YETI Holdings, Inc.

Greetings and welcome to the Yeti first quarter 2021 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Tom Shaw, Vice President of Investor Relations for Yeti. Thank you. You may begin.

Good morning, and thanks for joining us to discuss Yeti Holdings' first quarter 2021 results. Before we begin, we'd like to remind you that some of the statements that we make today on this call, including those statements related to the impact of the COVID-19 pandemic on our business, may be considered forward-looking, and such forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. For more information, please refer to the risk factors detailed in our Form 10-Q and Form 8-K, both filed with the SEC this morning, along with the associated press release. We undertake no obligation to revise or update any forward-looking statements made today as a result of new information, future events, or otherwise, except as required by law. During our call today, we'll be discussing certain non-GAAP measures pertaining to completed fiscal periods. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the press release issued this morning. We use non-GAAP measures as the lead in some of our financial discussions, as we believe they more accurately represent the true operational performance and underlying results of our business. Today's call will be led by Matt Reintjes, President and CEO of Yeti, and Paul Carboni, CFO. Following our prepared remarks, we'll open the call up for your questions. With that, I'll turn the call over to Matt.

Thanks, Tom, and good morning, everyone. Following an outstanding 2020, Yeti is off to a great start in 2021. At the heart of this performance is exceptional demand for the Yeti brand, including momentum across our global digital businesses and the strength of sell-through at wholesale. During our commentary last quarter, we highlighted two themes that we believe would drive our performance and focus throughout the year. First, we talked about Yeti's ability to connect with customers in meaningful ways. This connection balances real, relevant brand storytelling with products that are always rooted in performance, durability, and versatility. We believe this approach not only drives demand for the brand as customers are increasingly focused on active lifestyles and outdoor pursuits, but this also positions us for continued success as people resume activities that were disrupted by the pandemic, such as commuting, weekend sports, and backyard gatherings. Second, we highlighted the importance of a continuing focus on a digital-led world. This has shaped our 2021 investment strategy with an emphasis on digital demand creation, product launch, data analytics, and our technology stack, ensuring we are actively driving both Yeti and our wholesale partner e-commerce initiatives to complement what we do in-store. Our top-to-bottom performance for the quarter, led by net sales growth of 42%, the highest growth rate we have registered as a public company, is a result of these two focus areas. Direct-to-consumer remained robust, growing nearly 60%, highlighting the ongoing and incredible demand shift toward this channel. Equally important, we saw 26% growth in the wholesale channel, reflecting ongoing sell-in to support the continued strength and sell-through in-store retail. Both of our primary categories were very strong for the period, led by coolers and equipment, which was up over 50%, driven by both sustained demand for hard and soft coolers and the rollout of our new bags. Our international business grew triple digits for the period to reach an all-time Yeti high of 9% of net sales, with good momentum across the global regions. On the margin side, gross margins expanded 560 basis points to 58.6%, Incredible performance given we were at just 42% gross margin three years ago during the same period. Combined, we more than tripled our adjusted EPS growth for the period to $0.38 per share. In conjunction with our financial performance, we also made very good progress across many of our key 2021 investments, including the official launch of our new collection of bags, the initial testing of machine learning to inform elements of our evolving and deepening e-commerce experience, and the continued build-out of our international infrastructure. While we continue to see pressures on global supply chains, logistics, and materials, our team is actively managing the changing landscape to deliver supply to support strong demand and control cost. As it relates to the ongoing COVID-19 global pandemic, we are focused on the continued health of our supply chain to support the incredible strength we are seeing in demand. With a strong start to the 2021 fiscal year, we're increasing our top line outlook to 20 to 22% for a full year. As we look to expand beyond our billion dollar base and build upon our consistent, sustainable growth story, we remain focused on thoughtful execution and expansion of our brand and product. These are the foundational building blocks that will enable Yeti to continue to scale. Now, let me provide some specific highlights across our four strategic growth priorities that help drive our Q1 results and will support our growth focus for the balance of the year. On the brand building side, our first quarter marketing efforts showcased an expansive launch strategy in support of our new bags collection. This included debuting our latest backpack, stuffles, and luggage with a fulsome online and offline marketing strategy intended to drive sustained energy and awareness through 2021. Through the overarching creative lens of get out what you put in, this brand and product awareness campaign was designed to deliver broad reach and educate consumers on the product. From a content perspective, we created digital creative focusing on the power of the product and key product attributes. We cascaded this messaging across a range of digital and traditional channels, reaching new and more diverse audiences through a series of national publications, print ads, and billboard placements in key markets that included Los Angeles, New York City, and Dallas to complement our digital efforts. We also added depth to our e-commerce content through elevated imagery and detailed product features, unpacked the wild product walkthrough videos, and our first Yeti.com-based 3D and AR functionality. Our focus on the intersection of brand and product awareness is sustained this quarter with efforts to find uniquely Yeti ways to drive product understanding and engagement. This includes the creation of a bowl versus barrel video to highlight the durability of a Tuscan nylon utilized in our Crossroads bags and a series of social media challenges where Yeti followers decide how we put our bags to the test. This comprehensive and sustained launch effort is informing our future product introductions. While bags were a big focus as both a brand awareness and product expansion play, we also continued a broader execution of our breadth and depth marketing strategy with a sharper focus on scale, diversity, and globalization. Our partnership with the Natural Selection Snowboarding Series debuted in February with Yeti as the title sponsor of the first event in Jackson Hole, Wyoming, and our ongoing engagement as a sustainability partner for the Natural Selection's three-stop series. With the tour, we partnered with globally renowned snowboarder Travis Rice and leveraged the unique global reach of Red Bull TV to bring awareness to the brand. We're also proud that one of our very own ambassadors in our expanding roster of female athletes, Robin Van Gene, was the overall winner of the series. As always, a true testament to how successful we are in our efforts comes from what others say about the brand. For the second consecutive year, we were named the Harris-Pole Equitrend Cooler Brand of the Year, as well as the Insulated Drinkware Brand of the Year. Now in its 33rd year, this study measures and compares brand equity, consumer connection, brand momentum, and more for nearly 2,000 brands across 200 categories. Fast Company also named Yeti as one of the 10 most innovative branding companies of 2021, recognizing the brand for celebrating adventure and art with compelling creative content. Success in the future for Yeti will be determined by a multifaceted execution, including how Yeti approaches ESG and integrates these elements into our business. We are committed to operating with responsibility and integrity while making a positive impact on our employees, customers, partners, and the market at large. As part of these efforts, Yeti joined as a founding member of the Outdoor Industry Association's Climate Action Corps with a commitment to measure and reduce our greenhouse gas emissions. We've established our baseline and will set informed targets for our direct emissions later this year. We also recently developed our chemical management program and published our restricted substances list, which you can now find on our website. More broadly, we are on track to launch our inaugural ESG report by the end of the year. At Yeti, we consider ESG part of the brand and product ethos, and we expect it will continue to live inside all that we do, just as it has from our start with our durability focus and built for the wild spirit. Shifting over to product, innovation came in several forms during the first quarter. While we obviously shine the spotlight on new product introductions, we continue to see a healthy level of demand across our portfolio, including prior year launches. For example, the Rody 24 hard cooler had a limited wholesale debut last year, first due to the onset of COVID-19 and then demand-driven inventory constraints. In 2021, we were seeing great demand for this opening price point hard cooler. We also standardized our mag slider lid across our tumblers, effectively upgrading those products and creating a new reason for a customer to consider or re-engage. And color continues to be a powerful tool at stoking new and existing interests across a range of products. This spring, we were particularly pleased with the launch of our new Prickly Pair colorway. Bags were a clear focus with the debut of three sizes of backpacks, two sizes of duffels, and two sizes of wheeled soft-sided luggage. Supported by our go-to-market strategy, the lineup received strong recognition from a range of media publications. Men's Journal stated that, right out of the box, they're precisely what you'd expect from Yeti. Solid, sturdy, handsome, thoughtfully designed, and so damn well made. And CNN added, we spent over a month with all the luggage to see which ones are worth your money, and after plenty of packing, weighing, and carrying, it's safe to say these durable bags are top-notch and ready for nearly any adventure. In addition to bags, we launched the Rambler 46-ounce bottle, which is performing well and on trend given the desire for large-capacity bottles. We also refreshed our spring apparel assortment, including continued evolution to introduce new, more inclusive fits. In the current quarter, we also debuted our limited-release King Crab Orange colorway to a positive market response, as you may have seen in the social sentiment. Additionally, as mentioned last quarter, we will continue to rebuild channel inventory, particularly against sustained strength and demand as we execute across the key moms, dads, and grads gift-giving season. Moving to our omni-channel strategy, we registered our fourth consecutive quarter of our D2C mix surpassing 50% of net sales, reaching 51% of Q1 net sales. We continue to see a significant opportunity at wholesale. While our sell-in numbers for the quarter show strong progress, the ongoing velocity of sell-through demand continues to drive year-over-year on-hand inventory declines with many key accounts. This balance of inventory replenishment versus demand will continue to be an important focus for our team as we move throughout the year. Looking at our direct channels, demand at Yeti.com was strong throughout the quarter, and we continue to be encouraged by the healthy balance of growth across geographies. including great performance in the Pacific, Mountain, and New England regions, where we've historically started from a lower brand awareness, but that is changing and we're seeing the result in growth. Overall growth is being driven by strong increases in traffic conversion and a healthy balance of existing and returning customers. Growth on the Amazon marketplace was also strong. Our corporate sales business remained healthy, supported by our outbound sales structure and increased customization options. And Yeti retail and international e-commerce are much more developed and productive today compared to last year when they were closed for business due to the pandemic or not yet fully launched, respectively. As we think about further opportunities in our direct business going forward, we're progressing on two measures that we believe will support growth and drive increased digital relevance to the customer. During the first quarter, we began applying machine learning across our consumer data platform through a series of email tests based upon targeted customer cohorts and a focus on repeat purchase. Early results around engagement and conversion are encouraging as we continue to adopt an agile method of test, learn, and implement. This will be an iterative process with a goal to ultimately drive highly personalized experiences and messaging that resonates with the right customer at the right time. These analytics will also inform certain aspects of our new mobile-first e-commerce design thinking, where modular design can ultimately be used to tailor the content and flow of the site. Yeti International continues to show excellent progress. We're fired up about the triple-digit growth during the first quarter, which pushed our international mix to 9% of net sales, a new Yeti high. Looking closer at our results, our ongoing success in Canada and Australia continues to affirm that both the brand and product translate well, and many core elements of our brand and product strategy are relevant and effective globally. In Canada, while the market continues to see COVID-related disruptions, our performance remains outstanding in our D2C channel, and wholesale is holding strong. We have also made significant strides in how we tell the Yeti story through a localized lens in Canada. which we believe is driving increased relevance and consideration with customers. As anticipated, the debut of the National Hockey League licensed drinkware was well received. Moving to Australia, the brand's evolution and unbelievable momentum is reminiscent of some of our historical U.S. growth runs, highlighted by first quarter sales totaling over half of last year's full year volumes. Our continued focus here will be on driving deeper customer awareness and penetration in the more population-dense coastal markets. In Europe, we launched five new local language e-commerce sites during the period, adding Germany, France, Italy, the Netherlands, and Ireland, based upon our data and search analysis. In addition, we accelerated our efforts to open wholesale doors across the region. We now have over 250 doors, including double-digit locations in 10 countries. Our overarching approach across these markets is to ensure that we are excelling at the basics, whether that is leveraging global brand marketing while adapting appropriately for greater in-market relevance or partnering with dealers that authentically represent Yeti to a growing range of customers to create new levels of awareness. Before I turn the call to Paul for the financial details of the quarter, as you may have seen, Roy Cedars, founder of Yeti, has elected to step down from our board of directors. Roy will continue to bring his passion and creativity advising our product development team as we build out our future innovation. I want to thank Roy for his support of the board through our transition to being a public company. In closing, I would like to reiterate four points. First, while COVID-19 disruptions persist, we are actively supporting the continued strength of our supply chain. Second, strong demand for the brand and product remains firmly intact. Third, we are hyper-focused on making the decisions that support scaling our long-term, sustainable global growth. And finally, we are prioritizing investments that deliver on our digitally-led future. I would be remiss to finish without thanking our Yeti team, customers, and partners for all they do to support our success. I would now like to turn the call over to Paul.

Thanks, Matt, and good morning. I'll start with a review of what was an incredibly strong first quarter followed by thoughts on the balance of the year and our updated outlook. We will then open the call up for your questions. Net sales increased 42% to $247.6 million compared to $174.4 million in the prior year period. Brand momentum was broad-based across all channels, and we were very pleased with our execution during the period. Notably, net sales increased 36% for the first 10 weeks of the quarter, then increased 66% for the final three weeks of the period against the beginning of the COVID impact in the prior year period. Looking closer at our channel performance, direct-to-consumer net sales grew 59% to $126.8 million compared to $79.6 million in the same period last year. Direct-to-consumer performance was driven by strength in both our coolers and equipment and drinkware categories. All direct-to-consumer channels grew during the period with particular strength from Yeti.com. This performance drove our direct-to-consumer mix to 51% of net sales for the period compared to 46% in last year's period. Wholesale net sales increased 27% to $120.8 million compared to $94.8 million last year. Wholesale performance was driven by strong growth across both our coolers and equipment and drinkware categories. Sell-through levels continued to outpace sell-in for the quarter, resulting in channel inventory remaining down year over year. By category, drinkware net sales increased 32% to $148.9 million compared to $112.6 million last year. Demand, again, was broad-based across our Drinkware lineup of tumblers, bottles, mugs, colsters, and jugs. This includes ongoing momentum of newer products, like our expanded colster line and 10-ounce Rambler, as well as vitality in our Heritage Rambler sizes, where we have either standardized or improved our lid solutions with chub caps and bottles and mag sliders with tumblers. Demand for customization also remains robust across Yeti.com and our corporate accounts. Coolers and equipment net sales increased 57% to $93.5 million compared to $59.5 million during the same period last year. The vast majority of this growth continues to come from the incredible demand for our hard and soft coolers across all channels. We were also highly encouraged by the initial reception of our new bags collection that debuted in late February. Internationally, net sales rose 146% for the quarter to reach 9% of total net sales, led by a more than threefold increase in Australia, as well as strong contributions from Canada, the UK, and Europe. Gross profit increased 57 percent to 145.2 million, or 58.6 percent of net sales, compared to 92.5 million, or 53 percent of net sales during the same period last year. The 560 basis point year-over-year expansion was driven by the following favorable factors. 180 basis points from channel mix, 140 basis points from product cost improvements, 140 basis points from lower inbound freight, 50 basis points from lower tariffs, and 50 basis points from all other impacts. Adjusted SG&A expenses for the first quarter increased by 36% to $101.4 million, or 41% of net sales. as compared to 74.4 million or 42.7 percent of net sales in the same period last year. The decrease of 170 basis points as a percent of net sales was driven by variable expenses that increased by 150 basis points, driven by the shift in channel mix towards our faster growing and higher gross margin direct-to-consumer channel. and non-variable SG&A expenses decreased as a percentage of net sales by 320 basis points on strong top-line performance. Adjusted operating income increased 143 percent to 43.8 million, expanding approximately 730 basis points to 17.7 percent of net sales, compared to 18 million or 10.3 percent of net sales during the same period last year. Our effective tax rate was 21.5 percent during the quarter compared to 24.4 percent in last year's first quarter. The lower rate for the first quarter reflects a discrete income tax benefit coupled with our lowest volume quarter. Adjusted net income increased to $33.3 million or $0.38 per diluted share compared to $9.9 million or $0.11 per diluted share during the prior year period. Now turning to our balance sheet, as of April 3rd, 2021, we had cash of $190.3 million compared to $118.2 million in the year-ago period. Inventory declined 9% to $183.9 million compared to $202.4 million during the same quarter last year, a significant sequential improvement from last quarter as we continue our supply chain efforts to rebuild in stock levels. Total debt excluding unamortized deferred financing fees and finance leases was $129.4 million compared to $346.3 million at the end of last year's first quarter. During the quarter, we made principal payments of $5.6 million. For the second straight quarter, we were in a net cash position as cash on hand exceeded total debt. Now onto our updated full-year 2021 outlook. Supported by an incredibly strong first quarter, and our visibility for the remainder of the year, we are raising both our top and bottom line outlook. We now expect full-year net sales to increase between 20 and 22 percent compared to fiscal 2020. For the balance of the year, we expect sales growth will be the strongest in Q2, while we continue to expect double-digit growth in each of the final two quarters reflecting ongoing strong demand for the brand. We continue to expect flat gross margins from the record 57.6% level last year, though some components have changed. Our forward assumptions now include higher inbound freight costs in addition to an incremental $10 million in higher duties. The higher freight assumption is largely consistent with what we are seeing in the broader market as COVID continues to impact global logistics. And we now expect these elevated shipping rates to persist for the balance of the year. We expect the $10 million in higher duties for the balance of the year as Congress has not renewed a longstanding trade preference program called the Generalized System of Preferences, or GSP. that expired at the end of calendar year 2020. For Yeti, this primarily impacts our hard coolers that were historically sourced duty-free from the Philippines. Notably, we did not include this impact in our original outlook in February, given GSP had been renewed 14 times since its original adoption in 1974, and in February, we were anticipating an impending renewal. While we are still hopeful Congress will act to renew GSP, at this point in the year, we felt it prudent to incorporate this cost into our updated outlook. Should GSP be renewed during this fiscal year, we would look at this as upside to our gross margin outlook. Fully offsetting these incremental pressures we see several additional positives versus our prior outlook in February. These include our better than expected Q1 performance, greater than planned product cost improvements while offsetting current raw material pressures, and better fixed cost leverage on our new top line outlook. From a cadence perspective, we expect gross margin expansion in the second quarter, followed by contraction in the back half of the year, given the combination of the exceptionally strong comparisons from last year's third and fourth quarter, and now the inclusion of the GSP impact and higher freight. Again, we expect four-year gross margins to hold strong at the record 57.6% achieved last year, and plan to exit the year with a fourth quarter rate exceeding that full year level. With SG&A, we are now planning for dollar growth in line with sales growth. We continue to expect full year variable expenses tied most directly to our faster growing and higher gross margin direct to consumer channel will grow slightly faster than total sales. we expect full-year non-variable expenses to grow slightly slower than total sales, even as we make key investments in areas such as digital, international, and product development. Partially reflecting the timing of cost containment efforts last year during the start of the pandemic, we expect the second quarter growth rate will be modestly higher than the first quarter, followed by easing growth rates during each of the subsequent quarters. These factors are expected to yield an improved adjusted operating margin outlook of approximately 20.5%, about 50 basis points above our initial outlook, and on par with the record performance last year. We expect adjusted operating margin to be approximately flat in the second quarter, lower year-over-year in the third, and higher year-over-year in the fourth quarter. The effective tax rate for fiscal 2021 is now expected to be approximately 24%, given the slight benefit to plan in the first quarter. Based on full-year diluted shares outstanding of approximately 88.5 million, we expect adjusted earnings per diluted share to grow 22 to 24% to between $2.28 and $2.32 compared to $1.87 in fiscal 2020. As we think about uses of cash this year, we remain heavily focused on working capital and investments in inventory. With the tireless efforts of our supply chain team, we continue to fight the COVID impacts on our global supply chain and are actively managing and monitoring what remains a very fluid environment. In spite of this, our current visibility shows an improved inventory position for the balance of the year as compared to our original forecast, including positive year-over-year inventory growth starting this quarter. And to give you perspective, we expect two-year inventory compounded annual growth rates to be in the mid-teens range using fiscal 2019 quarters as a base. On the capital expenditure side, we continue to see a range of $55 to $60 million for the year, primarily reflecting technology upgrades to support our business growth, including continued enhancements to SAP, website optimization, and enhanced data analytics capabilities, as well as spending to support commitment to new product development and innovation. All in all, this was a fantastic start to the year for Yeti, and I am incredibly proud of the ongoing work of our team as we execute and persevere in this environment. This includes the incredible progress on many of our key investment areas, helping Yeti sustain both near-term momentum, but also setting the foundation for future growth and vitality of the brand. With that, I would now like to turn the call back over to the operator to take your questions.

Thank you. At this time, we'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press Star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the Star keys. To allow for as many questions as possible, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Camilla Lyon with BTIG. Please proceed with your question.

Thank you. Good morning, everyone, and congrats on a very strong start to the year. My first question is on inventory. And Paul, you just gave some color here at the end of your remarks. So with inventory down 9%, you're speaking about impacts from supply chain, all in the context of very strong demand that is showing no signs of ebbing. Can you talk about how the inventory flows are expected to unfold to the balance of the year? Is there any sort of choppiness or fluctuations that we would expect to see for the balance of the year and how that might impact your ability to continue to meet this demand, both DDC and wholesale. And then my second question, on the international component, very strong results now, about 9% of the business. Can you tell us about the margin composition of international, and how would you think about the continued growth rates of that segment? Thank you.

Great. Good morning, and thank you. So on inventory, we're in the supply chain, we're really happy with our efforts exiting 2020 and throughout the first quarter. So to, um, you know, just to restate the numbers while we ended down 9% year over year is a 31% sequential increase, um, off of Q4 last year at this time was plus 9% sequential increase. So we were really able to build inventory, ahead of our plan while also over-delivering the top line relative to our plan. So we're really happy where we sit today, even though we're down year over year. Beginning in second quarter, we will turn positive as we lap the big negatives of last year. And it's why we wanted to give color on a two-year taker basis. And, you know, as we said, we'll be in the mid-teens, low to mid-teens throughout the rest of the year. You know, for Q1, it was plus 6% on a two-year CAGR, even though it was down nine year-over-year. So we're really, you know, comfortable and excited about building back that inventory into a strong position. Clearly, as we go into Q4, you know, ending Q3 will be on a single-year basis probably our highest growth rate year-over-year, but in the two-year stack, similar to that mid-teens. On international, in the margin profile, we like In the business, in international and total, if you think about Canada, Australia, Europe, the margin profile is very similar, certainly at the gross margin rate and then as you get down to contribution margin. In the smaller markets, so as we start up Europe and the UK, we don't have the leverage or the scale there yet as we do in Australia and Canada. But as that business continues to grow, we're really excited about it and like the way we've operated that business from a margin profile.

Thanks. If I could just ask one follow-up on that inventory. Are you at all planning to constrain the demand for to perpetuate the sell-through, exceeding sell-in. I recall that last year in the summer, late summer to early fall, you were significantly below your cooler inventory than what the market was demanding. So I'm just curious to see how you're planning on balancing demand versus re-upping the supply and how you balance how you really want to kind of continue to maintain that demand outpacing supply situation, how that should play out.

Camilla, this is Matt. What I would say is we're really focused on the health of our existing wholesale partners, inventory positions, and ability to meet that demand, while also understanding we have a fast-growing D2C business. I think the thing that you would see as we play out throughout the year is less focus, which has historically been our approach, but less focus on any type of expansion and more focus on getting our wholesale partners and making sure that we have our D2C business well supported from a supply perspective to continue to meet the rising demand that we're driving through our breadth and depth marketing strategy.

Got it. Congrats on that great start. Thanks so much. Thank you.

Thank you. Our next question comes from the line of Randy Connick with Jefferies. Please proceed with your question.

Yeah, thanks a lot. So one thing I wanted to throw over was the international. It looks like, you know, you've got 300 basis points of incremental penetration in only a quarter. Are you doing a better job on or give us some perspective on what you're doing to improve fulfillment there? And just like over time, as we're seeing this nice acceleration in that international, what do you think is like a good kind of medium-term ballpark goal to get to from a penetration standpoint there, recognizing you're working on fulfillment and the back end of getting supply to the international market? Thanks.

Yeah, Randy, it's not unlike what we've seen as we built out the U.S. market. And, you know, we have internationally, if I were to kind of bucket it in three markets, and we talk a lot about Canada, Australia, and Europe as those three markets, there are different stages of their maturation. And what we're seeing is that as we have established in Australia and as we have established in Canada since 2017, what we're seeing now is the benefit of that growth acceleration. As we have store penetration, as we've matured our e-commerce businesses, and as you said, as we've matured our supply flow, understand mix, understand in-market demand. And I think you're seeing that, and we mentioned on a call yesterday, particularly in Australia, the incredibly strong growth we saw in the first quarter that matched near full-year demand of last year. And so I think that growth has been really strong in the receptivity to consumer. In Europe, we're earlier in that expansion, as we mentioned on call, building out our points of distribution at wholesale, which was slowed last year by COVID, also building out the maturity of our infrastructure and our supply. So We feel great about how that business is positioned for forward growth. What it can become, you know, I think we're still sorting through how big those markets are. We like the end user in many of those markets. We like the size of those markets when we look at them relative to the U.S. market and how they index to the U.S. market. We think there's a lot of opportunity to continue to expand our international footprint.

Great. And then on the backpack and bag side of things, I'm the owner of one of your backpacks, and it's amazing. You are constraining, it sounds like, the demand. You're constraining the sales of that somewhat. You're still exclusive to Yeti.com. Can you give us some perspective on how you're thinking about that product category in terms of potential expanded distribution and potentially the wholesale or what have you? And maybe some of the learnings you're getting in something like a category like this, which basically solidifies the view that, you know, Yeti is a brand, you know, for everything, right? So kind of give us some perspective on what you're learning there around this bag product distribution and what it can tell you about the opportunity for the brand to extend to other categories going forward. Thanks.

Yeah, I would say a number of learnings. We went in, as we talked about on prior calls, with a very purposeful approach to the launch of bags. We went in with a different approach to broad-based awareness and broad-based kind of both for the brand expansion and the product expansion into the category. And we think our learnings from that is there's a real receptivity and appetite from the consumer to Yeti's expansion into bags. We also went into it with the idea that we wanted to give our supply chain a chance to mature and grow into what we think is a really exciting category for Yeti. And you're seeing some of that with our in-stocks and out-of-stocks, which is the build into it. And then the third piece is We also were gauging as the world reopened and as travel resumed, and there's a lot of talk about it now, and we're starting to see the movement of people domestically and the talk about international travel, that we think we're still on the front end of that. So we've taken a very measured and paced approach to that rollout, to the ramp up of our supply chain. but had our marketing and our brand building really run in front of that to build up that demand. And so we're excited about the category. We're excited about the receptivity. We've mentioned in the prepared remarks some commentary we've received from the market on reviews of the bags. And I think it's a category that, as we step into it, both has real opportunity but will also give us a lot of not only confidence but also approach and thought to how we continue to expand into other product families.

Very helpful. Thanks, guys. Thanks, Randy.

Thank you. Our next question comes from the line of Robbie Ohms with Bank of America Maryland. Please proceed with your question.

Hey, good morning, guys. Two questions, one for Matt first, and then another one for Paul. But Matt, the hard and soft cooler business was called out. It sounds like the momentum there is great. Can you kind of talk through, are you seeing a lot of repeat customer purchases, or is it new customers coming into the hard and cooler business, or they're you know, is there a bigger response to new colors there? And kind of how should we think about the momentum in the cooler business?

Yeah, Robbie, I would say a couple things as it relates to the hard and soft coolers is they continue to be strong performers. As we said at the beginning of the year, the majority of the growth in our coolers and equipment category this year was going to be driven by those hard and soft coolers. We didn't place a massive bet on bags being that growth driver. So your read was correct that that growth is really those products continuing to perform very well. I think as we think about new versus existing consumers. Our best data points is the data we get from our own e-commerce sites. And what we said in the past and we continue to see in Q1 was a really nice balance of new versus returning customers. We're not seeing a fundamental difference in purchase behavior and mix. We're starting to come into the time of year where we acquired a large number of customers last year as we went into Q2 through Q4 last year. And that's something we're focused on is not only new customer acquisition but retention and driving repeat purchase. And that's a big part of why we made the investment starting in 2020 and into 2021 around our data analytics and advanced analytics work.

Gotcha. That's really helpful. And then, Paul, the gross margin was pretty amazing this quarter. If you exclude the information you gave us on GSP and the freight pressures and everything, and you sort of assume that goes away, is there a uh what is how are you thinking about the long-term gross margin opportunity for yeti now is it is it higher than than ever can you give us any color on you know what the long-term gross margin target might be today given what you know you achieved this quarter yeah so thanks robin good morning um i'll reiterate a couple of things that we've said in the past um you know we don't see this there there is no feeling you know as we hit

58 or 59 that, you know, it's in the business or in the model that that's a ceiling. You know, as we look forward, as we've talked about, we're going to continue getting gross margin expansion from Channel Mix. product cost improvements, and those are going to be offset by investments in the business and then any other headwinds, in this case, you know, higher freight, the inbound freight. The GSP, I think, you know, will either happen or won't, you know, it'll be renewed or not. But, you know, we believe that a sign of a good business is a healthy gross margin, and we want to balance as we let that gross margin expansion flow through? How do we reinvest in the product? And we have those conversations weekly about, you know, adding value into the product to differentiate it. So there's no natural failing. We don't have a new, you know, long-term outlook on gross margin. But we really like the way the business is – is the leverage it has from channel mix, product cost improvements, and then that gives us the ability, the team, to talk about how do we reinvest in the product.

That's great. Thanks so much, guys. Thanks, Robbie.

Thank you. Our next question comes from Peter Benedict with Baird. Please proceed with your question.

Hey, guys. I guess, Matt, you mentioned brand awareness. some pockets of growth, I guess, in some of the Pacific Northwest and the Northeast. Can you maybe build on that a little bit, give us a little sense of what you're seeing and related to that? I'm not sure if you've got brand awareness stats in some of these international markets, I think Australia, Europe, et cetera, maybe how those are trending at this point relative to expectations. That's my first question.

Yeah, I would say, Peter, a couple of things. I'll start with the international markets. It's still early from a brand awareness perspective there. While we're excited about the 9% of sales, we're excited about the velocity of growth, we're excited about the receptivity, I would say our brand awareness is still low. And that's a great scenario that we're seeing the momentum we are in. Australia and Canada in particular, and we would say our brand awareness continues to be low and we continue to be discovered every day, which I think is why, and I mentioned the growth acceleration we're seeing in Australia where The first quarter was equal to half of last year's full year. I think that is really driven by that momentum we're building and that discovery, not unlike some of those early day runs that I mentioned we saw in the U.S., But that's something as we mature in those markets and as the stats would start to make sense, we'll start to measure a little more deeply. In the U.S., as you know, we've been tracking it for some time. We continue to see year over year broadly kind of tick ups in awareness. What's nice about the progress we've made over the last five years is that increase in brand awareness continues to be kind of a consistent step up which is balanced with we're not only getting new customers and making new customers aware, but we're driving new purchase with a really healthy balance of repeat and existing customers. So I called out those regions because they're the regions that, Five years ago, we were the most underdeveloped and we were the most underknown. We spent a purposeful effort in making sure that as we broaden our pursuits and activities, as we broaden our ambassadors, as we broaden our media reach, that we're targeting those markets and we're seeing the results of it. But broadly speaking, across the U.S., we continue to find good growth in all the regions in which we're operating.

Okay, great. That's helpful. And then just on international markets, obviously super strong growth there in the first quarter. Any reason why, you know, maybe call it triple-digit type growth can't persist over the balance year? I know the second half of last year got stronger, but just trying to get a sense for maybe where that business could land this year. And what are the infrastructure investments that you're making? I mean, you talked about some of the marketing stuff and the brand positioning, et cetera, but just from an infrastructure standpoint, maybe to fulfill or supply those markets, what are you doing on that? What's on tap for the next year? a couple of years in order to make that business run optimally.

Thank you. Peter, sitting here today, we don't see anything that would be a headwind to that growth for the rest of the year. I mean, we're still really building out our European footprint, and we really like what we're seeing on the DTC side out of our broad European markets. similar in Australia and Canada where they're more developed. I would say from an infrastructure perspective, in Australia and Canada, it's what I would call fill-in type things. We have the logistics. We have the D2C to support the fulfillment. What we're doing is now bringing more targeted resources, whether those be incremental brand folks, the add of e-commerce expertise or additional expertise in those markets to keep stoking those businesses forward. Europe is a little more underdeveloped. We're fully operational, but what we're looking for in Europe is continuing to increase our logistics and fulfillment footprint, continuing to drive demand, and then also the continued build-out, as we mentioned on this call, of our e-commerce platforms, so in local language sites and markets and We've used some of our analytics and insights to determine what markets we build local language sites in, and we're going to continue to do that to make sure that we're addressing the consumer in a direct and relevant way. Excellent. Thanks so much, Matt. Thank you.

Thank you. Our next question comes from the line of Wendy Nicholson with Citi. Please proceed with your question.

Hi. I had a couple questions sort of follow up on the luggage launch. Number one, can you talk about luggage and the impact on gross margins? I know it's teeny tiny, but still sort of structurally, have you thought about how have you thought about the impact of luggage on the gross margin kind of over the longer term to the extent it continues to grow? And then just going back, Matt, to your comments about Inventory management on luggage, I totally get that you're in learning mode, but we check the website often, and it just seems like so many of the SKUs, particularly on the backpack side, are just persistently out of stock. So do you risk alienating consumers, not being able to meet demand, and people going elsewhere, et cetera, et cetera? How are you thinking about that just in terms of making sure you're sort of living up to the potential of the launch? Thanks. Thanks.

Good morning. I'll start with the gross margin and I'll talk bags overall, you know, crossroads bags, not specific to luggage, but crossroads bags in our bag category overall. So overall, as we think about bags inside of coolant and equipment, gross margins are to the category, in line, slightly accretive. So, you know, that's positive to the category. And just stepping back as we think about, and we've talked about this in the past, as we think about gross margins, you know, our, as we look at new products, the first pass or the first, you know, thought gate isn't gross margins, right? Now, as the CFO, I'll tell you, it's important to us, but that's not the driver. We price, we're a premium priced brand, right? So we think about pricing, we think about pricing in the market, and then we work on the cost side as far as efficiency and things of that nature. But directly to your question, the bag's gross margin is equal or accretive to coolant and equipment overall. Okay.

Wendy, to the question on the – conservative ramp of our suppliers. You're right. And as I said, we've gone in and out of stock. I'd ideally like to be in stock at all times. But I think the big thing for us is this is a new product family that we ramped and built through the COVID era, 100% remotely ramping up a new supply chain and a new factory. And I think the team has done an incredible job of making sure that It delivered on all the things it was supposed to. Quality, the product, the design, getting the supplier up in a healthy way, and it's something we've done completely remotely. So we took a conservative approach to how that ramp-up happened to make sure that we weren't put ourselves in a position where we ramped too fast and were restricted on how our team could directly engage. As the world continues to reopen, as we can more actively and directly engage with our factories, we'll continue to turn that dial forward. You know, we're focused on right now with our marketing around bags to continue to drive education and to drive awareness and to drive consideration so that as travel starts to resume as we get into the summer and people, whether they take close-in vacations or start to get back on airplanes, we're top of mind. So we're not worried about a sale, a lost sale in the near term. We're worried about engaging consumers who have a passion for the brand and understand the product being ready when we're fully in stock on the site.

Fair enough. Sounds great. Thank you so much.

Thank you.

Thank you. Our next question comes from the line of Sharon Zafia with William Blair. Please proceed with your question.

Hi, good morning. Two questions. Paul, I might have missed this, but did you quantify what you expect the logistics pressure to be this year now? And then secondarily, I guess just given the strength you're seeing across channels and products and now globally, I mean, is 10% to 15% really the right long-term growth algorithm for the top line or is Are you guys now thinking you're sustainably somewhere higher?

Good morning, Sharon. We didn't quantify the inbound freight. I can tell you it's slightly less than what we had for GSP. So it's in that ballpark. And the reason we didn't give an exact number is we think about GSP. If that gets passed, that will come back. I think the inbound freight is certainly for this year, you know, as we look out at the market is here for the remainder of the year. It's a great question on top line and long term. And certainly, you know, if you look at our history back, 2018 plus 22%, then a plus 17, last year plus 19, and we're at 20% to 22% this year. Similar to gross margin, we are not ready to update our long-term outlook for sales. Happy with the 20% to 22% this year and really the momentum behind the brand.

Thanks, Paul. I'm ready when you are. Just when you're ready to update that, let me know. Take care. Thanks, Darren.

Thank you. Our next question comes from the line of Alex Marocha with Barenberg. Please proceed with your question.

Good morning, guys. Thanks for taking my questions. There's been a lot of news recently about Amazon cracking down on counterfeit and low-quality products. Have you helped them at all with this initiative, and do you anticipate any material benefits coming from it?

Alex, it's a great question. We have talked in the past. We have a very active brand protection team. We've been very active domestically. We've been very active globally. You know, one of the things that we announced, and this was back I think in June of 2019, was a partnership with Amazon as it relates to cracking down on third-party sellers of counterfeits. And so we joined with them in a unique program to focus on that. And then in addition, we scour both the domestic and global marketplaces and websites, and we've had a lot of success. I would say we wouldn't put it in the numbers and say we could tease out the benefit from that from a sales perspective. We definitely believe it's important as we continue to defend our intellectual property, defend our brand, and that's why we do it. But we have a good partnership there.

Thanks, Matt. That's helpful. And then just to follow up real quick on a lot of these supply questions that people have been asking about the luggage in particular, where is that currently manufactured? And do you think you can expand the manufacturing base to places like Eastern Europe or South America for it? Thanks.

One of the things that we look at with our supply chain is a constant evaluation of the best locations to manufacture from a strategic perspective. We have a global supply chain from now almost many, many points of the world across all of our products. I think as it relates to bags in particular, we previously talked about those were products that we moved out of China primarily into other markets in Southeast Asia. There's a ready supply base for expansion. We also are very happy with our current suppliers and believe that they can scale as we continue to scale and expand that product portfolio on growth. But we have a very active sourcing and supply team, a very active and very talented team that continues to make sure we're in the best places to manufacture our products, both for optimization of design and quality, but also logistics and delivery. Makes sense. Thank you.

Thank you. Our next question comes from the line of Colonel Garzlala with Credit Suisse. Please proceed with your question.

Hey, everybody. Good morning. There's been a lot of questions. You've obviously put up quite a bit of momentum. There's been a lot of questions on supply. Can you maybe just talk about how you're thinking about reopening and if it may be bending the arc of your growth in one direction or the other and then how you'll manage supply around that? Just to clarify, when you say reopening, are you talking specifically about the – The economic reopening we're seeing really everywhere may just be shifting what your growth looks like from, you know, what we just saw in this quarter versus what we might be looking at for the next year or so.

Yeah, perfect. Thanks. You know, I'd say when we think about the reopening, one of the things we said on previous calls, and I think it's a – strong position for our brand and a strong position for our product portfolio is we were able to evolve and take advantage of the pandemic as people were at home or they were more solo outdoor pursuits. As the world reopens and some level of normalcy comes back, whether those are commutes or group gatherings or sideline sports on the weekends, we think our brand is well positioned and we think our product is well positioned to follow the consumer. We're not a pick up and put down type of product portfolio or brand. So our coolers and our cups and our bags can travel with you as people's reopening evolution happens. So I think that's one of the things, and we talk a lot about this, that we'll continue to adjust how we position and how we market to what's happening and where the consumer is at that point. We did it last year when it was highly disrupted, and we'll do that as the world reopens.

Okay, got it. And then the improvement in gross margin from the reduction in product cost, is that a structural improvement, perhaps more intelligent ways of how you're tooling it, or maybe raw material prices? Could you maybe provide a little more detail on what was behind that piece of the gross margin improvement?

Sure. I'm going to start with what it is not. So what it is not is taking durability out of the product, taking quality out of the product, changing the spec for those items. That's what it is not. What it is is a couple of things that you mentioned. It's efficiency. It is leveraging, and I'll use this quarter's example, leveraging our 42% top-line growth to drive efficiencies, to share in fixed-cost leverage that our manufacturers would enjoy with that level of growth. It is operational and reducing scrap will give us product cost improvement. So it's all those different pieces that go into it. Again, what it's not is taking quality and durability out of the product.

Okay, got it. So it sounds structural and ongoing, not temporary by any means. Fair? Yeah. Okay. Great. Thank you. Thanks.

Thank you. Our next question comes from the line of Kimberly Greenberger with Morgan Stanley. Please proceed with your question.

Okay, great. Thank you so much. Good morning. I wanted to ask about revenue and if there was any revenue, you talked about that huge acceleration in the last three weeks of the quarter. Any revenue shifts, for example, out of Q2 into Q1 that might have distorted that growth rate? Or is it just simply that you're lapping, you know, the beginning of COVID last year, and that's what you're seeing as you begin to lap. And then my second question on revenue, I just want to make sure I heard you correctly, Paul. It sounds like you were saying second quarter revenue growth is expected to be higher than first quarter, with then easing growth in third quarter and again in fourth quarter, but still double digit in each of those two quarters. So if you could just make sure that my understanding of that's correct, that would be great.

Sure. Kimberly, I'm going to start with your second question first. So what I said was of the remaining three quarters, so going forward, second quarter would be the highest growth rate, and then the second half would still be double digits. So I wasn't comparing it to the first quarter. I was comparing the last three quarters relative to each other. And then on your first question about the first 10 weeks and then the last three, that wasn't anything on shifting of timing. It was really just to give investors and all of you a look at our pre-COVID impact plans versus our coast post covid impact as we did last year in the first quarter so you know before we were rolling over shutdowns um we were plus 36 so what you know i wanted to share with all of you is this wasn't a driven by the last three weeks certainly higher than the first um 10 weeks but this wasn't the last three weeks driving the quarter we were plus 36 going into when we started lapping those shutdowns.

Very clear. Thanks so much. Thank you.

Thank you. Our final question this morning comes from the line of John Kiernan with Cowan. Please proceed with your question.

Good morning. Excellent, Cora. Thanks for taking my question. Once my question has been answered, I'm just curious, in terms of the upside in Q1 and the guidance increase for the year, Q1 is by far your smallest quarter of the year from a revenue perspective. What's driving the upside for the full-year guidance and really upside in Q1? Is there any specific category, geography, product that came in above expectations? And anything we should look for you know, for the remaining nine months from a brand activation standpoint, marketing standpoint that you're looking forward to? Thank you.

So I'll start. You know, I'll link first quarter results to your question on the balance of the three quarters. The results in the first quarter were broad-based. And as we look out at the year, we continue to see, you know, from the first quarter strong demand for the brand. And, you know, if you look at our outlook with the first quarter, we now expect the balance of the year to be in that, you know, if you do the math, 16% to 18%. So, you know, slightly above our full-year guide of 15% to 17%. And it's really that strength that we've seen in Q4 that we saw in 2020. But it is broad-based demand for the brand. And I'll let Matt hit the second piece of that question.

We're prepared for a world that's going to reopen a bit more through the summer and hopefully through the fall, which the biggest evolution there is we spent last year, once the pandemic hit, in a highly digital world, engaging consumers in a digital way. One of the things we look forward to this year is when it's possible and when it's safe to start driving some of our offline re-engagement with consumers and customers and getting out there as activities start to resume, as gatherings start to happen. And so we've got a team that has kind of a dual track plan on the brand activation and marketing side, both domestically and globally, which is we'll continue to operate, we believe, successfully in this digital world, but the minute we can start getting people back out and activating at events, engaging with some of the incredible partners we have as they bring back their events. We're pretty excited to do it. Understood. Thank you.

Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Mr. Reintjes for any final comments.

Thanks, everyone, for the time this morning. Look forward to updating you as we come back together for our Q2 call.

Thank you. This concludes today's conference. You may disconnect your lines at this time.