When a brand name is woven into popular country songs it’s definitely made a mark. YETI Holdings (NYSE:YETI) will be coming public this week (prices Wednesday) and promises to be one of the next public niche consumer brands like Duluth Holdings (DLTH) and Canada Goose (GOOS). In short, we expect the IPO do well as a deal and in after-market trading but believe there are substantial risks in their expansion plan. YETI avoided a “GoPro collapse” in 2016 by delaying their IPO despite a massive surge in revenue – they could see that the growth wasn’t sustainable. This almost never happens but because the majority investor would have also been a bagholder they had a major self-interest in delaying the deal.
YETI was started in 2006 by a couple of brothers with their well-known rugged and high-performance coolers. In 2012 a PE-style funding group, Cortec, invested in the company and brought in more professional management and financial discipline to support profitable long-term growth. Post-IPO Cortec will still own 51% of the company. Cortec is selling most of the shares in the IPO and is focused on their own investment returns. In 2016 the company paid a “special dividend” of $451.3M, of which Cortec received $312.1M. So far Cortec stands to enjoy substantial continuing returns from their $67M investment.
Most investors see YETI as the “next Canada Goose” GOOS so we’ll spend some time comparing the two and looking at valuation. There’s little question the deal will do well based on growth and profitability. But there are some important differences to their growth strategies and competition that are worth considering.
YETI is driving two different growth strategies at the same time – 1) expand the product line from coolers to drinkware and a range of outdoor accessories and 2) drive geographic expansion, first in the US from the South East and then internationally.
YETI has expanded their product line significantly over the last few years as shown in the image below. We were surprised that drinkware represents 50% of revenues. This is the insulated type so it’s still in the proven YETI theme of “keeping things cold.” Many of the other categories are very small so the bulk of revenue still breaks down into coolers and drinkware. One wonders just how many additional models of coolers and drinkware are possible given the current line up. Chances are most of the growth in these two areas will depend on geographic expansion rather than more models.
