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.