YETI Holdings, Inc.

Good morning and welcome to the Q2 FY22 earnings conference call of Yeti Holdings. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing star key followed by the zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event has been recorded. I would now like to turn the conference over to Mr. Tom Shaw. Thank you, and over to you, sir.

Good morning, and thanks for joining us to discuss Yeti Holdings' second quarter 2022 results. Before we begin, we'd like to remind you that some of the statements that we make today on this call 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 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 this morning's press release, as well as in the supplemental reconciliation, both of which are available in the investor relations section of our website at Yeti.com. 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 for business. Today's call will be led by Matt Reintjes, President and CEO, and Paul Carbone, 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. Yeti posted a 17% sales increase for the period, strong growth in what continues to be a challenging and dynamic environment. While results fell slightly short of a high bar we continue to set, these results in the three-year compounded annual growth rate of 22% continue to show the durability of demand and the strength of the brand. On the bottom line, our near-term performance saw further pressure from several gross margin factors, including higher inbound freight costs, a shift in product and channel mix towards our lower gross margin coolers, and equipment and wholesale business, as we continue to support the channel sell-through and build back of inventory. As we consider our execution for the balance of the year and set up for our growth in 2023 and beyond, it is important to understand and acknowledge what we are seeing in the marketplace. First, our brand remains strong and continues to support the domestic and global reach we have discussed over the past few years. Second, growth and demand are proving durable due to our product innovation and diversified channels to market within DTC, wholesale, and globally, even as the battle for digital traffic continues to escalate. Third, elevated supply chain costs continue to pressure margins. but we are seeing decreasing forward rates in our heavily impacted inbound freight costs, which we believe has potential to set up as a tailwind for 2023. Turning to our brand, the second quarter displayed the power of Yeti as we returned to connecting with customers through in-person events combined with incredible brand storytelling, product marketing, and digital brand awareness. From the GoPro Mountain Games in Vail, Colorado, to Jackson Hole Food & Wine, Coupled with international ambassador activations with skateboarder Louie Lopez at the Copenhagen Open and Chef Lee Tiernan in London, enthusiasm and engagement with customers is where we excel. With strong in-person activation combined with the broad reach of our Mother's Day, Father's Day, and Summer Essential campaigns, we have a multifaceted and differentiated connection with consumers. Even in today's world, where getting attention is at a premium. As it relates to demand, our wholesale, corporate sales, and Yeti retail performed very well in the quarter, while our owned e-commerce and Amazon marketplace were challenged by very high year-over-year comps and, importantly, an increasingly competitive market for digital traffic, including the broader digital slowdown being seen in the market. Yeti's improved inventory position across key wholesale accounts is contributing to growth and sell-through in this channel. It also reinforces how important our full omnichannel approach continues to be. On the Yeti e-commerce side, the investment to build out our analytics capabilities to target, convert, and retain customers is proving central to improved retention and conversion, while acquisition continues to remain a focus for the rest of this year. On the product side, we are executing breadth and depth across our portfolio. Year to date, we have introduced new products in soft coolers, hard coolers, bags, and new apparel. As we build awareness and full channel distribution of these new products, we believe this sets up well for both near and long-term growth. Even though we are starting to see heightened promotional activity in the market, including more aggressive performance marketing tactics and deeper and more sustained discounting, we are focused on conveying the power of our brand and product through innovative product marketing to cut through the market noise. Finally, we are staying nimble by taking appropriate actions across our supply chain and operational management of the business given the rapidly changing landscape. This started in the second quarter with active management of our inbound supply to match our global demand outlook for the rest of 2022 and into 2023. While we are starting to see some signs of cost relief, particularly in the transportation area, This is expected to have a more significant impact across our income statement and balance sheet as we move into the next fiscal year. In total, Yeti is responding thoughtfully and realistically to balance the opportunity we see in the market and, just as importantly, what we do not fully know in the quarters ahead. As Paul will discuss, we have prudently adjusted our full-year outlook to both reflect some of these ongoing uncertainties and our commitment to making the right near, mid, and long-term decisions for the Yeti growth story. While not a decision we take lightly, this revised outlook reflects both what we believe are the controllable and the unknowns in the back half of 2022. Now to our strategic growth priorities. As I mentioned, driving brand relevance remains as important as ever. Consumers are making thoughtful decisions on a daily basis about where and what to buy, and it is our job to continue driving high consideration through great product and brand storytelling. This is a hallmark of our brand and integral to how we differentiate ourselves in the market. Let me give you three examples here. We recently wrapped up our 13th stop Yeti Presents film tour. These intimate celebrations of our human stories represent a unique approach and philosophy to brand building and incorporate ambassador interaction, stories spanning the diversity of the wild, and support for conservation partners and organizations. We enjoyed the opportunity to host some of you during our Brooklyn stop. In June, we highlighted a collection of Yeti customer product experiences through a new user-generated content series that features video and content submitted by our fans and followers, showing Yeti products surviving incredible moments. This included a tundra that kept ice and drinks cold even after a raging boat fire and a Rambler jug retaining ice after a truck fire. These videos have been among our most successful and most engaged content to date. Finally, we continue to connect with a widening demographic through TikTok and are seeing momentum both on our own content as well as that from the user community. One recent post highlighting a fan's vast collection has captured nearly 10 million views and our response to the video received over 200,000 likes. We are still exploring opportunities on many social channels, but TikTok remains an important opportunity for the brand. Turning our focus to product innovation. The clear highlight of the quarter was soft coolers. Launched on Yeti.com in the first quarter, our Hopper M30 and Hopper M20 backpack expanded across wholesale in Q2 and have been an active part of our seasonal color strategy. The combination of innovation, portability, and color have proven to be a powerful proposition for the active on-the-go customer. Hard coolers also grew in the quarter despite uneven wholesale inventory and core colors and certain skews, such as our original wheeled cooler at the hall. Given the vitality in our cooler and equipment portfolio, which was up 23%, we are particularly excited to introduce our two new wheeled hard coolers. The Rode 48 and Rode 60 offer all the performance you would expect from Yeti with enhanced mobility. These products debuted in July and will move more broadly across our channels in the months ahead, corresponding with healthier in stocks of other core hard cooler offerings. As indicated last quarter, we've begun testing select distribution for our bags portfolio. With this thoughtful rollout underway, we're planning to add additional doors to better capitalize on fall outdoor and back-to-school timing. Beyond these efforts with our Crossroads line, we also introduced a new tan colorway in our Panga bags last week, which was the first new color for this successful line since 2017. In drinkware, Second quarter growth was 12%, copying 69% growth in the year-ago period and up 23% on a three-year CAGR basis. We continue to see good momentum with our travel mugs, the Rambler straw cap, and across our inventory-constrained bottle line. Finally, we are working on several additional product introductions as we move towards the holidays to both extend our product families and bring limited release products for year-end. Looking at our channel strategy, wholesale growth outpaced D2C growth in what was our largest wholesale quarter to date. Wholesale strength was supported by an improved inventory position off a heavily depleted level last year, as well as solid sell-through trends with our major partners. To reiterate, our inventory position is still below pre-COVID levels, which we continue to actively address with our focus and optimization efforts. In addition, we continue to see progress in our work to drive merchandising consistency across our accounts. We believe customers are increasingly intentional in these e-tail and physical store purchase occasions, and we remain encouraged by the positive sell-through rates we are capturing. At the same time, the battle for digital traffic and mindshare has intensified, which we believe underscores the importance of our advanced analytics efforts. As we look at Yeti e-commerce, our analytics work is giving us greater clarity into the impact of our acquisition and retention efforts, which is increasingly critical in today's challenging environments. We continue to be very effective in our retention efforts, particularly as we reengage older cohorts and drive quality transactions. While our acquisition effort resulted in roughly flat new customer growth year over year, after two years of significant acquisition growth, this will be an area of heightened focus as we deploy tools and strategies to drive the most relevant and targeted engagement. We also believe our new e-commerce platform launched in early Q2 will enable many of these efforts as we move forward. We saw strong results in our corporate sales business with excellent inbound demand as companies continue to look for ways to engage their employees and customers. Yeti Retail remains a bright spot, including the debut of our first West Coast store in Carlsbad, California. With enhancements to our merchandising and layouts of our legacy stores and the performance of newer locations, we believe this business is positioned to accelerate in the years ahead, providing not only a place of commerce, but a place of brand discovery and community. Later this year, we plan to open a store in Southlake, Texas, and we are working on one more potential opening later in the year, which would bring our total to 13 stores. Finally, the Amazon marketplace remained a challenge, facing significant comps in the prior year period and reflecting some of the same online traffic and demand trends we are seeing broadly in the digital marketplace. With a healthier inventory position across the Fulfilled by Amazon distribution network, a strategic utilization of fulfilled by merchant, and significantly easier comparisons, we are optimistic this business is positioned to improve in the second half. Our international business grew 35% in the second quarter, quadrupling the size of the business from two years ago. Growth was balanced across our core markets of Canada, Australia, and Europe, and we remain bullish on our opportunities as we continue to execute our global playbook in both our existing markets and as we look to future expansion opportunities. Nonetheless, we are closely watching the global economic headwinds beyond the US and the varying levels of impact across our three non-US regions. Let me start with Canada. Our wholesale performance in the market remains solid. While e-commerce traffic has been a bit slower than planned, we remain optimistic about the growth opportunity of this channel in Canada. We are encouraged here as the country fully ramps back to in-person events. And we have a full slate of brand activations planned, including the most recent return of the widely attended 10-day Calgary Stampede. Australia has proven very resilient with strong growth across wholesale and DTC. Following a challenging 2021 with closures in various states and cities, we continue to make progress with organic growth at our existing wholesale accounts and expansion with our first national accounts. This is a core strategy for the brand this year as we look at increasing penetration of the urban coastal markets. Finally, in Europe, the opportunity remains vast, even amidst some of the most severe consumer headwinds in the markets in which we operate. While e-commerce has been the lead channel in the market, we remain laser-focused on opening excellent wholesale doors across Europe, with a particular focus on the UK and Germany. We were excited by our introduction at Sport Schuster, a Munich institution in the world of mountaineering and outdoor activities. This six-week street-front installation was a powerful way to educate customers on the brand. More recently, we also installed a six-city feature with Globetrotter, a German store group known for delivering premium products to the outdoor enthusiast. As we look at servicing our international customers, we are rounding out our product lineup with key third-quarter introductions. We'll be launching new drinkware and soft coolers in Europe in the third quarter, which we see as a significant opportunity to build the brand and show the versatility of our products and their use cases. Broadly, we expect our strategy will remain focused on driving a global and full assortment of our products across our distribution. But when needed, we will take care to address high-value local customer nuances and preferences. As we continue to focus on our global growth and the digital evolution, I'm pleased to announce that Fez Ahmed has joined Yeti in the newly created role of Chief Commercial Officer. Fez brings extensive global leadership experience through his most recent role as CEO of Direct-to-Consumer as part of United Healthcare at Optum. Formerly Senior Director and Global Head of Apple's online store and retail market development, and various digital and technology roles at Delta Airlines during their digital transformation. Fez will drive strategic direction and execution across our international direct-to-consumer and technology functions while partnering closely with our well-established wholesale sales organization. In closing, I'm thankful for the execution by our incredible team and the support from our customers in an environment that has presented constant challenges over the past two years. There has been nothing easy and certainly nothing taken for granted in the current operating environment. but we've been steadfast in our commitment to stoke demand for the brand, invest in strategies that execute in the short term, and support actions that will realize the long-term potential for Yeti. With that, I would now like to turn the call over to Paul to review our financials and outlook.