Yeti looks to round out its wholesale footprint and mitigate the impact of tariffs headed into the final stretch of 2019.
The company reported its third-quarter earnings on Thursday, noting a new wholesale partnership with Lowe's and increased inventory to avoid potential impact from the looming Dec.15 tariffs on certain Chinese imports.
The high-end cooler maker already has wholesale partnerships with Dick's Sporting Goods, Bass Pro Shops, Cabela's, West Marine and Williams-Sonoma, among others, but CEO Matt Reintjes said the company wanted to expand into the do-it-yourself space.
"We have targeted Lowe's Home Improvement as both a strong rounding out within the DIY space and a broader extension with the pro customer for the yeti brand," Reintjes said in an earnings call.
Yeti will gradually roll out products at Lowe's through the end of 2019 and, based on the success of the partnership, continue the roll-out through early 2021.
The company's direct-to-consumer net sales increased 31% during the third quarter to $92.90 million, compared with $71.20 million in the year-earlier period.
Yeti increased its inventory levels in the third quarter, particularly in drinkware, in advance of Trump administration tariffs on Chinese production, currently scheduled to take effect on Dec. 15.
Nearly all of the company's drinkware products are subject to the 15% levy. Drinkware made up 56% of net sales in Yeti's third quarter. The company increased inventory by 33% to $209.15 million, compared with $157.67 million at the end of the year-earlier period, in an effort to mitigate that financial hit.
Yeti also increased inventory by 21% during the second quarter in anticipation of the tariffs that were originally scheduled to take effect on Sept. 1.
"We brought in inventory earlier in the year to support fourth quarter in advance of the earlier rumored implementation of the drinkware tariffs," Reintjes said in a phone interview with CNBC after the earnings report. "We'll work that down through the fourth quarter."
"We expect to be back to a more normalized inventory position in the first half of 2020 barring continued movement in the tariff conversation," he said.
Reintjes said the company does not have plans to move its drinkware supply chain out of China because "the environment is so fluid right now" and the company does not want to make big decisions for the short term.
"We're going to make what we believe are good long-term decisions for the business and for our product," Reintjes said. "There are a number of levers that we use to mitigate tariffs before you think about mitigating a supply chain."
However, Yeti has been relocating its supply chain for "softer items" like coolers and bags to areas outside of China, mostly Southeast Asia. Yeti's soft cooler and bags found their way onto a list of $250 billion worth of Chinese imports subject to U.S. tariffs. The company hopes to have this supply chain completely moved out of China by the end of 2019.
Yeti raised its 2019 full-year outlook in its third-quarter earnings report on Thursday. The company now expects net sales to increase between 14.5% and 15.0% versus the previous outlook of between 13.5% and 14.0%. The company also expects adjusted earnings of $1.12 to $1.14 per share, compared with the previous forecast of $1.07 to $1.09 per share, according to the earnings report.
Yeti beat analysts' expectations for the third quarter, reporting adjusted earnings of 30 cents per share versus 26 cents per share forecast by Refinitiv consensus estimates.
The company credited the strong quarterly results to new products and expanding gross margins.
Shares of Yeti were down more than 5% on Thursday. Year to date, the stock is up a little over 120%.
Nine analysts have a buy or overweight rating on the stock, while one has a hold rating, according to FactSet. The average price target on the stock is $32.69.