Greetings. And welcome to YETI 4Q 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I'd now like to turn the conference over to your host, Tom Shaw, 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 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. We use non-GAAP measures as a 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 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. 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 2 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 continue to effectively manage the business in a dynamic cost environment…

Thanks, Matt, and good morning. YETI had a truly incredible year compared to our initial 2021 outlook on last year's Q4 call, the full year results we announced today exceeded the high end of our net sales growth outlook by 12 percentage points, and surpassed the high end of our initial adjusted EPS outlook by 20%. Let me start by giving you some details for the quarter and year, followed by our outlook for fiscal 2022. For the fourth quarter, net sales increased 18% and to $443.1 million compared to $375.8 million in the prior year period. As a reminder, fiscal 2020 was a 53 week period, and thus included an extra week of sales during the fourth quarter, which negatively impacted our net sales growth by approximately 200 basis points this quarter. For the full year, net sales increased 29% to $1.41 billion. Direct-to-consumer net sales grew 21% to $263.9 million compared to $217.8 million in the same period last year. Direct-to-consumer performance was driven by strength in both our Drinkware and Coolers & Equipment categories. As Matt mentioned, we had some challenges with planned inventory being available in our Amazon channel to satisfy last minute demand towards the end of the quarter. Our own digital business performed above plan for the period, and we continue to see strength at YETI retail, and within corporate sales. Overall, our direct-to-consumer mix increased to 60% of net sales for the period compared to 58% last year. For the full year, DTC net sales increased 35% to $784.7 million, representing 56% of the overall sales mix compared with 53% last year. The approximate mix within DTC for the year consisted of 57% from our global YETI websites and YETI retail stores, 23% from the Amazon Marketplace, and the remaining 20% from corporate…

Thank you very much. [Operator Instructions] We have a first question from the line of Sharon Zackfia with William Blair. Please go ahead.

Hi, good morning. Thanks for taking my question. I guess you're going to get a lot of questions about supply chain. So Paul, I appreciate all of the commentary. Is it - I guess what is your visibility at this point on those costs, are you seeing the cost level off, and kind of project that kind of similar unit cost for the rest of the year or is this still a moving target? And then as a follow-up, on the price, which we saw that you took on the Drinkware and hard coolers, can you talk a little bit more about why the relatively modest blended increase on the products, and the thought process that went into that?

Great. Thanks, Sharon. And good morning. So I'll take the first one, and then Matt can address the pricing. So the way we've looked at 2022 from a product cost and an inbound freight perspective is - and I'll start with inbound freight. We have the expectation that the rates, the exit rates coming out of Q4, continue all through 2022. So we do believe some of this is transitory, it's just not in our nature to call when that transitory period will end. So from a freight perspective, we have carried that through for the full year. And similar on costs, so we've taken exit costs or any costs that we know from a product cost that would hit in '22 because we're talking to our manufacturing partners consistently, that is all baked into our 2022 outlook. So our expectation is, things do not get better, and things aren't getting significantly worse. And then I'll let Matt address your pricing question.

Good morning, Sharon. As we look at pricing, and some of the people who have followed our story for a while would know, we really value the integrity of our pricing, the importance of our map and keeping price consistency and we think the consumer has come to recognize that even as we've continued to invest in the product. As we looked at these cost influences that are occurring right now, one of the things we considered is we want to make pricing decisions that we would live with whether those cost pressures were on or whether those cost pressures were off. And so instead of using price as a lever just to chase the cost pressure, we actually looked at it strategically across our portfolio in relation to the rest of the products in our portfolio. And we feel good about where our pricing is and where our products are positioned in the market.

Okay, thank you.

Thank you. We have next question from the line of Randy Konik with Jefferies. Please go ahead.

Yeah. Thanks a lot. So you guys gave some good color around DTC by segment, I guess, YETI.com., Amazon Marketplace and corporate sales. Just on the corporate sales, was that 4 years ago around, I guess, zero, and now it's 20% of DTC, if you will. Is that business just - where are you set up from an infrastructure standpoint to handle that business? It seems like it can kind of continue to grow by leaps and bounds going forward, and probably was still held back this year and in the quarter. Just give us some perspective on where that corporate business has come from? And then relatedly, around the DTC, when you see the mix moving more and more towards YETI.com relative to Amazon, we know that's margin accretive. But give us some perspective of where that balance has come from or that mix has come from maybe 4 years ago? And where do you think the mix within YETI.com versus Amazon Marketplace should go, let's say, 3 to 4 years from now? Thanks, guys.

Thanks, Randy. I think as we think about, and as we've talked about corporate sales and broadly our customization and personalization business, it's been incredibly important to us. And a few years ago, as we talked about, we brought the - some of those capabilities and decided to make significant investments because we believe that was a growth area for us. As we've talked in the past, we continue to invest in capacity. We continue to expand our support for that area. And it's allowed us to go, particularly in the Q4 holiday season to go deeper into the holiday season and support both corporate demand and consumer demand for personalization. It is, as we think about where we apply CapEx, where we've positioned our supply chain team. Because of the demand that we're able to generate and the ongoing inbound demand we get, it will remain a focus for us in building up that capacity across our Drinkware, hard coolers and our soft coolers. So we really like the area. We think it - for consumers that personalizes and makes the product more of their own. And we think from a corporate partnership and corporate relationship, the attraction we're getting from new interest and the repeat purchase is really strong. So I think you'll see us continue to invest in that area. On the D2C split, YETI.com is our flagship. YETI.com, and I would say all of our global e-commerce sites, and I would include our retail facings in that, I think it's the best manifestation of the product breadth in the portfolio and it's a way to directly engage the consumer. So as we've said in the past, we expect that to be the fastest growing component of our D2C business. The balance between the Amazon Marketplace, our owned direct e-commerce and corporate sales, each one serves a different consumer or a different customer at a different time. So while we expect to grow all those channels, YETI.com or global e-commerce sites and our retail are the largest portion of that, and we expect those to be the fastest growing. And I think as we put more effort and energy and investment behind our advanced analytics, I think you're going to continue to see that play out.

Great. And just last question. Give us - remind us where we are on infrastructure to support long-term international development. Obviously, you're doing a great job in Canada, UK, et cetera, and in Australia. Just give us some perspective on what you've been working on from an infrastructure standpoint, and how we can think that would manifest into further Internet and national penetration as a percent of sales over the next few years? And just kind of like what - I think kind of yardage marker, we can kind of think about 5 years from now, you think international could be what percent of sales? Thanks, guys.

Great question, Randy. It's a big area of focus for us, obviously, and we've talked a lot about it. And we're excited as the business neared 10% mix last year, non-US coming off a really small base, a 2% back in 2018. So we love the trajectory of the business. That's also with the US business that's continued to drive consistent strength. From an investment and then infrastructure, one of the things that we've shown in Canada and Australia is that we can do it in a - with a scaling infrastructure, while driving growth in a really profitable way. And we're replicating that in the UK and Europe right now. So we have YETI employees. We have YETI infrastructure, building in Europe and the UK. I think that you'll continue to hear from us. That will be our focus in the near term. And then as we look to other market expansion, I think what we've shown now with the UK, Canada, Australia, and growing in Continental Europe, is that our playbook works, and the playbook of how we build the brand, how we leverage important wholesale partnerships, how we drive a strong e-commerce business and engage the consumer. So I think you'll continue to see us invest there smartly and profitably, but with real focus.

Thanks, guys.

Thank you. We have next question from the line of Peter Benedict with Baird. Please go ahead.

Hi, guys. Thanks for taking the question. First, just back on the pricing that you've taken this year, any indications on demand elasticity there on the items that you've taken? And then my second question is just around the cash position here, net cash, positive free cash flow. Paul, give us the thoughts on kind of the use of CapEx or I'm sorry, the use of the free cash flow as we look out over the next couple of years. What are your priorities there?

Good morning, Peter. On the pricing, while we don't comment intra-quarter. What I would say is that we really thoughtfully took those prices on our knowledge of the market, our knowledge of consumer behavior, signals we have seen in demand. So we felt really good about the pricing actions that we were going to take. And I think our expectations are embedded in our outlook and what we provided today.

And then good morning, Peter, on cash. If we look at 2022 at the mid-point of our guide, we would say free cash flow would be about $125 million in that range. So you are right on there. We're going to continue to look at this. So this is the kind of the same story we've talked about over the last couple of years. As we look to '22 and forward, rebuilding the inventory, to working capital, funding CapEx. And then as we think about M&A, we think about it the same way. We have a deep conviction to the YETI brand. And we think about either investments from an M&A, into technologies and material to support the current road map or something that would accelerate relevant categories that are on the road map that gives us a head start. So not a lot of change, and to your point, we do continue to feel really good about the strength of our balance sheet.

Okay. Great. If I can get one other follow-up in. Just when you think about the advanced analytics, you mentioned those earlier, anything more detail you can give us on retention rates or repeat rates, some of the stuff that you alluded to earlier, just the progress you have there. And where you see the most opportunity going forward? Thank you.

Thanks, Peter. I would say, consistent with the comments that we made in our prepared remarks, we're seeing strength across all the metrics that we would want to see growing at this point in our advanced analytics. And our team is hyper focused on retention, then driving acquisition and then engaging the customer lifetime value. And I think as we've looked at our evolution over the last 3 years, we are significantly smarter about it. We're highly integrated between our advanced analytics team, our e-commerce team, and then driving actions within our marketing team to make sure we're supporting, achieving our goal, which is we want a real strong balance between acquisition and retention. And while we aren't giving the specific numbers, I can say broadly across those, we feel very good about the success we've had. And when you think about the significant acquisition that happened back to 2020, and that we comped, strongly comped that number from an acquisition perspective in '21, and also drove retention of that cohort, and the cohorts - the continued retention we're seeing of prior cohorts, we feel great about not only the intelligence but that our ability to actually affect the outcome.

Great. Thanks so much, guys.

Thank you.

Thank you. We have next question from the line of Joe Altobello with Raymond James. Please go ahead.

Thanks. Guys, good morning. So first question on pricing, again, you mentioned it's about 200 basis points to the top line this year, but you also mentioned it's pretty targeted. So could you give us a sense for the magnitude of the particular price increases that you're pushing through on products?

Yeah. Joe, I can start with that. And I want to come back to what Matt said about, they were targeted price increases, so we didn't do a broad-based. So if you look at hard coolers, there were about 11 SKUs that we increased price on, and if you look at Drinkware, there were 6 SKUs, so again, very targeted. Differing increases, and again, it's - the nature that we looked at this, this wasn't just driven by we need to offset gross margin pressures. This was looking at the market, and where we have the ability to take price. So you know, there is some that increase 4%, 5%, there are some that increase more. So it really was a detailed look at this. And as we talked on the last call, we worked on this for several months to really hone in the price actions that we took at the beginning of February.

Got it. That's helpful, Paul. And maybe just a follow-up in terms of your guidance for sales this year, that assumes that hard cooler supply gets better throughout the year or it's better in the second half. How do we think about that?

Yeah. So I'd say a couple of things. And let me start overall with sales and the cadence. I'd say, overall, we don't see a huge discrepancy of growth between 1Q and to the full year. So what we said in 1Q, we would be at or slightly below the low end, at or slightly below the 18%. And then as we go through the rest of the year, we don't see significant discrepancy because it's going to be in that 18% to 20% range. I think a couple of things driving that. One of them is what you talked or what you mentioned is we believe in the back half of the year, inventory constraints lessen. Now that will all be based on demand and not to a SKU level. But we do expect inventory constraints, particularly hard coolers, to lessen in the back half of the year. We expect soft coolers to lessen as we go through as well, so that is a piece of it. But again, there's not a big discrepancy on our sales thoughts in Q1 versus the balance of the year.

Okay, great. Thanks, guys.

Thanks.

Thank you. We have a next question from the line of Robby Ohmes with Bank of America. Please go ahead.

Hi. This is Alex on for Robby. Congrats on another great quarter. I guess my first question is just on wholesale. So you're now down to 3,000 independent wholesale accounts, which I think at this time last year, you were around 4,500. So roughly a 33% decline in your distribution footprint within the independents in a year where you did 23% Wholesale growth, and then you just announced that you're winding down Lowe's. I guess just how are you thinking about your wholesale footprint going forward? And maybe give us a little more color on sort of what led the Lowe's decision? Thank you.

Good morning, Alex. You know, I think there's a few things. We've been working on the optimization of our supply chain, and as it feeds into our demand. And as we thought about our wholesale channel and as we have been for a number of years, we want to continue to optimize around strength. And that includes building up and continuing to help drive the merchandising presentation, the consumer experience, the strengthening of the partnerships with our wholesalers, whether those are independents regional or national accounts. And so it's been consistent for really over the last 5 plus years that we've been doing that. The recent change in independents was really to drive the continued strength and productivity of our wholesale channel. And as we said in the prepared remarks, as we have continued to grow our D2C business, we've also grown our wholesale business while we've been optimizing our wholesale business from an account perspective. As we look forward, we'll continue to look for wholesale partners that we think drive additional consumer reach, change or bring a new buying occasion to us, or we think augment and support our existing wholesale. And that effort won't stop, and that's what our sales team does every day. So we feel great about our independents. They are incredibly important to us. And the investment we have, and this is going to be - as we look at our wholesale going forward this year, it's a big area of focus for us. As we think about Lowe's and the expansion of Lowe's. I'll reiterate, Lowe's was a great partner. We spent a lot of time with them considering the relationship, and then we both dove into it. And as we learned over the last couple of years, and had the supply chain disruptions and looked at the optimization of our channels, we had to make choices on where we were going to put our focus for the near and mid-term. And really, ultimately, it came down to: we're going to focus on building the strength of our existing wholesale partners that have been with us that we had already kind of taken through the merchandising and the presentation and the cadence of how YETI operates. So we wish all those who have been with us the best as they move on from being YETI wholesale partners. But we're really excited about the wholesale footprint we have.

Thank you. That's really helpful. And then I guess, just my follow-up question is a little bit more on the customer. So can you maybe just talk us through the magnitude of your new customer acquisition over the past 2 years? And then I think you said in your prepared remarks that revenue per customer was up double digits. Can you maybe give us a little more color on what you think is driving that? Thank you.

Yeah. I think there are a few things. We haven't talked externally about the customer acquisition we've had beyond that it's been very strong. And it was very strong in 2020, and that we comped in a strong way in 2021. I think you can take from that and you look at the magnitude of our e-commerce business, it's meaningful. And then you add on top of very strong acquisition a really powerful retention mechanism. And so those - that system is working and it's only getting better and it's only getting smarter, and it's only getting more integrated into how we go to market and how we market and how we brand. And that gets to the point of how do we drive the value of those customers up. And a lot of that is our learnings on how consumers shop and what they buy and what their journey looks like and how they go deeper or broader into our portfolio. And you heard us make a few comments about the importance of innovation, but also the importance of driving discovery of our existing portfolio. And we think both of those are unlocked. We think innovation is unlocked. We think the expansion of discovery of the portfolio we have today is an unlock. That's why we talk about our retail stores being a great representation of the breadth of YETI. Digitally, e-commerce combined with our advanced analytics combined with our marketing and branding team. So I think all of those contribute to the increase in value and the increase in the AOV and the increase in the customer lifetime value.

Perfect. That's very helpful. Thank you. And best of luck.

Thanks, Alex.

Thank you. We have next question from the line of Camilo Lyon with BTIG. Please go ahead.

Thanks. Good morning, guys. Great to see the continued strength in demand. On the inventory topic, this is now two quarters, I believe that you've had over 50% of your inventory in transit. Can you help us understand just how much demand is going on met? And then I have a couple of follow-ups.

Yeah. I'd say so it's a great question. And we believe that we've certainly miss some demand. It's hard to dimensionalize. I think in the fourth quarter, there are really two pieces, there's the inventory piece. And I'd say if demand was unmet, it would be in the hard cooler, and maybe some of the soft cooler. And then we also talked about Amazon near the end of the quarter, and some operational challenges we had. So it's hard to dimensionalize because we also believe a lot of that demand is sticky. So does it go from potentially a wholesale channel to their wholesale e-comm channels to potentially our channel, people bounce from Amazon to YETI.com. So we do believe we've missed some demand. It's hard to dimensionalize exactly what that number is. But I would say, we've talked internally, we posted a plus 18% in Q4, would it have been somewhere around 20% growth. We believe that would be true. So we certainly missed some demand in the quarter.

Got it. And then just given the commentary that you made, Paul, on your inventory flows, is there an expectation? I'm trying to reconcile the comments around inventory improving in the back half, but still expecting cost pressures on the freight side to not abate. Certainly, it sounds like there's a little bit of conservatism there, which in this environment is prudent. So if you could just give some color on that. And then relatedly, it looks like the GSP guidance of 30 basis points of headwinds. Is there an expectation for a renewal at some point in the year that is included in that full year negative 30 basis points because the bill is going through on the American COMPETES Bill that should pass here relatively soon? And assuming that it does, I would imagine that that's a reversal of the pressures of those tariffs paid, all of last year plus anything that's been accrued this year. Am I thinking that correctly?

Yeah. So let me hit a couple of those. So on inbound freight, you know, we have in our - built in our outlook and the 280 basis point headwind that's baked into our outlook for inbound freight, assumes rates continue. And if you think about inbound freight, with our lead times - and I think door-to-door. So from the backdoor of the factory to our DC, a lot of the product that has Q4 rates in it, I haven't even - I'm going to start selling in Q1 and Q2. So that is one of those that if rates come down, they will work its way through the P&L as inventory comes in. But to be very specific, in our outlook, we have assumed rates do not go down. So if we see back half where rate supply gets better from a container supply, and rates come down, that would be a positive. On GSP, the 30 basis points negative assumes GSP does not get renewed at all this year. And the reason it's we have some negative is same reason as GSP started last year based on average costing of inventory, I was selling inventory last Q1 that didn't have GSP on it. So it's - all my inventory now has GSP. That's the 30 basis points. If - from the math and all the information that we've given, you can deduce that in my P&L this year, there is about $16 million of GSP duties that I am assuming. And I am not assuming it gets passed it all this year. You're absolutely right. It is sitting with the House. I hope you're right, and I hope your optimism is right that it does get passed. Hope your optimism is right that they retro it back. But right now, we have not assumed that in the outlook. So again, if they do pass it, if it is retro, that would be upside.

Perfect. Yeah. What could go wrong in Washington, right? Just a final question, Matt, I'm really curious to see if you have any detail you could share with respect to the purchasing behavior of our customers that are pick a point in time, 2 years into the brand and longer. I'm really curious to understand how that purchase behavior evolves once that initial introduction happens, and maybe it's around Drinkware or one cooler, how does that evolve after maybe that initial set of purchases occurs?

Thanks, Camilo. Yes, I would say a couple of things. Without kind of talking the specifics of how the groupings that we're creating, which would imply that we got pretty good - we're building pretty good ideas about how consumers behave. We see some really interesting things, and we've said this even before we had the capabilities to really refine it that YETI owners tend to be multiples owners, and the deepest YETI owner, not surprising, we tend to own across product families, and that their passion build for the brand as they go deeper and as they go broader, really increases. One of the things I would say that we've seen that's been really interesting is that as people enter the brand regardless of which product family they start with, whether it's a $35 Rambler or a $350 hard cooler, they tend to go deeper before they go broader. And it's a really - it's an interesting thing that we've learned, and this allows our marketing team to think about how they communicate to the consumer as they're re-entering the funnel or reiterating the purchase consideration. So those types of insights have changed how we communicate and ultimately - as we indicated in the prepared remarks, it will ultimately help drive the personalization of and the individualization of our web experience. And so there's a lot of nuance in detail below it. But we like both the insights we're having and the affirmation of things we thought that we're now backing with data, and then the actions almost, real-time actions we can take behind it.

Perfect. Good luck in '22. Thanks, guys.

Thank you.

Thank you. We take the last question from the line of Kimberly Greenberger with Morgan Stanley. Please go ahead.

Great. Thank you so much. Good morning. I wanted to ask surprise about inventory supply chain as well, sorry to beat this dead horse here. I'm wondering it seems like the reaction that has been necessary to the slow – the slowing of the supply chain is just to basically plan for a little bit more safety stock in your inventory. And I'm wondering if you can look forward as inventory or as supply chain begins to catch up, is your plan then at that time to sort of ease back on your inventory orders in order to prevent an over inventory situation once we get caught up on supply chain? Or how should we think about the inventory plan, and how it evolves after supply chain gets caught up? Thanks so much.

Great question. So the short answer is yes, we would expect that to normalize. And the way we think about it is, the in-transit inventory will, if supply chain normalizes, as you said, the in-transit inventory should go back to a normalized in-transit amount. And then our inventory should grow at or slightly below or maybe even slightly above based on new product launches, our sales. So it should be closer tied to our sales. Now on a 2 year basis, our inventory is up 31%. Our overall, sales were up 24%. I will tell you, Kimberly, excluding freight, our product inventory is up 24% on a 2 year basis, and our sales were up 24%. So even - once you start peeling it back, and part of it is the freight, the GSP duties that are all baked into my inventory balance, it is more aligned. But the short answer is, as transit times reduce, if they go back to whatever normal is, our inventory balance would also reduce and really driven by that in-transit inventory.

Okay. That's super clear. Thanks for that, Paul. And just my follow-up is, on the adjusted EBIT margin guidance for 2022 of 20%, can you give us the equivalent EBIT margin on a GAAP basis? Thanks so much.

Yes. We had that in the press release. So I apologize for the flipping of the pages as you hear it here. So the adjusted operating on a GAAP basis is approximately 18.5%, which is an increase of 13% to 15%.

Thank you.

You're welcome.

Thank you. Ladies and gentlemen, we have reached the end of the question-and-answer session. And I'd like to turn the call back to Matt Reintjes for closing remarks. Over to you, sir.

Thanks, everyone, for joining us this morning. Look forward to speaking to you as we deliver our Q1 2022 results.

Thank you. This concludes today's conference call. You may now disconnect your lines. Thank you for your participation.