In fact, the company was originally planning to go public in 2016, but it decided to hold off on its IPO at that time. Perhaps it would have been better served sticking with its original game plan given that its growth was far more impressive at that time than it has been in the immediate prelude to today’s launch (75% in FY16 vs. 34% for 6-months ended June 30, 2018), and maybe underlying conditions in the IPO market would have been more accommodating at that time as well.
Nevertheless, YETI pushed forward with its deal this week despite the rough and volatile markets. The volatility undoubtedly played a role in its deal being slashed to 16.0 mln shares from 20.0 mln, and its IPO pricing at $18 versus the $19-$21 expected range. In all, the IPO is set to generate $288 mln in gross proceeds, 28% less than it had planned for. With the company sitting on $394 mln in long term debt, it could use as much capital as possible to help wear down that balance.
The IPO was led BofA Merrill Lynch, Morgan Stanley, and Jefferies. The stock opened for trading this morning on the NYSE at $16.75.
YETI is a designer, manufacturer, and marketer of premium camping, hunting, fishing, and outdoor products, best known for its high-quality coolers. Since its founding in 2006, it has significantly expanded its product lines from durable coolers primarily built for hunting and fishing to drink-ware, travel bags, backpacks, outdoor chairs, blankets, apparel, and accessories.
As the company has expanded its product offerings, its customer base has also become much more diverse. For instance, from 2015-2018, its customer base has evolved from 9% female to 34% and has gone from 64% aged 45 and under to 70%. Additionally, its business is not nearly as dependent on the hunting and fishing market as it was in its earlier years. Specifically, hunting and fishing now accounts for 38% of its customer base as compared to 69% in 2015. However, YETI also sees it as a priority to stay true to its heritage, and to that end, it continues to invest and focus on the hunting and fishing markets.
The company has also significantly built out its distribution chain as it has grown. Today, it implements an omni-channel strategy, including its wholesale channel (70% of sales), which includes national and independent retailer partners, as well as its direct-to-consumer (DTC) channel. Its domestic retailer base includes major retailers such as Dick's Sporting Goods, REI, Bass Pro Shops, Ace Hardware, and Academy Sports + Outdoors. In total, as of June 30, 2018, its retail partner base totaled 4,800 stores. Meanwhile, its DTC channel consists of online sites like YETI.com, YETIcustomshop.com, the Amazon Marketplace, and its flagship store in Austin.
Taking a look at its results for the six months ended June 30, 2018, revenue in the quarter rose 34% to $341.5 mln. Keep in mind, though, that this came relative to an easy comp from the year ago period. By channel, net sales in its wholesale channel increased 22%, to $235.8 mln, as a result of replenishment orders from its retail partners caused by strong product sell-through, sales of new products, and additional colorways for existing products. DTC sales surged by 75% to $105.8 mln with strong sales across all product categories, but Drinkware in particular was a leading category.
Gross margin did dip, however, to 46.2% from 46.9%, due to price reductions on select coolers and drinkware products in 2H17 and 2018 in order to re-position these products in the market and create pricing space for new product introductions. On the positive side, gross margin did significantly turn higher in 3Q18 to 49.7%.
One of the best attributes regarding its financials is the reduction in SG&A expense as a percentage of total revenue. As a percentage of net sales, SG&A decreased 540 basis points to 35.5% for the six months ended June 30, 2018.
As a result of the above, Operating Income grew by 136% to $36.4 mln, while Adjusted EBITDA was up 73% to $58.4 mln.
On the balance sheet, YETI is showing a pro cash balance of $149.4 mln as of June 30, 2018 and long-term debt of $386.4 mln.