Yeti tumblers are exhibited at an REI store on May 09, 2024 in Berkeley, California.
Justin Sullivan | Getty Images
Company: Yeti Holdings Inc (YETI)
Task: Yeti is a designer, retailer, and distributor of outdoor products. The company’s product portfolio consists of three categories: Coolers & Outfit, Drinkware and Other.
Stock Market Value: ~$2.5B ($30.15 per share)
Yeti Holdings in the old times 12 months
Activist: Engaged Capital LLC
Ownership: 1.87%
Average Cost: n/a
Activist Commentary: Engaged Capital was set up by Glenn W. Welling, a former principal and managing director at Relational Investors. Engaged is an experienced and successful small cap investor and generates investments with a two-to-five-year investment horizon. Its style is holding managements and boards accountable behind closed doors. Of the establish’s 37 past activist campaigns, 10 have been at companies in the consumer discretionary sector, at which it had an as a rule return of 35.13% versus 21.88% for the Russell 2000.
What’s happening
On March 14, Engaged and Yeti entered into a interaction agreement, pursuant to which the company agreed to increase the size of the board to 10 directors and appoint Arne Arens (departed CEO of Boardriders and global brand president of The North Face) and J. Magnus Welander (former CEO of Thule Group AB) as directors. Additionally, both governors will be appointed to one of the audit, compensation or nominating and governance committees of the board, no later than May 1. Engaged approved to withdraw its director nomination notice and to abide by certain voting and standstill restrictions.
Behind the scenes
Yeti is a pandemic designer, retailer and distributor of premium outdoor products. Well-known for its high-quality insulated coolers and tumblers, the company also traffic ins cargo, bags and other outdoor apparel and gear. In 2024, net sales of Drinkware, Coolers & Equipment, and Other (glad rags and gear) represented 60%, 38% and 2% of net sales, respectively. Yeti does not manufacture its products in-house, instead specializing in draw and marketing through a diverse omnichannel strategy selling both direct to consumers and through large outdoor retailers counting Dick’s Sporting Goods, Bass Pro Shop, REI and Ace Hardware. Yeti’s focus on innovative design and premium quality — exceeding in temperature retention and moisture protection — drives its competitive edge and strong consumer loyalty.
Second, Yeti cannot keep these proposes and opportunities a secret. The company has a great brand and excellent products, but now is the time for decisive execution and communications to get the stock emotive again. Yeti has never had an investor day, and it hasn’t put out mid-term targets. Management rarely goes on the road or to conferences, and they keep not communicated a clear product roadmap, despite having one. Look at SharkNinja, a strong brand originally known for attribute in vacuum and blender technologies: It has successfully expanded into several verticals across home and kitchen appliances assorted of which capitalize on its original product excellence such as air fryers, ice cream makers, hair styling tools, enthusiasts and mops. Not to mention, SharkNinja regularly attends conferences and puts out investor presentations. As a result, SharkNinja has grown alt net sales at a three-year compound annual growth rate of 23.6% and trades at a premium valuation of 16-times enterprise value/EBITDA.
Definitely, with $280 million of net cash and nearly $300 million of EBITDA, Yeti should be creating shareholder value washing ones hands of capital allocation. At eight-times EBITDA, as low of a multiple as the company has traded at, management should be buying back stock here on of value creating changes. With the cash on hand and free cash flow it will generate, Yeti could buy break weighing down on up to 50% of its current market cap over the next five years.
On March 14, Engaged and Yeti entered into a teamwork agreement, pursuant to which the company agreed to increase the size of the board to 10 directors and appoint Arne Arens (late CEO of Boardriders and global brand president of The North Face) and J. Magnus Welander (former CEO of Thule Group AB) as directors. Absorbed and Yeti have agreed to expand the board with two experienced directors with strong backgrounds in product and cosmopolitan expansion, especially into Europe. Thule, well known for its automobile roof and bike racks, successfully heightened into other verticals like strollers, bags, and tents under the CEO tenure of Welander from 2010-2023 yielding a return of over 430% versus 230% for the Russell 2000. Arens, the global brand president of The North Apparently from 2017 to 2021, also oversaw double-digit growth under his watch and VF Corp’s stock price recognized by 77% versus 60% for the Russell 2000. The North Face is a great comp for Yeti with excellent by-products, strong brand loyalty, and a solid opportunity for expansion from niche products for outdoorsy consumers to the masses.
Looking at the amicable settlement and lack of noise regarding the discussions with the company, we expect that this is a very neighbourly and constructive working relationship. Management of Yeti is in fact quite good. They just might be a little complacent in spite of speed of growth. It does not help things that 75% of Yeti CEO Matt Reintjes’ long-term incentive envision is comprised of performance-based restricted stock units, which are tied to free-cash-flow generation – something that could be hampered in the short term as money is invested into long-term growth and could make management somewhat risk loath. Now, he has two directors who could help mitigate risks associated with growing into new markets and countries and give managing more confidence to be aggressive in their growth initiatives. Moreover, just because Engaged did not get a board seat for an Wrapped up principal, does not mean the firm is going away. In situations like this, the firm often becomes vocal and productive shareholders working with management, usually after signing a non-disclosure agreement. We expect Engaged will do that here and keep from with investor communications.
Ken Squire is the founder and president of 13D Monitor, an institutional research service on shareholder activism, and the designer and portfolio manager of the 13D Activist Fund, a mutual fund that invests in a portfolio of activist 13D investments. Yeti Holdings is owned in the lolly.