Investors sold off shares of Yeti (YETI 1.69%) following its first-quarter earnings report, on the expectation the next quarter would be more lackluster since it had pulled forward a bunch of sales. Yet soon thereafter, the stock resumed its rise and is now up 141% in 2019.
Now the cooler maker is scheduled to report second-quarter earnings on Thursday, Aug. 1, and because of the earlier sales movement and other factors that could weigh on results, Yeti's performance may be muted. So let's see what investors might expect.
Image source: Yeti.
Not just for the great outdoors
Yeti has become a lifestyle brand as much as it is a manufacturing company of durable ice coolers, and it sells more drinkware products and T-shirts than it does actual bins to keep your drinks cold.
The company has sought to enhance that positioning by reaching out to new audiences through product placement on HGTV and Bon Appetit magazine, and by having publications like Wired highlight its innovations. The idea is to get its products associated in circles it wouldn't typically be thought of and expand its customer circle.
The results are paying off. For example, its Yeti Falcon April Fools' stunt, where it said it was designing the "rural answer to the recent urban scooter craze" by building a Yeti-branded electric scooter, drove large amounts of traffic to its website, 60% of whom had never visited before.
The direct-to-consumer (DTC) channel is considered one of Yeti's key growth drivers, and sales there have accelerated to now account for 40% of the total. It's a channel that includes not only the Yeti website, but also its retail stores and Amazon.com (AMZN +2.02%) Marketplace sales.
A prominent place in retail
Yeti recently began deploying data gleaned from its new analytics technology to gauge customer reaction to products on its DTC channels to inform its decisions on product placement in the wholesale channel. Although that's a much slower growth portal for Yeti, with sales up just 8% compared with 24% via DTC, it too remains an important driver for the future.
Getting its merchandise into retailers like Bass Pro Shops and REI is important to reaching Yeti's core customer, and Dick's Sporting Goods even called out Yeti's in-store displays during one conference call last year as a contributor to its sales growth.
It was the last-minute order fulfillment from one of these wholesale partners in the first quarter, causing sales to get pulled forward, that also suggests the wholesale channel will continue delivering strong future growth.
The relationship between wholesale and DTC is synergistic, because cooler sales reinforce the lifestyle nature of its products, which drives further sales of its mugs and such. Drinkware accounts for nearly half of all Yeti's sales, compared with just 38% for its coolers, but it's the latter that pushes the former higher.
Fewer puts than takes this quarter
Analysts are forecasting $224.2 million in total sales for Yeti for the second quarter and are looking for the cooler maker to post a consensus $0.30 per share in earnings. Management has warned that it expects the second quarter to be its slowest growth period of the year because of the $5 million in orders pulled forward, offset by a 300-basis-point benefit from a revenue recognition change related to Amazon Marketplace. It took a charge for that in the first quarter, and now it will reverse in the second.
Yeti may also be hurt by the increase in List 3 tariff rates that were increased to 25% in May. Yeti had been hopeful that an agreement between the U.S. and China would be worked out, and the delay in raising the duties would continue, but that failed to materialize, and the tariffs were raised, so Yeti probably won't realize the margin benefits it was anticipating.
Even so, if these factors have a net impact of making Yeti's quarter looking weak, investors would do well to ignore it, as the overall direction the cooler maker is heading is the right one. Indeed, despite the huge gains Yeti stock has already achieved, any weakness in its shares following earnings, as occurred last quarter, might be another buying opportunity -- just as they were last time.
