Impact of Tariffs on Supply Chain and Special Order Business
Tariffs on China imports increased by 145% in April, causing temporary suspension of China-based special orders.
Tariff reduction from 145% to 30% in mid-May provided clarity and allowed realignment of production out of China.
Supply chain teams are working to fully resume special order capabilities in Q3, with ongoing negotiations and adjustments to tariffs potentially affecting future product sourcing and pricing.
Tariff Impact on International and Domestic Markets
Management explained that evolving international negotiations, especially in Asia, India, and the EU, are causing delays in asset trading, particularly in sectors like biopharma, semiconductors, and machine tools.
Despite international delays, North American used equipment markets remain on track, with most assets moving normally and some blips in Canada having normalized.
Used vehicle prices have softened, but the marketplace continues to see record asset listings and sales, with management optimistic about future growth once prices normalize.
YETI is executing a major transformation of its supply chain, with a focus on diversification to reduce reliance on China, aiming for less than 5% of COGS exposed to U.S. tariffs by year-end.
The company has made significant progress, with a multi-country sourcing strategy fully in place, supporting resilience and agility for 2026 and beyond.
Tariff costs, which impacted gross margins by approximately 220 basis points, are expected to decrease due to recent tariff rate reductions from 145% to 30% on Chinese goods, but uncertainty remains.
Supply chain transition has caused temporary inventory constraints and limited product launches, especially in Drinkware, affecting sales performance.
The company remains confident that supply chain efficiencies and cost management will help recover margins and support long-term growth.
Industry Disruption Due to Global Trade and Tariffs
The company observed a surge in imports across key markets, contrary to expectations of import redirection due to tariffs.
Tariffs began to be collected in early May, but import surges persisted into the second quarter, driven by speculation and supply chain delays.
Management expects import levels to decline in the third quarter as the discourse around tariffs stabilizes, but potential new tariffs in Europe remain a concern.
Impact of Tariffs on Business Operations and Pricing Strategy
The company has implemented a multifaceted approach to managing tariffs, including diversifying suppliers, accelerating tariff cost reductions, leveraging scale for savings, driving internal cost efficiencies through automation, and implementing targeted price increases in Q3.
Tariff costs are currently impacting inventory costs immediately, but the effect on cost of goods sold (COGS) will be seen starting in Q4 due to inventory accounting methods.
Price increases to offset tariff costs are scheduled for Q3, with positive effects on net sales beginning then, but gross margins expected to decline in Q4 as tariff costs are recognized in COGS.
The company has a strong liquidity position ($656 million in total liquidity) and is managing debt levels to navigate tariff-related uncertainties.
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