YETI Holdings, Inc. (YETI) Q1 2024 Earnings Call Transcript

Good morning, and thanks for joining us to discuss YETI Holdings' First Quarter Fiscal 2024 Results. Leading the call today will be Matt Reintjes, President and CEO; and Mike McMullen, CFO. Following our prepared remarks, we'll open the call for your questions. Before we begin, we'd like to remind you that some of the statements that we make today on this call may be considered forward-looking, and such forward-looking statements are subject to various risks and uncertainties that could cause our actual results to differ materially from these statements. For more information, please refer to the risk factors detailed in our most recently filed Form 10-K. We undertake no obligation to revise or update any forward-looking statements made today as a result of new information, future events or otherwise, except as required by law. Unless otherwise stated, our financial measures discussed on this call will be on a non-GAAP basis. We use non-GAAP measures as we believe they more accurately represent the true operational performance and underlying results of our business. Reconciliations of these non-GAAP measures to their most directly comparable GAAP measures are included in the press release or in the presentation posted this morning to our Investor Relations section of our website at yeti.com. And now I'd like to turn the call over to Matt.

Thanks, Tom, and good morning. YETI delivered a great start to 2024 as evidenced by our strong first quarter results. We saw positive global demand for our brand and our broadening range of products, and we had great execution across multiple fronts, driving double-digit growth in both our wholesale and DTC channels as well as our Coolers & Equipment and Drinkware categories. Our wholesale performance was supported by sell-in and sell-through relative to the year ago period, while our DTC business showed continued growth across e-commerce, corporate sales, Amazon and YETI retail. In Coolers, with our new innovation and expanded awareness campaign, we believe we are well positioned for the upcoming seasonal demand. In Drinkware, our range of bottles and tumblers continue to deliver strength within the category. By geography, International growth exceeded 30% year-over-year to reach a YETI high of 19% of total sales, even as our domestic growth was nearly 10%. Behind the strength of the brand, the growing product portfolio and global expansion, we are on track to deliver on our full year top-line outlook. Given the combination of inbound freight recovery, product cost improvements driven by outstanding work by our supply chain and operations team and strong price discipline, we're pleased to report profitability to build upon our historical strength, delivering a 450 basis point improvement in gross margins. Following our top-line performance and gross margin strength, our adjusted operating margin also expanded by 440 basis points for the period. In the quarter, we also delivered on our capital allocation priorities, starting with the completion of our Mystery Ranch and Butter Pat acquisitions. Our integration of these businesses is on track as we accelerate our mid- and long-term opportunities in bags and cookware. Finally, we announced a $100 million accelerated share repurchase plan in late-February, which was fully executed last month. From a top-line perspective, we remain optimistic on our demand drivers for the full year. We expect sales performance consistent with our original guidance, as we balance performance against anticipated ongoing conservative purchasing at higher price points, balanced channel sell-in and demand and are compared against headwinds as a result of last year's recall-related gift card redemptions. Looking at our bottom line, we are raising our outlook to reflect our margin strength and the execution of our ASR. As previously indicated, we will continue to evaluate thoughtful and strategic capital allocation opportunities in the quarters ahead. Turning to our growth strategy in 2024 and beyond. Our priority remains to extend brand reach and engagement, drive product diversification across our portfolio, leverage our powerful omnichannel to reach customers and build our global business. Shifting to our brand reach. Q1 highlighted the ongoing evolution of YETI's breadth and depth brand strategy. In the early months of 2024, we have activated alongside some of our larger global partnerships. In the second year of our partnership with the World Surf League, we became the presenting partner for the first event of the season, the YETI Pro pipeline in Oahu. On the Mountain, our activation included continued events such as natural selection. Finally, in Formula One racing, our partnership with RedBull Racing is proving to find creative ways for YETI to integrate and support the team. We also established a new partnership in the world of professional soccer with a club looking to disrupt the status quo. In March, the Kansas City Current debuted the world's first stadium built specifically for a women's pro sports team. We're incredibly proud to support the Current, their visionary ownership and the team's efforts to elevate the profile of both the sport and these incredible professional athletes. We look forward to the many innovative ways we will connect our brands. Our community marketing efforts, combined with the amazing work our team does on the brand side, showed how we grow, develop and connect our global audiences. Fitness was a natural place to start the year, highlighting the work our ambassadors put in before heading out to the wild, and the YETI gear that gets them through it all. We expanded our health and fitness efforts this year, with brand placement in nearly 1,300 gyms across the country. Next, we focused on highlighting our expanded Drinkware offerings in coffee, driving awareness, reach and relevance for new and existing global customers. As you may have seen this week, we added to the portfolio a new YETI French press that can double as a beverage pitcher, as we look to release the stand-alone pitcher later this summer. YETI also received two incredible brand accolades during the quarter that speak to the passion, talent and creativity of our team. Ad Age is 2024 In-House Agency of the Year and Fast Company's most innovative companies in PR and brand strategies. These affirmations, while not the goal, are a testament to the energy, realness and humanity that the team puts into our brand. This is what creates the emotional connection and sustainable passion for what we do. This isn't about a moment. It's about growing a movement towards reconnection of people and community to the wild. I want to thank the entire YETI team for their belief in pouring themselves into this against a market backdrop that at times is more focused on buzz. This brand has been built on consistently and sustainably engaging customers and communities, showing up in real ways and staying true to the spirit of what YETI is, all while growing and evolving globally. To that end, in the current quarter and throughout 2024, we will find moments to engage new and existing customers from spring travel to gift-giving occasions, to the start of summer, with incredible story to tell the people in places that support our expanding product assortment. As we shift to product, there are three key themes this year: a focus on growth in our cooler family, the evolution of YETI into broader food and beverage, and the product expansion potential under the YETI brand umbrella and brand-building playbook. Across our product range, we're in a great position to capitalize on the warmer weather in the beginning of summer travel and outdoor activities. We're leveraging a few key demand drivers as we head into the season: innovation, awareness and conversion. We're excited about the next wave of hard cooler innovation in 2024, building upon our legacy dating back to our first hard cooler in 2006. Recently, we debuted our Roadie 32-cooler, our smallest and most portable wheel cooler to date. The Roadie was designed to pull up to a campsite, move through a tailgate or handle weekend tournaments. Later this summer, we plan to introduce a personal-sized hard cooler, which will anchor at the entry price point for YETI hard coolers at $200. Think of this as a good day out type cooler that will work well in a side-by-side on a golf cart or on the job. On the Drinkware side, we're seeing a great response to our deep portfolio of 50-plus offerings across our premium range of bottles and tumblers. This is part of our growth and expansion strategy as we support more moments in their day. We are evolving this category and building out solutions to address what we see as consumer needs and opportunities. For instance, the previously announced french press and pitcher complement last year's beverage bucket and wine chiller, and are a sign of the evolution and the opportunity. Additionally, after years of requests from our customers, we will launch a couple of highly giftable barware items in limited supply and time for Father's Day. To round out the 2024 offerings, we also plan to introduce our first YETI cast iron cookware later this summer. Outside of Coolers and Drinkware, we're excited by the prospects of what we see as possible in bags, cargo and the expanding group of offerings under our Coolers & Equipment family. We expect to deliver innovation across this entire range, starting with our flagship dry bag expansion earlier this year, following last year's addition of new waterproof dustproof cargo boxes. There's more to come around this. We continue to be focused on driving awareness in the top of mind for YETI. We're deploying a range of brand efforts across TV, digital, print and out-of-home, to keep the brand and product in front of the consumer. This includes an incredible partnership with our wholesalers to drive awareness during those important moments as we launch new products. Additionally, we're using a broad range of direct performance marketing programs focused on driving consumers towards conversion. Through these expanded efforts in innovation and marketing, we will continue to deliver integrated storytelling that connects people and products, highlighted at times with color inspiration from the wild. As we see opportunities to reach more customers, engage them in impactful ways and tell powerful brand and product stories, we're also focused on strengthening our global go-to-market. Our strong and diverse channels to market are a key contributor to the balanced growth achieved in the first quarter and speak to the consistency and power of YETI. Turning to our DTC performance. We saw the benefits of customer value in UPT against a more challenging traffic and customer count, as we lap the start of last year's recall and our selected end-of-life transitions. Our Amazon marketplace remained consistently strong as we see that customer loyalty to the channel, further supporting our strategy of diverse channels to market. Corporate sales delivered strong order volume and inbound demand. The addition of more efficient and cost-effective printing technology for hard coolers underscores our continuous improvement efforts, delivering value for the customer and YETI. We opened the newest locations of our YETI retail stores in the Woodlands outside of Houston and in New York City's Flatiron District. Our stores continue to provide a singularly unique opportunity to see the depth and breadth of YETI's product offering, engage with product experts, learn and shop. We are targeting to open six total locations this year, including the upcoming openings in Kansas City and Calgary, which would bring our fleet total to 24.

Thanks, Matt, and good morning, everyone. I'll start with a few comments on the impact of certain strategic actions on our GAAP results, which are excluded from our non-GAAP results. I'll then provide an overview of our performance in Q1 across our non-GAAP measures. Finally, I will give some details on our updated fiscal 2024 outlook before opening it up for your questions. Our GAAP results for the first quarter of 2024 include the impact of two items that I would call out for you all this quarter. One, transition costs associated with our recent acquisitions, including the impact of purchase accounting on our gross margins; and two, costs associated with the closure of our Vancouver design center. While we were pleased with the work that our team in Vancouver was delivering, the acquisition of Mystery Ranch provided an opportunity to consolidate this work into one location in Bozeman, Montana. The impact of these and other items is excluded from our non-GAAP results. Per our normal practice, our results discussed on this call will be on an adjusted non-GAAP basis in order to better focus on the operational performance of the company during the period. Now moving on to the details of the quarter. First quarter sales increased 13% to $341 million. As Matt detailed, our strong performance was balanced across categories, channels and geographies. These results include the initial contributions from Mystery Ranch and $2 million of gift card redemptions related to remedies offered to customers impacted by the product recall. We are pleased with the progress we have made to integrate our recent acquisitions, and they are on track to generate approximately 200 basis points of top-line growth for YETI in 2024. By category, Drinkware sales increased 13% to $215 million. Our performance was driven by a number of factors, including a portfolio of over 50 products that we continue to expand, exceptional growth outside the United States and continued strong customer demand for color and customization on a global basis. Here are a few specific examples of products that drove our growth in Q1. We launched a new lineup of three stackable tumblers that offer our customers the same great performance, with added functionalities such as improved space saving, hand fit and cup holder compatibility. The products that we launched last Q4 continued to gain traction, including our smaller coffee specialty sizes, our 42-ounce straw mug and our cocktail shaker. We had a great quarter in bottles driven by the wide range of sizes, materials and lid options that we offer our customers. And we remain excited by the growth of our tabletop and barware offerings such as the beverage bucket and wine chiller. Coolers & Equipment sales increased 15% to $120 million. Both hard coolers and soft coolers posted growth for the period. We are excited to now have our full assortment of products available in the market, including in seasonal colors. And we continue to add to this product lineup with the recent innovation in hard coolers that Matt mentioned. While we do continue to expect to see some pressure on higher price point items as we go through this year, we believe we are in a strong position to win in coolers as we head into the peak summer months. Beyond coolers, we saw strong organic performance from our legacy YETI bags lineup, led by our Panga waterproof line and the expansion of our SideKick Dry Gear Case line. The category also benefited from the inclusion of Mystery Ranch, which was on plan for the quarter. From a channel perspective, direct-to-consumer sales grew 12% to $188 million, representing 55% of total sales, driven by growth in both Drinkware and C&E. Additionally, we drove solid growth across each of our direct sales channels during the period, including e-commerce, corporate sales and Amazon. While still a relatively small contributor, we were also pleased with the growth of YETI Retail. As Matt mentioned, we are modestly accelerating our new store plans this year, as we look to expand our reach and provide more opportunities for consumers to experience the full breadth of our product assortment. Wholesale sales increased 13% to $154 million, driven by growth in both C&E and Drinkware. Importantly, sell-through for both product categories was positive and our channel inventory levels remain in good position. Outside the U.S., sales grew 32% to $66 million, representing 19% of total sales, driven by outsized growth in Europe and Australia. The opportunity outside the United States remains significant as we look to drive brand awareness, expand our wholesale footprint and leverage our full set of direct-to-consumer capabilities. Gross profit increased 22% to $196 million or 57.5% of sales compared to 53% in the same period last year. Positive drivers of this 450 basis point increase include 370 basis points from lower inbound freight and 190 basis points from lower product costs. These gains were partially offset by 60 basis points from higher customization costs given the continued growth of our custom business, 20 basis points from strategic price decreases on certain hard coolers that we implemented during the quarter and 30 basis points from all other impacts. SG&A expenses for the quarter increased 13% to $157 million and remained flat at 45.9% of sales. Non-variable expenses increased 10 basis points as a percent of sales, offset by variable expenses decreasing 10 basis points as a percent of sales. Within non-variable, higher employee costs and marketing expenses were offset by lower warehousing costs. Operating income increased 82% to $40 million or 11.6% of sales, an increase of 440 basis points over the 7.2% that we reported in the prior year period. Net income increased 89% to $29 million or $0.34 per diluted share compared to $0.18 in the prior year period. We ended the quarter with $174 million in cash compared to $168 million in the year ago period. The decline in cash on a sequential basis was driven by our accelerated share repurchase agreement, the acquisitions of Mystery Ranch and Butter Pat and the normal seasonality of our cash and working capital. Inventory increased 5% year-over-year to $364 million. We expect year-end inventory to generally grow in the range of sales, but there may be quarters this year, where it grows at a faster rate than sales as we build inventory ahead of new product launches. Total debt, excluding unamortized deferred financing fees and finance leases, was $81 million compared to $84 million at the end of last year's first quarter. During the quarter, we made a principal payment of $1 million on our term loan. Now turning to our fiscal 2024 outlook. We continue to expect full year sales to increase between 7% and 9% compared to fiscal 2023's adjusted net sales, inclusive of approximately 200 basis points of contribution from our two acquisitions. As we previously indicated, we expected a stronger growth rate in the first quarter. Looking ahead, we continue to expect relatively balanced growth across the upcoming quarters, with Q2 planned slightly below our growth rate in the second half of this year. There are a number of comp dynamics to consider this year, including gift card redemptions, which we will start to compare against in Q2. The largest impact from prior-year gift card redemptions will be in the second quarter, when we saw $12.5 million worth of redemptions in the prior-year quarter. We are reiterating our expectations for growth across channels, categories and geographies. By channel, we expect balanced growth between wholesale and DTC. By category, Coolers & Equipment is expected to outpace Drinkware, given both the return of our full soft cooler lineup and the incremental sales of Mystery Ranch products. And we expect International growth of between 20% and 25% compared to Domestic growth in the mid-single-digit range. As a final comment on sales, consistent with last quarter, we continue to take a prudently conservative approach to how we plan the remainder of the year. Supported by our strong performance in the first quarter, we are increasing our 2024 gross margin target to approximately 58% compared to our original target of approximately 57.5%, and up from 56.9% last year. This increase is due to slight benefits across a number of drivers within our gross margin line versus one single factor. The ongoing recovery of inbound freight costs remains the largest driver of our year-over-year gross margin expansion this year, but we do continue to see some offsetting rate pressure due to the Red Sea conflict. From a phasing perspective, we expect margin expansion to start to ease in Q2 versus the significant increases we have seen over the past four quarters. As we move into the second half of the year, we expect to have largely comped the benefit of lower inbound freight costs. Thus, our gross margins in the second half will be much more in line with the prior year. But over the long term, we still see opportunities to continue to expand our gross margins through drivers such as sales mix, product cost savings and other supply chain efficiencies. With the increase in our gross margin outlook, we are also raising the high end of our operating income outlook. We now expect adjusted operating margin of between 16% and 16.5%, up from our prior outlook of approximately 16% and compared to 15.6% in fiscal 2023. On a quarterly basis, we expect operating income growth to be roughly in line with sales growth. As we have discussed previously, we will continue to use a portion of our gross margin upside to incrementally invest in our business. These investment areas include our global expansion efforts, our DTC business, and support for inorganic opportunities. Therefore, while full year SG&A is expected to grow at the high end of our sales range, the timing of investments may drive some variability in our SG&A growth rate on a quarter-to-quarter basis. More importantly, our focus is on delivering our top and bottom line outlook for the year and on driving top line growth over the long term. Below the operating line, we continue to expect an effective tax rate of approximately 25.3% for the year, slightly above the 24.8% rate in 2023. As we disclosed in an 8-K filing, we entered into a $100 million accelerated share repurchase agreement during Q1. That contract fully executed as of April 22, and thus, we expect full year diluted shares outstanding of approximately 86.1 million. Due to this lower share count and raising the high end of our operating income range, we now expect adjusted earnings per diluted share to increase 11% to 16% to between $2.49 and $2.62 compared to $2.25 in fiscal 2023. As for cash, we continue to expect capital expenditures of approximately $60 million and free cash flow of between $100 million and $150 million this year. We will remain opportunistic going forward as we look to deploy cash between M&A and further share buybacks. As a reminder, we have $200 million remaining on our most recent share buyback authorization. In summary, we were pleased with our first quarter execution. We delivered balanced top-line growth across the business, continue to improve our profitability, made progress on the integration of our recent acquisitions and delivered on key pieces of our capital allocation strategy. At the same time, we are mindful of the relative size of the first quarter and some ongoing uncertainties in the overall market. Thus, some caution continues to be reflected in our updated full-year outlook. But we will also remain opportunistic as we go forward, making investments and taking actions that support our long-term growth ambitions and drive value to our shareholders. Now I would like to turn the call back over to the operator to take your questions.

This is Martin on for Joe. Just wondering if we can get an update on overall demand trends, particularly on hard coolers? And just any explanation that might be driving them, whether it's affordability, competition, saturation or sort of some combination of all of the above?

Yes. Martin, thank you for the question. So I think, first of all, we were pleased to return to growth in both soft and hard coolers. In soft coolers, obviously, it was related to having the recall products back in our lineup, but in hard coolers, there was an element of a sell-in compare in wholesale. But at the same time, during Q1, we were also comping against the EOL transition promo, that was an issue in Q4 that we called out. But like we mentioned in our prepared remarks, we saw growth in C&E on both a sell-in and a sell-through basis. But I think the key point is that Q1 is our smallest quarter, and there's a seasonality aspect in coolers to consider. But as we look forward, as we enter the seasonally higher period, we think we're in a really good position to win in coolers. We've got our entire assortment back in the market of soft coolers and we've got new innovation coming in hard coolers. We do believe there's some sensitivity to higher price point items in the market that still exist. But for the demand that is in the market, we believe we're in a really great position to go win it. From a competitive standpoint, I think like we've said all along, we've had competitors in all categories for years. We believe we've got the best products in the market and we're in a good position to win.

Great. And just kind of on our last thought about sort of softness in high-end items, have the targeted price cuts on certain Roadie and Tundra products help this for demand? And should we anticipate any additional pricing actions as well as any future innovation, will that be at lower price points, just to combat affordability?

Yes. To address the second question, we introduced two new products, a lower price point wheeled cooler and a new entry-level hard cooler for the category. This is not a response to market conditions; rather, it’s about completing our product portfolio to meet various use cases. I wouldn’t describe this as a reaction to market events. The same applies to the price reductions. What we did in Q1, as we mentioned last quarter, was mainly driven by the new innovations coming out to ensure that our pricing structure makes sense and aligns with consumer perceptions of value as you move up the product lineup. In Q1, we focused on a select number of SKUs, not the entire portfolio, and this was largely in line with our expectations. We observed the anticipated elasticity on a unit basis and were pleased with the outcomes.

Great. Congratulations on a great quarter.

Matt, I wanted to ask a question around innovation. When I think about, let's say, the last couple of years, I've thought about incremental growth being derived a lot from, let's say, additional color ways to the assortment. But more recently, it appears to me, and I could be wrong, that there's been a sizable impact from form factor changes in innovation as it relates to, let's say, the french press, or the cocktail shaker, coffee ceramic products, et cetera, on the Drinkware side. Can you maybe kind of give us your perspective there on that innovation around as it relates to form factor changes versus color? Because I think what would be interesting there is, if, in fact, a lot of the incremental growth is coming from form factor changes, it just provides a lot more kind of opportunity and changes for existing and new customers to buy into more and more YETI products? I just want to get your perspective there.

Randy, thanks for the question. I think it's a combination of things. You're correct. As we have continued to scale, as we continue to draw on new audiences domestically and globally into the brand, we've seen opportunity to expand our product portfolio within our two big groups. Drinkware has expanded. We think in a really thoughtful kind of powerful way as you know from following our story. We focus on our productivity and the leverage we get on each SKU we launch. And the same with C&E, we've driven innovation within hard coolers, within soft coolers, expansion of our cargo business, the expansion of our bags, the addition of M&A to drive an accelerant there. And so we do think that it gives us the opportunity to address more consumer needs and more points in time or more points in their day. So that form factor change, I think you're going to continue to see a rhythm of us doing that as we expand and diversify the product portfolio. And we think that's a really impactful way to grow the business. Color does play an important role in not just customer acquisition, but also repeat purchase. As people build out their YETI ownership, what we see is that people want more color. They want to add into their portfolio, and that's not just a Drinkware thing, that's actually across the range. What we really work to do is find a balance in those things. We don't want to chase smaller and smaller opportunities and more and more bespoke. We want to continue to put big consumer-relevant items out there in form factor, big consumer-relevant items out there as it relates to color. And that's a formula that's worked for us. As we continue to grow and scale the business, it's a formula we're seeing work not only in the U.S. but around the world.

Yes. Very helpful. And then last question and related to that, just give us your long-term vision then around how you think about the MYSTERY RANCH acquisition and product set, and then also your ambition around cookware. Just give us your thoughts there again on the long term, that would be very helpful.

Thanks, Randy. Two things, and we've said this before, we think those are two very large, highly fragmented categories, very global in nature, both bags and cookware. We think there is an opportunity to leverage YETI's commercial go-to-market the way we tell brand stories, the way we do our product marketing, the way we cultivate our consumer base. We think it's a really attractive opportunity in both of those to drive further ownership of YETI repeat purchase further use cases. So I think what you're going to see in both those instances, and I talked about this on the call, we'll have our real first entry into cookware, the kind of top end of cast-iron later this year. In bags, as we look at taking some of the ingredients and the capabilities and the talent that came along with the Mystery Ranch acquisition and we combine that with some of the materials and talent and designs that we had at YETI, is bringing that together and really building out our bags portfolios as we think about the opportunity in active and every day and in travel. And so with the team that we put in place around both of those things, we're really excited about what that can mean underneath the YETI brand umbrella. We talk all the time about our focus is on what the TAM is for the YETI brand. We think both of those categories fit really well underneath that.

I think last year, you noted that the introductions of tumbler has brought a lot of new customers into the fold. Can you talk about how these new customers are engaging with the brand? Are you seeing repeat purchase behavior? Any color on that would be great.

Anna, this is Matt. A couple of things I would say, and a little bit to the prior question from Randy. As we keep expanding the product portfolio in what I would call useful ways to the consumer and thoughtful ways for them to engage, we've also continued to diversify our consumer base. And as we said in our prepared remarks, the value of our customers continues to go up. The returning and newly acquired customers from a value perspective, we like that dynamic where we can give them more products that are useful to them. I think when you look at the expansion, what we're seeing is people diving deeper into our product portfolio, people coming back and repeat purchasing their favorite product. And that's part of our marketing efforts, it's part of our product marketing efforts. It's also part of how we're advancing some of our analytics and how we put the right offer, the right opportunity at the right time in front of the consumer. But we really like the customers that we've acquired over the last three to four years to complement the customers that we've had kind of long-standing with YETI. And we think that's the opportunity to keep bringing innovation in form factor, keep bringing excitement in color and then keep that emotional engagement with YETI.

Yes, I would highlight a couple of areas. First, we are focused on growing YETI outside the United States. You can see this in our results, with international growth exceeding 30% this quarter, now representing 19% of our business. In the international space, we're building the necessary teams, increasing brand awareness, and developing the technological and supply chain infrastructure we need. Secondly, as we explore inorganic growth opportunities, we recognize the need to strengthen our internal team to support these initiatives, which we've begun to address since last year. Additionally, domestically, we aim to expand our portfolio into new communities and product categories, which will require significant efforts to raise brand awareness in these areas. These are just some of the key areas where we plan to continue investing and look forward to seeing positive outcomes as we move ahead.

First, kind of a follow-up on one of the earlier questions. Just curious around Mystery Ranch. I mean, Matt, you mentioned it as being an accelerant to your bags innovation. I'm just curious around the timing there. Is 2025 too soon to think that you could see an acceleration in your bags innovation, leveraging some of what you've gotten with Mystery Ranch? Or is it going to take longer than that? Or is 2025 a good time to eye for some initial innovation? That's my first question.

Peter, thanks for that. I would say, almost frankly before we even closed with Mystery Ranch, we started to work with the teams on how we bring sort of the best ingredients together of both businesses. And so they're active and well down that path. I think as we go into 2025, we'd look to bring out some additional products that will have the results of the work of those two teams coming together, and that's what they're racing towards. This is not something where I think we're years out from seeing the benefit. And it's the result of partnering with a great group of people, who have the talent, combined with the talent we have at YETI, that we can move really quickly on this. So we're excited to get going and kind of put our first products out together. As we consider international opportunities, we've restructured our go-to-market approach to focus on commercial organizations in each major region: the Americas, Europe and the Middle East, and Asia Pacific. Each of these regions is at different stages of development and growth, which is why we believe it's essential to have dedicated teams that can capitalize on the unique opportunities available. We're particularly eager to leverage the potential we see in the Americas, as well as the emerging prospects in Europe and the Middle East. Additionally, we aim to strengthen our already successful business in Australia, while also expanding in North Asia and Greater Asia. We're excited to have Naoji leading the region, as we believe there are great opportunities to tap into beneath the surface.

First, at a sales mix level, it varies by region, but internationally, we haven’t provided specific details. However, we have mentioned that we don't have our full direct-to-consumer model outside the U.S. and in many cases, corporate sales are underpenetrated. We have not achieved customization at scale. This suggests that wholesale might represent a slightly larger portion of the mix internationally due to the absence of the complete direct-to-consumer model. Nevertheless, we are confident in our ability to enhance this moving forward, and you will see the direct-to-consumer mix internationally continue to rise. From a margin perspective, we indicated that once normalized for channel, the gross margins are relatively similar to those in the U.S. There are some regional differences, but generally speaking, the margins internationally are comparable to those in the U.S. The disparity is more pronounced in the operating margin line. Regions where we have been present longer, such as Canada and Australia, show strong operating margins that benefit YETI. In newer markets like Europe, we are still investing, which means there is potential to improve operating margins in these areas. As Europe grows, we expect to reap those benefits, although this may be counterbalanced by new regions we enter, such as Asia, where we will undergo a similar process as we did in Europe, focusing initially on investment and regional development.

Just a couple of questions here. The Drinkware business accelerated for the last two quarters over 12% growth close to 13% this quarter. Maybe talk to some of the drivers of that. There's been some new entrants into the marketplace. You've obviously had some category expansion. Just curious, how should we think about Drinkware versus Coolers & Equipment for the end of the year?

Yes. Thanks, John. I'll take the kind of the dynamic piece and then Mike can help out and take the back end of that. I would say, as Mike said in an earlier comment, we've always lived in a competitive market for our products. I think what YETI has done consistently is drive innovation, tell consumers why it's relevant, put relevant products out in front of the consumer and be thoughtful about not only our form factor innovation, but also color. I think the success that we're seeing is both new and returning YETI customers responding to the product offering. And I think when you think about our product portfolio and the reason we call out the 50-plus SKUs is that in Drinkware, that diversification, giving consumers more reasons to engage with YETI products throughout the day, I think is a key part of our strategy, and I think it's a key part of the success that we've had.

Yes. I would like to add that Matt mentioned the growth opportunity we have outside the United States. Looking ahead for the year, we anticipate that C&E will grow faster than Drinkware. However, we do expect Drinkware to grow at a similar rate to last year. Based on Q1, we feel we are off to a good start in achieving that.

Let me address the question about DICK's and expand it to wholesale in general. Mike will discuss the direct-to-consumer dynamics for YETI overall. Regarding our wholesale, we feel very positive about our footprint and the reach we have with consumers. We have been careful about how many locations we expand to and the pace of our growth, focusing on enhancing productivity in our stores and supporting our partners. This approach has always been central to YETI. Our shelf space has remained stable, and as we introduce new products and innovate, our wholesale partners continue to find ways to showcase our products. Recently, we've noticed an increase in the total shelf space dedicated to our categories, driven by consumer interest, especially in Drinkware and hydration. This attention has positively impacted our offerings, as reflected in YETI's results. Overall, we are very satisfied with our wholesale presence in the U.S., the backing from our partners, and their enthusiasm for our innovations, which are crucial to YETI's performance.

On Amazon, John. I mean, obviously, with our disclosures in the 10-K, it would imply we had a really strong Amazon year last year from a growth perspective. We called it out as we went through the year. It was a driver, not only our growth but also from an SG&A standpoint. What we said this quarter is that we saw good growth across all of our D2C subchannels, Amazon included. And that's on top of having a really strong year last year. So we didn't give specific color on Amazon or haven't given specific color on Amazon from a guidance or outlook perspective, other than to say we think it's a really important channel for us. It can continue to be a really important channel for us. But it's going to be, I think, balanced with our other D2C subchannels this year.

Nice results here. Sticking on internationally. I've gotten a couple of questions. But with the acceleration you've seen in the last two quarters, I was hoping you could just maybe highlight where some of that acceleration is coming from? And then Mike also with the acceleration, why would the full year guide still be 20% to 25% for International? And finally, on International. I think you've talked about a 30% sales penetration target long term. Is there any thought that, that might be higher as we go forward?

Thank you, Peter. I’ll address part of that and then allow Michael to add his insights. When we examine the sources of this acceleration, we highlighted that Australia continues to excel. Our team there is outstanding, and their strong wholesale presence is effectively promoting the brand across Australia. We have a robust e-commerce operation and have recognized opportunities in expanding our customization and personalization capabilities. They are developing a solid corporate sales business as well. While we are still relatively early in New Zealand, it presents a great market for us—a perfect fit for YETI. We believe we have many strategies in place to build on the momentum and success of that business since 2017, positioning us to strengthen our operations. In Europe, specifically in the U.K. and Germany, we’ve seen broad growth in brand awareness and product placements. Our partnerships, marketing efforts, ambassadors, and events are collectively following our established playbook, which is starting to yield positive results. We launched that business right before the pandemic in late 2019, which led to some initial challenges due to wholesale disruptions. However, we are now in a phase where our wholesale partners are expanding, and we’re securing thoughtful new market openings. Our e-commerce performance is strong, and our corporate sales business is uncovering some exciting and appropriate opportunities to get our products directly into consumers' hands. We are optimistic about these growth platforms.

But for now, we're going to sort of hold our guidance for the year. We're just focused on delivering the 7% to 9% for the company overall, and we feel like International is going to be a big piece of that.

Where do you think a sustainable long-term margin path might look like for the brand as you increasingly diversify your business into new categories and geographies relative to the prior rates that you achieved in 2021?

Brooke, I think the front end of your question, at least on our line, cut out, so I apologize, but could you repeat the question?

Yes. Sure. Can you hear me now?

Yes.

Great. I was just hoping you could help us understand where you think the sustainable long-term operating profit margin path might look like for the brand as you diversify your business into new categories and geographies relative to the 2021 prior peak?

Thank you for the question, Brooke. As we've discussed, we believe we've recovered much of the peak inbound freight costs from 2021 and 2022. Now that we've reached that point, we think we can begin to gradually build back our operating margin. You'll see this in two main ways. First, we will continue to improve gross margins through sales mix, supply chain efficiencies, and cost efficiencies in our products. Second, we believe that over time, we'll achieve leverage on our SG&A expenses. There may be quarters where you don't see consistent progress due to variability, but our long-term goal is clear, and we are confident in our ability to achieve it. Regarding our international operations, two of our regions are indeed contributing positively to our operating margins, as they have established a solid infrastructure.

Thank you, operator, and thanks all for joining the call this morning. We look forward to speaking with you during our Q2 call.

This concludes our conference. Thank you very much for attending today's presentation. You may now disconnect, and have a great day.