Q4 2022 Yeti Holdings Inc Earnings Call
Good morning, and welcome to the Yeti Holdings' first quarter 2022 earnings conference call.
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Good morning, and thanks for joining us to discuss Yeti Holdings' fourth quarter and full year 2022 results.
Before we begin we'd like to remind you that some of the statements that we make today on this call maybe considered forward looking and such forward looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements.
For more information please refer to the risk factors detailed in our most recently filed Form 10-Q, and the form 8-K filed with the SEC today.
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.
Unless unless otherwise stated our financial measures disclosed on this call will be on a non-GAAP basis.
We use non-GAAP measures as we believe they more accurately represent the true operational performance and underlying results of our business.
Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in this morning's press release.
As well as in the supplemental reconciliation both of which are available in the Investor Relations section of our website at Yeti Dot com.
Today's call will be led by Matt <unk>, President and CEO and Mike Mcmillan CFO .
Following our prepared remarks, we'll open the call for your questions and now I would like to turn the call over to Matt.
Thanks, Tom and good morning, Yeti delivered another strong quarter and year continuing to showcase our long term growth and global brand potential.
But before we get into our results I would like to begin by discussing the proposed voluntary recalls regarding certain of our soft cooler and sidekick dry gearbox, which resulted in a charge that we recognized during the fourth quarter.
I'll, then provide some commentary on the quarter and year.
Detailed a continued execution against our four strategic growth priorities and conclude with additional perspectives on our approach in 2023.
Importantly, the work we're doing today will position our business for strong top and bottom line growth as we exit the year and support the long term brand opportunity.
Starting with the proposed recalls we have identified a potential safety concern, but the design of the magnet line closures of certain soft coolers and sidekick dry gear bags.
This specific issue with respect to these products is that a strip of material housing. The Magnus of these products can fail and caused the magnets to potentially release or separate from the product.
Posing a risk of serious injury or death, if the magnets are ingested.
Since 2018, we have sold approximately 1.5 million units with this material construction and we are aware of approximately 1400 units a 0.1% of units sold but have experienced issues with the magnet line closure importantly.
Importantly, we are not aware of any reported injuries sustained from this product at this time, however, the safety of our customers and the quality of our products remains imperative.
After a thoughtful analysis of the situation we acted decisively in January to remove these products from the market and to stop sale as we coordinate with the C. P. S C and relevant global agencies on a proposed voluntary recall.
In parallel our team is actively working to enhance the product designed to meet the high standards, we hold for yeti.
I believe we are well on our way to a product resolution and are working the path to bring these redesigned products back to market.
Mike will discuss some of the financial impacts recognized during the fourth quarter and how the stop sale will influence our 2023 outlook.
Again.
While challenging in the near term trust and integrity are the cornerstone of what makes our brand so special.
The decisive action to date and confident that as we focus on taking care of our customers. This action will continue to enhance and build upon the legacy of quality durability design safety and performance in our products.
Now taking a look at our financial performance on an adjusted basis, excluding the proposed recalls yeti.
Yeti grew sales, 16% for the full year in 2022 coming off a remarkable 29% growth level of the prior year driving a three year compounded annual growth rate of 21%.
The year was supported by balanced double digit growth across all of our product categories and sales channels.
Fourth quarter sales were in line with our outlook from November with strong underlying consumer demand.
The drivers of these results materialize a bit differently than planned as DTC strength in international momentum offset a softer wholesale business importantly, with these results. We continue to emphasize the premium value of our brand and products over the holiday season supported by new product introductions and robust digital customer engagement.
The overall profitability of our business remains strong in 2022, despite the impact of lingering supply chain costs, including a 510 basis point impact from container costs alone.
We remain encouraged by the easing of some of the key gross margin headwinds we saw throughout 2022. This.
This should drive lower capitalized freight levels and will support stronger gross margins as we move through 2023.
Finally, we ended the year with a very sound balance sheet rebuilding our cash position to $235 million and showing continued progress on our inventory levels, which are now down nearly $85 million from the second quarter peak.
Now onto our progress against our four strategic growth priorities.
Our efforts to connect with new and existing customers during the fourth quarter, we're focused squarely on engagement and brand execution.
Our DTC success for the quarter was supported by three key brand initiatives first we demonstrated the versatility and value of our products with our use your gifts campaign, an important message to elevate yeti gifting consideration and promote product usage year round.
We reopened our gear garage or a black Friday week to introduce a selection of new products and favorite color ways from our archives.
Finally, we expanded our customization options this year by showcasing limited edition holiday designs. They viewing an artist series of unique offerings and highlighting how to easily download and apply your own customization artwork.
We're excited for the opportunity to continue expanding our brand reach in 2023 and connecting with consumers in new impactful ways.
You will see yeti focus on diverse international partnerships and ambassadors this year to support the ongoing global opportunity of the brand.
Our recent global partnership with the World Surf League is a great example, as yet he will be the official drink wear and cooler of the Ws L. Spanning the championship tour as well as the Challenger series and also partner in the organizations. We are one ocean initiatives to protect and conserve the world's oceans.
After almost eight years of supporting surf ambassadors and friends. This broad Wfl partnership kicked off last month at pro pipeline in Oahu. The first of 10 Championship tour events across seven countries.
In addition.
We continue to support new partnerships with international reach including our first Premier League licensing agreement with the Tottenham Hotspur and our first Formula one partnership as the official supplier and licensee of Red Bull racing.
We have all of our branded marketing focus, we're spotlighting yeti across moments and cultural trends, where we where we've become increasingly relevant.
As an example, we kicked off January with our first wellness oriented campaign the campaign Leverages, our existing friends and ambassadors for the traditional new year's resolution moment <unk>.
Our drink wear bags in apparel in the gym and other wellness spaces for those times when youre not chasing your outdoor pursuits.
Finally, we continue to prioritize our sustainability efforts by increasing the circularity of our products.
Beginning in January we launched at Yeti retail pilot program Yeti rescues offering cooler products that are fully operational but had been returned or lightly used.
In addition to extending life of our products and highlighting yet he is unmatched durability and performance Yeti rescues also offers an awareness opportunity for new consumers we.
We will continue to explore products circularity throughout 2023 and beyond.
Looking at innovation in our product portfolio in 2022, we were pleased with the balanced category growth between coolers, <unk> equipment, and drink ware growing 18% and 14% respectively.
Our innovation during the year was a bit heavier on the cooler side of the business and we were particularly successful with hard coolers last quarter as the new wheeled roadie 48, 60 coolers were introduced to the wholesale channel as overall category inventory was well positioned for holiday demand.
We also saw strong drink where performance in our D to C channel during the fourth quarter supported by our expanded customization offerings and the D. T. C. First launches of our yonder water bottle and two large capacity straw lid mugs.
We expect these highlighted products will continue to gain traction in discovery in 2023 as a wheeled coolers are broadly available across our channels during the peak spring and early summer seasons, and as the new drink ware offerings move into wholesale for the first time.
Two important aspects of our 2023 product lineup will be deeper expansion into newer product families and new customization options for customers.
As we focus on thoughtfully broadening our range of products, we recently announced our new cargo lie with the launch of three <unk> storage products two very strong response.
<unk> durability waterproof Ness, Dustproof protection and versatility of storage. We're excited to take this next step in the cargo family.
And we're supporting the launch with an array of creative and marketing support across channels.
Later in the year, we will also start evolving our drink bar category in the tabletop and outdoor entertainment offerings, expanding beyond what customers know and love and our drink Ware.
Customization has long been an important driver of our business and we're excited to offer customers, even more new ways to personalize yeti products. This year with our yonder bottles will introduce colored customization toward drink or category for the first time and internationally, we will begin to introduce and expand customization options for both e-commerce and corporate customers.
Finally, as we work through the redesign of our soft coolers and sidekick gear bags affected by our proposed voluntary recalls we plan to expand the assortment of both lines.
From a channel perspective growth across DTC and wholesale was relatively balanced throughout most of 2022 with four key highlights underscoring the strength of the brand.
We drove positive overall sell through including even stronger results in the second half of the year.
We grew new DTC customers year over year, following very strong 2021 acquisition.
Great retention of the acquired customers in 2022 and older cohorts showing the value of our returning DTC customers and we've returned to healthy inventory position across our distribution.
DTC grew 20% in Q4, reaching a new sales mix high of 65% for the quarter and 57% for the year channel performance included improved sequential results in our own digital business exceeding our expectations for the quarter, while corporate sales in the Amazon marketplace stayed strong.
We remained effective at driving retention on yet your dot com and revenue per customer continues to move higher year over year, which we believe demonstrates the value customers find and the brand we.
We will continue to leverage our investments in advanced analytics as we increase our efforts to elevate the yeti dot com experience.
Corporate sales had a phenomenal quarter and year building off our 2022 momentum expanding our customization capabilities will be one of the significant initiatives planned throughout 2023.
This includes improved accessibility to hard cooler customization full color custom for the yonder water bottle and an expanded range of customizable products.
Strong growth from Amazon was supported by significantly improved product availability and fulfilled by Amazon compared to last year's fourth quarter.
We believe we can expand our partnership with Amazon and ultimately develop international opportunities that align with our brand standards and strategies.
As we previously indicated we're increasing our store opening cadence in 2023 with plans to open up to five additional locations for our base of 13 stores at the end of 2022.
Our yeti store locations showcased both the brand and our full breadth of products and we will continue to evolve this channel throughout the year.
In wholesale the brand was well positioned for the holidays and ultimately captured positive sell through with a record level buying week before Christmas.
However, we experienced a fourth quarter decline in channel sell in as we saw wholesale consumer spending ship later in the quarter, which limited channel replenishment opportunities as we progressed through the quarter.
We plan to continue driving positive sell through with our partners. This year, however, sell and is forecasted to be down year over year as we expect to see more cautious ordering patterns from key wholesale partners plus the impact of products included in the proposed recalls we.
We do expect to see wholesale returned to growth by the fourth quarter.
We had a great year outside of the U S. In 2022, with our international business growing 42% to reach 12% of the total business. We're equally excited by the work planned in 2023 to further accelerate and amplify our international expansion.
Our fourth quarter growth remains strong up 32% our Canadian business was supported by a great DTC business during the fourth quarter, including our fulfilled by merchant optional Amazon. The first localized participation in gear garage and broader marketing to drive awareness of corporate sales.
Plan to continue growing brand reach in 2023 through wholesale expansion increased community marketing efforts, while also beginning to set up the market for Yeti CA customization.
Australia was our fastest growing international market for the quarter and year following triple digit growth during fiscal 2021. This.
This year, we plan to build on our existing initiatives to drive the brand deeper into urban markets is it.
We still estimate that 60% of our business today comes from where only 30% of the population resides.
Additionally, we are focused on enhancing the customer experience by adding customization capabilities across DTC shifting to a new three PL provider to support our size and scale and building out the digital reach of our brand.
Finally in Europe , we're hyper focused on the individual markets within Europe and continue to recognize the significance of the opportunity we're seeing strong traction in the U K and Germany, which we believe represent larger opportunities than what we've seen to date in Australia and Canada.
As we grow beyond the U K and Germany, we're excited by what we're seeing in the Nordics.
Our focus remains on continuing to build out the brand and commercial support to get in front of consumers in 2022, we added ski surf and culinary ambassadors and partners across Europe expanded global partnerships to address regional opportunity.
Continuing the yeti tradition of depth and breadth to establish sustainable growth.
In addition, we have grown our base to 850, plus wholesale doors and expanded our DTC and customization capabilities.
Well, our international focus has largely been on Stoke and growth in Australia, and Canada, plus the extraordinary opportunity emerging across many countries in Europe .
We continue to look at the right expansion into perspective markets, including Japan and Korea.
Some of the efforts in 2023 will be more foundational.
In advance of our commercial arrival, we're actively developing certain aspects of the brand in some of these markets, particularly around ambassadors events and partnerships to generate awareness and engagement as we look forward to a bigger global push in 2024.
Before Mike provides the details underlying our initial 2023 outlook I would like to add my perspective on several items.
First I would like to congratulate Mike on his recent promotion to CFO , while we conducted a thorough search over the last few months. It gave me the opportunity to see Mike Excel as the interim leader through a complex set of challenges leveraging his deep understanding of the business and establishing his influence and impact broadly across the organization.
I've had the opportunity to work very closely with Mike over the past seven years at Yeti from our pre IPO to IPO to today.
Thrilled to partner with him and our incredibly strong finance and accounting organizations as we guide our future growth and global expansion.
Second we have a great 2022 building yeti brand growing the business expanding our global reach and setting the business up to deliver upon our long term outlook in.
In 2023, we will remain on offense. This includes driving topline growth we remain confident in our ability to return to our long term target of double digit growth in the fourth quarter and going forward through.
Through this period, we expect to begin meaningful gross margin expansion fund global investments to fuel future growth and return to strong cash flow generation.
Finally, I would like to sincerely. Thank the yeti team and all those who support our efforts around the globe, you're ongoing dedication perseverance and trust continue to inspire our efforts and provide the foundation for this truly unique and powerful brand.
And with that I will now pass the call over to Mike.
Thanks, Matt and good morning, everyone.
I wanted to start by framing up the impact of the proposed voluntary recalls to our 2022 results before then focusing on non-GAAP measures for the fourth quarter and fiscal year.
I'll then provide our outlook for fiscal 2023 inclusive of our expectations for how the proposed recalls are expected to impact the business throughout the year.
Starting with the proposed recalls we have provided many of the financial details in the footnotes and supplemental schedules in our press release.
But let me give a quick summary of the 129 million in total reserves and how it is recorded during the period.
This includes a $38 million reduction in sales primarily for estimated future returns.
A $59 million impact to cost of goods sold primarily associated with inventory write downs and estimated future customer remedies.
And a 32 million dollar impact to SG&A expenses associated with the recall related costs.
We believe these reserves are appropriate to cover the estimated cost of their proposed voluntary recall plans that we have submitted to the C. P. S C as well as other relevant global authorities.
We will provide adjustments when identifiable as we progress through the year and better understand certain variables, such as redemption rates refund mix and associated costs.
Any such adjustments to our estimates will continue to be reported separately to better reflect the underlying operations of our business.
Now onto our non-GAAP results for the fourth quarter and fiscal year 2022.
Given the significance of the reserves associated with the proposed recalls we have updated the definitions of our non-GAAP financial metrics, including two new metrics adjusted net sales and adjusted gross profit.
To exclude this impact.
All of the metrics that I will discuss today are adjusted metrics to better focus on our operational performance during the period.
Fourth quarter sales increased 10% to $486 million.
As previously provided we did see earlier ordering from our wholesale channel in Q3 of this year, which impacted our Q4 growth rate by approximately two percentage points.
For the full year sales increased 16% to 1.63 billion.
From a channel perspective direct to consumer sales grew 20% to 316 million, reaching a new yeti high of 65% of total sales mix.
This performance was led by growth in our corporate sales and Amazon businesses, while E. Commerce also posted better than planned growth for the period.
We also saw a good balance of double digit growth generated across both product categories with N D to C.
For the full year, DTC sales increased 18% to $924 million, representing 57% of the overall sales mix compared to 56% last year.
The approximate mix within D to C for the year consisted of 52% from our global Yeti websites and yeti stores, 25% from corporate sales.
And 23% from the Amazon marketplace.
Wholesale sales decreased 5% to $171 million or.
Our wholesale performance included strong results in coolers and equipment due to both strong sell through and as we were able to better balance inventory availability across our channel after a constrained position last year.
However, this performance was offset by a decline in drink Ware as order volume was more limited given the strong third quarter positioning and late arriving consumer demand that we saw in Q4.
As Matt mentioned channel results were impacted by later than planned consumer demand in the quarter, which while still driving positive sell through limited our replenishment opportunities.
For the full year sales increased 13% to $710 million.
By category Coolers, <unk> equipment sales increased 11% to $169 million.
Hard coolers were the standout this quarter, including the expansion of our two new roadie wheeled coolers into wholesale.
Soft coolers posted strong growth as well with a good balance of growth across the line, including flip and day trip.
Bags also saw strong growth most notably in the updated panga line and with Crossroads backpacks.
For the full year coolers and equipment sales grew 18% to $651 million.
Drink, where sales increased 8% to $308 million with results once again highlighted by bottles and customization as well as the fourth quarter launches of Yonder and the new Rambler strongbox into the D to C channel.
We continued to see good results from our low ball transition efforts supported by our holiday gift with purchase offer.
The success of this overall GW P offer had two benefits it.
It enabled a clean transition to our updated lowball offering that we launched last week.
And it allowed us to begin the process of a similar transition away from our Rambler 14 ounce mug.
Overall drink where sales for the year increased 14% to 947 million.
Internationally sales grew 32% to 62 million, representing approximately 13% of total sales and led by strong growth in Australia and Europe .
For the year International sales grew 42% to reach 12% of sales compared to 10% last year.
Gross profit increased 4% to $264 million or 54, 3% of sales.
Impaired to 57, 5% in the same period last year.
Margin pressure was once again led by a 330 basis point impact from higher inbound freight.
This headwind ease sequentially.
Additional headwinds included 120 basis points from higher product costs.
100 basis points from unfavorable foreign currency exchange rates and.
50 basis points from all other impacts including planned promotional activity primarily related to end of life products.
These headwinds were partially offset by 180 basis points from pricing actions and 100 basis points from favorable channel mix.
Full year gross profit increased 5% to $860 million contracting 510 basis points to 52, 7% of sales.
SG&A expenses for the quarter increased 13% to $175 million or 36% of sales compared to 35% in the same period last year.
Variable expenses increased 170 basis points as a percent of sales, primarily reflecting higher distribution and logistics costs, including higher Amazon marketplace fees.
Non variable expenses decreased 70 basis points as a percent of sales.
Full year, SG&A expenses increased 12% to $586 million decreasing 100 basis points to 35, 9% of sales.
Operating income decreased 11% to $89 million or 18, 3% of sales compared to 22, 5% during the same period last year.
Full year operating income decreased 7% to 274 million contracting 410 basis points year over year to 16, 8% of sales.
Net income decreased 13% to $68 million or 78 cents per diluted share compared to 88 cents in the prior year period for.
Full year net income declined 11% to $206 million.
Our $2.36 per diluted share.
Overall these results were largely in line with our most recent outlook provided in November .
Turning to our balance sheet, we ended the fourth quarter with $235 million in cash.
Compared to 312 million in the year ago period.
The lower year over year cash position, primarily reflects the first quarter completion of the share repurchase.
Inventory increased 16% to $371 million year over year.
Excluding the $34 million write off of unsaleable inventory related to the proposed recalls inventory would have increased 27% to $406 million.
This represents a decrease of $85 million since reaching peak levels at the end of the second quarter.
Total debt, excluding unamortized deferred financing fees and finance leases was 90 million compared to $113 million at the end of last year's fourth quarter.
During the quarter, we made principal payments of $6 million.
Now turning to our fiscal 2023 outlook.
We expect full year sales to increase between 3% and 5% compared to fiscal 2022's adjusted net sales.
While we acknowledge that this range falls below our long term target of 10% to 15% growth. It does reflect the estimated impact of the stop sale of products affected by the proposed recalls and our expectations of wholesale sell in to start the year.
We expect growth and the DDC channel will offset that decline in the wholesale channel driving R. D to see mix to approximately 60%.
We are planning to return to wholesale growth in the fourth quarter, which includes our expectation that seasonal selanne will revert to more traditional timing in 2023.
Versus the earlier ordering in our wholesale channel that we saw in Q3 of 2022.
I category, we expect growth and drink, where two more than offset a decline in coolers and equipment given the impact of the proposed recalls.
Our plan is to introduce a full line of redesign soft coolers and side kick dry gear bags in the fourth quarter, where we expect strong category growth to reemerge.
Moving onto margins, we expect gross margins of approximately 55% for the year up from 52.7% in fiscal 2022.
This improvement is primarily driven by lower inbound bright cos as the lower container rates, we began to experience in the second half of 2022 begin to flow through our income statement.
In addition, we also expect to see a benefit from higher data see sales mix in 2023.
We expect to build from slightly down year over year gross margins in the first quarter with sequentially higher year over year margin expansion each subsequent quarter.
With SG&A, our plan is to invest consistently across our business throughout the year.
Total SG&A dollars are expected to increase mid teens, implying approximately 400 basis points of deleverage for the year.
We expect this impact to be fairly evenly split across four areas <unk>.
Higher variable expenses related to the expected channel shift to D. C <unk>.
Ongoing investments in areas, such as technology and the international <unk>.
The return to more normalised incentive compensation levels and the impact of the lower sales base from the stop sale of products affected by the proposed recalls.
From a timing perspective, we expect a slightly higher rate of year over year growth and SG&A and the first and fourth quarters.
We expect operating margin in the range of 15 per cent to 15.5% for the year the.
The timing of revenue growth and pacing of gross margin improvements will drive year over year operating margin declines early in the year, followed by and expect a return to over 20% operating margins in the fourth quarter.
Below the operating line, we expect interest expense of approximately $6.5 million in there.
Effective tax rate of approximately 24.9% for fiscal 2023.
Based on full year diluted shares outstanding of approximately $87.2 million, we expect adjusted earnings per diluted share declined 5% to 10% to between $2.12 and $2.23.
$2.36 and fiscal 2022.
We estimate that the stop sale of products affected by the proposed recalls will negatively impact earnings by approximately 30 cents to 35 cents for the year.
Looking at cadence, we expect first quarter adjusted earnings to be slightly less than half of the prior year's levels followed by sequentially improved performance. The following two quarters before returning to strong growth in the fourth quarter.
As we consider capital allocation are operating cash flow is expected to build as working capital normalizes. Following two years of heavier cash utilization.
This includes year over year inventory reduction starting in the first half of the year, followed by an expected rebuild of our soft cooler inventory to end the year approximately flat from where we ended fiscal 2022.
Investing in our business will remain a priority as we expect capital expenditures to be higher year over year at approximately 60 million, reflecting incremental investments across a number of key initiatives, including a global I T rollout <unk>.
Expanded customization capabilities accelerated retail openings and product expansion.
With expected free cash flow generation and the 100 million to 150 million dollar range for the year. We will continue to look at a range of capital allocation opportunities we.
We will continue to remain diligent in our work around strategic M&A and believe the current environment may create new opportunities that a line with our brand and product roadmap direction.
A side of M&A, we will evaluate capital allocation alternatives, including share buybacks as our cash balance grows.
In summary, or 20 twenty-three strategy and outlook balances some near term obstacles to growth with our continued optimism and positioning for the future.
We will remain focused on driving consumer demand across all our channels and believe wholesale channel growth will begin to improve as buying patterns normalized.
At the same time, we will continue to execute our product strategy with great new products like the go box family and upcoming Drinkware extensions, while also keeping a sharp focus on reintroducing a full slate of redesign soft coolers and sidekick dry gear bags back into the market.
Gross margin Tailwinds, our plan to steadily ramp throughout the year, which we see continuing to be a positive dynamic moving into 2024.
We are constantly rebuilding our SG&A expense based to further support and extend our forest strategic growth priorities.
Even as it pressures operating margins in the near term quarters.
And we will continue to focus on maintaining a strong balance sheet, while increasing our free cash flow generation, which we believe provides optionality and delivering future value.
Most importantly, we are diligently working to exit 20 twenty-three with a growth profile that is aligned with our longterm growth algorithm.
As well as our high aspirations for the brand in the years to come.
And now I would like to turn the call back over to the operator to take your questions.
I will now begin the question and answer session.
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Alright yourself to one question and one follow up.
If you have further questions you may reaction to question Q.
And that was started in one last question and at this time, we will pause momentarily plus I'm on the roster.
And our first question will come from Barack Ranch.
In fact, please go ahead.
Good morning, and thank you so much for taking my question that I was wondering if you could contemplate a little bit more about the return tinkered longterm growth algorithm, a 10% to 15% how did you see that playing out between your key channels and between the key geography's what proportion of grads will be sourced internationally verses that you.
And then just one follow up could you also discuss the competitive dynamics in the wholesale channel, particularly enjoying Claire how are you thinking about selling in south ruined twenty-three for products that are not associated with stop sale. Thank you.
Okay. Thanks broke good morning, what I would say as we think about the return to growth and you heard me say it and you heard likes it because we look across the the product portfolio. We have the innovation pipeline at the opportunity to continue to engage with consumers and the U S market throughout direct channels and our.
Credible wholesale partners and then we look at what we consider the relatively untapped global opportunity, we feel really good about about how we get back to that level. When you take away. The the proposed voluntary recall.
Obviously, we expect based on it's size that international will be a big part of that a big part of that growth resurgence, but as we've shown year over year. The domestic market as we continue to drive innovation reached the brand drive new geographies pull more customers into this into the brand and then.
Really drive retention of those customers that we can continue to drive growth in the core market and really that's a broad statement across our product portfolio.
So we feel good about we're we're positioning the business World War positioning the business for 23 before the proposed recall and and we're we're positioning the business now to exit 2023 and beyond So you know I think that it's really kind of running the yeti playbook that we have for the last 15 plus years of finding new customers <unk>.
Ring, the brand growing a product portfolio and driving into new geographies.
It's a bit of why we talked about continuing to lean into the investment I think there's a year, where there's a real opportunity to set you up for a great close to 2023 and a great start to 2024.
As we switch to the specific in the wholesale channel and the competitive dynamic as we said before broadly we haven't seen a significant change in the competitive dynamic Apple sale or really cross our channels. You know there are there are market alternatives across our product range there have been going back to our earliest days.
This is a brand new I think the strength of the sell through that we continue to see overall as yet either strength to sell through that we've seen through our wholesale channel not just in queue for but throughout the year I think indicates to us that as we continue to bring innovation as we continue to show the product portfolio as we continue to show up at Yeti mm Nah.
Not a singular products not a singular product family or category that really continues to drive strength and resonate with the consumer.
Thank you very much.
The next question comes from theater benefits of Bird. Please go ahead.
Oh, Hey, guys. Thanks, Thanks for taking the question I guess it just kind of curious you just you're thinking big old deeper on on twenty-three obviously.
He laid out a lot here, but.
You know what let's let's take the the revenue growth.
Excluding the stop sale at around 8% to 10%.
How confident are you that that <unk>.
Embraces the risks to consumer spending that could accrue both domestically and internationally just trying to understand how you feel like you've derisked that view for 23, that's my first question.
Thanks for your good morning, I'd say, a couple of things as we thought about how the year paces out. We're we're thoughtful about the front half of the year.
Just how the consumers gonna behave we've talked about working very closely with our wholesale partners on making sure. They have the the right inventory to dress the sell through opportunity what we're seeing an R. I D.
D G C business in in our wholesale sell through year to date has been really positive and so we feel while we're taking we think are prudent outlook as we as we go into this year. We've seen some positive signs that the consumer continues to hold up yeah. I also as we talk a lot about the price points of our products are.
While premium in their category are really relatively achievable price points. When you think about the the absolute price part of our drink where you think about the giftable nature of the products. You think about the continued innovation that we bring <unk> excuse me, whether those are color ways or extensions of sizes and so.
I I think we've put a really thoughtful plan together for the year I think we would recognize the challenges that are that are presented with the first half of the year and you know as we build build strength of the year. We also think internationally, while we're cognizant of the different markets around the world and the challenges there the benefit of being <unk>.
<unk> on that journey.
Is we can we can pivot and go identify pockets of strength and we can drive continue to drive that grew up. So you know I think going into this year, we feel we feel good about I feel good about where we are and we forget about the trajectory is gonna put us on as we as we wrap 2023.
Oh, that's that's all well thanks, Matt and then just with respect to the to the proposed voluntarily recall just.
I'm just curious if it can expand on the range of outcomes here I mean, what you've laid out.
Does.
Does that is that you know the worst case is there is there an environment or scenario, where you don't have to call back all the products or I just tried to maybe framed what you've laid out here and what what else could transpire over the next several months that would that would maybe.
Ah just the impacts that you're seeing here I don't know if you could help us kind of maybe understand that.
Qualitatively, if not I'm certainly problem about cloth quantitatively. Thank you yeah yeah.
Thanks for your I'll take it qualitatively, obviously anytime these situations, there's a lot of estimates and assumptions that go in we feel like we've made [noise].
The appropriate.
The approach appropriate assessments and judgments are working in collaboration with C. P. S C and and make sure that we're following.
Following the right the right approach and that we're thinking about this thoughtfully for the business and for the brand and for our products and primarily in more most importantly for our customers and I think when you think about the so it's tough to put a collar on the arrange about comes because we put forward. What we think is the the appropriate assumptions.
<unk> and that's what's baked into our 2022 and 2023 you.
You know I think there's the opportunities for us as we work to get those products back to market one of the things that we said at it may have been missed in the prepared remarks, as we were planning to actually expand the range of those product lines and and so we have a team working on not only bringing those products back to market, but the future potential of more products within <unk>.
Category, we believed deeply in the software category believe deeply in the dry bag <unk>.
Expansion opportunity and so as we bring those back to market those those create opportunity potentially of 2023 and and beyond so I would say that you know we've.
We feel we feel we've made very sound judgments for what we know and where we are right now and and based on the appropriate estimates.
Got it okay. Thanks, so much good luck.
The next question comes from.
Of Stifel. Please go ahead.
Hello, Thanks for taking my question I'm, hoping you can elaborate too on the wholesale channel inventory dynamics, specifically I'm curious just postmortem how it got to the state are retailers rethinking the appropriate level of Luke's inventory on hand, where did they get a really ambitious with inventory positions and then finally.
I'm curious how this impacts go to market with things like the rollout of new.
New color ways, and so far through the merchandise assortments they will represent a retail X.
Good morning, Jim and thanks for the question you know what I would say is and we've said before we have incredible wholesale partners and very tight relationships that we spend.
On a on a weekly if not if not more often basis talking with them about strategically.
Are we driving sell through how's the brand being positioned how do we assort, how do we manage inventory and because we said on our last call. We had a wonderful year with with wholesale strong sell through strong replenishment of their inventory and we went in queue for as ready as as we've been in years and felt very good.
About that you know.
The thing that I think manifest in Mike mentioned, this and I talked a bit about it is.
The way demand flowed in the fourth quarter really started to show up later than than we expected and later that we had seen in prior years, we had incredibly strong demand right before the Christmas holiday it flowed over into the week. The week. After Christmas. It's just that demand Bill later, and so our wholesale partners in partnership with Us.
We're ready to go and we're ready for the earlier demand it didn't manifest that way and so the replenishment opportunity was was shortened in the quarter.
We feel good about where we're starting off the year from a wholesale perspective, we feel good about the sell through that we're seeing across our channels, including including wholesale quarter to date.
But we're also cognizant that people are taking a cautious position around their inventory, we haven't seen it affect any merchandising strategy. We still have open conversations around not only existing portfolio, but also as we importantly rollout products that weren't broadly available on wholesale and 2022, so our yonder water bottle.
Rolled out more broadly in the channel here in the next next month or so our new wheeled coolers will be more broadly available in the channel or two straw lid.
<unk> sizes will become broadly available in the channel and they weren't in the wholesale channel and they weren't in 2022. So we feel good about the relationships we feel good about the assortment planning we feel good about the customer facing and you know now it's now it's a matter of just continuing to work closely with our partners as they get through their their their inventory management and our.
Sell through demand and move through the year.
Thank you for that.
The next question comes from <unk>.
I'll pay for Sandler. Please go ahead.
Okay. Your line is open.
<unk>.
Sorry about that everyone. Good morning, I wanted to dig into the topic gross margin and you've got in 2023 gross margin of 55%, but how should we think about that roadmap of getting back to prior peak, which nearly touches 58% and could even be a chance you overtime.
<unk>, 58% of that we just think about the mix of D. T C being higher as well as a some modest price increases.
Good morning, Peter and thanks, Thanks for crushed I'll I'll take the front end of that and then my <unk> I can add a little context on how we feel about gross margin over time.
I would say, we feel great about getting our gross margin back to 55 as as quickly as we have we talked all about that as we were facing these container costs and as they work their way through our inventory and as we manage it down that we said through 2022, we believe the gross margin opportunity for this business Uhm was there and that the 510.
A basis point headwind on it was was really a transient type thing. It's it's we see that playing out so we feel great about the the recovery and the strength and what that show's about the premium nature of the brand in the pricing power of the brand and that we continue to realize that gross margin. So you know as we go through 12.
Twenty-three that rebuild is it pretty quick pretty quick rebuild it pretty quick recovery, we're not calling a stopping point.
But I think as we are on our kind of on our journey to to continue to March those those gross margins back up.
Yeah, Hey, Peter So in addition to what Matt said, what I well how expand on that.
We've we're going to get some of the impact back from higher inbound transportation costs that we've that we've seen the last two years.
But we still have more to go in and 24 so.
You'll start to see that impact grow and build as we as we go through 20 twenty-three other factors that could that could play into you know as we continue to try to grow DDC faster than wholesale will see a benefit from sales mix.
From a from a product cost standpoint, <unk> expecting relatively muted impact in 2023.
And so we feel good about where our margins are in 2023 and you know we think there's opportunity for it to run further as we go into 2024 and beyond as those lower and freight costs continue to work through our our our piano.
Okay. Thank you and kind of related to the the the recall, but just looking at your product innovation pipeline.
Does that get disrupted here in 2023, as you need to to pivot to the the soft cooler category should we think about that innovation pipeline now maybe just looking at two to three years with the recall element.
Yeah, I would say a couple of things the team that is working on the soft cooler is the team that works on our salt coolers. So it won't we don't see it as.
Any impact on the plan roadmap, we have this year or over the next two to three years as it relates to other products.
Thing that would be the most the most acute impact and it was what I learned to on a prior question was the planned expansion of our soft coolers and a planned expansion of our dry bags you that that would have kind of come sooner that will now follow the reintroduction of these products to the market. So I I think that peace.
Of it.
What would be the most direct but that's contemplated here I think for the rest of the product portfolio, they run or the rest of the product roadmap. They run a relatively independent of this.
Okay. Thank you very much good luck.
Thanks, you too.
The next question comes from Sharon <unk>.
<unk>.
Hi, good morning.
I know you've talked about <unk> being happy with them.
<unk> I'm 23, but can you maybe provide more color around Canada pulse of South River versus my ear theme.
Earlier on 20th I think you know people are there's a lot of moving parts and folks are kind of grappling with maybe one underlying demand for the product right now.
Any any color on what's going on on wholesale south are particularly in light of T. T C actually accelerating and the fourth corner would be helpful.
Yeah sure thanks for the.
Question I would say our wholesale.
Broadly are sell through wasn't markedly different than the other quarters. In 2022, you know there were we have some a quarter that was higher we have some quarters that were right around it but largely they operated you know most of the quarters operators are within the same within the same.
Target area.
Things move between the channels one of the things that we talked about on prior calls that was most interesting to us in 2022 was how as we inventoried our channels are broad channels more fully how demand shifted between and underneath our envelope. So what we saw in 21 and and really and 20.
With the disruption was we had some force disruptions of channels and then we had inventory constraints that caused us to make decisions on where we placed inventory 22 was the year, where inventory was most broadly available cross our channels.
And so what we really started to study was where do consumers and up all other things being equal as it relates to inventory availability and then rebuild off that baseline and I really think this year absent absent of salt cooler and dry bag discussion I think this year was the first year in a couple of where we were sort of bouncing.
Off that that platform of really broadly available inventory and what I would call more natural kind of consumer shopping location.
Okay and then my second question is really <unk>.
We are currently stepping it up this year.
It also it just feels like from the outside that you guys take I'm pretty cautious approach to innovation. So for example bags introduced an early 21 I you know I don't need anything else.
Mentioned in the commentary so how I guess how quickly.
That new innovation to actually impact.
Top line resolved teams and as I think about table top and and bad it's like how how is bad it's been progressing added into at wholesale in the fourth quarter and when you launch these new categories I I'd I expect it to be kind of.
Not material to resolve for a few years before as you <unk> and then become more material.
Three or four I, just was trying to get some guidelines around product category cycles here.
It shows that there's probably a number of things inside there I'll try to attack at least a few of them. You know we are we are continuing to grow our innovation and and the number of things in a thoughtful way we put out a cross product families. So if you look over.
A two year stack <unk>.
Last year, we expanded our soft cooler.
Products, we expanded our heart cooler products into wheeled coolers, we expanded a number of our drink bar products, our first foray into into plastic bottles.
This year to date, we've expanded our cargo business, which is building off something that we launched a few a few years ago and.
And then we've alluded to later this year, bringing out things that are more outdoor camp outdoor entertainment tabletop type things that can move between those environments, which will expand the definition of what we would call the kind of single use drink where.
So I think that the.
Cadence and pace, we like because it gives us a chance to really focus and do as you've seen year to date really high quality launches and give consumers a moment to to understand the product portfolio.
You know I think that certain certain things, we pace out a little bit longer. So you you mentioned bags, we launched in 21 and 22, we came back with an extension of our Camino line, and and some and which are totes and some color ways I think as we go into 24, you're gonna see a <unk> kind of come come back and refocus on expanding.
Mm expanding bags, but it's really this idea of driving the consistency of waves of innovation hitting the shores. So we're never overwhelming and things getting getting lost but as we scale as we become more global I think you'll see the pace of innovation continue to to grope not just in the depth, but in the breath of what we do.
Thank you.
The next question comes from Zion female SBF Paypal.
Please go ahead.
Hi, guys I wanted to follow up a bit more on the the range of outcomes for the the cooler. So you mentioned that you you're targeting four Q for the reintroduction of the product I guess like the reason, it's taking so long as you're basically re launching the whole line is that right cause he wrote down the inventory, there's no fixed or anything like that.
Just trying to think about like what are the steps to get the product back to the market for queue and have you identified an alternative to the magnet or do you just want to find some kind of.
New closing mechanism just maybe some more color on that would be helpful. Thanks.
Yeah. Good morning. Thanks. Thanks for your question, it's it really is.
As you said were were you know.
We've remove the products on the market, we re launching will be re launching a new product. We expect the closure to be similar in familiar meeting operate the same way, but it requires us to go re look at you know all the features around how those how the the magnets or <unk>.
Closed how it's attached to the product and and that's the work the time really use if.
Because we're relaunched you get an entire an entire portfolio at volume to go address dressed the late and demand that's out there for the product. So that's that's the longest the the longest aspect of this is it's not just getting a solution that works and there's there's not a rework path here, it's really bringing a whole.
Products back to market. The good news is the vast majority of the product is done and known because it's the product we've been selling so we're really focused on this this one closure aspect you know as I as I think about.
That's that's really the the push the teams well down the path on not only identifying a solution, but then identifying the.
The manufacturing and manufacturing a scale and then bringing this back to back to market you know I think the other the other thing in the range of outcomes. Here is you know this is this is a product that has been removed from our portfolio.
We think forward what we're focused on is how does the rest of the portfolio fill in in <unk>. So we we have a <unk>.
Incredible lineup of soft coolers that are still on the market in our in our flip series, we have hard cooler alternatives for consumers that are just looking for something yeti. We have bag alternatives, we have drink water alternative so I think you'll see us continue to lead into.
Some of our commercial prowess in in our brand building and getting <unk>.
Creating customer discovery around the rest of the product portfolio, while we walked through the soft cooler and dry bag issue.
Yeah, that's helpful and that was actually kind of where I was going with my follow up have you seen any kind of consumer like maybe someone who is in the market for the soft koolade hopper kind of opt for one of the other like the flip categories or or maybe like yeah like any kind of lessons you're starting to see.
Kind of leaning into that for like are there any kind of data points you can share in terms of how consumers are reacting too.
I guess switching it's a different product lines.
You know what I would what I would say, we're early or early in the year, but I would take the comments that we.
We've seen positive positive sell through if you look at the the social response to our cargo launch it's been fantastic and.
To a question earlier, that's a product that we sat on one skew for.
Quite a while and now are brought out brought out a family.
The response, we've had to the new colors that we just launched and and not just the way we seen those perform because they are the colors, but it's interesting to look at those colors against some of our long standing skews and in those colors against some of our newer skews and how they perform in consumer preference.
So you know I think that the the the void that the the removal created.
You know I think we we believe that there's opportunity for us to keep keep kind of chaser.
Chasing chasing filling that in I think it's too early to call how that all materializes, but but we like some of the positives that we're seeing.
Okay very helpful. I'm. Good luck guys. Thanks. Thank.
Thank you.
The next question comes from Raleigh.
Bank of America. Please go ahead.
Hey, Matt I I wanted to you highlighted doing more with Amazon and I wanted you to sort of can you tell us what does that mean exactly maybe remind us.
Where where Amazon is in terms of profitability working on their their three P marketplace.
Doing more with them, how how much more does that have an impact on being a little more cautious on on filling wholesale in the U S. Just more more thoughts on that would be great.
If thanks, Thanks, Robby what I would say on Amazon, they're doing more is primarily a non U S. U S comment we feel good about our marketplace relationship, we don't expect that to change or to expand.
Beyond beyond the marketplace.
We'd like the we'd like to reach it provides you know for the for the Amazon consumer that's where they that's where they start and that's where where they want to shop. So you know I think getting the inventory right there and getting it optimized so that we were available to consumers with a big with a big focus of of 2022, and we feel good about where we.
We are in 2023, as we think about non U S and we mentioned on the call fulfilled by merchant in Canada via Amazon you know I.
Because we'd look at specific markets around the globe.
Gotten comfortable as I mentioned that we can we can manage it from a brand for our brand perspective, we can manage it from a consumer reach perspective, and then it gives us a really nice way to get to get into and compliment some of the other things we're doing in these markets and our DDC business in Europe .
Changes to perform well our wholesale business performs well and this is a nice I guess, an additional corporate sales business is a nice a nice additional leg to the business.
I think as it relates to profitability all that Micah My Tech that yeah, Hey, Hey, Robbie So what I'd say is from a gross margin standpoint. It is.
Equivalent with the rest of our D C channel and and yet a dot com in terms of the having one of the stronger.
Gross margin profiles in our portfolio there are additional SG&A expenses that come along with with selling on Amazon.
Their fulfillment their listing fees et cetera, but but overall that just the bottom line profitability. Your contribution margin of of Amazon is is is is accretive as strong and is is you know a big part of the you know just driving overall.
Operating income strength in 2023.
Thank you that's really helpful. And then just one quick follow up on U S. Wholesale are you guys potentially reducing any doors or or accounts and are you are you kind of moving you know Matt to more segmented product offering by account or door.
We don't have plans to you know and I know you've kind of watched wash our story over time as we've talked about consolidating around strength and really building. What we think is incredible stable of of wholesale partners. We don't have any near term plans to continue to.
Reduce that there's you know there's a small things that happen, we added or we we changed door, particularly around as we expand commuting and audiences that we're trying to reach or geographies that we're trying to put the better better representation and but I think the assortment planning we're not we're not merchandise.
Using narrowly at certain doors and broadly at other doors, it's really what can what can that partner properly represent and handle based upon based upon their consumer traffic in their shelf space and so.
By nature bigger doors tend to be able to hold a bigger assortment and and smaller doors, maybe a slightly a slightly narrower <unk>, but we still believe that <unk>.
<unk> is best presented when you see multiple product families and that's why consumers come shopping that's why consumers engage with the brand.
Versus a product by product assortment.
<unk>.
Got it that's really helpful. Thank you.
The next question.
<unk> comes from Brian Mcnamara can according to anybody. Please go ahead.
Alright, Thanks for taking my question I'm curious how this how does this malfunction happened does it relate to any change in supply or a manufacturing changes or anything like that and does it pose a risk to any production of any other products and then secondly can you give us an idea of how important a new product introduction like the Harper I'm 20, or 30 <unk>.
And any particular year given they were either relaunch you introduced about a year ago. Thank you.
Yeah. Thanks, Brian .
I'll take those the.
As far as risk to other products no. You know this specific thing is the the strip that holds magnets on the soft coolers. So the the closure on the soft coolers in our in our dry bags.
You know this goes back <unk>.
Six seven years ago to a design that we made for our first dry backs and it's been in the market. Since early 2018, and I mentioned I mentioned the the number of units that that have been sold and I mentioned the number of units that had been affected by some type of kind of.
Issue here that has a relationship to that to that magnetic strip. So you know I don't I don't see a spillover, it's not related to a specific a specific thing beyond the impact on our soft colors and dry bags.
You know I think that when you think about the impact of them 20 and 30.
The the when we launch a new products like the 20th 30. It replaces a prior generation. So there wasn't M 30 prior that that we retired and there was a backflip.
Backflip soft cooler there was the predecessor to the 20th both those products came out of the market. The 20th 30 came in so if you take Mike's comments about 500 basis point topline headwind for the year when.
When we launched products, we get we get really meaningful meaningful impact because they pick up the momentum of their predecessor, and and go from there. So these are obviously big.
Big opportunities Big deals is why innovation, so central to our business.
Our last question comes from <unk>.
Please go ahead.
Hi, Good morning, this actually Martin <unk>, a couple of quick questions here regarding gross margins.
When do you plan on lapping the iron inbound freight and when does this come in large and Carolyn.
Second question, how much is a headwind can we see from product costs us here. Thank you.
Yeah. Good morning, So what I'd say is we will.
Start to see that benefit obviously in 2023, what we said was we expect <unk> Q1 margins to be slightly down and then to grow sequentially from there.
And so you'll start to see will start.
To laugh that benefit and start to see it driving gross margin improvement.
Definitely in the first half of this year and then growing from there.
From a from a product cost standpoint, we expect in 23 to be the impact to be fairly muted as things have have stabilized. So that's why we didn't call it out as a as a significant driver in in 2023.
Got it thank you so much.
Question and answer session I would like to turn the conference back.
<unk> Friday closing remarks.
Thanks, everyone for joining us. This morning, we look forward to updating you on the progress on our queue on earnings call have a wonderful day.
The conference.
Thank you for attending today's presentation.
That's correct.
[music].