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

Net sales increased 26% to $375.8 million, compared to $297.6 million during the same period last year.
Direct-to-consumer (“DTC”) channel net sales increased 46% to $217.8 million, compared to $149.0 million in the prior year quarter, driven by strong performance in both Drinkware and Coolers & Equipment. The DTC channel grew to 58% of net sales, compared to 50% in the prior year period.
Wholesale channel net sales increased 6% to $158.0 million, compared to $148.7 million in the same period last year, driven by both Drinkware and Coolers & Equipment.
Drinkware net sales increased 23% to $235.7 million, compared to $192.0 million in the prior year quarter, primarily driven by the continued expansion of our Drinkware product offerings, including the introduction of new colorways and sizes, and strong demand for customization.
Coolers & Equipment net sales increased 31% to $134.3 million, compared to $102.3 million in the same period last year, driven by strong performance in soft coolers, hard coolers, outdoor living products, and cargo.
Gross profit increased 39% to $224.8 million, or 59.8% of net sales, compared to $162.3 million, or 54.5% of net sales, in the fourth quarter of Fiscal 2019.

For the Twelve Months Ended January 2, 2021

Net sales increased 19% to $1,091.7 million, compared to $913.7 million in the prior year.
DTC channel net sales increased 50% to $580.9 million, compared to $386.1 million in the prior year period, driven by both Coolers & Equipment and Drinkware. The DTC channel grew to 53% of net sales, compared to 42% in the prior year.
Wholesale channel net sales decreased 3% to $510.9 million, compared to $527.6 million in the same period last year, primarily driven by Coolers & Equipment. The decline in wholesale channel net sales was mainly driven by the effects of the COVID-19 pandemic on temporary store closures during the first half of the year.
Drinkware net sales increased 19% to $628.6 million, compared to $526.2 million in the prior year period, primarily driven by the continued expansion of our Drinkware product offerings, including the introduction of new colorways and sizes, and strong demand for customization.
Coolers & Equipment net sales increased 21% to $446.6 million, compared to $368.9 million in the same period last year. The strong performance was driven by growth in soft coolers, hard coolers, outdoor living products, and cargo.
Gross profit increased 32% to $628.8 million, or 57.6% of net sales, compared to $475.3 million, or 52.0% of net sales, in the prior year.

Balance Sheet

Cash increased to $253.3 million, compared to $72.5 million at the end of Fiscal 2019.
Total debt, excluding finance leases and unamortized deferred financing fees, was $135.0 million, compared to $300.0 million at the end of the Fiscal 2019.
At the end of the quarter, cash balance exceeded total debt by $118.3 million.
At the end of Fiscal 2020, Yeti had no outstanding borrowings and $150.0 million available for borrowing under their revolving credit facility.

Important Points to Address

Net sales increased for Q4 and full year 2020 by 26% and 19% respectively. Also, gross profit increased for Q4 and full year 2020 and came in at 39% and 32% respectively. This level of growth considering the pandemic points to the strong brand that Yeti has managed to build over the years. Their introduction of new colorways and sizes as well as customization seems to be working out well. These results show us that the management team stayed focused and pivoted well during the pandemic. I expect Yeti’s growth trend to continue and their management team suspects the same as they expect between 15% and 17% sales growth for fiscal 2021.

Direct-to-consumer (DTC) channel net sales for Q4 and full year 2020 increased to 46% and 50%, respectively. The management team said that the decline in their wholesale business was mainly driven by the effects of Covid. As previously stated, I hope that going forward Yeti can slowly grow their DTC channels as that channel commands a higher profit margin. I wouldn’t be surprised if with the ramp of their international business, their wholesale channel increases to be the majority of their market mix.

Gross margins for Q4 and full year 2020 were 59.8% and 57.6% of net sales respectively. Looking at the chart below, Yeti’s gross margins have been growing nicely. It’s also important to note that Yeti’s net margin (14.1%) is higher than that of their competitors Nike and VF Corporation which have net margins of roughly 10%.

Looking at Yeti’s balance sheet, they have $253.3 million in cash and that balance exceeded total debt by $118.3 million. Thus, this company is in a strong financial standing. They are prepared to ramp up their expansion into international markets and we can expect that to be financed by a mixture of cash and borrowings from their revolving credit facility.

While it’s not stated in the above Fourth Quarter and Full Year 2020 Financial Results, Yeti has managed to grow their net income at a very rapid pace. They went from $50 million at the end of 2019 to $155 million by the very beginning of 2021. This shows me that this company is quite profitable. Although, their p/e ratio is sitting above 40 which could suggest that we might see a healthy pullback in this stock before it continues to go up. Perhaps investors will be willing to continue to pay a premium for this stock as they see the growth is worth it.

Fiscal 2021 Outlook

For Fiscal 2021, a 52-week period, compared to a 53-week period in Fiscal 2020, YETI expects:

Net sales to increase between 15% and 17% with sales growth weighted to the first half of the year.
Operating income as a percentage of net sales of approximately 18.5%.
Adjusted operating income as a percentage of net sales of approximately 20.0%.
An effective tax rate of approximately 24.5%.
Net income per diluted share to be between $1.95 and $1.98, reflecting a 10% to 12% increase, with earnings growth heavily weighted to the first and fourth quarter.
Adjusted net income per diluted share between $2.11 and $2.14, reflecting a 13% to 15% increase, with earnings growth heavily weighted to the first and fourth quarter.
Diluted weighted average shares outstanding of approximately 88.6 million.
Capital expenditures between $55 million and $60 million, primarily to support investments in technology and new product innovation and launches.

Recent Developments/Acquisitions

Yeti releases new premium bags collection – On February 18th, 2021 Yeti announced a new collection of bags and luggage. The offering included three new backpacks, two duffels and two soft-sided luggage options. This collection can only be found on Yeti’s website. The CEO was quoted saying, “We first introduced bags as part of our portfolio in 2017 to support our communities and customers who were seeking durable products that met their needs both in active pursuits and in their daily lives… over this time, we gained a deeper understanding of how our customers used our products, impacting our design process and ultimately leading to the development of the versatile, tough, and premium Crossroads Collection.” Here we’re seeing Yeti continue to focus not just on rugged outdoors equipment, but also on everyday use products. In addition to this product lineup, Yeti plans to announce its Panga 22 Carry On, which like their other products will have an extremely durable build and be 100% waterproof. These assortment of products will be highly customizable, flexible, and offered in various sizes and colors.

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

Predicted revenue range for 2021: $1.27 – 1.3 billion (growth of roughly 17%)
Predicted earnings per share range for 2021 (EPS): $2.12 – 2.2

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.