Yeti Holdings Stock Rally: Can the Company Recover Margins After Q3 Headwinds?

Yeti is much more than a premium cooler company. The brand has evolved into a lifestyle ecosystem centered on drinkware—particularly its iconic tumblers—that attract outdoor enthusiasts, athletes, and everyday consumers willing to pay premium prices for quality and design. Since reporting Q3 2025 earnings in early November, Yeti Holdings (NYSE: YETI) has surged 44%, trading near $48 per share and approaching levels last seen in December 2023. This rally puzzles some observers, given that the company reported a meaningful compression in gross margins from 58.2% to 55.9%, along with adjusted operating margins of just 13.7%—the lowest in years.

Understanding Yeti’s Core Business and Recent Stock Performance

The stock’s post-earnings bounce reflects investor confidence that recent margin pressures are temporary rather than structural. Yeti built its reputation as a premium brand targeting anglers, hunters, and outdoor enthusiasts by offering superior durability and design. Over the past decade, the company has transformed its sales model, with direct-to-consumer channels growing from just 8% of revenue to 60% today. This shift has created a scalable digital platform that now powers both product expansion and geographic growth.

International sales exemplify this transformation. In 2018, foreign revenue accounted for merely 2% of sales. By Q3 2025, international markets represented roughly 20% of total revenue, growing 14% in the quarter alone. Recent expansion into Europe, Australia, New Zealand, Canada, and a full commercial launch in Japan demonstrate Yeti’s ability to replicate its brand strength across diverse markets. Management sees a clear path to scaling international revenue to 30% of the total over time, representing substantial room for growth.

What Pressured Yeti’s Margins: Tariffs and Product Mix Shifts

The margin compression reflects two distinct pressures. First, tariff headwinds emerged unexpectedly. When management flagged likely margin challenges during the Q1 2025 earnings call, few anticipated how quickly the impact would materialize. China-sourced goods faced elevated import duties, forcing an accelerated pivot away from Chinese manufacturing. By 2026, exposure to China is expected to fall below 5% of cost of goods sold, with production shifting to Vietnam, the Philippines, Thailand, Mexico, and other diversified locations.

Second, an unfavorable product mix shift compounds the challenge. Drinkware products—which command higher margins and have attracted investors’ enthusiasm—declined 4% in Q3 2025, marking the fourth consecutive quarterly decline. Simultaneously, lower-margin coolers and equipment grew 12%, reflecting both market maturation in the drinkware category and intensifying competition from rivals like Stanley, which has captured share among younger consumers. Drinkware now represents roughly 54% of sales versus coolers at 44%, a significant reversal from the company’s earlier trajectory.

For a durable goods manufacturer that relies on pricing power rather than recurring consumable revenue, every percentage point of margin matters to earnings growth. The brand’s traditional gross margins hover around 57%, built on its proven ability to command premium prices. Holding that pricing power as category dynamics shift remains critical.

Yeti’s Growth Engines: International Expansion and Category Diversification

Management is pursuing multiple strategies to offset margin pressure and drive future growth. Beyond geographic expansion, the company is broadening its customer base through new segments. The sports and entertainment strategy—highlighted during the Q2 2025 earnings call—includes a partnership with Fanatics for licensed drinkware across professional and collegiate sports. Additionally, the $38 million acquisition of Helimix targets the sports nutrition market, introducing Yeti products to fitness-focused consumers beyond traditional outdoor enthusiasts.

These initiatives signal management’s confidence in the Yeti brand’s versatility and its potential to transcend its outdoor heritage. Combined with the company’s proven direct-to-consumer capabilities, these moves create multiple pathways to customer acquisition and revenue diversification.

Supply Chain Transition: Reducing China Exposure

The supply chain overhaul represents a proactive response to trade uncertainty. By dramatically reducing reliance on Chinese manufacturing, Yeti aims to mitigate tariff risk and create manufacturing resilience. However, the transition comes with near-term costs. Implementation expenses and the logistics of establishing production across multiple countries will weigh on profitability through 2026 as the new supply chain fully operationalizes.

Adding to uncertainty is the unpredictable trade policy environment. The Supreme Court is expected to rule soon on whether many existing tariffs were legally imposed under the International Emergency Economic Powers Act (IEEPA). While management expects tailwinds to ease once the diversified supply chain comes fully online, the exact magnitude and timing of margin improvement remain difficult to forecast.

Capital Allocation and Financial Strength

Management’s capital allocation decisions underscore confidence in the business fundamentals. The company repurchased $150 million of stock in Q3 2025 alone, raising its full-year buyback target from $200 million to $300 million. Combined with $200 million in repurchases during 2024, Yeti will have returned approximately $500 million to shareholders over two years.

These buybacks are supported by robust cash generation. Free cash flow is projected at $200 million for 2025, and the balance sheet carries roughly $90 million in net cash. This financial flexibility allows management to invest in growth initiatives while simultaneously rewarding shareholders—a signal of conviction that current challenges are manageable.

Valuation and Investment Outlook for Yeti

At approximately $48 per share, Yeti trades at roughly 19.5 times management’s 2025 earnings and free cash flow expectations. For a company with a differentiated brand, proven pricing power, demonstrated customer loyalty, and multiple growth levers, this valuation appears reasonable. The combination of domestic category expansion, international runway, and potential for margin recovery provides a compelling longer-term narrative.

However, challenges persist. Competition in drinkware shows no signs of abating, and the domestic tumbler market displays signs of maturity with aggressive promotional activity. The timing of tariff relief remains unpredictable. Investors must weigh these near-term headwinds against Yeti’s structural brand advantages and management’s track record of executing strategic transitions.

For those who believe in Yeti’s competitive moat and long-term potential, the current price offers a reasonable entry point despite the stock’s recent appreciation. The post-Q3 rally reflects a market reassessment that margin pressures are cyclical rather than permanent—a bet worth monitoring as supply chain improvements materialize through 2026.