Last year Yeti Holdings' (YETI -1.16%) stock doubled as the premium lifestyle brand successfully adapted to changes in consumers' shopping habits. But that success doesn't look like it's stopping any time soon. Here are three reasons Yeti looks poised for an even better 2021.
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Growing fast
Yeti wrapped up its most recent quarter with 29% year-over-year growth in total sales. Of the $295 million in revenue it generated over the quarter, 51% came from Direct-to-Consumer (DTC) -- up from 41% from a year prior. Driven by strong demand for its two leading revenue drivers -- Drinkware and Coolers & Equipment -- its inventory balance dropped 36% year-over-year. Management addressed the plummeting inventory stating that it's working to expand its supplier capacity as Yeti heads into the holiday season. But it doesn't look like Yeti's pulling back the reigns on other initiatives either.
In the latest conference call, Yeti hinted at its new 2021 product launchesand even touted the company's large digital presence as a great marketing funnel. While Yeti rarely pre-announces upcoming product launches, it has a pretty easy time bringing new items to market. For example, Yeti successfully introduced its Rambler 10 ounce Tumbler this quarter despite being limited to DTC sales only, and Yeti's massive social media following was likely a key driver for that. With 1.5 million Instagram followers and 187 million views on the #Yeti TikTok page, Yeti is able to easily introduce new products to its customers without having to spend tons of money to raise awareness. In the most recent quarter, Yeti's Selling, General, and Administrative expenses, which consists of marketing-related costs fell from 38% to 35% of overall revenue.
In addition to the growth from new product launches, Yeti continues to see robust adoption internationally. International revenue grew 165% year-over-year in the 3rd quarter and now accounts for 7% of total sales. Canada seems to be leading the surge internationally thanks to the reopening of Yeti's Canadian wholesale business, but it's also seeing strong growth across Australia, the UK, and Europe as well. While CEO Matt Reintjes didn't pinpoint any specific international initiatives that Yeti's planning to roll out, he did mention that Yeti intends to build out the proper infrastructure to support retail reopenings.
Increasing Profits
As consumers began shopping with a digital-first approach, Yeti was right there to reap the benefits. Direct-to-consumer revenue for the quarter grew 62% year-over-year and drove gross profit margins from 52% to 59%. Yeti also generated $70 million in operating income for the quarter -- more than double the year prior. In an attempt to continue expanding margins, Yeti opened eight new retail locations in West Palm Beach during the quarter. Whether it's direct-to-consumer or wholly-owned retail stores, by keeping the sales in-house instead of selling through wholesalers, Yeti receives a bigger slice of the pie.
Another way Yeti is able to increase profits is through pricing power. Yeti boasted 59% gross margins for the quarter, whereas competitors like Newell Brands (NASDAQ: NWL) report less than half that figure, at around 34% gross profit margins. Unlike Newell Brands, Yeti is able to charge much more for its equipment because it's viewed as a premium brand. For example, let's look at cooler prices. On Amazon, shoppers can get a 70 quart Coleman cooler for $51.19, while Yeti is able to sell that same size cooler for $299.99 -- a nearly 500% premium to its competitors. Customers aren't shopping with Yeti to save money, they're looking for reliable, best in class products with a relevant brand name others will recognize.
Improved Balance Sheet
One of the biggest concerns for Yeti shareholders has been the looming long-term debt. In 2019, Yeti borrowed $300 million at a 6.25% interest rate, and entering the 3rd quarter Yeti still owed $290 million in total by 2024. However, as demand strengthened this quarter, management took the initiative to voluntarily pay back $50 million on the long-term debt early.
Between the $235 million in cash Yeti has on the balance sheet, and its stable quarterly free cash flow, it seems unlikely that Yeti would struggle to pay down the $237 million in total debt outstanding.
With consistent cash flow, sustainable sales growth, and a brand customers love, it's safe to assume Yeti's future looks pretty bright.
