Executive Summary / Key Takeaways

• YETI is undergoing a significant supply chain transformation, accelerating drinkware production diversification out of China to mitigate tariff impacts, targeting 90% of U.S. capacity ex-China by end of 2025.
• Near-term (FY2025) financial performance is expected to be materially impacted by inventory supply disruptions from this transition and higher tariff costs, leading to a revised outlook for lower sales growth (1-4%) and significantly reduced gross (54%) and operating (12%) margins, and EPS ($1.96-$2.02).
• Despite near-term challenges, the company continues to invest in long-term growth drivers: accelerating product innovation (record new releases planned for 2025), expanding into large addressable markets (bags, cookware, powered coolers), and driving international growth (particularly in Europe and the new Japan entry).
• YETI maintains a strong brand, diversified omnichannel presence, and healthy balance sheet with substantial cash and available credit, supporting strategic investments and capital allocation (share repurchases).
• Execution of the supply chain transition and the trajectory of consumer demand and tariff policies are critical factors for investors to monitor, with management signaling a much stronger operational position heading into 2026.

The Enduring Brand and Its Evolving Ecosystem

YETI Holdings, Inc., headquartered in Austin, Texas, has carved out a formidable position in the outdoor and recreation market since its IPO in 2018. Known initially for its rugged, premium coolers and drinkware, the company has successfully cultivated a powerful lifestyle brand built on durability, performance, and design. This ethos is not merely marketing; it is rooted in the tangible quality of its products, which boast quantifiable advantages such as superior insulation capabilities in coolers (maintaining ice for days longer than many alternatives) and enhanced thermal retention in drinkware. This focus on engineering and material science forms a core technological moat, supporting premium pricing and fostering fierce brand loyalty, evidenced by consistently high customer recommendation rates.

The company's strategic journey has been one of deliberate expansion, both geographically and across product categories. From its U.S. base, YETI has successfully extended its reach into Canada, Australia, New Zealand, and Europe, with Asia representing the next frontier, marked by the foundational entry into Japan in 2025. Simultaneously, the product portfolio has grown significantly beyond its core, encompassing bags, equipment, apparel, and notably, through strategic acquisitions like Mystery Ranch and Butter Pat, into backpacks/luggage and cast iron cookware. This expansion is guided by an intent to surround the consumer with products relevant to their daily lives and outdoor pursuits, creating a connected "YETI ecosystem." The pace of innovation is accelerating, with a record number of new products planned for 2025, reflecting the company's commitment to driving growth through new offerings.

In the competitive landscape, YETI operates in a dynamic market with both premium and value-focused rivals. Against players like Stanley, which has seen significant recent success in drinkware driven by social media trends and accessible pricing, YETI differentiates through its broader product range, deeper roots in rugged outdoor use cases, and a brand built on sustained performance rather than fleeting trends. While Stanley may currently lead in sheer drinkware unit volume in certain channels, YETI's diversified portfolio and higher average selling prices contribute to stronger overall profitability and financial stability. Compared to other outdoor gear companies like Snow Peak (7816), YETI's strength lies in its dominant North American market share and efficient operational model, although Snow Peak holds a stronger position in certain Asian markets. Value-oriented competitors like RTIC challenge on price, but YETI's focus on premium quality and brand prestige allows it to maintain higher margins and customer loyalty, albeit requiring careful management to prevent market share erosion at lower price points. The company's strategic partnerships and community engagement efforts further reinforce its brand positioning against rivals.

Performance Reflecting Strategic Shifts and External Pressures

YETI's recent financial performance provides a clear picture of a company executing on its strategic priorities while grappling with significant external headwinds. The first quarter of 2025 saw net sales increase by a modest 3% year-over-year to $351.1 million. This growth was primarily fueled by robust performance in the Coolers & Equipment category, which continued its impressive streak with a 17% increase, marking the fifth consecutive quarter of double-digit growth. This strength underscores the success of recent product innovation and the enduring demand for YETI's core and expanding gear offerings, particularly in hard coolers and the rapidly growing bags segment.

Conversely, the Drinkware category experienced a 4% decline in Q1 2025. This softness was concentrated in the U.S. market and attributed by management to a challenging comparison against strong prior-year growth (13% in Q1 2024) and, critically, the strategic decision to prioritize supply chain diversification efforts over the typical cadence of new innovation launches in the quarter. This highlights a key operational challenge: the necessary transformation of the supply chain is creating near-term constraints on product availability.

A standout area of performance has been the international business, which surged 22% in Q1 2025, now representing 23% of total sales. This growth, seen across Europe, Australia, and Canada, validates YETI's global expansion strategy and demonstrates the brand's increasing resonance outside the U.S. The DTC channel, including Amazon and corporate sales, also showed strength, although yeti.com experienced softer traffic and conversion, particularly for lower-priced drinkware, suggesting a more cautious consumer backdrop.

Profitability in Q1 2025 reflected the emerging pressures. Gross margin saw a slight decrease of 20 basis points to 57.3% (non-GAAP), primarily due to unfavorable sales mix (lower Drinkware contribution) and FX, despite benefits from lower product costs. Selling, general, and administrative expenses increased 6%, leading to deleverage as a percentage of sales, driven by planned investments in headcount and technology to support future growth, alongside higher advisory and legal fees. Consequently, operating income declined 11% (non-GAAP).

Looking back at 2024 provides further context. The company delivered 9% non-GAAP sales growth for the full year, expanding adjusted gross margins by 170 basis points to 58.6% and adjusted operating margins by 120 basis points to 16.8%. This strong performance, including generating $220 million in free cash flow, allowed for strategic capital allocation, including $200 million in share repurchases and funding key acquisitions that accelerate product roadmap initiatives like bags and powered coolers.

Strategic Transformation and a Revised Outlook

The most significant factor shaping YETI's current narrative and outlook is the accelerated transformation of its supply chain, particularly the strategic shift of Drinkware production away from China. This multi-year initiative, which began in earnest for Drinkware in 2023, is ahead of schedule, with management now targeting 90% of U.S. drinkware capacity to be located outside of China by the end of 2025. This is a monumental operational undertaking designed to minimize exposure to potential future tariffs and geopolitical risks, positioning the company for a much stronger and more predictable supply chain starting in 2026, with less than 5% of total COGS for the U.S. market expected to originate from China on a go-forward basis.

However, this rapid transition comes with near-term costs. The company explicitly states that the accelerated diversification is causing inventory supply disruptions, leading to expected constraints on both new and existing Drinkware products in 2025. This operational challenge, coupled with the direct financial impact of current tariff levels on products imported from China (estimated at a gross impact of approximately $100 million for 2025 before mitigation), is the primary driver behind the significantly revised full-year 2025 outlook issued on May 8, 2025.

YETI now expects full-year sales growth between 1% and 4%, down from the prior 5% to 7% range, with supply disruptions accounting for approximately 300 basis points of this reduction. Gross margins are projected to decline sharply to approximately 54%, a 450 basis point drop from both the prior year and the original outlook, primarily due to the net impact of tariffs after mitigation efforts (which include evaluating pricing strategies and seeking cost offsets from suppliers). Operating income is expected to be around 12% of sales, a similar magnitude of decline driven by the tariff impact and some SG&A deleverage due to the lower sales base, despite ongoing cost management efforts. Adjusted earnings per diluted share are consequently projected between $1.96 and $2.02, a significant reduction from the prior outlook of $2.90 to $2.95 and the $2.73 achieved in 2024. Free cash flow is also expected to be lower, in the range of $100 million to $125 million, down from the initial target of $200 million, reflecting the impact of supply chain disruption and higher costs.

Despite these headwinds, management emphasizes that the ability to generate cash remains intact, and they are maintaining operational discipline by managing inventory levels (expecting a year-end decline) and scrutinizing capital expenditures ($60 million planned, down slightly from prior guidance) to focus resources on critical supply chain and innovation initiatives. The company's strong balance sheet, with ample cash and available credit, provides the flexibility to navigate this transition period and continue strategic investments, including further share repurchases under the recently increased $450 million authorization.

Risks and the Path Forward

The investment thesis for YETI in the near term is heavily influenced by the successful execution of its supply chain transformation and the trajectory of external factors. The primary risks include the potential for further escalation or changes in tariff policies, which could exacerbate cost pressures, and the possibility of a weaker consumer demand environment persisting or worsening throughout 2025. The inventory constraints resulting from the diversification efforts also pose a risk to sales performance if demand outstrips the adjusted supply.

However, management remains confident in the long-term potential, viewing 2025 as a necessary transition year that positions the company for stronger performance in 2026 and beyond. The strategic investments in product innovation continue, with plans for new launches across Drinkware (insulated sports jugs, food bowls), Coolers & Equipment (beach chairs, GoBox extensions), and the significant expansion into bags/luggage leveraging the Mystery Ranch acquisition. International growth is expected to remain a key driver, with the Japan entry opening up the broader Asian market opportunity.

The recent cooperation agreement with Engaged Capital, leading to the appointment of two new directors with strong backgrounds in product and international expansion, signals a potential focus on accelerating growth initiatives and enhancing communication with the investment community, including plans for an Investor Day.

Conclusion

YETI is currently navigating a complex period marked by significant supply chain transformation and external macroeconomic and trade uncertainties. The revised 2025 outlook reflects the material impact of these factors on near-term sales and profitability, driven primarily by inventory constraints from accelerated diversification efforts and higher tariff costs. While this presents a challenging picture for the current fiscal year, the underlying strategic rationale – minimizing China exposure to build a more resilient and cost-optimized global supply chain – is sound and positions the company favorably for 2026.

The core investment thesis remains centered on YETI's powerful brand, its ability to innovate and expand into large addressable markets, and its growing international presence. The company's commitment to product quality and technological differentiation continues to underpin its premium positioning and brand loyalty, providing a durable competitive advantage against rivals. Investors should closely monitor the progress of the supply chain transition, the evolution of tariff policies, and consumer spending trends. While 2025 may be a year of managing headwinds, the strategic actions being taken are aimed at strengthening the company's foundation and unlocking its long-term growth potential, suggesting that the current challenges could represent a temporary disruption on the path to future value creation.