YETI Holdings, Inc.

All right, next up, we are excited to have a unique consumer brand that I'm sure needs no introduction for its innovative outdoor products. To help us understand how the company continues to evolve, we're excited to have CEO Matt Reintjes as well as CFO Mike McMullen. Thanks for joining us today. I'm going to start off on product innovation, and you've described the strategy as being anchored on this. So can you just step back and frame how your product innovation innovation has evolved, and also what you see as the next key growth drivers as we look out, not over next year, but maybe over the next three to five years.

Yeah, and thanks for having us. Excited to be here. I would say product's where we began. I mean, the brand has really emerged because of the product, and it's been a focus from the very beginning. Yeti started in 2006, so going on 20 years. It really focused on driving innovation durability, performance, and design and product. And so we think about that filter and what we apply it to. You know, we just fell into 20 years ago into this hard cooler business, but where we are today and you think about a business that's diversified across a wide range of drinkware, the movement into bags and the expansion we've had in soft cooler bags, our legacy hard coolers that continue to drive innovation there. And then something else we're excited about is this growth in protective storage organization cases that provide, you know, all those things have this element of durability performance and design in them. And then the brand has really been built around that promise and that ethos.

And so maybe a follow-up there, which, I guess, which of those categories are you seeing as maybe the biggest drivers from here? Is it truly more balanced? Are there any that have higher returns than others as you look across the portfolio?

I mean, I think obviously we've established a large opportunity, but also a large business in our drinkware. And we continue to see innovation there in the expansion and definition under that. And I think if you think about We launched our first Drinkware in 2014. Over the last 10 plus years of Drinkware, the diversification of use cases, giving consumers more reasons to engage and purchase, the kind of redefinition away from just a cup or a tumbler into this broad-based food, beverage, broader Drinkware. And you're seeing that in our innovation strategy from individual use to more group offerings, whether that's in the culinary cooking world, whether that's in sideline sports, active jobs, larger format drinkware. And so we think drinkware has a lot of trends that we really like for the long term. The focus around hydration, the health and wellness benefits, the normalization of having a bottle or a cup with you constantly. We think all those are really interesting dynamics But we're really excited about bags, and we're really excited about what bags can be from a global scale. We think about bags across three really significant growth vectors, everyday bags, travel broadly, and then what we call pursuit bags, things that are more specific to active outdoor activity-based pursuits. And we think all those create growth platforms for us to continue to drive underneath this brand that we've built.

I want to dig into the drinkware side a little bit more, but before we do, as you think about some of those categories, are there investments that you need to make as you expand into those, or is it for the most part you kind of have the platform set and it's just incremental?

Yeah, I think we're really excited about the platforms that we have set and the capabilities that we have, the team, the talent, the capacity to grow. If you were to look at our investor deck, you'll see what our most recent investor deck after our Q3 call, you'll see we broke our two segments down into the growth in the product platforms below that. And that was really a nod to all of the different areas of innovation we've been driving, but also the growth potential going forward. And so when we think about we set the platforms up, then we have capability and capacity. We recently talked about the expansion of Our talent in Thailand, our talent in this new innovation office we're going to be building in Vietnam gives us global capabilities, both from an innovation efficiency and almost a 24-7 clock, but also close in to contract manufacturing partners around the globe. Connected back to the three product groups that we've established in Austin with kind of discrete teams that are focused on Drinkware and this food and beverage expansion in gear and equipment, which is our hard coolers and our cargo protective case storage boxes. Some of the pet products that you've seen even most recently in our gear garage through the Black Friday Cyber Monday event. And then our more soft good type products and our bags and soft cooler bags. And so we have teams that wake up every day and care about those three groups. And then we have capabilities that we've built out around the globe to take advantage of the opportunity.

So to follow up on drinkware, I think last quarter you talked about this inflection going into the fourth quarter. How much of that is some of the new verticals that you're growing into, food and beverage, things like that, versus just the core is getting better?

I would say I think that what it really is is the strategies playing out. And the strategy we've talked about over the last few years is the continued diversification of our drinkware portfolio, the increasing number of use cases for why a consumer domestically and globally would want to think about Yeti as their drinkware, food storage, food transportation, food prep, and ultimately cooking solution. And then I think the third one is, you know, obviously over the last couple of years, there's been a lot of attention in the drinkware category, a lot of growth driven off desirability, fashion, trend, sort of cycling in. And I think when you look at Yeti's performance during that time, we didn't ride the trend hard, and we aren't riding the trend hard on the other side. And I think that's really a testament to the underlying strength and diversification of the drinkware business. And so as we look forward, we see drinkware and this expanded definition of drinkware, you know, being an important contributor to Yeti's overall growth story.

Great. Maybe shifting gears to another, you know, important strategic priority for Yeti, which is broadening the brand. I know you talked a lot about Yeti's strengths with product innovation, but Starting at a high level, we still get questions from some investors, and I'm sure those that are new to the story, about what drives competitive differentiation for Yeti. So can you maybe walk us through the competitive boat or the secret sauce of the brand to support strong and sustainable ROIC?

Yeah. I think it's reasonably simple. It's make great product, tell consumers why they should care about it, and then support the things that are important to them. And I think that's what we've done from the very beginning is we've brought – product to market that had a shocking performance attribute and along that line of durability, performance, and design. We've told consumers, and this is our brand building efforts, our marketing efforts, our partnerships, our engagement, why they should care, why it's valuable to them. And then the third one that I think is incredibly important is We support the things that our consumers care about. And if you look at the way we've built this brand across communities, these enthusiast, active communities, you look at the things that we've done going all the way back in the fishing, surfing, skateboarding, barbecue, mountain sports, we show up for our consumers in the places where they care. And then the product fits in those environments and backs it up. This this more recent conversation we've had a lot about our interest in sport and what's happening at global sport, you know, I believe that. Sports is the last great live entertainment source and whether you're watching sports digitally live or whether you're participating in sport or whether you're attending sport. There's very few things like it in the global participation. And then below that, all of the different opportunities there. And we recently announced our partnership with League One Volleyball and the fast-growing interest in what's happening in professional women's volleyball. The waterfall of that is down to the influence that it has at the club level and at junior and youth level. And so that connection of a professional league all the way down to the youth league with a really passionate following is incredibly strong. We just recently announced The National Women's Soccer League is a partnership with the National Women's Soccer League. And then we have these licensing partnerships across a lot of the other major sports and the things we're doing at the collegiate level. All of that is with an eye towards make product that's relevant for the environment. Then tell people how your product can enhance whatever they're doing, whether that's sideline sports all the way up to the professional level. and then show up for them. And I think that's been a formula that's worked for us for the better part of our 20 years.

Got it. That makes sense. And you talked a lot about partnerships, but as you think about your marketing and advertising playbook going forward, what are the biggest shifts in how you're allocating spend across channels, whether it's digital, retail, media, influencers, and what's driving those changes?

Yeah. I mean, we believe deeply that a foundation in endemic marketing spend around marketing and brand is incredibly important because that sets your roots really deep. And then as you broaden out, those roots will allow you to go do more broad-based things. So it's everything from deep endemic marketing, which we've traditionally had. We just ran our largest brand campaign over the last few weeks here in the U.S. And it was really focused on top of the funnel brand awareness, allocating more to keep Yeti as a brand top of mind, because we think those roots are really deep in the specific areas, pursuits, communities in which we operate. As we think about the lower and mid funnel, as we think about demand creation and performance marketing spend, one of the things we're watching really closely is where is the consumer Discovering where's the consumer considering and then where's the consumer ultimately transacting and we're dynamically allocating our dollars Based on what we think is going to be a rapidly in continuous change to where consumers want to shop I think it's also why we really focus on the diversity of our channels to market the diverse wholesale channels to market the diversity within our DTC business and Because at the end of the day, I want to be where consumers want to shop. And changing consumer behavior is incredibly hard and incredibly costly, particularly in an environment where you have what I believe will be continued disruption across that discovery consideration and purchase. And so our focus is allocate dollars to where we think the demand is, where the learning is happening.

Got it. And the last one I want to ask on the brand, just a follow-up, because this You talked about the new brand campaign during earnings and again just now. Can you maybe give a little more detail on the significance of this new brand campaign and maybe how it compares to what you've done historically?

Yeah. So we've done linear and connected TV in the past. We've run brand anthem kind of things. This was really for us what we believe is the start of a sequence of building top brands level, kind of keep Yeti top of mind out there in front of the consumer. And so what was more significant about this one is we were very targeted and thoughtful about the times we did it. We wanted, and this ties back to the sports thing, is the one thing people watch real time and live is sports. And so the campaign that's run over the last few weeks has been really targeted around major sporting events at the collegiate level, at the professional level. because we want to capture consumers when we can get their attention, particularly in a noisier and noisier environment. What's different about this, so this was in the fourth quarter. It had a little bit of a holiday theme. It wasn't just pure brand. It had an undertone of Yeti in connection to the holidays. I think going forward, you're going to see us lean further and further into just keeping the brand out there while we're doing all of this groundwork, this foundational root building, root expanding work.

Maybe turning to the global expansion side of your priority list, how do you think about where that mix could go long term? And maybe tying into this change in marketing, is that across every single geography, or is that more a U.S.-centric comment?

Yeah, I'll start with it's probably less a change in marketing than an amplification of what we've done. And really, it's that allocation of as our portfolio has gotten broader, as our audience is broader, as our channels to market get broader, keeping those very bespoke targeted things, but But the most efficient way to kind of bridge all of that is to have a halo over it. And so that's a little bit of what I'll call the evolution versus transformative move in our marketing. But I'd say internationally, in our more established markets, they will start to benefit from some broader-based marketing. But this first campaign was really a U.S.-focused campaign. In our developing markets internationally, they'll benefit more from the ground game than the air game. And so really it's that focus on building those connections. The one asset that's been true for Yeti since the very beginning is peer-to-peer referral is the highest form of discovery, and that connection is the strongest form of you need to buy this cup or you need to buy this cooler or you have to have this bag. It's my favorite X, Y, Z. I think for where international can go, you know, I think about where we were in October 2018 and talking about going public and our international business was tiny and how big could it be? You know, we're at, call it 20% of our sales that are non-U.S. right now. So the top end of where it can be, I think, is much bigger than it is today. And then I look at the penetration and the potential we have In the UK and Europe, Australia aside, the relatively or significantly underdeveloped opportunity we have in Asia, the brand resonance that we're seeing globally, those early green shoots of opportunity and consumer reaction we're seeing. So we're excited about the international opportunity. We think that's going to be one of the pacing items for our growth going forward.

What are some of those green shoots that you're seeing, and how does that inform where you want to allocate then more dollars and growing internationally?

Yeah, I think continental Europe, you know, the opportunity to build out our wholesale footprint there. We're seeing one of the benefits of launching first in Europe in late 2019 was the quick disruption of wholesale there. And so we had the opportunity to focus on building a strong e-commerce business. Over the last couple of years, we've been filling in the wholesale piece, but the e-com business gives us an indication of where demand is, where the brand connection is. So that's given us the opportunity to go target markets. I think Central Europe, the DACA region, fit with the brand, product relevance, highly engineered, highly designed products. And I think the incumbent market creates an opportunity for us to step right into it. Japan, we've talked a lot about, really launched in earnest in Japan this year. I think the Japanese market's really attractive. I think broader North Asia's really attractive. And then down the list of the big markets, China's right up there. We talked about in the last call some what I'll call sort of secondary and tertiary markets that we've entered efficiently through distribution. But when I think about Asia, it's really Japan, you know, Korea or North Asia broadly, and then China are really the three big opportunities.

And maybe remind us how you think about gross margin by different geographies and how that might evolve over time as well.

Yeah, so, you know, what we've said pretty consistently is if you normalize for channel mix, the gross margins outside the U.S. are very similar to what we see in the U.S. The dynamic is the channel mix is different outside the U.S., so it's We're roughly 60, 40 in total. It's closer to 50, 50 outside the U.S. And the driver of that is we just don't have our full D to C sales model. There are marketplace opportunities that we have not pursued outside the U.S. The corporate sales business is not at scale in many regions outside the U.S. But if you normalize for that, our gross margins are pretty similar to what we have in the U.S., From an op margin perspective, the markets where we've been in the longest, Canada, Australia, very profitable. The markets where we're investing, where we're growing the fastest, Europe and then now Japan, obviously a little bit lower, but we expect those to improve over time, and then we'll get into new opportunities from there.

Maybe as one other quick follow-up on international markets, You alluded to direct-to-consumer kind of leading the business. Do you see any lead lag in terms of product categories as well and how that evolves over time?

Nothing that I would call out. this kind of material i would say as we continue to evolve the product portfolio what it allows us to do in these newer markets is to actually think differently about go to market and think about merchandising you know when we went into some of the early markets seven years ago we had what we had and if we were going to be there we're going to be there with with the assortment i think today what it gives us the opportunity is is to establish the brand the way we want to bring a market relevant um portion of our global product portfolio to really establish in a different way and so it's not you don't have to necessarily get the product that was yeti in the us 10 years ago to be relevant market so that's that's the privilege of building out the product portfolio you know there are markets around the world that we may be more known ultimately as a bags drinkware brand than a hard cooler you know, soft-cooler brand. And I think that as long as it all stays consistent under the brand umbrella, you know, I'm perfectly fine with that. I think it's great.

And one other one on the international side, anything that you can share on the competitive front that might be different versus folks sitting in the U.S. that may be more, you know... used to seeing certain different types of competitors here, but maybe it's different overseas that we're not aware of?

Yeah, I would say largely no. You know, there's a number of global competitors or offerings that are out there. There's always some local market folks, but I wouldn't say established, entrenched type competition. I think the biggest thing that you deal with is just different consumer behaviors. So to state the obvious, size becomes a thing. Drinking styles, what you're consuming could become a thing. Global coffee, global tea type markets versus cup full of ice, large format type things. So I think it's more that than there's a different competitive dynamic. I think the other thing is market by market, the channels to market, how consumers buy, which markets are more digitally advanced versus kind of traditional brick and mortar. And so that's where we nuance the model on the go-to-market, but I wouldn't say the competitive environment's fundamentally different. Great.

So then moving to, you have some questions on capital allocation and some financial questions. But first, can you give an update on your capital allocation priorities? And, you know, more specifically, what drove your decision? You recently increased your share repurchase expectations for 2025.

Yes. So, you know, we said last quarter that we increased our share repurchase target in 2025 from $200 million to $300 million. But I'd say our capital allocation priorities have stayed pretty consistent. We want to invest in growth both via internal capital investments. We want to find product-focused acquisition opportunities. And we want to continue to return capital to shareholders via buybacks. And you've seen us do all those things. We've had a relatively consistent amount of capital investment across technology, supply chain capacity, product development. We've made, in the last two years, made four product-focused acquisitions where we've acquired the IP, the technology, the design, the capabilities, the tooling around new products and The most recent example of that is this summer we acquired the rights to a shaker bottle, and we're able to relaunch that under the Yeti brand this quarter. And we're super excited about the opportunities that that will give us from a growth perspective and access to a market that we believe is large and growing around protein shakes, supplements, et cetera. And then last, capital allocation, or share repurchase. We've, in the last two years, including this year, we'll have repurchased $500 million worth of our stock. And what gives us the confidence to increase that? I mean, obviously, we have an incredibly strong balance sheet. We've been in a net cash position for a long time and continue to be in one. You know, This year we'll do approximately $200 million of free cash flow. That's on top of the roughly $450 million that we've done the last two years before this one. So it's just our ability to, given the strength of our balance sheet, our ability to generate consistent free cash flow, and then also when we look at our conviction and the growth opportunities ahead of us, And where we trade, we believed it was an opportunity for us.

Got it. That makes sense. So maybe starting high level, just thinking about the consumer sentiment and wholesaler sentiment, which you've talked a lot about on past earnings calls, how are you thinking about consumer sentiment at this stage and particularly as we enter the fourth quarter and into 2026?

I mean, it's always tricky to kind of – comment on how's the consumer doing. You know, I would say our focus is what we know works. When you drive brand desirability, when you innovate in our categories, which are premium, but they're approachable price points, you can continue to drive consumer engagement. And I think we've seen that over time. I think one of the underappreciated aspects of the brand is the giftable nature of our products. And you have this interesting scenario where the relative purchase price of our products versus the value of the receipt of the gift is disproportionate. So you think about a $30 or $35 cup versus the... joy of getting a custom cup with something on it for the holidays or a cooler or a backpack. So I think when you go through these times where there's broadly consumer uncertainty and is the consumer across different household incomes healthy or not healthy, that's really where our focus is on driving that. And I think for this year in particular, there's obviously a lot of noise in the system. And so for us, we look at 25 really as a setup year for 2026 and beyond. And the expansion and setting up of our drinkware business, the expansion of our soft cooler bags and bags businesses, driving some innovation in our long-standing hard cooler business, driving expansion in our protective case storage business. organization products. So I really look at this year as a matter of, you know, 25 will set up 26 and 26 sets up our long-term growth ambitions.

Got it. And so I have a few on gross margin here. Maybe I can ask them in sequence, but in the near term, can you, you know, you expect less than 5% of your costs are good sold, exposed to U.S. tariffs out of China, but or to be exposed to U.S. tariffs on China by the end of 2025. How should we think about the annualized tariff impact as you continue to reduce your sourcing exposure from China? And then what do you view as an achievable long-term gross margin once tariffs normalize? And what are the, you know, building blocks you see to get you there?

Yeah, so, you know, first of all, I think we are, we're very proud of our team and the work that they did this year to execute on the what we asked of them, which was to accelerate our supply chain transition. It's something we set out to do a few years ago, but, you know, we really accelerated things this year and we're very pleased with the work that they've done there. You know, we've talked about gross margin for 2025. We haven't given guidance, you know, beyond 2025 and 2026. We'll obviously have more to say on that, both in 2026 and the long term. and our February earnings call, and then follow up the investor day that we've talked about would be in the first half of next year. But here's what I'd say around tariffs and the impact of tariffs on our gross margins. You know, obviously it has been a challenging year from that perspective. As we look to next year, I mean, the majority of our tariff costs this year were on goods. sourced in China and imported into the U.S. As you state, the volume that we'll purchase will go down in 2026 as we've largely transitioned. Number two, the rate recently went down from 30% to 20%. At the same time, we've got the tariffs that we pay rest of the world where we only had a partial year this year and we'll have to annualize that next year. And then we get into our mitigation levers. We've shown a consistent ability to drive costs out of our supply chain, and we will continue to look at price as an opportunity. We took some pricing action early in this year before tariffs were announced, but we will continue to look at that as a lever as well. Again, those are the factors that are driving it, and we'll have more to say on gross margins again in February and then in our investor day later in the first half.

Got it. And maybe just one follow-up there, because you did cite a benefit last quarter from selective price increases. So how do you assess where you have additional pricing power without elevating any sort of promotional risk?

Yeah, I mean, what I'd say is that pricing is something that historically we have not used that lever very consistently. I mean, we believe that consistency of price is important. When we are evaluating price, we look at a number of factors. We look at relation of products within our portfolio. We look at where we stack up versus other products in the market. We obviously have our, you know, gross margin and profitability goals. And so what I'd say is it's just a, you know, we're going to do the right thing balancing both profitability and growth and making sure that we continue to grow the business but do so profitably.

Got it. Well, was that price taken unilaterally across geographies or is it specific to the U.S. and individual categories?

It was heaviest in the U.S. I mean, we're always, you know, there may have been a few actions that we took outside the U.S., but by and large, it was a U.S. pricing move.

Okay, and you said that you are, you know, hesitant to take price, but is that something where you've looked at the results then and so that's something you'd be considering in those other markets is, hey, this was a testing ground because it's a bigger market to see how this played out, or are those markets different just because they're more developing?

I would say I don't know if we're hesitant to take price. We're just really thoughtful about price. And one of the things people don't – you talk a lot about price in general in relation to the market. We probably spend as much time thinking about price in relation to the rest of our product portfolio plus the innovation we have coming as we do what's competitive on the shelf. So when we see price opportunity, we take it. And I think that's kind of the process we're under right now. I would say on the international, in general, we want to have harmonization globally on our pricing. And so the things that we would have taken price ex-U.S. were really around, okay, there was a pricing mismatch between the U.S. and internationally or a mismatch in the product stackup that they had. So we're not hesitant to take price internationally. We just don't take a lot of unilateral, you know, cross-the-board price increases because, again, we think from the value from the consistency with the consumer is you end up with numbers that just get a little bit wonky and what they look like from a consumer perception. So historically, what we've done is, and part of the reason I think we were able to execute this supply chain transformation and historically drive drive costs out is these relationships we have with our suppliers to be able to work it from an operational side versus work it through through just price.

I want to go back to something you mentioned in your remarks in the very beginning, which you referenced or alluded to disruption that could be happening or big changes that could be happening. It sounded like it was related to maybe marketing channels, could be related to technology. So I want you to maybe clarify what you were referencing. I don't know if it was an AI-specific comment and how that could change channel shifts, but... Yeah, I think it's broadly...

The speed of consumer behavior change can be disruptive around the models of how they purchase, where they purchase, when they purchase, why they purchase. And so, yes, it could be agentic shopping. It could be distributed commerce. It could be, you know, in environments where there's more – discretion with consumer discretionary spend, that they're multi-channel shopping to make sure they get value. And that's one of the things that we've been watching closely is not just am I getting a deal on something, but am I getting the right price? And so you tend to see, you know, that's where the rise of marketplace is playing into it, what you're seeing in some of the reports out there around... AI and agentic shopping and how brands are showing up in recommendation lists. That's more what I was talking about. I think we're going into a period where the next coming months, years, I think you're going to continue to see that be topical.

As a follow-up on that, how are you thinking about AI's impact on your business, or how are you trying to plan to leverage AI more, whether that's on the D2C side or more broadly?

I mean, I think like a lot of people, you're trying to figure it out and figure out where the value pools are because there's for sure a lot of distraction, and you can go a lot of different directions. And so what we focused on is things that we think drive or have the potential to drive growth in consumer engagement and things that we think have operational benefit. And so we called out on the call – You know, we're using it in some of the natural, traditional places in our customer service, customer experience areas. We're using elements of it in product development, product design. We're using elements of it in marketing concept development. But I think some of the more interesting, you know, Yeti.com, we've now added an AI assistant on Yeti.com that helps with the shopping experience and discovery, and we're starting to gather the data on the impact. that has on the consumer journey. We're also focused on understanding these models and how we make sure that off-platform, when somebody's using something for off-platform discovery, that we show up in that search. And we called out on the last call some of the rankings that we're seeing there. And so we're active in those elements across the entire value chain from things that drive growth all the way through to things that drive efficiency.

Great. Maybe going back to drinkware, just for a question here, you know, it's historically held, I think, a 1,000 basis point higher margin than the coolers and equipment side. Can you speak to the margin profile of new product introductions in the drinkware segment, so, you know, the cookware, shaker bottles, food storage, how they compare to legacy drinkware and maybe holistically how you're thinking about mix going forward?

Yeah, so that's right. I mean, our drinkware is roughly at 1,000 basis point. been higher than coolers and equipment in total from a gross margin standpoint. You know, I would say, you know, historically we have some products that we develop that are above the average, some below, but it's largely consistent. And I'd say going forward and the new products that we've released recently, it's no different. You know, we've got some products that have been higher than the average, some below, and So whenever we do new product development, looking at gross margin, looking at cost, looking at price, looking at gross margin is certainly a piece of that, and making sure that we sort of maintain healthy gross margins are a part of it. So there's going to be some that are some above, some below, but largely consistent.

Got it. And one more on drinkware. You've talked about how sales for 2025 include a roughly 300 basis point negative impact. from your supply chain diversification efforts, and I believe that's predominantly in drinkware. So can you maybe give an update on, I guess, exactly what's been driving that and how you're feeling about whether there might be any lingering impact as you go into 2026 or if that completely goes away?

Yeah, I mean, what I'd say is the drivers of that, you're correct, it was largely drinkware. It was us. As strong as this year has been from a new product development, new product launch standpoint, I mean, we have had to shift some products out that we had planned, number one. Number two, for the first time, we'd made the decision to launch products, new products, outside the U.S. first before we launched them in the U.S. We'd never done that before, but that was from a capacity and inventory supply standpoint, that's what we had to do. And then third, just the supply of new and existing products was lower than where we typically run and typically targeted, and you can see that in our inventory levels from a year-over-year standpoint. Just shifting the significant effort to shift the supply lines from China to other countries, it just limited us from a supply standpoint. I think that by the end of this year we'll largely be there as we get into the first half of next year, but it has been an impact on our growth this year.

Got it. Thank you so much. Yeah, we're just out of time, so please join me in thanking Matt and Mike for all the thoughts. Thank you. Thank you. Thanks.