Could the outdoor goods retailer be on the verge of a bottom following a strong third quarter?
Earlier this month, Wall Street finally took notice of outdoor goods retailer Yeti. Despite investor concerns, the company’s strong third-quarter update eased investor concerns about the prospect of a significant slowdown following its pandemic and stimulus-driven sales surge in 2020 and 2021.
Shares of the company had plummeted by over 62% this year before the report. It is still far from fully recovered, but the stock has climbed about 27% this month due to encouraging quarterly sales.
Is there a reason investors are more optimistic about Yeti stock now than last month? A rosier outlook for the company can be attributed to two main factors. Significant improvement in revenue growth year-over-year was noted in Q3 as compared to Q2. Furthermore, despite significant macroeconomic uncertainty, management provided positive guidance.
Let’s Pour Some Drinks
Sales for Yeti’s third quarter rose 20% to $433.6 million compared to the same quarter a year ago. The company surpassed analysts’ expectations of $414.5 million in revenue, and its top-line growth accelerated from 17% in Q2.
As noted in Yeti CEO Matt Reintjes’ third-quarter earnings release, the company’s results, which exceeded management’s expectations, were driven by “balanced sell-in and sell-through at wholesale, strong customer retention and new customer acquisition growth in our direct channel, and a strong contribution from our international expansion.”
As a result of this outperformance, adjusted earnings per share also exceeded analyst expectations, coming in at $0.63 per share versus $0.58 on average. It’s possible that investors may be led to believe that the acceleration in sales growth in Q3, following a deceleration in Q2, suggests growth is unlikely to slow significantly from present levels.
Additionally, management provided investors with upbeat figures and commentary about the important holiday quarter, giving them another reason to be optimistic. Yeti may have been worried that it would lower its full-year outlook again in Q3 after lowering its outlook in Q2.
Rather than exceeding its guidance range, management exceeded it. It was previously expected that Yeti would grow full-year sales by 15% to 17%. However, management now expects sales to increase “approximately 16 percent.”
“We believe our strong brand and innovative product portfolio position us well for the holiday season,” Reintjes said.
Another One?
Despite a challenging macroeconomic environment, the company still targets strong, double-digit growth in its guidance, which is impressive even in this challenging macroeconomic environment.
Companies like Yeti have difficulty forecasting sales because of inflation and higher interest rates. According to its third-quarter update, a prudently cautious outlook has been incorporated into the company’s full-year outlook for the fourth quarter.
The Yeti stock is a great investment for many reasons, including strong sales momentum, profitability, and a powerful brand. This month’s stock rebound was no surprise.