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After exploding in popularity with its exceptionally well-engineered products it seems Yeti (YETI - Free Report) is experiencing a significant slowdown in sales and earnings growth. Analysts have revised earnings expectations lower across timeframes which has caused YETI to be downgraded to a Zacks Rank #5 (Strong Sell).
Brand
Yeti designs, markets, and distributes premium outdoor and recreational products. The primary drivers of sales are coolers and drinkware, which are top quality products and have attracted a cult following. But for now, it looks like consumers are pulling back on these types of purchases, as the economic environment has shifted considerably over the last year.
It should be noted that the average cost of a Yeti cooler is about $350, and prices can go as high as $1500, while the drinkware and jugs can go as high as $125.
Stock Performance
YETI stock has outperformed the broad market since IPO, albeit with extremely high volatility. The stock skyrocketed 500% off its lows following the Covid-19 pandemic only to collapse -75% in the 2022 bear market.
Image Source: Zacks Investment Research
Slowing Growth
After experiencing tremendous progress in sales since 2019, growth has clearly stalled over the last three quarters. Earnings are following the same path and have declined in the last two quarters as well.
Next quarter sales are projected to be flat YoY, while earnings are expected to be down -77% YoY to $0.14 per share.
Prior to this slowdown in growth, YETI was regularly seeing sales increasing 20% or more QoQ, so this slowdown is a big change in direction.
Image Source: Zacks Investment Research
Compressed margins
Further complicating the situation, Yeti has seen both gross and net margins collapse over the last few quarters. Profits have been negatively impacted by the rising costs of freight, and production costs, as well as a voluntary recall. Yeti had to recall nearly 2 million coolers in March 2023 because faulty magnets in the cooler’s closing mechanism posed risk of injury or death if accidentally ingested.
Image Source: Zacks Investment Research
Valuation
Yeti is currently trading at a one-year forward earnings multiple of 20x, which is below its five-year median of 30x, and just above the broad market average of 19x. For a company that is facing flat sales and earnings growth it seems a bit expensive.
Image Source: Zacks Investment Research
Bottom Line
Yeti is a business with great products that is bumping into some near-term obstacles. While it is very possible for the company to adjust its direction, and resume broad adoption there will need to be some changes internally before that happens. Additionally, as a premium product marketed to the mass market consumer, it is likely to experience continued slowing growth in the event of an economic downturn.
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Bear of the Day: Yeti (YETI)
After exploding in popularity with its exceptionally well-engineered products it seems Yeti (YETI - Free Report) is experiencing a significant slowdown in sales and earnings growth. Analysts have revised earnings expectations lower across timeframes which has caused YETI to be downgraded to a Zacks Rank #5 (Strong Sell).
Brand
Yeti designs, markets, and distributes premium outdoor and recreational products. The primary drivers of sales are coolers and drinkware, which are top quality products and have attracted a cult following. But for now, it looks like consumers are pulling back on these types of purchases, as the economic environment has shifted considerably over the last year.
It should be noted that the average cost of a Yeti cooler is about $350, and prices can go as high as $1500, while the drinkware and jugs can go as high as $125.
Stock Performance
YETI stock has outperformed the broad market since IPO, albeit with extremely high volatility. The stock skyrocketed 500% off its lows following the Covid-19 pandemic only to collapse -75% in the 2022 bear market.
Image Source: Zacks Investment Research
Slowing Growth
After experiencing tremendous progress in sales since 2019, growth has clearly stalled over the last three quarters. Earnings are following the same path and have declined in the last two quarters as well.
Next quarter sales are projected to be flat YoY, while earnings are expected to be down -77% YoY to $0.14 per share.
Prior to this slowdown in growth, YETI was regularly seeing sales increasing 20% or more QoQ, so this slowdown is a big change in direction.
Image Source: Zacks Investment Research
Compressed margins
Further complicating the situation, Yeti has seen both gross and net margins collapse over the last few quarters. Profits have been negatively impacted by the rising costs of freight, and production costs, as well as a voluntary recall. Yeti had to recall nearly 2 million coolers in March 2023 because faulty magnets in the cooler’s closing mechanism posed risk of injury or death if accidentally ingested.
Image Source: Zacks Investment Research
Valuation
Yeti is currently trading at a one-year forward earnings multiple of 20x, which is below its five-year median of 30x, and just above the broad market average of 19x. For a company that is facing flat sales and earnings growth it seems a bit expensive.
Image Source: Zacks Investment Research
Bottom Line
Yeti is a business with great products that is bumping into some near-term obstacles. While it is very possible for the company to adjust its direction, and resume broad adoption there will need to be some changes internally before that happens. Additionally, as a premium product marketed to the mass market consumer, it is likely to experience continued slowing growth in the event of an economic downturn.