Expanded Product Lines And Global Expansion Will Strengthen Position In Outdoor Market

Key Takeaways

• Innovative product launches and international growth are expected to increase market share and drive future revenues.
  
• Supply chain optimization and brand engagement initiatives aim to enhance margins, consumer loyalty, and long-term earnings.
  
• Heavy reliance on China and competitive market pressures threaten YETI's margins and revenue growth amid international expansion challenges and promotional retail risks.

Catalysts

Designs, retails, and distributes products for the outdoor and recreation market under the YETI brand.

• YETI is expanding its product portfolio with innovative launches in Drinkware, Coolers, and Equipment, which is expected to drive future revenue growth through increased market penetration and a broader addressable market.
  
• The company is experiencing significant international growth, with over 30% increase in non-U.S. sales for the fourth consecutive quarter, enhancing future revenue and margin prospects as they diversify geographically.
  
• YETI's supply chain initiatives, including the expansion of Drinkware production outside of China, are expected to optimize costs and improve service scalability, potentially boosting net margins and supporting long-term earnings.
  
• Investments in brand engagement through events and media, as well as increased customization offerings, are likely to drive higher consumer engagement and loyalty, contributing to sustained revenue growth and higher net margins.
  
• The ongoing expansion of YETI's omnichannel presence, particularly through strategic wholesale partnerships and DTC growth, is set to bolster revenue opportunities and maintain a healthy balance between channel sales, positively impacting overall earnings.

YETI Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming YETI Holdings's revenue will grow by 7.3% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.2% today to 11.4% in 3 years time.
• Analysts expect earnings to reach $252.7 million (and earnings per share of $3.12) by about December 2027, up from $201.1 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $217 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.9x on those 2027 earnings, which is the same as it is today today. This future PE is greater than the current PE for the US Leisure industry at 17.0x.
• Analysts expect the number of shares outstanding to decline by 1.5% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.76%, as per the Simply Wall St company report.

YETI Holdings Future Earnings Per Share Growth

Risks

• The ongoing reliance on China for a significant portion of YETI's Drinkware supply chain, despite efforts to diversify, poses a risk of tariff impacts and potential supply chain disruptions, which could negatively affect gross margins and product costs.
  
• The challenging U.S. market, characterized by more discerning buyers, suggests potential headwinds for domestic sales growth, potentially impacting overall revenue projections.
  
• Executing transitions in international expansion and new product introductions, such as the Drinkware facility migrations and the expanded bags launch, involves execution risks that could affect operational efficiency and net margins.
  
• Given the importance of Q4 for sales and the shorter holiday shopping season, any adverse consumer behavior or economic conditions could lead to underperformance against sales expectations, impacting revenue growth and earnings.
  
• The potential for an increasingly promotional retail environment, especially in the highly competitive giftable goods category, could pressure pricing strategies and ultimately affect gross margins.

Valuation

• The analysts have a consensus price target of $45.88 for YETI Holdings based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $55.0, and the most bearish reporting a price target of just $36.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $2.2 billion, earnings will come to $252.7 million, and it would be trading on a PE ratio of 17.9x, assuming you use a discount rate of 6.8%.
• Given the current share price of $42.52, the analyst's price target of $45.88 is 7.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.