Q2 2021 Yeti Holdings Inc Earnings Call
Thank you for standing by this is the conference operator.
Welcome to the Yeti Holdings second quarter 2021 earnings Conference call.
As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation there'll be an opportunity to ask questions to join the question queue. You May Press Star then 1 on your telephone keypad.
Should you need assistance during the conference call you May signal, an operator by pressing star Zero I would now like to turn the conference over to Tom Shaw Vice President of Investor Relations. Please go ahead.
Good morning, everyone and thanks for joining us to discuss Yeti holdings second quarter 2021 results forward.
Before we begin we would like to remind you that some of the statements that we make today on this call, including those statements relating to the impact of the COVID-19 pandemic on our business may be considered forward looking and such forward looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements.
For more information please refer to the risk factors detailed in our most recently filed quarterly report on form 10-Q, and the form 8-K filed with the SEC earlier. 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.
Conciliations that 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 a lead in some of our financial discussions as we believe they more accurately represent the true operational performance and underlying results of our business.
Today's call will be led by Matt Righteous, President and CEO of Yeti and Paul Carbone CFO.
Following our prepared remarks, we'll open the call for your questions.
That I will turn the call over to Matt.
Thanks, Tom and good morning, Yeti had a remarkable second quarter with sales increasing over 40% for the second straight quarter. This performance continues the trend of high demand for the brand during the start of summer in the gift, giving celebrations of moms dads and grads disc.
This Q2 was punctuated by the broader return to some pandemic disrupted activities such as travel and the continued trend and people looking for active outdoor adventures.
Several key elements continue to drive our results.
It all starts with our unrelenting focus on designing products to deliver performance durability and versatility to support new activities since the pandemic and for the activities disrupted during the pandemic.
Great product comes to life through relevant and impactful brand and product storytelling.
Our incredibly talented team of in house creative continues to find unique and meaningful ways to build connections with customers globally and across a wide range of outlets from digital to in person experiences amplifying the strength and heritage of the brand.
And finally in an increasingly digital led world, we continue to make strategic investments in data analytics, and our technology stack to better personalize, the consumer journey and engagement with yeti.
As we turn to the second quarter or 45% net sales growth was ahead of our expectations with strength in the quarter across all our channels.
Those channels most impacted by the prior year's COVID-19, disruptions as well as channel such as Yeti Dot com that saw incredible strength in the year ago period delivered in the second quarter.
Indeed, a C. We posted 48% growth on top of last year's increase of 61%.
This included strong performance through mother's day and father's day as we highlighted the range and relevance of our product portfolio. While also earning impactful media placement across key outlets from the New York Times in Chicago Tribune to Vanity Fair, Vice and C N N.
We saw significant growth during the quarter in wholesale where we continue our efforts to replenish inventory to support the ongoing strong demand in the channel.
Finally, we tripled our international revenues in what was our largest net sales quarter to date for this business as we continue to see the penetration of the brand even amidst the ongoing pandemic challenges and many of the international locations.
This top line performance drove better than planned profitability with adjusted operating margins, expanding 160 basis points and adjusted EPS growth of 66%.
Importantly, this top to bottom performance was driven by the dedication creativity and passion of our employees and partners powering through the ongoing pandemic, resulting in another strong quarter for yeti.
Before we touch on progress around our 4 strategic growth priorities I want to provide some color on our focus for the balance of 2021.
Well, we unequivocally believe today is that overall brand demand is incredibly strong.
Capitalizing on a continuing influx of new customers and returning brand advocates and we're better equipped than ever to reach new global customers.
At the same time global supply chains remain incredibly challenged and strained despite.
The ongoing supply chain disruptions, including cost and transportation pressures.
Our team continues to do a remarkable job managing and mitigating to minimize the impact while we continue to focus on growth.
Most recently, we have seen the government mandated shutdowns of 1 of our soft coolers suppliers in Vietnam as a result of the ongoing impacts of Covid.
While our prior work to drive supplier, but dundon see in key product areas helps our ability to absorb this type of temporary disruption the shutdown does underscore the inherent volatility that lingers globally.
As evidenced by our results and updated outlook, we're managing through this overall backdrop, well and will continue to tighten our grip on what we can most directly control.
We remain focused on servicing the tremendous momentum heading into the balance of this year to ensure we drive growth this year and beyond.
As it relates to our key growth priorities I'd first like to discuss our brand efforts.
For the quarter, we continue our multifaceted depth and breadth marketing strategy.
Partnering with incredibly talented ambassadors and organizations to support our depth in a wide variety of active outdoor pursuits.
<unk> bye breadth across our online and offline media partnerships and our recently restarted in person Activations, which connects us directly with consumers.
We believe the uniqueness of this approach spanning broad reach efforts in very directed and specific consumer engagement is part of the continued advantage of yeti brand effectiveness.
Looking at some examples we once again celebrated national barbecue month in May.
This includes sharing yeti ambassadors tips from the pit and recipes ranging from pork belly burnt ends just spare ribs on our social channels and the highly anticipated return of Memphis inmate Barbecue Festival.
Yeah.
The success of mother's day and father's day showcased how we built upon last year's efforts to spotlight special occasions through gift curation storytelling and product customization.
As we did in 2020, we once again highlighted our small independent wholesale partners through our mom and pop shops campaign.
And this year, we released a short film of Yeti cofounder Roy Cedars interviewing 1 of our first retail partners tackle box outfitters in San Antonio Texas.
We also began to see a return to in person consumer experiences and brand Activations. This quarter in June we attended the mountain games in Vail for the first time since 2019, displaying and selling product to 56000 consumers who attended while promoting the reduction of single use plastic in the process.
In addition to our mobile retail store. We also featured 2 large water silos that distributed over 600 gallons of water throughout the 4 day event equivalent to 4020 ounce plastic bottles.
With the February launch of our Crossroads bags collection, we engaged our ambassador network to support the launch through the development of social content and videos in.
In addition, we partnered with Hite Beast to develop content and brand placement of bags, featuring our first skate ambassador, Jeff rally and showcasing product highlights, including our Tuscan nylon.
Our yeti dispatch <unk> continues to be a powerful and productive tool to showcase our product and tell yeti experience stories.
This spring we expanded our initial April mailing of 1 million Mag logs with an additional 1 million unit Rotten inmate targeting prospects.
This content serves as a great introduction to the brand and product portfolio, while driving conversion.
The return on this catalog investment continues to remain meaningfully above industry standards.
Moreover.
We continue to find ways to bring this amazing print to life digitally with content available across our social channels and on Yeti Dot com.
And finally, we were excited and honored to kick off our Austin FC partnership as the official Jersey sponsor of Austin FC and they're a nagra season in major League soccer.
This partnership is an important and impactful way to support yeti hometown, while driving reach and exposure as the front of Jersey brand our visibility on the Verity and black jerseys has already carried us to audiences in 7 key urban markets throughout the U S and has been shown on 7 nationally televised matches.
On the product side, our second quarter focus was on amplifying our 2020 in Q1.2021 product introduction, while working with our supply chain partners on ramping supply.
Demand for hard coolers, including our roadie 24, which launched in the first half of 2020 continued to outpace supply.
We remain focused on building inventory across both hard and soft coolers and anticipate these levels will continue to be pressured as demand outstripped supply throughout the second half of the year.
Drink where growth accelerated in the quarter supported by strong demand improved inventory positioning and great momentum in our corporate sales business.
In the current quarter, we had a full online and offline marketing launch of our fall colors, along with the product we have some incredible digital stories about the inspiration for these colors that will be rolled out through our digital properties and social.
We introduced yeti thin ice in July which is optimized to fit into our soft cooler and have 2 new iterations of drink Ware with Rambler 18 ounce hotshot and the larger sized rambler 64 ounce bottle coming in August.
In the weeks ahead, we're excited to introduce our travel mug now delivered and 20 and 30 outsiders, including an updated lid.
We're also introducing a great functional update to our highly regarded top selling Camino carryall tote with enhanced organization from a new pocket and to deployable divider on each side of the bag.
We will also officially occupy our new soft goods design office in Vancouver next month, which will provide full sample, making patterning and prototyping capability for our design team.
Supporting our brand and product efforts, we continue to leverage our channel strategy to achieve the growth, we expect from DTC and wholesale with each exceeding 40% growth in the quarter.
DTC represented 55 per cent of our sales mix for the quarter and we saw a range of positive gains across our direct business.
Given the varying comparisons from last year's Covid impacted period.
Yeti dotcom delivered very solid growth on top of triple digit increases last year, including growth across all domestic regions.
As it relates to our data analytics progress.
First we greatly enhanced our data platform with the ongoing shift to a digital first customer we have made the investment in talent and capabilities over the past 2 years to create a data framework to better understand our customer behavior.
Second.
We are using this platform to gather key insights into the business.
High level data shows our Q2 online business was driven by an increase in both unique customers to the site and revenue per customer.
In addition, the quality of our new and returning customers is strong both in terms of retention rates and in the average value of each customer.
This is yielding both higher sequential and year over year customer lifetime value.
Finally, an enhanced data platform enables more sophisticated approaches to interact with our customers.
This includes leveraging machine learning to understand the most relevant purchase journey.
We are ramping up our efforts here and have already seen promising results. This quarter in terms of optimized customer reach expanded product consideration and conversion.
Ultimately, we expect customers to receive an enhanced personalized experience that will drive both improved engagement and conversion for the brand.
Across the rest of day to see the Amazon marketplace business continued to perform well, particularly as we cycled against some of last year's disruptions.
Corporate sales capitalized on increasing trends seen in back to work and employee giving.
Our increased customization capacity expanded color options and an enhanced service structure also supported our success here.
Finally international DTC and strength in Yeti owned retail continued to build momentum and are beginning to more meaningfully contribute to the overall business.
At wholesale we remain focused on driving inventory replenishment and merchandising productivity with our existing partners.
Consumer demand in the channel was very strong in the quarter.
While overall channel inventory has improved slightly this progress continues to be offset by stronger than anticipated demand in certain product areas, such as hard and soft coolers.
While we expect channel inventory to continue to improve throughout the year. Our current visibility pushes these full replenishment actions into 2022.
Yeah. These international business continued to show Great progress that we believe will support long term sustainable growth.
All of our regions are showing strong demand and we will continue to focus in these markets to ensure scale.
First to maximize our currently active markets and then ultimately to replicate in new markets.
Canada had an excellent quarter underscoring the continued growth opportunity.
We saw strong DTC traction here through both yeti dossier and local corporate sales.
In addition, we lapsed significant COVID-19 related wholesale disruptions from last year, even as varying degrees of store restrictions remain in place throughout this year's quarter.
Overall, our team is doing a phenomenal job of investing in and driving local relevance and channel consistency, helping to ensure relevant engagement with the Canadian customer.
The outstanding success in Australia continues as we are executing significantly above plan.
We still believe in the tremendous opportunity ahead, as we drive deeper distribution across the larger coastal markets and further build out localized marketing support.
In Europe, we recently opened our new subsidiary in Amsterdam, and we continued to make strides as consumers are discovering the brand through strong word of mouth.
We're particularly encouraged by the significant interest in hard coolers across the region.
In addition to the 5 new local language website launched early in the year. We have now added nearly 250 additional targeted wholesale doors across the region.
We were excited by our recent retail execution at Selfridges in London.
Our presence at this historic premium location in the heart of London has been extended several times from its debut in June and we believe it is driving incremental brand awareness and consideration.
Before handing the call over to Paul I would like to give a quick thanks to Dave Schneider, who stepped down as chair of the board and chair of our nominating and governance Committee at our annual shareholder meeting in May.
Dave held the chair role for nearly 9 years partnering with yeti through much of its early growth and maturation, both as an investor and adviser to our founders and day was a champion of our growth as we went through the IPO process.
Dave was reelected to our board at the May shareholder meeting and we will continue to provide us unique insight and experience to our board as Bob share. It takes on the role of chair of the board.
In closing.
I want to reiterate that we remain focused on providing unique and inspiring brand and product experiences and we'll continue investing to ensure that we meet the global consumer wherever they choose to shop.
I continue to be proud of our yeti team and thank our customers and partners for all they do to support us as we address both the challenges and the incredible opportunities before us.
And now I would like to turn the call over to Paul.
Thanks, Matt and good morning, Yeti continue to see outstanding brand momentum and performance during the second quarter.
And I'll add my sincere thanks to the incredible efforts of our team that are driving these results.
I will start with a review of the 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 45% to $357.7 million compared to $246.9 million in the prior year period.
While this growth compares against Covid impacted results last year. It represents the fourth straight quarter, we have generated a 2 year compounded annual growth rate in the low to mid 20% range.
Direct to consumer net sales grew 48% to $196.9 million compared to 133 million in the same period last year.
Direct to consumer performance was driven by strength in both our drink ware and coolers and equipment categories.
All direct to consumer channels grew in excess of 20% during the period Yeti Dot com drove another impressive quarter, even against last year's triple digit strength and.
And we experienced sharp recoveries and our corporate sales and yeti retail businesses.
Overall, our direct to consumer mix increased slightly to 55% of net sales for the period compared to 54% last year.
Wholesale net sales increased 41% to $160.8 million compared to $113.9 million last year.
Wholesale performance was driven by both our drink wear and coolers and equipment categories with particular strength in drink Ware.
As Matt mentioned.
Channel demand remains strong and we have made some replenishment progress however.
However, we have significant opportunity ahead with wholesale channel inventories still down year over year.
Okay.
By category.
<unk> net sales increased 69% to $192.9 million compared to $114.3 million last year.
This strength reflects broad based demand across our drink wear lineup.
Improving product.
And the strong recovery of our corporate sales business.
We continue to see great results in our Rambler Tumblr business with strong growth from heritage sizes.
Incrementally from newer options and improved functionality led by Mag slider lids now standard across the line.
Coasters showed impressive growth considering the lapping of its successful launch last year.
In Bartow growth outperformed the broader drink wear category.
Benefiting from underlying demand momentum.
And the inclusion of the Chubb cap as a standard led.
Supporting the overall category customization remained in high demand for both Yeti dot com and corporate customers.
On the coolers and equipment side net sales increased 23% to $157.8 million compared to $128.6 million during the same period last year.
Strong soft cooler momentum led by our Hopper and 30 in backflip styles.
Helped drive the overall category.
Even its hard cooler growth was more limited during the period due to ongoing inventory constraints.
Within bags, driving broader customer awareness as well as consistent in stocks, where second quarter priorities.
We remain encouraged by the customer response to our bag collection and the opportunity to build out this category.
Internationally net sales more than tripled to 33 million, reaching 9% of total net sales.
This performance was led by a recovery in Canada. Following last year's extensive retailer restrictions due to the COVID-19 pandemic.
As well as strong contributions from Australia, the UK and Europe.
Gross profit increased 52% to $209.1 million or 58, 5% of net sales compared to 137.5 million or 55, 7% of net sales in the same period last year.
The 280 basis point year over year expansion was driven by the following favorable factors.
110 basis points from channel mix.
90 basis points from product cost improvements.
80 basis points from lapping higher non core inventory reserves last year.
40 basis points from fewer promotions and our direct to consumer channel.
And 70 basis points from all other impacts.
These gains were partially offset by 90 basis points from higher duties related to the exploration of the GSP program at the beginning of the year.
And 30 basis points from higher inbound freight.
Adjusted SG&A expenses for the second quarter increased by 49% to $131.7 million or 36, 8% of net sales as.
As compared to $88.2 million.
35, 7% of net sales in the same period last year.
The increase of 110 basis points as a percentage of net sales was driven by non variable expenses increased as a percentage of net sales by 190 basis points primarily.
Driven by higher marketing expenses.
Excluding marketing the expense rate decrease for the period as a strong rate of revenue growth outpaced more normalized spending following last year's cost curtailment efforts in response to COVID-19.
Variable expenses decreased by 80 basis points as sales growth across our 2 channels was more balanced in the quarter.
Adjusted operating income increased 57% to $77.4 million expanding approximately 160 basis points to 21, 6% of net sales.
Compared to $49.3 million or 20% of net sales during the same period last year.
Our effective tax rate was 24% during the quarter compared to 25, 2% in last year's second quarter.
With the lower rate, reflecting a discrete income tax benefit related to stock compensation.
Adjusted net income increased 68% to 60 million or <unk> 68 per diluted share compared to $35.6 million or <unk> 41 per diluted share in the prior year period.
Now turning to our balance sheet.
As of July 3.2021, we had cash of $233.8 million.
Compared to a $127.5 million in the year ago period.
Inventory increased 60% to $221.7 million compared to $138.8 million during the same quarter last year.
Inventory growth on a 2 year compounded annual growth basis was 11%.
Slightly below our plan given the better than expected top line results.
Total debt, excluding unamortized deferred financing fees and finance leases was $123.8 million compared to $292.5 million at the end of last year's second quarter.
During the quarter, we made principal payments of $5.6 million.
Now onto our updated thoughts for the full year.
Where we are again, raising both the top and bottom line outlooks.
We now expect full year net sales to increase between 26 and 28% compared to fiscal 2020.
The higher range incorporates the outperformance from the second quarter.
As well as implied mid to high teens growth for the second half of the year.
On top of the strong 27% growth comparison from the second half of last year.
By quarter.
Third quarter net sales growth is expected to be somewhat higher in fourth quarter growth.
We continue to expect flat gross margins for the year from the record 57, 6% level last year.
This reflects similar year over year margin contraction expected in both the third and fourth quarters.
Given the exceptionally strong comparisons from last year.
The impact of the non renewal of GSP.
And higher inbound freight expense.
On the GSP front, we continue to assume no renewal for the balance of the year and have yet to see alignment to move this bill through Congress.
Looking at SG&A, we expect expense dollar growth to continue to trend in line with sales growth.
Non variable expenses overall for the year are still expected.
<unk> to trend slightly below our revised total sales growth.
While variable expenses tied most directly to our faster growing and higher gross margin direct to consumer channel will grow slightly faster than total sales.
As we continue to normalize from last year's cost containment efforts.
We expect the rate of adjusted SG&A growth to E sequentially in the third quarter, and then again to a greater extent in the fourth quarter.
More pointedly, we expect third quarter, adjusted SG&A growth rate to be slightly below the 36% growth from the first quarter.
Before dropping to single digit growth in the fourth quarter.
Our full year adjusted operating margin outlook remains at approximately 25%.
Which is also consistent with the prior year.
We expect the adjusted operating margin rate to be lower year over year in the third quarter and.
And slightly higher year over year in the fourth quarter.
The effective tax rate for fiscal 2021 is now expected to be approximately 23%.
Given the slight benefit to plan recorded in the second quarter.
Based on full year diluted shares outstanding of approximately $88.6 million.
We expect adjusted earnings per diluted share to grow 29% to 32% to between $2.42.
And $2.46.
Compared to $1.87 in fiscal 2020.
Our use of cash is also consistent as we move into the back half of the year.
Primarily focused on our inventory replenishment efforts.
Inventory levels are expected to build significantly year over year. During the next 2 quarters as we continue to focus on replenishing our channels to meet demand and lift to mitigate potential supply chain disruptions.
Our capex outlook continues to be between 55 and $60 million for the year.
Primarily reflecting technology upgrades.
Including enhancements to S P.
Website optimization and expanded data analytics capabilities.
As well as more traditional spending and product development.
Overall, our year to day performance has been outstanding.
As our increased outlook, we'd indicate we are positioned for a strong second half of the year.
We are managing our business thoughtfully through this period of uncertainty as the pandemic continues to evolve around the world.
Managing through these pieces is difficult and we remain confident in the execution of our team as we continue to capitalize on the incredibly strong demand that we are seeing for our brand.
With that I would now like to turn the call back over to the operator to take your questions.
Yes.
Thank you.
We will now begin the question and answer session to join the question queue. You May Press Star then 1 on your telephone keypad, you'll hear a tone acknowledging your request. Please limit yourself to 1 question and 1 follow up only.
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Our first question comes from Robby <unk> of Bank of America. Please go ahead.
Hi, This is Alex on for Robbie Thanks for taking my question just.
Just first can you talk to us a bit more about the channel channel inventory levels at your largest accounts.
When would you sort of expect channel partners to be back at sort of appropriate inventory levels. It seems like you know maybe the replenishment has gotten pushed out a bit so just trying to get a little more color there.
Hey, Good morning. This is Paul Thanks for the question.
You know 1 of the biggest factors in reloading. The channel is demand the demand is very very strong.
As we talked about.
Producing as many part coolers as possible and then you know the transportation that the timing of the the elongated transportation, but it's really a a capacity issue, but you know a country like the Philippines does have a low vaccination rate uhm. So that's something that we watch specifically what.
<unk> called out in Vietnam.
And you wrote in the headlines there we're in the third week of the government mandated shut down 1 of the great things is I would dual sourcing so we're able to and that's really around hard coolers and bags in the Philippines, and soft coolers and bags in the Philippines excuse me and we do have second sourcing. So we can make up so.
Some of it but these are these are the unknowns in the you know the the continued things that we face as we go into the back half of the year.
Our next question comes from Sharon Zackfia of William Blair. Please go ahead.
Hi, Good morning, I guess my question on gross margin Paul So I think the implication is for something like 150 basis points.
Sequential degradation in the back half can you kind of break that down the components because there's a lot of moving parts there and I think previously you had talked about flattish gross margin in the fourth corner is that still the case are we going to see most of this kind of like her on the third quarter.
Yeah. So thank Sharon good morning, So you know our guidance implies about a 57 per cent gross margin in the back half of the year and the 2 age and we see that today more the deceleration more evenly split between Q3 and Q4, so and.
Like prior.
The pieces that go into that from what we talked about at the end of Q1, which was flat gross margin for the year and today were flat gross margin for you, but what has changed is.
Inbound freight and other costs have added about $8 million to the gross margin or the the the product cost and then that's being offset to keep flat for the year with a little bit of Overperformance in queue, too and then a little bit more of the fish.
Cost Leverages, we raised the top line from a components you know we would expect to see D.
DTC still being a.
Slight tailwind as we go into the back half of the year you know the cost improvements.
So we are we're seeing cost increases or input costs <unk> increases I think that will be less pronounced in the back half of the year.
And then certainly offset by GSP, an inbound free.
Thanks for that 1 Palatina I guess, given the low inventory off lessons that you have are you able to kind of stock up at all and an inventory idea of like more safety stock. It doesn't really sound like that's the case right now, but just curious if there's any opportunity there.
So we are <unk>.
Buying as much as possible so inventory was up 60%, but you know on a 2 year was only up 11 per cent, 11% CAGR similar to Alex is question in my responses. We are doing everything we can to build up inventory, but for the strong demand.
So we continue to.
You know believe that are we continue to expect inventory up significantly in the back half of the year rolling over a significant negatives last year.
And byproduct category similar to the wholesale channel drink were soft coolers and hard coolers in when will get healthier.
Through the product categories.
Our next question comes from Camillo line of B T. I G. Please go ahead.
Thank you good morning, and congrats on a great quarter.
I I was curious uhm.
If you could talk about what you're seeing either domestically orange or in your international markets.
With respect to the Delta virus is a day a variant has there been any sort of impact in demand that you've seen any of these regions.
Any sort of updated thoughts on that would be <unk> would be helpful.
Hello. Good morning. This is Matt the you know as we look across our domestic regions and our global reasons 1 of the things that we learned.
From the disruption last year is how we shift channels based upon what's happening and what those dynamics are obviously there are parts of the world and we talked about Canada.
Canada and Australia on the prepared remarks of round continued disruption around wholesale openings and closings different parts of those those particular markets that are are applying different rules around around the COVID-19 broadly I could speak specifically to delta variant being the driver, but what we've seen is an ability.
If wholesale disrupted how we manage it and push resource towards the direct to consumer and engaging the consumer but as we said on the call we've seen broadbased strength and demand across all regions in the U S and across our emerging but but now more significant.
No reason, so we feel great about our ability to reach the consumer we feel great about our ability to continue to Stoke excitement for the brand and and ultimately drive that demand.
That's great and then my followed up his.
Yeah. It's a 2 part follow up actually you know with respect to the channel replenishment that you talked about and wholesale.
Uhm is there an ability I just want to confirm this is their inability to.
Start fulfilling demand for spring of 22 are are your wholesale partners trying to get ahead of this and do you have any capacity to do so by starting to take spring receipts earlier, perhaps maybe and and a case of your cue for where typically might fall into Q.
<unk> is there any talk of that and and can you do that given the supply constraints and then just longer term on your sales outlook now averaged over 20 per cent growth of the past 4 years.
Brand momentum is solid book in the U S and abroad, what prevents you from keeping this 20 per cent grocery directory going.
Can I I'll take I'll take it from <unk> question on the on the channel Refunding <unk>.
<unk> jumped at on how we're thinking about that we feel has been a very strong run a very strong growth.
Above 20 percentage point out you know.
The channel Replan, obviously are full focus right now is servicing the demand received today and that's working with our across our suppliers on capacity planning in the near term, but also sort of looking further out with with him on how he started to get ahead of 2022 demand and beyond so I would say our near term for.
Because across article a soft coolers drinkware is to drive supply to support demand we're seeing in the market. Today. We don't we don't have plans to get ahead of 2022 in 2021, because I think we're going to continue to to Stoke demand.
In the year and we're gonna continue to push supply into this year to help support that support that demand.
We have an incredible supply chain team, obviously, we've over overrun of what we thought the first half of the year was gonna look like due to that great demand. So they're working on not only the in the moment replenishment, but also as we as we build that supply back up into 2022 is Paul mentioned.
And then thinking about sales.
While not giving any I'll look for 22.
I'd say brought her or more macro thinking you know we expect the outdoor leisure trends to continue and we think that's certainly a a great thing for yeti as life and commuting has come back. So in person events. That's also a benefit so you know is it.
Does it continue at 20 does it not that 1 I won't answer, but we think the macro trends are very positive force.
Our next question comes from Peter Benedict of Bird. Please go ahead.
Peter Benedek to your line is life.
Sorry, guys was on mute. So I guess my first question is just around any plans you have or how you think about using price as a lever to offset some of the rising cost pressures that are out there on the market.
Peter at the you know I I.
Obviously, we talked about this quite a bit through the tariff challenges of a couple of years ago.
Some of the supply disruptions and last year, where we had supply disruptions, but obviously saw incredible strength in demand in 2020.
We use price as of last lever, we think there's some real benefit to the consistency of our pricing in the market.
For our consumers and also for the consistency of how we tell the stories, where we look at price very strategically as as we introduce new products as we expand product families.
We would selectively look at price, but we look at addressing the cost pressures across the range of opportunities in front of us and some of those are working with our supply partners on price negotiations that offset some of the increases because of the volume we're driving.
Some of it may be selectively as we introduce new products looking and bring enhanced benefits and features of the product.
We look at how we can we can bring bring price into it but price as a broad based lever is not something we historically historic redone.
It's always something that's there and we continue to continue to watch how we manage and mitigate and contain.
The near term in.
Cost pressures.
Okay Gotcha that makes sense and then that you talked earlier in your prepared remarks about your customer retention efforts really sounds like those are are starting to to scale here, maybe I don't know can you expand on a little bit and are there any metrics you could share.
Maybe progress to date, where you stand today, where the opportunity lies in terms of driving this more personalized engagement with.
With consumers and driving repeat orders et cetera.
Yep [noise].
Excuse me, it's incredibly exciting area for us. It's it's 1 that we've talked quite a bit about the investment we've made in people and in technology and in the process.
And really the thought of how we take the passion enthusiasm for the Yeti brand engage the consumer in the way they want to be engaged with at the moment in time, where they're in that consideration funnel and move them to conversion, while we aren't sharing specifics.
Today, we did we did mentioned that what we're seeing from a consideration and a conversion and the size of the orders has been really positive.
The team continues the beautiful thing about this advanced analytics is we get smarter every day and every week and we also have the ability to adjust and we have the ability to test into things and when we think about the 3 big things were trying to do is 1 we wanted to drive.
The talent and the resource to be able to really take advantage of of the the digital evolution that continues we want to use the this this data in this platform to understand the behaviors of our consumers.
And then really take a day to let approach to creating that that digital engagement and that consumer experience and you know a couple of things that we've done by leveraging our machine learning 1 we've worked to optimize our customer outreach, which is the number of times, we contact customer the types of info.
Nation, we put in front of them depending on where.
They are in the in the consideration process.
Based upon our data learning and using propensity models to purchase and so there's a lot of rich.
Richness in there that we're really excited about in the data set we have and now the team we have to put that into play and so you're going to you may not see it.
But because it won't be overt, but you'll you'll start to feel more more personalized more directed.
Communications with our customers and then that will ultimately lead all the way back to our digital properties and how we how we take people on on the Yeti journey on our digital properties.
Our next question comes from Brook Crouch of Goldman Sachs. Please go ahead.
Good morning, and thank you so much for taking a question a lot of a lot of ground has been covered but not maybe I wanted to follow up a little bit on on the international momentum can you talk a little bit about the profile of your customer that you're seeing internationally maybe in in the in the context of the data and analytics that that you've been implemented.
<unk> what are you seeing any international customer base versus the U S. In terms of awareness in in bringing those customers up the adoption curve and how <unk>, what what progress have you made so far on building out the international Ambassador program.
Great book that says a lot a lot of good stuff in there I would say starting with the the data analytics and our advanced anyway.
The base of that is really primarily focused on R. U S domestic customer to where we have the largest dataset.
So we're much more intelligent.
15 years into this journey in the U S.
We're a little more nascent internationally, so what I would say what we know about that customer is it doesn't look fundamentally different than R. U S consumer from what we've seen from.
Interest areas.
Some of the demographics information we have internationally, we obviously have a lot lower awareness internationally than than we do in the U S.
But what we're seeing from our behaviour perspective is.
Are early adopting international customers are are buying in a mix that looks quite a bit like what are early adopting U S customers and and frankly, a little bit of how are you S mix looks today, we're seeing really strong adoption and coolers, particularly hard coolers in Europe and Australia.
Drinkware is performing very well, we're just starting.
The evolution in our marketing and how we talk to that consumer in a yeti like voice, but with some local market relevance. We just launched a color way recently it would call Highlands really inspired by the Scottish Highlands was our first sort of story around a product around color that we told internationally that works that work.
Around the globe.
So it's we really liked the we really like the progress on on the Ambassador front and we said this in the past we plan to run a very similar to play book internationally that we ran in the U S. We've seen that successful over the last 3 years in Australia, and Canada. We're seeing the early stages of that success of running this depth and breadth marketing strategy in Europe.
Our ambassador roster continues to grow internationally, but many of our original ambassadors have an international reputation in an international Halo.
Whether that's John John Florence, and surfing, who recently competed in the Olympics or Jeff Raleigh, who is global skate ambassador. So we're getting the benefit of the group we have today and we're just adding to it and strengthening it.
Thank you and Paul made me to just follow up on some of the topics earlier regarding some of the supply chain can you talk a little bit more about what you're seeing in terms of transportation and logistics and maybe how you how yeti is navigating those challenges gibbons on that day Dr.
Enclosures.
In other regions of the world.
Yeah. So we're seeing a couple of things uhm.
From a transportation so certainly the elongate a time from.
Backdoor manufacturer to our D C's.
It hasn't gotten.
[noise] materially <unk>.
Longer since the end of first quarter, but certainly year over year, it's significantly longer. So there's there's time challenges the second challenge is.
The most.
We talk a lot about on calls like this is the cost and seeing.
Transportation costs, increasing what we're focused on is obtaining containers.
Obtaining.
Space on ships to get product here.
So those are the those are the 2 biggest and then from a minion.
Manufacturers supplier.
It's really about if we think about hard coolers.
It's really about adding capacity because we are producing at.
Full capacity so it's really how do we how do we add capacity and become even more efficient on the other end on that drink, where it's about increasing.
Volume or increasing manufacturing so they have the capacity and it's just.
Continuing to catch up with demand and soft coolers are kind of in between that so that's kind of how we think about it and it is something that we're.
We're very focused on.
Our next question comes from Joe out to Bellow of Raymond James. Please go ahead.
Thanks, you guys. Good morning, just want to go back to the international business for a second it sounds like the customer demographics and their uses occasions that are similar to what you guys saw in the U S and it really does the business, but can you talk about the competition.
[noise] internationally, how much does it differ by market how does it differ from the competition that you see in the U S. Net the primarily at the lower end or the higher end of the category price and at that point.
Joe Great Great question, I would say when we think about just to add to the front of that the demographic and they use occasion.
Obviously, there are activities and pursuits globally that are more prevalent than they are in the U S and activities that are more prevalent and globally and that's that's a bit of Howard nuanced thing the positioning but the base.
Kind of idea of large active outdoor markets.
Is really held true and we've been able to to address that even when we think about the variety of wholesale partners that have in Europe that have joined in with US we're in everything from.
Very well regarded long established sporting goods and doing things in the culinary community and retailers or even things like butcher shops in Germany, and so it's a really it's a really yeti like approach to finding ways to be relevant to people in their lives and a lot of different a lot of different variety.
I would say as we think about the.
The the growth and expansion, it's going to be highly targeted at.
People, who can be that same reference and the excitement for what yet he is and drive the word of mouth reference and.
Passion for the brand and we're doing that digitally through our e-commerce in our day to see first approach internationally and through these these referential wholesale partners that were signing up.
Got it okay I just want to follow up on that in terms of.
How are you thinking about the year from about that point I think early in the year.
He was a cooler growth with slightly outpaced drink where is that still the case.
So as you can appreciate we don't we.
We don't give it to that level of certainly the the very strong first half of let's see any being up 34% Drinkware is up 51.
Cause of the strong second quarter.
So I would say is I think about this overall.
We've talked about.
Between the 2 categories for the year they are similar.
As we've said in the past.
Okay, great. Thank you guys.
Our next question comes from <unk> of <unk> E. M. P. <unk>. Please go ahead.
Hi, guys. Thanks for the question.
I think you talked about how non variable SG&A maybe leverage.
The marketing I was just thinking.
How how are you thinking about marketing right now is it just really any leading into the opportunity with the masks are strong right now and.
And she'd kind of normalized and you think about 22 and maybe study.
Well or yeah.
Help us think about that.
Yeah, It's a great. It's a great question and it is a reminder, Q2 last year.
When the early early dark days of Covid, we made some very quick decisions to make sure we.
Thoughtfully created cost containment, if if if the the world wasn't going to resume and the way. It did we were fortunate obviously as we've talked about and Q2 last year that particular are digital channels. It resumed very quickly and in a wholesale partners that were deemed essential.
Allowed us to.
To deliver a strong Q2, 22000.2020 admits that and it continued on through the year. This year. What you see is a little bit of rebuild in that in that marketing, we haven't changed our marketing approach we haven't.
Loosened up anything around our our expectations of how our marketing returns, whether that's our direct performance marketing through our digital channels or or brand building efforts, but.
15 years into our history, but the kind of growth were producing with the kind of new customers were acquiring we still consider ourselves in a brand awareness growth mode customer acquisition mode.
But we want to do it at a highly profitable way and so we use our marketing as as an incredible asset an incredible lever to do that.
But I wouldn't say a quarter would show anything that we fundamentally changed about how we.
Run a very disciplined brand building marketing performers marketing program and.
And then from Ah numbers perspective.
We have.
Delevered marketing year to date based on what Matt said about us really clamping down at the end of Q1 last year. So the last couple of weeks in Q1, and then Q too.
Is we look forward, we would expect Q3, 2 also delever because we didn't really turn it fully back on until Q4 weeks.
We expect Q4.
To leverage because that's when we turned it on last year.
And then overall and we've talked about this broadly we see marketing.
At around 8% of sales, we didn't get there last year.
We'll get closer this year, it's really 1 of those and I know our head of marketing will always.
Take more but you know the top line that the strong top line.
Well actually.
Be 1 of the impediments to getting back to that to that 8%. So it's same target.
And really rolling over last year's actions.
Okay, guys, that's very helpful and maybe just as all of them.
Expenses, you mentioned variable excessive leverage this corner typically ACC channel drive faster Delevers I think he said it was just a minority of balanced growth between wholesale and you just want to make sure there's no movie.
Inflection point area since you'd better.
He's on the variable expenses.
No it's really that <unk>.
A more balanced growth.
And driving the the variable to leverage slightly this quarter.
Okay, but I guess longer term there.
Change that or.
You know I think if and going back where we longer term expect DTC to grow faster than wholesale that may still you may still come back to a world of deleveraging variable expenses.
Which we take all day long because of the higher gross margin of the DTC channel.
Our next question comes from Wendy Nicholson of City. Please go ahead.
Hi, Thanks, so much just I think to kind of quick housekeeping items first just I should think about capital allocation I know you want to invest obviously more in inventory and working capital to belt up your on safety stocks and all of that but you're still building a lot of cash on the balance sheet. So what's the current thinking about either.
You're a dividend or share repurchase program and then second of all any update on the timing of expanding luggage into wholesale beyond the pang of default. Thanks.
Hi, Whitney Matt Thanks, Thanks for the questions.
As we think about capital allocation and it's it's a great question..1 obviously this this business is focused on.
Driving high quality high quality revenue revenue that ultimately produces a strong cash cash position for the business.
1 of the things that we've said as as as we've worked with our board on the best ways to think about returning value to our shareholders is that where a growth oriented company and so first and foremost as you said investing in inventory investing in capital expenses that we think whether those are.
Technology is we talked about an advanced analytics or the innovation engine now the other thing that we've talked about is we would look at strategic M&A as an innovation accelerant and things that we think.
Weather's technologies.
Technologies materials processes things that we think help continue to drive what we believe is a very long growth story for yeti.
As it relates specifically to expansion of bags and channel expansion.
When we launched this products, we said 1 of the things we want to do is we want to make sure we ramp it the right way, we tell the right stories, we build the awareness and the channel.
And that's really what we've done in the pandemic is provided some additional challenges with ramping suppliers in some cases, some new suppliers.
From a remote perspective, and so that's what led us to the we're not betting on.
Bags and luggage to carry that year for yeti, we're going to keep driving the productivity of our existing portfolio or to launch it through our dot com only we're going to learn we've had great consumer feedback on it the receptivity has been strong and and we continue to learn and I think as that portfolio expand we believe that as a a.
Category opportunity for Yeti, and then we'll look at channels as they present themselves and as they as they makes sense for the product portfolio and that makes sense for the brand.
Fair enough, Okay, and obviously, 1 area, where you could spend more capitalism company owned retail doors can you just update us maybe for the next year or 2 your thoughts in terms of how many new stores you Wanna open.
Yeah, I'll take that 1 you know we what we've said in the past is coming out of or as we move through Covid, we're going to continue to take a approach of seeing what <unk>.
Happens in physical retail I will say this year's we think about retail we have a couple of our temporary sites going into permanent sites. So the 1 here in Austin are second location here in Austin and then also the 1 in Dallas.
And then our Fort Lauderdale next year will go into a permanent site. So start with you know this this.
Strategy of doing temp locations to test out the air and then go into permanent locations has worked well for US you know we have a couple of additional stores that were looking at that May come online this year, but we're taking it.
Slowly and really see what traffic returns and.
And I will say, we are delighted with the performance in the retail stores. The 7 stores, we have they had a great call. It a really focusing on the operations focusing on when a customer comes in servicing that customer. So we're really happy with the stores and the way they're performing.
We have time for 1 final question from Peter Crumb of U B S. Please go ahead.
Hey, good morning. So this is just a quick housekeeping 1 but was there any impact from prime day at all in the corner as we think about the better than expected growth Bush's your expectations and then making my broader question is so we've heard from some of your drink what are your competitors at the initial redone.
To school is very strong and I know this has been an awkward situation things can change rapidly but.
We'd love to understand what you're hearing from your customers around back to school and kind of how that informed your outlook for Q3.
Back there thanks.
Thanks, Peter the what I would say on Prime day, the short answer is no.
It wouldn't wouldn't attribute a whole lot to to the Prime day, we didn't run and didn't run a prime deal. We just kept running the business at at full price as we said in the past or Amazon.
Marketplace presence is and always on full price channel.
Save for those moments when we're transitioning product like we talked about what the Camino, but it's a full price channel for us.
And is a is a key part of our day to see approach and and continues to to perform but nothing weird attributes Prime day, and then as it relates to back school, while we don't comment on Intraquarter things. When we look back at Q2, obviously with the growth we had in our drink or business or drink.
<unk> business continues to be very relevant and vibrant.
And we talked about.
Our bottles business had a really strong performance within that overall drinkware portfolio.
This concludes the question and answer session I would like to turn the conference back over to Matt Ryan just for any closing remarks.
Thank you and thank you all for joining US today, we look forward to speaking on our third quarter call and wish everyone a wonderful week.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
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