YETI Holdings, Inc. (YETI) Q4 2021 Earnings Report, Transcript and Summary

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 by finding the right balance between investment against cost pressure. Overall, we believe this performance reflects what would be considered a tremendous growth story in any environment, let alone one that has included 2 years of a pandemic, pervasive supply chain disruption and the emergence of significant cost pressure. I'm incredibly proud of the passion, effort and execution by our YETI team, our channel partners and brand friends that make us who we are. We believe our performance in this environment speaks to the power of the YETI brand the connections we build, and the deep relevance and trust associated with our products. But it all starts with demand. We have a growing database of new and existing customers that are exhibiting high repeat purchase rates and strengthening AOV, driving our customer lifetime value. Building upon this trend, our focus remains, continued product innovation, balanced with awareness of the existing portfolio, ongoing inventory replenishment to ensure optimal customer experiences, and application of rapidly expanding analytical intelligence to drive acquisition, conversion and retention. I'll discuss some of these efforts in more depth shortly. Our confidence going into our fifth year as a public company is reflected in our preliminary 2022 net sales outlook, which calls for 18% to 20% growth, ahead of the initial outlook we provided to start last year. Backed by expected strength in our top line, we are taking impactful actions as a partial offset to the significant cost pressures that have emerged throughout 2021, particularly in transportation, duties and raw materials. As discussed, we have recently implemented strategic price increases that are designed to absorb some of the cost pressures impacting our cost of goods, while continuing to retain our premium positioning and price consistency throughout our portfolio. In addition, we are actively managing our spending, recognizing the balance between supporting a high growth brand while effectively managing directly controlled expenses. This holistic approach equates to what we believe is a continuation of very strong adjusted operating margin of approximately 20%. While it would be difficult to predict how some of these headwinds will evolve through the year, we believe we have taken a prudent approach regarding the potential impact on our results. As we focus on the growth and expansion of the YETI brand, let me provide a few highlights for the fourth quarter and some of the initiatives that will guide our efforts in 2022. We continue the brand building strategy of depth and breadth by balancing brand reach, deep endemic engagement and innovative product storytelling. Starting with brand. We approached the holiday season with The Mightier the Merrier campaign that merged the power of the brand with product. We emphasize that our products used in the pursuit of adventure can create some of the merriest moments and memories. The campaign leveraged a series of micro videos across social, the creation of gift guides, and even the debut of our Yeti design Mighty Nutcrackers. If you happen to miss these, they live on our December 14 Instagram. While those Nutcrackers were not sold as a product, it is a great display of the talents of our brand, content and product design teams, creating moments of engagement. The video has received over 430,000 views. We also distributed our seasonal YETI Dispatch magalog to 1.9 million customers and prospects. We continued our tradition of merging the print and digital world by bringing print content to life across our digital channels. This semiannual mailing remains a highly effective tool in reaching and converting both brand fans and prospects, driving deep engagement across our product portfolio. Several areas will be the focus for 2022. Activating our brand globally by building a diverse network of brand ambassadors and supporting a wide range of passion-based activities, pursuits and organizations is a core tenet of this strategy. Included in this is our second year partnering with the Natural Selection snowboarding [ph] series, which kicked off last month in Jackson Hole, and continues next week at Baldface in British Columbia. Natural Selection received coverage on a number of linear TV and streaming services around the globe, including Red Bull TV, a variety of YouTube channels, Tencent, and will soon be featured February 27 on ESPN. We continue to build the brand from the center with an inside out approach to reach. We remain committed to those who have known us since 2006, and equally engaging to those who just discovered YETI this past holiday season. Our audience is becoming more global and diverse so our media, brand building and partnerships will bring the same richness as always, but intersect with our growing audience in new meaningful ways. As we think about product, the fourth quarter story was pretty straightforward. Demand for the brand and product outstripped our supply to support it. When demand met inventory, we saw excellent results. Our product messaging focused on driving greater awareness to a growing customer base that is still discovering the breadth of our existing assortment. Looking to 2022, as I mentioned, we recently implemented strategic price increases across select items in our Drinkware and Cooler categories. These decisions were highly considered based on how our product portfolios have evolved and the continued investment we have made in our products over the years. Shifting to new product introductions, spring launches commence next week with new seasonal colorways and product extensions in bags and soft coolers. As always, our color stories are inspired by the wild around us, and will debut with Bimini Red [ph] and Offshore Blue. In bags, we will continue to build upon the outstanding success of our highly regarded Camino Tote that has generated over 3,500 reviews with an average rating of 4.8 out of 5 stars. The newly extended Camino family will add a smaller and larger version to increase the range and use cases. Later this spring, we're introducing two significant new soft coolers. First, we are excited to update our tote soft cooler with a new magnetic closure that emphasizes usability and accessibility for customers. We are also launching the next generation of our wildly popular backpack cooler that includes a new and innovative magnetic closure system, much more to come in product as the year progresses. Our fourth quarter historically trends heavier DTC, which performed very well, delivering 21% growth on top of last year's 46% growth. DTC in the quarter reached 60% of mix of our business for the first time. This was driven by strong growth in our global e-commerce sites, YETI retail stores and corporate sales, somewhat offset by our performance in the Amazon Marketplace due to supply availability challenges late in the holiday buying season. At the same time, we remain very pleased with the broad performance of our wholesale partners, even as we continue to work towards the desired inventory positions across the channel to take advantage of the demand potential. Taking a closer look at the DTC channel, our fourth quarter YETI.com business remains strong overall. We were particularly excited to see an acceleration of new customer acquisition during the quarter given the sizable gains registered in 2020. We are also seeing strong retention of that large inflow of new customers from last year, while increasing reactivation of older customers. Finally, we see very high quality transactions with revenue per customer experiencing double-digit growth year-over-year. The integration of our data, e-commerce and marketing teams is an important building block in this success. We have a growing ability to leverage this data, to better inform our marketing activation and drive our retention and acquisition efforts. This is influencing how we move customers through the funnel and towards individualizing our e-commerce journey. As we have discussed, we have a planned evolution of YETI.com to an enhanced mobile experience. With nearly three quarters of our traffic coming from mobile devices, it has never been more opportune to offer a dynamic solution to drive engagement and conversion. We have successfully debuted this new platform in Canada for our YETI.ca customers, and plan to convert our YETI.com site later this spring. In corporate sales, the brand remained highly sought after for corporate gift giving and holiday occasions with strong growth on top of the demand in the year ago period. This year, we will continue to focus on the successful outbound sales structure implemented in early 2021, while also cultivating many of the relationships that have already been established. YETI retail stores continue to be a powerful and profitable force for our brand and product portfolio. As previously mentioned, our focus last year was on increasing productivity, merchandising and service, while also adding Q4 new openings in Houston and Scottsdale. With three additional locations already planned in 2022, we are leveraging our data intelligence to drive informed site selection and prioritization. Demand in our wholesale channel was strong throughout the quarter, highlighting the importance and strength of this channel at all levels. As discussed last quarter, we reduced our independent wholesale footprint to approximately 3,000 target accounts, which we believe helps focus our efforts on very high caliber retail to drive consistent, high-quality experiences for our customers. As has been our practice, we continue to look to strengthen the wholesale channel with a focus on many of the incredible and long-standing partnerships we have developed across the independent, regional and national account levels going back to 2006. Consistent with that effort, we have made the decision to thoughtfully wind down our relationship with Lowe's. To be clear, Lowe's has been a great partner, and has worked closely with us as we have continuously experimented with how to best serve their customers and shopper patterns. However, as we have evaluated our growth areas, our focus and optimization mandate and the current supply constraints, we ultimately believe we can be more productive, better serving our YETI customers across our strong existing wholesale partnerships, our owned direct channels and our growing international opportunities. We do not expect any material impact from this change as we fully reallocate inventory to support demand across the previously mentioned channels. YETI's international business reached nearly 10% of sales for the quarter, a new high for the company, and closed 2021 at 9.5% of sales compared to 6.1% in 2020. We made great progress in our international markets during the year, building brand momentum, expanding distribution and increasing our localization efforts, all while facing limitations of inventory and varying COVID disruptions. Our team in Canada continues to perform extremely well across both direct and wholesale channels, and we have a set of initiatives to sustain our momentum throughout 2022. Similar to Canada, our Australian team is executing at a very high level and easily outpaced expectations in 2021 despite some of the heaviest COVID restrictions and lockdowns. In the year ahead, we will accelerate brand activation through local events and ambassadors, enhance our go-to-market execution and build deeper penetration in urban markets. I recently had the opportunity to spend a week with our UK and European team reviewing the outstanding progress with our local market e-commerce sites at a number of our new wholesale and brand partners. I left with continued enthusiasm and conviction on how the brand and products are being received by the market and the opportunity in front of us. Our focus this year will be on driving deeper e-commerce penetration across the region, further development of localized go-to-market wholesale strategies and more investment in brand building in the key markets of Germany and the UK. What I saw in action is that replicating our US, Canada and Australia playbook of how to build the YETI brand is working. Late in 2021, YETI published its inaugural ESG report. This is a natural extension of YETI as it ties into our heritage of durable products, our focus on people, internal and external to YETI, and our long-standing partnerships in conservation. Leveraging work that has been completed since our founding in 2006, we have now formalized our strategy across three interconnected areas of people, product and places. We have a great foundation to play a larger role in keeping the wild, wild. Overall, we are incredibly enthusiastic about all we accomplished in 2021 and since our IPO in 2018. Most importantly, we are energized by what we see on the pathway ahead. Every day, we are reaching more customers, introducing them to incredible products and doing so in uniquely YETI ways. In addition to planning for growth, we expect to deliver strong profitability through thoughtful management of our P&L, allowing us to absorb the confluence of inflationary headwinds while making strategic investments to support growth in 2022 and beyond. As always, the commitment and perseverance of our team is at the center of this success and opportunity. Their collective efforts and the passionate engagement of our customers is what allows us to deliver strong and consistent results. With that, I'll turn it over to Paul to review 2021 and our 2022 outlook.

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 sales. Wholesale net sales increased 13% to $179.2 million compared to $158 million last year. Our wholesale performance was primarily driven by Drinkware given the stronger relative inventory positioning for the period. Consumer demand was solid throughout the quarter. For the full year, wholesale net sales increased 23% to $626.3 million. By category, Drinkware net sales increased 21% to $285.6 million compared to $235.7 million last year. We continue to see broad-based demand across our Drinkware portfolio, including strong momentum in some of our newest offerings like our 20 and 30-ounce travel mugs, in our larger size bottle offerings. Customization remains a powerful driver as we leveraged increased capacity to capture higher demand across YETI.com and our corporate business. For the full year, Drinkware net sales grew 32% to reach $832.4 million. Coolers & Equipment net sales increased 13% to $151.6 million compared to $134.3 million during the same period last year. We remain encouraged by the continued demand we saw for both hard and soft coolers even as inventory availability remains constrained across channels. Notably, the performance of our BackFlip, Backpack cooler remains outstanding, which we believe is a great sign as we introduce our next-generation product this spring. In bags, our efforts to build deeper category awareness were supported by the continued success of our updated Camino Tote, more consistent inventory within our Crossroads collection, and integration across our holiday messaging. Overall, Coolers & Equipment net sales for the full year increased 24% to $551.9 million. Internationally, net sales grew 62% to $43.5 million, representing nearly 10% of total net sales. For the quarter, we saw very strong contributions across Canada, Australia and Europe. For the year, international sales grew 102% to reach 9.5% of net sales compared to 6.1% last year. Gross profit increased 13% to $254.8 million or 57.5% of net sales compared to $224.8 million or 59.8% of net sales in the same period last year. Compared to the same period in 2019, gross margin has expanded 300 basis points. Compared to the 2020 period, the 230 basis point year-over-year contraction was driven by the following unfavorable factors, 170 basis points from higher inbound freight, 90 basis points from higher duties related to the expiration of the GSP program at the beginning of the year, 80 basis points from increased product cost, and 30 basis points from all other impacts. These headwinds were partially offset by 130 basis points from lower inventory reserves and 10 basis points from channel mix. Full year gross profit increased 30% to $816.1 million, expanding 20 basis points to 57.8% of net sales. Adjusted SG&A expenses for the fourth quarter increased 10% to $155 million or 35% of net sales compared to $140.3 million or 37.3% of net sales in the same period last year. The 230 basis point decrease as a percent of net sales was driven by the following, non-variable expenses decreased as a percentage of net sales by 290 basis points, primarily driven by lower planned marketing expenses following more concentrated spending efforts in the year ago period. Variable expenses increased as a percentage of net sales by 50 basis points, primarily driven by higher fulfillment and logistics costs. Full year adjusted SG&A expenses increased 29% to $521 million, decreasing 20 basis points to 36.9% of net sales. Adjusted operating income increased 18% to $99.8 million compared to $84.5 million last year or 22.5% of net sales, which was flat to the prior year period. Compared to the same period in 2019, adjusted operating margin has expanded 440 basis points. Full year adjusted operating income increased 32% to $295.1 million, expanding 40 basis points year-over-year to 20.9% of net sales. Our effective tax rate was 21% during the quarter compared to 23.1% in last year's fourth quarter, with the lower rate, reflecting a discrete income tax benefit related to stock compensation. For the full year, our effective tax rate was 20.8%, also reflecting similar discrete income tax benefits recognized throughout the year. Adjusted net income increased 19% to $77.4 million or $0.87 per diluted share compared to $65.2 million or $0.74 per diluted share in the prior year period. Full year adjusted net income grew 39% to $227.8 million or $2.57 per diluted share. Now turning to our balance sheet. Our fourth quarter cash position increased to $312.2 million compared to $253.3 million in the year ago period. Inventory increased 128% to $318.9 million compared to $140.1 million during the same quarter last year. Inventory growth on a 2 year compound annual growth basis was 31%, in range of our expectations and more in line with our sales 2 year compound annual growth rate of 24%. Approximately two third of the inventory growth rate for the period was related to a combination of higher in-transit inventory given the extended lead times from ongoing supply chain disruptions, as well as the impact of higher inbound freight costs. Looking at just product inventory, which excludes the impact of freight. More than 50% of our product inventory was in-transit at quarter end, which we believe highlights the quality of our overall inventory position. Total debt, excluding unamortized deferred financing fees and finance leases, was $112.5 million compared to $135 million at the end of last year's fourth quarter. During the quarter, we made principal payments of $5.6 million. Now turning to our fiscal 2022 outlook. We expect full year net sales to increase between 18% and 20% compared to fiscal 2021, above the high end of our long-term target. This includes our expectation that our pricing actions will add approximately 200 basis points of growth. Within this outlook, we expect wholesale growth to be low double digits, above our long-term growth target of mid single digits, reflecting ongoing demand and improved stock levels across the channel. We expect our direct-to-consumer channel will outpace wholesale, and grow in line with our mid-20% target. By category, we expect Coolers & Equipment to grow faster than Drinkware supported by higher relative weighting of new product launches during the year, as well as our ability to more fully meet the strong consumer demand we have seen in the category. Looking at cadence, we expect solid growth throughout the year, with the first quarter growing at or just slightly below the low end of our full year range. On the margin side, we expect gross margins of approximately 55% for the year, down from the record 57.8% level in 2021, but still 300 basis points above 2019 pre-COVID levels. This outlook includes a full year impact of significantly higher inbound freight costs of approximately 280 basis points. We expect to see greater input costs of approximately 130 basis points, given the 2021 ramp in costs across key raw materials like stainless steel and resin. We also believe we will see approximately 30 basis points of incremental GSP impact. Partially offsetting these headwinds, we expect benefits from our pricing actions of approximately 125 basis points and all other impacts inclusive of channel mix of roughly 35 basis points. From a cadence perspective, we expect the margin impact will be most pronounced in the first quarter with a rate down approximately 500 basis points year-over-year. We then expect gradually less year-over-year headwinds as we move through the balance of the year. As we indicated last quarter, we are prioritizing SG&A expenses this year to help offset some of the gross margin headwinds I just discussed. To be clear, we are still investing to support both the short term and long-term strategic initiatives as we expect adjusted SG&A dollar growth to increase low to mid teens for the year. Within SG&A, we expect variable expenses, tied most directly to our direct-to-consumer channel, will grow slightly faster than sales given the combination of higher outbound cost and overall direct-to-consumer mix as a percentage of sales. Therefore, overall expense leverage to approximately 35% of net sales will be driven by non-variable expenses, largely a function of our strong top line growth of 18% to 20%. From a cadence standpoint, we expect the expense rate will be roughly flat year-over-year for the first quarter before trending lower year-over-year for the balance of the year. Overall, we expect a slight decline in adjusted operating margin to approximately 20% for the year, primarily given the timing of the gross margin impacts, we expect margin rates will be under the most pressure in the first quarter before improving sequentially throughout the balance of the year. Below the operating line, we expect an effective tax rate of approximately 24% for fiscal 2022, above the prior year's 20.8% rate that benefited from discrete income tax benefits each quarter. Based on full year diluted shares outstanding of approximately 88.9 million, we expect adjusted earnings per diluted share to grow 10% to 11% to between $2.82 and $2.86 compared to $2.57 in fiscal 2021. Notably, this includes an $0.11 impact from the higher year-over-year effective tax rate. Primarily given to the timing of the gross margin impacts, we would expect adjusted earnings to be down year-over-year in the first quarter, up slightly in the second quarter and returning to strong growth in the second half of the year. We expect capital expenditures of approximately $60 million, with roughly two third of these expenditures focused on investments in new innovation, and expanding capacity of existing products. Technology investments will continue to be focused on data analytics and systems. In summary, we had an exceptional 2021 across virtually every measure. We are now focused on building upon those successes and strategically managing our business to drive demand throughout 2022. We are facing the continuation of many of the cost challenges that emerged throughout 2021, requiring us to prioritize focus and investment where it has the greatest impact. We believe this prioritization will deliver near record operating margins, further fortify our balance sheet, and support our ability to drive broader brand demand and passion for years to come. And with that, I would now like to turn the call back over to the operator to take your questions.

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.