Apr 30, 2021
general Analysis
[13 min Read]
Hi Everyone,
I orginally made this research report on my blog (http://tedinvests.com/posts/) and I'm now posting it on Utradea. I encourage you to read the post on my blog as it provides graphs and pictures so you can get a better idea of this company.
Market Capitalization: $7.71 Billion
Share price as of writing this: $88.46
Company Description:
Yeti designs, markets, and distributes products for the outdoors and recreational markets. They specialize in products such as coolers, drinkware, bags, and other related products. Their mission from the start was simple, build high quality coolers that are for the serious outdoors enthusiast. Yeti's products have won awards and been mentioned by the likes of Outside Magazine, Field & Stream Magazine, Business Enthusiast, and more. Over 130 notable ambassadors such as Beth Rodden, Tyler Pearson, and Jordan Fabrizio endorse Yeti products for their amazing high quality products. Recently they expanded by entering the Australia, Japan, Europe, U.K, and New Zealand markets. With only 6% of sales coming from international markets, Yeti has a lot of room to expand and increase sales. Looking at their 2020 net sales, Drinkware made up the majority of their sales at 58%, while coolers & equipment made up 41% of their sales followed by other products at 1% (apparel, ice substitutes, other accessories). Yeti's channel mix consists of 42% wholesale and 58% direct-to-consumer. Their products can be found in stores such as Dick's Sporting Goods, Lowe's, Bass Pro Shop, and other similar stores. I've noticed how well respected this brand is amongst my peers and certainly people of all ages enjoy Yeti products.
“Demand for YETI was strong before the onset of the pandemic and remained robust as global consumers adjusted to new work and life habits highlighted by interest in outdoor pursuits, behaviors that we expect will continue this year. Looking forward, we believe YETI is uniquely positioned to capitalize as consumers begin to re-engage in pre-pandemic activities such as commuting, social gatherings, and sports activities at all levels. This confidence is reflected in our topline outlook of 15% to 17% growth for 2021 - on top of our incredible performance in 2020 and above our long-term target. To further adapt to these consumer evolutions, we remain steadfast in investing across our strategic priorities to ensure we are driving our long-term sustainable global growth aspirations.” - Matt Reintjes, President and Chief Executive Officer
Quick Summary/(TL;DR)
What I like mainly about this stock is that it's easy to understand. Yeti is a strong brand serving premium products for the outdoor enthusiast. Their sales growth over the years has been impressive for a company that mainly sells coolers and drinkware. I personally know a lot of people who love Yeti products for their build and they don't mind paying the premium price. Along with their products, their stock is also selling at a premium. Yeti's current P/E ratio is over 45 and my DCF calculation yielded me a 33% downside. This doesn't mean that this stock can't continue to trade expensively. Their brand is extremely strong and they have yet to catch up to their competitors in terms of brand awareness, which signals to me that this company still has a lot of room left to grow. Although, I worry that in the near-term this stock has gotten quite overvalued. While I love Yeti's balance sheet, rate of growth, and brand name, paying $88 for the stock doesn't make sense to me. If this stock were to drop to $65 I would start a position and continue buying for as long as the stock is anywhere near the $65 mark.
Note - This also appears at the end of the post as “Conclusion”
Total Addressable Market (TAM)
The global camping cooler market was valued at $621.8 million in 2017 and It is expected to grow at a compounded annual growth rate (CAGR) of 6.4% through 2025. Additionally, the global drinkware market size was valued at $3.87 billion in 2018 and is expected to grow at a compounded annual growth rate (CAGR) of 3.1%. If we add both of those market sizes up then we get a total addressable market of roughly $4.5 billion. Compare that $4.5 billion to Yeti's revenue of $1.097 billion for the year ended 2020 and we realize that Yeti still has a lot of room to grow. As Covid becomes a thing of the past and summer comes around, we can expect that Yeti will see a significant bump in their revenue for Q2 2020. Furthermore, the trend towards being green and reducing waste makes some of Yeti's products desirable as more people start to cut their spending on water bottles and other drinks.
Yeti's plans to expand internationally have only recently begun to take effect and will likely boost their sales. I'm curious to see how sales will be internationally as Yeti tries to market to a new audience. They've talked about international select wholesaler deals and investors are hoping to see that more of the international sales come from DTC channels as they command a higher profit margin. We've seen companies such as nike and VF Corporation with over 50% and 40% of their sales respectively coming from international markets. While Yeti may not get to the levels that Nike and VF Corporation are at because Yeti products are more niche, Yeti can still leverage international markets going forward.
Fourth Quarter and Full Year 2020 Financial Results
For the Three Months Ended January 2, 2021
For the Twelve Months Ended January 2, 2021
Balance Sheet
Important Points to Address
Fiscal 2021 Outlook
For Fiscal 2021, a 52-week period, compared to a 53-week period in Fiscal 2020, YETI expects:
Recent Developments/Acquisitions
Management
President and CEO - Matthew Reintjes
Matthew has been the President and CEO of Yeti since 2015 and joined the company's board of directors in 2016. Prior to his role at Yeti, Matthew served as V.P of the Outdoor Products Reporting Segment at Vista Outdoor Incorporated. Vista is a manufacturer of outdoor sports and recreational products. Additionally, Matthew served as the COO of Bushnell Holdings Inc., which operates a portfolio of leading brands in outdoor and recreational products. In terms of his vision, Matthew is focused on expanding Yeti's DTC channel and in an interview with Yahoo Finance in 2021 he said, “One of our stated strategies when we went public in 2018 was to continue to be where consumers want to shop and continue to evolve our digital reach and our DTC business.” Matthew's goals as stated in the interview were backed up by that fact that over the last 5 years they've brought their DTC channel from 10% to over 50% of their business. Knowing that Yeti recently began exploring international markets, we can expect that Matthew will bring the same vision to those markets.
Senior Vice President and CFO - Paul Carbone
In 2018, Paul Carbone was named the Chief Financial Officer of Yeti. Prior to his role at Yeti, Paul acted as the Chief Financial officer and Chief Operating Officer of The Talbots for 1 year. Before his role at The Talbots, Paul served as the Senior VP and CFO of Dunkin' Brands Group, Inc. for 4 years. In addition to Paul's roles at The Talbot and Dunkin' Brands Group, Paul worked for Tween Brands, Inc. (specialty retailer) and Victoria's Secret of L Brands, Inc. With the understanding of the retail market that Paul has acquired over the last decade in terms of operations and financial knowledge, he is likely to continue leading Yeti in the right direction.
Senior Vice President of Product - Brian Dengler
Brian has been the Senior VP of Product since January 2020. Previously, he spent 16 years with Newell Brands serving a number of different roles, most recently he held the role of Vice President for R&D for the Home Solutions Segment. In addition, Brian has held roles at both Husky Injection Molding Systems and Hasbro. Dengler holds a B.S in Mechanical Engineering Technology from the University of Cincinnati.
Executives not mentioned: Brian Barksdale (Senior VP, General Counsel and Secretary), Hollie Castro (Senior VP, Talent and ESG), Kirk Zambetti (Senior VP of Sales)
What could go wrong
Yeti's brand may not be perceived well internationally - While in the U.S Yeti is perceived as a premium brand that creates high quality products, there expansion into new regions may not play out the same as it has in the U.S. Currently international sales make up 7% of Yeti's net sales and that number represents the 81% growth YoY during Q4 2020 in their international sales. Additionally, Yeti has announced plans to extend DTC channels and strategically target wholesalers in each region. In Australia, New Zealand, and Canada they operate 3PL facilities. While certainly all of this data sounds great, we have to see how things play out. Does Yeti's expansion into international markets justify them trading at a P/E multiple of close to 50?
What we want to see in the future
New product categories - Drinkware and coolers made up basically all of Yeti's revenue in 2020 at 58% and 41%, respectively. The coolers and drinkware made from Yeti are known to last multiple years and I don't see people wanting to have multiple expensive products from this company unless they are enthusiasts. Yeti is going to have to expand their product offering at some point in order to compete in the market. Perhaps it might be a good idea on Yeti's part if they begin to make a push for the apparel side of their business and start to focus heavier on jackets, hoodies, and outdoor apparel overall. If they keep their current mix of products, then this business will be quite cyclical and to some extent it already is. I expect that this upcoming summer Yeti will see strong sell through as people are eager to get out after being locked down because of Covid.
Analyst expectations
Conclusion
What I like mainly about this stock is that it's easy to understand. Yeti is a strong brand serving premium products for the outdoor enthusiast. Their sales growth over the years has been impressive for a company that mainly sells coolers and drinkware. I personally know a lot of people who love Yeti products for their build and they don't mind paying the premium price. Along with their products, their stock is also selling at a premium. Yeti's current P/E ratio is over 45 and my DCF calculation yielded me a 33% downside. This doesn't mean that this stock can't continue to trade expensively. Their brand is extremely strong and they have yet to catch up to their competitors in terms of brand awareness, which signals to me that this company still has a lot of room left to grow. Although, I worry that in the near-term this stock has gotten quite overvalued. While I love Yeti's balance sheet, rate of growth, and brand name, paying $88 for the stock doesn't make sense to me. If this stock were to drop to $65 I would start a position and continue buying for as long as the stock is anywhere near the $65 mark.