Yeti Holdings, retailer and manufacturer of outdoor products, reported earnings and revenue fell in the second quarter as the company still works through the voluntary recall of three products.

Excluding the impact of the recall, sales were up 2%, and Yeti lifted its guidance for the year, predicting a return to double-digit growth in the fourth quarter.

“While there remain unknowns in the market, we continue to deliver on the basis of building a brand, making great product, driving demand, growing our profitability, and scaling international,” said Matt Reintjes, Yeti president and CEO, on an earnings call Thursday.

Reintjes added the company is still seeing positive results in several categories, including drinkware, but the biggest financial improvement is the ongoing benefit from lower inbound container costs.

“The biggest driver this year will be inbound freight,” he said.

Recall Impact

In February of this year, Yeti proposed a voluntary recall of its Hopper M30 Soft Cooler, Hopper M20 Soft Backpack Cooler, and SideKick Dry gear case.

Yeti started processing recall returns and claims during the second quarter of 2023. The company saw more consumers opting to receive gift cards instead of having products replaced than it expected, said Mike McMullen, CFO of Yeti.

As a result, the company updated its recall reserve assumptions, which increased the estimated recall expense reserve by $8.5 million. However, the overall consumer recall participation rate has gone as expected, according to the company.

Yeti Q2 Results

In the quarter ended July 1, 2023, sales decreased 4% to $402.6 million for the Austin, Texas-based company, negatively impacted by $24.5 million due to the recall.

Adjusted sales, which exclude the impact of the recall reserve adjustment, increased 2% to $427.1 million.

DTC revenue increased 1% to $226.4 million, mainly due to growth in drinkware.

Wholesale channel sales decreased 10% to $176.2 million, driven by a decline in coolers and equipment due to the stop sale of the products affected by the recalls, partially offset by drinkware growth.

In all channels, drinkware sales increased 8% to $233.4 million driven by strong demand for Rambler bottles, the debut of new Yonder bottles, Rambler straw lid mugs, a new beverage bucket, and new seasonal colorways.

“Our drinkware has been a really important part of our business,” Reintjes said. “We continue to see that resonate with customers, in our product portfolio, in our sizes, in our colorways.”

Coolers and equipment sales decreased 19% to $156.6 million. The drop was primarily due to the stop sale of the products affected by the recalls. These impacts were partially offset by strong performance in hard coolers, soft coolers that were not impacted by the recalls, and cargo.

Gross margin improved to 53.4% compared to 52.2% in the same period last year, due to lower inbound container costs.

Net income decreased 18% to $38.1 million. Adjusted net income, which excludes the impacts of the voluntary recall, fell 9%.

Looking Ahead

The company upped its guidance for the rest of the year, assuming adjusted sales growth of 4% to 5%, versus the previous outlook of between 3% and 5%.

Adjusted net income per share should range from $2.23 and $2.32, versus the previous outlook of between $2.12 and $2.23. That reflects a 2% to 6% decrease, with earnings growth beginning in the fourth quarter of the year.

“This outlook includes an expected return to double-digit growth in the fourth quarter supported by the reintroduction and expansion of the products impacted by the recall and our continued success driving demand in newer product families and line extensions,” Reintjes said.

“We have also increased our gross margin outlook for the year driven by our first half performance, supporting an increase in our bottom-line outlook.”

Bart Schaneman can be reached at [email protected].