YETI Holdings Inc (YETI) Reports Mixed Third Quarter 2023 Results Amidst Product Recall Challenges

• YETI's Q3 sales remained flat year-over-year at $433.6 million, with gross margin expanding over 600 basis points.

• Adjusted net income per diluted share decreased by 5% to $0.60, reflecting a 3% decrease in adjusted net income.

• Inventory levels decreased by 22% compared to the previous year, and the company maintains a strong cash position.

• YETI narrows its 2023 outlook, expecting adjusted sales growth of approximately 4% and adjusted net income per diluted share of approximately $2.32.

On November 9, 2023, YETI Holdings Inc (NYSE:YETI) released its financial results for the third quarter ended September 30, 2023. The company's performance was marked by steady sales, significant gross margin expansion, and a narrowed outlook for the year. Despite facing challenges due to product recalls, YETI demonstrated resilience with a 13% increase in gross profit and a gross margin of 58.0% of sales.

Financial Performance Overview

YETI's sales for the third quarter were consistent with the previous year at $433.6 million. Direct-to-consumer (DTC) channel sales saw a 14% increase, driven by growth in Drinkware and Coolers & Equipment. However, wholesale channel sales declined by 16%, attributed to a decrease in both Coolers & Equipment and Drinkware categories. Notably, the company's gross profit rose to $251.3 million, or 58.0% of sales, compared to $222.4 million, or 51.3% of sales, in the third quarter of 2022.

Challenges and Adjustments

YETI's results have been materially impacted by the stop sale of soft coolers included in the recalls initiated during the first quarter of 2023. The recalls led to an adjusted gross profit of $250.4 million, or 57.8% of adjusted sales. Selling, general, and administrative (SG&A) expenses increased by 23% to $189.4 million, with adjusted SG&A expenses rising to $179.0 million. Operating income and net income both saw decreases, with net income per diluted share dropping by 6% to $0.49.

Balance Sheet and Cash Flow Highlights

YETI ended the quarter with a strong balance sheet, featuring $281.4 million in cash and a 22% decrease in inventory levels to $341.3 million. Total debt, excluding finance leases and unamortized deferred financing fees, was $83.3 million, down from $95.6 million at the end of the third quarter of 2022.

Outlook for 2023

President and CEO Matt Reintjes expressed confidence in the company's ability to deliver on its full-year sales outlook and updated the full-year adjusted EPS outlook to the high-end of the prior range, reflecting continued gross margin expansion. YETI expects adjusted sales to increase approximately 4% for 2023, with adjusted operating income as a percentage of adjusted sales at approximately 16.0%. The company anticipates an effective tax rate of around 25.1% and adjusted net income per diluted share of approximately $2.32.

Product Recall Updates

YETI has launched its redesigned and improved Hopper M Series Soft Cooler line, addressing the safety concerns of previous-generation products. The company has adjusted its estimated recall expense reserve based on higher than anticipated elections to receive gift cards in lieu of product replacement remedies and other trends.

For a detailed analysis of YETI Holdings Inc (NYSE:YETI)'s financial performance and future expectations, investors and interested parties can access the full earnings report and conference call details at YETI's Investor Relations website.

Value investors seeking to understand the implications of YETI's latest earnings report and its impact on the company's valuation can find comprehensive insights and analysis on GuruFocus.com.

Explore the complete 8-K earnings release (here) from YETI Holdings Inc for further details.

This article first appeared on GuruFocus.