YETI (YETI)

Outdoor lifestyle products brand (NYSE:YETI) announced better-than-expected revenue in Q3 CY2025, with sales up 1.9% year on year to $487.8 million. Its non-GAAP profit of $0.61 per share was 4.5% above analysts’ consensus estimates.

Company Overview

Founded by two brothers from Texas, YETI (NYSE:YETI) specializes in durable outdoor goods including coolers, drinkware, and other gear tailored to adventure enthusiasts.

Leisure products cover a wide range of goods in the consumer discretionary sector. Maintaining a strong brand is key to success, and those who differentiate themselves will enjoy customer loyalty and pricing power while those who don’t may find themselves in precarious positions due to the non-essential nature of their offerings.

Competitors in the outdoor and recreation goods industry include Vista Outdoor (NYSE:VSTO), Johnson Outdoors (NASDAQ:JOUT), and Clarus Corporation (NASDAQ:CLAR).

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, YETI grew its sales at a 12.6% annual rate. Although this growth is acceptable on an absolute basis, it fell short of our standards for the consumer discretionary sector, which enjoys a number of secular tailwinds.

Long-term growth is the most important, but within consumer discretionary, product cycles are short and revenue can be hit-driven due to rapidly changing trends and consumer preferences. YETI’s recent performance shows its demand has slowed as its annualized revenue growth of 6.6% over the last two years was below its five-year trend.

We can better understand the company’s revenue dynamics by analyzing its most important segments, Retail and Wholesale, which are 59.2% and 40.8% of revenue. Over the last two years, YETI’s Retail revenue (direct sales to customers) averaged 2.2% year-on-year growth. On the other hand, its Wholesale revenue (sales to retailers) averaged 1.9% declines.

This quarter, YETI reported modest year-on-year revenue growth of 1.9% but beat Wall Street’s estimates by 1.6%.

Looking ahead, sell-side analysts expect revenue to grow 5% over the next 12 months, a slight deceleration versus the last two years. This projection is underwhelming and implies its products and services will face some demand challenges.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

YETI’s operating margin has shrunk over the last 12 months, but it still averaged 13.3% over the last two years, solid for a consumer discretionary business. This shows it generally manages its expenses well.

This quarter, YETI generated an operating margin profit margin of 11.1%, down 3.4 percentage points year on year. This contraction shows it was less efficient because its expenses grew faster than its revenue.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

YETI’s EPS grew at an unimpressive 9.9% compounded annual growth rate over the last five years, lower than its 12.6% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

In Q3, YETI reported adjusted EPS of $0.61, down from $0.71 in the same quarter last year. Despite falling year on year, this print beat analysts’ estimates by 4.5%. Over the next 12 months, Wall Street expects YETI’s full-year EPS of $2.58 to grow 1.3%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

YETI has shown decent cash profitability, giving it some flexibility to reinvest or return capital to investors. The company’s free cash flow margin averaged 11.8% over the last two years, slightly better than the broader consumer discretionary sector.

YETI’s free cash flow clocked in at $89.11 million in Q3, equivalent to a 18.3% margin. This result was good as its margin was 2.8 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends carry greater meaning.

Over the next year, analysts predict YETI’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 14.5% for the last 12 months will decrease to 7.2%.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although YETI hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 33.3%, splendid for a consumer discretionary business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, YETI’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

YETI reported $164.5 million of cash and $222.5 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $325.9 million of EBITDA over the last 12 months, we view YETI’s 0.2× net-debt-to-EBITDA ratio as safe. We also see its $716,000 of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was encouraging to see YETI beat analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its EBITDA missed. Zooming out, we think this was a mixed quarter. The stock remained flat at $33.39 immediately following the results.

Updated: December 4, 2025 at 9:58 PM EST

Before making an investment decision, investors should account for YETI’s business fundamentals and valuation in addition to what happened in the latest quarter.

We see the value of companies helping consumers, but in the case of YETI, we’re out. First off, its revenue growth was weak over the last five years, and analysts expect its demand to deteriorate over the next 12 months. On top of that, YETI’s Forecasted free cash flow margin suggests the company will ramp up its investments next year, and its weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders.

YETI’s P/E ratio based on the next 12 months is 16.1x. This valuation multiple is fair, but we don’t have much confidence in the company. There are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $41 on the company (compared to the current share price of $42.36).