Q3 2024 YETI Holdings Inc Earnings Call
Thanks for watching.
Speaker Change: Good morning ladies and gentlemen and welcome to the Yeri Holdings 3rd Quarter 2024 Earnings Conference Call. At this time, all lines are in listen-only mode.
Following the presentation, we will conduct a question and answer session. This call is being recorded on Thursday, November 7th, 2024.
Speaker Change: I would now like to turn the conference over to Maria Licouris, Investor Relations for YETI. Please go ahead.
Maria Licouris: Good morning and thank you for joining us to discuss Yeti Holdings' third quarter of school 2024 results.
Leading the call today will be Matt Reintjes, President and CEO, and Mike McMullen, CFO. Following our prepared remarks, we'll open the call for your questions.
Maria Licouris: 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 their actual results to differ materially from these statements.
For more information, please refer the risk factors detailed in our most recent filed Form 10-K. 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.
Maria Licouris: Unless otherwise stated, our financial measures discussed 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 for our business.
Maria Licouris: Reconciliations of these non-GAAP measures, their most directly comparable GAAP measures are included in the press release or in the presentation posted this morning to the investor relations section of our website at yeti.com. I'd now like to turn the call over to Matt.
Matt Reintjes: Thanks Maria and good morning. Yeti wrapped another strong quarter with growing brand engagement, performance across our broadening product portfolio, and outstanding growth in our international business.
Matt Reintjes: all driven by the consistent, successful execution of our strategic priorities.
Matt Reintjes: Our net sales were up 10% in the quarter with growth across all channels. On the product side, innovation continues to be a catalyst with drinkware delivering several highly anticipated launches and bar and tableware, underscoring the expansion opportunities we see.
In Coolers and Equipment, we saw good performance from both Legacy and newer product, including several newly launched accessories that complement our existing lineup.
Matt Reintjes: On the international front, we saw our fourth consecutive quarter of over 30% growth outside of the U.S., while also delivering solid growth in a more challenging U.S. market, where we continue to see high quality but more discerning buyers.
Taken together, Yeti's brand strength, strong product innovation cadence, and global growth position us to remain on track to deliver on our full year top and bottom line outlook.
As a reminder, our top-line outlook takes into consideration an expectation of more intentional consumer buying in Q4 as we closely watch spending in this shortened holiday season.
Matt Reintjes: To relate to our global supply chain expansion programs, our previously announced efforts remain solidly on track.
As a reminder, approximately 40% of our total cost of goods has historically been tied to products sourced from China, primarily related to our drinkware portfolio.
This supply chain initiative gives us the opportunity to support greater global scale, target end markets for cost and service optimization, and evolve our supply base.
Notably, we commenced production at our second drinkware facility outside of China during a quarter and we are on pace for a third facility.
We have great partners in this effort and are encouraged by the process and automation improvements over the past few years to enable these successful moves.
Matt Reintjes: All in all, we are pleased with the performance of this initiative, and as a result, we remain confident that by the end of this year, approximately 20% of our global drinkware capacity will be located outside of China, and by the end of 2025, 50% of our drinkware capacity will be outside of China.
Matt Reintjes: This initiative is a key priority for YETI and will be actively managed to ensure we are supporting our growing global business and positioning for long-term success.
Maria Licouris: We continue to have confidence in the long-term opportunity in front of Yeti across geographies, channels, and product expansion.
Maria Licouris: In the near term, our demand drivers heading into the holiday season are underpinning the reiteration of our outlook and supporting our continued delivery of high-quality growth, strong profitability, and a very sound balance sheet.
Maria Licouris: Our long-term growth strategy continues to prioritize the expansion of brand reach and engagement, greater product diversification,
expansion of our omni-channel approach, and international.
Maria Licouris: Turning to brand, in the third quarter our team did a terrific job extending our global reach and access to consumers.
Maria Licouris: Yeti showed up at over 100 events around the globe, spanning our broad and growing enthusiast communities.
Maria Licouris: from the first annual Yeti Open Bass Fishing Tournament in Missouri.
Maria Licouris: to the Outdoor Enthusiast Game Fair in the United Kingdom, a multi-day event attracting over 125,000 attendees.
Maria Licouris: Notably, the Game Fair was also our highest sales volume event globally in 2024.
Maria Licouris: This is just another point that underscores the effectiveness of our playbook as we bridge to global audiences and create brand and product resonance.
Maria Licouris: Showing our reach and range, we also hosted and participated in exciting events across hospitality and sports.
Maria Licouris: Culinary was highlighted with activations and ambassador engagement at a number of live fire cooking events around the globe, with a notably stronger presence in Europe, including the World Barbecue Championship in Stuttgart, the Big Grill in Dublin, and Meatopia in London.
Maria Licouris: Our entry into the culinary space was further displayed in Eater's Stepping Off the Line in September, featuring Yeti-produced content from the Underground Cooking and In-Season series.
Maria Licouris: On the sports side, Yeti hosted a skateboarding trip in the Pacific Northwest with a group of skaters, five of whom are brand ambassadors.
Maria Licouris: On the back of this event, iconic industry magazine Thrasher published a 25-plus page spread in their December issue featuring the experience.
Maria Licouris: In surf, we had the U.S. Open of Surfing at Huntington Beach, as well as the World Surf League Finals in San Clemente, where two of our ambassadors, John John Florence and Katie Simmers, both won world titles.
Maria Licouris: With the exciting momentum we are seeing in the surf community, we published our fifth Yeti Presents coffee table book last month, titled Waves, which celebrates the intersection of the sport and nature.
Maria Licouris: We are energized by the massive opportunities we see ahead of Yeti to connect to new consumers and enthusiast groups in authentic and real ways, supporting them in the pursuits they care about and providing product relevant to their lives.
Maria Licouris: As it relates to our sports partnerships, we entered tailgating season with 11 of the top college football programs selling Yeti-customized drinkware.
Maria Licouris: These programs, alongside our NFL and other sports league partnerships, put Yeti products into the hands of sports enthusiasts that span a broad spectrum of consumers.
Maria Licouris: Beyond Drinkler, we've also leveraged the American football season to promote our hard and soft coolers during live sports moments, including linear and streaming placements during recent Thursday night and Monday night NFL football games, which collectively generated over tens of millions of impressions for the brand.
Maria Licouris: Another high-profile media moment in the quarter came out of our partnership with Liquid Death, where we collaborated to create a one-of-a-kind functional cooler casket.
Maria Licouris: Between the cult following of both brands and shared commitment to reducing single-use plastics, we saw significant social and earned media exposure after the campaign launch.
Maria Licouris: The joint Instagram posts around the collaboration reached over 7 million people, and the initial launch post alone was our most shared Instagram post of all time and one of our most viewed videos of all time.
Maria Licouris: Turning to product innovation. Our team is designing and developing products for frequency and consistency of use in daily lives, whether it be in the wild, in the home, for passion pursuits, or simply for everyday routines.
Maria Licouris: We continue to meaningfully increase our addressable market with the expansion of our existing categories plus our entrance into newer large global markets such as bags and cookware.
Maria Licouris: During the quarter, we launched four highly anticipated products, two pitchers, as well as the full release of our flask and shot glasses, which marks 18 new products launched over the last 12 months in this category.
Maria Licouris: Early performance and feedback on Barware has been extremely positive, and fits with our tableware and drinkware expansion.
Maria Licouris: As we enter the gifting season, we are optimistic about the potential of these products.
Maria Licouris: In hard coolers, both innovation and legacy products have been key drivers with broad base strength in our Rohde and Tundra hard cooler families.
Maria Licouris: In soft coolers, we continue to see strength in our newer backpack format, as well as our smaller sized thermal lunch style bags.
Maria Licouris: More recently, we launched several new accessories that complement our cooler and equipment portfolio. Our Loadout Bucket Swivel Seat, which launched in September, has been in high demand due to the range of use cases from garage to sideline to the field.
Maria Licouris: And last month, our food organization and storage containers went live to complement the functionality and versatility of our hard and soft coolers and tie to our food expansion theme.
Maria Licouris: Beyond coolers and drinkware, bags performed well in the corridor and were on track to launch a new range of everyday and all-weather bags in 2025, inspired by Yeti and Mystery Ranch designs.
Maria Licouris: Finally, while cookware is our newest family, the initial performance and feedback we received around our cast iron skillet is extremely encouraging.
Maria Licouris: showcasing our product strategy as we bridge the natural connection of our offerings from live fire cooking, to food storage, to coolers, to serving, to eating.
Maria Licouris: This is how we build out the Yeti product ecosystem. The introduction of cast iron received positive attention from key tastemakers and culinary media, namely Eater and Food & Wine, where they highlighted quality and performance of our products.
Maria Licouris: As we continue to expand our product portfolio, we're leveraging our strong and diverse omni-channel.
Maria Licouris: We performed well across channels in the corridor, delivering growth in wholesale and DTC.
Maria Licouris: In our wholesale channel, our release cadence and innovation strategy has supported healthy sell-in with our partners.
Maria Licouris: Our wetlands collection saw exceptional demand during the quarter, with partners such as Bass Pro Shops, Academy Sports, and our independent doors doing an excellent job leaning into merchandising around this collection and attracting their loyal enthusiast shoppers.
Maria Licouris: Channel inventory remain in good shape as we manage product distribution and new innovation launches.
Maria Licouris: Wholesale plays an incredibly significant role for Yeti as we want to be where consumers shop and intersect with them during buying occasions, whether those are impulse or intentional.
Maria Licouris: In DTC, while we continue to see some weaker traffic trends, the quality and value of customers that are shopping with us is higher, suggesting more deliberate, loyal purchasing.
Maria Licouris: To support those who shop directly with us, we're building new ways to connect.
Maria Licouris: During the quarter, we launched our Yeti ID program with a more unique and personalized experience.
Maria Licouris: exclusive to account holders on Yeti.com. This includes a preference center, product registration, and gear locker experience as we engage more deeply with our customers.
Maria Licouris: The Amazon marketplace showed strong demand in the quarter and in corporate sales we saw growth across all regions with strength outside of the U.S.
Maria Licouris: In retail, we opened our 23rd store in the 3rd quarter with our 24th coming this month, hitting our commitment of 6 store openings this year.
Maria Licouris: Our newest location in Virginia at Tyson's Corner has seen strong traffic and across our fleet we are seeing strong drinkware performance.
Maria Licouris: In general, we continue to see our stores have a positive impact on omni-channel performance in the markets where they are present, raising awareness of our brand and exposure to the full product portfolio.
Returning to our international business.
Maria Licouris: We continue to see momentum and growing awareness in non-U.S. markets. Our brand playbook and go-to-market strategy is seeing traction in Europe and is receiving strong reception from retail partners and consumers.
Maria Licouris: We're on the front end of this significant opportunity and we remain focused on continuing our brand expansion strategy as we scale our infrastructure and omni-channel approach. Our investments in team, brand, and distribution are supporting our continued robust growth.
Maria Licouris: As we expand our reach, grow our wholesale partner footprint, and as customization ramps up in 2025, we expect strong performance across our European markets, with particular focus in the UK and Germany.
Maria Licouris: Australia continues to deliver exceptional growth across all channels powered by our national wholesale partners and with good execution at our important smaller independent retailers.
Maria Licouris: In DTC, customization has been a real positive as we continue to scale capacity and we see opportunity to continue driving this demand through e-commerce and corporate sales.
Maria Licouris: Similarly in Canada, we are scaling our custom business and expanding our corporate sales partnerships.
Maria Licouris: On the wholesale front, while broader consumer headwinds and channel cautions persist, we are focused on strong merchandising and brand presence.
Maria Licouris: On the DTC side, we see positive response to our enhanced customization offering in our first Canadian Yeti store, which opened in Calgary during the quarter, has exceeded our early expectations.
Maria Licouris: Before I turn the call over to Mike, I want to share a few thoughts as we look to WRAP 2024 and why, in my 10th year leading Getty, I'm so excited about the future.
Maria Licouris: Taking our updated outlook for 2024, combined with our historical quarter-to-quarter and year-to-year quality of execution since we went public in 2018, YETI has more than doubled revenue and tripled EPS.
Maria Licouris: But I sit here today more enthusiastic about where we are going than at any other point in our history.
Maria Licouris: Execution has been a hallmark of the business, and I expect the future to be no different.
Maria Licouris: The real excitement comes as I look towards the long term and what is in front of this brand, this product portfolio, and this team.
Innovation, expansion, and execution are our priorities.
Maria Licouris: Our drinkware business continues to evolve and grow its addressable market. We see proof points of the growth and relevance from our innovation, not only deeper into drinkware, but also broader into the food space.
Maria Licouris: This evolution has led to food storage and premium cookware, collectively representing a large global TAM we track to be over 10 billion dollars.
Maria Licouris: Underlying our enthusiasm around this expansion are the global macro trends around hydration, health and wellness, and being active outdoors. All themes we believe strongly benefit Yeti long-term across product families.
Maria Licouris: Additionally, our relevance and expansion in coolers, not only with our current hard and soft cooler solutions, but also the opportunity of broader daily use such as smaller format thermal bags.
Maria Licouris: fit within the macro themes and expand how Yeti enables daily life.
Maria Licouris: With Yeti continuing to extend the market opportunity in drinkware and coolers, I'm equally excited and enthusiastic about the expansion and growth opportunity in premium bags, packs, and luggage.
Maria Licouris: As I look across the landscape of everyday travel, hike, hunt, sport, all-weather, and water-based packs, bags, and luggage.
Maria Licouris: I believe that we have the right brand, DNA, design, and capabilities to sustainably build out and address another large and expansive $10 billion plus global TAM.
Maria Licouris: The ecosystem of Yeti products is growing and varied with multiple avenues for expansion beyond what we have already publicly disclosed.
Maria Licouris: Importantly, we remain committed to and connected by the ethos of product rooted in premium, durability, performance, and design.
Maria Licouris: and underlying all of it is a powerful and vibrant outdoor-inspired and lifestyle-oriented brand that we cultivate through real relationships with expansive global audiences.
Maria Licouris: While near-term dynamics and markets can be unpredictable and have an influence on the business, the consistent long-term opportunity in front of us is as rich and achievable as I've seen in my time at Yeti.
Maria Licouris: Recognizing the current market environment remains choppy, we're focused on managing through the unknowns heading into Q4 in 2025 to deliver on our 24 full-year outlook and our long-term potential.
Maria Licouris: To that end, I would like to thank our team for their unwavering commitment to building our brand and innovation, supporting our customers, and driving our profitable growth.
Now I will turn the call over to Mike.
Mike McMullen: Thanks Matt and good morning everyone. I'll start by providing a brief overview of items contained in our third quarter gap numbers that affected both a year ago and current period results.
Maria Licouris: I'll then provide a review of our third quarter performance followed by an update on our outlook for the full year
We will then open it up for your questions.
Maria Licouris: There were two items of note that impacted our GAAP results. First, the prior year quarter's results included a
Maria Licouris: $0.8 million benefit to cost of goods sold related to our product recalls.
Maria Licouris: There were no adjustments made to our recall reserve in the current period.
Maria Licouris: Second, similar to our two prior quarters, our gap results include costs associated with the acquisitions that we made earlier this year. These include the impact of purchase accounting on gross margins as well as other minor transition costs within our operating expenses.
Maria Licouris: For our standard reporting practices, the impact of these and other non-recurring items are excluded from non-GAAP results.
Maria Licouris: All results presented on today's call will be on a non-GAP basis in order to better focus on the operating performance of the business during the quarter.
Maria Licouris: Now turning to our third quarter results, sales increased 10% in the quarter to $478 million. This was in line with our expectations and was driven by growth across all categories, channels, and geographies.
Maria Licouris: This quarter's year-over-year growth includes an approximately 100 basis point net headwind from gift card redemptions related to our product recall.
Maria Licouris: Our results this quarter include $2.7 million in gift card redemptions compared to $6.3 million in gift card redemptions in the prior year quarter.
Maria Licouris: On a year-to-date basis, sales are up 10% versus the comparable period last year, again, across all of our categories, channels, and geographies.
Maria Licouris: We believe this demonstrates the continued momentum and growth potential of the Yeti brand and product portfolio, with more growth available for us to go capture in new communities, new categories, and new geographies.
Now, moving on to our sales by product category.
Maria Licouris: Coolers and equipment sales increased 12% to $193 million. We have been very pleased with the performance of C&E this year as this was the third quarter in a row with double-digit growth in the category.
Maria Licouris: Hard Coolers had a strong quarter supported by our recent innovation. In particular, we are thrilled with the customer feedback and sales performance of the new Rody 15 Hard Cooler, and believe that this product is in position to have a very successful holiday season.
Maria Licouris: Soft coolers benefited from continued good demand for our line of backpack coolers, and our day-trip lunch products also performed well, particularly during the key back-to-school shopping period.
Maria Licouris: Within equipment, our bags category had a great quarter, exceeding our expectations with continued strong performance in our Sidekick, Camino, and Panga product lines.
Maria Licouris: Finally, Mystery Ranch branded products continue to perform in line with our expectations and we are excited about what the future hold as we near the launch of our Yeti branded backpacks that leverage the premium design, carry, and performance tenets of Mystery Ranch.
Maria Licouris: Drinkware sales increased 9% to $275 million, supported by our broad and diverse portfolio of products, our continued innovation, and our global growth opportunity.
Speaker Change: As Matt mentioned, this quarter we continued our expansion into barware and tableware with the launch of our pitcher in two sizes, as well as the full release of our flask and shot glasses following the very successful limited release in Q2.
Speaker Change: As we continue to expand our portfolio, we are seeing some really encouraging consumer behavior.
Maria Licouris: As we launch more and more products that are intended for group sharing like our Beverage Bucket, Wine Chiller, French Press, and Pitcher, we are seeing a nice lift in other parts of our portfolio, such as our lineup of stackable cups in six different sizes.
Maria Licouris: We believe that this dynamic will only build as the awareness of our full portfolio continues to grow.
Maria Licouris: One final point on drinkware that we believe is often overlooked. We see a tremendous growth opportunity in drinkware outside the United States led by our expanding brand awareness and retail partner footprint.
Moving on to our performance by channel.
Maria Licouris: Wholesale sales were $198 million in the third quarter, up 14% versus the same period last year.
Maria Licouris: In the U.S., we continue to benefit from the strength and diversity of our wholesale channel. Diversity in terms of size, pursuits, and location.
Maria Licouris: We think this positions us well to capture the demand that is in the market regardless of macroeconomic conditions.
Maria Licouris: Longer term, we also believe that this puts us in a great position to grow our shelf space with our wholesale partners as we expand our product portfolio.
Maria Licouris: Outside the U.S., wholesale dealer growth remains a focal point of our strategy as we continue to see plenty of opportunity for new partnerships around the globe.
Maria Licouris: Finally, inventory in the channel remains healthy and is well positioned to support demand as we enter the holiday season.
Maria Licouris: Direct-to-consumer sales grew 8% to $281 million, driven by good growth in both C&E and Drinkware. Similar to last quarter, all of our D2C channels posted growth in the quarter, led again by our Amazon business.
Maria Licouris: Turning now to our international business. Outside the U.S., sales grew 30% to 88 million, driven by exceptional growth in Europe and Australia.
Maria Licouris: We are encouraged by the momentum and brand awareness we are seeing in new markets, and we will continue to invest in building our presence and scaling our infrastructure and omni-channel capabilities in these geographies.
Maria Licouris: One example of those capabilities is within Drinkware customization. We are now offering customers in Australia and Canada, both consumer and corporate sales, the ability to customize and personalize their Yeti products.
Maria Licouris: This has been a driver of our growth so far this year, and we believe it will be a successful offering for us this holiday season.
Maria Licouris: As it relates to margins, gross profit increased 11% to $278 million, or 58.2% of sales, compared to 57.8% in the third quarter last year.
Maria Licouris: The drivers of this roughly 40 basis point increase in gross margins during the third quarter included lower inbound freight and lower product costs had favorable impacts of 160 basis points and 80 basis points respectively
Maria Licouris: These gains were offset by 40 basis points from higher customization costs.
Maria Licouris: 40 basis points from supplier and product transition costs, 30 basis points from the strategic price decreases on certain hard coolers that we implemented during the first quarter, and 90 basis points from a combination of other smaller impacts.
Maria Licouris: SG&A expenses for the quarter increased 11% to $199 million, or 41.7% of sales, compared to 41.3% in the same period last year.
Maria Licouris: Non-variable expenses increase 170 basis points as a percent of sales, primarily driven by higher employee costs and higher marketing expenses.
Maria Licouris: as we continue to spend into growing brand awareness and in building out our global teams to support the growth opportunity that we see looking forward.
Maria Licouris: Variable expenses decreased by 130 basis points as a percent of sales due to a higher mix of wholesale sales, as well as strong AOVs across our D2C channels.
Maria Licouris: Operating income increased 11% to $79 million, or 16.6% of sales, an increase of 10 basis points over the prior year period.
Maria Licouris: Net income increased 14% to $60 million and earnings per diluted share was $0.71 compared to $0.60 in the prior year period, an increase of 18%.
Maria Licouris: Year-to-date, our earnings per diluted share of $1.74 is up nearly 30% versus the same period last year.
Maria Licouris: Turning to our balance sheet, we ended the quarter with $280 million in cash, which was relatively flat on a year-over-year basis despite our $100 million share repurchase and our two acquisitions that were all completed in the first half of this year.
Maria Licouris: Inventory increased 8% year-over-year to $370 million. As we look forward, we expect year-end inventory to be approximately flat versus the prior year as we continue to drive efficiencies in our global inventory planning.
Maria Licouris: Total debt, excluding unamortized deferred financing fees and finance leases, was approximately $79 million, compared to approximately $83 million at the end of last year's third quarter.
Now, turning to our fiscal 2024 outlook.
Maria Licouris: We now expect full-year sales to increase approximately 9% compared to fiscal 2023's adjusted net sales, which is the midpoint of our prior range of 8 to 10%.
Speaker Change: We continue to take a prudently conservative approach in our demand planning for the remainder of the year. As Matt said, we believe this is the right approach given the current macroeconomic backdrop, as well as the shorter shopping period between the Thanksgiving and Christmas holidays this year.
The components of our full-year sales outlook remain largely consistent.
Maria Licouris: We continue to expect slightly higher performance from our wholesale channel versus D2C, given our current momentum in wholesale. By category, we continue to expect coolers and equipment to outpace drinkware, supported by strong performance in hard coolers and bags.
Maria Licouris: Finally, we expect international growth to remain in the 30% range with domestic growth in the mid-single digits.
Maria Licouris: Moving down the P&L, our 2024 gross margin target remains at approximately 58.5% versus 56.9% last year. This 160 basis point expansion for the year has not only been driven by lower inbound freight costs, but also the efforts of our teams to drive savings in other areas such as product costs.
Maria Licouris: As we mentioned last quarter, we did see elevated surcharges on inbound freight shipments through much of the third quarter, which we managed well within our P&L.
Maria Licouris: Those surcharges have started to come down, but we would expect the year-over-year benefit to our gross margins from lower inbound freight to be smaller in Q4 than in Q3.
Maria Licouris: When combined with the impact of our hard cooler price decreases and an unfavorable impact to margins from sales mix, we continue to expect fourth quarter gross margins to be relatively flat on a year-over-year basis.
Maria Licouris: Moving on to SG&A, we continue to expect full-year SG&A growth to be slightly above full-year sales growth. As we have consistently said this year, we are investing a portion of the increase in gross margin that we will see in 2024 back into SG&A in order to drive future growth.
Maria Licouris: Our expectations for adjusted operating margins also have not changed. We continue to expect operating margins of 16.5%, 90 basis points higher than the 15.6% that we delivered in fiscal 2023.
This represents operating profit dollar growth of approximately 15 percent.
Maria Licouris: Below the operating line, we now expect an effective tax rate of approximately 24.8% for fiscal 2024 in line with the prior year.
Maria Licouris: And we continue to expect full-year diluted shares outstanding of approximately $86 million.
Maria Licouris: As a result, we now expect adjusted earnings per diluted share of approximately $2.65, which is the high end of our prior range, and represents year-over-year growth of approximately 18%.
Maria Licouris: As for cash, we now expect full-year capital expenditures of $50 million, and our outlook for free cash flow remains consistent at between $150 million and $200 million.
Maria Licouris: We will remain opportunistic with our capital allocation approach going forward, balancing both M&A opportunities and the remaining $200 million on our share repurchase authorization.
Maria Licouris: All in all, we are proud of our third quarter performance and the broad strength we saw across our businesses.
Maria Licouris: Our top and bottom line execution in the first nine months of this year gives us confidence we can achieve our full year guidance while also continuing to drive our strategic priorities forward.
Maria Licouris: Our growing cash position gives us the opportunity to further invest in the business while also opportunistically pursuing a combination of strategic acquisitions and share repurchases.
Maria Licouris: As we move into our year end, we continue to focus on strengthening the brand, expanding our product portfolio, and driving omni-channel and international growth.
Maria Licouris: Now, I'd like to turn the call back over to the operator to take your questions.
Speaker Change: Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the start button followed by the number 1 on your touchtone phone. You will hear a prompt indicating your hand has been raised.
Speaker Change: Each participant is limited to one question and one follow-up to allow for time for others.
Speaker Change: Should you wish to decline from the polling process, please press the star zero.
Maria Licouris: followed by the number two. If you are using a speakerphone please lift the handset before pressing any keys. One moment please for your first question.
Speaker Change: Your first question comes from the line of Peter Benedict III. Please go ahead.
Speaker Change: Good morning, guys. Thanks. Thanks for taking the question. First one's just kind of around the whole pair of question.
Speaker Change: I appreciate the effort you're making to diversify your sourcing outside of China. I'm curious how the international supply chain
Maria Licouris: works at this point, if we kind of fast forward, maybe 12 to 18 months.
Thank you.
Speaker Change: How much of the China-sourced drinkware can you just shift directly to other international markets and not bring to the United States? Is that a nuance that we should be aware of or thinking of as we try to pencil out potential tariff cost impacts on the business? That's my first question.
Maria Licouris: Hey, Peter, it's Mike. Thanks. Thanks for the question. Yeah. So, absolutely. So, as we, as we go through this.
Mike McMullen: any product made in China can go directly to the region, so to Europe, to Canada, to Australia. So one of the things we've talked about as we've gone through this is this is obviously currently primarily a U.S. dynamic.
Maria Licouris: which we feel as our international business grows sort of helps offset some of the potential cost risk that is out there.
Speaker Change: Okay, that's helpful. And another question, Mike, kind of is how do we think about...
you know, the pace of SG&A.
growth and really more the non-variable side.
Speaker Change: as we look at your obviously, you've mentioned you've been investing to support, you know, international growth, but as we kind of look out beyond this year and, you know, maybe have some gross margin tailwinds that maybe moderate or just, how do you think about your ability to manage the SG&A line in the event that gross margin isn't as much of a tailwind as it has been for the last year or two?
Speaker Change: Yeah, so I'd say, you know, our comments have been pretty consistent here, and I'd say that everything that we've done this year has largely been intentional. So, you know, coming into the year, we knew we were going to have some gross margin tailwinds.
Maria Licouris: and we viewed it as that is an opportunity for us to invest some of that back into the business and still allow operating margins to expand. So year-to-date gross margins are up 240 basis points. We've taken 70 basis points of that and still expanded operating margins 170 basis points.
Maria Licouris: For the year, the outlook that we put out today would imply
Gross Margin Expansion of 160 basis points. Again, SG&A
Maria Licouris: investing 70 basis points of that back into SG&A and allowing
Maria Licouris: for 90 basis points of operating margin expansion. That's all intentional. So as we go into next year, you know, we're going to, you know, be very thoughtful about how we approach that. So, and we've been pretty consistent that it is our intention.
All right, great. That's helpful. Thanks so much.
Thanks, Peter.
Speaker Change: Thank you. Your next question comes from the line of Peter Keith of Piper Sandler. Please go ahead.
Speaker Change: Hi, this is Alexia Morgan on for Peter Keith. Thanks for taking our question.
Speaker Change: Maybe just more on the tariff topic. So you're de-emphasizing China exposure within drinkware, that's great, but how should we think about gross margin impact there and is the facility move expected to be relatively smooth in terms of margin impact or how should we think about that?
Speaker Change: Yeah, thanks for the question. So obviously there's been a lot of focus on the potential impact of tariffs.
Speaker Change: There's just too much that we don't know to try and quantify.
Speaker Change: beyond what we talked about last quarter and then reiterated today in terms of what we're doing. So I think that's where we'd like to focus is here's what we are doing. The plan that we laid out last quarter and that we reiterated today is on track.
Speaker Change: Number one. Number two, we're working very closely with our suppliers who have strong, we have strong long-standing relationships with. We're working with them on a solution and also assessing potential new partners.
Speaker Change: And third, you know, we'll have to see as we go through this, but I think we would look at price potentially as an option to offset any potential tariff risk.
Speaker Change: So basically we're focused on the things that we can control and the other thing that I would lay out that as just as a reminder we have been through this before in the 2018-2019 time frame with soft goods.
Speaker Change: And we navigated that successfully, and we believe the plan that we have in place today will allow us to do that again. But again, there's just a lot of unknowns right now to lay out a specific number.
Speaker Change: Okay, that's helpful. Thank you. And then one more just on wholesale sell-in. Sales were really strong in the quarter. Sorry, you mentioned healthy wholesale sell-in already, but could you go more into detail on the wholesale sell-through dynamics that you saw in Q3, and then maybe how those compared to earlier in the year?
Speaker Change: Yeah, so, you know, here's what I'd say. We've been very pleased with our sell-in and our sell-through.
this year. As we look
Speaker Change: in the U.S. Now, one thing I do wanna make sure is clear is that when we talk comparing sell-in and sell-through, when we talk sell-through, that's primarily a U.S. dynamic. And so, whereas the wholesale reported number is global, and so,
when you look at just the U.S. cell in peace.
Speaker Change: they're reasonably aligned across both C&E and Drinkware. We've been really pleased with how Seltzer has performed this year.
Speaker Change: And, you know, I think as we go into the holidays, we think we're in a really, really good inventory position to have a successful Q4.
Okay, thank you, that's it for me.
Speaker Change: Your next question comes from the line of Randy Koenig of Jefferies LLC. Please go ahead.
Randy Koenig: Thanks guys and good morning. I guess maybe Matt, for you, considering the international business has...
you know, continue to power ahead here.
Speaker Change: Maybe frame up for us, where are we today with bodies in the different regions in terms of employees, just infrastructure, the way everything's set up as we think about additional growth in areas like Europe and Asia. Just try to frame it out for us in terms of where we've been, where are we, and where we're going in those markets ahead. Thanks.
Speaker Change: Thanks, Randy. Good morning. You know, I would say a couple things, you know, as we've talked in the past.
Speaker Change: We've kind of built these pillars of international growth through time, and we've said before.
Speaker Change: Canada and Australia, those two markets from a team infrastructure really are built out and they're in the scale mode. We called out, in particular, we called out Australia today and just the strong growth and execution that that incredible team we have down under continues to deliver.
Speaker Change: You know, Europe was a couple years behind that in its build-out.
Speaker Change: but with the team that we put together in Europe, focused on continental Europe and focused on the UK, we feel really good about.
Speaker Change: the infrastructure that we have built, there's still some more investment in front of that as we continue to kind of go up the scale.
Speaker Change: But I would say we're still in, when you look at the relative size of that market.
Speaker Change: We're still in the early days of the potential in Europe and it's why we continue to call out
Speaker Change: even specifically Germany and the UK. We think the opportunity is extraordinary, the reception has been outstanding, the playbook's working, and it's really powering. You know, it's meaningful growth for us now, and it's kind of...
Speaker Change: As we reported today, that's part of what you're seeing in that result is...
is the strong execution of Europe and the UK.
But I would say even more exciting is
how early we are in that opportunity.
Speaker Change: You know, Asia's further back in that investment. We're very early in the startup in Asia.
Speaker Change: building out our go-to-market strategy and our resourcing there. So I think Asia, North Asia, Japan, Korea will be a story over the years to come. I think Europe, in the UK, we'll be talking more and more about in the near term as we take the foundation we built and really scale off of it.
Speaker Change: Thanks, and then I guess lastly, maybe give us some, you know, further unpack, you know, how you're thinking about
Speaker Change: Product Evolution Ahead in Innovation. You talked a lot about the excitement around barware. You also kind of gave us some good perspective on, you know, the investments in sponsorship you've been doing on the culinary side of another audience that you're targeting. Maybe just give us some perspective of how you're thinking about going forward, how we should be thinking about innovation around other categories or other areas for the Strong Yeti brand to go into. Thanks, guys.
Speaker Change: Yeah, what I say here, Randy, is, you know, if you look back, I think our historical evolution sort of laid all the foundations for what we're talking about today and really the setup for where we're going in the future.
Speaker Change: I don't expect and has never been a hallmark of YETI to go...
just scattershot the brand and scattershot the product portfolio.
Speaker Change: We really want to thoughtfully build it out so it all connects.
Speaker Change: 2024 is really an example of that, and I think you'll see it continue into 2025 and beyond.
Speaker Change: As we build out drinkware and we connect more into food and culinary and as we build out our coolers and really expand the use cases there and as our bags.
Speaker Change: portfolio continues to evolve, and as we continue to evolve our storage, cargo, protective case business, you're going to also see those all fit together within the Yeti ecosystem. And so what we're really ultimately trying to do
Speaker Change: is surround the consumer with more use cases in their daily lives.
Speaker Change: make the brand more present and the brand more relevant because we know we have the brand, brand heat, we know we have the right product.
Speaker Change: ethos, and we feel those opportunities to grow it. We're incredibly excited about what's in front of us in bags. We think that is a massive global market that is right for Yeti. I think that combination of
Speaker Change: Drinkware moving a market moving from being very cup focused to being very solution oriented And that's the bar where serve where tabletop
Speaker Change: connection to cooking and culinary we're really excited about you know and I think over the next kind of near and midterm you're gonna see us aggressively build that out but I think you're gonna look at it and say that all really makes sense underneath the Yeti umbrella.
Great. Thanks, guys.
Speaker Change: Your next question comes from the line of Philip Lee of William Blair. Please go ahead.
Philip Lee: Thanks. Good morning, guys. Can you talk a little bit more about your expectations for the upcoming holiday, maybe what you're seeing in quarter of day trends and then any level of conservatism built in ahead of peak season ability to chase, and then any impact of a potentially more promotional competitive environment? Thanks.
Speaker Change: Hi, Philip. You know, I would say a couple of things and I'll reiterate a little bit of what I said and Mike said.
Speaker Change: Q4 is always big for us. Yeti has always been an incredible
gifting solution and gifting product and a highly desirable one.
Speaker Change: You know, I'd say year to year and depending upon environments, you see different behaviors in Q4, you know, when buying, when buying starts.
kind of when the season falls.
Speaker Change: So, you know, we closely monitor those. We feel great about how we're positioned for the holidays. We have incredible plans with our wholesale partners, domestically and globally, to address the consumer when they shop. You know, this year there is a shortened run between the goalposts of the traditionally defined sort of holiday buying season.
Speaker Change: And so, you know, we're well primed, we're well primed for that.
Speaker Change: We're excited about the innovation we put into the market this year that's still undiscovered, that still has opportunity to be a great holiday, great gifting solution.
Speaker Change: And, you know, as our history has been, we always have some things that we have for the holidays to stoke energy and demand and drive traffic and interest.
Speaker Change: So, you know, I think it's I think we're early in the quarter as it relates to to the holiday and you know
Speaker Change: I think as we go forward and get into this into the shortened season, you know, we're we're ready to react to
to what the market gives.
Speaker Change: outstanding and unusual in the quarter to date. And as we have always done, our promotional cadence has continued to be consistent and similar to what we've done in the past.
Okay, excellent. Very helpful.
Speaker Change: and then on gross margin, outside of any potential impact of tariffs.
Speaker Change: Can you talk about what bidding you are in for some of your gross margin improvements, maybe between kind of the normalizing transportation costs that are more macro versus some of your internal initiatives on controllable and product costs, just to kind of try and give us some sort of gauge on the go forward rate. Thanks.
Yeah, hey, Phillip. So.
Speaker Change: Difficult to put an ending on it because I'd say this is a continual process that we have internally to manage our cogs, to manage our gross margins.
Speaker Change: And there's things that happen every year, you know, in terms of things going on in the business, things going on in the market that can, that we need to react to as well. You know, obviously, we've been really pleased with our gross margins in 2024, the expansion that we've had. The outlook that we put out was essentially holding to the 58.5%, which was nice expansion year over year.
Speaker Change: You know, the outlook, what it implies for Q4 is essentially a flat gross margin in Q4 like we talked about, but there's some things driving that that we believe are specific to this time period.
that
Speaker Change: won't necessarily continue as we go into next year. We'll lap the hard cooler price decreases, sales mix, you know, what the faster growing, wholesale is growing faster than D2C, C&E is growing faster than Drinkware. Those are both, you know,
Speaker Change: somewhat diluted to gross margins. You know, it's our intention to sort of grow the categories together. It's our intention to grow D2C faster than wholesale. So we think that also can provide some benefit going forward. And then lastly, you know,
Speaker Change: One thing that's going to impact in Q4 is we've talked about these freight surcharges that we've seen.
We did a nice job of managing those, we believe.
Speaker Change: But the benefit that we'll get in Q4 from freight year over year is going to be lower than what we saw in Q3. Because a lot of those surcharges are going to flow through our P&L in Q4. But, you know, we've said all along, we think those are transitory and we are starting to see those come down.
Speaker Change: Again, not giving specific guidance on 2025, but other than to say, you know, we're gonna continue to do what we've been doing, which is manage our product costs, manage our inbound break costs, and continue to drive gross and operating margins up over time.
Speaker Change: And the only thing I would just add to what Mike said is, I mean, we're, we have.
Speaker Change: strong gross margins and we have strong operating margins and we continue to work both and see opportunity. And I think when you have a situation where
Speaker Change: You drive top line growth, you have strong gross margins, you have strong operating margins. We think really good things will continue to happen in our P&L and they'll continue to strengthen what we think is already an incredibly strong balance sheet.
Okay, excellent. Thanks. Best of luck on holiday.
Thanks a lot.
Speaker Change: Your next question comes from the line of Megan Clapp of Morgan Stanley. Please go ahead.
Megan Clapp: Hi, good morning. Thanks very much for taking our question. I wanted to just ask kind of big picture. You're talking to mid-single-digit growth in the U.S. this year.
Speaker Change: There's obviously been a lot of noise year over year as it relates to gift cards, some acquisitions. So I guess when you think about kind of the go-forward, is mid-single-digit growth in the U.S. the right level? And is that category up low single digits and you gaining some share? And if not, maybe how do you think about that kind of growth?
in the U.S. going forward.
Speaker Change: Megan, thanks for the question. You know, I would say while we're not sitting here in kind of our Q3 call and in Q4 updating any version of our long-term outlook, what I would reiterate is
Speaker Change: the signs we're seeing in the brand potential and what the market opportunity is for the brand, the expansion opportunities we're seeing in the product portfolio as we continue to build it out just opens more and more new doors, the growth opportunity domestically that we see as we think about that product expansion.
Speaker Change: Gets us incredibly excited, you know, without giving a specific number on it or pegging to a number. I think that quarter to quarter year to year, there can be some some changes based on.
background, market backdrop.
Speaker Change: strong, weaker, how our product cadence and our product expansion comes out.
Speaker Change: I think when you step back from it all to your point on the bigger picture, we're incredibly bullish on the brand, we're incredibly bullish on the product expansion and where we can go, the consumer receptivity, the partners we have today to get to market and address those consumers domestically, and that's before you get to
Speaker Change: the very early days of what we think are really long run international growth. So I think, you know, as we go through our annual guidance, we'll talk more about that.
Speaker Change: But I think when you step back and think about potential, and you think about relevance, and you think about connection, product, and consumer, we feel great about where we are.
Okay, awesome. That's helpful.
Speaker Change: And maybe, sorry to ask another question on tariffs, but maybe a little bit different. Your balance sheet is in a really great spot, and you know, how do you think about
Speaker Change: perhaps, you know, the ability to take on some debt and increase.
leverage to, you know,
Speaker Change: give yourself a little bit more flexibility on the bottom line or are there investments in
Speaker Change: you know, capacity that you can accelerate, you know, it's obviously...
Speaker Change: encouraging to hear, you know, that you will be able to get 50% outside of China by the end of 2025. But is there anything that you can do from a capital standpoint to perhaps accelerate that further? It would just be great to kind of hear a little bit more how you're thinking about the ability to leverage the balance sheet to offset some of these maybe short-term headwinds.
Speaker Change: Yeah, Megan, thanks for that question. You know, I would say we do have an incredibly strong balance sheet. We feel great about it. We feel great about our free cashflow generation and what that says about.
Speaker Change: the business operationally. When we think about our supply chain, alongside all of our other strategic initiatives,
You know, we continue to look for ways to.
Speaker Change: get to the answer faster and get to the right answer with
more thoughtful approaches, leveraging.
Speaker Change: the people capabilities and capacity we have, the capital we have. So I think as we get deeper into this and we understand, as it specifically relates to the tariffs, what we're dealing with, those kind of flexibility conversations, those kind of investment conversations, we absolutely look at. And as Mike said, we'll look at everything, as it relates to tariffs, look at everything from
Speaker Change: consumer pricing, to how we manage and operationalize the business, to investments we make in the in the continued evolution of our supply chain. So all of that is all that is active on the table discussions and some of it being actioned.
right now.
Great. Awesome. Thanks so much. Best of luck.
Thank you. Thanks, Megan.
Speaker Change: Your next question comes from the line of Joe Altobolo of Raymond James. Please go ahead.
Speaker Change: Hey, good morning. This is Martin on for Joe. I just want to touch on 4Q again. You know, EPS for this quarter is up 18%, and if we've done the math right, you're sort of implying flat for next quarter. I know you mentioned the shorter buying season, and you've touched a little bit on margins. I'm just wondering if there's any pull forward or any other dynamics that hadn't been mentioned yet.
Speaker Change: No, I think we've, I mean, it's largely the consistent story. So when you think about Q4, I think there's
Speaker Change: a couple of components to Q4 related to sales, gross margin, operating expenses, and I think we've touched on a lot of those in terms of the...
Speaker Change: The environment that Matt talked about, some of the dynamics and gross margin that we believe are specific to this quarter, and then, you know, our decision to continue to invest into the business using some of the upside and gross margin we've had this year. But I think everything needs to be looked at in terms of context of the year, both our results year to date.
and then as well as our Outlook.
Speaker Change: And so we're we are very pleased with the year that that we've had so far in the year that we're about to post Both on the in a top-line basis and a bottom-line basis there's some unique dynamics in q4 that
Speaker Change: that we talked about. I think the other thing is that when we put out an outlook, we obviously want to make sure that we feel good about that, and that's what we've done today. So nothing beyond what we've talked about.
Speaker Change: Okay, understood. And can you just update us on the competitive landscape and how your market share is holding up?
Speaker Change: Bob, I'll take that. A couple things on the competitive landscape, we haven't seen
Speaker Change: largely any significant changes in the competitive landscape. I think when you look at our results and how we continue to deliver a quarter-to-quarter, the partnerships we have, the shelf space we continue to maintain and grow domestically, the opportunity that we're seeing globally, I think markets are competitive and you have market alternatives that come and go and some come and stay for a bit.
Speaker Change: residual kind of strength of Yeti and the strength of the brand that we're building and the diversification and growth of the product portfolio I think are all are all signs of kind of how we weather weather the market and I so I feel good feel good about where we are I wouldn't say we've seen any
appreciable or material changes to the market.
Okay, great. I appreciate it, guys. Thank you.
Speaker Change: Your next question comes from the line of Jim Duffy of Skyfo. Please go ahead.
Speaker Change: Hi, this is Peter McGoldrick on for Jim. Thanks for taking our questions. Just first thinking of the composition of the 30% year-over-year international revenue growth.
Speaker Change: Can you provide some insight to the contribution of new dealer growth and gains within existing customers for this quarter? And then as we look forward, how should we expect that to evolve sequentially as we look forward over the midterm?
Speaker Change: Hi Peter, we haven't historically given kind of a resolution down into those into those markets at that level of specificity but what I would say to you is if you you're kind of follow how we've talked about
Speaker Change: Canada and Australia in that those those markets largely built out the infrastructure established the omni-channel and the things that we point out
customization, strong wholesale partnerships, you know, our e-commerce businesses.
Speaker Change: That would lead you to believe that it's evolving a lot like the U.S. And when we talk about the playbook we run, we aren't traditionally an open-new-door,
Speaker Change: you know, negative comp door type brand. That's not been the, it's not been the approach we've taken and we've taken that and exported it to the globe.
And the other dynamic in Europe is there aren't large...
Speaker Change: the kind of pan-European, multinational retailers like you'd see in the US and Australia and Canada. And so it tends to be more picking the right doors. And so it's a much more methodical process as it relates to wholesale build-out, which would lead you to kind of the conclusion that the business that we have is performing well.
Speaker Change: Thank you. And then just thinking about drinkware specifically and holiday, Yeti is a giftable staple already. Can you share any figures underpinning the fourth quarter outlook as it relates to wholesale shelf space, reorder rates, ETC contribution, new products, or international contribution?
Speaker Change: We didn't give specific, you know, when we gave our outlook for the year, and we talked about sort of, we expect the channel category and international dynamics to sort of continue that we've seen this year wholesale growing faster than DTC.
Speaker Change: C&E growing faster than drinkware. And that's, I would expect Q4 to look similar to that. You know, we think we've got, for drinkware specifically, and Matt talked about this, I mean, the number of products we've released in the last
Speaker Change: highly giftable items at highly giftable price points and we think could set us up for a really strong holiday season. But I think Q4 as it relates to the relationships between channels and categories and international will look pretty similar to how we've looked all year long.
Okay, very helpful. Thank you.
Speaker Change: For your last question, we have Brute Crouch of Goldman Sachs. Please go ahead.
Speaker Change: Hi, good morning. This is Savannah Summer. I'm from Brook Roach. Thank you so much for taking our question. In your prepared remarks, you mentioned a lot of excitement around the expanded bags launch plan for next year. Should we think about a similar value proposition rebalancing to your existing bags and packs business ahead of the launch, similar to the changes you made with your hard cooler expansion earlier this year? If so, how should we think about the breadth and depth of those price changes? Thank you.
Speaker Change: Yeah, hi, Savannah. Thanks for the question. We are excited, not only about the literal launch of those bags, but actually what it starts from an expansion in growth and what we see is the
Speaker Change: Frankly, the long-term potential in BAGS, as I laid out on the call, that run from everyday travel, sport, hike, hunt,
Speaker Change: you know, water-based things, all-weather bags. I mean, all those, well, all those we think are incredible sort of natural growth extensions for Yeti in this bags, packs, and luggage space.
Because I think about the Q1
Speaker Change: the bags that we are bringing out in kind of the
Speaker Change: first half of next year, really are expansionary and additive to what we have today. So there is some interplay between the bags that we have in the market and these.
Speaker Change: But I wouldn't expect anything kind of meaningfully transition-wise between those. It's really, we're looking to expand the line, create more choices for consumers in our bags and packs.
Speaker Change: Thank you. I'd now like to turn the call back over to Matt Reintjes for a final closing remark.
Matt Reintjes: Thanks everybody for joining us. We look forward to speaking with you on our Q4 and full year call. Have a wonderful rest of your month.