The Duckhorn Portfolio, Inc. (NAPA) on Q3 2022 Results - Earnings Call Transcript
Operator: Greetings, and welcome to the Duckhorn Portfolio's Third Quarter 2022 Earnings Conference Call. At this time, all participant are in a listen-only mode. After the speaker's presentation there will be a question-and-answer session. As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host, Sean Sullivan, Executive Vice President, Chief Strategy and Legal Officer. Please go ahead. Sean Sullivan: Good afternoon, and welcome to the Duckhorn Portfolio's Third Quarter 2022 Earnings Conference Call. Joining me on today's call are Alex Ryan, our President, CEO and Chairman; and Lori Beaudoin, our Chief Financial Officer. In a moment, we will give brief remarks followed by Q&A. Everyone should have access to the earnings release for the period ended April 30, 2022, the third quarter of fiscal year 2022 that went out at approximately 4:15 PM Eastern Time. The press release is accessible on the company's website at ir.duckhorn.com. And shortly after the conclusion of today's call, a webcast will be archived for the next 30 days. Before we begin, let me remind everyone that today's discussion contains forward-looking statements based on the environment as we currently see it and as such, does include risks and uncertainties. If you refer to Duckhorn's earnings release as well as the company's most recent SEC filings, you will see a discussion of factors that could cause the company's actual results to differ materially from these forward-looking statements. Please remember the company undertakes no obligation to update or revise these forward-looking statements in the future. We will make a number of references to non-GAAP financial measures. We believe that these measures provide investors with useful perspective on the underlying growth trends of the business and have included in our earnings release a full reconciliation of non-GAAP financial measures to the most comparable GAAP measures. In addition, please note that all IRI consumption data cited on today's call will refer to dollar consumption for the 13-week period ended May 1, 2022, and growth versus the same period in the prior year unless otherwise noted. With that, I will turn the call over to Alex. Alex Ryan: Thanks, Sean, and good afternoon, everyone. We really appreciate you joining us today to discuss our strong third quarter financial results and our raised guidance for the full year. As we begin our second year as a public company, I am pleased by the track record we have established for our sustained, sound execution and strong financial performance. Our third quarter results exemplify that having firmly outperformed our internal expectations. Let me take a moment to highlight a few notable items from the quarter. First, our net sales growth remained strong. When looking at three-year compound annual growth rates, which we believe is indicative of the underlying health of the business without pandemic-related noise, we continue to deliver double-digit growth supported by broad-based strength across all major metrics, cases, accounts sold and points of distribution. Second, the story behind our strong top line growth remains largely a volume-driven one. Our three-year volume CAGR was 19.9%. Importantly, our depletions showcase similar growth. This speaks to both the power of our well-known and respected brands and the healthy consumer demand for our high-quality luxury lines. Third, on-premise continues to provide outsized growth, benefiting both our top line and gross margin profile. In fact, our on-premise depletions are seeing an accelerated rate of growth on a three-year basis, supported by gains in shipments, accounts sold and points of distribution. Perhaps most importantly, this on-premise growth is occurring at a time when our off-premise business continues to deliver double-digit growth on a three-year CAGR basis. And that brings me to my fourth point. When looking at IRI consumption data as a proxy for certain types of off-premise sales, the Duckhorn portfolio remains the fastest-growing supplier of scale in the over $15 per bottle U.S. luxury wine segment having posted mid-teens growth in both dollars and units. This is another point of pride for me as we continue to take share in this growing category. As the primary driver of this robust level of growth our Decoy Winery brand, the #2 brand and the fastest-growing among the top 10 within the over $15 per bottle U.S. luxury Wine segment grew similarly, also up mid-teens growth in both dollars and units. Growth for both our broader portfolio and the Decoy Winery brand was 4x to 5x faster in dollars and considerably faster in unit relative to the over $15 per bottle U.S. wine market. Lastly, we are driving robust top line growth and at the same time, delivering modest margin expansion all against the backdrop that continues to be a highly demanding operating environment. Our adjusted gross profit margin and adjusted EBITDA margin expanded versus the prior year quarter when fully burdened by public company costs for an apples-to-apples comparison. I would like to make an important point. I'm proud of how the team was able to execute through what we all know to be a very challenged environment to not only grow top line, but also expand margins. Lori will discuss this in a bit more detail in a few minutes. Now I'm going to take a minute to talk about on-premise and off-premise channel dynamics. As noted, on-premise was a primary driver of our growth, and we are seeing no slowdown in our momentum within the channel. In fact, looking at a three-year CAGR, we are seeing accelerating growth on all three key metrics; cases, accounts sold and points of distribution. Our on-premise velocities continue to strengthen as well. Overall, we continue to make good progress toward returning to our historic proportion of on- and off-premise sales. Interestingly, we are not back to our historical 80-20 ratio of off-premise to on-premise because of the resiliency of the strong off-premise growth we experienced during the height of the pandemic, which has reset the baseline upwards to the off-premise part of the business. Turning to off-premise it is evident that consumers that tried our luxury wines for the first time during the pandemic or rediscovered an old favorite among our wines have become loyal consumers in the off-premise channel. In the quarter, we observed solid positive year-on-year growth. And on a three-year CAGR basis, we drove strong and steady double-digit growth across cases, accounts sold and points of distribution. Our growth between national and independent accounts was balanced and in line with our expectations, which we believe speaks to the appeal of our one-stop luxury one shop model as well as the quality and brand strength of our portfolio of fine luxury wines. Keeping pace with our level of robust demand can be a challenge for any high growth company, especially in times where global supply chain is in considerable disarray like today. I am tremendously proud of how our entire organization continues to execute strategically. Through the team's hard work we've avoided some of the common pitfalls we see elsewhere, which include inventory out of stocks for core lines, shortages of labelled (ph) and glass and significant cost increases. Our dedication to diversification and focus on consistent supply chain management allows us to supply the consumer’s growing appetite for high quality luxury wines wherever fine wines are sold or enjoyed. We believe that this reliability has enabled and will continue to enable our distribution growth and the resulting market share gains. To ensure that we uphold this level of trust with both our trade partners and customers, we have strategically built out a highly diversified and flexible supply chain, our nimble sourcing practices drawing upon grape from our renowned estate vineyards and the vineyards of more than 200 other long tenured grape growers provides a number of benefits including first our practices ensure that we continue to source ample, high quality fruit that meets the specifications needed to produce our luxury wines. Additionally, when coupled with our diversified wine production capabilities in combination with the scale of our platform, our approach to sourcing provides us with good line of sight into our cost of goods. This not only allows us to manage our margins, but it also affords us the ability to offer our trade partners clear visibility into their pricing as well. In the spirit of diversifying our supply and ensuring access to high quality grapes, we recently purchased 289 acres of estate vineyard in the Paso Robles AVA along California Central Coast. This exciting purchase marks the 33rd vineyard in our estate portfolio and ensures greater access to high-quality fruit to support the continued growth of our luxury lines, most notably Decoy. In closing, I'm very pleased with our third quarter performance and the momentum we have shown year-to-date. However, we believe in continually challenging ourselves, and there remains considerable opportunity to continue to drive distribution and outsized growth irrespective of the macro environment, and we are focused on doing just that. It is important to remember that we make wine solely in the fastest-growing segment of the industry, luxury wine. Additionally, our growth is faster than the luxury wine industry average. The strength of our brands, our stable supply chain and the sustained commitment we have made to our sales force and DTC business combined to provide a durable and elastic growth, which we believe will continue into the future in any macro environment. Over our 45-year history, we have thoughtfully curated a portfolio of wineries with each offering a unique experience, but all standing for luxury and exceptional quality. Given that backdrop, we are well-positioned to capitalize on the growing demand for luxury wine and I'm confident in our decision to raise our fiscal year 2022 guidance for the second time this year. With that, let me turn it over to Lori to discuss our third quarter performance and updated fiscal year 2022 guidance in greater detail. Lori Beaudoin: Thank you, Alex and good afternoon, everyone. Let me open by walking through the details of our strong third quarter results. Net sales for the quarter were $91.6 million, slightly above our expectations and a 1.3% increase versus the prior year quarter. When looking at results on a three-year CAGR basis, which we view as indicative of the underlying performance of the business without pandemic-related noise, our net sales growth was up double-digits. Looking at contribution to growth, volumes were down less than 1% and price mix served as an offset, up nearly 2% versus Q3 2021. Similar to net sales growth our volume trends were markedly stronger with our three-year CAGR accelerating to roughly 20%. Modest price mix growth reflected greater increases from Decoy and Duckhorn versus the prior year period, which more than offset negative mix headwinds from DTC. I should also note than on a like-for-like basis, price changes were immaterial to our results. Our depletion growth remained strong, increasing by double digits versus the prior year period and meaningfully outperforming shipments in the quarter. With our depletions growing at a similar rate to shipments on a three-year CAGR basis, we view these results as strong evidence of the robust demand for our portfolio of luxury wine, and that bodes well for our long-term outlook. Let's take a moment to discuss our performance by channel. Wholesale to distributor increased by 5.5% versus the prior year quarter. This strength was in part due to a lift from positive price/mix as on-premise continue to grow faster than off-premise sales. That said, off-premise did grow nicely versus the prior year quarter continuing to build upon considerable distribution and market share gains we drove during the pandemic. Additionally, we realized from pull forward in net sales from Q4, which we estimate added a couple of million dollars to channel results. In our home state of California, our unique direct to retail channel grew by 7%, which was supported by outsized strength for on-premise. In both wholesale to distributor and California direct to retail, we observed fairly consistent double-digit growth on a three-year CAGR. As mentioned on our last earnings call, our high-margin DTC channel growth continues to be somewhat restrained by cost of brown supply constraints for our ultra-luxury exclusive offering. The channel was down 12.4% compared to the prior year quarter. However, DTC improved over our second quarter performance, bolstered by strength in our tasting rooms and luxury wine clubs, which continue to add great value, allowing us to interact with and introduce new consumers to our high-quality luxury wine. As visitation at our tasting rooms increased versus the prior year period, average spend per visitor increased as well. Additionally, our wine club net sales were up mid-teens, versus the prior year period. Gross profit was $44 million, a decrease of $3 million or 6.3% versus the prior year quarter. In the third quarter, we wrote down inventory worth approximately $3.9 million related to our premium Seltzer. Our premium seltzer was a small element of the new product portfolio we have brought to market in the past 2 years. While we are pleased with its trial, we are aligning our resources in the future on other priorities that have performed strongly and have a greater potential for sustained growth in the future such as Decoy Limited and Postmark winery brands. Excluding this write-down, as well as our standard adjustment for purchase accounting, adjusted gross profit was $48.1 million an increase of $800,000 or 1.8%. Adjusted gross profit margin was 52.5%, up approximately 26 basis points. This rate of improvement was the result of favorable brand mix, partially offset by unfavorable channel mix relative to the prior year period. Total selling, general and administrative expenses came in better than expected for the quarter, down $8.1 million or 25.9% to $23.1 million. The decrease was primarily attributable to IPO-related expenses that were present in the prior year period when we went public. Net income was $15.6 million and diluted EPS was $0.14 per share compared to net income of $9 million and diluted EPS of $0.08 per share in the prior year quarter. Adjusted net income was $19.2 million, and adjusted EPS was $0.17 per diluted share compared to adjusted net income of $17.9 million and adjusted EPS of $0.17 per diluted share in the third quarter of 2021. To make the comparison on an apples-to-apples basis, if we burdened the third quarter of fiscal 2021 results with a full quarter of public company costs and use the current diluted share count, fiscal 2021 third quarter adjusted EPS and would have been $0.15 per diluted share. This comparison yields and adjusted EPS growth of 11.5%. These positive normalized results reflect the continued strength of our top line and stable gross profit margins, partially offset by an increase in selling expenses, supporting sales activities and the continued resurgence of business travel versus the prior year period. Adjusted EBITDA for the quarter was $32.9 million, essentially flat year-over-year. This represents 35.9% of net sales compared to 36.4% of net sales in the prior year period. However, if we look at this on a normalized basis and burden third quarter fiscal 2021 results with a full quarter of public company costs, adjusted EBITDA reflects modest growth and approximately 60 basis points of margin expansion. At the end of the quarter, we had cash of $8.7 million and net debt of $231 million, with a leverage ratio of 1.9x. Turning to our updated fiscal year outlook. In light of strong year-to-date performance and our confidence in executing irrespective of the macro events occurring, we are raising and narrowing each of our net sales, adjusted EBITDA and EPS guidance ranges. We now expect net sales of $369 million to $373 million representing 10% to 11% growth year-over-year, adjusted EBITDA of $125 million to $128 million or 7% to 9% growth year-over-year, and adjusted EPS of $0.59 to $0.62 per share, which assumes a 25% effective tax rate and $114.5 million to $116.5 million diluted shares outstanding. Also, there's no material change to our prior guidance with respect to planned regular capital expenditures which do not include strategic opportunities for veneer purchases, production assets and M&A. With that, I will turn the call back over to Alex for his closing comments. Alex Ryan: Thank you, Lori. As we celebrate a full year of being a public company, we are proud to report another quarter of strong financial results and out performance of the high-growth luxury wine industry. The combination of our high-quality, highly respected portfolio brands, differentiated one-stop luxury wine shop sales approach, scaled omnichannel platform, sustainable business model and strong execution delivered by an exceptional leadership team, put us in an advantageous position to build upon the momentum we have shown year-to-date and end the fiscal year on a high note. We are confident that we will successfully deliver on our raised fiscal year 2022 financial targets and deliver a robust profitable growth for our stakeholders over the long term. With that, Sean, Lori and I are available for your questions. Operator: Our first question comes from the line of Andrea Teixeira with JPMorgan. Please go ahead. Andrea Teixeira: Thank you. Good afternoon, If you can please discuss the health of the consumer. It seems that you're seeing an actual acceleration. But how close are you in the sustainability of this trend as you build your assumptions for the fourth quarter guidance? And as you're obviously progressing through the quarter, are you seeing any signs of concerns with your consumer and any potential trade down in bottles, buying less frequently, shifting channels to home again from on-premise. It might be premature to say that, but I just want to double check. And then in terms of your -- you mentioned many positives in terms of how you're accelerating your top line growth, including number of accounts and then the accounts and market share. Can you share a bit of that info with us, if you can say that the trend accelerated as you progress the fiscal, how we should be thinking as we move forward? Thank you. Lori Beaudoin: Yes. Thank you, Andrea. Thanks for the question. I appreciate it. So first, I think you asked about consumers. And so we haven't really seen any change in consumers demands for our products. We've just seen continued growth. And when we think about consumers and our products, we really feel that they're somewhat insulated from various inflationary dynamics. And so we haven't seen -- we don't have concerns there with regard to consumer demand for our products. And we feel confident that the pull-through will continue. Andrea Teixeira: That's helpful... Lori Beaudoin: Yes. So -- and then you're asking about the trends that we saw in the quarter, I believe. So we -- remember, this is a really a very challenging quarter for us to overcome the growth of the prior year. So I think if you remember, we had 41% volume growth in the prior year in Q3. And this quarter, we saw really strong on-premise growth, which exceeded our expectations actually. And then we also saw off-premise trends really continue strong, and we were able to exceed and build on the gains that we had realized in Q3 of '21, which was very exciting for us. So we've seen continued growth in both on-premise and off-premise. And then finally, I'll remind you that in Q3, we did pull about $2 million worth of planned shipments from Q4 into Q3. Andrea Teixeira: Yes. That's helpful on the commentary of how much you pulled forward, but still you're like underlying, you're still accelerating in the fourth quarter, which is good to hear. The follow-up question was a bit related to that in terms of like how much market share you're getting in terms of the accounts or productivity TDPs, as you pointed out. Is there any data you can share in terms of how much you gained share, let's say, in the Q3 against Q2 and if those accounts are mostly on-premises I am assuming. Lori Beaudoin: Yes. So we have continued to grow by adding accounts. Accounts growth has been our major driver as opposed to velocity. Although we are growing strongly on all cases, accounts sold as well as PODs. We don't have information to publish on a quarterly basis with regard to accounts sold, but we do, and we have continued to exceed our historical levels. And Andrea, I can tell you that on -- with regard to on-premise, we have exceeded our pre-pandemic accounts sold levels and we continue to build that particular segment. Andrea Teixeira: That's great. And congrats again, Laurie and the team, Alex and Sean. Alex Ryan: Thank you, Andrea. Operator: Our next question comes from the line of Lauren Lieberman with Barclays. Please go ahead. Heather Gornik: Hi. This is Heather Gornik on for Lauren Lieberman. So I know you mentioned realigning resources around new introductions to the marketplace away from the premium seltzers. You called out the Decoy Limited and Postmark. But I'm just wanting to see if you could characterize how you view your pipeline. Is it fair to think of it as being more focused now as we've seen those resources get realigned? Or if there's any change in how you're thinking about introduction to the marketplace versus what might have been contemplated a year ago. Alex Ryan: Yes, that's a great question. No real change in how we're looking at innovation. The premium wine seltzer was slightly an outlier there in an exciting category to innovate into. But as you noted, we have a new Postmark series. We have Decoy Limited. We've done a lot of work in sparkling wine, especially Decoy, Brute Rose. So we have a lot of innovation that -- it takes about two years to kind of get it fully folded into the market. We have a pipeline. It's part of our DNA, so we continue with that. So I'd say we're not going to be limiting our innovation approach, but probably moving slightly back to more traditional luxury bottled wine innovative strategies. Heather Gornik: Okay. Makes sense. And then the other one for me was just we had talked previously last quarter about potential to accelerate certain planned pricing actions if the broader macro environment deemed it necessary. So I wanted to get your latest thinking just to what extent you view that as a feasible level to being further on, is necessary? Lori Beaudoin: Yes. Great. Thank you, Heather. So yes, as we've discussed in the past, pricing is really a very methodical approach for us. We put a lot of thought into it. And any change in pricing is communicating really well in advance with regard to our trade partners to make sure it's accepted and integrated well. We have found of late that our trade partners are much more receptive with regard to price increases. And as they see, the consumers are being much more receptive. So it's more positively accepted. So we have accelerated some price increases, as we talked a little bit about last quarter. we don't see any material impact to pricing changes in the current quarter or probably fiscal year '22. But we always priories growth, and we look at pricing and we make holistic decision what's the best for the business growth and margin being our overarching goals. So we look at those two things when we make our pricing decisions. Heather Gornik: Great. Appreciate all the perspective. Operator: Thank you. Our next question comes from the line of Brian Spillane with Bank of America. Please go ahead. Unidentified Analyst: Hey. Good afternoon, everyone. I'm pinch-hitting for Pete, who's on his honeymoon this week. So I had a couple of questions. I guess the first one, just I think you mentioned that depletions were up double digit in the quarter. I just wanted to make sure I heard that in the prepared remarks. Lori Beaudoin: Yes, that's correct. So depletions, we had double-digit depletion growth, which outpaced our relatively flat case shipment. And we saw accelerated growth in both on-premise and as well as double-digit depletion growth in off-premise, 3 years -- that's basically on a 3-year CAGR basis. Unidentified Analyst: Okay. And is that just -- is that trend just directionally, is it accelerating? Is it kind of held the growth rate health costs? Just trying to put that into some context in terms of directionally what's whether consumption trends are accelerating, improving? Just any sense of just directionally where that's -- how to put that in context? Alex Ryan: I don't think we can comment specifically as to acceleration. I think that you should look at double-digit depletion growth in today's climate is very, very healthy for a brand. And I think that the trend on top of that is we do believe that the premiumization trend amongst affluent consumers is really solid and going to continue to support that. So I think I think you should look at it as general health of our brands in the marketplace in the luxury space of the overall wine market. Unidentified Analyst: Okay. And then just as we're thinking about supply chain and kind of all the different types of supply chain bottlenecks. Alex, can you talk a little bit about just -- I know there's been, for some companies, some tightness in glass over the last year and even more recently. So just can you give us a sense of just how you feel about or how you stand in terms of glass? And then maybe if you could just comment on where some of the sort of the bottlenecks still might be in your supply chain? Alex Ryan: I'll split this one up with Lori if some cost -- so if there were some underlying cost thoughts there. But as it remains to bottlenecks, we have a really experienced production team. I'm proud of them. They've made really good relationships and strategies to make sure that we're not getting tight on bottling supplies is probably your most critical. I'm very comfortable with our great supplies. We've been through the diversification story many times, it continues to pay dividends. As it relates to packaging materials, bottles would be the largest piece of the packaging model piece, and we have some very, very good relationships with some producers currently in Mexico, and we don't foresee any bottlenecks on our needs for our type of glass for our products. Unidentified Analyst: Okay. And then just last one for me. The acquisition that you made recently in San Luis Bispo, could you just talk a little bit about the kind of the -- as we look forward in terms of how you're thinking about acquisitions and how we should be thinking about acquisitions, is it these types, these size assets that we would be focused on? And if you could talk a little bit about just kind of what the acquisition market looks like now, especially with interest rates rising and a lot of the sort of some of the variables that had underpinned valuations for the last, I would say, even a few years, we were probably going back further with interest rates having been so low. Is that at all changing at all kind of kind of the M&A landscape, maybe loosening up some assets that -- or tighten things up? Just trying to get an understanding of rates are moving so fast, right? Valuations are changing, you'd see in the equity markets. Just how is that affecting the M&A landscape? Sean Sullivan: Sure. It's Sean. I think the first thing to do is probably just divide in our minds. The 2 pieces that might be called M&A. There's what we did down in Sales Vistana earlier in the year done through Vineyard acquisition in Napa Valley. Those are stand-alone vineyards or would loop production assets into that as well that are designed to, in the case of vineyards, optimize our grape supply and ensure that we have the appropriate diversification for the luxury wines that we produce. And in the case of supply assets -- excuse me, in the case of production assets, to ensure that we have the optimal mix and the right amount of slack in our in-house production versus custom crush. So the model there continues to be thoughtful and disciplined, but look for those opportunistic assets that will give us the opportunity to use our capital well to increase diversification, ensure supply to key grapes and make sure we have the right balance of custom crush versus in-house production and in the right places. So I'd put that in one bucket. We will continue to employ that strategy, which I think has served us very well most notably. And Alex's answer to your supply chain question, I think the source of that really is the good diversified model of grapes and production assets. On the other side, we have more traditional M&A as you think of that. And I think that the environment really is a -- there is a parallel nicely to sort of what we see in premiumization more broadly. Given that we've talked about our interest in M&A, which is additive to our organic growth story being primarily and entirely really focused on the luxury market. We would anticipate that those assets would be performing well. And therefore, we would not see necessarily a huge swing downward or upward in valuation based on kind of where interest rates are and where more broadly, the economic cycle is because we would be looking at high-quality growth assets that would be consistent with how we see ourselves. Unidentified Analyst: Okay. So interest rates rising, not really having an impact on valuations, I guess, the way we should think about it? Alex Ryan: I think at this point, that's probably fair. I think that, that would be a fair assessment of where we sit today. Sean Sullivan: And Brian, just to weigh in on that a little bit, too. I think your -- another underlying thought you were sharing there is we do still believe there are quality assets that are going to come to market as a trend over the next several years. Operator: Our next question comes from the line of Rob Ottenstein with Evercore. Robert Ottenstein: Great. And congratulations on the continued terrific performance. I was wondering if we can focus on the $18 to $20 or so wine segment and kind of where Dequite competes. Any thoughts about trends there, competitive intensity? Is it picking up? And maybe very specifically, to that segment, how you're benchmarking your performance? Alex Ryan: Robert, it's Alex. You know we're deeply entrenched in that segment right there, and we own a huge chunk of it. So we're very confident that we're going to continue to compete well there. If you're kind of looking asking, do we think there's going to be more competition looking outwards, maybe. But we're very comfortable with the plans in that segment that we have and the offerings and how we're going to market with it. So if it continues to be competitive, so be it. On top of that, though, is I do believe, as we look forward, that overall -- what we continue to see in our intel tells us is that, that will be an exciting place to be and the premiumization amongst trusted brands and reliably priced products is still going to stay in effect. So we're also not going to shy away from the belief that our premiumization and our trade-up kind of overall process will remain a viable part of our short-term, near-term and long-term strategy. So no, we're not -- we don't have any concerns about the competitiveness of that area. Robert Ottenstein: And you kind of led into my next question was any color in terms of how Decoy Limited is doing, which is your trade-up innovation? Alex Ryan: Very well. Very, very happy with the performance we've seen with that and our plans for future growth in that. So we're excited about how that one has really folded into our family of brands. Robert Ottenstein: And is that going to be -- I mean, can you give us any sort of way to get a sense of how big that is now or how to look at the opportunity for that just so we can try to try to model this? Alex Ryan: We probably want to stick to some of your data sources. I think that's going to give away too many trade secrets start an and handing you all those case numbers. Sean Sullivan: I do think that we've talked a little bit before about Decoy Limited and it's really additive nature that we've seen. And so while that may not specifically speak to the question you asked, I think that it is important to note that we continue to see it as additive to the overall portfolio and specifically to the Decoy winery brand. Robert Ottenstein: Great. And then during the road show, I believe you gave us some statistics on Wine Club membership. I don't remember exactly what that number was. But can you talk about how that has evolved through the pandemic and where it is now? Did you lose a lot of members? Are they coming back? Do you have more now? Just trying to get a sense what that membership looks like. Lori Beaudoin: Yes. So we don't really report on the breakdown segments of -- with regard to the various channels, if you will, within our DTC business. I can tell you that our wine clubs continue to grow, which we originally during the pandemic, had some concerns that there wouldn't be growth with accretion without people visiting the tasting room, but we've seen the wine clubs grow nicely. In fact, that's one of the bright spots for Q3 or our Wine Club growth for Q3 for the DTC channel. Robert Ottenstein: And is your – Alex Ryan: Yes, go ahead I'm sorry. Robert Ottenstein: So just to be clear, is your -- you see your membership in terms of number of families or individuals higher today than it was in 2019? Lori Beaudoin: Yes. I'm sorry, I don't have that information, and we don't really report on that. I can tell you that our club shipment sales dollars are up from where they were this time last year. I'm not sure prepandemic, but the wine clubs are extremely healthy and continue to thrive. Sean Sullivan: And I think the other point that probably feeds into that is that our tasting rooms are very healthy right now and continue to -- now that we're open with no limitation on visitation, they continue to see excellent turn through. And of course, as we've talked about before, that is a very important funnel to not only Wine Club membership but also to brand evangelists more broadly. Alex Ryan: I think the important piece that we answer around on this is everyone was wondering about what's going to happen if inflationary pressures happen. I think this is all speaks highly of the health of premiumization in luxury wine, the experience, the special offerings, the higher price points. So all of these little nuggets we've been sharing, I think we need to distill it down on that we're fairly bullish on that trade-up premiumization posture that most of our customers have will remain strong for the near term. Robert Ottenstein: Yes. No, that's certainly -- you read half of where I was coming from it. Absolutely. The other part that I'm trying to get a sense on is how much have they recovered. Like if you looked at the same tasting room now over the last three months compared to where it was pre-pandemic, is the traffic the same, higher, less? Just trying to get a sense of where we are. Alex Ryan: Traffic is relatively close to capacity. There are capacity limits for the experiences we offer and people are making appointments coming in, building up our -- it's seasonal or it's seasonal during the day and obviously, during the season. But generally speaking, we're running close to capacity with our tasting rooms and people are buying the wines and as you know, we skew to the higher dollar price wines in the dating room. So both seem to be working well. Robert Ottenstein: Terrific. Thank you very much. Operator: Thank you. Our next question comes from the line of Kevin Grundy with Jefferies. Please go ahead. Kevin Grundy: Great. Thanks. Good afternoon, everyone and congrats on the strong results. I want to come back to the guidance, Lori. I apologize if I missed this. So we talked about strong double-digit depletion trends, the consumer is holding up well, particularly the high-end consumer premiumization trends intact. All of that being said, the guidance still does imply an acceleration looking at the comp because on our sales I know the volume is a little bit different, but on a sales basis, the comp gets more difficult. So the guidance implies an acceleration on a two-year stack or 2-year average basis in the fourth quarter. And I just want to understand, is there something specific there? Is there some sort of pull forward? Is there some customer-specific shipment dynamics perhaps that's driving the acceleration? I apologize if I missed it. Lori Beaudoin: No. I think generally, the fourth quarter is one of our smaller quarters in terms of shipping revenue for the overall fiscal year. So we do have a little bit of a anomaly in Q4 this year that last year, we had some noise around the estate Costa Brown estate shipment. And we do have 100% of the Costa Brown estate release shipping in Q4 this year, which has helped bolster the quarter somewhat. Kevin Grundy: Okay. All right. All right. And then in terms of magnitude, is that something that you can break out or no? Lori Beaudoin: No, I'm sorry, I don't have that for you right now. Kevin Grundy: Okay. That's fine. That's fine. If you can take it offline, just like kind of right size versus recent trends on a 2-year stack. And then for the team, just the distribution opportunity outside of the on-premise channel. So in your wholesale business, and you've talked about where ACV sits relative to some of the major scale luxury peers, how should investors think about the timing around your ability to close that gap? Alex Ryan: I think that I think you're always trying to close the gap, Kevin. I think that's just what a long-term business does well -- because it will be -- you're closing gaps and you're introducing new products. I just think that I don't think that's a quarter shift. I think you need to think of that as a longer-term strategy as closing those gaps, especially because your competitors are going to try to increase the size of the gap. So think about us as focused on that. We understand the gaps. We understand where they are, working hard hit our customers wherever they're buying our wine. So it's upon management to close that gap, but think about it as part of an overall longer-term strategy. Kevin Grundy: Alex, just in terms of like handicapping. So if ACVs like in the food channels like in the mid-70s for decoy, can you get like to the low 90s in 2 years, 3 years? Is that -- what's the current plan? Alex Ryan: Kevin, I was going to say what a nice survey you published today, and I'd be crazy to answer that question. I'm going to look at a point of a time improvement on a gap closure. And it's worth noting that we have some additive elements, for example, take quite limited, which is really an opportunity with a much lower, obviously, ACV given where we are starting from and it's relative new introduction. So that is always when you take a look at the portfolio as a whole and evolving number, that frankly, we view as a nice opportunity with white space. Kevin Grundy: Understood. One more cleanup because I know the call has gone on a little bit long. Just with respect to the inventory reserve in seltzer, which was not a big bet for you guys at all. So with the inventory, is it sort of fair to say moving on from any interest in the RTD space, at least for now, particularly given the really strong health of the core of the portfolio? Alex Ryan: Yes. I think that's the right way to look at it. Kevin Grundy: Okay. Congrats again on the quarter. Operator: Thank you. There are no additional questions waiting at this time. I would like to pass the conference back to Alex Ryan for any closing remarks. Alex Ryan: Thank you, everyone, and I want to thank you again for joining us today to review our third quarter, and I look forward to speaking with you in late September when we report our fourth quarter and full year fiscal year 2022 results. Take care. See you soon. Operator: That concludes the Duckhorn Portfolio's Third Quarter 2022 Earnings Conference Call. help you all enjoy the rest of your day. You may now disconnect your lines.NAPA Ratings Summary
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The Duckhorn Portfolio's Strategic Acquisition and Market Performance
- NYSE:NAPA maintained a "Market Perform" rating by BMO Capital with a raised price target from $9 to $11.
- Shares of NAPA doubled in value following the announcement of an acquisition by Butterfly Equity, priced at $1.95 billion.
- The acquisition aligns with Duckhorn's potential for growth and expansion in the luxury wine market.
The Duckhorn Portfolio, trading on the NYSE:NAPA, is a prominent luxury wine company based in Napa Valley. Known for its premium wines, Duckhorn has established itself as a leader in the North American wine industry. The company competes with other luxury wine producers, focusing on high-quality offerings that appeal to wine enthusiasts and collectors.
On October 7, 2024, BMO Capital maintained its "Market Perform" rating for NYSE:NAPA, advising investors to hold their shares. At that time, the stock was priced at $10.95. BMO Capital also raised its price target for Duckhorn from $9 to $11, reflecting a more optimistic outlook for the company's future performance.
Recently, shares of NYSE:NAPA experienced a dramatic surge, doubling in value. This increase followed the announcement of an acquisition by Butterfly Equity, a private equity firm. The deal, valued at $1.95 billion, is an all-cash transaction, pricing each share at $11. This represents a significant rise from the previous closing price of $5.40 per share.
The acquisition by Butterfly Equity underscores the firm's strategic focus on the food and beverage sector. Duckhorn's stock, which fluctuated between $10.86 and $11.00, has seen a 102.78% increase, equivalent to a $5.55 rise. The company's market capitalization is approximately $1.61 billion, with a trading volume of 46.35 million shares.
Over the past year, NYSE:NAPA's stock has reached a high of $11.08 and a low of $5.38. The acquisition by Butterfly Equity positions Duckhorn for potential growth and expansion in the luxury wine market, aligning with BMO Capital's revised price target and market performance expectations.
The Duckhorn Portfolio's Strategic Acquisition and Market Performance
- NYSE:NAPA maintained a "Market Perform" rating by BMO Capital with a raised price target from $9 to $11.
- Shares of NAPA doubled in value following the announcement of an acquisition by Butterfly Equity, priced at $1.95 billion.
- The acquisition aligns with Duckhorn's potential for growth and expansion in the luxury wine market.
The Duckhorn Portfolio, trading on the NYSE:NAPA, is a prominent luxury wine company based in Napa Valley. Known for its premium wines, Duckhorn has established itself as a leader in the North American wine industry. The company competes with other luxury wine producers, focusing on high-quality offerings that appeal to wine enthusiasts and collectors.
On October 7, 2024, BMO Capital maintained its "Market Perform" rating for NYSE:NAPA, advising investors to hold their shares. At that time, the stock was priced at $10.95. BMO Capital also raised its price target for Duckhorn from $9 to $11, reflecting a more optimistic outlook for the company's future performance.
Recently, shares of NYSE:NAPA experienced a dramatic surge, doubling in value. This increase followed the announcement of an acquisition by Butterfly Equity, a private equity firm. The deal, valued at $1.95 billion, is an all-cash transaction, pricing each share at $11. This represents a significant rise from the previous closing price of $5.40 per share.
The acquisition by Butterfly Equity underscores the firm's strategic focus on the food and beverage sector. Duckhorn's stock, which fluctuated between $10.86 and $11.00, has seen a 102.78% increase, equivalent to a $5.55 rise. The company's market capitalization is approximately $1.61 billion, with a trading volume of 46.35 million shares.
Over the past year, NYSE:NAPA's stock has reached a high of $11.08 and a low of $5.38. The acquisition by Butterfly Equity positions Duckhorn for potential growth and expansion in the luxury wine market, aligning with BMO Capital's revised price target and market performance expectations.
JPMorgan Lowers Duckhorn Portfolio Price Target to $7 Ahead of Q4 Earnings Release
JPMorgan analysts reduced their price target for The Duckhorn Portfolio (NYSE:NAPA) to $7, down from $9, while maintaining a Neutral rating ahead of the company's Q4/24 earnings report, which is scheduled for October 7. The analysts kept estimates for Q4 unchanged, forecasting sales and EBITDA at $104.3 million and $35.1 million, respectively, roughly in line with Street consensus of $105.0 million and $34.7 million, and within the company’s guidance range.
However, the analysts slightly lowered their fiscal 2025 estimates, reflecting potential price and mix pressure from higher promotions and adjusted Sonoma-Cutrer contributions due to slowing growth trends. The updated 2025 forecast now projects sales of $488.5 million, up 22.0%, and EBITDA of $187.9 million, up 25%, with EPS expected to be $0.58, representing a 13% year-over-year increase.
JPMorgan Lowers Duckhorn Portfolio Price Target to $7 Ahead of Q4 Earnings Release
JPMorgan analysts reduced their price target for The Duckhorn Portfolio (NYSE:NAPA) to $7, down from $9, while maintaining a Neutral rating ahead of the company's Q4/24 earnings report, which is scheduled for October 7. The analysts kept estimates for Q4 unchanged, forecasting sales and EBITDA at $104.3 million and $35.1 million, respectively, roughly in line with Street consensus of $105.0 million and $34.7 million, and within the company’s guidance range.
However, the analysts slightly lowered their fiscal 2025 estimates, reflecting potential price and mix pressure from higher promotions and adjusted Sonoma-Cutrer contributions due to slowing growth trends. The updated 2025 forecast now projects sales of $488.5 million, up 22.0%, and EBITDA of $187.9 million, up 25%, with EPS expected to be $0.58, representing a 13% year-over-year increase.
The Duckhorn Portfolio, Inc. Fiscal Third Quarter Financial Performance
- The Duckhorn Portfolio, Inc. reported earnings per share (EPS) of $0.14, slightly below the anticipated $0.15.
- Revenue for the period was approximately $92.53 million, falling short of the expected $93.6 million.
- The company showcased an improvement in gross profit to $51.4 million and a gross profit margin of 55.6%, indicating enhanced profitability.
The Duckhorn Portfolio, Inc. (NYSE:NAPA), a prominent player in the wine industry, recently disclosed its financial performance for the fiscal third quarter ending April 30, 2024. Despite the company's efforts to meet expectations, it reported earnings per share (EPS) of $0.14, slightly below the anticipated $0.15. Additionally, the revenue for the period was approximately $92.53 million, falling short of the expected $93.6 million. This outcome reflects the challenges NAPA faces in a competitive market, striving to maintain its revenue streams and profitability amidst varying conditions.
During the earnings conference call, key company executives, including President and CEO Deirdre Mahlan, provided insights into the company's financial health and strategic direction. The call was a crucial moment for NAPA, as it aimed to reassure investors and analysts about its future plans. Notably, the company's gross profit for the quarter was $51.4 million, an improvement from the previous year, showcasing its ability to manage costs effectively. This was further evidenced by a gross profit margin of 55.6%, indicating a slight enhancement in profitability.
NAPA's financial results also highlighted a modest growth in net sales, reaching $92.5 million, a 1.4% increase from the same period in the previous year. This growth, although modest, demonstrates the company's resilience in sustaining its revenue streams. Furthermore, the company achieved a net income of about $13.32 million during the quarter, with an operating income of approximately $21.70 million and an EBITDA of $31.37 million. These figures underscore NAPA's strategic positioning within the wine industry, managing to generate profit and maintain operational efficiency.
The earnings call was an opportunity for NAPA to address questions from notable analysts, reflecting the company's transparency and willingness to engage with its stakeholders. Despite the slight miss in EPS and revenue expectations, the company's overall positive financial performance and strategic initiatives suggest a strong foundation for future growth. The detailed financial metrics, such as gross profit, operating income, and EBITDA, provide a clearer picture of NAPA's financial health and operational success.
In summary, The Duckhorn Portfolio, Inc. faces the challenge of navigating a competitive landscape while striving to meet investor expectations. The fiscal third-quarter results, though slightly below estimates, reveal a company that is managing to grow and maintain profitability. With a focus on strategic planning and operational efficiency, NAPA continues to solidify its position in the wine industry, aiming for sustained growth and financial stability in the future.
The Duckhorn Portfolio Reports Q3 Beat, Provides Strong Guidance
The Duckhorn Portfolio (NYSE:NAPA) posted its Q3 earnings results yesterday, with revenue of $91.2 million coming in above the Street estimate of $89.79 million. EPS was $0.16, better than the Street estimate of $0.12.
While slowing on-premise sales may be a short-term headwind, management seems to be very confident in its position, heading into a tough economic environment, as a luxury player with scale.
Management sees Q4/23 EPS to be in the range of $0.64-$0.66, compared to the Street estimate of $0.64, and revenue in the range of $400-$404 million, compared to the Street estimate of $402.56 million.
The Duckhorn Portfolio Reports Q3 Beat, Provides Strong Guidance
The Duckhorn Portfolio (NYSE:NAPA) posted its Q3 earnings results yesterday, with revenue of $91.2 million coming in above the Street estimate of $89.79 million. EPS was $0.16, better than the Street estimate of $0.12.
While slowing on-premise sales may be a short-term headwind, management seems to be very confident in its position, heading into a tough economic environment, as a luxury player with scale.
Management sees Q4/23 EPS to be in the range of $0.64-$0.66, compared to the Street estimate of $0.64, and revenue in the range of $400-$404 million, compared to the Street estimate of $402.56 million.
