Shares of premium drinkware and outdoor consumer goods specialist YETI (YETI -12.96%) are sinking 13% as of 3 p.m. ET Thursday after the company reported mixed second-quarter earnings. Sales rose 9%, which was in line with Wall Street's expectations, and earnings per share (EPS) soared 54%, easily beating analysts' hopes. Best yet, management reiterated 2026 revenue growth of 7% to 8% and increased its EPS guide to $2.97 from $2.86 at the midpoint.
However, the market didn't respond positively to Yeti's earnings for two key reasons.
NYSE: YETI
Key Data Points
First, while Yeti's soaring EPS looks great initially, it would have actually come up short of analysts' expectations if not for a $0.40 tariff-related benefit. This is further highlighted by the company's admission that its adjusted operating income declined by 7% in Q2. While not catastrophic, especially in today's turbulent macroeconomic environment, it's vastly different than the 54% EPS rise that headlines show.
Image source: Getty Images.
Second, adjusted sales, general, and administrative (SG&A) expenses spiked 19%, outpacing Yeti's 9% sales growth during the quarter. While this isn't a terrible development for a company adding headcount to expand into new international markets, it would be an issue if it persisted over the long term. Further aiding Yeti's soaring EPS was its 3 million-share buyback, which also boosted EPS.
That said, Yeti remains the leader in its niche and seems to be doing a good job expanding beyond its original focus on drinkware and coolers. Should the company meet management's guidance in 2026, it would be trading at 15 times forward earnings and free cash flow (FCF) today. At this valuation, Yeti would only need to compound FCF by roughly 4% to justify its valuation, which is fairly conservative given the company's historical growth rates and the international opportunity ahead.
I wouldn't call YETI stock a screaming buy just yet, as discretionary consumer goods can be a brutal industry in which to thrive. However, the company's reasonable valuation, premium positioning, and expansion into adjacent product verticals make it worth keeping a close eye on.
