Good day, and welcome to the YETI Holdings First Quarter 2024 Earnings Conference Call. [Operator Instructions] Please note this event is being recorded. And now I would like to turn the conference over to Tom Shaw, the Vice President of Investor Relations. Please go ahead.

Good morning, and thanks for joining us to discuss YETI Holdings' First Quarter Fiscal 2024 Results. Leading the call today will be Matt Reintjes, President and CEO; and Mike McMullen, CFO. Following our prepared remarks, we'll open the call for your questions. 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-K. 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. Unless otherwise stated, our financial measures discussed on this call will be on a non-GAAP basis. We use non-GAAP measures as we believe they more accurately represent the true operational performance and underlying results of our business. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the press release or in the presentation posted this morning to our Investor Relations section of our website at yeti.com. And now I'd like to turn the call over to Matt.

Thanks, Tom, and good morning. YETI delivered a great start to 2024 as evidenced by our strong first quarter results. We saw positive global demand for our brand and our broadening range of products, and we had great execution across multiple fronts, driving double-digit growth in both our wholesale and DTC channels as well as our Coolers & Equipment and Drinkware categories. Our wholesale performance was supported by sell-in and sell-through relative to the year ago period, while our DTC business showed continued growth across e-commerce, corporate sales, Amazon and YETI retail. In Coolers, with our new innovation and expanded awareness campaign, we believe we are well positioned for the upcoming seasonal demand. In Drinkware, our range of bottles and tumblers continue to deliver strength within the category. By geography, International growth exceeded 30% year-over-year to reach a YETI high of 19% of total sales, even as our domestic growth was nearly 10%. Behind the strength of the brand, the growing product portfolio and global expansion, we are on track to deliver on our full year top-line outlook. Given the combination of inbound freight recovery, product cost improvements driven by outstanding work by our supply chain and operations team and strong price discipline, we're pleased to report profitability to build upon our historical strength, delivering a 450 basis point improvement in gross margins. Following our top-line performance and gross margin strength, our adjusted operating margin also expanded by 440 basis points for the period. In the quarter, we also delivered on our capital allocation priorities, starting with the completion of our Mystery Ranch and Butter Pat acquisitions. Our integration of these businesses is on track as we accelerate our mid- and long-term opportunities in bags and cookware. Finally, we announced a $100 million accelerated share repurchase plan in late-February, which…

Thanks, Matt, and good morning, everyone. I'll start with a few comments on the impact of certain strategic actions on our GAAP results, which are excluded from our non-GAAP results. I'll then provide an overview of our performance in Q1 across our non-GAAP measures. Finally, I will give some details on our updated fiscal 2024 outlook before opening it up for your questions. Our GAAP results for the first quarter of 2024 include the impact of 2 items that I would call out for you all this quarter. 1, transition costs associated with our recent acquisitions, including the impact of purchase accounting on our gross margins; and 2, costs associated with the closure of our Vancouver design center. While we were pleased with the work that our team in Vancouver was delivering, the acquisition of Mystery Ranch provided an opportunity to consolidate this work into 1 location in Bozeman, Montana. The impact of these and other items is excluded from our non-GAAP results. Per our normal practice, our results discussed on this call will be on an adjusted non-GAAP basis in order to better focus on the operational performance of the company during the period. Now moving on to the details of the quarter. First quarter sales increased 13% to $341 million. As Matt detailed, our strong performance was balanced across categories, channels and geographies. These results include the initial contributions from Mystery Ranch and $2 million of gift card redemptions related to remedies offered to customers impacted by the product recall. We are pleased with the progress we have made to integrate our recent acquisitions, and they are on track to generate approximately 200 basis points of top-line growth for YETI in 2024. By category, Drinkware sales increased 13% to $215 million. Our performance was driven by a number…

[Operator Instructions] At this time, we will take a question from Joe Altobello from Raymond James.

This is [ Martin ] on for Joe. Just wondering if we can get an update on overall demand trends, particularly on hard coolers? And just any explanation that might be driving them, whether it's affordability, competition, saturation or sort of some combination of all of the above?

Yes. Martin, thank you for the question. So I think, first of all, we were pleased to return to growth in both soft and hard coolers. In soft coolers, obviously it was related to having the recall products back in our lineup, but in hard coolers, there was an element of a sell-in compare in wholesale. But at the same time, during Q1, we were also comping against the EOL transition promo, that was an issue in Q4 that we called out. But like we mentioned in our prepared remarks, we saw growth in C&E on both a sell-in and a sell-through basis. But I think the key point is that Q1 is our smallest quarter, and there's a seasonality aspect in coolers to consider. But as we look forward, as we enter the seasonally higher period, we think we're in a really good position to win in coolers. We've got our entire assortment back in the market of soft coolers and we've got new innovation coming in hard coolers. We do believe there's some sensitivity to higher price point items in the market that still exist. But for the demand that is in the market, we believe we're in a really great position to go win it. From a competitive standpoint, I think like we've said all along, we've got -- we've had competitors in all categories for years. We believe we've got the best products in the market and we're in a good position to win.

Great. And just kind of on our last thought about sort of softness in high-end items, have the targeted price cuts on certain Roadie and Tundra products help this for demand? And should we anticipate any additional pricing actions as well as any future innovation, will that be at lower price points, just to combat affordability?

Yes. I think -- so just to touch on the second question, the -- we introduced, as Matt called out, we talked about 2 new products, a lower price point -- our lowest price point wheeled cooler and then a new entry point hard cooler for the category. I wouldn't say that's being done in response to anything happening in the market. This is us just completing what we believe is a full portfolio of the products that meets a number of use cases out there. So I wouldn't characterize this as being done in response to anything that's happening in the market. And I think the same thing goes for the price reductions. I mean what we did in Q1 was -- and we talked about this last quarter, it was really in response to the new innovation that was coming and making sure that our pricing stack made sense is that the price to value as you go up the portfolio makes sense in the consumer's mind. So in terms of what happened in Q1, it was a select number of SKUs. It wasn't the entire portfolio, but it was largely in line with what we expected. We saw the elasticity on a unit basis that we expected, and we were pleased with the results.

Great. Congratulations on a great quarter.

Our next question comes from Randy Konik from Jefferies.

Matt, I wanted to ask a question around innovation. When I think about, let's say, the last couple of years, I've thought about incremental growth being derived a lot from, let's say, additional color ways to the assortment. But more recently, it appears to me, and I could be wrong, that there's been a sizable impact from form factor changes in innovation as it relates to, let's say, the french press, or the cocktail shaker, coffee ceramic products, et cetera, on the Drinkware side. Can you maybe kind of give us that -- your perspective there on that innovation around as it relates to form factor changes versus color? Because I think what would be interesting there is, if, in fact, a lot of the incremental growth is coming from form factor changes, it just provides a lot more kind of opportunity and changes for existing and new customers to buy into more and more YETI products? I just want to get your perspective there.

Randy, thanks for the question. I think it's a combination of things. You're correct. And as we have continued to scale, as we continue to draw on new audiences domestically and globally into the brand, we've seen opportunity to expand our product portfolio within our 2 big groups. Drinkware has expanded. We think in a really thoughtful kind of powerful way as you know from following our story. We focus on our productivity and the leverage we get on each SKU we launch. And the same with C&E, we've driven innovation within hard coolers, within soft coolers, expansion of our cargo business, the expansion of our bags, the addition of M&A to drive an accelerant there. And so we do think that it gives us the opportunity to address more consumer needs and more points in time or more points in their day. So that form factor change, I think you're going to continue to see a rhythm of us doing that as we expand and diversify the product portfolio. And we think that's a really impactful way to grow the business. Color does play an important role in not just customer acquisition, but also repeat purchase. As people build out their YETI ownership, what we see is that people want more color. They want to add into their portfolio, and that's not just a Drinkware thing, that's actually across the range. What we really work to do is find a balance in those things. We don't want to chase smaller and smaller opportunity and more and more bespoke. We want to continue to put big consumer-relevant items out there in form factor, big consumer relevant items out there as it relates to color. And that's a formula that's worked for us. And as we continue to grow and scale the business, it's a formula we're seeing work not only in the U.S. but around the world.

Yes. Very helpful. And then last question and related to that, just give us your long-term vision then around how you think about the MYSTERY RANCH acquisition and product set, and then also your ambition around cookware. Just give us your thoughts there again on the long term, that would be very helpful.

Thanks, Randy. 2 things, and we've said this before, we think those are 2 very large, highly fragmented categories, very global in nature, both bags and cookware. We think there is an opportunity to leverage YETI's commercial go-to-market the way we tell brand stories, the way we do our product marketing, the way we cultivate our consumer base. We think it's a really attractive opportunity in both of those to drive further ownership of YETI repeat purchase further use cases. So I think what you're going to see in both those instances, and I talked about this on the call, we'll have our real first entry into cookware, the kind of top end of cast-iron later this year. In bags, as we look at taking the some of the ingredients and the capabilities and the talent that came along with the Mystery Ranch acquisition and we combine that with some of the materials and talent and designs that we had at YETI, is bringing that together and really building out our bags portfolios as we think about the opportunity in active and every day and in travel. And so with the team that we put in place around both of those things, we're really excited about what that can mean underneath the YETI brand umbrella. And we talk all the time, our focus is on what the TAM is for the YETI brand. And we think both of those categories fit really well underneath that.

And now we have a question from Anna Glaessgen from B. Riley.

I think last year, you noted that the introductions of tumbler has brought a lot of new customers into the fold. Can you talk about how these new customers are engaging with the brand? Are you seeing repeat purchase behavior? Any color on that would be great.

Anna, this is Matt. A couple of things I would say, and a little bit to the prior question from Randy. As we keep expanding the product portfolio in what I would call useful ways to the consumer and thoughtful ways for them to engage, we've also continued to diversify our consumer base. And as we said in our prepared remarks, the value of our customers continues to go up. The returning and newly acquired customers from a value perspective, we like that dynamic where we can give them more product that's useful to them. I think when you look at the expansion, what we're seeing is people diving deeper into our product portfolio, people coming back and repeat purchasing their favorite product. And that's part of our marketing efforts, it's part of our product marketing efforts. It's also part of how we're advancing some of our analytics and how we put the right offer, the right opportunity at the right time in front of the consumer. But we really like the customers that we've acquired over the last 3 to 4 years to complement the customers that we've had kind of long-standing with YETI. And we think that's the opportunity to keep bringing innovation in form factor, keep bringing excitement in color and then keep that emotional engagement with YETI.

Great. And could you expand a bit? You noted that you're reinvesting in the brand and not flowing through kind of the full gross margin expansion. Can you talk a little bit more about what's the key priorities are with that investment?

Yes. So I'd say it's a couple of areas. #1, it's really around what we're doing to grow YETI outside the United States. So -- and you're seeing the results of that, including this quarter, where we grew international over 30%, and it's now 19% of our business. So I think within International, it's building out the teams we need, it's growing the brand, building brand awareness, building the technology tools that we need, the supply chain infrastructure we need, et cetera, #1. #2, as we look to kind of build out our inorganic opportunities and be able to support inorganic opportunities, there's obviously a need to build out a team internally to do that, and we talked about that last year in terms of the first steps that we were making there. And then I think third, even domestically, as we look to expand the portfolio into new areas, that are focused on new communities, there's an element of really driving brand awareness in those new areas and in those new product categories. So those are just some of the areas that you'll see us continue to invest in and hopefully see the results as we go forward.

And our next question comes from Peter Benedict from Baird.

First, kind of a follow-up on one of the earlier questions. Just curious around Mystery Ranch. I mean, Matt, you mentioned it as being an accelerant to your bags innovation. I'm just curious around the timing there. Is 2025 too soon to think that you could see an acceleration in your bags innovation, leveraging some of what you've gotten with Mystery Ranch? Or is it going to take longer than that? Or is 2025 a good time to eye for some initial innovation? That's my first question.

Peter, thanks for that. I would say, almost frankly before we even closed with Mystery Ranch, we started to work with the teams on how we bring sort of the best ingredients together of both businesses. And so they're active and well down that path. I think as we go into 2025, we'd look to bring out some additional products that will have the results of the work of those 2 teams coming together, and that's what they're racing towards. This is not something where I think we're years out from seeing the benefit. And it's the result of partnering with a great group of people, who have the talent, combined with the talent we have at YETI, that we can move really quickly on this. So we're excited to get going and kind of put our first products out together.

Great. And then I want to pivot over to the international business. Nice to see kind of the management or the addition for the Asia region. Just remind us kind of how you're viewing the org structure now internationally, how you plan to build that out and support the growth? And then is there any margin difference we should be thinking about with the international business relative to the U.S. as that business continues to improve its penetration? Is there any DTC to wholesale mix to think about or anything else from that angle?

Thanks. I'll take the front end of that from a structural perspective, and then Mike can step in on the margin. As we think about the opportunity internationally, one of the things we've shifted our structure, our go-to-market structure to have commercial organizations focused on each of the major regions. So the Americas, Europe and the Middle East and then Asia Pacific. And the reason being all 3 are different stages of their maturation and their development and their growth and their needs. And so to have a team that is focused on taking advantage of those opportunities, taking advantage of the opportunity we have in the Americas and taking advantage of the opportunity -- the burgeoning opportunity we have in Europe and in the Middle East. And then the opportunity we have building off the strength of an incredible business in Australia, as we called out on the call, but in North Asia and in Greater Asia. And so I think that's where we're excited to get a leader in Naoji over that region to start really kind of stoking what we think is opportunity underneath the surface.

Peter, it's Mike. And so a couple of things on your question. First, at a sales mix level, it really kind of -- it differs by region, but I would say that international, we haven't given specifics, but what we have said is that we don't have our full D2C model outside the U.S. and in several cases, we've said that corporate sales is underpenetrated. We haven't had customization at scale. And so that would imply that maybe wholesales are a slightly bigger mix, a piece of the mix internationally just because of not having the full D2C model. But we certainly believe that we're in a position to drive that going forward, and you'll see the D2C mix internationally continue to increase. From a margin perspective, what we said once you normalize by -- for channel that the gross margins are relatively the same as in the U.S. There's some differences by region. But for the most part, internationally, they're pretty -- versus the U.S., they're pretty similar. Where you see the difference is on the operating margin line. So some of the more -- the regions where we've been in market for longer, Canada and Australia, we see really strong operating margins that are accretive to YETI and newer regions that are still emerging like Europe, we're still investing. And so you -- we still got some room to sort of drive operating margins up in those countries. But as Europe continues to grow, we'll see that benefit. That just may be offset by new regions that we enter like Asia, where we're going to be going through a similar dynamic that we've been going through in Europe where the first few years are really about investing and building out the region.

Got it. So as we scale internationally, there's nothing structural, but that keeps the margins below it other than just investments in growing new markets. So -- perfect.

We have a question from John Kernan from TD Cowen.

Just a couple of questions here. The Drinkware business accelerated the [ last 2 ] quarters over 12% growth close to 13% this quarter. Maybe talk to some of the drivers of that. There's been some new entrants into the marketplace. You've obviously had some category expansion. Just curious, how should we think about Drinkware versus Coolers & Equipment for the end of the year?

Yes. Thanks, John. I'll take the kind of the dynamic piece and then Mike can help out and take the back end of that. I would say, as Mike said in an earlier comment, we've always lived in a competitive market for our products. I think what YETI has done consistently is drive innovation, tell consumers why it's relevant, put relevant products out in front of the consumer and be thoughtful about not only our form factor innovation, but also color. I think the success that we're seeing is both new and returning YETI customers responding to the product offering. And I think when you think about our product portfolio and the reason we call out the 50-plus SKUs is that in Drinkware, that diversification, giving consumers more reasons to engage with YETI products throughout the day, I think is a key part of our strategy, and I think it's a key part of the success that we've had.

Yes. And the only thing that I'd add, John is, Matt talked about innovation, just the growth opportunity outside the United States that we have. And then as we look forward and what we expect for the year, we said we expect C&E to outpace Drinkware growth, but we do expect to have -- to grow Drinkware this year kind of a similar rate that we saw last year. And we think there's -- we're off to a good start to deliver that based on Q1.

Got it. Maybe then just a follow-up on 2 partners, DICK's and Amazon, obviously, Amazon being on the DTC side and DICK's on the wholesale side. I think the 2 channels account for almost a quarter of the company sales at this point, when you gross up the wholesale dollars it takes. Talk about, I guess, the wholesale channel, sales space there, particularly at DICK's and then also Amazon, growth there continues to outpace the company average. I'm just curious what you're learning on Amazon and how much more you can do with them?

So let me -- I'll take the DICK's question maybe kind of expand out to wholesale broadly. And then Mike will talk about the DTC dynamics in the overall for YETI. As you think about our wholesale, and we've said this before, we feel great about the wholesale footprint we have, we feel great about the reach we have with consumers and how we're intersecting. As you know, we've been very thoughtful at how many doors and how rapidly we expand because we continue to invest in our in the productivity at the stores in which we operate, and we invest in the productivity and the performance for our partners, and that's been a hallmark of YETI. We've commented before that our shelf space is -- remained the same. Our mix on the shelf as we launch new products and as we innovate, our wholesale partners continue to find ways to merchandise us, find the space for our products. So the biggest change we've seen in recent is how much of the total space within stores is committed to our categories. And I think that's a dynamic of the consumer interest, particularly around Drinkware and particularly around hydration, which we think the attention to the category, as you've seen in the results from YETI, only continue to benefit the strong product offering that we have there. So I'd say, as we look across our wholesale landscape in the U.S., we feel very good about the footprint we have. We feel very good about the support we have from our wholesale partners, we feel great about the receptivity to our innovation and the things that we have coming. And they continue to be a really important piece of YETI's performance.

On Amazon, John. I mean, obviously, with our disclosures in the 10-K, it would imply we had a really strong Amazon year last year from a growth perspective. We called it out as we went through the year. It was a driver, not only our growth but also from an SG&A standpoint. What we said this quarter is that we saw good growth across all of our D2C subchannels, Amazon included. And that's on top of having a really strong year last year. So we didn't give specific color on Amazon or haven't given specific color on Amazon from a guidance or outlook perspective, other than to say we think it's a really important channel for us. It can continue to be a really important channel for us. But it's going to be, I think, balanced with our other D2C subchannels this year.

Now let's take a question from Peter Keith from Piper Sandler.

Nice results here. Sticking on internationally. I've gotten a couple of questions. But with the acceleration you've seen in the last 2 quarters, I was hoping you could just maybe highlight where some of that acceleration is coming from? And then Mike also with the acceleration, why would the full year guide still be 20% to 25% for International? And finally, on International. I think you've talked about a 30% sales penetration target long term. Is there any thought that, that might be higher as we go forward?

Thanks, Peter. I'll take a bit of that and then Michael weigh in a bit, too. When we look at kind of where that acceleration is coming from, we called out on the call, Australia continues to perform extremely well. We have an incredible team down there. They have a great wholesale footprint that is getting the brand out in front of consumers throughout Australia. We have a strong e-commerce business. We identified and called out the opportunity in the growing customization or personalization capabilities. They're building a really nice corporate sales business. And then we're a little earlier in New Zealand, but New Zealand is a great market for us. It's a market that's a perfect fit for YETI. So I think that's a market where we've got a lot of things in place to be able to build on top of the momentum and the success that, that business is at going back to 2017. So I think that business is in the kind of build strength-on-strength mode. In Europe, we called out the U.K. and Germany, been broadly in Europe, we're seeing the brand awareness grow. We're seeing product placement. Our partnerships, our marketing, our ambassadors, our event activations, so running the classic YETI playbook is really starting to pay dividends. And we launched that business right before -- in late-2019, right before the pandemic. So it had a little bit of a slower start with the wholesale disruption during that period. I think now we're in a mode where wholesale partners are starting to grow. We're getting the right kind of and thoughtful additional doors. We're driving a strong e-commerce business. We've got a corporate sales business that's really starting to turf up some really interesting opportunities that are really brand -- on brand, brand right and exciting ways to get that kind of first-hand shake of product into the consumer's hands. So we feel really good about those growth platforms. In Canada, as our longest-standing international market, continues to diversify their channels to market, continues to grow the corporate sales, continues to drive the customization, has great wholesale partnerships. So overall, I think we're at the mode where that accelerant is something we're putting some energy into to the previous question and putting kind of smart dollars behind it. I think as far as the target of where it can go, when we first -- when we were kind of talking about 0 international sales, we put illustrative examples of brands that were U.S.-based that have grown internationally, and that's where the 30% came. It was never necessarily a target. But as you look at the opportunity that we're proving is out there and then the opportunity we haven't yet tapped, we haven't put a cap on what we think international can be as far as a contribution to YETI.

Peter, this is Mike. The only thing I'd add is in terms of why we didn't adjust the guidance, and I think it comes down to just -- it's 1 quarter, it's our smallest quarter. Still have a lot of the year left to go. If you take the full year guide and kind of back out the Q1 results, you're still in that range that we've talked about of 20% to 25% growth for the year. But obviously, as we think there's a lot of momentum here, we think there's opportunity here for us, not only this year but long term. But for now, we're going to sort of hold our guidance for the year. We're just focused on delivering the 7% to 9% for the company overall, and we feel like International is going to be a big piece of that.

And now we have a question from Brooke Roach from Goldman Sachs.

Where do you think a sustainable long-term margin path might look like for the brand as you increasingly diversify your business into new categories and geographies relative to the prior rates that you achieved in 2021?

Brooke, I think the front end of your question, at least on our line, cut out, so I apologize, but could you repeat the question?

Yes. Sure. Can you hear me now?

Yes.

Great. I was just hoping you could help us understand where you think the sustainable long-term operating profit margin path might look like for the brand as you diversify your business into new categories and geographies relative to the 2021 prior peak?

Brooke, it's Mike. Thank you for the question. So as we've talked about, we believe that as we -- that we've recaptured a lot of the inbound freight cost peak that we saw in the 2021 and 2022 time frame. We are at a point that now we've captured that, we believe we can start to kind of build back operating margin over time. I think you're going to see that in sort of 2 ways. Obviously, 1 would be continue to drive up gross margins through sales mix, supply chain efficiencies, product cost efficiencies. And 2, we believe that over time, we will begin to -- we will start to get leverage on our SG&A. There's going to be quarters here there where that may not -- you may not see that just quarter-to-quarter variability. But over the long term, that is absolutely our goal and is absolutely what we believe we can deliver. We talked about the international piece a bit earlier. 2 of our regions are, from an operating margin standpoint are absolutely accretive to the company. They're at a point to where -- they've got a good piece of the infrastructure they need. Europe is where we're doing a lot of our investing now just because of the opportunity that we see. So -- but over time, as we scale that business, we'll start to get benefit as they drive up their operating margin. That just may be offset as we launch new regions. And obviously, we took a big step recently with a new member of our team is going to help lead our entrance into that region. From a new product standpoint, I think we'll have to see kind of where we go. But as we've done over the last 6, 8 years, as we broadened our product portfolio beyond just Coolers and Drinkware, those new products, as we've launched them, are even expanded within those core categories. They've all been at margins that are relatively in line with what we've done in the past. So we have -- we don't have a history of as we expand the product portfolio, the margins go down. So we believe we can continue to expand our operating margins from here, both through gross margin upside as well as leverage on our SG&A.

And this will conclude our question-and-answer session. And now I would like to turn the conference back over to Matt Reintjes for any closing remarks.

Thank you, operator, and thanks all for joining the call this morning. We look forward to speaking with you during our Q2 call.

And this concludes our conference. Thank you very much for attending today's presentation. You may now disconnect, and have a great day.