Q3 2021 Yeti Holdings Inc Earnings Call
Greetings and welcome to <unk> third quarter 2021 earnings Conference call. At this time, all participants are in a listen only mode.
Question and answer session will follow the formal presentation, if anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad as a reminder, this conference is being recorded.
Now I'd like to turn the call over to Tom Shaw, Vice President of Investor Relations. Thank you you may begin.
Morning, everyone and thanks for joining us to discuss Yeti Holdings' third quarter 2021 results.
Before we begin we'd like to remind you that some of the statements that we make today on this call, including those statements 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.
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.
Reconciliation 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 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.
During our prepared remarks, we'll open the call for your questions.
Before I turn the call over to Matt I want to remind everyone that today is veterans day as well as in S. E C holiday.
As such we anticipate that our 10-Q and 8-K for the earnings press release will be available tomorrow.
With that I'll turn the call over to Matt.
Thanks, Tom and good morning, before we begin with this being Veteran's day I want to take a moment to recognize and honor all those it served and in particular, our veterans here at Yeti.
You all for your service.
Turning now to Yeti, we delivered a strong third quarter supported by strength in demand for the Yeti brand and our product portfolio.
The demand signals and the persistent supply disruptions, we continue to drive deep relevant connection with our customers through a commitment to innovation and our brand and product.
As we have discussed since our IPO three years ago. These connections are rooted in products designed to exceed expectations and provide a very high level of performance.
Aspirational and inspirational brand and product storytelling and investment in the digital future of customer acquisition consideration purchase and retention across all our channels.
Shifting to our Q3 highlights we delivered topline growth of 23%, which was well balanced across our categories and channels.
These results come on top of our strong performance last year as we delivered third quarter growth up 58% relative to Q3 2019.
Putting 2021 in context year to date growth is up 57% relative to the same period in 2019 on.
On adjusted operating margin for the third quarter 2021 remained an impressive 25% and we drove better than planned adjusted EPS growth.
Before diving into our strategic growth priorities I want to provide a closer look at how we're executing in this very dynamic and challenging supply chain environment.
While we do not know exactly when global operations will return to normalcy or fully settle out our team alongside our partners are taking actions where possible to mitigate disruption in the current quarter and into 2022.
Let me start with reports of COVID-19 disruptions to production in Vietnam. As we originally discussed last quarter. The government mandated shutdown impacted one of our soft coolers suppliers, resulting in a nine week closure through late September.
Our factory has resumed production in the current quarter and is ramping capacity as they work closely with the local government on the full reopening.
Through a combination of our incredibly tight working relationships with our local partner our team in the region. The benefits of supplier redundancy that we have built over the past three years and leveraging the rest of our product portfolio to offset supply disruption on soft coolers, we expect negligible net impact to plan Q4 sales. We currently expect soft coolers supply to continue.
To ramp through 'twenty, 'twenty, one and into 2022 to support our wholesale and direct channels as our suppliers focus on production of existing products and new product innovation.
As it relates to freight costs, yet he faces the same broad based challenges impacting many industries.
Stendal shipping times, driven by Port and transportation delays plus the rising cost pressures seen throughout 2021.
Our team is doing a nice job of staying close to this fast evolving landscape and making adjustments, but yet in the best supply and cost position possible to maximize product availability against the demand we are seeing.
The resulting cost pressures from freight increased in the third quarter, and we don't expect or see a near term easing. So our team is fully focused on managing our mitigation efforts in the quarters ahead. Finally, our suppliers have seen inflationary pressures across key raw material procured for our products. However, the financial impact to US has been much more limited year to date.
We've been able to leverage our growing global scale and strong standing with many of our key suppliers. This balance has kept us in line with our annualized cost savings this year.
While we work closely with our supplier partners to combat rising input costs. We do expect these pressures will persist into next year.
As we analyze these various cost headwinds against the strong demand for our products. We continue to develop and execute strategies that we believe are strong not only short term, but also our long term strategic for yeti based.
Based on our expectations of the above factors continuing into next year, we are planning to implement targeted price increases in 2022 to help offset some of the cost pressure that we believe will persist.
I'll provide more specific color on these actions on our fourth quarter call.
Even with this disrupted supply chain environment customer demand remains incredibly strong and resilient with consumer sell through at our Omnichannel showing strength.
Now I'd like to turn our attention to some of our key brand growth efforts during the quarter.
As travel started to resume yeti launched a multifaceted campaign dubbed take back travel with a focus on travel as an active outdoor pursuit at the brand level. This included 32nd digital spots that showed traditional travel amenities such as infinity pools in penthouse suites re imagined as saltwater flat and hanging from the side of a rock face in them.
While.
As we do in our blend of brand and product marketing, we focused on cross category consideration of yeti products from coolers to bags to drink, where this combination of meaningful brand connections with effective product storytelling continues to be a formula that works for yeti and delivers exceptional consumer engagement.
We'll take back travel focused on audience reach and consideration. We also use the opportunity to connect with our history and founding celebrating the brand's 15th anniversary.
We leveraged our archive of content to create a social series that featured our first AD for the original tundra, our journey to pass the grizzly bear test and endorsement from our very earliest ambassadors.
We also brought back in a very limited run special color way of retired Yeti coolers that was particularly beloved and the angle and community as a casting platform.
This special edition Tundra 50 sold out within hours of launch.
That today is veterans day, it seems fitting to mention that we partnered once again with folds of honor last week to sell a limited edition veterans day tumbler for the benefit of families of fallen and disabled service members. This limited edition sold out in under 24 hours and yeti will be donating $150000 to this worthy cause.
In addition to the consumer receptivity to the brand.
In recognition for the work our team is doing to grow and expand it.
We're honored to be selected by fast company in its inaugural list of brands that matter.
Just numbers. This recognition focuses on brands that have achieved relevance through cultural impact and social engagement featuring branding that authentically communicates their mission and ideals.
We're also pleased with the overall execution of marketing supporting new products. During the third quarter will also reintroducing older Yeti favorites to newer fans of the brand.
Starting with fall colors, we evolved our approach and unveiled the complete range of color upfront before highlighting the inspiration and story behind each separate colourway VSAT.
This had the positive effect of revealing the entire launch and then giving an opportunity to elongate the product release.
This latest collection featured Highlands all of in early August sharp tail taupe in late August and harvest read in early September.
Extending our color story and in conjunction with breast cancer awareness month. We also launched sandstone pink in early October. This Callaway launch included integrated marketing support and a donation in support of boarding for breast cancer and casting for recovery two great organizations that we are proudly partnered with each October for the past five years.
Ah reintroduced travel mugs were released in 20th 30 outsiders.
Our Rambler 18 hour hotshot bottle for hot beverages provided a great extension to the 12 ounce version and further targeting demand for large capacity drink, where we released our rambler 64 ounce bottle, which is off to a great start.
In bags are second generation Camino tote is exceeding expectations for this incredibly versatile and durable product. We've also been pleased with the performance of our new lineup of bags and luggage in particular, our backpacks overall, our bags business continues to grow and product awareness and sales performance as supply availability improved in the quarter.
The entire portfolio bags continues to receive very strong consumer ratings consistent with yeti products.
Finally on hard and soft coolers demand remains robust our flow of seasonal colors helped drive the quarter and we expect core color inventory positions will begin to improve across channels in Q4.
Our supply chain and innovation work will continue to drive improved in stocks and evolution across the product family as we move into 2022.
Our channel strategy is focused on being excellent when and where the customer finds us.
Our DTC channels represented 54% of our sales mix during the third quarter, our largest D to C business Yeti dot com generated strong growth supported by gains across our regions.
This performance is underscored by the overall quality of our customer base, which we see through retention rates year to date growth of new customer acquisition on top of last year's strength and double digit year over year percentage increases in revenue per customer.
Overall, we are making great strides in our data analytics and are focused on leveraging data to personalize the brand and product journey.
Corporate sales remain robust as the consumer's head back to the office and employers resume employee gifting. In addition to the success of the outbound vertical market sales structure, we implemented in the spring.
Finally, yeti owned retail is performing well above plan as we heightened our focus on execution of the store experience and merchandising. During Q3, we successfully implemented an enhanced merchandising approach improved store layout and expanded gear garage destination last week, we opened our ninth store with Houston and are excited.
Added to debut in Arizona next week with a location in Scottsdale, bringing our total fleet to 10.
Within wholesale we are primarily focused on rebuilding channel inventory when we were in stock and fully merchandised, we see sell through performance follow suit.
We saw great response, when new product efficiently flowed to our partners and onto shelves.
<unk> to give us confidence in channel demand as we focused on a replenishment work.
Moreover, we are working closely with our wholesale partners to optimize their assortment and merchandising.
We are also actively managing our wholesale footprint and reach which is evolutionary work we have undertaken for the past five years, including this past quarter.
And the effort to provide the highest quality of experience with yeti for our consumers. We made the choice to reduce our independent wholesale footprint to approximately 3000 accounts.
While this will not have a material financial impact as we will allocate future inventory to the rest of our strong wholesale partners.
<unk> builds upon our efforts to align our distribution and focus on accounts, where theres a high standard of merchandising assortment and service.
I want to reiterate that the wholesale network remains an integral part of yeti and our ability to drive connection of the brand with consumers.
Yeah. These international opportunity is significant as we remain on the cost of reaching 10% international sales mix, even with the strength of our U S business.
We're focused on the markets, where we have an active presence and are showing success replicating many of the elements of the U S playbook, while developing localized elements to resonate with the global consumer.
Brand demand and interest remains high and we are leveraging this momentum to drive sustainable and replicable success.
Canada, and Australia are excellent template for how to expand globally, both showing great momentum even with the delayed COVID-19 reopening.
In Canada, we were beginning to see more normalized wholesale operations as vaccination rates rise.
Australia is also seeing a reduction of many COVID-19 restrictions in markets, such as Melbourne, and Sydney in time for the important summer season, which will position yeti well with local Aussie customers.
We are still significantly outpacing our projections in this market.
In Europe, and the U K our go to market strategy is led by localized E. Commerce site, followed by a steady increase in wholesale doors to further drive brand awareness and consideration.
We are now in over 450 locations across the region focusing on destinations that cater to relevant consumer activities in each market.
As you May recall this approach started two years ago, when we announced far loads as our first wholesale door in the region a natural fit for the brand given its high standing for fishing and country sports enthusiasts.
Newer openings are focused on more diverse audiences and locales from good Hood and influential household goods and street wear destination in London.
Deroo shop, offering a curated selection of modern outdoor product in Munich.
It's the brand reach grows we are actively building out our yeti team to take advantage of the opportunity.
As I hand, the call over to Paul I want to emphasize three points as we think about where yeti is today and how we're approaching the road ahead.
Demand for the brand remains strong we have consistently seen that when we flow inventory and merchandise it well whether through D to C or wholesale there's a corresponding velocity and demand building in servicing omnichannel demand remains a significant focus and opportunity.
Second it goes without saying that we operate in a truly unique time it comes with a variety of external pressures impacting not only yeti, but the broader consumer goods sector.
In this environment, we are proud to be delivering on our top and bottomline outlooks for the year, while taking appropriate actions to mitigate ongoing impacts.
Finally, we remain diligent in how we build the Yeti foundation globally and at scale.
Focus is on development of exceptional product selling relevant brand stories and maintaining that deep customer engagement I highlighted at the beginning at.
At the same time, we are harnessing and building this great culture and team to ensure we capitalize on the opportunities ahead.
And now I would like to turn the call over to Paul.
Thanks, Matt and good morning.
Let me start with a review of the third quarter, followed by our thoughts on the balance of the year and our updated outlook.
We will then open the call up for your questions.
Net sales increased 23% to $362 6 million compared to $294 6 million in the prior year period.
As Matt highlighted this performance followed the strong growth in last year's third quarter to generate an impressive two year compounded annual growth rate of 26%.
Direct to consumer net sales grew 31% to $197 1 million compared to $150 4 million in the same period last year.
Direct to consumer performance was driven by strength in both our drink wear and coolers and equipment categories.
As well as across our own digital properties corporate sales and yeti retail.
Overall, our direct to consumer mix increased to 54% of net sales for the period compared to 51% last year.
Wholesale net sales increased 15% to $165 5 million compared to $144 2 million last year.
Similar to DTC, our wholesale performance was driven by both our drink wear and coolers and equipment categories.
Wholesale inventory improved throughout the quarter and is now trending higher year over year.
We have ample work ahead to more consistently replenish the channel.
We remain encourage by strong consumer demand when in stock in fully assorted.
By category drink, where net sales increased 24% to 205 million <unk>.
<unk> to $165 9 million last year.
We continue to be pleased with the broad based demand across our drink where portfolio.
As well as the strong customization trends, we have seen with both yeti dotcom and corporate customers.
Importantly, our heritage products remained strong.
As we see items like our Rambler 20, tumblers continued to perform extremely well after seven years in the market.
We see the vitality of our offerings further enhanced by introducing seasonal color ways and more broadly adding product features.
As Mack slide of Lids and chug caps.
At the same time.
We have been effective building demand across more consumer use cases.
During the third quarter. These efforts included the introductions of the Rambler 64 bottle.
The Rambler 18 hot shot bottle in two travel mugs.
Later of which further expanded to the wholesale channel early in Q4.
In coolers <unk> equipment net sales increased 20% to 149 million compared to $124 2 million during the same period last year.
Demand for both soft and hard coolers remains strong with soft coolers outperforming given the more limited supply of hard coolers.
Our flip line of soft coolers has consistently been a strong performer led by the versatile backflip, which combines the performance of our soft cooler with the functionality of a backpack.
<unk> in bags are third quarter focus remains on building category consideration with new and existing customers.
Which not only supported our expanded crossroads lineup.
But also drove growth in our existing panga line.
At the same time, our new and improved Camino tote is off to a great start following its August launch.
Internationally.
Net sales grew 69% to $34 1 million, representing 9% of total net sales.
We remain excited about yet he's international opportunity given the strong demand dynamics and corresponding growth, we're seeing across Canada, Australia, Europe and the U K.
Gross profit increased 19% to $207 million or 57, 1% of net sales comps.
Compared to $174 million or 59, 1% of net sales in the same period last year.
Compared to the same period in 2019.
Gross margin expanded 470 basis points.
The 200 basis points year over year contraction was driven by the following unfavorable factors.
210 basis points from higher inbound freight.
110 basis points from higher duties related to the exploration of the GSP program at the beginning of the year.
And 70 basis points from all other impacts.
These headwinds were partially offset by a 140 basis points from lower inventory reserves and 50 basis points from product cost improvements.
Adjusted SG&A expenses for the third quarter increased by 31% to $132 8 million.
With 36, 6% of net sales.
As compared to $101 6 million or <unk>.
34, 5% of net sales in the same period last year.
The 210 basis point increase as a percent of net sales was driven by.
Non variable expenses increased as a percentage of net sales by 210 basis points.
Primarily driven by higher planned marketing expenses coupled.
Coupled with more normalized overall spending.
Compared to last year as expense reductions in response to the COVID-19, uncertainties during the period.
Variable expenses were flat as a percentage of net sales.
Adjusted operating income increased 3% to $74 2 million.
Contracting 410 basis points to 25% of net sales compared.
Compared to $72 4 million.
Our 24, 6% of net sales during the same period last year.
Compared to the same period in 2019.
Adjusted operating margin expanded 450 basis points.
Our effective tax rate was 25% during the quarter.
Compared to 24, 4% in last year's third quarter.
With the lower rate, reflecting a discrete income tax benefit related to stock compensation.
Adjusted net income increased 7% to $57 1 million or 64 cents per diluted share.
Compared to $53 5 million or <unk> 61 per diluted share in the prior year period.
Now turning to our balance sheet.
Our third quarter cash position increased to $259 3 million.
Pair to $234 8 million in the year ago period.
Inventory increased 98% to 266 million.
Compared to $134 6 million during the same quarter last year.
Inventory growth on a two year compound annual growth basis was 13%.
In line with our expectations.
And below the sales two year compound annual growth rate of 26%.
Our inventory balance does include a higher than planned rate of in transit inventory given the extended lead times from ongoing supply chain disruptions.
Total debt, excluding unamortized deferred financing fees and finance leases.
It was $118 1 million.
Compared to $238 8 million at the end of last year's third quarter.
During the quarter, we made principal payments of $5 6 million.
As we turn to our updated outlook for the full year.
We are raising both our top and bottom line outlook once again.
We now expect full year net sales to increase between 28 and 29% compared to fiscal 2020.
This higher range for the full year factors in upside from our third quarter performance.
And an approximate 200 basis point negative impact in the quarter as last year's fourth quarter was a 14 week period.
We continue to expect full year gross margins to remain flat from the record 57, 6% level last year.
This assumes year over year margin contraction in the fourth quarter.
Where we are comparing against a very strong year ago level of nearly 60%.
Expected headwinds for the period include higher inbound freight expense.
The impact of the non renewal of G S P and greater input cost pressures.
Looking at SG&A, we now expect expense dollar growth to be slightly below overall sales growth.
Non variable expense growth for the year is expected to trend slightly below our revised total sales growth.
While variable expenses.
I had most directly to our faster growing and higher gross margin direct to consumer channel will.
We will grow in line with total sales.
For the fourth quarter, we continue to expect adjusted SG&A growth to moderate sequentially to high single digits year over year as we compare against more normalized spending in the year ago period.
As a result, our full year adjusted operating margin outlook is now expected to increase to approximately 28%.
Compared to 25% in the prior year.
The effective tax rate for fiscal 'twenty 'twenty. One is now expected to be approximately 22% given the discrete income tax benefit recorded in the third quarter.
Based on full year diluted shares outstanding of approximately $88 7 million.
We expect adjusted earnings per diluted share to grow 34% to 35% to between $2 51.
And $2 53.
Compared to $1 87 in fiscal 2020.
On our balance sheet, we will continue to focus on driving our replenishment efforts amidst the challenging supply chain backdrop.
This will result in planned build of inventory in the fourth quarter to approximately 300 million.
Reflecting our ongoing restocking efforts and the continued impact of elevated in transit times.
We believe execution of this inventory build will be a key driver in better satisfying the strong demand we continue to experience across all of our channels.
We continue to expect capital expenditures of $55 million to $60 million for the full year.
Primarily reflecting technology upgrades.
Including enhancements to S. P webs.
Website optimization and expanded data analytics capabilities.
As well as spending for product development and to support increased capacity for existing products.
Before turning to Q&A I would like to reiterate how incredibly proud I am of the work of our team and this truly unique environment.
This starts with our unrelenting focus in driving brand engagement and product demand both of which remain incredibly high and we believe will support our momentum into 2022.
It also reflects our ability to adapt manage and mitigate the ongoing complexities of external headwinds.
Nearly all of which will remain priorities as we first execute through the holidays.
And finalize our planning for next year.
Our ability to raise both our top and bottom line outlook consistently throughout the year is a testament to this team's tireless efforts.
With that I would now like to turn the call back over to the operator to take your questions.
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We ask that you please limit yourself to one question and one follow up question. One moment. Please while we poll for your questions.
Yeah.
Our first questions come from the line of Robbie <unk> with Bank of America. Please proceed with your questions.
Hey, good morning, guys.
Great great quarter listen the I'm going to ask a question you guys probably get asked all the time can you talk to us about in the stimulus benefits that you think you saw in in this year and maybe in part of last year, as well and and and how we should think about that and how you look to lap that or two.
Years of that in the first half of 'twenty.
2022, and and how we should think about if theres been any pull forward of sales you know in into 2021 or you know et cetera related to those solitary leisure demand dynamics. Thanks.
Hi, Robby Matt. Good morning, you know great question, what I would say and we said all through 2020, and we've said year to date through 2021 is.
And we've really seen consistent growth and you think about yeti three years as a public company.
We continued our quarter over quarter to drive demand through a combination of product innovation, our existing product performance. Our what we think is outstanding marketing and consumer engagement and so when we think about discrete benefit from stimulus, we really don't attribute the performance of yeti too to a disk.
<unk>, we think it's actually the growing awareness the growing consideration the performance of our DTC channels the strength of our wholesale partnerships and then putting good product out there and telling great stories.
As we talked about supply continues to be one of our opportunities and it's something that we saw in 19, our salt in 'twenty with some of the disruption that happened and we've continued with the growing demand to continue to chase that supply and we expect that to continue into 2022.
That's really helpful. And then just a quick follow up related to that.
Some of the supply issues. How are you thinking about I know that you had talked about China as a place where you could see rollout and you know and it sounds like things are going well in Canada, and Australia, but are you delaying initiatives for international either related to supply chain or other reasons.
Yeah, I would say.
We're pacing our international growth to make sure we're supporting the markets that we're in and build a great Foundation. So the biggest kind of expansion over the last couple of years has been in Europe, and the U K and we're still in the early days of building that out and we talked on the on the in the prepared remarks about the traction and the success. We're seeing there I think the rest of the.
Opportunity internationally remains a and some of it's going to be as we build out our availability of supply as we build out infrastructure to go take advantage of that in an appropriate and proper way so.
I don't think our outlook has changed at all on the opportunity. It's really just the timing and as you point out the timing has to do with making sure. We can supply a fully our domestic market supply of the international markets. We're in today, and then really enter new expansionary international markets in a successful way.
That sounds great. Thanks, so much Matt thanks.
Thanks Robyn.
Okay.
Thank you. Our next question is coming from the line of Randy <unk> with Jefferies. Please proceed with your question.
Yeah. Thanks, a lot I just wanted to follow up on on International can you just talk about where are all awareness levels sitting right now in most international markets and have you started to distort some of your marketing dollars towards those regions, just giving some color and flavor. There and then just on your comments around infrastructure.
Setting up for international more just getting as you maybe elaborate a little bit more Matt on just what you're doing in terms of getting those markets right. Each look more infrastructure to support the accelerated rollout.
Helpful. Thanks.
Good morning, Randy Yeah, I would say on the international awareness is still low in the newer markets.
Awareness over the last four years in Canada has significantly grown I would say awareness in Australia has significantly grown and you're seeing the continued year after year our strength in those markets that we talk about on these calls and in.
In Europe, and the U K, it's much earlier stage I think the benefit of building a brand internationally today is that things like social media. Our ambassador relationships are the events that we do have a global flavor to it have actually led the brand to being present, even before some of our commercial operations are present so.
I think in the early days in Europe, and the U K, we're seeing the benefit of that I think we've been pleasantly surprised with with the amount of on the street awareness of the brand, but it's a little like some of the regional expansion. We saw in the U S going back five six years ago, which is the opportunities there. The the the early days of awareness of their to build upon and so our focus now is on.
Driving kind of a broad based marketing efforts for brand awareness and also the really tight and deneke relationships that we built through our ambassador and our event partnerships.
So we are we see early our early opportunity really early strength, there and a real platform to grow upon.
As it relates to infrastructure one of the things that we decided was we wanted to expand internationally and build out our own yeti infrastructure, we believe that having that direct connection with our wholesale partners and having a direct E. Commerce presence and also having direct marketing relationships was important instead of a kind of a faster use of distribution partners.
And so but we also do it in a really thoughtful a cost effective way. So we built out our three pls, we have three PL support in our existing markets and we have our ecommerce presence, where we helped drive that performance marketing and in that ecommerce business.
And then building out our team smartly, so that they can take advantage of both the the consumer engagement, but also all of the operational operational backbone. We think that's a really scalable model. We think it is a cost effective model and it's one that has now worked in in three major regions and one we'd look to replicate as we expand further.
That's super helpful. And then just following up on any maybe for Paul.
You talked about pricing, you're going to take price increases to offset costs I think going into next year. So you just give us some kind of ways that you're thinking about the mosaic here around.
Freight increases, but you're getting benefits from the continued DTC <expletive> theres quite shifts within PTC more towards wasn't dotcom from Amazon Dot Com I think you guys continue to get scale benefits from.
Volume increases what's your manufacturing partners. So maybe just give us some of that mosaic thinks about as we're heading towards the end of this year into next year without obviously, giving guidance, but just giving us some things to think about as we're ending this year. Thanks.
Good morning, Randy Thanks.
And you know you hit the big levers we are just to step back we are in a process of 'twenty two planning and as we've done for the last several years.
You all more insight as we report fourth quarter earnings and given outlook can next year.
But the mosaic to use your word is absolutely.
The items that you talked about.
Inbound freight continues.
And we expect the rates to continue into next year input costing price pressures on GSP, a full year with average costing we have a full year of GSP next year.
And then the offsets the DTC channel or the channel mix. So those are the levers and you know obviously, Matt talked about pricing. This morning that will be an offset to some of those you know that the headwinds are so we're going through our planning, but you've hit the right levers in the REIT.
Things that we're looking at managing mitigating and.
Driving as we plan for 2022.
Understood. Thanks, guys.
Thank you. Our next question is come from the line of Camilo Lyon with B T. I G. Please proceed with your questions.
Thanks, Good morning, and a really great job guys excellent excellent execution.
Hum.
As we think about high level of 22, Paul and Matt and Jean foresee a step up in the investment cadence to further the brand's reach and you've talked a lot about international but it seems like you're managing both the investments in those domestic markets and international markets well, given the topline that you're generating so yeah.
Do we see a level of stepped up investment that's necessary to perpetuate the topline that you're generating now and in this context.
Where can margins go in the long term I mean, 20% or so EBIT margins this year.
With mixed benefits continuing to be there your your protein luxury type margins.
I am very quickly so I'm curious how do you think about the longer term margin opportunity.
You can bill I'll take the front half on the the investment as it relates to <unk>.
Demand and driving awareness of the brand and Paul can take the margin question. What I would say is we continue to be really efficient and effective with our marketing dollars we don't.
And I think we've shown this as we expanded from more of a regional brand five six years ago to and emerging global brand and we can we can deploy those dollars in a really effective way connected with consumers create maybe the most powerful marketing tool, we have which is peer to peer referenced and we've talked about the power of <unk>.
Eddie consumer telling another yeti consumer about our product and we're seeing the benefit of that not just with our recent our domestic expansion, but our international expansion. So we think we can be really efficient and effective with our with our marketing spend and our brand spend and drive and replicate a lot of the model that we had here in the U S.
On margins good morning on margins operating margins that you asked about I would say, we look at the P&L holistically.
And really up and down the P&L gross margin and Opex and we want to demand for this brand is incredibly strong.
We expect it to continue and we will feed that.
Strength and build into that strength. So as we think about the overall P&L, we're really happy where we're ending this year. You know we started the year, saying operating margins would be roughly flat to last year throughout the year with all the headwinds of gross margin that we've incorporated with this morning.
Updated outlook is up approximately 30 basis points over last year. So I think what you've seen from this management team is this holistic balancing of the P&L.
And I expect that to continue into next year and again as we give our outlook for 2022, when we report fourth quarter earnings.
We will give you the drivers of that.
That's great and if I could just have a quick follow up on on supply chain, but more from the perspective of your factory partners are you, adding factory partners to more diversify your base or are you going deeper with your existing partners. So that you are able to continue to wring out costs savings.
Yeah, Camilo, it's really both and we've been on this journey over the last.
Five years, and really accelerated with with the tariffs of a few years ago is driving both that diversity of geographic and diversity of suppliers that we use while also leveraging the growing demand and growing volume to deepen our relationships. So we're really we're really have the opportunity to who.
To drive both of them and that's what our team is focused on and has done an outstanding job of.
Excellent all the best Thank you.
Thanks. Thanks.
Okay.
Thank you our next questions come from the line of Brooke Roach with Goldman Sachs. Please proceed with your questions.
Good morning, and thank you so much for taking your question.
Well you talked a little bit in your prepared remarks about the training of the independent wholesale partner base to about 3000 doors.
You talk a little bit more about your overall wholesale marketplace strategy from here and maybe.
But that we should be cool fun from us from this update that you've given today and then perhaps a follow up.
On the overall level of sell through versus sell in that you're currently seeing across your wholesale partnership. It seems like you talked in your prepared remarks, a little bit about very strong sales velocity outdoors. When the location is fully assorted.
Can you talk to the number of doors in the percentage of your doors, where you are close to that fully afforded them level of inventory and where you might be by the end of the year. Thank you.
Thanks Brook I'll take the front end and Paul Paul <unk> backend.
On the.
Wholesale relationship our wholesale partners are incredibly important to us as I said in my in my remarks.
They really do anchor the yeti product they do anchor the yeti brand and there are great.
Point of engagement with the consumer so we continue to invest there and what we have seen over time is that we really want to invest and build behind strength and help build up our best partners and make sure that we have the right reach but we're also supporting our best partners in the right way and so I would say the evolution.
And in the accounts is really just a continuation of what we've been doing for the last five plus years.
As the business has transformed and has the consumer who has chosen to shop across across the Omnichannel. It gave us the opportunity to go out and identify the best partners, we have and work with them on merchandising presentation, how they tell brand stories and also as Paul talked about keep them keep them in stock and so.
I don't think it's changed our strategy I think it's a continuation of our strategy and wholesale remains an important part domestically and it's an important part internationally of how we're expanding the business and the brand.
And for me.
Inventory and sell through I'd say, you know as we talked in our prepared remarks. This is our first quarter, where we've turned positive year over year.
After all of 2020.
Yeah quarter over quarter inventory was negative the first two quarters of this year. So we've turned positive so were making inroads into restocking the channel.
One of the and this is a great problem to have one of the <unk>.
Headwinds of restocking the channel is strong demand so as soon as we get the merchandise there it is selling through so.
Again, a great problem to have.
Sell through as we're restocking stores and wholesale customers.
Through as it shows in the sell through so the customer the consumer demand is there you asked about you.
What percent is fully stocked.
I'll answer that in a little different way not against <unk>.
Different customers, it's really against our category. So in hard coolers is our most constrained.
Category and I would be surprised if you've talked to any of our customers. If they said they had enough hard coolers.
So hard coolers, and we will continue to build wholesale inventory or channel inventory throughout 2022 soft coolers.
Better than hard coolers, but still constrained and then drink wear is.
In the best replenishment states. So it's really about our categories less than any particular customer and we would expect inventory channel inventory to remain positive.
By the end of the year, it's all based on our assumptions of demand et cetera, but we do expect now to maintain this through the end of the year.
Thank you.
Thanks Brooks.
Thank you our next questions come from the line of Peter Benedict with Baird. Please proceed with your questions.
Hey, guys good morning.
Matt you mentioned.
Double digit increase in revenue per customer.
During your prepared remarks, and I just was wondering if you could maybe dive into that a little deeper.
What's driving that I know you guys have been working on personalization customer retention efforts, but just.
Just wanted to a little context around that detail on what's driving that.
Absolutely Peter Yeah, we're where as we talked a few times on these calls we're incredibly excited about.
The opportunity and potential of of our data analytics work and our data intelligence.
We're really excited in what we're seeing in the customer data as we've collected it over over a long enough period, now where we have a pretty good look at what the customer makeup looks like.
And then you add last year, which was a significant year of customer acquisition.
And as we've rolled over last year's customer acquisition, we've actually seen growth in customer acquisition. This year. So we've seen it continue as our intelligence gets better as these this big volume on the on the acquisition side comes in we're Comping at and we're also driving higher retention rates. So in addition to the acquisition side of it we're drawing driving.
Strong retention rates, which is in and then you combine that with as you called out that I mentioned, the double digit increase in revenue per customer. So it's a really nice formula.
What we've really focused on from a retention perspective.
Is making sure we understand the data and letting the data inform customer buying patterns, whether those are repeat purchases or likelihood to buy second third what that what that next purchase looks like and our team just continues to get smarter and smarter about it and let the data and the intelligence lead the way.
And then combined with that and we've really been driving our acquisition efforts and it's allowed us to get more granular around our performance marketing and make sure that we're directing our performance marketing to drive that new customer to yeti dot com funnel.
So it's a really good balance of using the data to help us with retention and repeat consideration and then using that experience and how customers came in to yeti to feed the top of the funnel and the acquisition.
No. That's helpful. Thanks, and then I guess on the inventory front and the $300 million at the end of the year better than I think anybody was thinking.
You kind of came into this year, where were Paul are you seeing the most improvement there.
How I guess how are you how are you getting that.
And then just as we think about the pace or the cadence of innovation in 2022 has that been impacted at all just given all the supply chain.
Friction that's out there.
So I'll start with.
The inventory question overall, so at the end of the year as you said, we said approximately $300 million. The healthiest category will be drink Ware and that's similar as we've talked about the wholesale channel that's on our balance sheet as well.
In transit inventories continue to expand you know it was over 50% of our increase year over year in the third quarter was in transit. So a lot of that inventory at the end of the year I expect to be in transit as well, but to your direct question.
Drink where will be the healthiest.
Then soft coolers, and then hard coolers and again hard coolers go out of our distribution center as fast as they come in overall from a if we look to next year on innovation.
There hasnt been much disruption do we talked about Vietnam being shut down but.
Our road map for next year.
Has had very little impact from supply chain issues.
Okay, great good to hear thanks, so much guys.
Thanks Peter.
Thank you. Our next question is come from the line of Peter Keith with Piper Sandler. Please proceed with your questions.
Hey, Thanks, a nice results guys maybe to follow up on Peter Benedict first question.
Matt you gave a great overview of some of the data analytics that you're using to to drive existing customer sales and even new customer sales.
But.
I was curious on the Apple iOS privacy changes it does seem to be impacting our.
Sales at some of the DTC brands that are digitally focused so could you just hit on that topic and how you guys are navigating it in and if the change has eroded any of your advertising metrics.
Peter Thanks for the thanks for the question.
It goes without saying, but obviously data privacy is of the utmost importance to us and we have a team highly focused on it whether that's domestically or internationally. So that's that's kind of a given but something that is really an area of focus and importance to us as it relates to the eye.
POS changes, we haven't actually been overly reliant on tools and channels that are subject to those privacy changes so.
So when we look at our performance, we actually Havent seen any any real disruption. It's continued to kind of we've been able to leverage our first party data our analytics teams build out of our algorithms for retention and acquisition that really allowed us.
Allowed us to kind of.
Roll through that so we've been.
We've been really pleased with the way the way, it's all come together.
Okay. That's helpful.
We are pivoting to the other topic you guys had mentioned that you're going to look to raise prices in the beginning of the year and we'll hear more around the Q4.
Conference call, but could you give us just some early color on maybe which categories would see price increases and then and then for a financial question. Upon this is it the idea that the some of the gross margin pressure will abate by Q1 as these price.
Price increases rolling.
Yeah, Yeah, I would say the way the way we think about them.
Tacking any any challenge is not fundamentally different than the way we went after tariffs and the way we handled the early days of the Covid disruption, which as we look across our business. When we look at all the levers we have and starting with our partnerships with our suppliers and working through the rest of our P&L and price price is one of those.
Things that we are very thoughtful in how we do it and it's not just about broad based price changes to act as an offset we really look at price in a targeted way.
And most importantly in relation to the rest of our product portfolio and in relation to new innovation, we have coming and so as we think about price for next year. We're looking at products. We have planned to come into the market next year, where they're priced how it fits into the product portfolio and then we'd look at existing products in the product family and where they are priced and where there may be opportunity and so I would.
Say it is a broad based look across the portfolio, but very targeted targeted within that.
From a impact it is certainly.
Will be a tailwind to us next year, when we take price and we've gone through the headwinds of freight and things of GSP for a full year. So it certainly will be a tailwind and will dimensionalize that as we said more detail on our Q4 call.
Okay. Thanks, a lot good luck this holiday season.
Thank you.
Okay.
Thank you our next questions come from the line of Jim Duffy with Stifel. Please proceed with your question.
Thanks, Good morning, guys terrific execution.
Two lines of questioning for me first I wanted to ask more just about how you're doing it from an operational standpoint can you Paul maybe speak more about the tactics you are using to ensure product availability is at pulling forward production to get ahead of longer lead times are you using any unusual.
Or a typical freight methodologies and then maybe can you talk on this specific tactics to prepare for the holiday season surge things like D. C throughput in the peak season and last mile challenges in expenses.
Sure. Good morning, Thanks for the question.
From a capacity standpoint back at our manufacturer as they continue to.
Operate at very high <unk>.
It's very high capacity as they have for the last really since.
The middle of Q2 of 2020, when we saw the demand coming out of the darkest days of Covid.
So that has continued and nothing has changed there.
From a transportation, we're not doing anything.
Out of the ordinary other than making sure we have container availability, making sure you know we.
Put things on ships as fast as possible, we talked on an earlier call. We are sending some things through the port of Houston, which has been beneficial certainly as it as it hits, the port and coming up faster.
<unk> faster to our distribution centers. So I think we're just we haven't we're very very focused on it you have seen the downside or the impact on gross margins of the higher cost. So we're not immune to that but it's really about focused on getting merchandise here.
As we think about the holiday and peak performance as you talked about we're seeing nice throughput our Memphis DC is opened.
We're seeing nice throughput on the E com piece of that and and we're ready from an outbound freight similar to last year I think you've read it in the headlines of capacity on carriers, So where we use <unk>, but we have a very very strong relationship with them and.
Believe that we have the outbound capacity certainly.
To achieve the outlook that we just gave this morning.
Thanks for that and then Matt I wanted to look around the corner into 2022 a little bit I think you'd delayed some new product releases.
The plan for 2021 can you.
Give a high level view of our new product pipeline for 2022 and anything we should be looking for.
Yes, Jim I would say as we think about.
Innovation one of the things that we look to do is drive innovation in all of our product families and I think as you look into 2022.
We'll continue to do that and that innovation ranges from.
The most straightforward, which is callaway's, two wholly new product and that product family and so we like the we like the pipeline that we have we like the the work we're doing with our design teams and our suppliers to get products ready and and we look forward to 2022 and bringing some products bring some some new.
Products to market.
Excellent. Thank you guys.
Thank you our next questions come from the line of call know Gosh, we're a wallet with credit Suisse. Please proceed with your question.
Thank you good morning, everybody.
A quick question I, just want to make sure I heard properly obviously, there's a lot of questions around supply and a lot of commentary in your prepared remarks did.
Did you say that by the end of <unk>, you'll have supply or the ability to supply where you'll need it or is it the sort of thing that's still sequentially is getting better and over the course of 2022.
We'll get to a point of where you do you feel like you can get what you need.
It is the latter we will build our supply over the course of 2022.
He said is by the end of the year drink where will be the healthiest.
But there will still be spots inside even I drink where portfolio, but it will be over the course of 2022.
Okay, Great and then if I could ask on you mentioned you had a study kind of new users follow on users and such are you able to shed a little more light on that in terms of maybe how much of your growth is coming from existing customers.
The 2020 was a year, where a lot of you brought a lot of new customers into the market. Maybe you have a sense of how many of them are repeat buyers. This year, just any more context on that would be useful.
Yeah, I would say I mean, obviously the.
Best direct data we have is the data that comes to yeti com. So that's when we talk about that dataset.
Kind of dataset that we look at.
What we've seen is that we've had relative consistency between new and returning buyers and that's that stayed.
Strong and I think is a really high.
Sign of the health of new customer acquisition and retention. So as we're driving growing retention rates were also driving growing acquisition and they are working in conjunction and I think the benefit of having.
The incredible analytics team that we put together in conjunction with our E Commerce team working with our brand and creative team is that they're able to Stoke both that acquisition and that retention and grow them together, so they're not really growing at the at the expense of the other.
Got it thank you.
Thank you. Our final question is for the sake for the conference call will come from Matt Koranda with Roth Capital. Please proceed with your questions.
Hey, guys. Thanks for sneaking me in here.
Just wondering if you could provide any quantifiable metrics in the DTC channel or learnings from from the machine learning initiative that you have.
Around <unk>.
And I'm curious in particular.
If you could compare at least maybe qualitatively.
Are these for repeat versus new customers and just cadence of repeat purchases from those repeat customers would be helpful. Thank you.
Yeah, Matt.
Great question, what I would say is we are hyper aware and hyper focused on all the things you mentioned, we haven't shared those and but what I would say is.
What we're seeing is real strength across the range of those metrics and were almost as importantly, we're seeing the growth and trajectory we want.
So theyre not theyre not sitting static we don't just like the number today, what we're seeing is it the intelligence that we're putting to it continues to grow and our ability to affect those in a positive way continues to grow. So we're not we're not sharing those right now, but what I can say is they continue to.
Help inform the overall business.
But the other side of it I would say is we continue to see great just natural organic growth through.
What I would call our non data analytics driven performance of the business. So we've got this great momentum.
Naturally behind the business driven by our historical brand building consumer demand building and there were combining it now with this data intelligence, which I think will just grow in importance to us as we move forward.
Okay I appreciate it.
Thank you there are no further questions at this time I would like to turn the call back over to Matt ranges with for any closing comments.
Thank you all for joining us. This morning, we look forward to talking to you with our fourth quarter results.
This does conclude today's teleconference. We appreciate your participation you may disconnect your lines at this time.
Great day.