Q4 2020 Yeti Holdings Inc Earnings Call
Greetings and welcome to the Yeti Holdings fourth corner of 'twenty 'twenty earnings Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. 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 Tom Shaw, Vice President of the Investor Relations.
Good morning, everyone and thanks for joining us to discuss Yeti holdings fourth quarter and full year of 2020 results.
Before we begin 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 COVID-19 pandemic on our business maybe 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 the statements.
For more information please refer to the risk factors detailed in our most recently filed form 10-Q, and the form 8-K filed with the SEC today, along with the associated press release.
We undertake no obligation to revise or update any forward looking statements made today as a result of the new information future events or otherwise except as required by law.
During the call today, we'll be discussing certain non-GAAP measures pertaining to completed fiscal periods reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the press release issued this morning as well as in the supplemental reconciliation both of which are available in the Investor Relations section of the Yeti website.
We use non-GAAP measures as the lead in some of our financial discussions as we believe the more accurately represent the true operational performance and underlying results of our business.
Today's call will be led by Matt ranches, President and CEO.
Paul Carbone, Inc. CFO.
Following our prepared remarks, we'll open the call for your questions and with that I'll turn the call over to Matt.
Yeah.
Thanks, Tom and good morning, everyone 2020 was an incredible year for yeti punctuated by a very strong fourth quarter.
As we look back at our original 2020 full year outlook, we exceeded the high end of our net sales forecast and the high end of our adjusted EPS.
We're proud of this performance and execution given the constant series of challenges we successfully addressed throughout 2020.
I would be remiss to not take a moment to acknowledge the passion and dedication of our team at Yeti plus the amazing support of our partners and customers throughout the year.
At the same time, our hearts continue to go out to those within our communities that are suffering through the hardships of the ongoing social economic and pandemic challenges.
Before getting into the details of our results and our strategic priorities I want to highlight two themes, we believe our central not only to our success in 2020, but also how we will continue to resonate with customers over the long term.
This starts with our brands and eat the ability to connect with customers in meaningful ways.
For years, we've been part of the shift to a more active lifestyle and a greater appreciation for outdoor activities and recreation.
The pandemic further these behaviors, including a well documented increase in vacations closer to home.
As a brand that lives to deliver performance durability and versatility across all of our products. We are positioned well at the intersection of these trends.
As the world changed dramatically during the pandemic many of the observed consumer shifts I outlined gained further traction supporting the tremendous results. We are sharing here today and building upon our legacy of growth.
However of World of distancing also meant that many other activities that high yeti relevance were curtailed the eliminated many events and gatherings, including weekend tailgating backyard barbecues standing on the sidelines at sporting events or something as simple as the hot drink for of morning commute were disrupted.
Moving forward, we expect the traction of outdoor and active pursuits to endure.
At the same time, our brand is uniquely positioned as people begin to return to certain elements of work life, social gatherings and travel for their field.
Over the past five years, we have adapted our business to drive impact in a rapidly evolving digital consumer environment.
Supported by our breadth and depth of marketing strategy, which has been a consistent hallmark of our brand engagement and awareness push.
Believe has been a true differentiator for yeti.
As we have previously communicated we evolved to even stronger digital engagement and reach in 2020.
The success of this transition as well as other lessons from the pandemic have helped inform and prioritize how we will invest across our strategic priorities.
Most notably you'll see an added focus this year and digital brand and product storytelling product development data analytics E Commerce and our international infrastructure.
We believe this focus will help yeti build upon its leadership position in the market and ultimately capitalize on our global potential.
Now turning to our results.
Unwavering customer demand and incredible execution by our team resulted in the fourth quarter net sales growth of 26% and delivered full year growth of 19%.
DTC continued to lead the way growing 46 per cent for the quarter and 50 per cent for the full year.
Wholesale posted a 6% increase for the fourth quarter and despite the massive channel disruptions throughout the year ended the full year down only slightly.
The product strength was balanced between coolers <unk> equipment and drink were for the quarter with both posting approximately 20% growth for the full year.
Finally, our international business, which remained at of Yeti high 7% for the second straight quarter delivered 81% growth and ended the year at 6% mix exhibiting growing demand and even in the face of large scale disruption to retail partners outside of the U S.
Equally as strong as the top line, our adjusted operating margin expanded 440 basis points in the quarter highlighted by gross margins approaching 60%.
Similarly, full year adjusted operating margin expanded nearly 500 basis points to reach 25%.
These results yielded adjusted EPS growth of <unk> 70 per cent for the quarter and 76% for the year, while also supporting the voluntary debt pay down of $100 million during the fourth quarter, resulting in our year end cash balance of $253 million.
Our strong and consistent performance top to bottom.
Now shifting over to our strategic growth priorities, which have remained consistent since our IPO in 2018 and will continue to guide our focus and our investment in 2021.
First our fourth quarter brand and product storytelling efforts, where perhaps our strongest most consistent and most integrated culminating in yeti as the holiday must have.
Supporting these year end efforts in November we broadened distribution of our yeti dispatch Mega log to over $1 8 million homes, while also extending those stories digitally to expand reach and duration of the impact.
As an example, we developed ambassador content. There was featured in our Wild Thanksgiving Digital campaign, which was also highlighted in the print copy of the dispatch.
We also reinforced the overall yeti brand through focused strategic TV placement in key sports and entertainment slots in Q4 alternating between of product showcase in the Yeti brand spot.
Throughout the quarter, we continue to look for ways to impact our community.
We supported incredible organizations, such as captains for clean water.
Outside billion Oyster project heroes in horses Conservation Alliance the nature Conservancy, the Lee initiative, Southern smoke outreach Alliance and Memphis rocks.
In November the limited edition Veterans day, Tumblr, we introduced the benefit folds of honor and Lieutenant Colonel Dan Rooney's mission of educational scholarships for families of fallen and disabled service members quickly sold out and raised $50000 for this worthy cause.
As we shift to 2021, we have three areas of focus for our brand.
First we will continue to build our breadth and depth strategy for both the digital and offline world.
Primarily created by our very talented in house team.
This is a key pillar of consumer engagement of acquisition without alternating between brand and product stories.
Music is a great example of a reach platform, where we are focused on expanding our audience and driving of unique yeti form of engagement.
For example, we continued our work with highly talented artists to create curated Spotify playlists, including the Beastie Boys Leon bridges, and most recently the Foo fighters.
We expect additional impactful initiatives here in music and our other community as we move throughout the year and bring expansive and creative reasons to connect with yeti.
Another focus will be to continue leveraging the depth of our existing U S market efforts, while also establishing our international routes.
This includes the inaugural season of major League Soccer's, Austin FC with Yeti as their Jersey sponsor.
As well as supporting our partners such as USA climbing and surf for John John Florence at what we hope will be the Tokyo Olympics. This summer.
It will also mean expanding our global roster of ambassadors and partnerships digital brand building and developing international focused content and stories.
Finally, we have a thoughtful approach the sustainability and yeti.
This begins with acknowledging what we're already doing driving a strategy that is impactful and communicating appropriately across our channels and product.
More to come on this journey, but to be clear, we expect ESG to continue to be an integral part of the yeti business brand and our overall story of durability.
On the innovation side, we saw broad based strength from both new products launched in 2020 as well as our legacy products.
Our successful fourth quarter was led by sustained demand for coolers, even if the inventory remained challenged across our channels due to COVID-19 related supply disruption.
Growth in drink bar was excellent as receptivity to our expanded culture line continued interest in our bottle offerings and ongoing vitality across our both new and existing tumblers continue.
Importantly.
We also earned product recognition and validation across a wide range of media <unk>.
Men's health highlighted the roadie 20 for hard cooler is the best cooler and it's 2020 outdoor awards.
Great Sporting Journal honored the low doubt go box and it's the best accessories list.
And time magazine selected the Yeti V series cooler as one of the 100 best inventions of 2020.
These accolades not only recognize our latest innovations, but also support continued healthy consumer discovery across our portfolio.
One way, we extended the product vitality and existing yeti products with by highlighting favorite heritage picks through our Q for gear garage finds campaign that featured limited quantities of discontinued items of colors.
And new offerings, we added the popular ice pink color to the <unk>.
The announced Tumblr and introduced our second Yeti presents coffee table book with Wild sheep.
As part of our new sponsorship of Austin FC. We also offered their official club Jersey on our web site combined.
Combined with the aforementioned branded product initiatives, there was no shortage of energy around the yeti innovation during the quarter.
As we continue into 2021, our product lineup will showcase investment in product continued expansion through color and line extensions elevated go to market product storytelling and category expansion.
This holistic approach will support the vitality of demand we expect this year.
Let me give you a few details.
We are standardizing our innovative Max fighter lids solution across our drink of our lineup. This.
This includes both replacing standard lids, the historically came with a product such as our low vol. And also adding lives that were sold separately for a product for example, the wine tumbler.
We're also in the process of transitioning many of our lids to utilize the new material containing 50% post consumer recycled content.
While adding to our product costs. We believe these types of actions, making impact continued to deliver value to our customers and sustain our premium positioning.
We will also debut of three new colors.
Aquifer, prickly pear and granted.
And drink, where we will also add line extensions that reflect the customer demand for larger capacity single person drink ware.
And next week, we will launch of new collection of bags, consisting of backpacks duffel bags and wheeled luggage.
Originally planned for the second half of 2020, we postpone the introduction and believe now is a more optimal time to introduce our crossroads collection to the market given the continued focus on short excursion road tripping and the expectation of buildup to traditional travel and daily commutes.
Each piece of the collection has been constructive, but durability performance and design in mind.
For more material choices to accessibility storage and comfort the collection is perfect for weekend travel or adventure far from home.
Leveraging our prior learnings in this category, we see a tremendous opportunity to offer a collection of positioned at the center of premium outdoor ready and daily use.
We are launching DTC only as we build into the product family build awareness and ramp of our supply chain through 2021.
Shifting to our omni channel strategy.
20th of strong year for our direct to consumer business with a record 53% mix for the full year, continuing the shift from less than 10% DTC only five years ago.
This underscores the focus and importance, we have discussed of meeting customers, where they want to shop.
Yeti Dot com showed outstanding growth extremely strong consistent price integrity and execution in the face of holiday small parcel capacity challenges.
Our team did a phenomenal job focusing on end to end service this year, including our work to position inventory balance of our distribution center productivity and secure of carrier capacity.
Our corporate sales business also had a great quarter.
The pandemic, we've seen yet you remain of go to choice for employee engagement corporate rewards and brand partnerships at the same time, we continue to succeed in our targeted efforts to engage corporations through our outbound.
Focused on sustainability of messaging.
At wholesale even with the challenging inventory position, our wholesale partners did a phenomenal job addressing customer demand as we work to replenish supply.
Entering 2021, we have visibility into restock needs and the expected replenishment cycle across accounts as we move throughout the year, we remain encouraged.
Encouraging as our wholesale partners continue to evolve their own models, leveraging digital to drive increasing relevance with customers.
While brick and mortar rebuilt the traffic.
Going forward we.
We will continue to invest to build broad channel strength.
At Yeti Dot Com. This includes recent hires to drive expertise and discipline across digital and analytics further developing our consumer data platform investing in our enhanced E commerce shopping experience and continuing to drive seamless customization.
And corporate sales, we will prioritize executing against the strong order pipeline and optimizing our service structure to be even more productive in our sales efforts.
At Yeti retail.
We remain focused on implementing strong operations across our young fleet of eight stores, while evaluating very select openings in the back half of the year.
Finally on wholesale our clear focus will be on thoughtfully getting inventory repositioned fully rebuilding yeti merchandising on the floor and working with our partners on the success of their overall omni channel efforts.
On the international side of the business, we continued to build upon momentum of our international sales with mix growing from just 2% in 2018% to 6% for 2020.
As the largest driver of our international business today, Canada showed strong growth despite significant lockdowns and restrictions that impacted the local wholesale market.
Our Canadian DTC business grew triple digits, as we build awareness and executed on strong demand.
Across the rest of our markets, Australia continues to raise our expectations with triple digit overall growth in the quarter.
In Europe, and the U K, we continued to see receptivity build with stronger than planned DTC offsetting the impact of our disrupted wholesale rollout this year given the pandemic.
We're putting additional capital and resources behind our international efforts in 2021, as we look to extend DTC and targeted wholesale strategies across each region.
In Canada, our focus will be on demand creation and inventory resets. In addition, we are putting a heavier focus on DTC execution and are excited about the prospects of our National Hockey League license strength of our launch.
Australia, we are adding resources to drive additional brand awareness and make of pushing deeper into the large urban markets.
In Europe, and the U K, we're developing new local language E commerce site and accelerating our wholesale push beyond the approximately 125 doors.
At the end of 2020.
In Asia, we are focused on unlocking growth in Japan from the limited wholesale reach we have today, while also setting the infrastructure to support additional Asian markets.
Holistically, we believe the international remains a massive opportunity for the brand and we are more formally aligning our organization to drive our potential here.
As I hand, the call over to Paul to review, our detailed results and outlook I want to again, thank our yeti team for the incredible work resilience and dedication that made 2020 of the success that it was moving forward, we will undoubtedly need to address unknowns that will have varying degrees of impact on the economy consumers and those associated with <unk>.
The way with our brand.
What is never in doubt is that we take any challenge at the chance to get better and strengthen our business. We remain incredibly optimistic about the opportunity for 2021, and the long term sustainable growth opportunity of yeti.
Thanks, again, and now I'll turn it over to Paul.
Thanks, Matt and good morning, before providing the full details of the quarter and fiscal year. Let me begin by also adding my thanks for the incredible resolve of our team during a truly one of the kinds of year.
The efforts were instrumental in delivering the incredible results for the year, including 19% net sales growth.
Adjusted operating margin expansion of 490 basis points.
76% adjusted EPS growth in the voluntary pay down of $150 million in debt.
Now onto the fourth quarter.
Net sales increased 26% to $375 8 million compared to $297 6 million in the prior year period.
This growth was on top of the 23% increase posted in the year ago period.
Results were above our expectations and reflect the continued strong demand for the brand.
For the full year net sales increased 19% to 1.09 billion, an incredible achievement, while looking back at our initial full year outlook of 13% to 15% sales growth.
As previously discussed and contemplated both the fourth quarter and full year results include the impact of the 50, <unk> week, which added approximately $7 million to net sales for both periods.
By channel direct to consumer net sales grew 46% to $217 8 million compared to 149 million in the same period last year.
Overall, DTC reached a new quarterly high of 58% of net sales for the period compared to 50% in last year's period.
DTC performance was driven by strength in both our coolers and equipment and drink wear categories.
We were encouraged to see all DTC channels, posting at least 20% growth across the yeti dot com the <unk>.
Amazon marketplace, Yeti retail and corporate sales.
For the full year DTC net sales increased 50% to $580 9 million.
Representing 53% of the overall sales mix, which increased from a 42% sales mix last year.
While not an update we will provide quarterly.
The fiscal 2020 mix within DTC consisted of approximately 50% from our global Yeti websites.
High Twenty's from the Amazon marketplace.
Approximately 20% from corporate sales.
And the remaining low single digit portion from Yeti retail.
Wholesale net sales increased 6% two of $158 million compared to $148 7 million last year.
Wholesale performance was driven by balanced growth across both our coolers and equipment and drink wear categories.
Despite ongoing inventory constraints in the channel.
Full year of wholesale net sales decreased 3% to $510 9 million.
Primarily driven by the effects of the COVID-19 pandemic.
On temporary store closures during the first half of 2020.
By category drink, where net sales increased 23% to $235 7 million compared to $192 million last year.
Demand was strong across the drink where portfolio and we continue to see momentum for my more recent introductions led by the expanded and improved coaster lineup and updated bottle styles with Chubb caps.
In addition, the expansion of our customization capacity allowed us to better capitalize on the tremendous demand for personalized products by both consumers and corporate accounts.
For the year drink wear grew 19% to reach $628 6 million.
Coolers and equipment net sales increased 31% two of $134 3 million <unk>.
Compared to $102 $3 million during the same period last year.
Demand across our coolers business remains strong despite limitations on inventory availability, particularly in hard coolers.
The ongoing success in our outdoor living category also gives us confidence in our broader category expansion opportunities in 2021 and beyond.
For the full year coolers and equipment net sales increased 21% to $446 6 million.
Gross profit increased 39% to $224 8 million or 59, 8% of net sales.
Compared to $162 3 million or 54, five percentage of net sales during the same period last year.
The 530 basis point year over year expansion was driven by the following favorable impacts 210 basis points from product cost improvements.
200 basis points from channel mix.
60 basis points from lower tariffs.
60 basis points from lower inbound freight.
And 80 basis points from all other impacts.
These gains were partially offset by 80 basis points from higher inventory reserves, including.
Including the unfavorable impact of recall related expenses associated with the previously announced voluntary travel mug recall as well as new product transitions.
Full year gross profit increased 32% to $628 8 million expanding 560 basis points to 57, 6% of net sales.
Adjusted SG&A expenses for the fourth quarter increased by 30%.
Two of $143 million.
With 37, 3% of net sales.
As compared to $108 3 million or 36, 4% of net sales in the same period last year.
Variable SG&A expenses increases the percentage of net sales by 140 basis points driven by the shift in channel mix.
The faster growing and higher gross margin DTC channel.
Primarily related to outbound freight.
Non variable SG&A expenses decreased as a percentage of net sales by 50 basis points driven by the overall strength of the company's topline results.
Full year adjusted SG&A expenses increased 22%.
To 400 for 5 million, increasing 70 basis points to 37, 1% of net sales.
Driven by variable expenses, increasing 210 basis points.
Partially offset by non variable expenses decreasing by 150 basis points as a percentage of net sales.
Non variable expense leverage was driven in part by our strong topline results.
As well as cost curtailment efforts implemented during the second quarter in reaction to the onset of the pandemic.
Adjusted operating income increased 57% to $84 5 million expanding 440 basis points to 22, 5% of net sales.
Compared to 54 million or 18, 1% of net sales during the same period last year.
Full year adjusted operating income increased 57%.
The $224 3 million.
Expanding 490 basis points year over year to 25% of net sales.
Our effective tax rate was 23, 1% during the quarter compared to 29, 7% in last year's fourth quarter.
For the full year, our effective tax rate was 24, 1%.
Adjusted net income increased 73% to $65 2 million or <unk> 74 per diluted share.
Compared to $37 8 million of 43 per diluted share during the prior year period.
Full year adjusted net income grew 79% to $164 2 million.
Our $1 87 per diluted share.
Now turning to our balance sheet.
As of January 2021, we had cash of $253 3 million compared to $72 5 million in the year ago period.
Inventory declined 25% to $140 1 million compared to $185 7 million during the same quarter last year.
A sequential improvement from last quarter, but slightly below plan, given our stronger top line performance.
We expect to continue our supply chain efforts to rebuild in stock levels throughout the first half of the year.
Total debt, excluding unamortized deferred financing fees and finance leases was $135 million compared to $300 million in last year's fourth quarter.
During the quarter, we made principal payments of $103 8 million.
Inclusive of a $100 million voluntary prepayment.
At the end of the quarter.
We were in a net cash position as cash on hand exceeded total debt.
Now turning to our full year 2021 outlook.
I would like to provide more color than our historical practices given the unique comparisons from 2020.
We expect full year net sales to increase between 15 and 17% compared to fiscal 2020.
Above the high end of our long term target and supported by both our innovation pipeline.
And ongoing work to replenish our wholesale channel.
As a reminder, fiscal 2021 is also comparing to the 53 week period in fiscal 2020.
Within the sales outlook, we expect wholesale growth to be above our long term target of up mid single digits.
As we continue to focus on driving improved stock levels across the channel.
We also expect growth in our direct to consumer channel will continue to outpace wholesale for the year.
By category, we expect coolers and equipment to slightly outperform drink ware.
Looking at cadence.
We expect the highest growth rate during the first quarter.
With double digit growth in each of the following quarters.
On the margin side we.
We expect flat gross margins from the record 57, 6% level.
Which reflected nearly 600 basis points of expansion in 2020.
And over 800 basis points expansion since 2018.
Despite the continued favorable impact from channel mix or.
Our ongoing efforts to drive product cost improvements will be more limited in 2021 for two reasons.
First we are taking strategic actions to invest back into our products to further elevate our value proposition enhance the consumer experience and widened the consideration GAAP.
A great example of is our decision to add Mag slider lids across all of our drink. We're starting in 2021 effectively upgrading approximately 20% of our drink wear assortment.
In addition.
The strengthening of the Chinese RMB since last summer.
We'll factor into our product cost negotiations.
From a cadence perspective, we expect positive year over year gross margin trends.
During the first half of the year.
Some contraction during the third quarter, where we faced an exceptionally strong comparison from the prior year.
And expect fourth quarter to be flat to the prior year period.
And SG&A.
As we have discussed in the past we have planned SG&A in 2021 growing slightly faster than sales.
We expect full year variable expenses tied most directly to our faster growing and higher gross margin DTC channel.
We will grow slightly faster than total sales.
We also expect full year non variable expenses to be flat as a percentage of sales.
As we continue to focus on our strategic growth initiatives.
Investing behind our current momentum.
To support our sustainable long term growth and strengthen our competitive advantage.
Including areas such as data analytics inter.
International and product development.
The combination of these factors will drive the highest year over year expense growth in the second quarter.
With growth rates than easing throughout the balance of the year.
Overall, we expect a slight decline in adjusted operating margin to approximately 20% for the year.
Following the nearly 500 basis point improvement we generated last year.
Adjusted operating margin expansion in the first and fourth quarters.
It is expected to be offset by contraction in the middle quarters, given the expense factors I have just outlined.
Below the operating line, we expect an expected tax rate of approximately 24, 5% for fiscal 2021.
Based on full year diluted shares outstanding of approximately $88 6 million.
We expect adjusted earnings per diluted share to grow 13% to 15%.
To between $2 11.
And $2 14.
Compared to $1 87 in fiscal 2020.
From a timing perspective, we expect adjusted earnings per share growth during fiscal 2021 to be heavily weighted to the first and fourth quarters.
We expect an increased level of capital expenditures of $55 million to $60 million.
Primarily reflecting technology upgrades to support our business growth include.
Including continued enhancements to SAP.
Website optimization and enhanced data analytics capabilities.
As well as spending to support our commitment to new product development and innovation.
In summary I.
I'd like to reiterate the broader themes that Matt mentioned at the beginning of the call.
First.
We believe yeti is well positioned to capitalize on changes in customer behaviors recent.
Recent trends that have been accelerated during the pandemic, which I would broadly categorize as outdoor pursuits are expected to continue.
At the same time, we are well positioned to capitalize on post pandemic opportunities as consumers gradually returned to pre pandemic activities that have been disrupted for nearly a year now.
Second we are investing in strengthening and adapting our plans to match the rapidly changing environment, we operate in.
This ultimately will drive greater brand relevance, both at home and abroad.
While also ensuring we are delivering on our long term opportunity to shareholders.
We will do this in a thoughtful way to ensure we are prioritizing our initiatives to drive focus and disciplined execution.
While also taking a holistic approach to ensure a strong bottom line growth.
We would now like to open the call for questions operator.
Okay.
At this time, we'll be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad. The confirmation tone will indicate that your line is in the question queue. You May press star two if he would like to remove your question from the queue.
For participants using speaker equipment, it may be necessary to pick up of your handset before pressing the star keys when moment for us while we pull for questions.
Our first question is from Sharon Zackfia with William Blair. Please proceed with your question.
Hi, good morning.
A couple of questions for Paul in the semi related so forgive me Tom.
On the gross margin outlook I understand the abatement of that product cost improvements I think you expressed that well, but I'm trying to figure out what else offsets. The the channel mix benefit of DTC continues to outpace wholesale which it sounded like that was going to be the case and the.
And.
I can probably easy question is just what do you view of the right level of leverage for the company.
He has very little debt at this point I mean, when when does the board think about returning cash to shareholders.
Yeah.
Hi, Sharon good morning, so on gross margin as we think about it going into 2021 being flat.
There is as we mentioned in the prepared remarks about reinvesting back into the product. The second piece is while DTC will continue to outpace wholesale.
Two real factors in there and that is number one DTC as a higher percent. So every every additional mix point gives me less on a channel mix and then secondly, as we rebuild the wholesale channel inventories.
It will be above our long term guidance, where we said wholesale will be mid single digits. So that's the other factor playing into that and then lastly.
Again as I mentioned in my prepared remarks the.
The strength of the or the the.
The change in the RMB.
Impacts or comes into factor when we are talking about product cost negotiations going forward as our supply chain team and operations team are talking with our manufacturers. So those of the those of the pieces.
And then we talked about the cadence of them gross margin expanding in the first half of the year.
In the third quarter, where were rolling over a 59, 1% gross margin from third quarter of 2020, there being some contraction and then flat in the fourth quarter.
As far as leverage we've talked about this often.
As we think about this we think about this holistically as.
As use of cash we're going to continue to pay down debt. We are in the net cash position, we will use cash.
Cash to rebuild inventories we go into next year.
You also see what the growth in wholesale our accounts receivable increase so we'll use some for net working capital, but we continue to talk to the board.
About what is the optimal capital structure and those are ongoing conversations.
Thank you.
Our next question is with Peter Benedict with Bard. Please proceed with your question.
Hi, guys good morning.
A couple of questions first just.
I guess, Paul in the inventory rebuild.
Can you give us your best guess on how you feel like that might progress as a reasonable target for the end of the year.
If things kind of play out as you see them right now understanding there's a lot of the certainty. There. That's my first question then I'll follow up great.
Great Good morning.
So we see inventory ending getting sequentially better although at the end of first quarter still being negative.
Similar to my commentary last quarter, and then we see of turning positive as we go into second quarter and the balance of the year as we rollover the significant decreases from 2020. So you know sitting here today, we see second through the fourth quarter as positive growth.
And I would say as we think about the end of the year, Peter and a lot of this goes into you know sales et cetera.
We see inventory ending the year, approximately $200 million and that actually takes us back to slightly above 2018 level. So we do expect.
Certainly in the back half of the year to get in a much stronger inventory position.
Yeah. Okay. Good that's helpful and then I guess maybe.
For Matt.
Nice to hear the the bag innovation stepping up here in 'twenty, one just curious.
What you learned from the prior everyday items that you guys had out there that you discontinued obviously of replacing with with this new.
This new batch how do you think about what did you learn from that and how do you think about the sizing that opportunity because it certainly the bank market is.
A large one but just trying to understand how you guys are framing that up internally.
Peter Good morning, Yeah, there's a couple of things as we said.
As you know we've been in bags since 2017, we launched our.
Revolutionary evolutionary panga bags fully submersible.
And in those bags have been a wonderful wonderful product for Yeti and then we started to evolve from taking that the design ethos of those paying of bags made at incredible tote carryall bag that I've talked about before.
The only one of my favorite Yeti bags in the products and what we learned in those early products of led into this crossroads collection of backpacks, Duffels and wheeled luggage is.
The interplay between material construction and design and what we're really aiming for was how do we take the best materials. We can find in the market, which has been a hallmark of how yeti designs of products.
Put those into of construction that builds upon the durability and performance that yeti has been known for.
And packages of Amanda design that that brings a.
Simplicity and cleanliness of book, but with all of the robustness of the construction and the materials.
Our team has spent the last couple of years really searching for for what we thought was yeti yeti quality and yeti worthy and then worked with various vendors and partners to make sure that those materials lived up to the durability and reliability and performance.
With an incredible design wrapper. So we're excited we're excited about it we've talked about the bags category yet.
In the United States and globally is very likely of the largest category that we've operated in so.
So we think that there's a lot of a lot of room to roam a lot of room to grow we're going to do it in a thoughtful way like Yeti does we come out with a tight assortment, we've put a lot of emphasis behind it and we talked for the consumer about why why it should be important to them and I think over the next couple of weeks, you'll start to see that at of <unk>.
Very robust comprehensive.
The launch campaign supported by the collection that we're putting out there.
Okay, great. Thanks, so much look forward to seeing what's on top of thanks. Thanks Peter.
Our next question is with Randy <unk> with Jefferies. Please proceed with your question.
Hi, Good morning, this is Anna on for Randy.
Thanks for providing an update on the DTC breakdown could maybe provide an update on how corporate sales performance has been recovering.
Okay.
So.
Good morning.
The overall, while not giving the.
Specific number as we talked about across DTC in the fourth quarter everything was above 20% and we have seen as we saw in the third quarter coming into the fourth quarter as well of nice recovery.
In the corporate sales business Q2 was the the most difficult quarter and then the business really came back in and that part of it was supported by added.
Capacity that we brought online over the last year. So that also supported that growth both in consumer.
The personalization and customization on the website and then also of corporate sales.
Got it great. Thanks, and then picking back on the piggybacking on the previous question.
On the crossroads bonds, maybe could you talk about the opportunity to attract new customers.
Hum.
How you are planning on marketing of that accordingly.
And it's a great question and as we think about the continued expansion of the Yeti brand and we've talked in the past that we believe the brand Halo is even larger than the product assortment, we have today, which gives us.
We believe a lot of opportunity to expand but also encourages us to find a disciplined way to do it we think the crossroads collection.
Gives us the opportunity to speak to a wider and wider audience not just domestically, but globally. It is the.
As I said in the prior question.
Huge global market highly fragmented with price points, all over the place and we think that intersection between.
Everyday use outdoor ready and high performance is really really fitting for our for our brand and so when we think about.
The color ways, the sizing and even how we introduce the product and the balance between some of the traditional channels that we've used to launch products and some new channels and so as we over the next couple of weeks start at the beginning of our bag rollout in our bag buildup youre going to see what we believe is the most comprehensive yeti.
<unk> launch and.
And addressing new and expanding audiences that we've done in our history. So we're we're excited to start that process and like many things we've talked about at yeti.
We build into new product and we build into innovation and as we said in the prepared remarks. This is the build through 2021.
As we build up the sustainability of this product family for Yeti.
Great. Thanks, so much.
Our next question is with the Chameleon Alliance with <unk>. Please proceed with your question.
Yes.
Thanks, Good morning, everyone, great quarter and the year.
On wholesale Inc.
Great great color on.
What are you expecting from an overall basis and clearly the restocking should help.
The recharge that that segment.
Can you just update us on how you plan to restart your door expansion and maybe more specifically where you're at with Lowe's, assuming that a bunch of the bulk of the growth in wholesale will come from the more restocking effort in your existing doors, but I'm curious to see where the door expansion effort wise.
Camilo Thanks, Great question.
As we have shown in the past, we're disciplined about door expansion and we've been much more focused over the last five years or so on making sure we're in the right.
The points of distribution and that we bolster and buildup our partners. The first half of this year is really going to be focused on working with our wholesale partners as they continue to evolve their omni channel approach and take advantage of the digital evolution, while traffic is still disrupted in brick and mortar. So in the first half of this year.
We don't expect meaningful door rooftop expansion.
Some some puts and takes as doors open our doors close but in the broad sense, we wouldnt expect door expansion to be a big part of the front half of the year as we go into the back half of the year.
You mentioned low as we continue really good dialogue on Loews on a paced thoughtful rollout, we said that from the very beginning it was disrupted a bit.
With the pandemic and so we'll work with them to get back on that thoughtful way of expanding in and I think broadly we continue to look for opportunities in wholesale where it either brings a new buying occasion to us of new consumer or augments or supports our existing wholesale and we're going to stick, we're going to stick true to that but.
This is the year really of.
As Paul mentioned getting our getting our inventory in the channel right getting our merchandising right, helping our.
The exceptional wholesale partners.
Focus on there.
Digital offerings and digital efforts is the consumer returns to more normal traffic flow.
Great and then for Paul just coming back to the gross margin outlook.
With specific focus on the product costs and the.
The rising the RMB.
It would suggest that with the growth that youre seeing the accelerated growth of continuing to see.
Throughout your business that that would be an offset to the negotiations and you'd have on the RMB cost front.
Are we thinking about that incorrectly it would suggest that there is.
A lot of room for continued cost savings from that perspective, the more just the scale increase that youre seeing with your factory partners.
Yeah. So that has always been part of our focus with our negotiations with our manufacturing partners of ours.
Our share scale and growth of our business and if you think about drink ware.
Was up 19% for all of 2020.
So that is the balance offset by the RMB. So this is something that as we look into it.
We believe that that is an offset we still challenge our ops teams to go negotiate and see if we can share and some of that fixed cost leverage and things of that nature of the other pieces, adding more into.
Into the product and we talked about the Mag slider, we talked about we are of full year of the Chubb cap. So these are the things that the full year of the coaster the new coaster. So these are things where we have made.
Very very deliberate decisions to reinvest in the product to keep that differentiated.
Product mindset.
And that we feel is a good use of those gross margin dollars as I said matter I said in our prepared remarks, the the Mag slide of led upgrade is affecting 20% of our.
Portfolio and some of it like our low ball is going from a.
The traditional cap two of match slider.
Something like our wine is going from no cap two of Mac slider and then we are transitioning all of our Mac sliders too.
A new a new composite that has recycled material in it.
So that as well so that's our investing in the products of those of the puts and takes inside of.
Inside of the gross margin, but I will say, we still challenge our ops.
<unk>.
Operations team of supply chain team to continue those product cost negotiations with never giving up durability or quality in the product.
Great if I could sneak one more in Matt when you think about the purchase of <unk> the repeat purchase rate Youre seeing on your DTC can you talk about how that's trended between.
You know your customer mix evolution between new and existing customers.
Yeah, a couple of things.
In that regard we continue to see obviously, our DTC business performed really well.
Through the through the middle of the summer and the pandemic can continue through the end of the year.
We really continue to like the balance we're seeing between new to yeti dot com and returning customers of the yeti dot com as the as that growth rate continue to go up we saw both of those groups continue to trend to trend with it. So we're seeing a really nice balance of what I would call new customer acquisition, the yeti Dot com.
<unk>.
Existing customer repeat purchase we are seeing positive trends.
Trends in frequency and one of the things that Paul and I. Both mentioned it is a big part of this year and we really started this journey.
In 2019.
During during the pandemic last year kicked it into higher gear and there'll be a big part of 2021 is our data science and data analytics and its a significant area of investment for us in talent and capital.
As we built a.
The large DTC business.
Ramping our intelligence to match to that we think the continued opportunity in front of us.
Conversion rates of repeat purchase rates time between purchases and so.
We're excited about what what.
To come as we as we continue to learn more.
Thanks, so much for the kind of if you like.
Okay.
Thanks, Paul.
Our next question is with Robby <unk> with Bank of America Merrill Lynch. Please proceed with your question.
Oh, good morning, guys great quarter, Matt.
A question I get a lot is just on.
How much.
Yeti benefit from kind of the COVID-19 related solitary leisure trend.
And was that of pull forward of demand from 2021 of your guidance implies probably not but I thought your commentary at the beginning of the call was really interesting any how should we think about how important or did you track how much yeti lost and commuting and tailgating sports events and backyard barbecues and Kai.
Compare that with what you got maybe from Covid related.
The.
Business being driven for yeti.
Rob you there.
To be able to dissect the what was lost directly from what was gained is is difficult because some times and some of those consumers flow between those things.
I would say that we really looked at and we've spoken about is pre mid March of last year pre pandemic, our business was growing 20 plus percent.
We had the the.
The moment in time early.
Q2, or late Q1 win when the World was really upside down and then what we saw from for Mendez of Reacceleration of the business and you look at our business that exited the year with Q4 growth at 26% had 19% on the full year.
We really think we saw a resumption of the demand and the growth that was happening at yeti and while those behaviors changed and we saw that and we think we were able to pivot our marketing messaging and our brand messaging and our relevance to both of the stay at home when people are stuck at home and providing compelling digital content whenever there.
And also supporting the the solo or small group near patient leisure and so when we look at it we like that trend a lot, but it's a trend that we've been watching for years and we've seen over the last five years. We believe has contributed.
To engagement with the yeti as people get outside more and realize the health and wellness benefits of it.
So we actually like both both trends in the.
The group gatherings and backyard barbecues, obviously been highly disrupted.
We've been able to pivot the business and really make sure that we're communicating to the consumer and the way in which they can operate today and as the world comes back to normal.
For whatever normal is we'll reconnect of them.
And those relevant way so I feel good about where we are at the intersection of both of those trends.
That's great that's helpful and then.
Paul just a quick one for you.
When you isolate D to C. What is the profitability look like.
Did it look overall was it was the profitability of D C up year over year.
How are you thinking about that for 2021 is is it DTC overall profitability changing or is it pretty consistent and maybe do you guys see yourselves re accelerating store growth as we get away from Covid.
Yes, so to your to your question and when we talk about profitability. We talked we think about contribution margin because we don't allocate all of the corporate expenses just to say that yeah.
Year over year, if I look at Yeti dot com and the DTC.
The profitability of contribution margin overall, it's increasing and purely as we're leveraging the strong top line leveraging the.
The payroll expenses in there and things of that nature. So it did increase.
Year over year, and then as we've talked about.
Often from a dollar perspective, and this is now compare comparing to wholesale from a dollar per unit perspective the.
The profitability is significantly higher in our DTC business versus our wholesale.
Channel.
That is great and really helpful. Thanks, guys.
Thanks Robby.
Our next question is what the Jim Duffy with Stifel. Please proceed with your question.
Thank you good morning, guys, a really great year terrific execution by the team.
Matt I wanted to start with the following question related to your discussion of the consumer insights for you guys have any statistics on new consumers you're welcome to the brand during 2020 and I'm curious to the new customers added in 2020 look different from prior year customers as the data suggests it's just kind of more of the same.
Jim a couple of things a couple of things there we haven't wrapped up our full analysis of our kind of 2020 cohort what we have communicated in the past is that as we tested it throughout the year, we saw pretty good consistency in the consumer.
Between the age groups.
Household income so largely largely consistent we picked up a little bit on the lower of the younger age demographic, but I would say meaningfully we've stayed pretty consistent what I think is most.
Interesting is that as you look across our regions of growth all of our low cross all of our regions. All of our regions showed significant growth in 2020 growth was led by the markets, where we've historically been the least penetrated.
But even in our longest standing.
What we've referred to in the past our heritage markets continued to grow strongly through 2020, so we'd likely both of the penetration we're continuing to get in our most established markets and the reach with newer consumers are of consumers that are newer to the brands and we've talked about penetration in the coastal communities.
We're really seeing the effect of that but with with opportunities still in front of us.
Great and then net in your prepared remarks, you did a little bit more than the way the hand to ESG I know you guys hired a new via the VP.
VP of CSR last June there was a.
Lots of you've already been doing maybe it hasnt been advertise any updates on the foundation of your CSR platform, where we might see a formal ESG or of our CSR report and the stated objectives for improvement.
Yes, Jim as you said and it wasn't it.
It wasn't accidental we mentioned it.
In a more fulsome way it is critically important to us.
As you also said we believe it's been central to our brand is naturally and with the addition of an incredibly talented VP of ESG, who is highly experienced in building these programs.
We want to make sure that when we come out that were.
There is robust and both taking kind of command of what we have done and what where we are and also where we want to go and so it's a big area of focus in 2021 to get those things lined up so that we can communicate them in a more in a more fulsome way.
But as you as you said it is important to US we don't look at it as a function or of thing within yeti.
It is part and parcel the who we are as of brand and it has that level of importance in that level of focus inside of our building.
Thank you.
Our next question is with Kimberly Greenberger with Morgan Stanley. Please proceed with your question.
Oh, great. Thank you so much good morning, I wanted to ask about Capex the cash.
Opex outlook for 2021, I'm wondering is there any distribution center capex included in that budget Paul.
And then as we look beyond 2021 would you expect this new higher level of Capex to be your normal on a go forward basis.
And then sort of the.
A different but similar question on SG&A.
It sounds like there is a little bit of SG&A deleverage in 2021.
Would you expect to get back to you of leveraging position starting in 2022 and beyond thanks, So much.
Great questions, Kimberly so I'll start with Capex on the.
<unk> $55 million to $60 million range.
And about 45% of that is technology related and we've talked about data analytics.
Developing a new mobile optimized website things of that nature. Another 45% is really to support the product roadmaps.
Direct question on.
Three pls of our distribution centers, we used three pls. So we don't have a lot of capital tied up.
In the three pls.
Moving from Dallas to a new location in Memphis, we have some actually it's an expense of one time charge in our outlook to actually move goods back and forth. So thats kind of the makeup for Ya.
Question of this is the is this the new the new normal level.
I'm not going to I don't want to give a long term outlook.
Our updated entre of long term outlook, what I would say is 2020 was materially lower than our past of was $15 million. So if you look at the combination of 2000 22021.
They are.
And you average them out it's more of a normalized level. So part of it is a lot lower spending in 2020 as.
Took actions during the Covid.
Pandemic from a SG&A perspective.
What we've said for this year is.
We would see slight deleverage.
With flat gross margins and op income approximately 20% in Opex say 50 basis points of deleverage.
And that's really on the variable side as DTC continues to grow faster now as that business gets bigger the counter of what I was talking to Sharon about is the mix doesn't impact us much.
That's a much smaller impact from DTC growth in 2020 was 210 basis points of deleverage. So now it's down to again in the ZIP code of about 50 basis points non variable being flat.
And a lot of that is we are investing in the growth initiatives, we're going to continue investing in this data analytics things of that nature of the.
The product pipeline.
And then also.
Like most companies in the second quarter and as we went into the third quarter did.
We did a lot of cost curtailment. So we're rolling over some of that as well when we get back to normalized spending and that's why we talked about.
Opex growth.
Being biggest in the second quarter, and then normalizing or decreasing from there as we get to the third and fourth quarter.
That makes perfect sense, and if I could just sneak a quick one in for Matt.
I'm wondering if you can look at your product portfolio, which is clearly the condition to expand outside of coolers and drink wear so if you take those two categories out.
Can you share with us the growth rate in the other categories non coolers non drink ware.
<unk>.
What the size of the portfolio has the sales do those categories represent and I'm imagining that the categories are growing faster.
But I'm wondering if you can just give us a little bit of color on how that's performing thanks. So much.
Kimberly.
Couple of things, we don't breakout beyond the coolers, <unk> equipment and drink where from a from a growth rate perspective, what I can say is.
As we continue to add new planks of product families and new clients of expansion, obviously coming off of <unk>.
Small base they have a they have a high rate of growth.
What's been the consistent at Yeti, though in our 15 years as we continue to drive growth through our legacy products and we continue to drive strong growth both in the legacy product families. But also by driving innovation through them. So what youll continue to see this year and have seen in the past is we will drive innovation and coolers and our and our historic.
<unk> coolers business will continue to drive innovation in our drink of our business, while we build up. These these other product families and so while they based off of their <unk>.
Smaller jumping off point grow quickly. We will also have very strong growth and high contribution from our coolers and equipment of coolers traditional coolers and drink of our business and we'd expect that to carry through in 2021, while we build into these new product families.
Great. Thank you.
Our.
Question is with the Joe out of lateral Bello with Raymond James. Please proceed with your question.
Thanks, guys good morning.
A couple of questions first on your sales guidance.
What's baked in in terms of when you finally put the supply chain issues.
And what's the lift that you're expecting from the retail inventory rebuild.
And that 15% to 17% number.
Hey, good morning, Joe So.
What we've talked about and.
I think it was Peter's question, we from an inventory perspective, we expect.
Q1, again to be negative year over year, and then as we get into Q2 and the back half of the year to be positive.
We believe that it's going to take us at least through the first half of the year and we're doing this very <unk>.
Deliberately and methodically of refilling, the channel and it's going to take us over the first the first six months to really get the channel, where we want it to be.
We haven't.
Broken down our dissected the.
How much of it is from increased inventory, but we feel good about the 15% to 17% as we said wholesale will grow faster than our long term of mid single digits, but DTC is still going to grow faster. So it is true.
The true consumer demand driving our business not just a wholesale reload.
That's helpful. Thank you and just maybe the second follow up in terms of advertising, maybe just for me, but I definitely noticed a lot of a lot of commercials on NFL network over the play off of so curious what the advertising budget. It looks like maybe the percentage of sales and in 2021 versus 2020.
Yes, so we.
We did and if you think about our what we call demand creation spending throughout the year.
And we absolutely curtailed in the second quarter, we moved very digitally but we curtailed some of it is as you would expect us to do and then ramp back up in Q3, and we had some great great exposure in Q4.
We would expect that to come.
Come back to about eight eight ish percent of sales of what we've always talked about we were a little bit under that as we finished.
2020 part of it is the strong even though.
To your point, we had great exposure in the Q4.
The strong top line. So we ended up kind of below that for sense. So we would expect that to.
To go back to that approximately 8% in 2021.
Perfect.
Okay.
Ladies and gentlemen, we have reached the end of the question answer session and I would like to turn the call back to Matt Ryan cash Chief Executive Officer for closing remarks.
Thank you and thanks, everyone for joining US today, we look forward to speaking with our Q1 2021 results come in.
Have a wonderful day.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Yeah.
Okay.
Okay.