YETI Holdings, Inc.

greetings and welcome to yeti 4q 2021 earnings conference call at this time all participants are in 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 0 on your telephone keypad as a reminder this conference is being recorded I'd now like to turn the conference over to your host, Tom Sho, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and thanks for joining us to discuss Yeti Holdings' fourth quarter and full year 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 relating 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 most recently filed Form 10-Q and the Form 8-K filed with the SEC today. We undertake an 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 this morning's press release. 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 for your questions. And now, I'd like to turn the call over to Matt.

Thanks, Tom, and good morning. As we complete our fourth fiscal year as a public company, I wanted to start our call today with a little perspective on just how far Yeti has come since our initial public offering. At the time we reported our first fiscal year results in 2018, the company generated less than $800 million in net sales, led by a wholesale-focused business with direct-to-consumer representing 37% of revenue, and only 2% of sales were outside of the United States at that time. Profitability was good, but gross margin remained under 50% with approximately 16% adjusted operating margins. Our balance sheet was sound and improving, although still reflected net debt of approximately $250 million. Today, with our fiscal 2021 results of $1.4 billion in sales, we have delivered 22% compounded annual revenue growth since 2018, strongly outpacing our IPO long-term target of 10% to 15%. Our omnichannel focus has enabled a powerful shift to direct-to-consumer with mix at 56% of sales, while continuing to grow sales in our wholesale business, a truly special feat to pull off a heavy shift to DTC while consistently growing all channels. Our international business is swiftly approaching 10% mix, and we believe there is meaningful untapped opportunity ahead. Our adjusted operating margins have surpassed the 20% mark over the past two years, And finally, our balance sheet is stronger than ever with record cash levels building net cash of $200 million. Long-term sustainable growth and execution remains our focus while fostering and expanding the power of the Yeti brand. Looking specifically at the fourth quarter, our 18% net sales growth came in above our outlook, driven by strong demand across our channels. Profitability was also better than planned, as we continued to effectively manage the business in a dynamic cost environment by finding the right balance between investment against cost pressure. Overall, we believe this performance reflects what would be considered a tremendous growth story in any environment, let alone one that has included two years of a pandemic, pervasive supply chain disruption, and the emergence of significant cost pressure. I'm incredibly proud of the passion, effort, and execution by our Yeti team, our channel partners, and brand friends that make us who we are. We believe our performance in this environment speaks to the power of the Yeti brand, the connections we build, and the deep relevance and the trust associated with our products. But it all starts with demand. We have a growing database of new and existing customers that are exhibiting high repeat purchase rates and strengthening AOV, driving our customer lifetime value. Building upon this trend, our focus remains continued product innovation balanced with awareness of the existing portfolio, ongoing inventory replenishment to ensure optimal customer experiences, and application of rapidly expanding analytical intelligence to drive acquisition, conversion, and retention. I'll discuss some of these efforts in more depth shortly. Our confidence going into our fifth year as a public company is reflected in our preliminary 2022 net sales outlook, which calls for 18% to 20% growth, ahead of the initial outlook we provided to start last year. Backed by expected strength in our top line, we are taking impactful actions as a partial offset to the significant cost pressures that have emerged throughout 2021, particularly in transportation, duties, and raw materials. As discussed, we have recently implemented strategic price increases that are designed to absorb some of the cost pressures impacting our cost of goods while continuing to retain our premium positioning and price consistency throughout our portfolio. In addition, we are actively managing our spending, recognizing the balance between supporting a high-growth brand while effectively managing directly controlled expenses. This holistic approach equates to what we believe is a continuation of very strong adjusted operating margin of approximately 20%. While it would be difficult to predict how some of these headwinds will evolve through the year, we believe we have taken a prudent approach regarding the potential impact on our results. As we focus on the growth and expansion of the Yeti brand, let me provide a few highlights for the fourth quarter and some of the initiatives that will guide our efforts in 2022. We continue the brand-building strategy of depth and breadth by balancing brand reach, deep endemic engagement, and innovative product storytelling. Starting with brand, we approach the holiday season with the Mightier the Merrier campaign that merged the power of the brand with product. We emphasize that our products used in the pursuit of adventure can create some of the merriest moments and memories. The campaign leveraged a series of micro videos across social, the creation of gift guides, and even the debut of our Yeti-designed Mighty Nutcrackers. If you happen to miss these, they live on our December 14th Instagram. While those Nutcrackers were not sold as a product, it is a great display of the talents of our brand, content, and product design teams, creating moments of engagement. The video has received over 430,000 views. also distributed our seasonal yeti dispatch magalog to 1.9 million customers and prospects we continued our tradition of merging the print and digital worlds by bringing print content to life across our digital channels this semi-annual mailing remains a highly effective tool in reaching and converting both brand fans and prospects driving deep engagement across our product portfolio several areas will be the focus for 2022 Activating our brand globally by building a diverse network of brand ambassadors and supporting a wide range of passion-based activities, pursuits, and organizations is a core tenet of this strategy. Included in this is our second year partnering with the Natural Selection Snowboarding Series, which kicked off last month in Jackson Hole and continues next week at Bald Face in British Columbia. Natural Selection received coverage on a number of linear TV and streaming services around the globe, including Red Bull TV, a variety of YouTube channels, Tencent, and will soon be featured February 27th on ESPN. We continue to build the brand from the center with an inside-out approach to reach. We remain committed to those who have known us since 2006 and equally engaging to those who just discovered Yeti this past holiday season. Our audience is becoming more global and diverse, so our media, brand building, and partnerships will bring the same richness as always, but intersect with our growing audience in new, meaningful ways. As we think about product, the fourth quarter story was pretty straightforward. Demand for the brand and product outstripped our supply to support it. When demand met inventory, we saw excellent results. Our product messaging focused on driving greater awareness to a growing customer base that is still discovering the breadth of our existing assortment. Looking to 2022, as I mentioned, we recently implemented strategic price increases across select items in our drinkware and cooler categories. These decisions were highly considered based on how our product portfolios have evolved and the continued investment we have made in our products over the years. Shifting to new product introductions, spring launches commence next week with new seasonal colorways and product extensions in bags and soft coolers. As always, our color stories are inspired by the wild around us and will debut with Bimini Red and Offshore Blue. In bags, we will continue to build upon the outstanding success of our highly regarded Camino Tote that has generated over 3,500 reviews with an average rating of 4.8 out of 5 stars. The newly extended Camino family will add a smaller and larger version to increase the range in use cases. Later this spring, we're introducing two significant new soft coolers. First, we are excited to update our Tote soft cooler with a new magnetic closure that emphasizes usability and accessibility for customers. We are also launching the next generation of our wildly popular backpack cooler that includes a new and innovative magnetic closure system, much more to come in product as the year progresses. Our fourth quarter historically trends heavier DTC, which performed very well, delivering 21% growth on top of last year's 46% growth. DTC in the quarter reached 60% of the mix of our business for the first time. This was driven by strong growth in our global e-commerce sites, Yeti retail stores, and corporate sales, somewhat offset by our performance in the Amazon marketplace due to supply availability challenges late in the holiday buying season. At the same time, we remain very pleased with the broad performance of our wholesale partners, even as we continue to work towards the desired inventory positions across the channel to take advantage of the demand potential. Taking a closer look at the DTC channel, our fourth quarter Yeti.com business remains strong overall. We were particularly excited to see an acceleration of new customer acquisition during the quarter, given the sizable gains registered in 2020. We are also seeing strong retention of that large inflow of new customers from last year, while increasing reactivation of older customers. Finally, we see very high quality transactions with revenue per customer experiencing double digit growth year over year.