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How Yeti has successfully navigated Trump's trade war with China

Brian Sozzi

A pre-holiday season hat tip to you, Yeti CEO Matt Reintjes.

Since the insanely buzzy October 2018 IPO down at the New York Stock Exchange of the high-end cooler king (watch above), Reintjes has seemingly pulled all the right strings as a public company leader. Reintjes hasn’t gone on some misguided product-line extension rampage to please stock analysts that so often leads to disaster for a consumer products company. Nope, a measured expansion into customized drinkware, dog bowls and smooth-to-the touch yet durable backpacks (and pricey).

Meanwhile, Yeti has in effect taken over the second floor of Dick’s Sporting Goods stores. The huge presence for drinkware, coolers and the like all but crowds out a boatload of imitators in the space that have since come in to ride Yeti’s coattails (we see you, Hydro Flask).

And importantly for investors, by most accounts Reintjes has successfully navigated President Trump’s trade war on China, which is where Yeti has historically made the bulk of its products.

That has generally surprised Wall Street, a group that was bracing for up to a $50 million hit to profits this year because of tariffs on Yeti products.

Mitigating tariff impact

“We are 12 months into mitigating the tariffs enacted last September. But well before that, we looked at our supply chain from a strategic perspective and identified opportunities to move suppliers from one region to another region. When tariffs came on, what became a strategic project became a tariff mitigating project,” Reintjes tells Yahoo Finance. “Things that aren’t under tariffs today we have started working well over a year ago on the what if scenarios, with making the right long-term strategic decisions rather than being reactionary.”

Besides China, Yeti’s products are made in Mexico, the Philippines and Italy.

More recently, Reintjes opted to bring in holiday inventory earlier than planned to sidestep any tariffs before yearend.

The efforts have paid financial dividends.

Yeti’s adjusted third quarter earnings came in at 30 cents a share on Thursday, beating analyst forecasts for 26 cents a share. Sales in the cooler and equipment category rose 13%, while they rose 21% in drinkware. Gross profit margins surged 270 basis points from the prior year, reflecting Yeti’s work on mitigating tariffs and success in keeping new competitors at bay.

Yeti co-founder Roy Seiders, second left, is flanked by Cortec Managing Partner David Schnadig, left, and Yeti CEO Matt Reintjes, right, as he rings a ceremonial bell when his company's IPO begins trading, on the floor of the New York Stock Exchange, Thursday, Oct. 25, 2018. (AP Photo/Richard Drew)

The company lifted its full-year earnings outlook to $1.12 to $1.14 a share versus $1.07 to $1.9 previously.

Yeti’s stock is up 100% over the past year.

“On balance, we expect the stock to outperform today following this release, though note a weaker implied 4Q guide and light of consensus Coolers & Equipment performance despite an easy compare may offset some enthusiasm for the strong 3Q result,” wrote Goldman Sachs retail analyst Alexandra Walvis in a note to clients.

As for those crazy days leading up to Yeti’s much hyped IPO last October? Reintjes says it’s good to be able to just focus on running the company once again.

“I have been at Yeti a little over four years, and have been fortunate to see how this business has grown and has grown up. Our customers and consumers continue to evolve. Getting through the IPO, it was a tumultuous time in the markets. What we said that day is we have a lot of conviction in this business and brand, and we are focused on driving long-term sustainable growth. To me a year into it, and to be looking at wrapping up a successful 2019, we feel great,” says Reintjes.

Also helpful: Yeti is profitable, unlike many of the splashy tech IPOs that have come to market since October 2018.

Brian Sozzi is an editor-at-large and co-anchor of The First Trade at Yahoo Finance. Follow him on Twitter @BrianSozzi

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