Shares of outdoor goods retailer Yeti (YETI -1.65%) finally received some love from Wall Street earlier this month. The company's stronger-than-expected third-quarter update soothed investor concerns about whether the company's pandemic and stimulus check-driven surge in sales in 2020 and 2021 would be followed by a significant slowdown. Leading up to the report, shares had been crushed this year, falling more than 62%. But the company's encouraging quarterly sales have helped the stock climb about 27% this month, though the stock still has a way to go to fully rebound.
Why are investors more optimistic about Yeti stock today than they were last month? There are likely two primary reasons for the rosier view for the company. First, the company's year-over-year revenue growth rate in Q3 accelerated compared to the prior quarter. Second, management provided upbeat guidance during a time of significant macroeconomic uncertainty.
1. Accelerating growth
Yeti's third-quarter sales rose 20% year over year to $433.6 million. Not only was this well ahead of analysts' average forecast for revenue of $414.5 million but it marked an acceleration from the company's 17% top-line growth in Q2. The results, which also exceeded management's own expectations for the quarter, were driven by "balanced sell-in and sell-through at wholesale, solid customer retention and new customer acquisition growth in our direct channel, and a strong contribution from our international expansion," said Yeti CEO Matt Reintjes in the company's third-quarter earnings release.
This outperformance on the top line also led to better-than-expected adjusted earnings per share, which came in at $0.63 for the quarter versus an average analyst estimate for $0.58. The acceleration in sales growth, following a deceleration in Q2, may signal to investors that there's a high probability that growth is unlikely to slow meaningfully from the current levels.
2. Upbeat guidance
Management also provided some upbeat figures and commentary regarding its expectations for the important holiday quarter, giving investors even more reason to be bullish. After Yeti lowered its full-year outlook in Q2, investors may have been worried that the company would do the same thing in Q3. Instead, management actually lifted the low end of its guidance range. Previously, Yeti was expecting full-year sales growth between 15% and 17% but now management says full-year sales should increase "approximately 16%."
"As we enter the holiday season, we believe we are well positioned to win with consumers by leveraging our strong brand and innovative product portfolio," said Reintjes.
While there's nothing significantly more bullish in the company's guidance than there was last quarter, the fact that the company is still aiming for strong, double-digit growth in this challenging macroeconomic environment is impressive. Inflation and higher interest rates are putting pressure on the consumer and are ultimately making it difficult for companies, including Yeti, to forecast sales. Indeed, management said in its third-quarter update that its full-year outlook incorporates "a prudently cautious" view for Q4.
With strong sales momentum during a challenging environment, a profitable business, and a powerful brand, there are a lot of reasons to like Yeti stock. No wonder the stock rebounded sharply this month.
