COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 29, 2024

Commitments and Contingencies Disclosure [Abstract]

Claims and Legal Proceedings

We are involved in various claims and legal proceedings, some of which are covered by insurance. We believe that our existing claims and proceedings, and the potential losses relating to such contingencies, will not have a material adverse effect on our consolidated financial position, results of operations, or cash flows.

Product Recall Reserves

In January 2023, we notified the U.S. Consumer Product Safety Commission (“CPSC”) of a potential safety concern regarding the magnet-lined closures of our Hopper M30 Soft Cooler, Hopper M20 Soft Backpack Cooler, and SideKick Dry gear case (the “affected products”) and initiated a global stop sale of the affected products. In February 2023, we proposed a voluntary recall of the affected products to the CPSC, and other relevant global regulatory authorities, which we refer to as the “voluntary recalls” herein unless otherwise indicated. In March 2023, we announced separate, voluntary recalls of the affected products in collaboration with the CPSC and subsequently began processing recall claims and returns. As a result, we established reserves as of December 31, 2022, for unsalable inventory on-hand as well as expected future returns, the estimated cost of recall remedies for consumers with affected products, and other recall-related costs.

During 2023, we began processing recall returns and claims, and based on such experience and trends, we reevaluated our assumptions and adjusted our estimated recall expense reserve. In the second quarter of 2023, we updated our recall reserve assumptions, which increased the estimated recall expense reserve by $8.5 million.

The reserve for the estimated product recall costs is included within accrued expenses and other current liabilities on our consolidated balance sheets. The reserve for the estimated product recall costs is based on i) expected consumer participation rates; and ii) the estimated costs of the consumer’s elected remedy in the recalls, including the estimated cost of either product replacements or gift card elections, logistics costs, and other recall-related costs. The reserve for the estimated product recall expenses was $6.9 million and $13.1 million as of June 29, 2024 and December 30, 2023, respectively.

The following table summarizes the activity of the reserve for the estimated product recall expenses (in thousands):


	June 29, 2024
Balance, December 30, 2023	$	13,090
Actual product refunds, replacements and recall-related costs	(3,051)
Gift card issuances(1)	(3,168)

Balance, June 29, 2024	$	6,871

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(1)As of June 29, 2024, we had $3.4 million in unredeemed recall-related gift card liabilities, which are included in contract liabilities within accrued expenses and other current liabilities on our consolidated balance sheet. For the three and six months ended June 29, 2024, we recognized net sales of $2.3 million and $4.3 million from redeemed recall-related gift cards.

The product recalls, which include recall reserve adjustments and other incurred costs, had the following effect on our income before income taxes as of the dates indicated (in thousands):


	Three Months Ended				Six Months Ended
	June 29, 2024		July 1, 2023		June 29, 2024		July 1, 2023
Decrease to net sales(1)	$	—	$	(24,490)	$	—	$	(24,506)
Decrease to cost of goods sold(2)	—		5,052		—		6,305
Decrease to gross profit	—		(19,438)		—		(18,201)
Decrease to SG&A expenses(3)	—		10,716		—		10,549
Decrease to income before income taxes	$	—	$	(8,722)	$	—	$	(7,652)

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(1)For the three and six months ended July 1, 2023, primarily reflects the unfavorable impact of the recall reserve adjustment related to higher estimated future recall remedies. Of the total net sales impact, $8.1 million and $16.4 million was allocated to our DTC and wholesale channels, respectively, for the three and six months ended July 1, 2023. These amounts were allocated based on the historical channel sell-in basis of the affected products.

(2)For the three and six months ended July 1, 2023, reflects the favorable impact of the recall reserve adjustment related to lower estimated costs of future product replacement remedy elections and logistics costs. For the six months ended July 1, 2023, includes a $1.3 million favorable impact related to an inventory reserve adjustment.

(3)For the three and six months ended July 1, 2023, reflects the impact of the favorable recall reserve adjustment primarily related to lower estimated other recall-related costs.