On that topic, two of the most prominent firms -- Goldman Sachs and Morgan Stanley -- both came out with bullish initiations on the stock, assigning Buy ($27 target) and Overweight ($20 target) ratings, respectively. Not only were Goldman and Morgan Stanley positive on the stock, but so too was virtually every firm that published an initiation that morning. In other words, Wall Street was essentially pounding the table on the stock with its first earnings report as a public company on the horizon.
For those familiar with the story, you may recall that YETI had a surprisingly rough 2017. Revenue fell by 22% year/year due to an inventory situation caused by retail partners over-buying in the first half of 2016 in response to very strong demand in 2015 that led to selling shortages. Consequently, net sales in YETI’s wholesale channel tumbled by 40% as sales dove for its core product categories, including coolers.
The good news, however, is that the weak results for FY17 have created favorable year/year comparables for YETI in Q4, its seasonally strongest period. Furthermore, with YETI having already provided preliminary Q3 results in its IPO prospectus, investors' attention will be able to be squarely fixated on the company's outlook.
As for those preliminary Q3 results, YETI said that it expects revenue of $196.1 mln, representing year/year growth of 7%. Although the top-line growth still doesn't look spectacular, YETI is expecting significant improvement in terms of margins. Specifically, it forecasted that Adjusted EBITDA margin will improve materially to 19.6% from 16.7% in the year ago period. Consequently, Adjusted EBITDA and Net income are expected to jump by 26% and 50%, respectively.
But, again, most investors will be homing in on YETI's outlook for Q4. For the quarter, analysts are expecting the company to generate EPS of $0.28 on revenue of $226.6 mln, equating to sequential growth of about 16%. Should YETI post an in-line revenue result for Q3 with in-line Q4 revenue guidance, its FY18 revenue of $764.2 mln would represent an increase of 20% -- a major improvement from the 22% drop last year.
In addition to a much-improved top-line performance, gross margin is also projected to improve, with analysts anticipating Q4 gross margin of nearly 52%. As a reference point, gross margin was 46% for both FY16 and for the six months ended June 30, 2018.
Also of note, before the open this morning, Dick's Sporting Goods (DKS) issued mixed Q3 results, beating analysts' bottom line estimates but coming up short on the top line as revenue fell by 4.5% to $1.86 bln versus the $1.88 bln consensus. However, with YETI’s preliminary results already in play due to the company’s IPO prospectus, DKS' Q3 results aren't much of a factor. Not only that, but DKS also reaffirmed its current fiscal year comp guidance and issued upside EPS guidance of $3.15-$3.25.
To wrap up, YETI looks poised to deliver much improved year/year results tomorrow, and the stock is acting accordingly today.