It’s not consistent across all dealers. Some dealers that we’re seeing are doing really well with us. But it’s just as we look at the environment and kind of how different dealers are looking at their outlook for the consumer, we felt like that was kind of what we see for the fourth quarter. But I think the most important thing is, we continue to be encouraged by what we’re seeing at a sell-through level and expect that to continue.
Megan Alexander: Okay, that’s helpful. And then maybe just to follow up on the gross margin, obviously very impressive performance, even despite a pretty large promotion headwind from Prime Day. I guess how should we think about the bridge to 4Q and then to ’24? Would you expect freight and product costs to continue to build into 4Q and ’24? And then I guess on the promotion piece, presumably the Amazon Prime Day headwind goes away. But how should we think about that promotion line more broadly? And is there an opportunity to perhaps lean into Amazon and promotions in more earnest given what you’re seeing from some of your retail partners?
Mike McMullen: Yes. I’d say on gross margins, we were obviously thrilled with the results that we posted in Q3. As we look to Q4, really nothing has changed on our outlook for gross margins in Q4 by itself. We took the year up again this quarter to 56, approximately 56.5. Really the strength in Q3 is what led us to do that and Q4 is largely kind of in line with what we’ve expected for the last few quarters. On the product COGS side, we expect that to generally be in line with what we’ve been posting. I would expect the benefit from inbound freight. I would not expect that to continue to build because in the prior year, we started to see some of the benefits of the lower rates roll through our results in Q4 of the prior year, whereas Q2 and Q3 of last year were kind of the peak impact of when we saw those higher rates.
And if you look at the drivers that we provided on a quarter-to-quarter basis, you can see that the negative impact went down from Q3 to Q4 of last year. So I would not expect that line specifically to continue to build.
Matt Reintjes: And Megan, I’d just add one thing on the promotional cadence. YETI has been consistent in our approach to promotion and very selective as a primarily full price seller consistent across all of our channels to market. And we think that’s one of the values is that we drive the value behind the brand and drive the demand behind the product. The way we’ve looked at promotion and it would be consistent with the way we would do in the future is you think about product transitions, selective things as we think about inventory management on the margin, and then really kind of optimizing and selective at busy times in the year where you’re trying to drive attention, demand, traffic to the brand, and that largely will stay the same and consistent.
And I think it will be consistent with quarters in the past and going forward, inclusive of how we use Amazon. And so I think as we called it out, we had a successful Prime Day. It was successful and it accomplished a number of objectives for us, and we think is consistent with how we approach the brand and how we approach promotion.
Mike McMullen: And Megan, the only other thing I’d say back on gross margin is you asked about ’24, we do expect to continue to be able to recapture more gross margin benefit from inbound freight as we look into ’24. We gave somewhere in the neighborhood of 600 basis points directly related to inbound freight. We’re going to recapture 400 or so in total this year. That would imply we’ve got more to go as we go into 2024.
Megan Alexander: Got it. That’s really helpful. Thanks so much.
Operator: The next question comes from Sharon Zackfia from William Blair. Please go ahead.
Sharon Zackfia: Good morning. Thanks for taking the call. I guess I wanted to ask two questions kind of on your longer term outlook, because it’s been kind of hard to figure things out from the outside with the stop sale on recall this year. I guess is the 20% operating margin still kind of an achievable number over time for the business? And if so, kind of what’s the timeline? Do you think you can recapture that? And then secondarily, on the idea of double digit revenue growth, I know historically you had expected that to come from both Drinkware and coolers and equipment over the long term. Just wanted to check if that’s still the case, or if you expect a disproportionate impact from either or? And maybe embedded in that kind of what you need in the U.S. business to achieve double digit over time, just given how international is growing?
Matt Reintjes: Good morning, Sharon. Thanks for the question. I would say on this call, we’re not updating 2024 and updating our kind of long range guide. What I think we have shown through even a really challenging and period with this recall is that there is gross margin opportunity in front of us that we, and as Mike just talked about, we see operating margin improvement opportunity based on some of the unique things that are affecting 2023. The top line, as we’ve shown outsized growth internationally and as we continue to prove the demand opportunity there and as we continue to mature our operations internationally, we think that continues to be a really interesting area to drive long-term growth for YETI. As it relates to the U.S. market, I think while we obviously have a very well established and in-demand business when we talk about things like sell-through being strong, our sell-through data comes from the U.S. market.
We don’t have that same level of visibility globally on the sell-through. So you can extrapolate from that that the U.S. market continues to be very vibrant for us, which means that the innovation, the expansion, the new colorways within Drinkware, within coolers, hard coolers, within soft coolers, there’s a really receptive market and opportunity for us in the U.S. So I think all those elements as we get into talking about 2024 and what our guide is in 2024 will be a piece of that. And then as we start to talk about what long term looks like, it is an update from our original back in 2018 when we went public.
Sharon Zackfia: I guess just to follow up on that. I don’t think you talked about kind of categories. So I know historically, coolers and Drinkware were supposed to both grow at a double digit pace. Do you think that’s still kind of the right long-term growth rate for both categories?
Matt Reintjes: Thanks, Sharon, for catching my miss on that. I would say I think it’s — I don’t think there’s anything about the opportunity in those broadly defined categories that would say, one, over time we will naturally grow slower or naturally grow faster. I think really it comes down to how do we continue to expand the definition of Drinkware? You’ve seen us do that this year and with success as we’ve called out. I think in coolers and equipment, there’s a lot of things as we called out on this call that are under that umbrella that we really liked the growth. And if I take coolers and equipment, hard coolers, our longest standing category continues to be an outstanding performer. And we also called out what I would call the very limited assortment we have in cargo and gearboxes continue to be an outstanding performer.
So I think it would be tough to sit here and say one versus the other because a lot of that will be predicated on the innovation and the acceleration and the awareness we bring within those two portfolios.
