YETI Holdings, Inc.

Moat: 2/5

Understandability: 2/5

Balance Sheet Health: 4/5

YETI Holdings, Inc. designs, markets, and distributes premium outdoor products, most known for its coolers and drinkware.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Business Overview: YETI Holdings, Inc. is a global designer, marketer, and distributor of outdoor recreation products. It is primarily known for its premium coolers and drinkware, but they have expanded into categories like bags, apparel, and gear. The company’s mission is to “build the products that enable customers to go further and stay out longer.” They sell their products through a diverse distribution network that includes wholesale (e.g. retailers, large format chains, specialty stores) and direct-to-consumer channels (e.g. e-commerce).

  • Revenue Distribution: Revenue is categorized by product type and channel type. Their core product segments include:
    • Coolers & Equipment: Includes hard and soft coolers, cargo, outdoor living products, and other accessories.
    • Drinkware: Includes insulated and non-insulated drinkware products.
    • Other includes bags, apparel, etc. The majority of their sales occur in the United States, with a growing focus on international expansion. Their wholesale channel accounted for 56% of the revenue in 2021, while direct-to-consumer (DTC) accounted for the remaining 44%.
  • Trends in the Industry: The outdoor recreation market has been growing due to increased interest in outdoor activities, adventure travel, and sustainable products. The demand for premium durable goods has been rising. In general, the industry can be cyclical to some extent, with more activity in summer months versus winter months.
  • Competitive Landscape: The outdoor products market is becoming increasingly competitive, and more brands are competing with YETI with high quality products and marketing abilities. Competition exists both for the core product areas (like coolers or drinkware) and new product areas. Strong competition exists from big players that also operate in large retail chains and more specialized/premium brands that operate in the outdoor space. The main key is to create brands that have the ability to keep attracting customers through superior marketing, brand loyalty, durability, and usefulness.
  • What Makes YETI Different: Yeti has an extensive brand recognition, which was built using a mix of premium product development and marketing, which is aimed at a core group of clients with high spending. This brand recognition is the main value proposition and the biggest advantage against other brands. They also position themselves as a premium brand, which justifies higher prices compared to other competitors. They tend to focus on innovation, and they have managed to generate a huge customer loyalty.

Financial Performance:

  • Revenue Growth: YETI has demonstrated a consistent growth in revenue for the past few years, which suggests a consistent interest in its products. This high growth is primarily driven by the company’s successful strategies in new products, and they have been able to build a solid presence in different channels. In Q4 of 2023, revenue came in at $448 million. This is a lower than expected number, which was the main reason that the stock price took a massive beating.
  • Gross Margins: Their gross profit margins have been relatively stable, usually around or over 50%. This suggests they can maintain a premium pricing strategy while also keeping costs stable.
  • Operating Expenses: Selling, general, and administrative expenses have been steadily decreasing as a percentage of revenue and suggests increasing profitability. They are focusing on efficient marketing activities and cost-cutting measures to help with that.
  • Net Profit: Their net profit margin has generally fluctuated based on earnings seasonality. The Q4 usually has high sales, which are typically combined with holiday shopping, and those usually provide a major source of yearly earnings.
  • Return on Invested Capital (ROIC): The company’s ROIC in 2023 is at around 14%, but if you adjust it for the goodwill and intangible, the return on operating assets will increase to 18%, which shows the core business generates more value than its intangibles.
  • Cash flow: The company has maintained stable positive free cash flow that implies that the company’s operations can generate consistent cash that can be used for reinvestments, stock buybacks, dividends, or more.

Moat Analysis: 2/5 YETI possesses a narrow moat based primarily on: * Brand Recognition and Loyalty: YETI has cultivated a strong brand that is highly valued by its consumers, which in turn allows YETI to maintain its premiums over similar competitors. That is, customers are willing to pay a premium because of its brand association, with quality and durability. Brand loyalty also makes them less likely to switch to other competing products. However, this moat is not insurmountable as brands can be affected by shifting consumer sentiments, changes in marketing, or aggressive marketing from competitors. * Cost Advantages: They have some scale in their production that allows it to optimize costs and production, which creates some cost advantages against its rivals. But their focus on premium products is not as cost focused as other competitors which are more focused on the value section of the market.

Risks to the Moat and Business Resilience:

  • Increased Competition: The market of durable premium outdoor goods is getting more competitive. Competitors with high quality production capabilities and aggressive marketing strategies are coming on the market and are threatening YETI. This can affect the sales and margins. * Supply Chain Issues: Manufacturing is globally dispersed, making them susceptible to global events and disruptions to supply chains, which can impact sales and margins.
  • Changes in Consumer Preferences: Consumer tastes and preferences can change fast, and if YETI fails to adapt to that, they will fall behind. The focus on performance and durability may give space for fashion or other types of brands.
  • Economic Downturn: Consumer spending in general is tied to the economy. In case of a recession, consumers can decide to cut back on more expensive discretionary items, like YETI products.
  • Erosion of Brand Image: Any negative event that can tarnish the company’s brand, such as product issues, lawsuits, or bad corporate practices, could potentially damage its reputation and affect sales.
  • Failure to Innovate: YETI must continually innovate to stay competitive and be more compelling for customers. Failure in their innovation process will lead to declining interest from consumers.
  • Overemphasis on Growth Strategies: Many large companies have tried growing revenues by acquisitions, but this strategy is almost always value-destructive and destroys shareholder value. Also, there’s the risk of spreading management resources too thin or making investments in unprofitable new ventures.

Balance Sheet Health: 4/5 * Liquidity: YETI maintains a reasonable level of liquidity. Their cash reserves have been sufficient to cover their short-term liabilities. However, they hold a good amount of short-term debt, but given how the business model works, they do not have a hard time covering them. * Debt: They have some debt on the balance sheet, but the company is still able to maintain a reasonable level of leverage. The debt they hold is primarily long term debt, but they have started paying debt down.

  • Solvency: The total value of their assets is still way greater than their liabilities. This provides the company with strong financial flexibility, which gives them more flexibility in managing the business and facing unexpected challenges.
  • Shareholder Equity: The total value of shareholder equity remains at an appropriate level. They have been repurchasing some shares, which reduces the company’s float and helps with the earnings per share.

Understandability: 2/5

  • While the basic business model of selling outdoor products is understandable, their financial statements can be complex. Understanding the effects of goodwill, amortizations, and changes in accounting policies can be tricky. * The value of different product categories and the brand recognition is not readily accessible, and it is difficult to predict future trends of the company or new products. * Analyzing their operations and understanding their supply chains, production and marketing channels, requires effort and more research, as the company doesn’t offer a lot of data.

Recent Concerns/Controversies: * Lower than expected revenue in Q4 2023: The company reported lower revenues for the fourth quarter than expected by analysts. They attributed this to multiple factors, such as lower sales growth of their core business, and weak demand.

  • Stock Decline: Due to the missed revenue targets, the share price dropped rapidly after they published the last earnings report. This also implies that many people are not as confident in the short-term prospects of the company and its ability to grow.
  • Growth Forecasts: The company expects growth to be slower in the near term than originally forecasted, making some people weary about the future. It should be noted that the company is in the process of restructuring and streamlining operations which can have temporary negative effects. Management is now focused on growing revenues without increasing costs as much as they did in the past.

Conclusion: YETI is a company with a recognizable brand and a long history of solid growth. However, they are in a transition phase with restructuring and operational changes. They possess a narrow moat with some risk to their business that should be addressed in the future. In conclusion, the long-term success will depend on their ability to maintain their brand, grow in new channels, manage costs efficiently, and innovate to meet changing customer expectations.