Good morning, ladies and gentlemen. And welcome to the YETI Holdings Third Quarter 2024 Earnings Conference Call [Operator Instructions]. This call is being recorded on Thursday November 7, 2024. I would now like to turn the conference over to Maria Lycouris, Investor Relations for YETI. Please go ahead.

Good morning. And thank you for joining us to discuss YETI Holdings' third quarter fiscal 2024 results. Leading the call today will be Matt Reintjes, President and CEO; and Mike McMullen, CFO. Following our prepared remarks, we'll open the call for your questions. Before we begin, we'd like to remind you that some of the statements that we make today on this call may be considered forward-looking and such forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. For more information, please refer to the risk factors detailed in our most recent filed Form 10-K. We undertake no obligation to revise or update any forward-looking statements made today as a result of new information, future events or otherwise, except as required by law. Unless otherwise stated, our financial measures discussed on this call will be on a non-GAAP basis. We use non-GAAP measures as we believe they more accurately represent the true operational performance and underlying results of our business. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the press release or in the presentation posted this morning to our Investor Relations section of our Web site at yeti.com. And now I'd like to turn the call over to Matt.

Thanks, Maria, and good morning. YETI wrapped another strong quarter with growing brand engagement, performance across our broadening product portfolio and outstanding growth in our international business, all driven by the consistent successful execution of our strategic priorities. Our net sales were up 10% in the quarter with growth across all channels. On the product side, innovation continues to be a catalyst with drinkware delivering several highly anticipated launches in bar and tableware, underscoring the expansion opportunities we see. In coolers and equipment, we saw good performance from both legacy and newer product, including several newly launched accessories that complement our existing line up. On the international front, we saw our fourth consecutive quarter of over 30% growth outside of the US while also delivering solid growth in a more challenging US market where we continue to see high quality but more discerning buyers. Taken together, YETI's brand strength, strong product innovation cadence and global growth position us to remain on track to deliver on our full year top and bottom line outlook. As a reminder, our top line outlook takes into consideration an expectation of more intentional consumer buying in Q4 as we closely watch spending in this shortened holiday season. As it relates to our global supply chain expansion programs our previously announced efforts remain solidly on track. As a reminder, approximately 40% of our total cost of goods has historically been tied to products sourced from China, primarily related to our drinkware portfolio. This supply chain initiative gives us the opportunity to support greater global scale, target end markets for cost and service optimization and evolve our supply base. Notably, we commenced production at our second drinkware facility outside of China during the quarter and we are on pace for a third facility. We have great partners…

Thanks, Matt. And good morning, everyone. I'll start by providing a brief overview of items contained in our third quarter GAAP numbers that affected both the year ago and current period results. I'll then provide a review of our third quarter performance, followed by an update on our outlook for the full year. We will then open it up for your questions. There were two items of note that impacted our GAAP results. First, the prior year quarter's results included a $0.8 million benefit through cost of goods sold related to our product recalls. There were no adjustments made to our recall reserve in the current period. Second, similar to our two prior quarters, our GAAP results include costs associated with the acquisitions that we made earlier this year. These include the impact of purchase accounting on gross margins, as well as other minor transition costs within our operating expenses. Per our standard reporting practices, the impact of these and other non-recurring items are excluded from non-GAAP results. All results presented on today's call will be on a non-GAAP basis in order to better focus on the operating performance of the business during the quarter. Now turning to our third quarter results. Sales increased 10% in the quarter to $478 million. This was in line with our expectations and was driven by growth across all categories, channels and geographies. This quarter's year-over-year growth includes an approximately 100 basis point net headwind from gift card redemptions related to our product recall. Our results this quarter include $2.7 million in gift card redemptions compared to $6.3 million in gift card redemptions in the prior year quarter. On a year-to-date basis, sales are up 10% versus the comparable period last year again across all of our categories, channels and geographies. We believe this…

[Operator Instructions] Your first question comes from the line of Peter Benedict of Baird.

First one's just kind of around the [indiscernible] [low tariff] question. Appreciate the efforts you're making to diversify your sourcing outside of China. I'm curious how the international supply chain works at this point. If we kind of fast forward maybe 12 to 18 months, how much of the China sourced drinkware can you just ship directly to other international markets and not bring to the United States? Is that a nuance that we should be aware of or thinking of as we try to pencil out potential tariff cost impacts on the business? That's my first question.

Absolutely. So as we go through this, any product made in China can go directly to the region. So to Europe, to Canada, to Australia. So one of the things we've talked about as we've gone through this is obviously currently primarily a US dynamic, which we feel as our international business grows sort of helps offset some of the potential cost risk that is out there.

And another question, Mike, how do we think about the pace of SG&A growth and really more of the nonvariable side as we look at you? Obviously, you've mentioned you've been investing to support international growth. But as we kind of look out beyond this year and maybe have some gross margin tailwinds that maybe moderate? Or just how do you think about your ability to manage the SG&A line in the event that gross margin isn't as much of a tailwind as it has been for the last year or two?

So I'd say our comments have been pretty consistent here. And I'd say that everything that we've done this year has largely been intentional. So coming into the year we knew we were going to have some gross margin tailwinds and we viewed it as that is an opportunity for us to invest some of that back into the business and still allow operating margins to expand. So year-to-date, gross margins are up 240 basis points. We've taken 70 basis points of that and still expanded operating margins 170 basis points. For the year, we're -- the outlook that we put out today would imply gross margin expansion of 160 basis points. Again SG&A -- investing 70 basis points of that back into SG&A and allowing for 90 basis points of operating margin expansion, that's all intentional. So as we go into next year, we're going to be very thoughtful about how we approach that. So -- and we've been pretty consistent that it is our intention to manage gross margin and operating margins together to drive operating margins up over time. And we're obviously not giving specific guidance on 2025 today but we've been pretty consistent that that is our intention as we go into next year.

Your next question comes from the line of Peter Keith of Piper Sandler.

This is Alexia Morgan on for Peter Keith, thanks for taking our question. Maybe just more on the tariff topic. So you're deemphasizing China exposure within drinkware, that's great. But how should we think about gross margin impact there? And is the facility move expected to be relatively smooth in terms of margin impact or how should we think about that?

So obviously there's been a lot of focus on the potential impact of tariffs. But I think it's really important to remember at the present time there are a lot of unknowns. So the amount of the tariffs, the specific products, the timing, et cetera. There's just too much that we don't know to try and quantify beyond what we talked about last quarter and then reiterated today in terms of what we're doing. So -- and I think that's where we'd like to focus is here's what we are doing. The plan that we laid out last quarter and that we reiterated today is on track, number one. Number two, we're working very closely with our suppliers who have strong -- we have strong, longstanding relationships with, we're working with them on a solution and also assessing potential new partners. And third if we -- we'll have to see as we go through this, but I think we would look at price potentially as an option to offset any potential tariff risk. So basically we're focused on the things that we can control. And the other thing that I would lay out, just as a reminder, we have been through this before in the 2018-2019 timeframe with soft goods and we navigated that successfully. And we believe the plan that we have in place today would allow us to do that again. But again, there's just a lot of unknowns right now to lay out a specific number.

And then one more just on wholesale sell in. So sales were really strong in the quarter -- you mentioned healthy wholesale sell in already. But could you go more into detail on the wholesale sell through dynamics that you saw in Q3 and then maybe how those compared to earlier in the year?

So here's what I'd say. We've been very pleased with our sell in and our sell through this year. As we look, this year in the US. Now, one thing I do want to make sure is clear is that when we talk comparing sell in and sell through, when we talk sell through that's primarily a US dynamic. And so whereas the wholesale reported number is global. And so when you look at just the US sell in piece, they're reasonably aligned across both C&E and drinkware. And we've been really pleased with how sell through has performed this year. And I think as we go into the holidays, we think we're in a really, really good inventory position to have a successful Q4.

Your next question comes from the line of Randy Konik of Jefferies LLC.

I guess maybe Matt for you. Considering the international business has continued to power ahead here, maybe frame up for us where are we today with bodies in the different regions in terms of employees, just infrastructure, the way everything's set up, as we think about additional growth in areas like Europe and Asia? Just to try to frame it out for us in terms of where we've been, where are we and where we're going in those markets ahead?

I would say a couple things. As we've talked in the past, we've kind of built these pillars of international growth through time. And we've said before Canada and Australia, those two markets, from a team infrastructure, really are built out and they're in the scale mode. We called out -- in particular, we called out Australia today and just the strong growth and execution that that incredible team we have down under continues to deliver. Europe was a couple years behind that in its build out. But with the team that we put together in Europe focused on Continental Europe and focused on the UK, we feel really good about the infrastructure that we have built. There's still some more investment in front of that as we continue to kind of go up the scale. But I would say we're still in -- when you look at the relative size of that market, we're still in the early days of the potential in Europe. And that's why we continue to call out even specifically Germany and UK, we think the opportunity's extraordinary, the reception's been outstanding, the playbook's working. And it's really powering -- it's meaningful growth for us now and it's kind of -- as we reported today, that's part of what you're seeing in that result is the strong execution of Europe and the UK. But I would say even more exciting is how early we are in that opportunity. Asia's further back in that investment. We're very early in the startup in Asia and building out our go-to-market strategy and our resourcing there. So I think Asia, North Asia, Japan, Korea will be a story over the years to come. I think Europe and the UK, we'll be talking more and more about in the near term as we kind of take the foundation we've built and really scale off of it.

And then I guess lastly, maybe give us some -- further unpack how you're thinking about product evolution ahead in innovation. You talked a lot about the excitement around barware, you also kind of gave us some good perspective on the investments in sponsorship you've been doing on the culinary side of the -- a different audience -- another audience that you're targeting. Maybe just give us some perspective on how you're thinking about going forward, how we should be thinking about innovation around other categories or other areas for the strong YETI brand to go into ahead?

What I'd say here, Randy, is if you look back, I think, our historical evolution sort of laid all the foundations for what we're talking about today and really the setup for where we're going in the future. I don't expect and has never been a hallmark of YETI to go just scattershot the brand and scattershot the product portfolio. We really want to thoughtfully build it out so it all connects. And so what you're seeing, and I think 2024 is really an example of that and I think you'll see it continue into 2025 and beyond is, as we build out drinkware and we connect more into food and culinary and as we build out our coolers and really expand the use cases there and as our bags portfolio continues to evolve and as we continue to evolve our storage cargo, protective case business, you're going to also see those all fit together within the YETI ecosystem. And so what we're really ultimately trying to do is surround the consumer with more use cases in their daily lives, make the brand more present and the brand more relevant, because we know we have the brand heat, we know we have the right product ethos, and we feel those opportunities to grow it. We're incredibly excited about what's in front of us in bags. We think that is a massive global market that is ripe for YETI. I think that combination of drinkware moving -- of market moving from being very cup focused to being very solution oriented and that's the barware, serveware, tabletop connection to cooking and culinary, we're really excited about. And I think over the next kind of near and midterm, you're going to see us aggressively build that out. But I think you're going to look at it and say that all really makes sense underneath the YETI umbrella.

Your next question comes from the line of Philip Blee of William Blair.

Can you talk a little bit more about your expectations for the upcoming holiday? Maybe what you're seeing in quarter to date trends and then any level of conservatism built in, had a peak season ability to chase? And then any impact of a potentially more promotional competitive environment?

I'd say a couple things and I'll reiterate a little bit of what I said and Mike said. Q4 is always big for us. YETI has always been an incredible gifting solution and gifting product and the highly desirable one. I'd say year to year and depending upon environments you see different behaviors in Q4, when buying starts, kind of when the season falls. So we closely monitor those. We feel great about how we're positioned for the holidays. We have incredible plans with our wholesale partners domestically and globally to address the consumer when they shop. This year there is a shortened run between the goalposts of the traditionally defined sort of holiday buying season. And so we're well primed for that. We're excited about the innovation we put into the market this year that's still undiscovered, that still has opportunity to be a great holiday, great gifting solution. And as our history has been, we always have some things that we have for the holidays to stoke energy and demand and drive traffic and interest. So I think we're early in the quarter as it relates to the holiday. And because we go forward and get into this shortened season, we're ready to react to what the market gives. And I would say as it relates to the promotional environment we haven't seen anything outstanding and unusual in the quarter to date. And as we have always done our promotional cadence has continued to be consistent and similar to what we've done in the past.

And then on gross margin, outside of any potential impact of new tariffs. Can you talk about what inning you are in for some of your gross margin improvements, maybe between kind of the normalizing transportation costs that are more macro versus some of your internal initiatives on controllable and product costs? Just to kind of try and give us some sort of gauge on the go forward rate?

So difficult to put an inning on it, because I'd say this is a continual process that we have internally to manage our COGS, to manage our gross margins. And there's things that happen every year in terms of things going on in the business, things going on in the market that can -- that we need to react to as well. Obviously, we've been really pleased with our gross margins in 2024. The expansion that we've had. The outlook that we put out was essentially holding to the 58.5%, which was nice expansion year-over-year. The outlook, what it implies for Q4 is essentially a flat gross margin in Q4 like we talked about. But there's some things driving that we believe are specific to this time period that won't necessarily continue as we go into next year, will lap the hard cooler price decreases, sales mix, the faster growing -- wholesale is growing faster than D2C, C&E is growing faster than drinkware. Those are both -- somewhat dilutive to gross margins. It's our intention to sort of grow the categories together, it's our intention to grow D2C faster than wholesale. So we think that also can provide some benefit going forward. And then lastly, one thing that's going to impact in Q4 is we've talked about these freight surcharges that we've seen. We did a nice job of managing those we believe. But the benefit that we'll get in Q4 from freight year-over-year is going to be lower than what we saw in Q3, because a lot of those surcharges are going to flow through our P&L in Q4. But we've said all along we think those are transitory and we are starting to see those come down. So again, not giving specific guidance on 2025. But other than to say we're going to continue to do what we've been doing, which is manage our product costs, manage our inbound freight costs and continue to drive gross and operating margins up over time.

And the only thing I would just add to what Mike said is, I mean, we have strong gross margins and we have strong operating margins, and we continue to work both and see opportunity. And I think when you have a situation where you drive top line growth, you have strong gross margins, you have strong operating margins, we think really good things will continue to happen in our P&L and they'll continue to strengthen what we think is already an incredibly strong balance sheet.

Your next question comes from the line of Megan [indiscernible] with Morgan Stanley.

I wanted to just ask kind of big picture. You are talking to mid-single digit growth in the US this year. There's obviously been a lot of noise and year-over-year as it relates to gift cards, some acquisitions. So I guess when you think about kind of the go forward, is mid single digit growth in the US the right level? And is that category up low single digits and you gaining some share? And if not, maybe how do you think about that kind of growth in the US going forward?

I would say, while we're not sitting here in kind of our Q3 call and Q4 updating any version of our long-term outlook. What I would reiterate is the signs we're seeing in the brand potential and what the market opportunity is for the brand, the expansion opportunities we're seeing in the product portfolio as we continue to build it out just opens more and more new doors. The growth opportunity domestically that we see, as we think about that product expansion, gets us incredibly excited. Without giving a specific number on it or pegging to a number, I think that quarter-to-quarter, year-to-year there can be some changes based on background, market backdrop, strong, weaker, how our product cadence and our product expansion comes out. But I think when you step back from it all, to your point on the bigger picture, we're incredibly bullish on the brand. We're incredibly bullish on the product expansion and where we can go, the consumer receptivity, the partners we have today to get to market and address those consumers domestically. And that's before you get to the very early days of what we think are really long run international growth. So I think as we go through our annual guidance, we'll talk more about that. But I think when you think about -- you step back and think about potential and you think about relevance and you think about connection, product and consumer, we feel great about where we are.

And maybe -- sorry to ask another question on tariffs, but maybe a little bit different. Your balance sheet is in a really great spot. And how do you think about perhaps the ability to take on some debt and increased leverage to give yourself a little bit more flexibility on the bottom line? Or are there investments in capacity that you can accelerate? You It's obviously encouraging to hear that you will be able to get 50% outside of China by the end of 2025. But is there anything that you can do from a capital standpoint to perhaps accelerate that further? Would just be great to kind of hear a little bit more how you're thinking about the ability to leverage the balance sheet to offset some of these maybe short term headwinds.

I would say, we do have an incredibly strong balance sheet. We feel great about it, we feel great about our free cash flow generation and what that says about the business operationally. When we think about our supply chain alongside all of our other strategic initiatives, we continue to look for ways to get to the answer faster and get to the right answer with more thoughtful approaches, leveraging the people capabilities and capacity we have, the capital we have. So I think as we get deeper into this and we understand as it specifically relates to tariffs what we're dealing with, those kind of flexibility conversations, those kind of investment conversations, we absolutely look at. And as Mike said, we'll look at everything -- as it relates to tariffs, look at everything from consumer pricing to how we manage and operationalize the business to investments we make in the continued evolution of our supply chain. So all of that is active on the table discussions and some of it being actioned right now.

Your next question comes from the line of Joe Altobello of Raymond James.

This is Martin on for Joe. I just want to touch on 4Q again. EPS this quarter is up 18%. And if we've done the math right, you’re sort of implying flat for next quarter. I know you mentioned the shoulder buying season and you've touched a little bit on margins. I'm just wondering if there's any pull forward or any other dynamics that hadn't been mentioned yet?

No, I think we've -- I mean, it's largely the consistent story. So when you think about Q4, I think there's a couple of components to Q4 related to sales, gross margin, operating expenses. And I think we've touched on a lot of those in terms of the environment that Matt talked about, some of the dynamics and gross margin that we believe are specific to this quarter and then our decision to continue to invest into the business using some of the upside in gross margin we've had this year. But I think everything needs to be looked at in terms of context of the year, both our results year-to-date and then as well as our outlook. And so we are very pleased with the year that we've had so far and the year that we're about to post, both on a top line basis and a bottom line basis. There's some unique dynamics in Q4 that we talked about. And I think, the other thing is that when we put out an outlook, we obviously want to make sure that we feel good about that and that's what we've done today. So nothing beyond what we've talked about.

And could you just update us on the competitive landscape and how your market share is holding up?

Couple of things on the competitive landscape, we haven't seen largely any significant changes in the competitive landscape. I think when you look at our results and how we continue to deliver quarter-to-quarter, the partnerships we have, the shelf space we continue to maintain and grow domestically, the opportunity that we're seeing globally. I think markets are competitive and you have market alternatives that come and go and some come and stay for a bit. But I think the residual kind of strength of YETI and the strength of the brand that we're building and the diversification and growth of the product portfolio, I think are all signs of kind of how we weather the market. And so I feel good about where we are. I wouldn't say we've seen any appreciable or material changes to the market.

Your next question comes from the line of Jim Duffy of Stifle.

This is Peter McGoldrick on for Jim. Just first thinking of the composition of the 30% year-over-year international revenue growth. Can you provide some insight to the contribution of new dealer growth and gains within existing customers for this quarter? And then as we look forward, how should we expect that to evolve sequentially as we look forward over the midterm?

We haven't historically given kind of a resolution down into those markets at that level of specificity. But what I would say to you is if you kind of follow how we talked about Canada and Australia, and that those markets largely built out the infrastructure, established the omnichannel and the things that we point out, customization, strong wholesale partnerships, our e-commerce businesses, that would lead you to believe that it's evolving a lot like the US. And when we talk about the playbook we run, we aren't traditionally a open new door negative comp door type brand, that's not been the approach we've taken and we've taken that and exported it to the globe. Europe, obviously, we've been adding some wholesale doors, but that, as we've called out in the past, has been a really strong e-commerce business. We have a growing Amazon Marketplace. We've got a growing corporate sales custom business. And then the other dynamic in Europe is there aren't large kind of pan-European multinational retailers like you'd see in the US and Australia and Canada. And so it tends to be more picking the right doors. And so it's a much more methodical process as it relates to wholesale build out, which would lead you to kind of the conclusion that the business that we have is performing well.

And then just thinking about drinkware specifically and holiday, YETI as a giftable staple already. Can you share any figures underpinning the fourth quarter outlook as it relates to wholesale shelf space, reorder rates, ETC contribution, new products or international contribution?

I mean, here's what I'd say. We didn't give specific -- when we gave our outlook for the year and we talked about sort of we expect the channel category and international dynamics to sort of continue that we've seen this year. Wholesale growing faster than D2C, C&E growing faster than drinkware. And that's -- I would expect, Q4 to look similar to that. We think we've got, for drinkware specifically, and Matt talked about this, I mean, the number of products we've released in the last 12 months that we think are highly giftable items at highly giftable price points and we think could set us up for a really strong holiday season. But I think Q4 as it relates to the relationships between channels and categories and international will look pretty similar to how we've looked all year long.

For your last question, we have Brooke Roach of Goldman Sachs.

This is Savannah Sommer on for Brooke Roach. In your prepared remarks, you mentioned a lot of excitement around the expanded bags launch planned for next year. Should we think about a similar value proposition rebalancing to your existing bags and packs business ahead of the launch similar to the changes you made with your hard cooler expansion earlier this year? If so, how should we think about the breadth and depth of those price changes?

We are excited, not only about the literal launch of those bags but actually what it starts from an expansion in growth in what we see is the, frankly, the long term potential in bags, as I laid out on the call, that run from everyday, travel, sport, hike, hunt, water based things, all weather bags. I mean all those -- well all those are incredible sort of and natural growth extensions for YETI in this bags, packs and luggage space. As I think about the Q1, the bags that we are bringing out in kind of the first half of next year really are expansionary and additive to what we have today. So there is some interplay between the bags that we have in the market and these, but I wouldn't expect anything meaningfully kind of meaningfully transition wise between those. It’s really -- we're looking to expand line, create more choices for consumers in our bags and packs.

Thank you. I'd now like to turn the call back over to Matt Reintjes for final closing remark.

Thanks everybody for joining us. We look forward to speaking with you on our Q4 and full year call. Have a wonderful rest of your month.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.