Greetings and welcome to YETI Holdings 1Q 2022 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 would now like to turn this conference over to your host, Mr. Tom Shaw, Vice President of Investor Relations. Thank you sir, you may begin your presentation.

Good morning, and thanks for joining us to discuss YETI Holdings first quarter 2022 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, 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. YETI's first quarter results highlight the strong, resilient consumer demand that has been an consistent hallmark of our brand, as well as showing you outstanding execution by our team. We are particularly encouraged with the all around performance of the business amidst the ongoing challenges and unpredictability of the current environment. This success continues to display our ability to quickly adapt and remain nimble without losing sight of our near-term execution and long-term growth. This balance of execution and action is why we are on track to deliver another strong year of growth and profitability. As we navigate both the opportunities and challenges in 2022, the core of our diverse growth strategy remains strong. The combination of our direct, wholesale, corporate and global channels to market gives us unique and varied ways to stoke consumer demand. As we look towards the second quarter and back half of 2022, we are focused on delivering brand and product innovation to our customers, building deep brand engagement with new and existing customers as we expand our powerful depth and breadth marketing efforts, accelerating our unique omni channel strategy including a comprehensive data-driven approach to build strong engagement from acquisition through retention, and finally exploiting untapped international growth by capitalizing on the momentum we have created outside the United States. Looking at our first quarter financial highlights, our net revenues increased 19% continuing a consistent trend of strong top line growth since 2019, delivering a three-year compounded annual growth rate of 24%. Included in this quarter's performance, we drove double-digit growth in both our product categories and across both our channels, while our international business reached a record high of nearly 13% of overall sales. As anticipated, adjusted operating margin was in line with expectations even against higher gross…

Thanks, Matt. YETI delivered first quarter results that were slightly above expectations as we continued to drive strong demand for the brand while managing the ongoing cost pressures in the market. Let me start by reviewing the details from the quarter, followed by our updated outlook and then open the call for your questions. First quarter sales increased 19% to $293.6 million compared to $247.6 million in the prior year period. Growth was above plan and was particularly impressive against the 42% growth experienced in the year ago period. Direct-to-consumer sales grew 23% to $156 million, compared to $126.8 million in the same period last year. Direct-to-consumer performance was led by our drinkware category and strength across our own YETI properties. Overall direct-to-consumer mix increased to 53% of sales for the period compared to 51% last year. Wholesale sales increased 14% to $137.7 million compared to $120.8 million last year. Our wholesale performance was balanced across both coolers and equipment and drinkware. By category drinkware sales increased 24% to $184 million, compared to $148.9 million last year. New colors continue to generate category excitement, and we continue to see traction with our 2021 introductions, including our travel mugs and our 26 ounce straw cup. In addition, customization continues to amplify the entire category, with strong demand from both yeti.com customers and across corporate sales. Coolers and equipment sales increased 10% to $103 million, compared to $93.5 million during the same period last year. Demand was strong for most of the broader category, including hard coolers. As Matt mentioned, early receptivity to new products, like our soft coolers and Camino totes has been strong as we have ramped up marketing support and are now moving more fully into the wholesale channel. Internationally, sales grew 45% to 37.4 million, compared to $25.8…

[Operator Instructions] Our first question comes from the line of Peter Benedict with Baird. You may proceed with your question.

Hi guys, good morning. Thanks for taking the question. I have two, the first just can you talk about, maybe give some color about your ability to get drinkware and other products out of China right now, obviously a lot of disruption there? And then Paul, maybe how the uptick in stainless steel prices may be impacted to your view on product margins, it doesn’t sound like this year there's any impact, but I don’t know if there's any thoughts on maybe 2023, but just curious on that?

Thanks Peter. When we think about the drinkware coming out of China as you heard in our prepared remarks and Paul's comments, we feel great about the inventory flow you have and the relationship we have with our factories and so with disruptions have been talked about recently, we haven’t seen any impact to our drinkware suppliers and continue to have a good flow of inventory both per what we've brought in, in the beginning of this year and what we continue to flow for the rest of the year.

And then good morning peter and following on to Matt's comments with that relationship, with our suppliers, we really and we've talked about this in the past, we leverage our volume and really help with product costs. So as we look out, we have incorporated product costs headwinds into this year and don’t see anything incremental even from when we spoke in February.

Okay and that's all from that. Excuse me, Just a followup and what are you guys seeing from a demand elasticity standpoint? It doesn't sound like there's much, but as you maybe go through the portfolio or the regions and obviously there's a lot of talk about consumers starting to bulk at maybe some higher ticket stuff, so maybe talk a little bit about that, have you seen anything and is your view for this year just that you're not going to see any or do you have a little bit baked in and you just think you can offset in other areas? Thank you.

Peter, yes this is a great question. I think as we think about the business, one of the things that we've consistently talked about in the past and in Q1 would be no exception is that we're continuing to see good growth across our regions domestically. We obviously have the international growth, which continues to perform very well and in those markets, and some of those newer markets is providing some great growth and great foundation for the business. As we think about across the channels, one of the benefits of the diversity of our channels to market between our direct-to- consumer, which is inclusive of our corporate sales, our Amazon Marketplace, our yeti.com, and then you add in the diversity of wholesale partners, incredible wholesale partners that we have, that gives us access to a lot of different purchase occasions with consumers, we feel good about the demand creation opportunity we have across that spectrum. And in total, they're performing very well and across those individual pieces, they're performing well. And as we look through the rest of the year, like we do every year, if there's certain areas that are underperforming, we have other areas that that can outperform. And so, we look at it as a portfolio approach to our channels to market. We look across our product portfolio, and I would say, as you see in these numbers, coolers, equipment and drink will both continue to perform in the quarter, and we expect that through the rest of the year. : Okay, great. Thanks so much guys, good luck.

Our next question comes from the line of Brooke Roach with Goldman Sachs. You may proceed with your question.

Good morning and thank you so much for taking our question. Matt, I'd love to hear a little bit about how you're thinking about the competitive backdrop for YETI and YETI products in each of your key categories. Where do you believe YETI has the most opportunity to gain market share or mindshare among your consumers this year and into 2023?

Thanks, Brooke. We think about the markets in which we operate, and this goes all the way back to 2006 when YETI started. We think more about growing markets than a game of share. And the reality is, I think over 15 plus years, we've shown that that we actually can expand consumer consideration. We can draw people in based on the premium durable nature of our products. And so when I think about the portfolio, the growth, the continued growth opportunity, we have strong Q1 in hard coolers, you know, 15 plus years into selling high end premium, durable hard coolers. As we talked about, during our remarks it continued to drive innovation in our soft coolers, which we think is an incredible opportunity, both domestically and internationally as we expand into new markets. And then you think about the evolution of our drinkware portfolio and moving through different occasions and in different uses and penetrating deeper into consumers lives and how they use it from morning coffee to evening cocktails and hydration in between. So we like we like what's going on in our tumbler business. We like -- we really like the opportunity within bottles and the continued kind of focus on individual personal consumption and hydration. So, I think there's things from our perspective as we think about market growth and attracting new consumers and retaining consumers that we'd like about the portfolio we have today.

Great, and then maybe a followup for Paul, on the gross margin, you mentioned that pricing actions are now anticipated to be a little bit better than what we had discussed a few months ago. Can you discuss the drivers of your improved confidence on pricing contribution to margin this year?

Yes, good morning. So part of it is what we're seeing in the first quarter. So the impact was about 140 basis points and we had two of the three months of the price increase. And this is one of those, it's a little tricky of elasticity. So we know we had an estimate in there. It was a little bit better on the pricing. So originally we said about 125 basis points for the full year. We got 140 in the quarter after two months. So it's really, this is while we don't change prices a lot we've put, we put out an estimate and it came in a little bit better than expected.

Great, thank you so much. I'll pass it on.

Our next question comes from the line of Randy Konik with Jefferies. You may proceed with your question.

Yes, thanks a lot. I guess some questions for Paul. Can you just, Paul can you just go back over the supply chain costs and the freight rates, you talked, can you be a little more specific on what you're seeing on the spot and contract trends in the market there? Can you just give us some perspective there just curious? Thanks.

Yes, so Randy, I won't give you a lot of specifics, but what I will say is, coming out of last year's when, in February we said we kind of held rates and we expected them not to get any better or any worse. As we've gone through the first quarter and looked at contract rates and spot rates, we are seeing some lower rates, I was going to say softness, but lower rates, which is a good sign now to my prepared comments, that will take a while to work through the -- come through the balance sheet and into the P&L. So that's really Q4 and into next year, but we are seeing some opportunity to lock in some rates and the spot market is -- has ticked down a little bit, which is good.

Got you. And then I just, I guess, on you mentioned balance sheet, I wanted to ask about thoughts on balance sheet cash flow, because you guys produce a ton of cash flow. And when I look at the CapEx guidance for the year, I think around $60 million, if you look at the last few years, the average has been, I think, around $30 million. So just curious on where we are in your kind of CapEx cycle and with the sales growing, the margin staying firm, the amount of free cash flow is going to be -- is super impressive. So just wanted to understand how you're thinking about the remaining debt on the balance sheet? What you're going to pay down or not pay down? Where do you think let's you feel comfortable with leverage? You just completed a share buyback, just wanted to get your thoughts on where we are in the CapEx cycle and how you are kind of thinking about deploying free cash over the next few years? Thanks, guys.

Yes, thanks Randy. So on CapEx, this year we have reiterated the outlook of about $60 million. Last year, we were about $56 million and then in 2020 we were significantly lower because of everything that was going on. You know, I would say, if you think about our CapEx, about two thirds of it goes to technology and product innovation and that product innovation is both for new products and increasing capacity. So I like where we are in that $60 million range. We do produce a lot of cash to your point. We expect to produce about $125 million of free cash flow this year. Again, our cash, capital allocation hasn't changed. You know, we've talked about we're using it for working capital, rebuilding inventory, investing in the business, select M&A that Matt has talked about several times and then we did on an opportunistic basis do the share buyback this year.

Great. Thanks, guys.

Thanks, Randy.

Our next question comes from the line of Robby Ohmes with Bank of America. You may proceed with your question.

Well, good morning. Thanks for taking my question. I wanted to follow up on wholesale. I think Paul, you mentioned soft coolers and Camino totes. Moving more fully into wholesale can you can you talk about the strategy there? Maybe Matt could chime in on that. And also we would be, just be curious, any color you can give us on what wholesale customers are doing different in this environment? If anything, are they looking for anything different from YETI, given the inflation or anything like that? And also, I think you guys mentioned the hard coolers strength in the first quarter. Any color on sort of wholesale shipping versus sell through, so is this strength in sell through or is it somewhat shipping because you guys were -- the channel was so short on your hard coolers?

Hey, Robby, thanks. I'll take the first question and then I'll touch on the last one and the middle one on wholesale customers, I'll hand over to Matt. So on soft coolers and Caminos and bags and the wholesale, so we had planned the transition of the two soft coolers and the addition of the two sizes of Caminos in Q1 and as we came through the end of last year you remember the Vietnam shutdown, what that did on soft coolers is it limited my Gen 1, so before the new units came out, it limited the number of Gen 1 that I had. So as I came into this year the wholesale channel, even my direct-to-consumer channel was very low on inventory. My newer releases, I released in direct-to-consumer first and then as I built inventory, they just started moving really at the end of the quarter and into second quarter into the wholesale channel. So that were filled throughout the year. But a lot of that was kind of back last summer when Vietnam shutdown and that kind of tail. On hard coolers, we have seen for the company, we were plus 10%, we've seen great sell through. Coolers and equipment was plus 10%. We've seen great sell through and some selling of reloading the channel. But it was a strong quarter for hard coolers in particular and we wanted to parse that out with the soft cooler dynamic going on.

Robby, and then to the conversations we're having with our wholesale channel, I would say they've been very good, and it's the continuation of the strategy we talked about last year, which was looking to continue to optimize the partnerships, make sure we have strong representation and strong merchandising. So I would say the dominant topics of the conversation are getting inventory back to levels pre-2020 so that we can merchandise the shelves and display the breadth of the portfolio. And I would say our wholesale partners continue to be really innovative with us on how we get the brand represented and how we get the assortment put out there. So I would say they are really, have been very, very positive conversations about how we think about taking advantage of this year, particularly in those gift giving seasons in Q2 and Q4 and then making sure that we're well merchandised through the rest of the year.

That's great color. Thank you so much.

Our next question comes from the line of Sharon Zackfia with William Blair & Company. You may proceed with your question.

Hi, good morning. On the movement of bags into wholesale and the tests that you're doing there in the second quarter, can you talk about what partners you're using, and whether that's designed to reach incremental targeted demographics or just generally raise awareness? And I'm also curious now that we've got kind of more normal consumer mobility, how you feel about your own stores as brand amplifiers, and how that strategy is likely to unfold maybe over the next two to three years?

Thanks, Sharon. On the bags what we've decided to do to kind of tie your two questions together, it actually ties into the second question around the stores. What we've seen in our stores, and I mentioned this in my remarks is that consumer selection and consumer discovery and ultimately consumer transaction, the basket is slightly different in our stores than we see in even our dot.com and then our wholesale. And bags is one of those things that what we saw was that when consumers get a chance to interact with the product, to feel the durability and quality, to see the ergonomic design, to understand the product that it performs differently, although they perform very well on dot.com, we see it rank higher or rank differently. And so what we decided to do was, we identified a select number of national accounts and independents to go do a small test of, do we see that same dynamic continue to play out in the wholesale channel. And so it's a small test of what we consider very high quality doors from the national accounts to the independents. So yes, it gives reach, yes, it gives awareness, yes it brings some diversity of exposure. It's as much to inform what future rollouts could look like. So we feel great about using that. We also feel great that this was a learning that we had from having a select number of our own YETI retail stores. And as I mentioned, they continue to perform as great brand beacons and in the consumer engagement and the flow and using those, as I mentioned, places of commerce where we see really, really positive transactions, really positive discovery. And we also get the opportunity to use them as exposure moments to the brand. So I mentioned South by Southwest. In Austin, we do activations and as the world continues to open up and mobility opens up, we'll have the opportunity to use our stores more and more as brand activation moments combined with commerce.

Our next question comes from the line of Camilo Lyon with BTIG. You may proceed with your question.

Thank you. Good morning, everyone. I have two questions, Paul, number one just on your gross margin comment and pricing as it pertains to Q2. So if I'm thinking about this correctly, I think you guided the Q2 margins down 400 and change basis points. And that's worse than the Q1 margin decline when we strip out that incremental freight invoice, yet you have a full quarter of pricing benefits that have come in a little bit stronger than you anticipate. So if you could just help me understand why Q2 margins should be worse than the normalized Q1 margins when excluding the freight component? And then I have a follow up.

Yes, so a couple of things and the main one is those, the freight piece that we talked about that related to last year, the 220 basis points. There was also some impact, those were late trailing invoices, some of it related to Q4 of last year, some of those went on to the balance sheet and will go off in the balance of the year, and mainly impacts Q2. So freight also got worse in Q2, overall. So our perspective on freight for the year is more headwind above and beyond the non-reoccurring charge, and that is offset by some better pricing outlook and everything else is pretty much in line.

Okay, got it. Thanks for that clarification. And then my second question goes to the health of the consumer. And maybe if you can, maybe Matt, if you could just share more about your customers purchasing behavior and how that's actually evolved over time, as you've expanded nationally? And within that, have you seen a change in the composition of basket size or any sort of indication that there's a trade down or some sort of reflection of potential deceleration in the way that consumers are purchasing because of external inflationary pressures?

Yes, Camilo, I'd say a couple of things. We actually are seeing a dynamic play out, which is an increasing quality of our customers. One of the benefits of the investment we made really early in the pandemic was this investment behind our advanced analytics team. And so, the ability to actually quickly discern and understand what's happening as it relates to customer acquisition, customer retention, the value of those customers, and the dynamic we've continued to see is really, really high quality and increasing value in our customer acquisition and in our retention, strong growth and really good ability to reactivate older cohorts. So I think that not just the intelligence to be able to actually see those results, but that we're actually able to use that and then affect the way we deploy our performance marketing and our demand creation behind specific groups. And so, I would say, sitting here through the through the first quarter and from the momentum we had last year, we continue to see a really high quality consumer for YETI.

Hey, thanks for the color. Good luck.

Our next question comes from the line of John Kernan with Cowen. You may proceed with your question.

Excellent, thanks for taking my question. Good morning. Matt, prior question, I think went into some market share commentary, wondering if you could follow up on that? And just if you have any metrics on household penetration and brand awareness in the heritage and non-heritage markets and how that's changed as you've scaled to pushing $1.7 billion in revenue this year?

We use and publish this every -- we have this published in our investor deck which shows our unaided awareness and how that's progressed through time. That's obviously an area of focus as we're building the brand halo above the performance marketing that ultimately drives the transaction or the consideration to the transaction. So, we like the pacing with which we've seen and it's particularly in the U.S. market where we have the best data today, where we've seen the penetration of awareness. And then ultimately, as I had just mentioned, the ability to once we take someone from awareness to consideration to the purchase, to reengage them, and bring those existing cohorts back from a retention perspective. As we look at the dynamics that we've seen play out in the U.S., outside the U.S., we're still very early in that. So that is a significant opportunity for driving awareness, driving growth with a portfolio that over the last five years being active in Canada, Australia, we've shown is relevant, and can be a growth driver beyond the strong growth we continue to deliver in the U.S. As we think about penetration, one of the things that we look at is, are we penetrating deeper with our consumers and deeper into their lifestyle? And so if you look at the evolution of our drinkware business, it's really been about how do we find more opportunities to be with a consumer throughout their day and create more occasions for them to engage with YETI with the same promise of the durability, performance, design of our products. And so when we look at the opportunity, that's when I talk about expanding markets, not -- we're not operating in finite markets and we're playing a share game, we're actually blowing the parameters of the market and trying to really drive deeper into the consumers lifestyle, and we take that same philosophy across our product range.

Very helpful, thank you. And then maybe a follow up for Paul. International, if it continues its current run rate is going to be pushing $200 million a year, and I'm just curious how we should think about International and the scaling of the International business as we get into 2023 and beyond?

Yes, so we've talked a lot about International and what we've said is, there's no reason International in this business over the long-term shouldn't be north of 20% of our business, and we really like the growth that we're seeing in our International business. So I won't lay out what 23 looks like, but we're really happy with it. And we've also said from a mix perspective, it will continue to grow. Our U.S. business is still growing very, very nicely as well, and if anything that holds down the mix, but we're really happy with the International business and continue to see it as a strategic pillar, and a growth driver of the company.

Thanks, Paul.

Thank you.

Our next question comes to the line of Brian Harper with Morgan Stanley. You may proceed with your question.

Yes, hey, good morning, guys. This was touched on, but maybe I'll just ask it a slightly different way, on kind of the better pricing impact that you're seeing, is that just kind of based on, I assume gross pricing and the number of items you took price on was the same and nothing changed there, so is this really just based on kind of the customer response that you predicted after that pricing was taken?

Absolutely, yes. And I say that, and I'm happy to say it, we don't take pricing. So it's not something and we were a little conservative of what the impact was going to be. But yes, it is. The items that we've taken price did not change from when we talked and the magnitude of that price was all known when we talked to you in February, so it is just a little bit better performance than we had planned.

Okay, great. And second question, maybe the comments on kind of the wholesale channel conversations were helpful. Where specifically do you think you are in kind of inventory in the wholesale channel, in kind of optimizing merchandising and stuff like that? Or if I were to quantify it in some way kind of number of doors you think are where you want them to be, how would you kind of characterize that?

Yes, I would kind of a broad characterization, I would say we from an inline colorway from a drinkware perspective, we're getting better inventoried. There are specific things within our drinkware business where we continue to see opportunities for growth and continuously opportunities to fill in that inventory. Hard coolers is one that we continue to build that inventory position in both inline colors and then seasonal colors because we have, when you think about capacity, we make decisions between inline colors and seasonal colors when we're building up capacity. And as Paul mentioned, went through a soft cooler transition in Q1 and we transitioned two significant skews out and replaced them with two skews we're really excited about or two master skews we're excited about. So those are flowing into the channel right now. So I would say we aren't complete, but we're starting to build that up where, as I mentioned earlier, the conversations with our wholesale partners are, how do we want to set up the space? How do we want to merchandise it? How do we take advantage of going into this Q2 buying season, the beginning of summer? And this outdoor trend which continues with people being active and we want to be ready, want to be ready for the summer that we will be ready going into the back half of the year and the holiday in Q4.

Thank you.

Ladies and gentlemen, we have reached the end of today's question-and-answer session. I would like to turn this call back over to Mr. Matt Reintjes for closing remarks.

Thank you. We look forward to speaking with everyone when we discuss our second quarter results. Have a wonderful day.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Enjoy the rest of your day.