After disappointing investors in November with an underwhelming third-quarter earnings report, cooler maker Yeti (NYSE:YETI) bounced back after issuing preliminary fourth-quarter information showing higher sales of coolers and drinkware and increased full-year profits.

While there are indications Yeti may yet live up to its full potential, there remain troubling signs that suggest investors should proceed with caution.

Man pulling Yeti cooler onto beach

Image source: Yeti.

Yeti wants you to drink in its growth

The biggest problem Yeti has is that it's selling more lifestyle goods, such as drinkware and accessories, than its famed coolers. Its brand appeal seems to be widening, but the underlying basis for it being in business is lagging.

Yeti reported that cooler sales rose 10% in the fourth quarter to $91.2 million, while drinkware sales were up 24% to $143.5 million. For the year, cooler sales were up 6%, and drinkware was 37% higher. At $424 million, Yeti derives 56% of its revenue from things that aren't coolers, and cooler sales aren't spurring any growth. This is despite management saying last quarter it was looking for a strong performance from the division this time around.

That could be because its new Tundra cooler, Yeti's first wheeled model, might not be doing as well as expected. The company had rolled it out in the third quarter more slowly than it originally expected because it wanted to build up inventory, but Yeti was looking for sales to pick up in the fourth quarter. With 6% sales growth recorded in the cooler segment, the Tundra may not have caught on as much as anticipated. While being a lifestyle brand carries some advantages, the company still needs its primary products to move.

Sales have been volatile

Of course, Yeti doesn't have much of a track record yet for investors to thoroughly make a determination on how its business performs over time. In the few years it's been operating, sales have been volatile across all product lines. In 2017, for example, cooler sales tumbled over 10%, while drinkware and accessories plunged over 30%. The year before that, though, cooler sales were up 51%, and drinkware had doubled.

Chart of Yeti segment sales

Data source: Yeti SEC filings. Chart by author.

Consumers just went through a pretty strong Christmas selling season, and Yeti sales were OK but not great. Economists are debating whether we're due for a major correction, and that could spell trouble for Yeti as it hasn't been tested in such a climate.

Yeti is also reliant upon too few suppliers for its goods. Two drinkware suppliers account for 90% of the division's total production volume, while it has two more that represent 80% of total cooler production volume. It also relies on just one supplier for all of its cargo and bags. An economic downturn that hits one or two suppliers could cripple Yeti, not to mention it also has significant production facilities in China and Mexico that are the focus of trade tensions with the U.S. A flare-up could affect Yeti's operations.

A risky lifestyle brand

That said, Yeti is transforming itself into a lifestyle brand associated with outdoor recreation, whether that's camping, hiking, hunting, or being at the beach. It continues to look for new ways to grow its product line, such as the introduction of drinkware as well as soft coolers, which was a successful product launch last year. It also has its sights set on foreign markets for expansion.

Because it offers what is essentially a luxury product -- a $1,000 cooler can be viewed as an extravagance, regardless of its durability -- it will face a lot of low-cost competition while limiting its own addressable market.

That could be why, despite the rally in Yeti's stock, shares still trade below their $18 IPO offer price. Investors should be wary that this company needs more time in the market to determine whether it's worth putting their money in, even though its coolers are held in high regard. If the economy does take a turn for the worse, investors could find their investments were placed on ice.

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