YETI Holdings, Inc. — Form 10-Q Summary
Period clarification: The supplied filing is for the quarter ended July 3, 2021 (fiscal 2021 Q2), not 2020 Q2 as stated in the request metadata. Comparisons are with the quarter ended June 27, 2020. Amounts below are in U.S. dollars.
Business context and reporting period
YETI designs, markets, and distributes outdoor products, including coolers, drinkware, bags, and equipment, through wholesale and direct-to-consumer (DTC) channels. The filing reports the three and six months ended July 3, 2021; fiscal 2021 is a 52-week year.
Key financial results
| Metric | Three months ended July 3, 2021 | Six months ended July 3, 2021 |
|---|---|---|
| Net sales | $357.7 million; up 45% year over year | $605.2 million; up 44% |
| Gross profit / margin | $209.1 million / 58.5%, versus 55.7% | $354.3 million / 58.5%, versus 54.6% |
| Operating income | $72.4 million; 20% of sales | $112.5 million; 19% of sales |
| Net income | $56.2 million; diluted EPS $0.63 | $86.8 million; diluted EPS $0.98 |
| Operating cash flow | Not separately reported for the quarter | $22.2 million, versus $72.4 million |
| Capital expenditures | Not separately reported for the quarter | $25.9 million for property and equipment; investing cash outflow was $29.8 million |
Quarterly SG&A was $136.7 million, or 38.2% of sales, compared with 36.8% a year earlier. Six-month SG&A was $241.8 million, or 40.0% of sales, versus 39.7%. Cash was $233.8 million at July 3, 2021, down from $253.3 million at January 2, 2021. The company reported $23.4 million of working capital excluding cash.
At July 3, 2021, principal outstanding under the Term Loan A was $123.8 million, with no revolving-credit borrowings and $150 million available on the revolver. The balance sheet reports $132.2 million of current and long-term debt, including amounts classified as debt for finance leases. The company said it was compliant with its credit-facility covenants.
Material changes versus the prior comparable period
- DTC sales grew 48% in Q2 to $196.9 million; wholesale sales rose 41% to $160.8 million. DTC represented 55% of quarterly sales, versus 54% a year earlier.
- Drinkware sales increased 69% to $192.9 million in Q2; Coolers & Equipment increased 23% to $157.8 million. International sales were $33.0 million, up from $9.8 million.
- Gross margin improved 280 basis points in Q2. Management attributed the increase mainly to higher DTC mix, product-cost improvements, lower inventory reserves, and fewer promotions; higher duties following non-renewal of the GSP and higher inbound freight partially offset the gains.
- Operating cash flow fell despite higher net income, primarily because working capital consumed more cash, especially from an $81.2 million increase in inventory. Cash used in investing activities also increased, including spending on technology upgrades, production molds, tooling, and facilities.
- Interest expense declined, primarily because of lower debt outstanding. The prior-year Q2 comparison included COVID-related store closures and cost-reduction actions; management noted that these affected the comparison.
Outlook, commentary, risks, and unusual items
- Management said demand remained robust, but the company was inventory constrained and working to replenish distribution channels. It stated that the pandemic had not materially adversely affected sales or operations to date, while warning that future COVID-19 effects—including new variants—were uncertain and could not be reasonably estimated.
- For fiscal 2021, the company expected $55–$60 million of capital expenditures for property and equipment, excluding finance-lease assets. The filing gives no full-year revenue or earnings guidance.
- A new approximately 970,000-square-foot Memphis distribution facility began service at the end of Q2. YETI expected distribution to begin there in the second half of fiscal 2021 and planned to exit its Dallas facility by year-end. The five-year arrangement created operating- and finance-lease obligations.
- Key disclosed risks include concentrated third-party manufacturing, supply and freight disruptions or cost inflation, demand-forecasting and inventory risk, tariffs and duties, consumer-discretionary spending, and execution of the distribution-center transition and SAP ERP upgrade.
- Legal claims were described as not expected to have a material adverse effect. Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether inventory constraints ease and product availability supports continued sales growth without excess stock or discounting.
- Whether gross-margin gains persist as freight costs, import duties, product costs, channel mix, and promotional activity change.
- Whether operating cash flow recovers from the inventory-related working-capital outflow while capital expenditures remain elevated.
- Whether the Memphis distribution transition and SAP upgrade meet timing, cost, and service expectations.
- Whether robust demand continues after the unusually weak pandemic-affected wholesale comparison, and how COVID-related supply and consumer risks evolve.