Q1 2023 YETI Holdings Inc Earnings Call

Speaker 1: Archi for the zero.

Speaker 1: After today's presentation, there will be an opportunity to ask questions.

Speaker 1: To ask a question, you may press Start and 1 on your touchtone telephone.

Speaker 1: To withdraw your question, please press 2*, and 2. Please note this event is being recorded. I would now like to turn the conference over to Thomas Hoel, please go ahead sir.

Speaker 2: Good morning and thanks for joining us to discuss Yeti Holdings first quarter 2023 results.

Speaker 2: Leading the call today will be Matt Reitges, President and CEO , and Mike McMullen, CFO .

Speaker 2: While I'm going to prepare remarks, we'll open the call for your questions.

Speaker 2: Before we begin, we'd like to remind you that some of the statements that we made today on this call 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.

Speaker 2: For more information please refer to the risk factors detailed in our most recently filed form 10q and the form 8k filed with the SEC today.

Speaker 2: We undertake an 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.

Speaker 2: Unless otherwise stated, our financial measures disclosed on this call will be on a non-GAAP basis.

Speaker 2: We use non-GAAP measures as we believe they more accurately represent the true operational performance and underlying results of our business.

Speaker 2: And now I would like to turn the call over to Matt. Thanks, Tom, and good morning, everyone. Yeti's off to a good start to 2023 as we continue to drive demand globally for our brand and product. We delivered top and bottom line results that put us on pace for our full year financial commitments. Our team did a tremendous job driving focus on our brand and innovation. In addition, we are pleased with the design improvements on the products impacted by our voluntary product recall, solidifying our plans to return new and improved versions of these products to the market in Q4 of this year.

Speaker 2: Looking at a few of the financial highlights, sales increased 3% for the quarter, which, as previously highlighted, were negatively impacted by both the voluntary recall and the expected slow pace of orders in the North American wholesale channels.

Speaker 2: Michael provide more color on the sales impact of the recalled product. But we were pleased overall with our ability to post growth for the period in Cooler's equipment, supported by the performance of our portfolio of products, including our non-impact and soft coolers and the success of our expanded GoVox cargo line.

Speaker 2: On the drink bar side, sales met our expectations with 3% growth, led by sustained strength in Rambler bottles and the expanded introduction of newer products, including our Tumbler Straw Lids and our new Yonder Water Bottle.

Speaker 2: By channel, DTC was up 7% as we saw growth across both customer acquisition and retention. Whole sale decline just 1% for the period. As we communicated in our Q4 call, Whole sale inventory within our North American partners was above expectations to start the year.

Speaker 2: and continue to improve as we progress through the quarter paced by cell-through. However, upcoming quarters will have some continued cell-in headwinds, particularly given the introductions of the two very successful soft coolers introduced last year that are part of the active recall.

Speaker 2: We also remain committed to investing in Yeti during the period, and will do so throughout 2023, leaning into strategic areas of growth as we see continued global opportunity for the brand in our products. Before a deeper review of our strategic priorities, I wanted to highlight three areas of the business that demonstrate both how we are executing in the near term, while also setting the foundation for how we continue to scale over the long term. First, and as mentioned, we are on track to reintroduce improved versions of a three voluntarily recalled products back to market in a fourth quarter. The team worked tirelessly to redesign and validate a new solution.

Speaker 2: We officially started production of finished goods this month and will spend the coming months ramping production and delivery of these new products.

Speaker 2: In parallel, and importantly, we are also planning to expand the range of offerings of these incredibly well-received products, and we expect these will also be introduced later this year.

Speaker 2: I'm incredibly proud of the diligence of our collective team who prioritize the safety of our consumers and the quality of our products in developing the solution.

Speaker 2: Second, we continue to make significant progress against our strategic efforts to drive supply-chained diversification across our categories. Drinkware has historically been a challenge to this progress as the vacuum insulated stainless steel industry has been highly concentrated in China. Over the past few years, we have worked closely with our existing partners to find ways to streamline and automate steps in the production process to create supplier portability. The result of these efforts is that we have recently begun production of some of our core volume skews, the Rambler 20, and a new advanced factory outside of China.

Speaker 2: These moves are thoughtful, well planned, and evolutionary, demonstrating both the strength of our supplier partnerships and the willingness to invest in more transformative supplier solutions. Finally, we continue to drive circularity of Morietti products with over 70% of our product portfolio now in the scope of circularity programs.

Speaker 2: Last quarter, we mentioned the introduction of Yeti rescues, our pilot resale program on Yeti.com to extend the life of returned or slightly reduced coolers.

Speaker 2: In April , we debuted our Rambler by-back program exclusively at our Yeti Retail locations, where customers can trade in and recycle their drinkware for in-store credit.

Speaker 2: We will continue to learn from these pilot programs to understand how they can extend deeper across our Omni channel over time.

Speaker 2: These are directly supporting our ongoing efforts to keep the wild wild, and we believe these programs can be additive to our customer acquisition and retention efforts. Now shifting deeper into our strategic growth priorities.

Speaker 2: Our focus on global partnerships and new and existing communities was on full display if you want.

Speaker 2: This partnership remains an incredible opportunity to engage with new global customers while helping to protect and conserve the world's oceans through our support of the WSL's We Are One Ocean initiative. In March, Yeti headline the second leg of the 2023 Natural Selection Tour at Rebels Stoke in British Columbia, creating engagement opportunities both on and off the mountain, including events benefiting two of our conservation partners, sea trees, and protect our winters. The event culminated with a sold out Yeti film night hosted by our snowboarding ambassador Travis Rice, fresh off his win at the competition.

Speaker 2: Later that month, the team headed to Switzerland to the free ride world tour where Yeti was the headline sponsor for the series final event in Berbae. This year, our activation included on-site product engraving, hosting the welcome party, and bringing Yeti culinary ambassador Nick Weston to cook in a live event for the crowd.

Speaker 2: To end Q1, the Formula One champion Oracle Red Bull Racing Team announced the idea as their team's official cooler and drinkware, capping an incredible quarter of global engagement and activations. We remain committed to how we serve both new and existing communities locally. For instance, we continue to drive impactful interactions in our heritage fishing communities at Corvette.

Speaker 2: kicked off support for a specialty VIP program with Metallica as they begin their M72 World Tour. This is classically Yeti partnership of organic integration and support utilizing our Alpine yellow drinkware to match the key color of the tour. The tour opened with a show in Amsterdam this month and will tour Europe before coming to the US and then back to Europe over the next two years.

Speaker 2: In addition to executing these engaging brand initiatives, impactful product marketing remains key to differentiating our premium portfolio. Our cohesive, multi-medium execution of the expanded GoVox collection is a great example here.

Speaker 2: Anchored by our overarching what goes here goes anywhere tagline. We leveraged a 30-second hero film and are packed and bastard social series to show how pros use our products.

Speaker 2: Then we launched our Craig's Lost campaign, which helped turn Craig's List Gear losers into surprise and delight GoVox winners.

Speaker 2: After combing Craigslist for stories of items lost in the wild, we enlisted our ambassadors to help replace lost gear while promoting the durability and organizational capabilities of our GoBox line.

Speaker 2: As we shift to our product focus for the first quarter, we prioritize launching our normal cadence of new products, while executing on the solution for the voluntary recalled products.

Speaker 2: Though the recall removed two of our key soft coolers in the market for most of the quarter, strong performance in our hopper flip line supported overall coolers and equipment category growth and reinforced our leadership position.

Speaker 2: As Michael discuss, this comparison will be more difficult in the second and third quarters as we laughed the bulk of last year's introduction of our anchor M20 and M30 soft coolers. In hard coolers, revenues were down to the period, primarily reflecting less cell-in-it wholesale, even as cell-through remained positive.

Speaker 2: As we move into cooler season for moms, dads, grads in the beginning of summer, we have amplified our on-the-go storylines now that the Rode 48 and 60 wheeled coolers are available across our Omni channel.

Speaker 2: Regarding cargo, I've already mentioned the success of the GoBox launch where early demand exceeded expectations. This is a category where we will continue to invest in product innovation and build out across our wholesale footprint.

Speaker 2: Rounding out the highlights and coolers and equipment, we continue to see solid growth and bags where we remain focused on pace distribution decisions to continue building awareness and consideration.

Speaker 2: In Drinkwear, we saw growth for the period within the range of our expectations.

Speaker 2: The hydration story has emerged as a key driver of the broader category this year, which we believe is supported by our continued strength and performance across our Rambler bottle line and straw lid tumblers.

Speaker 2: We have also supported this trend with the recent full channel expansion of our straw-led mugs and our yonder water bottles.

Speaker 2: The Mug's have already become some of our top performing SKUs at wholesale, and our color customization for Yandr just launched for the first time on Yeti.com last month.

Speaker 2: Drinkware innovation will continue throughout the year and includes more premium category offerings, expanded bottle options, and newer entries that will extend how we think beyond individual use products.

Speaker 2: This kicked off with the recent debut of our Rambler beverage and ice bucket, expanding Yeti into new categories of outdoor entertaining and group dining occasions.

Speaker 2: We will continue to push the innovation story in 2023 and beyond as we bring additional product to market instead of future product family expansion underneath the Yeti brand halo.

Speaker 2: Brand and product come together in our go-to market and how we reach consumers around the globe when and where they want to shop. This is central to our belief in the importance and balance of wholesale and D to C channels to market. To support this direction and elevate our responsiveness to consumer needs, we recently announced the full alignment of our commercial channels under our chief commercial officer. Furthermore, J K D. Th bef?? detection of the sauce-fired industry and 0.5 Free. They want the company to be 42. 4 Win on Wednesdays August 1st, 2015 Ach make up the entire online

Speaker 2: This allows for the uniqueness of each channel, but also the incredible opportunity for knowledge sharing. We are already seeing the benefits of this new structure. At the highest level, this ensures we are positioned to deliver consistent, high-impact experiences wherever we interact with our customers or consumers.

Speaker 2: This starts at yeti.com where we are elevating the consumer experience in amplifying product positioning. We are growing how we merchandise our product categories in even more relevant and effective ways. As an early example, our all-day drinkware positioning provides a perfect yeti solution as customers wake up, set out, and wind down.

Speaker 2: We'll continue to build upon this storytelling format and more categories and geographies. We also further differentiated our site through better visibility of our used gear offerings, as well as the debut of the Yonder color customization.

Speaker 2: Overall, we are seeing balanced acquisition and retention growth of our e-commerce customers, but believe we can build upon these trends as we continue to differentiate this experience. In our other channels, Amazon remains strong, particularly with improved inventory positioning.

Speaker 2: Corporate sales continue to post solid growth on top of a very strong gain throughout 2022, as we continue to leverage the range and diversity of our account base.

Speaker 2: And in any retail, we open our first location of the year and 14th overall just outside of Omaha, Nebraska, which is already off to a fantastic start.

Speaker 2: On the wholesale side, we have seen positive cell-through despite the more tepid cell in environment.

Speaker 2: resulting in inventory levels that have improved since the start of the year.

Speaker 2: Some caution remains in the channel, combined with the tougher soft cooler comparisons that will keep growth pressure in the near term, but we continue to have positive and productive conversations with our accounts and remain encouraged with our success in elevating our positioning and merchandising with our partners.

Speaker 2: Switching to international, mix reached a new high of 16% up from 13% last year. This increase was partially attributed to the outside domestic impact of the recall and wholesale selling. Strong growth was once again posted in our big three international markets. We remain on track with some evolutions in our global supply chain as we transition our distribution.

Speaker 2: We see the potential to drive strong growth in this market and see ongoing opportunities to sharpen how we go to market and localize our engagement.

Speaker 2: Australia growth remains outstanding as the brand continues to be supported by some of our newer partnerships, including the two WSL events we hosted this quarter, and a launch activation at the Australian Grand Prix to highlight our new partnership with Oracle Red Bull Racing.

Speaker 2: Finally, we continue to see tremendous opportunities and excitement in Europe . From launching Yeti Product to the Skate Store in the UK with Ambassador Jeff Rally, debuting our Yeti European Instagram page at the end of the quarter, or launching our newest sales channel with Amazon Europe , we are creating a foundation to unlock the brand across the continent.

Speaker 2: Before I turn to Mike for the financial details of the quarter, as you may have seen, Tracy Brown has elected to step down from our board of directors.

Speaker 2: I'm incredibly grateful to Tracy for her three years of impact serving Yeti and on behalf of everyone at Yeti I want to thank her and wish her well in the amazing opportunity she has in front of our Walgreens

Speaker 2: In closing, the edge remains well positioned for 2023, and I'm proud of how we have collectively rallied to execute on our growth agenda.

Speaker 2: We have already expanded the scope of our product assortment, driven global brand awareness through new partnerships, made steps to scale our international foundation, and established circularity programs to drive our long-term commitment to the wild. On top of this, we are excited to have the soft coolers coming back in the market later this year, and how these build upon the innovation story.

Speaker 2: to be a platform for future growth. With that, I would now like to turn the call over to Mike. Thanks, Matt. I'll begin with a review of our first quarter performance followed by some additional thoughts on our full year.

Speaker 2: While our full-year top and bottom line outlook remains unchanged, I will provide some additional color on the sequencing of the quarters ahead.

Speaker 2: Following these details, we will then open the call for your questions. Our gap results reported in today's press release are inclusive of adjustments and charges associated with the voluntary product recall. While there were some minor adjustments to our gap results due to recall activity in the first quarter, we would note that we remain early in the claims and returns process and any adjustments relative to our original crules.

Speaker 3: to our results.

Speaker 3: First quarter sales increased 3% to 303 million compared to 294 million in the prior year period.

Speaker 3: This was slightly above our expectations and inclusive of several discrete factors that impacted our growth rate in the first quarter.

Speaker 3: First, the stop sale of recalled products impacted our first quarter growth rate by approximately 600 basis points.

Speaker 3: Some of this impact was offset by higher demand for other soft coolers that were made in the market.

Speaker 4: While difficult to quantify, we believe that we recaptured about half of the 600 basis point stop sale impact.

Speaker 5: Going forward, we do not expect to see as much offsetting demand as the first quarter benefited from the refilling of our wholesale channel with soft coolers not impacted by the voluntary recall.

Speaker 6: Second, as we have discussed previously, we saw more cautious ordering in our wholesale channel in the first quarter.

Speaker 7: We did see cell through growth outpaced cell in growth for both coolers and equipment and rinkwear in q1.

Speaker 8: and we continue to believe we are in a healthy overall channel inventory position. And third, we did have a challenging compare with the customized drinkware in Q1. We're in the prior year quarter, we saw a significant number of orders shipped that were actually placed in the previous peak holiday quarter.

Speaker 9: Prior to this Q1, this had been a consistent dynamic for us over the years.

Speaker 10: But due to our investments in custom capacity in 2022, we did not experience the same level of order carryover in the first quarter of this year.

Speaker 11: while offering shorter lead times and therefore a better experience for our customers is clearly a positive for our business. It did lead to a dynamic in Drinkware and in D2C where growth on a demand basis was higher than our reported growth.

Speaker 12: When you view our results with all of these factors in mind, it gives us confidence that demand for the brand is much stronger than the 3% top line growth that we reported this quarter.

Speaker 13: Now for some commentary on our sales by channel and category.

Speaker 14: From a channel perspective, direct to consumer sales grew 7% to 167 million reaching 55% of total sales mix. This performance was led by growth in our Amazon and corporate sales businesses, which both saw strong growth in coolers and equipment and rinkwear.

Speaker 15: Full-sale sales decreased 1% to 136 million with the decline in coolers and equipment partially offset by growth and drinkware. Soft cooler growth was positive in this channel reflecting the continuation of demand for products such as our flip and day trip lines, which were not impacted by the voluntary recalls.

Speaker 16: Conversely, hard coolers were down year over year, as they faced a difficult comp in the prior year period when the channel was refilling after several periods of below-target inventory levels. Nonetheless, we were pleased with the self-regrowth that we saw in hard coolers in the first quarter.

Speaker 17: By category, Cooler's Unequipment sales increase 1% to 104 million.

Speaker 18: In addition to the strong demand for soft coolers not impacted by the voluntary recall, other areas of strength included cargo, supported by the successful expansion of the GoBox family, and bags, which continues to gain traction and distribution.

Speaker 19: Grinkwear sales increased 3% to 190 million.

Speaker 20: Demand for drinkware outpaced reported sales growth in both wholesale, where sell-through growth outpaced sell-in growth, and D to C, where as discussed, shipment growth was impacted by the timing of customization fulfillment this year versus the prior year period. With rising awareness around the importance of hydration, our bottles business remained a great story for the brand.

Speaker 21: channel late in the first quarter, and then further expand that capability to Yeti.com in the second quarter.

Speaker 22: Internationally, sales grew 33% to 50 million, representing approximately 16% of total sales, and led by strong growth across each of our three regions, Europe , Australia, and Canada. Gross profit increased 4% to 161 million or 53%.

Speaker 23: from inbound freight.

Speaker 24: Our gross margins are starting to benefit from the lower container rates that we began paying last year.

Speaker 25: Though as a reminder, we also labbed a comparable 220 basis point impact from one time freight to rupt during the prior year period. The overall freight tailwind was partially offset by 100 basis points from higher product costs.

Speaker 26: 50 basis points from unfavorable foreign currency exchange rates and 40 basis points from all other impacts.

Speaker 27: S.GNA expenses for the quarter increase 19% to 139 million or 45.9% of sales compared to 39.8% in the same period last year.

Speaker 28: Non-variable expenses increase 400 basis points as a percent of sales. As planned, increased investments were broad-based across areas such as global talent, demand creation, and our supply chain footprint.

Speaker 29: Variable expenses increase 210 basis points as a percent of sales, primarily reflecting higher distribution and logistics costs, including higher Amazon marketplace fees. Operating income decreased 43% to 22 million or 7.2% of sales.

Speaker 30: compared to 13% during the same period last year. That income decreased 46% to $16 million, or $0.18 per diluted share, compared to $0.32 in the prior year period.

Speaker 31: Turning to our balance sheet, we ended the first quarter with 168 million in cash compared to 100 million in the year ago period.

Speaker 32: Inventory degrees, 16% to 347 million year over year.

Inventory declined sequentially for the third straight quarter, down another $24 million for a cumulative reduction of over $140 million from peak levels.

Total debt, excluding unamortized deferred financing fees and finance leases, was 84 million compared to 107 million at the end of last year's first quarter.

During the quarter, we made principal payments of 6 million. Now, turning to our fiscal 2023 outlook. First, we wanted to acknowledge that we are giving more color than we have in prior years.

due to the unusual nature of this year given the voluntary recall. We continue to expect full-year sales to increase between 3 and 5 percent compared to fiscal 2022's adjusted net sales.

We also continue to expect roughly flat sales over the first three quarters of the year in aggregate, including a low single-digit decline in sales for the second quarter, followed by an approximately flat growth rate for the third quarter.

While we continue to feel confident in our ability to deliver the full year, there are some dynamics that will impact our growth rate on a quarter to quarter basis. First, the impact of the stop sale of recall products will have a bigger impact on our growth in the second and third quarters.

as those products became more widely distributed in the prior year periods. We estimate that impact to be approximately 900 basis points in both quarters. In addition, we expect more normalized fourth quarter buying patterns for the holiday season after some of the earlier ordering that we saw in the third quarter last year. As a result of these factors, we expect to fund our site's new riskfire.

supported by a healthy slate of planned product introductions.

By channel, wholesale is also expected to decline low double digits the next two quarters before returning to growth in the fourth quarter.

Again, this partially reflects the increased negative impact from the voluntary recall and the expected timing of the replacement products. On the D to C side, we expect growth to build stronger as we move through the year and continue to see D to C mix reaching approximately 60% for the year. Importantly, these combined factors keep us on track to return to W.

With container rates down nearly 80% from peak levels, we continue to see the favorable impact of lower inbound freight costs working through our income statement and driving sequentially higher year-over-year margin expansion throughout the balance of the year. In addition, while product costs were unfavorable in the first quarter,

We expect their impact to be neutral, so slightly positive for the four year. With S-GNA, we remain resolute in investing across our business in 2023.

We continue to expect SG&A dollar growth in the mid-teens range, according to approximately 400 basis points of the leverage for the year. As we laid out last quarter, this impact is driven by areas such as variable costs and ongoing investments in our business.

In addition, the voluntary recall is also having an impact on SGNA leverage due to lower sales growth.

With regard to timing, we expect a higher growth rate of SG&A in the first half of the year as opposed to the second half and will continue to evaluate incremental investment opportunities in the event of gross margin upside.

We reiterate our operating margin range of 15 to 15.5% for the full year. In the second quarter, we expect a year-over-year margin decline that is slightly less than what we saw in the first quarter. However, we continue to expect over 20% operating margins in the fourth quarter.

due to both unexpected returns at double-digit revenue growth and continued gross margin gains. Our assumptions for interest and tax expense are unchanged, yielding full-year adjusted earnings per diluted share of between $2.12 and $2.23 compared to $2.36 in fiscal 2022.

This is inclusive of a 30 to 35-cent estimated impact from the stop sale of products included in the voluntary recall.

Looking at cadence, we expect adjusted earnings declines to ease year over year the next two quarters before returning to strong growth in the fourth quarter.

On the cash side, we feel good about our inventory balance and how we have managed it down over the past three quarters.

We expect to end the year close to where we ended Q1, but will also be opportunistic with our purchases as we go through the year. Our capital expenditures target remains at approximately 60 million given incremental investments across a number of key initiatives including technology, expanded customization capabilities, retail openings, and product expansion.

These factors contribute to an unchanged free cash flow assumption of 100 million to 150 million per year. Overall, we are off to a good start to the year, particularly as our team continue to diligently manage the voluntary recalls while still making progress on our underlying strategic priorities.

This focus and execution keeps us well positioned to deliver our financial outlook for the year, even as we continue to be prudently cautious in this uncertain environment. We remain excited by our product lineup, including our ability to bring back and even expand on the products impacted by the voluntary recall.

Our visibility to gross margin improvements remains strong as we drive sequentially better results throughout the year.

and we continue to make key investments that support our global expansion in the year ahead. Now I would like to turn the call back over to the operator to take your questions.

We will now begin the question and answer session. To ask a question you may press start and one on your touch tone telephone. If you are using a speakerphone please pick up the handset before pressing the keys.

If at any time your question has been addressed and you would like to withdraw your question, please press star then two. At this time we will put momentarily to assemble our roster. The first question comes from Sharon Zaxia from William Blair. Please go ahead.

seeing a really sense kind of the peak pandemic quarter. So can you talk about the drinkware business and how you feel the brand is staring their relative to some of the competition that's expanding distribution rapidly and talk about essentially your customer demographic and whether or I guess how the drinkware segment is doing with a...

younger female demographic. Thank you. Thanks Sharon. Good morning and thanks for the question. I take it from a couple different perspectives.

Obviously, we mentioned on the call that we've seen the market expansion that's happening in drinkware and in the growth. And we think all those dynamics and that focus on the category is actually plays really well into our drinkware portfolio strategy. And when you think about how yet he goes to market, we go to market with a broad-based portfolio.

Watch how we've built out our product portfolio. We're addressing multiple use cases, multiple consumer groups, we're leveraging form factors, sizes, colorways, and then the global opportunity. We think about the success we've had in building this drinkware business in the United States since 2014 and the global growth opportunity.

not only the one that we're realizing, but the opportunity in front of us. We think it's an incredibly exciting category. It's also, as we mentioned on the last call, something that offers an opportunity for us as a platform for expansion. So you notice the recent, the nice bucket that fits along with the use occasions, along with our, what we would call our.

individual kind of drinkware consumption. And then within drinkware, the expansion into hydration and further expansion into hydration and bottles, further expansion into tumblers, further expansion into different straw led formats. So we feel good about the business and we feel good about where we're going with our drink or portfolio, our drink or strategy.

on excluding the recalled products.

Hey, Jess, so we don't typically give specific color around cell through. Other than to say we were pleased with the growth that we saw across both categories. The other thing I'd say is, you know, we have to remember that the cell through reporting, we have good cell through reporting in the US, but...

you know, we had less so outside the US, so and to sort of like quantify that the impact of our business would be, you know, mixing sell-through and and sell-in, so a little difficult to quantify, you know, how big of an impact that it did have, but, you know, you know, other than to say we were pleased with the growth that we saw, we feel like, you know, it's put us in a...

a good channel inventory position and that it was you know really across the the portfolio despite what was going on with the recall. Okay well that was my follow-up question which is it sounds like you're in a good spot from an inventory standpoint so are we done with the de-stocking at least at this point? Well I don't know that I would have characterized it so much as a de-stocking and more about just caution from our wholesale channel partners that we saw coming out of the holidays.

But, you know, and we expect some of that to continue as we, you know, head into Q2 and in a relatively peak period for us. But, you know, I think that the key message is we feel, we feel good about where our channel inventory is. I mean, you're always going to have some parts where you maybe got too much of some product and not enough of others and we've got, you know,

We will see that right now is no different. We feel good about where we are and we are continuing to work with our wholesale channel partners as we go through the year.

Okay, thank you. The next question comes from Benic Peter from Wales. Please go ahead. Good morning guys. Thanks for taking the question here. To that sounded like, obviously, very confident around the gross margin, but a willing that's going to be reinvested some of that upside if it accrues over the year. Just sure it's going to work.

We feel good about where Gross margins landed in Q1. We feel like we're on the right track to land the 55% that we got it for the year. Any event that we do see upside to there or to that, I think you'll see it'll just be more of the same types of things that we've talked about. It's really about...

you know, setting us up for growth next year given the opportunity that we see in front of us, particularly outside the U.S. And so I think it'll be in things that, you know, it'll be in areas such as, you know, raising brand awareness outside the U.S., our global teams.

technology to take some of the capabilities we have here in the US and expanding them globally. So, I don't know that it'll be anything widely different. It'll be just further investment in the things that we've already talked about.

Okay, that makes sense. And then I guess with respect to the reintroduction of the recalled items and the two new items, I mean production is already underway, just not sure how that compared to maybe your expectations when you embarked on this.

Just curious if you can give us a little more color in terms of the timing of when you expect to have these products back in the market, how you expect to support them with your marketing, et cetera, just so we can have an idea of how this is expected to play out in the back half of the year. Good morning, Peter. Matt here.

in that inventory, the backup and then it'll, we have all the logistics and getting it and getting it ready to be back in the market. What we said on the call was...

We're still committed to being back in the market in Q4. That's as of today what we're sticking to, but we feel good about the work that's gone into building the solution by an incredibly focused team and really a short amount of time to go from problem identification or opportunity identification to

being back into production and finished goods rolling off the line. As we think about the reintroduction, our intent today is that we'll reintroduce it with the marketing levers that we usually do when we promote a product or get a product out in front of the consumer. We don't intend because this was a component change to a product. Our aim is to accelerate what we will betyping when can be done when the system is r B B X. And what we need to do that all are saying that we can do a more Value.-based experience with the more value asked from the customer to the business. We're by no land. We have a good approach to making sure that we're continuing to do a good job and increasing supply of goods that are available in the business world.

to reintroduce it like it's a new product, but really just turn up the Yeti marketing dials, the incredible stuff our marketing and brand team does to create awareness and find interesting ways to get it in front of consumers to reintroduce the product, almost as if it went from out of stock to back in stock. And where we can...

kind of put our hand on the lever a little bit to create that awareness. You know, makes us feel good about the opportunity not only in Q4, but really building into 2024 as we think about not only is the product coming back to market, but that it's coming back to market with new sizes and then over time we'll bring additional colorways in and be back up and rolling in a really important strategic category for us.

Okay, great. Thanks so much. Good luck. The next question comes from Robert Oom from Bank of America. Please go ahead. Oh, hey, Matt. Actually have a couple of questions. The first was just the on the wholesale channel. You mentioned, you know, that, you know, some caution in the channel.

you know, what are you hearing back from the wholesale partners right now? Like, what are, what's their outlook on, you know, the customers?

Good morning, Robbie. You know, I think it's, and we said this on the last, in kind of our last conversations, when we think about the wholesale channel, one of the unique things about Yeti is the breadth and diversity we have within our wholesale, from small independents to some of the best large nationals in the United States and similarly around the globe. And then within those groups, a real range of.

diversity of partners. So we get a pretty broad-based look at how they're operating. And one of the things that we've talked about is there's no sort of common Yeti theme within the caution or not. We have some partners that are really leaning hard into the year, and we have other people who are taking a more cautious look at Q2, Q3 as the year goes on.

I think the most positive evidence is what Mike said, which is overall demand for the brand is strong and we're hearing that from our whole subpartners. We have great relationships. We have from at all levels and very regular weekly, if not daily, conversations with the majority of our regional and national accounts. So a very close relationship we're in constant communication about.

merchandising, product sorting, what's working in the channel and make sure we take advantage of those opportunities. As the consumer continues to show up and show up with demand for the brand. I think we'll turn as we go through the year to more conversation to Peter's previous question about the reintroduction of the new and improved soft coolers.

and how we get those out in front of consumers and use that as just another sort of springboard for yeti awareness but also demand for that product category. That's helpful. And then just a clarification on on D2C you call that Amazon and corporate sales. The what are you seeing at Yeti.com was the customization shift?weight transaction offer.

The big impact on Yeti comm like if you excluded that Is there any change with the moment to make yeti comm or have you changed? You know the the digital marketing spending you're doing to drive to Yeti comm or anything like that Hey Robbie, so I you know you hit on a couple things you know one we had a good quarter from Amazon and corporate sales and even

just to round out the rest of the DTC channel stores, we opened up our 14th location in Omaha and were pleased with the results so far of that store. On dot com, you hit on the big point in that growth on a demand basis was, we were pleased with and the challenge that we had with Yeti.com really was a unique issue to this Q1 and typically

In prior Q1s, really since we've been public, we exit Q4 with a backlog of custom orders that we weren't able to fulfill in Q4. But due to the investments we've made and customization that we've talked to you all about, we were able to reduce lead times and fulfill all those orders in the quarter. And while that's obviously a good thing from a customer experience standpoint, it left us with a tough compare in Q1.

But on a demand basis, we were pleased with the results that we saw in dot com, both in C&E and Drinkware. That's really helpful. Just, I'm sorry, what we have to add is we mentioned on the call that it's important is the fact we said we saw acquisition and retention across all of our D2C channels was positive in the.

in the quarter and included in that is the increase in value with those. So the work that we're doing to acquire customers, retain customers, drive value is real positive. Got you. One just last one. The product costs, the upper 100 basis points, is that a product cost landed from China? What is the product cost outlook? You mentioned moving.

production out of China, you know, we're starting to, is that going to help? Is that going to reduce product costs, you know, as you do that or and then are you having to, should we expect more price increases to offset the product cost pressures? Yeah, just so here's what I'd say about product costs. You know, I would say that the comments around the transition out of China really didn't play a role in

In anything we're thinking about product costs for this year, it's just early in that process. The impact that we saw in Q1 was really just a continuation of what we saw in the second half of last year. It was largely planned and really nothing has changed with regard to how we're thinking about product costs for the year. We expect it to be relatively neutral for the year to slightly positive is what we said in Q1.

greater visibility to margin extension beyond this year and just kind of looking at the phasing of the guidance, particularly from a gross margin perspective. You're kind of exiting the year with gross margins closer to the high 50 percent range. And I guess how should we think about the implied exit rate and the ability to return to 57 to 50 percent gross margin looking out to next year and then just kind of building on that, you're clearly stepping up investment this year. So to the extent that we have

another year of outsized gross margin extension. Would you expect more of that to flow to the bottom line or would you continue to reinvest looking out next year? Thanks. Yeah, thanks Peter. So a couple things. One thing, just to, so you're correct in that if you look at what we said about margins, we expect to land the year 55. We expect as we step through the year, we expect the sequential, the year-by-year increase to increase sequentially as we go through the year. So that would imply an exit rate.

in the range that you mentioned. But what I'll say is, you know, Q4 is always our highest gross margin quarter given the mix of D to C. So, you know, you have to take that into account. I wouldn't necessarily look at that 57-ish percent rate and assume that that's going to be the rate, you know, going forward. So, but that said, we're not, obviously we're not recapturing all the inbound freight.

benefit this year, there will be more to capture next year. As it relates to investments, we're gonna have to, as we go into planning for next year, given the opportunity that we believe is in front of us, we're gonna continue to invest both in product as well as in other parts of our business, be it headcount, demand creation, brand awareness, technology, et cetera. So, no real specific guidance to give on FY24.

margin mix implications that we need to be aware of as we look out.

Or is the margin profile kind of similar to what we would see here in the US? Yeah, from a gross margin standpoint, it's really similar to what we see in the US. There's differences across the regions based on sales mix, but once you normalize by channels, the gross margins across the three regions are similar to what we see in the US.

Thanks so much. I'll pass it on. The next question comes from Sioux, from BNP Puy-Buy. Please go ahead. Hey guys, thanks for this question. I just wanted to ask maybe about the wholesale trends in the U.S. versus international. The U.S. was down about a percent overall. So was it down maybe double digits in wholesale? Maybe you can help us.

Frame that and then based on the guidance for 2 Q3 q is it the clients are kind of

stepping up? Is that how we should think about it in US wholesale? Yeah, hey, Zion. So, I, to your point, wholesale down one in total, international was up, and we don't generally guide to the specific growth rate of international wholesale within that broader wholesale.

what the business in the US grew. But when we talked about the spread from sell through to sell in.

The sell-through reporting we have is generally all in the US. We were pleased with it. It was positive. And so it kind of speaks to the delta between sell-through and sell-in when you consider that the US was down, obviously more than that minus one.

And the other thing I would say is that soft cooler impact that we are seeing from the stop sale, that is almost entirely a US dynamic because there were several regions where the M-Series had not fully been distributed. And so, when we talk about the impact, the stop sale, it is primarily a US impact. And so, when we go into Q2 and Q3, the down double digits that we talked about, that is going to primarily be a US dynamic as well. Okay, very helpful.

And maybe just quickly on the 300 bits or the recapture of the rate that you mentioned in 1Q, I know you mentioned it's probably higher in 1Q, but was that much better than you anticipated? Just any framing on how you thought about that capture in the quarter? Yeah, I mean, we knew that there would be some demand shaping, but we didn't know how much. When we talked about it.

earlier, we, we, we, then that's basically what we said, is that we knew we, there would be some offset, but weren't sure how much. We do believe that that 300 basis points of offset is...

We don't expect to see that as we go through the year in the Q2 and Q3. We expect the impact from the recall in those quarters to be the roughly 900 basis points that we talked about. Just because a lot of that was wholesale dealers.

refilling their shelves with flips where they had M-series products before. Understood. Thank you for the help. The next question comes in John Kiernan from KDCO. Please go ahead.

Good morning, I just take my question. You know, Mike, can you talk to the confidence and visibility in the return to double digit top line growth in the fourth quarter? What do you think are the key drivers in that acceleration that we should be looking for?

Yeah, so a couple of things that I would think about. I mean, first and foremost is going to be the planned reintroduction of the products that we, that are currently on stop sale. So we'll get not only the launch and the DTC, but we'll, we'll.

Even in drinkware, we're excited about the plan reintroductions that we have, or the plan product introductions that we have. We feel like we've got an opportunity to continue to go drinkware and that drinkware growth will build throughout the year. And so, you know, the recall is obviously the biggest piece, but even if you normalize for that, we feel like we've got a good opportunity.

We obviously can understand some of the timing of it you're expecting this year, but how does it stretch into 2024? Well, if you look at, so you're correct, we've over time, before, through 2022, we gave up 600 basis points of gross margin due to freight. Obviously not capturing all of that this year.

So, when you look at where rates are today, I mean, they've largely come back down to sort of pre-pandemic levels that over time we should be able to capture the majority of that back in our gross margin. However, we also are looking at this as an opportunity to reinvest back into the business.

And so, and that's going to be both on the product side or within COGS and therefore gross margin as well as in the SG&A side. So, you know, I do think we have more tailwinds to come as we exit this year, but we're going to have to measure that against what opportunities we see to grow our business over the long term.

I understand. Thank you. The next question comes from Peter Kate from Piper Jeffrey. Please go ahead. Hey, thanks. Good morning, everyone. On the wholesale channel, there's clearly some concerns in the investment community that you guys might be losing some shelf space, particularly with some of the larger nationals.

Maybe just give us a view if you think about the next 12 months as you're relaunching a lot of the recalled products. Sounds like sell-through is good. Where do you think your self-space will be in aggregate? Do you think it will be holding steady? It will be up or even down a little bit? Morning Peter, thanks. Thanks for the question. I would say

In the conversations I have directly, and the conversations that our teams have regularly, shelf space loss is not a conversation we have. We talk about merchandising, how we're gonna make shelf space for additional products that we discuss with the channel that are coming. So I think the shelf space kind of...

movements that we tend to see are, we just took some really large products off the shelf in our soft coolers. We expect those to be back in Q4 or the conversations with our whole set partners are timing related and win on the bringing those those new products and that new category family back to market. So I don't we don't see and don't have conversations around shelf space reduction. It's really more productive and recently this week having conversations over what the next two to three years looks like versus the next.

two to three quarters. Okay, helpful. And then lastly for me, I was just hoping you could touch on the ongoing launch and I guess ramp up in Europe . I know we've been talking about it for a couple of years. Sounds like you maybe hit the accelerator here now that COVID concerns are fading. Could you just give us some updates on how the positioning is there if it's more DTC versus wholesale.

and any green shoots you might be seeing with UK or Germany.

being not not a single entity, but lots of individual countries that have their own their own uniqueness is an opportunities for Yeti. You know our D to C business had the distinct advantage during COVID of we were able to focus on that business while wholesale was a little slower. Due to due the nature what was happening what we're seeing now is the benefits of that.

the UK and we like both what we're seeing but also just the significant opportunity that is Germany and in the German-speaking country and regions but also what we're seeing come out of Northern Europe and in the Nordics and so we love what we're seeing there I think there's some fun things going on between our

give us really Yeti-like opportunity to build this broad-based introduction of the product portfolio with this broad-based brand awareness attack.

Okay, sounds great. Thank you very much guys. The next question comes from Jim Darcy from Stiefel. Please go ahead. Thank you. Good morning. I'm Matt. I'm Mike. A few questions around D2C consumer engagement. Can you comment on what you're seeing with performance marketing list form 2023 and your strategies for marketing dollar allocation to top the funnel versus more performance marketing spend?

Hello Jim. I'll touch on a couple of things at a high level. We historically haven't spoken specifically to the performance of our individual marketing channels. What I would say is we actually have a very integrated approach to how we build the funnel from top to bottom.

And with the work we've done with our advanced analytics team and learning more about consumer and consumer behavior, particularly in the United States, it is affecting and impacting in a positive way how we allocate our performance marketing dollars. And so the work between our chief marketing officer and chief commercial officer is really almost a weekly help in sometimes daily evolution.

applying things in front of consumers at that point. And the results we're seeing in those, we're now expanding those results more nationally. We're learning some things around certain products and certain product categories, how different groups have affinity for them and how that changes, how we apply not only our performance marketing.

but also how we think about creating brand awareness in those geos and demos. And so we're excited by what we're seeing and it's not always, the answer's not always been intuitive. And so seeing sort of a data-driven focus on that, I think is going to lead to some really nice opportunities for us.

Okay, and Matt, in the US market I'm curious the engagement trends you're seeing with new vs. evolving elite markets?

existing customers and specifically I'm curious is the underwater bottle and it's more approachable price point bringing a new consumer to you into the mess

I would say a couple things. As we expand the portfolio, it does two things. It gives us a chance to re-engage existing customers and to acquire new customers. Interestingly, we see that with things like the yonder, but we also see that with soft coolers and what soft coolers have.

brought from an acquisition perspective, but in an area that may not be as intuitive, even in our hard coolers and our wheeled 48 and 60, kind of our newest additions to our hard cooler category, those have actually brought in some different...

geos and demos that may not have been as kind of naturally thought of. So, I actually think it's every time we bring innovation to market, it gives us kind of two opportunities. It gives us an opportunity to drive deeper within our own customer base, and it also gives us a chance to acquire. And I think that's why you hear some of the results of

broad-based acquisition, really balanced acquisition and retention in the quarter. Thank you.

We have time for our last question from Brian McNamara from Conoco Genuity. Please go ahead. Good morning. Thanks for squeezing me in here. So we've noticed recently that Yeti is being co-marketed with Traeger at Dix. Is that new? What drove that decision and will that kind of partnership, a little better term, be it?

And then we have a lot of retail or wholesale partner overlap. You know, from a direct co-marketing kind of national, we don't have anything active in that way. I think the positioning that happens inside stores sometimes is really focused on merchandising to the consumer at certain times of year when they're in that kind of mode.

Great. That's all for me. Thank you.

This concludes the question and answer session. I would now like to turn the conference back over to Matt for any closing remarks. Thanks everyone for joining us this morning and we look forward to speaking to you as we return for our Q2 call. The conference.