shortly after our limited initial launch on Getty Dotcom and in our retail stores, we discovered a potential safety issue with a stronghold lid and out of an abundance of caution decided to pull the product from the channels and voluntarily begun work, but the CPSC.
To date, there have been no reports of injuries from customers to put this recon perspective, we sold less than 15000 units. During the nine days that was available in the direct channel of the approximately 242000 total produced mugs mentioned in our release.
In addition, we did not ship the product to our wholesale partners.
Customer safety is our priority, which is why we took such an aggressive stance addressing this issue.
We are actively engaged in working on enhanced design that will continue to meet the high standards that our customers place on each and every product carrying the brand.
This delay while disappointing in the near term.
It's fully contemplated in our outlook and we'll continue to make us better.
In addition to our lineup of new products launched this year, we're continuing to energize some of our existing categories as part of our marketing strategy to drive broadened awareness.
This includes the come Hell or high water campaign in early July that showcase the versatility and performance of our paying a fully submersible backs.
More recently are built for generations Eddie V series films launched digitally on the social are centered around our innovative premium stainless steel cooler, which is designed to be passed down through the generations.
Expect continued targeted product storytelling through the holidays with our holiday gift guide and upcoming giddy dispatch Magal log, which will begin to drop mid November.
We also remain laser focused on working towards rebuilding in stock levels. As a reminder to protect our balance sheet in late Q1, we initially reduced purchase orders at the start of the pandemic and as demand recovered we have worked to flex our supplier capacity to meet rising demand.
With demand accelerating in the third quarter, coupled with some pandemic driven supply disruptions through the summer and early fall production, we expect inventory will remain tight through the holidays we.
We have taken additional action to mitigate risk and increase visibility of our supply chain during the holidays, but do expect our overall restocking initiatives will extend into early 2021.
As we look at the balance of the year, we remain focused on driving deeper engagement across the portfolio and executing in stocks across all channels.
Looking at our Omnichannel efforts.
Consumer dynamics are clearly accelerating the digital shift and building upon the activities, we have been driving for the past five years.
Along with the heightened focus of our brand team and delivering amazing highly relevant digital content, we're taking additional actions to drive greater consumer acquisition and conversion through investments in incremental consumer insights and behavior work and enhanced product customization experience, new digital tools and talent additions to our team.
This is work that will evolve as we match the speed of our customers purchasing habits and the rapidly evolving consumer expectations.
The biggest proof point of our success here is our direct to consumer business, which grew 62% and reached 51% of total sales this period and year to date.
Our strong third quarter to DTC performance was led by Yeti dotcom due to excellent traffic and conversion on the site.
We continue to see a great mix of new versus existing customers and have maintained great engagement as a result of our targeted and relevant content.
Rounding out our online presence the Amazon marketplace continued to post solid growth for the quarter.
On the corporate sales side revenues turned slightly positive for the quarter at healthy demand was limited by inventory availability.
Increased capacity in delivery for custom is our focus as we ramp through the holiday season.
In the retail we added our eight location in West Palm Beach in August we continue prioritizing operational excellence in all our stores.
While also monitoring the real estate environment for opportunity as we evaluate store expansion potential for 2021.
Turning to wholesale demand and channel sell through remained robust retail.
Retailers are able to support demand with in store inventory. However.
However, they did in the quarter with inventory down double digits compared to the prior year.
We have opportunity to drive stronger in stocks, particularly in high demand areas, such as hard coolers, and soft coolers, which had significant sell through during the quarter.
As a wholesale business evolves, we're working to support the expanded omni capabilities of our wholesale partners through their own ecommerce curbside and in store, which combined are expected to be an important part of this holiday season.
We had a very strong performance in our international business this quarter with international wholesale more than doubling while our international ecommerce quadrupled in size still off a low base, but showing great potential.
Overall international grew 165% to reach 7% of sales the highest mix yet he has registered today.
The biggest factor in the growth was the reopening of our Canadian wholesale which delivered significant year over year growth this quarter.
Importantly, the DTC side of the Canadian business, including both E Commerce and corporate sales also registered exponential growth during the period.
While Canada still drives the majority of our current international business, we continue to be highly encouraged with demand we see in other markets.
Australia showed more the threefold increase in both the wholesale and ecommerce businesses due to the extraordinary performance and execution of our Australian team.
As we hit the one year Mark in our UK and Europe expansion.
We're seeing this business build larger each quarter and we continue to see a meaningful opportunity to drive performance as retail reopens.
We remain highly focused on building the brand internationally in a thoughtful manner.
While developing the infrastructure to support smart sustainable growth.
Outside of our strategic priorities.
We were excited to announce earlier this week. The next step in our board evolution as our board of directors appointed Alison Dean former CFO of I robot as an independent director and a member of our audit Committee.
Allison brings over 30 years of financial leadership experience, including 15 years of I robot.
And seven years as the Companys CFO before stepping down earlier in 2020.
Allison's addition corresponds with the resignation of Mike Nayyar, who returns to his role managed cortech.
Additionally, our chair and Cortech co President Dave Snotty has informed the board that he intends to step down as chair of the board and the nominating and corporate governance Committee effective at the 2021 annual meeting of shareholders.
Dave has indicated that he would be willing to stand for reelection to the board. If so nominated in May.
We appreciate the many contributions David Mike have made steady through the years.
With these moves one of our nine current board members is affiliated with our original private equity sponsor seven are now independent directors and one third are women.
We are proud to continue adding diverse thought an incredible experience to our board as we further build out the long term opportunity for the brand.
As I pass the call over to Paul.
I would again like to reiterate how thrilled we are with the holistic performance during the third quarter and I would like to thank our yeti team for their exemplary efforts and ability to adapt and thrive so well against a very challenging backdrop.
To our customers and partners, who have continued to show their confidence in our products and our brand. Thank you.
While challenges remain pervasive in the headlines we are fully focused on our people and what we do best driving passion for the brand and delivering innovative product.
We look forward to building upon the strength of our 2020 to date performance with strong execution through the holiday season and Q4.
Paul.
Thanks, Matt and good morning, everyone.
Beginning with a review of our third quarter results, followed by some high level thoughts as we look at the business during the holiday period. We'll then open up the call for your questions.
Starting with the third quarter net sales increased 29% to $294.6 million compared to $229.1 million in the prior year period, representing our highest growth rate as a public company.
The momentum that built throughout the second quarter accelerated into the third given what we believe is a sustainable shift in consumer behavior towards outdoor leisure activities and related products.
This trend was highlighted by balanced growth across our product categories and continued DTC DTC momentum, even as our wholesale channel returning to growth and experienced either even stronger sell through during the quarter.
Looking at our channels direct to consumer net sales grew 62% to $150.4 million.
Compared to $92.9 million in the same period last year.
Driven by strength in both coolers in equipment and Drinkware.
Within DTC, the Yeti Dot com business continued to lead the way.
The Amazon marketplace posted strong growth.
In corporate sales increased slightly for the period.
Overall.
DTC reached 51% of net sales for the period compared to 41% in last years period.
Wholesale net sales increased 6% to $144.2 million compared to $136.2 million last year.
Strong gains in Drinkware helped offset declines in cooler and equipment, which were largely driven by inventory constraints.
Channel sell through was up double digits for the quarter.
Channel inventories exited the quarter down double digits on a year over year basis.
By category Drinkware returned to strong growth during the quarter with net sales, increasing 31% to $165.9 million.
Compared to $126.4 million last year.
We are very pleased with the continued strength of our original Drinkware skews, even as we introduce new products to address additional use cases for our customers.
Our expanded coaster lineup and updated bottle styles with Chubb caps remained big winners. This year and we are also excited to see the early receptivity of our 10 ounce Rambler during the period.
Coolers and equipment net sales increased 27% to $124.2 million compared to $97.8 million during the same period last year.
Our overall coolers business remains vibrant.
Led by our new Roadie 24 in the Tundra Hall in hard coolers, and our flip in backflip lines in soft quarters.
We also saw strong results in our outdoor living category led by our trailhead camp care, which we believe supports the broader opportunity of the brand as we develop and expand deeper into new categories.
Gross profit increased 45% to $174 million or 59.1% of net sales.
Compared to a $120.1 million or 52.4% of net sales during the same period last year.
The 670 basis points year over year expansion was driven by the following favorable impacts.
290 basis points from channel mix.
110 basis points from product cost improvements.
90 basis points from lower tariffs.
70 basis points from lower inbound freight.
70 basis points from higher inventory reserves in the prior period.
And lower warranty expenses in the current period, and lastly, 40 basis points from all other impacts.
Adjusted EPS Gionee expenses for the third quarter increased by 22% to $101.6 million.
A 34.5% of net sales.
As compared to $83.5 million.
36.4% of net sales in the same period last year.
Variable SGN, a expenses de leveraged 150 basis points driven by the significant shift in channel mix towards our faster growing DTC channel, primarily with higher outbound freight.
Non variable SDMA expenses leveraged 350 basis points driven by the overall strength of the company's topline results.
We continue to invest prudently to grow our business with higher year over year spending across most key expense categories, including marketing.
While we also resumed hiring more broadly across the organization.
Adjusted operating income increased 98% to.
To $72.4 million.
Or 24.6% of net sales.
Compared to $36.6 million or 16% of net sales during the same period last year.
Our effective tax rate was 24.4% during the quarter.
Having both the comparison to a 33% growth in the year ago period.
As well as ongoing efforts to match supply with the above forecasted demand we've seen across the business.
Going forward, our focus remains on flexing our supply chain to not only match the strong demand we are seeing for the brand.
But also rebuild more consistent in stock levels across our channels.
As such we expect to be in a constrained inventory position across certain products as we work through the fourth quarter.
Total debt, excluding unamortized deferred financing fees and finance leases.
Was 238 8 million <unk>.
Compared to $298 million and last year's third quarter.
During the quarter, we made principal payments of 53 8 million incur.
Inclusive of a 50 million dollar voluntary prepayment.
And with a strong cash position for the quarter.
The ratio of total net debt to adjusted EBITDA for the trailing 12 months was essentially zero times come.
Compared to one six times in the prior year quarter.
Overall, we could it be prouder of how our business and our team has responded since the beginning of the pandemic.
Nonetheless, we know there is more work to be done to navigate the ongoing uncertainties of the current environment.
To execute on our holiday plan.
And ultimately to continue our momentum into 2021.
Given the incredible performance of our third quarter.
Let me give you some high level thoughts into how we see the balance of the playing out.
We expect fourth quarter net sales to increase between 15 and 16% year over year.
On top of a strong 24% growth rate and last year's fourth quarter.
As a reminder, the fourth quarter includes the impact of an extra week, which extends the fiscal period to January 2nd 2021.
And is expected to benefit revenues by approximately $7 million.
With a strong outperformance in the third quarter contributing to lean inventories across our channels. We expect demand for the Yeti brand will continue to exceed available supply during the fourth quarter.
As we focus on rebuilding our inventory position.
We are.
Also actively and aggressively managing all aspects of our supply chain to navigate real and potential destruction from supplier capacity to holiday logistics.
We expect our ongoing work here will provide opportunities for growth as we continue to restock the channel into early 2021.
Turning to the bottom line.
GAAP earnings per diluted share for the fourth quarter are expected to be between 55 and 58.
Compared to five and the year ago period.
We expect adjusted earnings per diluted share to be between $57 and 60.
Reflecting a 31% to 38% year over year growth.
Before turning the call over for Q&A I want to reinforce three themes that we are seeing in the business.
First.
We are seeing incredible demand for the yeti brand with growth evenly balanced between our two main product categories.
And supported by our Omnichannel evolution.
Second.
We're focused on delivering profitable growth.
Highlight by record gross margins and disciplined SG&A management.
Absolutely, we continue to build more financial flexibility to support strategic opportunities and drive future shareholder value.
We believe these themes are the hallmarks of a strong enduring brand and.
And physician the company incredibly well.
As we look to achieve our long term goals.
We would now like to open the call for questions operator.
Thank you at this time, we will be conducting a question and answer session. If you would like to ask a question. Please press star one on your telephone keypad.
A confirmation turn will indicate your line is in the question queue you.
You May press start to if you'd like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key one moment. Please while we poll for questions.
Your first question comes from the line of Peter Benedick with Bird. Please proceed with your question.
Oh, Hey, guys. Good morning, Thanks for the questions first first just on the on the inventory Paul I don't know if you can give us maybe better sensors.
Where are you where.
Where you hope to have this sitting at year end and then assuming the demand tastes remains I guess similar.
When would you.
Realistically expect to be back kind of in the stock.
Mumbles that will allow you to kind of grow with cell through is that something that you think you could get early at 21 or if there's demand level continues and you're gonna be chasing for for quite some time. That's my first question that one follow up.
Great. Thanks, Peter and good morning, So we expect too and the year.
Still down on inventory, but we will make sequential improvement from where we are in the third quarter.
So wild down year over year.
We do expect to the percentage to lessen on a decrease year over year and then as we look into 2021.
It's probably the first half of the year, where we continue to you know.
Ramp up our inventory and it's really all about demand and what we're seeing today is demand is very.
Very very strong and we hope that continues but we think as we go through 2021, we will get you a more normalized level.
Okay. That's that's helpful. And then I guess related to that just matinees, you're talking about the <unk> the innovation cadence in the business and I know you guys. Adjusted some of the new product introductions. This year. This in response to Covid and whatnot, but now we've got the supply constraints.
Dynamic out there so maybe this how's the how's your planning evolves for for <unk> for 2021 in terms of what maybe you were thinking a year ago you would introduce.
<unk>, what now you think the kittens so look like.
Peter Thanks.
I would say are planning and roadmap for 2021 as it relates to the product.
Has not changed significantly so b the changes we've made in 2020 early in the year when we didn't.
Right visibility on the back half of the year and as we've previous communicated shifted some things to the front half of 2021, we don't expect those to get caught up in the inventory rebuild and that kind of capacity that we're putting on the pressure put him on our suppliers for capacity. So we expect that.
That shouldn't have some.
We have the product out in the market that we thought was.
Deserving of the brand.
And then Peter on the sales impact, while I won't share kind of what our plan was.
And as you can imagine there are a lot of puts and takes there as we introduce a new product how does that impact current products. So when we pull the travel mug.
He perceives cannibalization of other products goes away. So as we said it's fully contemplated in the.
And the top line guidance that we gave in the 15% to 16% and.
We are excited to is the team is really working that way it in.
Looking looking forward.
Okay fair enough. Thanks, Thanks, guys.
Your next question comes from the line of Camilo Lyon with BTI Ji. Please proceed with your question.
Thank you good morning, guys and good job on the quarter.
I wanted to drill down a little bit more on the inventory how much making I think you had some inventory constraints also.
During the middle of the quarter.
Obviously continued here in the fourth quarter, maybe if you can help us understand what categories, you're feeling, particularly light on and how you're thinking about.
Is there a favoring of the channel that you prefer to supply over one or the other so are you going to feed your DTC.
First when supply comes back or is coming through and also are you seeing where in the supply chain are you seeing the disruption does it on the production side is it.
Shipping times is it at the ports just curious to understand.
Where the bottlenecks exist.
In where we could see some alleviation of that of that.
Inventory flow.
Sure. So let me start with.
The kind of.
How we got here or kind of just.
Kind of going back a few months. So if you remember back at the end of first quarter and this is this is where do we see the bottleneck.
Because there really are two bottlenecks in the in the normal sense, but if we go back to the first quarter at the end of the first quarter.
Last two weeks of the first quarter first two weeks of the second quarter, we cut back for Peos.
As we were seeing those demand signals we had some.
Some supply chain disruption there, but it really is cutting back looking at the current demand thing of at that point and then demand started to in the back half a second quarter started to take off and we began placing forward orders and then as we came into Q3 so.
It's really about a lot of this impact is kind of going back to the end of first quarter, beginning of second quarter, where we weren't producing at a capacity or we weren't producing at the level to support the 29% in Q3 and Bakken I never would have expected to to drive 29.
Percent topline growth in the third quarter. So it is really we have all our all our factories working full capacity in producing so it's not a it's not a bottleneck in the sense of ports and things of that nature that being said you know and you have seen in the headlines of the port coming into the into.
The you asked on the West Coast.
And then certainly just logistics in getting the the goods too.
Our Dcs, but it really is about kind of the progression of rebuilding the inventory from an allocation.
Here's how we think about it is we want to meet consumer demand across channels and if we think about our wholesale channel right. So our sell in was plus 6% and we talked about.
Wholesale demand being close to what our topline was inline with what our topline was as a company.
So we knew we had inventory in the channel. So we used that inventory to satisfy demand and then we use the inventory we add to satisfy our DTC. So we're constantly looking at.
Satisfying consumer demand.
And that's kind of how we allocate.
The inventory and we continue to do that into the fourth quarter.
Got it okay great.
And then just on the categories is there a specific.
Under inventoried position that's more.
That's more grave.
Maybe that's too stronger word but.
Net loss customer that.
Maybe organically coming to you, but not not seen that demand fulfilled.
Clearly we've seen through.
Through time and through different points Anybodies history, when we get into supply constrained environments or where demand is outstripping supply is that we don't tend to see a lot of leakage of the of the customer and part is because we focus a lot on making sure we're continuing to drive engagement and even if its engagement in between.
Hi, this is or its engagement wall someone's.
Calm and Amazon marketplace, what's the mix of the E commerce business today between those channels and how would you expect that to trend going forward.
Hey, Alex good morning.
So yes, the dot com and I may have said this in my prepared remarks, Gary Dot Com definitely led the way so if I think about.
Hundred $19 a year if they are a prime member and they go to buy something and they want to put it.
Rambler 20 in their cart, we want to be where the customer wants to shop. So that's kind of how we think long term is and that goes as far as wholesale too is being where the customer wants to access the brand is the most important thing to us.
Superstar appreciate you sharing elsewhere maybe.
Maybe one more from me I Wonder if you could update us on those businesses lows, how many bullets are in now how that's trending and.
With that the next step changes.
Yes, Alex Matt I'll take that one thanks, thanks for the question and good morning.
We continue to.
Really enjoyed the relationship that we built with lowes in the partnership and Thats that is important to us as we think about what a methodical pace rollout looks like we said that from the very beginning that the the rationale for why we add additional wholesale is.
That they.
Bring a.
Relatively new consumer and new buying occasion, or they augment support the rest of our existing wholesale and Anglos has continued to do that in Vienna and been a good partner as we have evolved and learn together.
The purchase behavior or kind of track customers on what they're doing so is there any kind of color you can give us when you analyze the D T T business of what proportion.
The revenues are coming from you know <unk>.
<unk>, new brand new customers versus existing customers right now.
Randy Good morning is Matt what I would say is we haven't as you as you pointed out we haven't shared the specific numbers. It is something that we've.
We continue to get smarter and have better insights too.
Comment a little bit earlier.
We're we're focused on.
Understanding those customer cohorts and how they perform and how they perform differently than as our product portfolio expands what that sequencing of purchases and what that recurrence purchase looks like what I can say is interestingly through this year to date as we have seen elevated demand and has channel shifts.
Have.
You know what you think is happening in terms of.
Right rising awareness or what would happen just trying to get a sense of.
The acceleration you're seeing because it seems like that business is now starting to kind of really come into its own that that geography. If you will the international and just wanted to get some color on what you're thinking is starting to really continue to accelerate that.
That business going that part of the.
Sales geography going forward.
Thank you Yep, Yeah, we're ready we're super excited about the opportunity internationally, we have been.
But what we're excited about now is our enthusiasm is being matched by the activity and results and I say that fully knowing that.
Okay and the wholesale channel.
E Commerce continues to be to be a strong opportunity. So I think you'd look for us to go into 2021 with a heavy focus around international focus around brand building and driving ultimately the question you asked which is driving the awareness, which we think ultimate drives a consideration in the purchase.
Very helpful. Thanks, Matt.
Thank you ready.
Your next question comes from the line of Sharron is actually you with William Blair. Please proceed with your question.
Hi, good morning.
This when we put that chunk cap on the bottle and Didnt change the price. So we delivered value to the consumer and held for the pricing we use some of that gross margin expansion to fund that.
From a.
Over earning in the business I think the most obvious one and you called it out as teenagers right. So we're still working remotely and not traveling.
So certainly teeny is down we continue and even though.
We saw significant leverage on non variable expenses.
We continue to invest in absolute dollars.
Occasions that no.
Car camping, all those dynamics, we what's happened. This summer is it's just it's accelerated exposure of the trend that we were seeing and obviously our benefit our business was was benefiting from strong growth pre pandemic and as those trends get highlighted and people.
Try those things, we're we're right in that in that slip stream to continue to sustain that momentum.
If it were different and we were zero growth in realized growth because of a trend.
Would be a different dynamic in that stuff that's not the situation we're in.
I couple that with.
Because we were we think we're well position pre pandemic and priest trends being highlighted.
We believe we've got really good representation from a wholesale perspective domestically and we think that between the Amazon marketplace and yet he dotcom, we got good good representation.
That said as we said in the past we constantly monitor the wholesale market.
We look for everything from independent partners, who help us identify a certain region or a certain customer group that we may not be accessing all the way up to larger national but is you know having followed us for a while we're really thoughtful when we bring on a big partner, we were thoughtful when we added lows to.
To the suite of wholesale partners, we have so we feel good where we are today, but we also pay attention to the market I think internationally is a different a different situation because that's a little more greenfield for us when it comes to to wholesale exposure and so far we've been following a similar playbook to the U.S., which is building strong relevant.
It relationships and identifying.
Regional players or in some cases national players that we think will.
It will represent the brand and the business well.
Okay. That's helpful. And then Paul just quickly shifting surcharges anything any impact you guys you see from.
First to fill in some of those cooler out of stocks.
What actions can you take in order to prevent that type of activity and do you see that as any risk in the coming months.
Peter I would say a couple of things to that.
One.
We have great wholesale partnerships and that very open dialogue as we've we've gone through this and as we've seen challenges to supply disruption.
One of the things that we've worked very closely with our wholesale partners is how do we fill in either with other yeti products or make sure that we're we're represented.
As well as we can as we rebuild that space and one of the one of the conversations we have is.
As we rebuild that inventory, we want to make sure that we have the right space to merchandise products, the right way and the way that we did pre pandemic in the way we would expect them all of our wholesale partners.
As in any point, but as we rebuild that inventory. So I would say the conversations have been great. We're in full alignment with our partners. So we don't see we don't see risk from.
Year.
So the.
The hurdle certainly gets gets higher but if I think about gross margins on when you expect some gross margin I am going to expect gross margin expansion from the channel mix shift costing improvements and then.
Tara tailwind and then if I think about SGN AA.
Okay category expansion, we tend not to talk about Ah four roadmap what I would say is we continue to look for expansion opportunities within our existing products and in our existing product families.
And if you look at our history of pacing over the last few years, we continue to kind of push the edge of new product families and I would expect as we go into 2021 that that's going to continue.
I want to keep reinvigorating, our longest standing product families and introduce introduced new.
<unk>, new families and continue to expand underneath the permission the brand and the yeti consumers have given us to bring more products to market.
Got it sounded like Paul did you want to add anything cause it sounds like jumping in there as well.
Nope that was it okay great. Good good very helpful. And then just a lot of the other stuff there's been answered but on the balance sheet. What I was curious about is I mean, as we sort of get into a very high quality situation, where you've got essentially they returned to leverage.
Thank you.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr., Matt Wrenches for closing remarks.