YETI Holdings, Inc. — Form 10-Q Summary
Period clarification: The supplied filing is for the three months ended April 1, 2023 (fiscal Q1 2023), compared with the three months ended April 2, 2022—not 2022 Q1 as stated in the request metadata. Filed May 11, 2023. YETI designs, sells, and distributes outdoor products through wholesale and direct-to-consumer (DTC) channels.
Key financial results
| Metric | Q1 2023 | Q1 2022 | Change |
|---|---|---|---|
| Net sales | $302.8 million | $293.6 million | Up 3% |
| Gross profit / margin | $161.9 million / 53.5% | $154.9 million / 52.7% | Profit up 5%; margin up 80 bps |
| SG&A | $146.8 million / 48.5% of sales | $121.6 million / 41.4% | Up 21%; ratio up 710 bps |
| Operating income / margin | $15.1 million / 5.0% | $33.3 million / 11.3% | Down 55% |
| Net income / diluted EPS | $10.6 million / $0.12 | $25.7 million / $0.29 | Down 59%; EPS down to $0.12 |
| Operating cash flow | $(46.7) million | $(88.6) million | Cash use narrowed |
| Investing cash flow | $(13.2) million | $(16.1) million | Cash use narrowed |
| Financing cash flow | $(7.4) million | $(107.6) million | Prior period included $100.0 million share repurchase |
Sales mix and balance sheet
- DTC sales rose 7% to $167.0 million; wholesale sales declined 1% to $135.8 million. DTC accounted for 55% of sales versus 53% a year earlier.
- Drinkware sales increased 3% to $190.3 million; Coolers & Equipment increased 1% to $104.4 million. U.S. sales declined to $253.0 million from $256.3 million, while international sales increased to $49.8 million from $37.4 million.
- At April 1, 2023, cash was $167.8 million; working capital excluding cash was $157.2 million. The company reported $150.0 million available under its revolving credit facility.
- Term Loan A principal outstanding was $84.4 million; no revolving borrowings were outstanding. The weighted-average Term Loan A rate was 6.19% for the quarter. YETI reported compliance with its debt covenants.
- Cash declined $66.9 million from year-end 2022. Inventory was $347.0 million, down from $371.4 million; total liabilities were $464.0 million.
Material changes and unusual items
- Sales growth was led by DTC volume, but the global stop sale of recalled soft cooler products constrained results. SG&A growth substantially exceeded sales growth, reflecting higher employee and facility costs, marketing, warehousing, depreciation and amortization, and organizational realignment costs.
- Gross margin improved modestly, principally due to lower inbound freight and favorable recall-related inventory reserve adjustments. These benefits were partly offset by higher product costs and foreign exchange impacts.
- The company recorded an $86.1 million reserve for estimated recall expenses at April 1, 2023, down from $94.8 million at year-end 2022. Inventory reserves were $25.3 million, primarily related to the voluntary recalls.
- Operating cash use narrowed year over year, mainly due to lower working-capital cash use, including an inventory reduction. Accounts payable and accrued expenses were a significant use of cash in both periods.
- The effective tax rate increased to 27% from 23%, primarily due to an unfavorable tax impact related to stock compensation.
Outlook, risks, and contingencies
- Management expects gross margin to improve for the remainder of 2023, citing lower inbound freight rates. It believes cash, operating performance, and available revolver capacity will cover foreseeable liquidity needs and capital expenditures for at least 12 months. The filing provides no specific full-year revenue or earnings guidance.
- YETI said it intends to resume sales of redesigned affected products in Q4 2023, but noted the timing may change. Recall costs depend on consumer participation and remedy choices, and the reserve may be revised as estimates change.
- Management reported continued macroeconomic uncertainty, including inflation, higher interest rates, foreign exchange volatility, and supply-chain and logistics risks. It said discretionary spending has been pressured, while demand for YETI products remained strong in the quarter.
- Principal risks include the product recalls and brand impact, demand and forecasting uncertainty, concentrated third-party manufacturing, international trade and tariff exposure, competition, consumer spending, and cyber and information-technology risks. Existing legal claims were not expected by management to have a material adverse effect.
- Disclosure controls and procedures were assessed as effective as of April 1, 2023; the company reported no material changes in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Progress of the recalls, actual remedy participation and costs, adequacy of the $86.1 million reserve, and timing of redesigned-product sales.
- Whether DTC growth can continue and wholesale sales recover, particularly given the stop sale’s impact on product availability and seasonality.
- Whether lower freight costs persist and offset product-cost, currency, and operating-expense pressures; SG&A rose 21% while sales rose 3%.
- Cash generation and working-capital trends, including the timing of supplier payments and the $39.5 million of supplier-finance obligations included in accounts payable at quarter-end.
- Debt repayment, variable-rate exposure, covenant headroom, and continued availability of the $150.0 million revolving facility.