Yeti Holdings (NYSE: YETI) has seen its share price dip after the business reported disappointing earnings and downgraded its full year guidance.
The business now expects full-year sales to show growth of 15-17%, compared with prior guidance of 18-20% growth. Additionally, operating income as a percentage of sale is expected to be approximately 16% versus the 18.5% that had previously been predicted.
Yeti’s President and Chief Executive Officer, Matt Reintjes, commented:
“Sales were slightly below our expectations, primarily due to softer digital traffic and new customer acquisition trends after several years of strong growth.”
But how bad are these disappointing earnings and is Yeti stock a solid investment?
What is Yeti Holdings?
Yeti Holdings designs, markets, retails and distributes products for the outdoor and recreation market under the YETI brand.
The company offers hard and soft coolers, as well as cargo, bags, outdoor living and associated accessories. It also provides drinkware products, such as colsters, lowballs, wine tumblers, stackable pints, mugs, tumblers, bottles and jugs, as well as accessories comprising bottle straw caps, tumbler handles, jug mounts and bottle slings under the Rambler brand.
In addition, the company offers YETI-branded gear products, such as hats, shirts, bottle openers and ice substitutes.
Yeti Holdings, Inc. was founded in 2006 and is headquartered in Austin, Texas.
How Does Yeti Holdings Make Money?
The company sells its products through independent retailers, including outdoor specialty, hardware, sporting goods and farm or ranch supply stores, as well as through its website.
Yeti operates in the United States, Canada, Australia, New Zealand, Europe, Hong Kong, China, Singapore, and Japan.
YETI Stock Financials
The company’s freshly reported second quarter earnings showed:
Revenue increased 17% to $420.0m, compared to $357.7m during the same period last year.
Cost of sales rose by 35.3% to $200.9m.
Selling, general, and administrative expenses increased 13% to $272.3m, compared to $241.8m in the prior year.
Net income decreased 18% to $46.3m, compared to $56.2m.
Net income per diluted share decreased 16% to $0.53, compared to $0.63 per diluted share in the prior year quarter.
While these earnings show revenue growth, they also demonstrate a decrease in income due to significant cost of sales growth. Yeti attributed this to elevated logistics and distribution costs, as well as a greater than anticipated channel shift towards wholesale.
In terms of stock price, Yeti stock has declined by more than 44% across the year to date, reaching lows of less than $40 per share in late May before clawing back a little ground to the roughly $45 it sits on at the time of writing. Its share price peak was just over $108 in November 2021.
Here are some of the stock’s further key metrics:
Price to earnings ratio: 20.87
Price to sales ratio: 2.87
Price to book value: 9.43
YETI Growth Potential
Concerning the company’s future growth, Reintjes commented:
“We are increasingly focused on several factors that are foundational to drive near-term execution as well as to support durable, long-term growth.
“This includes an unwavering focus on brand expansion across our diverse multi-channel distribution points, prioritizing and sustaining investments in marketing, people, innovation, and maintaining high customer value. These areas differentiate YETI in the market and will be integral to our leadership position in the quarters ahead.”
The company is also continuing to push its international expansion, having entered into the Canadian, UK, EU, Japanese, Australian and New Zealand markets in the last five years. Currently just 10% of the business’ sales are international, so there is significant room for growth.
Additionally, it is key to note that the business has emphasised its plans to continue focusing on brand expansion across its diverse multi-channel distribution points, prioritizing and sustaining investments in marketing, people and innovation and maintaining high customer value.
YETI Investment Risks
Inflation appears to be the primary risk to Yeti’s continued growth. Rising prices mean less money for consumers to spend, and Yeti’s products fall squarely in the realm of consumer discretionary goods, meaning that they are not essentials and are therefore potentially vulnerable to consumers tightening their purse strings.
Anything which impacts access to outdoor recreation activities, such as a resurgence in COVID-19 cases and the reimposition of restrictions, could also damage the business’ prospects.
Is YETI Stock a Good Investment?
While the drop in outlook for the full year is of course alarming for investors, it’s important to note that Yeti’s underlying business is sound. The company is registering solid growth and anticipates margin improvements towards the end of the year.
With significant declines in share price over the year to date, YETI stock looks like it could offer the chance to pick up an investment in a good business at a relatively cheap price. As such investors looking for growth over the long term might find the company an attractive prospect.
Analyst consensus has YETI listed as a ‘Strong Buy’ recommendation with an average price target of $68.93, though this may change quickly in light of the company’s fresh earnings update.
Of course, there are risks involved with any investment and you should consider your own personal appetite for risk before backing YETI stock.
Want to learn more about trending stocks? CLICK HERE for our analysis of Eargo!