Q1 2021 Yeti Holdings Inc Earnings Call
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 for Yeti.
You may begin.
Good morning, and thanks for joining us to discuss Yeti holdings first quarter 2021 result.
Before we begin we'd like to remind you that some of the statements that we make today on this call, including the statements related to the impact of the COVID-19 pandemic on our business may be considered forward looking and such forward looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements.
For more information please refer to the risk factors detailed in our form 10-Q and form 8-K, both filed with the SEC. This morning, along with the associated press release.
We undertake no obligation to revise or update any forward looking statements made today as a result of new information future events or otherwise except as required by law.
During our call today, we'll be discussing certain non-GAAP measures pertaining to completed fiscal periods reconciliations.
Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the press release issued this morning.
We use non-GAAP measures as the lead on some of our financial discussions as we believe they more accurately represent the true operational performance and underlying results of our business.
Today's call will be led by Matt Righteous, President and CEO of Yeti and Paul Carbone CFO.
Following our prepared remarks, we'll open the call up for your questions with that I'll turn the call over to Matt.
Thanks, Tom and good morning, everyone. Following an outstanding 2020 Yeti is off to a great start in 2021 at the heart of this performance is exceptional demand for the yeti brand, including momentum across our global digital businesses and the strength of sell through at wholesale.
During our commentary last quarter, we highlighted two themes that we believe will drive our performance and focus throughout the year.
First we talked about <unk> ability to connect with customers in meaningful ways. This connection balance is real relevant brand storytelling with products that are always rooted in performance durability and versatility we.
We believe this approach not only drives demand for the brand as customers are increasingly focused on active lifestyle and outdoor pursuits, but this also positions us for continued success as people resume activities that were disrupted by the pandemic such as commuting weakened sports and backyard gatherings.
Second we highlighted the importance of a continuing focus on a digital led world.
This has shaped our 2021 investment strategy with an emphasis on digital demand creation product launch data analytics and our technology stack, ensuring we are actively driving both yeti and our wholesale partner e-commerce initiatives to complement what we do in store.
Our top to bottom performance for the quarter led by net sales growth of 42% the highest growth rate we have registered as a public company as a result of these two focus areas.
Direct to consumer remained robust growing nearly 60% highlighting the ongoing an incredible demand shift towards this channel.
Equally important we saw 26% growth in the wholesale channel, reflecting ongoing sell in to support the continued strength in sell through in store at retail.
Both of our primary categories were very strong for the period led by coolers equipment, which was up over 50% driven by both sustained demand for hard and soft coolers and the rollout of our new bags.
Our international business grew triple digits for the period to reach an all time Yeti high up 9% on net sales with good momentum across the global regions.
On the margin side.
Gross margins expanded 560 basis points to 58, 6%.
Incredible performance given we're at just 42% gross margin three years ago during the same period.
Combined we more than tripled our adjusted EPS growth for the period to 38 per share.
In conjunction with our financial performance. We also made very good progress across many of our key 2021 investments, including the official launch of our new collection of bags. The initial testing of machine learning to inform elements of our evolving and deepening e-commerce experience and the continued build out of our international infrastructure.
While we continue to see pressures on global supply chain logistics and materials. Our team is actively managing the changing landscape to deliver supply to support strong demand and control cost.
As it relates to the ongoing COVID-19 global pandemic. We are focused on the continued health of our supply chain to support the incredible strength, we're seeing in demand.
With the strong start to the 2021 fiscal year, we're increasing our top line outlook to 20% to 22% for a full year.
As we look to expand beyond our $1 billion base and build upon our consistent sustainable growth story, we remain focused on thoughtful execution and expansion of our brand and product. These are the foundational building blocks that will enable yeti to continue to scale now.
Now let me provide some specific highlights across our four strategic growth priorities that helped drive our Q1 results and will support our growth focus for the balance of the year.
On the brand building side, our first quarter marketing efforts showcased an expansive launch strategy in support of our new bags collection.
This included debut on our latest backpacks, Duffels and luggage with a fulsome online and offline marketing strategy intended to drive sustained energy and awareness through 2021.
Through the overarching creative lands of get out what you put in this brand and product awareness campaign was designed to deliver broad reach and educate consumers on the product.
From a content perspective, we created digital creative focusing on the power of the product in key product attributes.
Cascaded this messaging across a range of digital and traditional channels, reaching new and more diverse audiences through a series of national publications and print ads and Billboard placements in key markets that included Los Angeles, New York City, and Dallas to complement our digital efforts.
We also added depth to our e-commerce content through elevated imagery and detailed product features unpack the wild product walk through videos and our first yeti dot com based <unk> a functionality.
Our focus on the intersection of brand and product awareness has sustained this quarter with efforts to find uniquely yeti ways to drive product understanding and engagement.
This includes the creation of a bowl versus barrel video to highlight the durability of the Tuscan nylon utilizing our crossroads bags and a series of social media challenges, where yeti followers decide how we put our backs for the test.
This comprehensive and sustained launch effort is informing our future product introductions.
While bags were a big focus is both a brand awareness and product expansion play. We also continue the broader execution of our breadth and depth marketing strategy with a sharper focus on scale diversity and globalization.
Our partnership with the natural selection snowboarding series debuted in February with Yeti as the title sponsor of the first event in Jackson hole, Wyoming, and our ongoing engagement as a sustainability partner for the natural selections III stop series.
With the tour, we partner with globally were down snowboarder, Travis Rice and leveraged the unique global reach a red Bull television to bring awareness to the brand.
We're also proud that one of our very own ambassadors and our expanding roster of female athletes Robin Van gene was the overall winner of the series.
As always a true testament to how successful we are on our efforts comes from what others say about the brand for.
For the second consecutive year, we were named the Harris poll equity trend cooler brand of the year as well as the insulated drinkwater brand of the year.
Now on its 33rd year. This study measures and compares brand equity consumer connection brand momentum and more for nearly 2000 brands across 200 categories.
Fast company also named Yeti is one of the 10, most innovative branded companies of 2021, recognizing the brand for celebrating adventure and art with compelling creative content.
Success in the future for Yeti will be determined by a multifaceted execution, including how yeti approaches ESG and integrate these elements into our business.
We are committed to operating with responsibility and integrity warming, while making a positive impact on our employees customers partners and the market at large.
As part of these efforts yeti joined as a founding member of the outdoor industry associations climate action core with a commitment to measure and reduce our greenhouse gas emissions we've.
We've established our baseline and we'll set informed targets for our direct emissions later this year.
We also recently developed our chemical management program and published our restricted substances lift, which you can now find on our website.
More broadly we are on track to launch our inaugural ESG report by the end of the year.
At Yeti, we consider ESG part of the brand and product ethos and we expect it will continue to live inside all that we do just as it has from our start with our durability focus and built for the wild spirit.
Shifting over to product innovation came in several forms during the first quarter, while we obviously shine the spotlight on new product introductions, we continue to see a healthy level of demand across our portfolio, including prior year launches for example, the.
For the roadie 20 for hard cooler had a limited wholesale debut last year first due to the onset of COVID-19, and then demand driven inventory constraints. In 2021, we are seeing great demand for this opening price point hard cooler.
We also standardized on <unk> across our tumblers effectively upgrading those products and creating a new reason for a customer to consider or re engage in.
On color continues to be a powerful tool, it's stoking, new and existing interest across a range of products.
This spring, we were particularly pleased with the launch of our new prickly pear color way.
Bags were a clearer focus with the debut of three sizes of backpacks, two sizes of Duffels and two sides of the wheeled soft sided luggage.
<unk> by our go to market strategy. The lineup received strong recognition from a range of media publications.
Men's journal stated that right out of the box the precisely what you would expect from yeti solid sturdy handsome thoughtfully designed and so damn well made.
And CNN added we spent over a month with all the luggage to see which ones are worth your money and after plenty of packing weighing in carrying its safe to say these durable bags are top notch and ready for nearly any adventure.
In addition to bags, we launched the Rambler 46 ounce bottle, which is performing well and on trend given the desire for large capacity bottles. We also refreshed our spring apparel assortment, including continued evolution to introduce new more inclusive fits.
In the current quarter. We also debuted our limited release King crab Orange color way to a positive market response as you may have seen in the social sentiment.
Additionally, as mentioned last quarter, we will continue to rebuild channel inventory, particularly against sustained strength in demand as we execute across the key moms dads and grads gift giving season.
Moving to our Omnichannel strategy, we registered our fourth consecutive quarter of our DTC mix, surpassing 50% of net sales, reaching 51% of Q1 net sales.
We continue to see a significant opportunity at wholesale while our sell in numbers for the quarter show strong progress the ongoing velocity of sell through demand continues to drive year over year on hand inventory declines with many key accounts.
This balance of inventory replenishment versus demand will continue to be an important focus for our team as we move throughout the year.
Looking at our direct channels demand at Yeti Dot com was strong throughout the quarter and we continue to be encouraged by the healthy balance of growth across geographies, Inc.
<unk> great performance in the Pacific Mountain, and New England regions, where we've historically started from a lower brand awareness, but that is changing and we're seeing the results in growth.
Overall growth is being driven by strong increases in traffic conversion and a healthy balance of existing and returning customers.
Growth on the Amazon marketplace was also strong our corporate sales business remained healthy supported by our outbound sales structure and increased customization options and yeti retail and international E. Commerce are much more developed in productive today compared to last year. When they were closed for business due to the pandemic were not yet fully launched respectively.
As we think about further opportunities in our direct business going forward. We are progressing on two measures that we believe will support growth and drive increased digital relevance to the customer.
During the first quarter, we began applying machine learning across our consumer data platform through a series of email test based upon targeted customer cohorts and a focus on repeat purchase.
Early results around engagement and conversion are encouraging as we continue to adopt an agile method of test learn and implement.
This will be an iterative process with a goal to ultimately drive highly personalized experiences and messaging that resonates with the right customer at the right time.
These analytics will also inform certain aspects of our new mobile first ecommerce design thinking where modular design can ultimately be used to tailor the content and flow of the site.
Yes for your international continues to show excellent progress.
We're fired up about the triple digit growth during the first quarter, which pushed our international mix to 9% of net sales a new yeti hi.
Looking closer at our results our ongoing success in Canada, and Australia continues to affirm that both the brand and product translate well in many core loans elements of our brand and product strategy are relevant and effective globally.
In Canada, while the market continues to see COVID-19 related disruptions our performance remains outstanding on our DTC channel and wholesale is holding strong we.
We have also made significant strides in how we tell the yeti story through a localized lids in Canada, which we believe is driving increased relevance in consideration with customers.
As anticipated the debut of the National Hockey League license strength, where it was well received.
Moving to Australia, the brand evolution and unbelievable momentum is reminiscent of some of our historical U S growth fronts highlighted by first quarter sales totaling over half of last year's full year volume.
Our continued focus here will be on driving deeper customer awareness and penetration in the more population dense coastal markets.
In Europe, we launched five new local language e-commerce sites during the period, adding Germany, France, Italy, the Netherlands, and Ireland based upon our data and search analysis.
In addition, we accelerated our efforts to open wholesale doors across the region.
We now have over 250 doors, including double digit locations in 10 countries.
Our overarching approach across these markets is to ensure that we're excelling at the basics, whether that is leveraging global brand marketing, while adapting appropriately for greater end market relevance or partnering with dealers that authentically represent yeti to a growing range of customers to create new levels of awareness.
Before I turn the call to Paul for the financial details on a quarter as you may have seen ROI Cedars founder of Yeti has elected to step down from our board of directors.
Roy will continue to bring his passion and creativity advising our product development team as we build out our future innovation.
On to thank Roy for his support of the board through our transition to being a public company.
In closing I would like to reiterate for points first while COVID-19 disruptions persist we are actively supporting the continued strength of our supply chain.
Second strong demand for the brand and product remains firmly intact.
Third we are hyper focused on making the decisions to support scaling our long term sustainable global growth and finally, we are prioritizing investments that deliver on our digitally led future.
I would be remiss to finish without thanking our yeti team customers and partners for all they do to support our success.
I would now like to turn the call over to Paul.
Thanks, Matt and good morning, I'll start with a review of what was an incredibly strong first quarter.
Followed by thoughts on the balance of the year and our updated outlook.
We will then open the call up for your questions.
Net sales increased 42% to $247 6 million compared to $174 4 million in the prior year period.
Brand momentum was broad based across all channels.
We're very pleased with our execution during the period.
Notably net sales increased 36% for the first 10 weeks of the quarter net increased 66% for the final three weeks of the period against the beginning of the COVID-19 impact in the prior year period.
Looking closer at our channel performance direct to consumer net sales grew 59% to $126 8 million compared to $79 6 million in the same period last year.
Direct to consumer performance was driven by strength in both our coolers and equipment and drink wear categories.
All direct to consumer channels grew during the period with particular strength from Yeti Dot com.
This performance drove our direct to consumer mix to 51% of net sales for the period compared to 46% in last year's period.
Wholesale.
<unk> net sales increased 27% to $120 8 million compared to $94 8 million last year.
Wholesale performance was driven by strong growth across both our coolers and equipment and drink wear categories.
Sell through levels continue to outpace sell in for the quarter, resulting in channel inventory remaining down year over year.
By category drink, where net sales increased 32% to $148 9 million compared to $112 6 million last year.
Demand again was broad based across our drink for lineup of tumblers.
Models, mugs coasters and jugs.
This includes the ongoing momentum of newer products like our expanded coaster line and 10 ounce Rambler.
As well as vitality and our heritage Rambler sizes, where we have either standardized or improved our lit solutions with chubb caps and bottles and Mag slide as with tumblers.
Demand for customization also remains robust across yeti dot com and our corporate accounts.
Coolers <unk> equipment net sales increased 57% to $93 5 million compared to $59 $5 million during the same period last year.
The vast majority of this growth continues to come from the incredible demand for our hard and soft coolers across all channels.
We were also highly encouraged by the initial reception of our new bags collection that debuted in late February.
Internationally net sales rose, 146% for the quarter to reach nine percentage of total net sales.
Led by a more than threefold increase in Australia, as well as strong contributions from Canada, the UK and Europe.
Gross profit increased 57% to $145 2 million for 58, 6% of net sales compared to $92 5 million or 53% of net sales during the same period last year.
The 560 basis point year over year expansion was driven by the following favorable factors.
180 basis points from channel mix.
140 basis points from product cost improvements.
140 basis points for from lower inbound freight.
50 basis points from lower tariffs.
50 basis points from all other impacts.
Adjusted SG&A expenses for the first quarter increased by 36% to $101 4 million or 41% of net sales.
As compared to $74 4 million for 42, 7% of net sales in the same period last year.
The decrease of 170 basis points as a percentage of net sales was driven by.
Variable expenses that increased by 150 basis points.
Driven by the shift in channel mix towards our faster growing and higher gross margin direct to consumer channel.
And non variable SG&A expenses decreased as a percentage of net sales by 320 basis points on strong top line performance.
Adjusted operating income increased 143% to $43 8 million expanding.
Approximately 730 basis points to 17, 7% of net sales.
Compared to $18 million or 10, 3% of net sales during the same period last year.
Our effective tax rate was 21, 5% during the quarter.
Compared to 24, 4% in last year's first quarter.
The lower rate for the first quarter reflects a discrete income tax benefit coupled with our lowest volume quarter.
<unk> net income increased to $33 3 million with 38 cents per diluted share compared.
Compared to $9 9 million or 11 cents per diluted share during the prior year period.
Now turning to our balance sheet.
As of April three 2021.
We had cash of $193 million compared to $118 2 million in the year ago period.
Inventory declined 9% to $183 9 million.
Compared to $202 4 million during the same quarter last year.
A significant sequential improvement from last quarter as we continue our supply chain efforts to rebuild in stock levels.
Total debt, excluding unamortized deferred financing fees and finance leases was $129 4 million.
Compared to $346 3 million at the end of last year's first quarter.
During the quarter, we made principal payments of $5 6 million.
For the second straight quarter, we were in a net cash position as cash on hand exceeded total debt.
Now onto our updated full year 2021 outlook.
Supported by an incredibly strong first quarter and.
And our visibility for the remainder of the year, we are raising both our top and bottom line outlook.
We now expect full year net sales to increase between 20 and 22% compared to fiscal 2020.
For the balance of the year, we expect sales growth will be the strongest in Q2.
While we continue to expect double digit growth in each of the final two quarters, reflecting ongoing strong demand for the brand.
We continue to expect flat gross margins from the record 57, 6% level last year for some components have changed.
Our forward assumptions now include higher inbound freight costs.
In addition to an incremental $10 million and higher duties.
The higher freight assumption is largely consistent with what we are seeing in the broader market as COVID-19 continues to impact global logistics.
And we now expect these elevated shipping rates to persist for the balance of the year.
We expect the $10 million in higher duties for the balance of the year as Congress has not renewed our long standing trade preference program called the generalized system of preferences or GSP.
That expired at the end of calendar year 2020.
For Yeti this primarily impacts our hard coolers that we're historically source duty free from the Philippines.
Notably we did not include this impact in our original outlook in February.
Given GSP had been renewed 14 times.
Since its original adoption and $19 74.
And in February we were anticipating an impending renewal.
While we are still hopeful Congress will act to renew GSP.
At this point in the year, we felt it prudent to incorporate this cost into our updated outlook.
Should GSP be renewed during this fiscal year, we would look at this as upside to our gross margin outlook.
Fully offsetting these incremental pressures.
We see several additional positives versus our prior outlook in February.
These include.
Our better than expected Q1 performance.
Greater than planned product cost improvements.
While offsetting current raw material pressures.
And better fixed cost leverage on our new top line outlook.
From a cadence perspective, we expect gross margin expansion in the second quarter.
Follow by contraction in the back half of the year given the combination of the exceptionally strong comparisons from last year's third and fourth quarter.
Now the the inclusion of the GSP impact and higher freight.
Again, we expect full year gross margins to hold strong at a record 57, 6% achieved last year and.
And plan to exit the year with a fourth quarter rate exceeding that full year level.
With SG&A, we are now planning for dollar growth in line with sales growth.
We continue to expect full year variable expenses tied most directly to our faster growing and higher gross margin direct to consumer channel will grow slightly faster than total sales.
We expect full year non variable expenses to grow slightly slower than total sales.
Even as we made key investments in areas, such as digital international and product development.
Partially reflecting the timing of cost containment efforts last year during the start of the pandemic.
We expect the second quarter growth rate will be modestly higher in the first quarter, followed by easing growth rates during each of the subsequent quarters.
These factors are expected to yield an improved adjusted operating margin outlook of approximately 25%.
About 50 basis points above our initial outlook and on par with our record performance last year.
We expect adjusted operating margin to be approximately flat in the second quarter.
Lower year over year in the third and higher year over year in the fourth quarter.
The effective tax rate for fiscal 2021 is now expected to be approximately 24% given.
Given the slight benefit to plan in the first quarter.
Based on full year diluted shares outstanding of approximately $88 5 million we.
We expect adjusted earnings per diluted share to grow 22% to 24%.
To between $2 28.
And $2 32.
Compared to $1 87 in fiscal 2020.
As we think about uses of cash this year, we remain heavily focused on working capital and investments in inventory.
With the tireless efforts of our supply chain team, we continue to fight the COVID-19 impacts on our global supply chain and are actively managing and monitoring what remains a very fluid environment.
In spite of this our current visibility shows an improved inventory position for the balance of the year as compared to our original forecast.
Including positive year over year inventory growth starting this quarter.
And to give you perspective.
We expect two year inventory compounded annual growth rates to be in the mid teens range using fiscal 2019 quarters as a base.
On the capital expenditure side.
We continue to see a range of $55 million to $60 million for the year.
Primarily reflecting technology upgrades to support our business growth.
Including continued enhancements to SAP.
Website optimization and enhanced data analytics capabilities.
As well as spending to support commitment to new product development and innovation.
All in all this was a fantastic start to the year for Yeti.
And I am incredibly proud of the ongoing work of our team as we execute and persevere in this environment.
This includes the incredible progress on many of our key investment areas.
Helping yeti sustained both near term momentum, but also setting the foundation for future growth and vitality of the brand.
With that I would now like to turn the call back over to the operator to take your questions.
Okay.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad.
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To allow for as many questions as possible, we ask that you each keep to one question and one follow up thank you.
Our first question comes from the line of.
Camilo Lyon with BTG. Please proceed with your question.
Thank you and good morning, everyone and congrats on a very strong start to the year.
My first question is on inventory and Paul you just give some color here at the end of your remarks.
On the toy down 9%.
Speaking about impacts from supply chain.
All in the context of very strong demand that showing that is showing no signs of ebbing.
Can you talk about how the inventory slows.
Our expected to unfold for the balance of the year is there any sort of the.
The choppiness or fluctuations that we would expect to see.
On the Q for the balance of the year.
And how that might impact.
On your ability to continue to meet this demand.
Both DTC and wholesale and then my second question on the international components very strong results now about 9% on the business can you tell us about the margin composition of international and how would you think about the continued growth rates of that of that of that segment. Thank you.
Great. Good morning, and thank you so on inventory in the supply chain, we're really happy with our efforts.
Existing 2020 and throughout the first quarter so too.
Just to restate the numbers, while we ended down 9% year over year as of 31% sequential increase.
Off of Q4 last year at this time was plus 9% sequential increase so we're really able to build inventory ahead of our plan, while also delivering over delivering the top line relative to our plan. So we're really happy where we.
We sit today, even though we're down year over year, beginning in second quarter, we will turn positive.
As we lap the big negatives of last year, and it's why we wanted to give color on a two year CAGR basis, and as we said will be in the mid teens low to mid teens throughout the rest of the year.
For Q1, it was plus 6% on a two year CAGR, even though was down nine year over year.
So we're really.
Comfortable and excited about building back that inventory into a into a strong <unk>.
Position clearly as we go into Q4.
Ending Q3 will be on a single year basis, probably our highest growth rate year over year, but in the two year stack similar to that mid teens on international.
And the margin profile.
We like.
And the business International in total if you think about Canada, Australia Europe the margin profile is.
It's very similar certainly at the gross margin rate and then as you get down to contribution margin.
In the smaller markets. So as we start up Europe, and the U K, we don't have the leverage or.
For the scale there yet as we do in Australia and Canada.
As that business continues to grow it we're really excited about it and like the.
The way, we've operated that business from a margin profile.
Thanks, if I could just ask one follow up on that inventory.
Are you at all planning to constrain that demand.
To perpetuate the sell through exceeded sell in.
I recall that last year in the similar late similar to early fall you were cigna.
Significantly below your cooler inventory than what the market was demanding so just curious to see how youre planning on balancing demand versus what we have been supplying how you plan on how are you.
How do you really want to kind of continue to maintain that <unk>.
Demand outpacing supply situation, how that should play out.
It can balance as Matthew.
What I would say is we're really focused on the health of our existing wholesale partners inventory positions and ability to meet that demand. While also understanding we have a fast growing DTC business.
I think the thing that you would see as we play out throughout the year is.
Less less focus which has historically been our approach, but less focus on any type of expansion and more focus on getting our wholesale partners and making sure that we have our D to C business well supported from us from a supply perspective too to continue to meet the rising demand that we're driving through our.
Breadth and depth marketing strategy.
Got it congrats on a great start thanks, so much thank.
Thank you.
Thank you. Our next question comes from the line of Randy <unk> with Jefferies. Please proceed with your question.
Yes. Thanks, a lot. So one thing I want to go for was the international.
It looks like you.
You got 300 basis points incremental penetration in only a quarter.
Are you doing a better job on or give us some perspective on what youre doing to improve fulfillment there.
Just like overtime as were seeing nice acceleration in that international how do you. What do you think is like a good.
Kind of.
Near or medium term ballpark goal to get to from a penetration standpoint, they're recognizing you're working on fulfillment in the backend.
Getting supply to the international markets.
Yeah, Randy it's it's not unlike.
What we've seen is we've built out a built out the U S market and we have internationally, if I were to kind of bucket it in three markets.
Talk a lot about Canada, Australia, and Europe as those as those three markets. There are different stages of their maturation and what we're seeing is that as we have established in Australia and as we have established in Canada. Since 2017, what we're seeing now is the benefit of that growth acceleration as we have.
Store penetration as we've matured our e-commerce businesses and as you said as we've as we matured our supply flow understand mix understand in market in market demand and I think youre seeing that and we mentioned on the call.
Particularly in Australia, the incredibly strong growth we saw on the first quarter that matched match near full year demand.
Of last year, and so I think that that growth has been.
Been really strong and the receptivity to consumer in Europe were earlier on that that expansion as we mentioned on our call building out our points of distribution at wholesale which was slowed last year by COVID-19 also building out the maturity of our infrastructure and our supply so.
We feel great about how that business is positioned for forward growth what it can become I think we're still we're still sorting through how big those markets are we like the end user in many of those markets. We like the size of those markets. When we look at them relative to the U S market and how they index to the U S market.
We think there's a lot of opportunity to continue to expand our international footprint.
Great and then.
On the backpack and bags side of things on.
On the one on one of your bags backpacks and when it's amazing.
You are constraining it sounds like the.
Demands constraining the sales of that somewhat.
And there's still exclusively yeti dot com.
Can you give us some perspective on how you're thinking about that product category in terms of potential.
And at distribution.
Turning to wholesale or what have you and maybe some of the learnings you're getting in something like a category like this which basically solidifies the view that yeti is a brand.
For everything right, so kind of give us some perspective on what Youre learning there around the sales bag product distribution and what I can tell you about the opportunity from brands extend to other categories going forward. Thanks.
Yes, I would say a number of a number of learnings we went in as we've talked about on prior calls with a very purposeful approach to the launch of bags.
Went in with a different approach to broad based awareness and broad based kind of both for the brand expansion and the product expansion into the category and we think our learnings from that is there is a real receptivity on appetite from the consumer to Yeti is expansion into bags. We also went into it with the <unk>.
Idea that we wanted to give our supply chain a chance to mature and grow into what we think is a really exciting category for yeti and youre seeing some of that with our in stocks in out of stocks, which is the build into it and then the third pieces. We also we're engaging as the world reopened and is travel resumed and Theres a lot of talk about it now and we're starting.
To see the movement of people domestically and the talk about international travel that we think we're still on the front end of that and so we've taken a very measured and paced approach to that rollout to the ramp up of our supply chain.
But had our marketing and our brand building really run in front of that to build up that demand and so what we're excited about the category. We're excited about the receptivity. We've mentioned in the prepared remarks from some commentary we've received from the market on reviews, the bags and I think it's a category that as we.
Step into it.
<unk> has real opportunity, but will also give us a lot of <unk>.
Not only confidence but also.
Approach and thought to how we continue to expand into other product families.
Very helpful. Thanks, guys.
Thanks Randy.
Thank you. Our next question comes from the line of Robbie <unk> with Bank of America Merrill Lynch. Please proceed with your question.
Hey, good morning, guys two.
Two questions one for Matt first and then.
Another one for Paul but Matt.
On the hard hard and soft cooler business was called out.
It sounds like the momentum there is great can you kind of talk through is it are you seeing a lot of repeat customer purchases or is it new customers coming into the hard cooler business for there.
Is there a bigger response to new colors, there and kind of how should we think about the momentum in the cooler business.
Yeah, Rob I would say a couple of things as it relates to the hard and soft coolers as they continue to be strong performers as we said at the beginning of the year. The majority of the growth in our coolers <unk> equipment category. This year was going to be driven by those hard and soft coolers. We didn't we didn't place a massive bet on bags being that.
That growth driver so.
Youre read was correct that that growth is really those products continuing to perform very well I think as we think about that.
New versus existing consumers.
Our best data points as the data we get from from our own E Commerce sites and what we said in the past and we continue to see in Q1 was a really nice balance of new versus returning customers. We're not seeing a fundamental difference in purchase behavior and mix were starting to come into the time of year, where we acquired.
A large number of customers last year as we went into Q2 through Q4 of last year and that's something we're focused on is not only new customer acquisition, but retention and driving repeat purchase and Thats a big part of why we made the investments starting in 2020 and into 2021 around our data analytics and advanced analytics work.
Gotcha.
Really helpful and then Paul.
The gross margin was pretty amazing this quarter, if you exclude that.
The information you gave us on GSP and the freight pressures on everything.
And you sort of assume that goes away.
Is there a what is how are you thinking about the long term gross margin opportunity for Yeti now is it is it higher than than ever can you give us any color on what the long term gross margin target might be today, given what you achieved this quarter.
Yes, so thanks Robin good morning.
I'll reiterate a couple of things that we've said in the past.
Don't see this there is no ceiling as we hit 58 or 59 that.
In the business or in the model that Thats a ceiling.
As we look forward as we've talked about we're going to continue getting gross margin expansion from.
Channel mix product cost improvements and those are going to be offset by investments in the business.
And then any other any other headwinds in this case higher freight the inbound freight the GSP I think will either happen or won't it will be renewed or not.
But we believe that a sign of a good business as a healthy gross margin and.
And we want a balance as we let that gross margin expansion flow through how do we reinvest in the product.
And we have those conversations.
Equally about adding adding value into the product to differentiate itself. There is no natural ceiling, we don't have a new long term outlook on gross margin.
But we really like the way the business is is the levers that has from channel mix product cost improvements and then that gives us the ability.
Team to talk about how do we reinvest in the product.
That's great. Thanks, so much guys.
Thanks Ravi.
Thank you. Our next question comes from the line of Peter Benedict with Baird. Please proceed with your question.
Hey, guys.
I guess, Matt you mentioned brand awareness.
Some pockets of growth I guess in some of the northwest northeast can you maybe build on that a little bit give us a little sense of what youre seeing and.
Related to that I'm not sure if you've got brand awareness.
And some of these international markets, taking Australia, Europe et cetera, maybe how those are trending at this point relative to your expectations on my first question.
Yes, we'd see Peter a couple of things on the I'll start with the international markets.
It is still early from a brand awareness perspective there.
While we're excited about the 9% of.
Sales were excited about the velocity of growth we're excited about receptivity.
I would I would say our brand awareness is still low and that's a great. That's a great scenario that we're seeing the momentum we are in Australia and Canada in particular.
And we would we would say our brand awareness continues to be low and we continue to be discovered every day, which I think is why and I mentioned that.
The growth acceleration, we're seeing in Australia, where the first quarter was equal to half of our half of last year's full year I think that is really driven by.
That momentum we're building in that discovery not unlike some of those early day runs as I mentioned, we saw in the U S.
But that's that's something as we mature in those markets and as the stats would start to make sense, we'll start to measure a little more deeply in the U S. As you know we've been we've been tracking it for some time, we continue to see you.
Year over year broadly kind of tick ups in awareness.
That's what's nice about the progress we've made over the last five years is that increase in brand awareness continues to be kind of a consistent a consistent step up.
<unk>, which is balance with work not only getting new customers in making new customers aware, but we're driving new purchase with a really healthy balance of repeat and existing customers.
So I called out those regions because of the regions that.
Five years ago, where the most underdeveloped and we were the most undertone, we spent a purposeful effort and making sure that as we broadened our pursuits and activities as we broaden our ambassadors as we broaden our media reach that we're targeting those markets and we're seeing the results of it but broadly speaking across the U S. We continue to find good good.
Growth in all the regions in which we're operating.
Okay, Great. That's helpful and then just on the international.
Obviously, a super strong growth there in the first quarter.
Any reason why maybe call it triple digit type.
Growth can't persist over the balance of you on the second half of last year. It got stronger, but just trying to get a sense for maybe where that business could land this year.
And what are the infrastructure investments that youre, making there when you talk about some of the marketing stuff on the brand positioning et cetera, but just from an infrastructure standpoint, maybe.
Fulfill our supply those markets. What's what are you doing on that whatsoever, what's on tap for the next couple of years in order to make that business run optimally. Thank you.
Yes.
Peter sitting here today, we don't see anything that.
Would would be a headwind to that growth for the rest of the year I mean, we were still.
Really building out our European footprint.
And we like really like what we're seeing on the DTC side out of our broad European market similar in Australia, and Canada, where there are more developed I would say from an infrastructure perspective in Australia and Canada.
What I would call fill in type things, we have the we have the logistics, we have the D to C to support the fulfillment what we're doing is now bringing more targeted resources, whether those be incremental brand folks.
The add of e-commerce expertise or additional expertise in those markets to keep stoking stoking those businesses.
Europe is a little more underdeveloped.
We're fully operational but what we're looking for in Europe is on.
We're continuing to increase our logistics and fulfillment footprint continuing to drive demand.
And then also the continued build out as we mentioned on this call of our E Commerce platform. So in local language sites and markets.
Use some of our analytics and insights to determine what markets. We build local language sites and we're going to continue to do that to make sure that we're addressing the consumer in a direct and relevant way.
Yeah.
Excellent. Thanks, so much on that.
Thank you.
Thank you. Our next question comes from the line of Wendy Nicholson with Citi. Please proceed with your question.
Hi, I had a couple of questions on sort of follow up on the luggage launch.
Number one can you talk about luggage and the impact on gross margins I know, it's teeny tiny, but still sort of structurally have you thought about how have you thought about the impact of luggage on the gross margin kind of over the longer term can you kind of continues to grow and then just going back Matt to your comments about inventory management on luggage.
Totally get that you're in learning mode, but we check the website.
Often and it just seems like so many of the Skus, particularly on the backpack side are just persistently out of stocks. So do you risk.
Alienating consumers not being able to meet demand on people going elsewhere et cetera et cetera. How are you thinking about that just in terms of net.
Can you share your sort of living up to the potential of the launch thanks.
Good morning.
I'll start with the gross margin and then I'll talk bags overall crossroads bag not specific to logging for crossroads bags bag category overall.
So overall as we think about bags inside of coolers and equipment.
Gross margins are to the category in line slightly accretive so.
That's positive to that to the category and just stepping back as we think about and we've talked about this in the past as we think about gross margins.
Our as we look at new products, the first pass or the first.
Thought gate isn't gross margins right now as the CFO I will tell you it is important to us.
But thats not the driver we price we're a premium priced.
Brand.
So we think about pricing, we think about pricing in the market and then we work on the cost side as far as efficiency and things of that nature, but directly to your question the bags grew.
Gross margin is.
Equal or accretive to coolers and equipment overall.
Okay.
We need to the question on on the <unk>.
<unk> ramp of our suppliers.
Youre right and as I said, we've gone in and out of stock.
I'd ideally like to be in stock at all at all times, but I think the the.
The Big thing for US is this is a new product family that we ramped and built through the COVID-19 youre, 100% remotely ramping up a new supply chain and a new factory and I think the team has done an incredible job of making sure that it delivered on all the things that was supposed to.
Quality the product the design getting the supplier up in a healthy way and it's something we've done we've done completely remotely.
So we took a we took a conservative approach to how that ramp up happen to make sure that we.
We werent put ourselves in a position, where we ramp too fast and we're restricted on how our team could directly engage as the world continues to reopen as we can more actively.
And directly engage with our factories will continue to turn that we'll continue to turn that dial.
We're focused on right now with our marketing around bags to continue to drive education and to drive awareness and to drive consideration. So that as travel starts to resume as we get into the summer and people, whether they take closer on vacations or start to get back on airplanes.
We're top of mind, so we're not worried about.
A sale last sale in the near term, we're worried about engaging consumers who have a passion for the brand and understand that product.
Being ready when when we're fully in stock on the site.
Fair enough sounds great. Thank you so much.
You.
Thank you. Our next question comes from the line of Sharon Zackfia with William Blair. Please proceed with your question.
Hi, Good morning, two questions Paul I Might've missed this but did you quantify what you expect for logistics pressure to be this year now and then secondarily I guess, just given the strength youre seeing across channels and products and now globally.
Is 10% to 15% really the right long term growth algorithm for the top line or are you guys now thinking on your sustainably somewhere higher.
So we didn't.
Sharon we didn't quantify.
The inbound freight it's I can tell you its slightly less than what we had for GSP.
So it's in that it's in that ballpark.
And the reason we didn't give an exact number as we think about GSP if that gets passed that will come back.
I think the inbound freight is certainly for this year as we look out at the market is here for the remainder of the year.
It's a great. It's a great question on.
Top line and long term and certainly.
If you look at our history back 2018, plus 22% and a plus 17 last year, plus 19, and we're 20% to 22% this year.
Similar to gross margin, we are not ready to update our.
Long term outlook for sales.
Happy with the 20% to 22% this year and really the momentum behind the brand.
Thanks, Paul I'm ready when you arent, just when you're ready to update that let me now.
Thanks Darrin.
Thank you. Our next question comes from the line of Alex <unk> with Bamberg. Please proceed with your question.
Good morning, guys. Thanks for taking my questions. There's been a lot of news recently about Amazon cracking down on counterfeit and low quality products have you helped them at all with this initiative and do you anticipate any material benefits coming from it.
Alex It's a great question, we have talked in the past we have a very active brand protection team. We've been very active domestically, we have been very active globally.
On one of the one of the things that we announced in this was back on.
I think in June of 2019 was our partnership with Amazon as it relates to cracking down on.
Third party sellers of counterfeits, and so we joined with them in a unique program to focus on that and then in addition, we scour both the domestic and global marketplaces and websites and we've had a lot of success I would say it's.
We wouldn't we wouldn't put it in.
In the numbers and say, we can tease out the benefit from that from a from a sales perspective, we definitely believe it's important as we continue to defend our intellectual property defend.
Our brand and that's why we do it but we have a we have a good partnership there.
Thanks, Matt that's helpful. And then just a follow up real quick on a lot of these supply questions.
For people who've been asking about the luggage in particular, where is that currently manufactured and do you think you can expand the manufacturing base to places like Eastern Europe, or South America for it. Thanks.
One of the things that we look at with our supply chain is a constant evaluation of.
The best locations to manufacturer from a strategic perspective, we have a global supply chain from from <unk>.
Now almost many many points of the world across all of our products.
I think as it relates to bags in particular, we previously talked about those are products that we moved out of China.
Merrily into into other markets in southeast Asia.
There is a ready supply base for for expansion. We also are very happy with our current suppliers and believe that they can scale as we continue to scale and expand that product portfolio on growth, but we have a very active sourcing and supply chain, but very active and very talented team that continues to make sure. We're in the best places to manufacture our products.
For optimization of design and quality, but also logistics and delivery.
Makes sense. Thank you.
Thank you. Our next question comes from the line of Cologuard.
Credit Suisse. Please proceed with your question.
Hey, everybody good morning.
On the there's been a line of questions, you've obviously put up quite a bit of momentum. There has been a lot of questions on supply can you maybe just talk about how you're thinking.
Thinking about reopening and if it may be bending the arc of your growth in one direction on the other end and then how youll manage supply around that.
Just to clear when you say reopening are you.
Talking specifically about the kind.
Got it.
The economic reopening we're seeing really everywhere.
May just be shifting what your growth looks like for them.
Just on this quarter versus what we might be looking at for the next year or so.
Perfect. Thanks.
I would say when we think about the reopening in one of the things we said on previous calls and I think it's a.
Our strong position for our brand in a strong position for our.
Product portfolios, we were able to evolve and take advantage of the.
The pandemic as people were at home or they were more solo outdoor pursuits as the world Reopens and some level of normalcy comes back whether those are commutes or group gatherings are.
Sideline sports on the weekend, we think our brand is well positioned on getting our product is well positioned to follow the consumer.
We're not a pickup and put down.
So that type of product portfolio or brand so our coolers, our cups on our bags can travel with you as as you're.
Kind of or as People's reopening evolution happens. So I think that's I think that's one of the things and we talk a lot about this that we will continue to adjust how we position and how we market to what's happening and where the consumer is at that point, we did it last year. When it was highly disrupted and we will do that is as the world reopens.
Okay got it and then the improvement in gross margin from the <unk>.
Reduction in product cost is that a structural improvement, perhaps more intelligent ways of how your tooling it.
Or maybe raw material prices could you maybe provide a little more detail on what was behind that piece of the gross margin improvement.
Sure I'm going to stop.
With what it is not so what it is not is taking durability out of the product taking quality out of the product changing the spec for those for those items. That's what it is not.
But it is a couple of things that you mentioned its efficiency.
Is.
Leveraging and I'll use this quarter as an example of leveraging our 42% topline growth to drive efficiencies to two share in fixed cost leverage that our manufacturers.
Would enjoy with that level of growth.
It is operational and reducing scrap will will give us product cost improvement. So it's all those different pieces that go into it again, what it is not as taken quality and durability out of the product.
Okay got it so it sounds structural ongoing non temporary correct means fair yeah. Okay. Okay, great. Thank you.
Thanks.
Thank you. Our next question comes from the line of Kimberly Greenberger with Morgan Stanley. Please proceed with your question.
Okay, great. Thank you so much good morning.
Did you ask about revenue and if there are.
With any revenue.
You talked about that huge acceleration in the last three weeks for the quarter any revenue shifts for example out of Q2 into Q1.
That might have distorted that growth rate or is it just simply that you are lapping the beginning beginning of COVID-19 last year and that's that's what you're seeing as you begin to lap.
And then my second question on revenue I, just want to make sure I heard you correctly call. It sounded like you were saying second quarter revenue growth is expected to be higher than first quarter, which then easing growth in third quarter and again in the fourth quarter, but still double digit and each in each of those two quarters. So if you could just make sure that my understanding.
That's correct that would be correct.
Sure Kimberly on your second question.
So what I said was of the remaining three quarters, so going forward second quarter would be the highest.
Growth rate and then.
Second half would still be.
Double digits, so I wasn't comparing it to the first quarter as comparing that.
Last three quarters relative to each other.
And then on your first question about the first 10 weeks and then the last three.
That wasn't anything on shifting of timing it was really just to give.
Investors and all of you a look at our pre COVID-19 impact versus our coast post COVID-19 impact as we did last year in the first quarter. So.
Before we were rolling over shutdowns.
We were plus 36, so what.
I wanted to share with all of you is this wasn't day driven by the last three weeks certainly higher than the first.
10 weeks, but this wasn't in the last three weeks driving the quarter, we were plus 36 going into when we started lapping those shutdowns.
Very clear thanks, so much thank you.
Thank you. Our final question. This morning comes from the line of John Kernan with Cowen. Please proceed with your question.
Good morning excellent core.
Thanks for taking my question.
So.
Most of my questions have been answered I'm, just curious in terms of the upside in Q1 and the guidance increase for the year Q1 is your.
By far your smallest quarter of the year from a revenue perspective.
What's driving the.
<unk>.
<unk> side for the full year guidance and really upside in Q1 for any specific category geography.
Product that came in above expectations.
And anything we should look for.
For the remaining nine months from our brand activation standpoint, marketing standpoint that you're looking for you. Thank you.
Okay. So I'll start.
The first link first quarter results to your question on the balance of the three quarters.
The results on the first quarter were broad based and as we look out at the year. We continue to see from the first quarter strong demand for the brand.
And if you look at our outlook.
With the first quarter, we now expect the balance of the year to be in that if you do them at 16% to 18% so slightly above our full year guide of 15 to 17, and it's really that strength that we've seen in Q4 that we saw in 2020, but it is it is broad based.
Demand for the brand and I'll, let Matt hit the second piece of that question.
The biggest thing that.
We're prepared for a world that is going to reopen a bit more through the summer and hopefully through the fall.
But the biggest the biggest evolution there as we spent last year once dependent on kit and a highly digital world engaging consumers in a digital way one of the things we look forward to this year's.
When it is when it's possible and when it's safe to start driving some of our offline.
Re engagement with consumers and customers and getting out there as activity start to resume as gathering start to happen and so we've got a team thats that has kind of a dual track plan on the on the brand activation and marketing side, both domestically and globally, which is we will continue to operate well.
Believe successfully in this digital world, but.
Minute, we can start getting people back out and.
Activating at events engaging with some of the incredible partners, we have as they bring back their events, we're pretty excited to do it.
Understood. Thank you.
Thank you, ladies and gentlemen that concludes our question and answer session I'll turn the floor back to Mr. Ryan just for any final comments.
Thanks, everyone for the time. This morning look forward to updating you as we as we come back together for our Q2 call.
Thank you. This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation.