Yeti Holdings: Is the Post-Q3 Rally Pricing in Margin Recovery?

Yeti Holdings' (NYSE: YETI) stock has climbed 44% since reporting Q3 2025 earnings in early November. The stock now trades at about $48 per share, approaching prices not seen since December 2023. That's a surprising response for a company that just reported a sharp decline in gross margin, from 58.2% to 55.9%, and adjusted operating margins of 13.7%, their lowest level in years.

This recent margin weakness stands in contrast to the brand's core strength. Yeti earned its reputation selling premium coolers and drinkware to anglers, hunters, and outdoor enthusiasts willing to pay up for superior design and durability. While the coolers are ubiquitous, the drinkware segment, including the popular tumblers, has become the bigger story for investors.

The brand still commands pricing power that few consumer goods companies can match, reflected in gross margins that typically run about 57%. The question now is whether that edge can hold.

Tariffs weigh on profitability

After flagging likely margin headwinds in the Q1 2025 earnings call, the decline materialized in the third quarter. Tariffs delivered the most significant hit as China-sourced goods faced elevated import duties. Management accelerated its planned exit from Chinese manufacturing, relying on its diversified supply chain across Vietnam, the Philippines, Thailand, Mexico, and other locations. Heading into 2026, exposure to manufacturing in China for new inventory is projected to be less than 5% of cost of goods sold.

Image source: Getty Images.

In addition, Yeti's product mix shift continues to hurt gross margin. For the third quarter, higher-margin drinkware sales declined by 4%, while lower-margin coolers and equipment grew by 12%. Drinkware sales have now declined for four consecutive quarters amid stiff competition. Drinkware fell to roughly 54% of sales, while coolers rose to 44%.

For a company like Yeti, with durable goods that generate no recurring revenue from consumables, every percentage point of gross margin is critical to earnings growth.

The road ahead

Yeti's business model has evolved, with direct-to-consumer sales growing from 8% to 60% of total revenue during the past decade. The shift provides a scalable platform for international and category expansion through digital channels.

International sales grew 14% in Q3 2025 and now represent about 20% of revenue, up from 2% in 2018. Strength in Europe, Australia, New Zealand, and Canada, plus early contributions from Japan's 2025 full commercial launch, point to a meaningful runway ahead. As Yeti enters new markets in Asia, scaling international sales from 20% to 30% represents a key growth opportunity.

The company also continues to target new customer segments beyond traditional outdoor enthusiasts. Management outlined its sports and entertainment strategy during the Q2 2025 earnings call. The initiatives include the Fanatics partnership for licensed drinkware across professional and collegiate sports and the $38 million Helimix acquisition targeting the sports nutrition market. Both strategies help broaden Yeti's customer base.

However, challenges remain. Competition in drinkware has intensified, with rivals like Stanley capturing share among younger consumers. The domestic tumbler category shows signs of saturation and aggressive promotional activity, which could prolong the downward pressure on gross margin.

Uncertainty in trade policy makes the timing of tariff relief difficult to predict. The Supreme Court is expected to rule soon on whether many of the tariffs were legally imposed under the International Emergency Economic Powers Act (IEEPA). Management expects the headwinds to ease as the more diversified supply chain fully comes online this year.

Still, the unpredictable swings in trade policy make the size and exact timing of any margin improvement hard to pin down.

A quality business at a fair price

Yeti retains the hallmarks of a high-quality business, including a differentiated brand, proven pricing power, and strong customer loyalty. Management's confidence is reflected in its capital allocation decisions. The company repurchased $150 million of stock in Q3 2025 alone and raised its full-year buyback target from $200 million to $300 million. Combined with $200 million in repurchases in 2024, Yeti will have returned roughly $500 million to shareholders over two years.

The buybacks are supported by strong cash generation, with $200 million in free cash flow expected for 2025 and a solid balance sheet carrying roughly $90 million in net cash.

At roughly $48 per share, the stock trades at about 19.5 times management's 2025 earnings and free cash flow expectations. The valuation looks reasonable for a company with multiple growth levers and potential for margin improvement in the years ahead. For investors who believe in the brand's competitive moat and long-term potential, the current price offers a solid entry point, despite the stock's recent run.

Bryan White has no position in any of the stocks mentioned. The Motley Fool recommends Yeti. The Motley Fool has a disclosure policy.