YETI Holdings, Inc. — Form 10-Q Summary
Period: Three months ended March 28, 2020, compared with the three months ended March 30, 2019. The request metadata says “2019 Q1,” but the filing is for 2020 Q1.
Business context and results
YETI designs, sells, and distributes outdoor products through wholesale and direct-to-consumer (DTC) channels. The unaudited statements are prepared under U.S. GAAP.
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Net sales | $174.4 million | $155.4 million | +12% |
| Gross profit / margin | $92.5 million / 53.0% | $76.6 million / 49.3% | Margin +3.7 percentage points |
| Operating income / margin | $16.2 million / 9.3% | $8.8 million / 5.7% | |
| Net income / diluted EPS | $8.5 million / $0.10 | $2.2 million / $0.03 | |
| Operating cash flow | $3.8 million | $(30.0) million | |
| Investing cash flow | $(3.8) million | $(19.8) million | |
| Cash at period end | $118.2 million | $19.0 million |
Revenue mix and material changes
- DTC sales rose 29% to $79.6 million; wholesale sales increased 1% to $94.8 million. DTC represented 46% of sales.
- Drinkware sales grew 24% to $112.6 million. Coolers & Equipment were essentially flat at $59.5 million; Other sales declined to $2.3 million from $4.7 million.
- U.S. sales were $165.0 million and international sales were $9.4 million.
- Gross margin improvement reflected product cost improvements (about 170 basis points), higher DTC mix (80 basis points), lower inventory reserves (50 basis points), and lower inbound freight and other impacts (70 basis points).
- SG&A increased 12% to $76.3 million, while remaining 43.7% of sales. Lower interest expense—$3.1 million versus $6.1 million—also supported earnings.
Cash, debt, and liquidity
- Operating cash flow was positive, but working-capital changes used cash, principally from lower accounts payable and accrued expenses and higher inventory, partly offset by collections of receivables.
- YETI drew $50.0 million on its $150.0 million revolving facility on March 24 as a precaution. At quarter end, $100.0 million remained available. Credit-facility principal outstanding was $346.3 million: $296.3 million on the term loan and $50.0 million on the revolver. The balance sheet reports debt of $343.3 million net of applicable items.
- Cash was $118.2 million; management reported $131.8 million of working capital excluding cash. The company said available liquidity was expected to fund operations for at least 12 months.
- Capital expenditures for 2020 were previously expected to be $25–$30 million, but the company said it was reducing capital expenditures and investments. The filing does not provide a revised capital-expenditure target.
COVID-19, outlook, and risks
- Sales increased 21% through mid-March, then declined 25% for the remainder of the quarter. In the final two weeks, wholesale sales fell 43%, while DTC sales rose 15%. For the five weeks ended May 2, sales declined further relative to the quarter’s final two weeks.
- As of May 7, retail stores remained closed. Offices, the innovation center, and domestic customization operations had closed or curtailed operations; online commerce remained open. YETI reported minimal supply-chain disruption to date.
- On May 7, YETI withdrew its full-year 2020 outlook. It cited uncertainty about the pandemic’s duration and effects, and anticipated material adverse impacts on future revenue growth and profitability. It warned of potential excess inventory, revised wholesale payment terms, increased collection risk, and product returns.
- Cash-preservation measures included discretionary-spending and capital-spending reductions, lower forward inventory receipts, payroll reductions, a hiring suspension, furloughs, workforce reductions, temporary executive salary reductions, and directors waiving annual cash compensation.
- The company was in compliance with credit-facility covenants at March 28. The facility carries variable LIBOR-based rates. COVID-19 impacts, discretionary consumer demand, wholesale partner health, inventory forecasting, concentrated third-party manufacturing, tariffs, and foreign exchange are among the disclosed risks.
- YETI concluded that goodwill and indefinite-lived intangible assets were not more likely than not impaired at quarter end, based on a qualitative assessment; it did not perform an interim quantitative impairment test. Legal claims were not considered likely to have a material adverse effect.
Controls and other notable items
Disclosure controls were deemed ineffective as of March 28 due to an unremediated material weakness in information-technology general controls. Management said remediation efforts were underway, but controls needed to operate effectively for a sufficient period and be tested before the weakness could be considered remediated. The filing reported no material changes in internal control during the quarter.
Investor facts to verify
- Track subsequent sales, margins, and channel trends against the sharp late-quarter and April deterioration; full-year guidance was withdrawn.
- Monitor cash conversion, inventory levels, receivables and wholesale-customer collections, and use of the remaining revolver availability.
- Confirm that IT general-control remediation is completed and tested, and that disclosure controls become effective.
- Assess covenant headroom and variable-rate debt exposure as operating conditions and interest rates change.
- Watch for impairment indicators, inventory reserves, and other effects of prolonged store closures or reduced demand.