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Bull of the Day: Yeti Holdings (YETI)

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Yeti Holdings, Inc. (YETI - Free Report) is in the midst of an impressive run as the high-end cooler company diversifies its product portfolio to reach more consumers and create sustainable growth opportunities. And Wall Street has loved the stock, pushing Yeti up 130% in the last year.

Expanding Its Cool

The Austin, Texas-based firm began selling its white, heavy-duty coolers that can hold ice for days roughly 15 years ago. Yeti’s journey from helping commercial fishing boats, food trucks, and countless other outdoor activities that rely on keeping ice cold for a long time into a billion-dollar retailer is a case study in the combination of functionality and brand building.

Yeti grew its customer base for its rugged, reliable, and simply-branded coolers that cost up to $1,300 by expanding its portfolio far beyond its now-iconic and massive white coolers. Today, the firm sells an ever-growing array of styles, sizes, and colors.

On top of coolers, Yeti sells multi-purpose buckets, gear-boxes, outdoor chairs, dog bowls, and other Yeti-made and branded offerings. The star of its expanding portfolio is drinkwear. The unit includes tumblers, mugs, bottles, jugs, and more. Drinkware accounted for nearly 60% of its total FY20 revenue.

Yeti has also ventured deeper into the bag market, where it’s rolling out more luggage, backpacks, and duffels. Wall Street might start to focus more on Yeti’s opportunity to compete against the likes of Away and other popular and expensive travel bags.

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Other Fundamentals

Yeti is a mainstay everywhere from boats, trucks, and campsites to backyards, car cupholders, and office desks. The company’s growing stable of products helped its 2020 sales soar 20% to $1.1 billion, with its direct-to-consumer revenue up 50% to account for nearly half of its sales.

Yeti’s DTC growth outside of its wholesale business to stores such as Dick’s Sporting Goods (DKS - Free Report) and other outdoor-focused retailers will play a larger role going forward. Along with e-commerce, Yeti has slowly and strategically built its brick-and-mortar business beyond its flagship store in Austin.

The company currently has stores in Denver, Charleston, Chicago, and a few other locations. It has cultivated a hip, cool brand in the social media age that’s inspired knockoffs and similar looking products. Yeti is also part of a group of newer, higher-end brands thriving in the Amazon (AMZN - Free Report) era that includes the likes of Lululemon (LULU - Free Report) and Peloton (PTON - Free Report) .  And perhaps most importantly, its products work and boast strong reviews and ratings across their various channels.  

Yeti crushed our first quarter 2021 estimates, with sales up 42%. The top-line expansion marked its highest as a public firm and came on top of 12% growth in Q1 FY20. Meanwhile, its adjusted earnings skyrocketed 245% and it gross margins climb 5.6% from the year-ago period to 58.6%—its gross margin sat at 42% three years ago.

 

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Yeti’s e-commerce segment climbed 60% during the quarter to help boost its margins. The company has invested in modernizing its back-end and supply chain efforts, which includes its beefed-up e-commerce business.

Plus, its wholesales unit popped 26% as its products continue to sell-through in retail. And its international space “grew triple digits for the period to reach an all-time Yeti high of 9% of net sales with good momentum across the global regions.”

The company is part of the Zacks Leisure and Recreation Products industry that’s in the top 6% of our over 250 industries and includes fellow highly-ranked stocks such as Callaway Golf (ELY - Free Report) . Yeti stock has soared 130% in the last 12 months to more than double its peers. This run is part of a roughly 500% climb since its public debut.

Yeti has cooled off a bit, but it’s still up 35% in 2021 to easily top the S&P 500’s 17% climb and its industry’s sideways movement. The stock popped 1.6% during regular hours Monday to close at $93.09 a share, which puts it about 3% below its June records.

Despite its run and the broader market looking due for a bit of a pullback, Yeti sits near neutral RSI levels (50) at 56. The stock is also trading 18% below its year-long highs in terms of forward earnings, providing Yeti plenty of potential runway.

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Outlook

Yeti management upped its guidance and it’s prepared to continue benefitting from strong consumer spending, highlighted by pent-up demand, especially amid higher-income households who can afford $40 mugs and $300 coolers. “The momentum carried over from 2020 and on display to start 2021 showcases the passion for the brand and the relevance of our product portfolio as consumers continue to participate in the significant growth in active, outdoor lifestyles,” CEO Matt Reintjes said in prepared Q1 remarks.

Zacks estimates call for Yeti’s fiscal 2021 sales to jump another 22.5% to reach $1.34 billion, with FY22 revenue projected to climb 14% higher. These estimates follow FY19’s 17% expansion and FY20’s 19.5% and highlight continued strength for a company that went public in the fall of 2018.

At the bottom end of the income statement, Yeti’s adjusted earnings are projected to climb over 26% this year and another 17% in 2022. And these growth outlooks could come up well short since the firm has beaten our bottom-line estimates by an average of 82% in the trailing four periods, including a 73% Q1 beat.

Bottom Line

Yeti’s positive earnings revisions help it grab a Zacks Rank #1 (Strong Buy) right now, alongside its “B” grade for Growth in our Style Scores system. Plus, eight of the 14 brokerage recommendations Zacks has are “Strong Buys,” with nothing below a “Hold.”