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Yeti tumblers are prominently displayed at an REI store in Berkeley, California, highlighting the brand’s ongoing presence in the outdoor product market.
Company Overview: Yeti Holdings Inc (YETI)
Market Capitalization: Approximately $2.5 billion, or $30.15 per share.
Activist Involvement: Engaged Capital LLC
Ownership Stake: 1.87%
Average Cost: Not applicable.
Commentary from Activist Investor: Engaged Capital was established by Glenn W. Welling, a former principal and managing director at Relational Investors. The firm focuses on small cap investments, typically setting a two-to-five-year objective for returns. It emphasizes holding management accountable behind closed doors, with a notable history of success in the consumer discretionary sector, achieving an average return of 35.13% compared to the Russell 2000’s 21.88% in its activist campaigns.
Recent Developments
On March 14, Yeti and Engaged Capital signed a cooperation agreement that will increase the board size to ten directors. This change will see the appointment of Arne Arens, former CEO of Boardriders and global brand president at The North Face, alongside J. Magnus Welander, former CEO of Thule Group AB, as new board members. Both appointees are expected to join one of the board’s committees by May 1. In exchange, Engaged Capital agreed to withdraw its director nomination notice and comply with specified voting and standstill restrictions.
Company Insights
Yeti has established itself as a leading global designer, retailer, and distributor of premium outdoor equipment. Renowned for its high-quality insulated coolers and drinkware, the company also offers bags, clothing, and various outdoor accessories. In 2024, its net sales distribution revealed that Drinkware accounted for 60%, Coolers & Equipment made up 38%, and Other categories comprised 2%. Rather than manufacturing its products internally, Yeti focuses on design and marketing, utilizing a comprehensive strategy that includes direct consumer sales and partnerships with major outdoor retailers such as Dick’s Sporting Goods, Bass Pro Shop, REI, and Ace Hardware. The brand’s commitment to innovative design, coupled with a focus on superior quality, particularly in temperature retention and moisture protection, has solidified its competitive advantage and fostered strong customer loyalty.
Yeti debuted on the stock market with its initial public offering in October 2018, initially priced at $18 per share. The company demonstrated solid growth, maintaining an annual increase of 17% to 29% from 2018 to 2021, and providing substantial returns to shareholders that peaked at $108 per share in November 2021. However, growth has decelerated to just 3.98% in 2023, and its stock now stands at $30.15. Currently, Yeti is trading at eight times earnings before interest, taxes, depreciation, and amortization (EBITDA), a stark contrast to its historical valuation of over twenty times. This has led to perceptions of Yeti as a stable brand with limited growth prospects. Yet, analysis suggests there are significant opportunities for value creation.
Firstly, Yeti could significantly enhance its growth trajectory by broadening its geographic presence and expanding into new product categories. The company has already seen success in markets like Canada and Australia, but substantial opportunities remain in Europe and Asia. With its expertise in insulation and moisture protection, Yeti could effectively branch into new areas such as luggage and camping gear. While some initial steps in this direction have been taken, consistent efforts in diversification remain vital, particularly considering the strong brand loyalty it has cultivated through its commitment to quality.
Secondly, Yeti needs to enhance its communication strategies to inform the market about its growth strategies and operational plans. Despite having an excellent brand reputation and high-quality products, Yeti has yet to hold an investor day or set clear mid-term targets. The company rarely participates in conferences or shares detailed product roadmaps. A comparative analysis with SharkNinja underscores this point; that brand has successfully diversified within the home and kitchen appliance sector, consistently engaging with investors and showcasing its growth metrics. SharkNinja currently enjoys a robust compound annual growth rate of 23.6% over three years and commands a premium valuation, an approach that Yeti would do well to emulate.
Lastly, given its strong financial position—boasting $280 million in net cash and close to $300 million in EBITDA—Yeti should actively work to enhance shareholder value through strategic capital allocation. At an eight-times EBITDA valuation, management should consider stock buybacks, potentially repurchasing up to 50% of its market capitalization over the next five years, leveraging its cash reserves and future cash flow.
The cooperation agreement from March 14 formalizes the addition of two directors with strong backgrounds in product development and international market expansion, two areas where Yeti has significant growth potential. Welander, during his tenure at Thule, oversaw a notable diversification into various product categories, achieving over 430% returns, while Arens tracked substantial growth for The North Face, enhancing its market position under his leadership. This experience is likely to prove beneficial for Yeti, who finds itself at a pivotal moment for growth.
The amicable nature of this agreement suggests a constructive relationship between Engaged Capital and Yeti’s management. While the current team is capable, there is growing evidence of complacency regarding the pace of growth. Given that 75% of CEO Matt Reintjes’ long-term incentive plan is linked to performance-based restricted stock units aimed at free cash flow generation, there may be hesitance to take risks for short-term investments that could fuel longer-term growth. However, with the appointment of these new directors, Yeti’s leadership now has the potential support to confidently pursue aggressive growth strategies in new markets and product lines. Despite not obtaining a board seat for a representative, Engaged Capital remains actively involved, and will likely play a constructive role in shaping communications with investors.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the founder and portfolio manager of the 13D Activist Fund, which includes Yeti Holdings in its investment portfolio.
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