By Ian Salisbury

Shares of Yeti Holdings rose more than 7% Thursday on better-than-expected third-quarter profits. The rally represents a turnaround for the stock, which had been punished by fears about tariffs following the election.

Yeti, the Austin, Texas-based maker of high-end coolers and water bottles, reported Thursday that sales rose 10% to $478 million from $434 million, helped by a 30% jump in international sales. Operating profits of 71 cents a share handily beat the 67 cents Wall Street analysts were looking for.

The results were a bright spot in what has been a tough year for Yeti. Shares have tumbled 22% in 2024 as inflation-weary consumers balked at shelling out for the company's coolers, which can cost more than $500.

The Republican election victory has added another question mark for the stock. During the campaign, president-elect Donald Trump promised to slap a 10% duty on imports in general and a 60% duty on goods coming from China. Shares of Yeti fell 3% on Wednesday amid a wider selloff of companies that rely on Chinese manufacturing: Five Below tumbled 10% and Dollar General lost 5%.

Yeti's strong third-quarter earnings appeared to reassure the market. Net income rose 32% to $56 million, or 66 cents a share, from $43 million, or 49 cents. Adjusted gross margin rose by 0.4 percentage point to 58.2%. The company also said it had moved a second drinkware facility out of China during the quarter, lessening its reliance on politically sensitive imports.

Investors may be overestimating the tariff threat to Yeti, the investment bank Jefferies argued Thursday. "By the end of this year, approximately 20% of Yeti's global drinkware capacity will be located outside of China, with a target of 50% by the end of 2025," wrote a Jefferies team led by Randal J. Konik.

This year's stock price decline also means Yeti's shares look attractively valued, Jefferies argued. At roughly $38, shares trade at about 14 times projected earnings, according to FactSet, compared with 22 times for the broad market.

Jefferies' Yeti price target is $55, based on a forecast of high-single-digit sales growth, driven by strong results in Yeti's direct-to-consumer sales channel, stable wholesale results, and an expanded product line. In early afternoon, the stock was at $38.95.

Write to Ian Salisbury at ian.salisbury@barrons.com

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November 07, 2024 13:28 ET (18:28 GMT)

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