YETI Holdings, Inc. — Form 10-Q Summary
Period clarification: The request identifies 2021 Q1, but the supplied filing is for the three months ended April 2, 2022, compared with the three months ended April 3, 2021. Filed May 11, 2022. Figures below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Business context and reporting period
YETI designs, retails, and distributes outdoor products, including coolers, drinkware, bags, and apparel. It sells through wholesale partners and its direct-to-consumer (DTC) channel. DTC represented 53% of quarterly sales, up from 51% a year earlier.
Key financial metrics
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $293.6 | $247.6 | +19% |
| Gross profit | $154.9 | $145.2 | +7% |
| Gross margin | 52.7% | 58.6% | -590 bps |
| SG&A | $121.6 | $105.1 | +16% |
| Operating income | $33.3 | $40.0 | Lower |
| Net income | $25.7 | $30.5 | Lower |
| Diluted EPS | $0.29 | $0.35 | Lower |
| Cash used in operating activities | $88.6 | $40.3 | More cash used |
Sales rose in both channels: DTC increased 23% to $156.0 million and wholesale increased 14% to $137.7 million. Drinkware sales grew 24% to $184.0 million; Coolers & Equipment grew 10% to $103.0 million. International sales were $37.4 million, versus $25.8 million.
Margin pressure reflected higher inbound freight, import duties following the expiration of the Global System of Preferences, other costs, and product costs. Price increases and a richer DTC mix partly offset these pressures. SG&A rose in dollars, while falling as a share of sales to 41.4% from 42.5%.
Operating cash use increased primarily because of working-capital needs, including a $94.3 million inventory cash outflow and lower accounts payable and accrued expenses. Investing cash use was $16.1 million, mainly for property, equipment, and intangibles. Financing cash use was $107.6 million, including the $100.0 million share repurchase.
At April 2, 2022, cash was $100.3 million; working capital excluding cash was $185.5 million. YETI had $106.9 million of Term Loan A principal outstanding, no revolving-credit borrowings, and $150.0 million available under its revolving facility. The term loan and revolving facility mature December 17, 2024. The company reported covenant compliance.
Material changes, outlook, and risks
- Supply chain and costs: COVID-related port congestion, transportation delays, labor and container shortages continued to extend inventory transit times and constrain product availability, especially in wholesale. Management expected inbound freight and certain product input costs to remain elevated for the rest of 2022.
- Share repurchase: YETI repurchased 1,676,551 shares for $100.0 million, at an average $59.66 per share, exhausting the program’s authorization.
- Unusual item: Q1 2022 cost of goods sold included a $6.4 million out-of-period inbound freight adjustment. The filing says it was not material to the prior interim or annual periods; management identified a 220-basis-point gross-margin impact in the quarter.
- Liquidity outlook: Management said cash, operating performance, and available revolver capacity should cover foreseeable liquidity and capital needs for at least the next 12 months. No specific sales or earnings guidance was provided in the supplied filing text.
- Principal risks: Supply and manufacturer concentration, freight and input-cost inflation, tariffs and duties, demand forecasting and inventory management, discretionary consumer spending, competition, and international and foreign-exchange exposure. The filing also discusses COVID-19, the Russia-Ukraine conflict and related fuel-cost effects, variable-rate debt and LIBOR transition, and cybersecurity and systems risks.
- Other disclosures: The company said existing legal claims were not expected to have a material adverse effect. Disclosure controls were assessed as effective, and there were no material changes to internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm whether the intended period was Q1 2022: the supplied 10-Q covers that quarter, not Q1 2021.
- Track whether freight, duties, and product-cost pressures ease as management expected, and whether price increases sustain demand and margins.
- Assess inventory growth and operating cash use against sales, availability, and future demand; inventory reached $413.0 million from $318.9 million at year-end.
- Monitor debt repayment, variable interest-rate exposure, covenant headroom, and remaining liquidity after the repurchase.
- Consider the $6.4 million freight adjustment when evaluating reported gross margin and comparisons with prior periods.
- Review customer concentration: the largest customer represented approximately 11% of gross sales in Q1 2022, versus no customer above 10% in Q1 2021.