At an REI store in Berkeley, California, Yeti tumblers catch the eye on display—a testament to the brand’s presence in the outdoor community.
Company Overview: Yeti Holdings Inc (Ticker: YETI)
Business Model: Yeti is renowned for crafting, selling, and distributing top-tier outdoor products. Their impressive range includes Coolers & Equipment, Drinkware, and other related items.
Stock Details: The company’s market capitalization is hovering around $2.5 billion, with shares priced at approximately $30.15 each.
Active Stakeholder: Engaged Capital LLC
Ownership Stake: They hold about 1.87% of the company.
Background: Engaged Capital, led by Glenn W. Welling—an alumnus of Relational Investors—specializes in small-cap investments, often spanning two to five years. Their strategy emphasizes discreetly holding corporate leadership accountable. Notably, among their 37 active campaigns, 10 were in the consumer discretionary sector, yielding an average return of 35.13%, surpassing the Russell 2000’s 21.88%.
Current Developments
Earlier this year, on March 14, Engaged Capital and Yeti came to a cooperative agreement. This accord brought about an expansion of Yeti’s board to 10 members, ushering in Arne Arens, formerly the CEO of Boardriders and North Face’s global brand president, and J. Magnus Welander, an ex-CEO of Thule Group AB. They are slated to join pivotal board committees—auditing, compensation, or governance—by May 1. In exchange, Engaged Capital agreed to step back from nominating their own directors and to adhere to voting and other restrictions.
In-depth Analysis
Yeti is a trailblazer in the design, retail, and distribution of high-end outdoor gear. Celebrated for their top-notch coolers and tumblers, Yeti’s catalog extends to cargo solutions, bags, apparel, and other gear. In 2024, their sales in Drinkware, Coolers & Equipment, and Other categories accounted for 60%, 38%, and 2% of net sales, respectively.
Rather than manufacturing, Yeti focuses heavily on design and reaching customers through a robust omnichannel strategy, catering directly and through major outdoor retailers like Dick’s Sporting Goods, Bass Pro Shop, REI, and Ace Hardware. The emphasis on cutting-edge design and premium quality, especially in temperature retention and moisture protection, fuels its competitive advantage and garners consumer loyalty.
Since its market debut in October 2018, priced at $18 per share, Yeti has seen brisk growth, with annual increments between 17% and 29% from 2018 to 2021, peaking at a share value of $108 in November 2021. However, by 2023, growth tapered to just under 4%, and shares settled to $30.15. Now trading at eight times its earnings—which is much less than historical norms—there’s a misperception of stagnancy, though Yeti actually harbors significant potential.
Three avenues for invigorating growth involve first bolstering its momentum from mid-single digit growth to double digits by expanding geographically and diversifying product categories. Having already made strides in Canada and Australia, untapped opportunities lie in Europe and Asia. On the product front, leveraging their expertise in insulation and moisture protection can lead to diversification into luggage, bags, and other camping gear, further capitalizing on brand loyalty rooted in quality.
Secondly, if Yeti wants to shake off misconceptions of stagnation, it needs to share its future plans more effectively. A stellar brand and outstanding products alone won’t drive stock momentum without external engagement. Yeti has yet to host an investor day event or set clear medium-term benchmarks. Contrast this with SharkNinja, a brand that scaled from vacuums and blenders into a myriad of home appliances, all while maintaining product excellence. They’ve capitalized on their original strengths while maintaining investor communication—a strategy paying off with significant growth and premium valuations.
Lastly, with $280 million in net cash and nearly $300 million in EBITDA, Yeti is primed to enhance shareholder value through strategic capital allocation. Trading at a low multiple, it’s an opportune moment for stock buybacks ahead of value-driven changes. The available cash and future cash flow could allow Yeti to repurchase nearly half its market capitalization over the next five years.
The recent cooperation with Engaged led to board expansions with seasoned individuals with significant international and product expansion experience. Thule, under Welander, witnessed notable growth, diversifying into numerous verticals while Yeti has opportunities to mirror this success. Likewise, Arens’ tenure at The North Face, known for its widespread appeal and robust product offerings, exemplifies a model Yeti could emulate.
The cooperative and constructive undertone of the agreement reflects a positive partnership, with Yeti’s leadership being solid yet perhaps complacent on growth acceleration. CEO Matt Reintjes’ incentives are heavily tied to free cash flow, potentially leading to risk aversion. However, the new directors might foster confidence in pursuing more aggressive growth strategies. Engaged, even without a direct board seat, is poised to remain an active and supportive shareholder, likely enhancing investor communication strategies.
Ken Squire, who heads both 13D Monitor and manages the 13D Activist Fund, which holds shares in Yeti Holdings, asserts that Engaged will likely play a significant role in steering the investor narrative moving forward.
