The Duckhorn Portfolio, Inc. (NAPA) on Q4 2021 Results - Earnings Call Transcript

Operator: 00:03 Greetings and welcome to The Duckhorn Portfolio's Fourth Quarter twenty twenty one Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. As a reminder, this conference is being recorded. 00:30 I would now like to turn the conference over to your host, Sean Sullivan, Executive Vice President, Chief Administrative Officer and General Counsel. Sean Sullivan: 00:41 Good afternoon and welcome to The Duckhorn Portfolio's fourth quarter twenty twenty one earnings conference call. Joining me on today's call are Alex Ryan, Duckhorn's President, CEO and Chairman; and Lori Beaudoin, our Chief Financial Officer. In a moment, we'll hear brief remarks, followed by Q&A. By now everyone should have access to the earnings release for the fiscal year ended July thirty one, twenty twenty one that went out this afternoon 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 thirty days. 01:28 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 as a result of these forward-looking statements. 01:55 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 and our earnings presentation a full reconciliation of non-GAAP financial measures to the most comparable GAAP measures. 02:26 Now I will turn it over to Alex. Alex Ryan: 02:29 Thank you, Sean, and good afternoon. We really appreciate you joining us today to review what was a record-setting fourth quarter and fiscal year. Following my opening remarks, I will ask Sean to provide a few updates on our longstanding commitment to sustainability that was exemplified by our continuing EFG initiatives. We will then turn things over to Lori who will take us through our Q4 financial results and fiscal year twenty twenty two outlook before we open the call for questions. To kick things off, let's begin a few fourth quarter performance highlights as well as reflect on some of the notable achievements over the past year. 03:06 We ended the year on a high point with our Q4 net sales growth coming in at a robust thirty six percent growth rate, helping to profitably deliver over twenty four percent full year net sales growth, the highest level of organic growth we realized since twenty fourteen. Adjusted EBITDA grew a healthy twelve percent for fiscal year twenty twenty one. Fiscal year twenty twenty one includes public company costs, which did not exist in the prior-year period, when proportionately burdening fiscal year twenty twenty by these public company costs, our fiscal year adjusted EBITDA increased fourteen percent year-over-year. 03:47 Q4 net sales strength was broad-based with all channels and end markets on and off-premise contributing double-digit growth. The continuation of the recovery of the on-premise first observed in Q3 was the primary driver of growth in Q4, leading to another quarter of nearly forty percent growth in our wholesale to distributor channel. 04:10 Q4 volumes remain a source of strength coming in at roughly forty percent growth for the third time this year. Depletions track consistently with shipments for the period, underscoring our strong brand equity and the consumers affinity for our high-quality luxury wine. 04:28 In fact in a more recent development the momentum we've observed over the course of the past year has taken us to new heights. According to IRI in over the twelve week period ending on September fife, our gateway Duck Decoy became the number one luxury brand in the wine industry by dollar sales, a major accomplishment for our growing sales and marketing team, a testament to the brand -- for those consumers seeking out an exceptional luxury wine at an attainable price. 04:57 Over the same twelve week period The Duckhorn Portfolio is pivoting more growth dollars in the luxury wine segment than any other wine supplier demonstrating the momentum we have across our business and the effectiveness of our highly differentiated go-to-market strategy, which provides our retailer and distributor partners a one-stop shop for all their luxury wine needs. Finally on a twelve week basis The Duckhorn Portfolio was the fastest growing in terms of percent of revenue growth and absolute revenue growth among the top twenty suppliers in all price points in the US. 05:35 Let's take a moment to discuss our channel performance. Looking at our wholesale channel, which includes both distributors and California Direct to Retail and it is historically accounted for approximately eighty percent of our annual net sales. We continue to see great strength behind our portfolio of high quality brands, one-stop luxury wine shop go-to-market strategy and additional investments in our sales force. 06:00 During the quarter, we realized over one hundred percent growth in on-premise as it lap the COVID impacted prior-year period while off-premise also showed solid double-digit growth across all key metrics, including cases, account sold and points of distribution. This underscores our acute ability to drive distribution by on-boarding new and further penetrating existing accounts. 06:25 Drilling down to trade channels, independent both for on and off-premise were primary drivers of growth indicating diversity of our account base and speaking to the broad appeal of our luxury portfolio of wines among the trade in a period where recently reopened on-premise businesses are carrying slim down wine list and off-premise customers are seeking out strong brands to drive traffic and bring the Duckhorn Portfolios broad range and strong brand equity were a clear choice for our trade partners and consumers. 07:00 Given the highly attractive financial and experiential luxury nature of our brands for both our trade partners and end consumers, we believe our distribution growth is sustainable. In addition, we believe the breadth and depth of our high-quality, luxury wine portfolio is continued refresh through thoughtful innovation and disciplined M&A, along with our unique go-to-market strategy distinguishes us from the crowd, and will allow us to continue to take share in both the premium sub segment, the fastest growing sub segment of wines and the broader market. 07:36 Outside of our wholesale channel our high margin DTC business continues to see nice progress. The third consecutive quarter of sequential improvement led by strong year-on-year recovery in visitation at our various tasting rooms and strength in our wine club sales. During the quarter Kosta Browne also completed a successful state offer where our most tenured members acquire our expensive wines. Every years past, we elected to take modest price increases on certain wines this year. However, we have seen no observable impact to demand. We experience similar outcomes in the wholesale channel. 08:14 The ability to take price may vary by channel requiring us to remain thoughtful and mindful of both our trade partners and consumers needs that said because of our brands rate, high quality wines and the broader premiumization of the wine category, we are confident that we can continue to justify future price increases given the consumers increasing demand for exceptional luxury experiences. 08:38 Looking into the second half of this coming fiscal year in our DTC business we will be launching a special and highly innovative new Kosta Browne release should captivate members in the media -- wine media alike. Our wine club continues to have consecutive quarters of strong new member conversions and provides a meaningful contribution to our DTC business. 09:02 While evident that our portfolio of high quality luxury brand is resonating with trade partners and consumers alike, I would be remiss if I did not acknowledge a recent slowdown in industry sales trends over the past few weeks. With the raise in cases from the Delta variant, the pace of on-premise recovery was tempered as the summer progresses. We are not immune to the broader dynamics. However we view ourselves to be in an advantage position relative to the answer, given our strict focus on premium wines, brand strength, and scaled luxury platform in spite of the delta variant headwind and importantly very tough year-ago comparisons in off-premise. 09:43 We've continued to certainly outperform both the broader and premium wine segments with solid positive growth in cases, accounts sold and total points of distribution. In addition, we are considerably above pre-COVID levels for both on-premise and off-premise, we are focused on continuing to seek out ways to drive distribution gains with both new and existing customers into the future. 10:07 In summary, I'm pleased with our fourth quarter and full year results and I remain confident that we are still in the early innings of growing our share of the highly fragmented US wine market profitably over the long-term. Our successful track record and proven playbook are indisputable and that is rooted in the five strategic growth pillars that have gotten us to where we are today. 10:30 One, operating our scaled omnichannel platform in addition to our diversified sourcing and production capability. Two, leveraging our marketing and brand strength, especially our one-stop luxury wine shop sales approach. Three, driving innovation and bringing new experiences in a high quality luxury wines to our growing consumer base. 10:52 Four, investing behind DTC as the marketing engine of the company that provides an important opportunity for us to engage with consumers, create Duckhorn evangelists and drive adoption across all channels and brands. And five, thoughtfully pursuing strategic assets and winery brands through M&A. We view this last pillar as a supplement to both our long-term organic growth and industry-leading margin profile. 11:22 Before I turn things over to Sean I'd like to address our upcoming leadership transition we recently announced. Carol Reber, our Chief Marketing and DTC Officer will be stepping down from her current role to focus more time on personal commitment. Carol remains CMO until a new CMO is named, which we anticipate will be sometime in early twenty twenty two. Carol's departure is not one that comes as a surprise for us. Over the last several months, we worked together to thoughtfully coordinate and strategize a seamless transition. Our search process, led by a prominent executive search firm experienced in filling public company CMO role is well underway. Once the position is filled Carol will remain on staff as a Senior Advisor into twenty twenty two. Carol has been instrumental to what successes we have realized over the course of her eleven year tenure at Duckhorn because of her tireless efforts and invaluable expertise she has put us in an enviable position of strength. 12:22 Among our many accomplishments she has not only assisted in transforming decoy into the attainable luxury power brand that it is today, but she also established a best-in-class DTC business one that has vastly expanded its footprint from three to seven tasting rooms. 12:40 On behalf of all of our employees, the rest of executive leadership and the board, I'd like to give a heartfelt thank you to our friend Carol and wishing her nothing but the best. Now I'd like to turn it over to Sean for an update to our ESG initiatives which are grounded in our history, central element, to our strategic focus and a competitive advantage for us in the market. Sean Sullivan: 13:03 13:03 Hey, thank you, Alex. The tenants of environmental sustainability, social engagement and good governance have been at the core of Duckhorn's approach to winemaking business for forty five years. We view ESG as a mission critical part of our business, our culture and our approach to how we go about growing the business in a sustainable manner for years to come. In short, we view the work we do on our ESG initiatives, initiatives that touch every part of the business as a critical part of our future success. 13:38 During our forty five years of winemaking we have kept to the interest of our people, our communities and the land we farm front of mind, and this commitment has only been reinforced as a result of being a public company. This past year we took the opportunity to systematically review and organize the many initiatives that promote sound and sustainable business in our vineyards, wineries, tasting rooms, offices and in the communities in which we work and live. 14:07 During this process we have looked at ESG frameworks such as SASB and the UN SDG to provide us guidance on how to structure our disclosures, so that they are understandable and clear to all of our stakeholders, including our investors. Today, I would like to highlight just a couple of ESG initiatives in the environmental and social pillars. 14:31 Our story starts in the vineyards. In our state vineyards and the vineyards of our long-term great growing partners we employ a number of sustainable farming practices from the use of cover crops to naturally enhance the soil and prevent erosion to the integration of straw waters throughout the vineyards to reduce water runoff and the use of underlying cultivation, hand shoveling, and sheet grades to reduce weeds and our reliance on herbicides and insecticides. 15:00 We are also mindful of the environmental impacts that results from the distribution of our wines. Here at Duckhorn one of the ways we are currently seeking to lessen our carbon footprint is through sustainable packaging. Recently, we have implemented the use of triple recycled cardboard, environmentally friendly ice pack and biofoam liner when shipping our luxury wines. 15:24 Biofoam is an eco-friendly or alternative to styrofoam. Testing has shown that biofoam, bio-degrades up to ninety two percent over four years as compared to just six percent for standard Styrofoam. After several years of study and testing of miners to ensure their suitability and ability to lose a lender our wines in a manner that continues to delight our customers. We are proud to have transitioned our six and twelve bottle shipments to this new more environmentally friendly material earlier this year. We also set a goal of sourcing one hundred percent of our glass from North American plant. We believe that attainment of this goal will reduce our carbon footprint associated with the shipment of bottles from overseas. 16:14 Shifting from the environmental pillar to the social pillar, our culture is oriented towards support and care for our colleagues who make it possible for us to accomplish our goals as a company. In this challenging past year, we took significant action to support our fellow employees through the pandemic, provide them with tools to do their best work, whether in the wineries, the tasting rooms or working remotely and to enhance our culture of mutual respect and inclusivity. 16:43 On that front we are proud of our multifaceted diversity and inclusion initiative that we launched in twenty twenty. One element of that work is the three part diversity and inclusion training curriculum that we built in-house to address the specific issues at the forefront of our consciousness as a multi-racial employee population. We focused on three themes, inclusion literacy, unconscious bias and understanding microaggressions. 17:11 This effort centers on building the foundation of respect and a willingness to learn something about ourselves and our colleagues. We take pride in the fact that nearly every employee in the company participated in these modules which were held in English and Spanish. These trainings have offered an opportunity for employees to learn from one another and perhaps most importantly to get to know colleagues that they might not have otherwise encountered. These are just a small sampling of the exciting work we are doing every day at Duckhorn on this front. 17:43 We will have the opportunity to share a fuller picture of our ESG commitment in our inaugural ESG report to stakeholders, which will be published online this November. 17:53 With that I'll turn it over to Lori to discuss our fourth quarter performance and the fiscal year twenty twenty two outlook. Lori Beaudoin: 18:03 Thanks, Sean, and good afternoon, everyone. Let's next turn to our strong performance in the fourth quarter. Beginning with our topline, net sales for the quarter were seventy point nine million dollars, a thirty six percent increase from the prior year. The increase in net sales reflects forty percent volume growth, our second consecutive quarter of forty percent plus growth, partially offset by a negative four point six percent mix impact related to our leading decoy and Duckhorn brands once again outpacing the rest of our portfolio as well as wholesale to distributor sales growth exceeding the growth of our unique California Direct to Retail and DTC channel. 18:51 On a like-for-like basis pricing changes were immaterial to our results. From a depletion standpoint results were fairly similar to Q3 performing in line with shipment. All channels contributed positively to our Q4 topline just like in last quarter. 19:12 Our wholesale to distributors channel once again led the way with a nearly fifty percent growth rate. This was primarily a result of continued signs of recovery and on-premise. However our off-premise business contributed positively as well. Overall our growth in both on and off-premise was supported by strong increases in cases, accounts sold and points of distribution. Our other channels California Direct to Retail and DTC posted solid growth as well up fourteen percent and eleven percent respectively. 19:56 Gross profit was thirty four point four million dollars, an increase of eight point five million dollars or thirty two point seven percent versus the prior year period. Adjusted gross profit for the quarter, which accounts for purchase accounting adjustments related to prior acquisitions was thirty four point seven million dollars, an increase of eight point two million dollars or thirty point nine percent versus the prior year period. Gross profit margin was forty eight point five percent, down one hundred and ten basis points versus the prior year period. 20:38 As was the case in Q3 almost the entirety of the realized margin compression was a result of continued shifts in channel and brand as noted by our outsize wholesale to distributor growth as well as Decoy and Duckhorn continuing to grow at a faster rate than our other winery brands. 21:04 Total selling, general and administrative expenses were elevated versus the prior year period, up eight point two million dollars or nearly fifty one percent to twenty four point four million dollars. The increase was primarily attributable to a two point one million dollars increase in incentive costs, resulting from the company's strong performance, one point seven million dollars in transaction expenses, primarily related to the company's IPO, one point seven million dollars in public company costs, largely attributable to professional fees and D&O Insurance, which were not present in the comparable prior year quarter and zero point eight million dollars in higher equity based compensation. 21:59 Net income was seven point four million dollars and diluted EPS was zero point zero six dollars, which compares to a loss of two point seven million dollars and negative zero point zero three dollars per share in the prior year period. Adjusted net income came in at nine point two million dollars and adjusted EPS was zero point zero eight dollars per share, respectively, compared to seven point four million dollars and zero point zero seven dollars per share in the prior year period. These results reflect our previously mentioned higher sales volume, which was partially offset by channel and brand mix as well as increasing SG&A. 22:47 Adjusted EBITDA for the quarter increased three percent to eighteen point four million dollars or twenty six percent of net sales versus seventeen point eight million dollars or thirty four point one percent in the prior year period. However, results for this quarter include approximately one point seven million dollars in public company costs, which did not exist in the prior year period. 23:15 If you were to burden the fourth quarter of fiscal twenty twenty with public company costs, our adjusted EBITDA growth rate would have been fourteen point three percent that quarter. Similarly, if we burden the fourth quarter of fiscal twenty twenty with public company costs, the adjusted EBITDA margin would have been thirty point eight percent versus twenty six percent in the fiscal year twenty twenty one Q4. 23:50 Now the margin decrease was primarily attributable to two point one million dollars increase in incentive costs resulting from the company's strong financial performance, one point seven million dollars in transaction expense related to the company's IPO in the third quarter and zero point eight million dollars in higher equity based compensation. At the end of the quarter, we had cash of four million dollars and net debt of two forty three million dollars with a leverage ratio of two point one times net debt. 24:30 Turning to our outlook, we are introducing full-year fiscal twenty twenty two guidance which calls for: net sales of three fifty three million dollars to three sixty million dollars, reflecting five percent to seven percent organic growth; adjusted EBITDA of one hundred and eighteen million dollars to one hundred and twenty two million dollars or one percent to four percent growth; adjusted EPS of zero point five four dollars to zero point five seven dollars per share which assumes a twenty five percent effective tax rate and one hundred and fourteen point five percent to one hundred and sixteen point five million diluted shares outstanding. 25:16 And capital expenditures of sixteen million dollars earmarked for certain maintenance and growth plans, including barrel spend and the beginning of construction for our Paraduxx redevelopment projects. Please note that this does not include any potential purchase production assets for vineyards. That said we are strategic about evaluating our future needs to support our industry leading sales growth. 25:44 In light of a robust pipeline of assets, that are becoming available, it is highly likely that we will execute upon a deal for production assets and or vineyard in the coming year. 26:01 One additional note addressing comparability of our fiscal years. In fiscal twenty twenty one public company costs negatively affected our adjusted EBITDA and EPS. On a comparative basis and fully burdening fiscal twenty twenty one results with an equivalent proportion of public company costs our adjusted EBITDA growth would be three percent to six percent to six percent. If you also held share count constant in the range we have included in our fiscal twenty twenty two guidance, our adjusted EPS growth would be three percent to nine percent. 26:45 Underpinning our guidance we continue to anticipate that our flagship Duckhorn and Decoy brands will outpace our overall portfolio growth and we expect further recovery in on-premise. While we believe this improvement will be neither linear nor at the same rate that we've observed in the past month, the resulting trade channel mix should benefit our gross margin as our higher margin other winery brands are more concentrated in on-premise. 27:23 Speaking of gross margin, while the broader staples community has seen heightened challenges from input cost inflation, we'd remind you that we operate a differentiated business model. One that affords us a strong line of sight into our cost of goods and setting aside sales mix dynamics, we are confident in our ability to manage our gross margins going forward and we expect modest expansion in the coming fiscal year. 27:56 In addition, we'd remind and inform investors of certain timing considerations throughout the year, such as our fiscal twenty twenty one Q2 results were negatively impacted by both the severe polar vortex that was disruptive to distribution across much of the U.S. as well as certain delays in shipments related to wholesale partners holding out for the decoy seltzer in addition to port congestion. 28:28 And then in our DTC business we have a few note. Continued tightness in our twenty twenty vintage for Kosta Browne will result in a more modest spring release versus the prior year. As Alex had mentioned, there will be a special and highly innovative Kosta Browne release scheduled for Q4 that we are confident will be well received also in Q4, due to increased shipping efficiencies from new fulfillment partners. We expect a few million dollars in DTC sales that historically were recognized in Q1 to shift forward into Q4 of the prior year. 29:14 Looking at the health of our balance sheet and based on what we've outlined today for both our growth outlook and CapEx needs for the year, we expect to utilize the majority of our excess cash flow to continue to work down our leverage and we would anticipate leverage well below two times net debt by fiscal year-end. 29:36 Of course, this considers neither any future purchases of production assets nor does it consider potential winery brand M&A, which is a lever we've shown ourselves to be more than capable of pulling historically and we'll consider moving forward if we identify the right asset to acquire to supplement and accelerate our long-term organic growth. 30:04 In conclusion we ended our fiscal twenty twenty one in a very strong position. We look forward to building upon our past successes in fiscal twenty twenty two and we are well positioned to deliver upon our value creation strategy for the benefit of long-term shareholder value. 30:26 And with that I will turn the call back over to Alex for closing comments. Alex Ryan: 30:31 Fiscal twenty twenty one was one of prolific growth and a milestone year for the company. Heading into fiscal year twenty twenty two, we have presented you with an outlook we view as prudent for the current environment and one we are confident we can execute on given a growing consumer affinity for our high quality portfolio brands, our differentiated one stop luxury wine shop go-to-market approach and embedded ability to evolve and innovate our skilled highly diversified omnichannel platform and a remarkable leadership team. 31:06 These very same elements coupled with our commitment to sustainability and our ESG initiatives will continue to prove as foundational to our long-term success. And additionally executing on accretive M&A opportunities as an additional element of growth for us. Up and down our organization we will work tirelessly to secure sustainable profitable growth, we will be judicious with respect to our capital allocation, we are confident that we will continue to produce for all our stakeholders over the long-term. 31:37 With that Lori, Sean and I are available for your questions. Operator: 31:44 We will now begin the question-and-answer session. Your first question is from Peter Galbo with Bank of America. Your line is open. Peter Galbo: 32:01 Hey guys good afternoon. Thanks for taking the question. Alex Ryan: 32:06 Hi, Peter. How are you? Peter Galbo: 32:08 Good. Thanks, Alex. Lori maybe just to start and Alex made some comment on this on taking pricing across a lot of the different parts of the portfolio. Just to give us a sense of kind of where within the portfolio you saw the opportunity to take price. And then just knowing that a lot of your costs are you have good visibility into that for next year at least on the due side, just help us understand kind of what you're assuming on some of the other parts like glass and freight in your model? Thanks. Lori Beaudoin: 32:42 Yes. Great, thank you. Good question. So just breaking it apart a little bit here, you asked about price. And so, as we've indicated in the past, we're very cautious in taking our price up. We have noticed that as in the past we do have some wines, our higher wines that we can take price on and we've done that throughout the past year and we have plans in the current year to go ahead and continue that process, but we're very careful on how we think about price, we have to communicate properly and we have to roll it out well with our distributor partners. So we don't have a significant amount of price layered into our guidance for the next fiscal year. 33:31 Then looking at cost, so as you know our wine is bottled and ready to go for the next fiscal year for the most part. So we have the longer runway and looking at our cost to goods our grape and our wine component of our cost of goods is something that's layered in several years ago and we have great visibility into that. If you remember that doesn't fluctuate with ordinary inflation, the way normal consumer goods company if you will. It's not as quick to market for us our grape wine fluctuates with industry more on farming and trends within the industry. So we have very good visibility into our cost of goods for the next year, freight should not be impacting it, freight as we've mentioned before is pre-negotiated with the majority of our packaging materials. Peter Galbo: 34:42 Got it. That's helpful. And then maybe just to switch gears, Alex, it sounds like you have something lined up in terms of either vineyard assets or brand asset that's coming in the very near future. Just could you remind us of the big whitespace opportunities in the portfolio where you think you can make the most headway whether that's from a product standpoint or price point. What are you kind of missing? Alex Ryan: 35:08 I don't think we're really missing much right now. We're really just we're consistent as we've grown. We have to look at step back to say. Look at M&A, we are always looking at accretive. Branded M&A opportunities that has been in our DNA will continue into the future on the other side, production assets Again, historically, we have leveraged up on production assets as market and cost control and risks in quality afford us So we're equally opportunistic there. And we're just seeing more good opportunities come up on top of the fact that we've grown significantly over the last several. So we just have to be ready and mindful of when the appropriate asset is in front of us. Peter Galbo: 35:52 Got it. Thanks very much, guys. Alex Ryan: 35:55 Thanks, Peter. Operator: 36:07 Your next question is from Wendy Nicholson with Citi. Your line is open. Wendy Nicholson: 36:12 Hi, good afternoon. My first question has to do with the comments you made Alex about a little bit of a slowdown in the on-premise channel relative to your expectations and I know you said that you attributed that to sort of incremental outbreaks maybe of delta. But I'm wondering if you have any sense whether that is really the case or is there something else going on. I'm wondering do you have is there a correlation necessarily between the state or the locations where there wasn't incremental breakout and a slowdown. I'm wondering if there is a change in preference maybe consumers going back to beer or spirits or something else or just maybe a little bit more color on that comment you made? Alex Ryan: 36:56 Hello there Wendy. Yes, I do recognize the comment and I don't think there's much more that we can add to at this time. We were all I think collectively opportunistic rolling into the spring into the summer. We saw a lot of good openings and lot of activity in on-premise about late summer we start obviously we read the papers, the delta drivers I think nationwide was real and I think it just took a little impact on the pace of openings. 37:24 Beyond that we're not able to correlate any additional factors that might be affecting that the pace of those reopenings and we believe that they will get back on track over the next several months. But again, delta is very, very -- I mean it's very, very fluid. So we're going to have to be really mindful of kind of the pace at which the world gets back into a normal cycle. Wendy Nicholson: 37:47 Fair enough. Okay, that's fair. And then, Lori, I had one for you totally appreciate everything you said on the cost side, but I didn't hear much commentary on labor, and I'm wondering I guess less labor in terms of the harvesting of the grapes because I know that's not your business necessarily, but even labor in terms of staffing the tasting rooms people in the warehouse or the distribution centers all that kind of stuff. Are you seeing any pressures from a labor perspective? Lori Beaudoin: 38:16 Yeah. Hi, Wendy. Thank you. So I'm going to throw that over to Sean being Head of our EGF. He is little more closer to this. Sean Sullivan: 38:25 38:25 No we're not seeing a tremendous amount. We're not seeing much of any pressure on labor. Obviously it is a tight labor market and so filling positions in our hospitality roles and some of our other roles is subject to more competition, but we haven't seen any material uptick in the overall wages that we need to pay to attract really good talent. So we feel that's in place and in hand and not particular concern to us at this point. Wendy Nicholson: 39:00 Great. Sounds terrific. Thank you so much. Operator: 39:06 Your next question is from Lauren Lieberman with Barclays. Lauren Lieberman: 39:12 Great, thanks. I was curious if you could talk a little bit about tasting rooms just as you've had some progressive reopening and still with restrictions that more traffic there what you've been seeing in terms of conversion to clubs that meant to be a forward indicator for the business. I was curious how that has trended and how that is looking versus what the kind of conversion rate was pre-COVID? Alex Ryan: 39:41 Lauren, well, we're not going to probably talk about specific rates. The reality is, we have had loosening restrictions into our not fully back to normal but loosening restrictions through the summer months into our taste room we've seen more people. We've been able to connect with more people. So kind of our ability to bring them into the evangelists of our overall company has been well enhanced and we continue we believe that's going to continue. Do you have something to add to that, Lori? Lori Beaudoin: 40:11 Yes. Just so it's an interesting thing to see how our reduced capacity has resulted in our hospitality folks being able to spend more time with our visitors and as a result we have seen increased in our conversion rate, which has been well received and we're very excited to see it. Lauren Lieberman: 40:36 That's great. And then just as a follow-up, can you just remind us when that starts to flow through to sales. I don't think it's immediate. I think you've talked about there being a little bit of a lag effect when that starts to benefit you and for how long that better conversion? Lori Beaudoin: 40:56 Yes, sure. So the club shipments go throughout the year and they're different depending on which club the guest signs up for and some guest sign up for multiple. So they go out, go off throughout the year and the timing varies, but very quickly after the sign up happens I would expect the receiver shipment within the first, maybe three months of signing up. Lauren Lieberman: 41:21 Okay, great. Thanks so much. Operator: 41:27 Your next question is from Kevin Grundy with Jefferies. Kevin Grundy: 41:32 Hey, good afternoon, everyone, and congratulations on the strong results this year. I wanted to pick up on the earlier question I think it was from Wendy on the recent slowdown but Alex and Lori, I'm looking to tie this into the sales guidance for the year. So specifically it looks like you're guiding to five percent to seven percent growth, the longer-term guidance is high single-digits and I'm just sort of curious to how much of the recent slowdown is informing your view on the guidance for the year as we sort of look to connect that high single-digit growth outlook versus the five percent to seven percent that you're guiding to. And then relatedly, perhaps you can just comment on what you're sort of underpinning for growth here for the wine category over the next twelve months and luxury wine as well. I think that will be helpful and then I have a follow-up. Thank you. Lori Beaudoin: 42:24 Hi, Kevin. Thanks for the question. So, as you know, we really we manage our business for the long-term and really overall we see our ability to continually grow our revenue as you mentioned in the high single-digits to low-double digits on an organic basis is really fundamental to our long-term algorithm in creating value. So just thinking through twenty twenty two, our twenty twenty one was a great year and it was under these circumstances, we took share, we leveraged our brand and we saw growth in both off and on-premise, but we're coming up against some tough comparisons and we are noticing as you pointed out that the wine industry the growth has slowed, albeit in a fifteen dollar plus luxury sub segment that we are in, it's not slowing nearly as much as the industry as a whole. 43:30 But we've consistently taken share and we -- that is how our growth is mostly plan for the next year continued to take share increased points of distribution and to a lesser degree increased velocity, but we've looked at it very in a very balanced and prudent manner based on the inputs that we're receiving. Kevin Grundy: 43:55 Thanks, Lori. Alex, do you have anything to add? Alex Ryan: 43:57 Yes. Just your final question was interesting one and relative to the market I don't know if we're going to follow that exactly, but we have in the past consistently and plan to exceed the growth rate of the market, whether it be down a check from recent past or not. So we expect of ourselves to outpace the market. Kevin Grundy: 44:23 Yes. Just to put a finer point on this, and then I'll pass it on. So is that to suggest then that we went from a period where premium wine was growing high-single low-double digit. We see this in the Nielsen data when you take a closer look at it, but your guidance would imply then given that you have gained share -- the Nielsen data suggests you continue to gain share for all the reasons that we know what the view would be that you think premium wine is going to grow something closer to mid-single digits and you're going to outpace and grow five percent to seven percent. Is that just to kind of play that back is that the takeaway for investors? Lori Beaudoin: 44:57 Yeah, Kevin. So we don't really comment on the industry, what's going to happen, we can just kind of comment on what our plan is, and how we plan to grow. So that would follow. Kevin Grundy: 45:08 Okay, fair enough. I'll pass it on. Thank you both. Alex Ryan: 45:11 Thank you. Operator: 45:26 Your next question is from Andrea Teixeira with JP Morgan. Your line is open. Andrea Teixeira: 45:32 Thank you. So congrats on your results and a toast to Carol wishing you the best in the next chapter of her life. Alex, I wanted to go back into this deceleration question and I know you have an impressive ability of balancing both B2C home against on-premise. So you still grew a lot I think in the last quarter from what Lori had said eleven percent to see fourteen percent direct to retail in California. We saw this acceleration in Nielsen. So I was wondering if, how do you, are you embedding for fiscal twenty twenty two, what is going to be the potential balance for DTC against obviously on-premise recovering and how much within that you would say volume I guess pricing. I understand the pricing is probably going to be a little bit higher because of the on-premise execution, but that you took, you didn't take so on an apples-to-apples basis pricing will be mostly flat embedded in your six percent growth for fiscal twenty twenty two? Lori Beaudoin: 46:44 Yes. I think I'll take that for Alex and then can pass back to him if he has anything to add. So just to break down your question a little bit. So we expect that our case growth will be at a faster rate as we've seen in the past. And so our brand mix for our we have expectations for Duckhorn and Decoy to grow at a relatively faster rate than our other winery brands as we've seen in the past and we also anticipate that on-premise sales will pick up. So on the other side of that coin is we do expect to see improved growth in our other winery brands and that will help bring our higher a little higher price per case back in line to our business as we've enjoyed in the past. So we expect volume though to continue to exceed our net sales growth. So we'll have a little bit of continued pressure there on the price mix, but not as significant as we've seen in the past couple of years. Andrea Teixeira: 47:54 That's helpful. I think just as we saw the sales and you mentioned on-premise decelerating. Are you seeing the on-premise decelerating more than a home or DTC picking up a bit of that deceleration as we find a path? Lori Beaudoin: 48:10 Yes, we've seen on-premise accelerate much more than off-premise in the past quarter, we expect that on-premise will continue to really rebuild and that the off and on will be sorting the growth rates between the two in the next maybe six to nine months. Andrea Teixeira: 48:35 Right. But then I was just coming back and that's helpful Lori, but it was just coming back to the commentary about the deceleration in the last few months. As we saw also in the Nielsen data, so I was wondering if, what we see in the Nielsen data is not really representative to what's happening let's say in the club and also in the non-tracked channels people are more afraid to go to the restaurants and bars. But then they came back to building the inventory home? Lori Beaudoin: 49:08 Yes, keep in mind, so that the Nielsen data is only about a third of the wine industry that sort of flows for our business as well. So it's about a third of our business, it doesn't pick up the independents the smaller off-premise, if you will, independent and so we're seeing overall that on-premise is growing explosively. We don't feel that explosive growth will continue throughout the entire rest of the next fiscal year, but we do expect to continue to gain really nice wineless placements in restaurants as we discussed briefly last quarter we've seen the as on-premise comes back people are a little bit slower to really expand their wineless and they're building their wineless very cautiously and that's really helpful for our brands and then we are being chosen to be on wine list because people are familiar with the wines that there is confidence sell-through. Alex Ryan: 50:18 I think you guys should remember the rebalancing of the wine market is going to be variable, it's not going to be linear. So we're going to be talking about these trends quarterly together and we're going to analyze them and trying to make sure we are prepared to capture any trend that's beneficial to us as we look forward. Andrea Teixeira: 50:40 That's fair. Thank you so much. I'll pass it on. Operator: 50:46 And your last question is from Kaumil Gajrawala with Credit Suisse. Your line is open. Kaumil Gajrawala: 50:53 Hi, everybody. Thanks for taking the question. Can you talk a little -- can you maybe add a little bit more on the incremental points of distribution and such obviously on kind of outside of California and the wholesale channels, but big area of focus and we went through this off-premise boom or of course we would expect the boom that we had expected, but what happened in terms of your distribution incremental placements off-premise that sort of thing and what should we expect for twenty twenty two as we lap last year's trends -- last year's results? Lori Beaudoin: 51:33 Yes, so we've -- thank you, Kaumil. We've been able to really steadily build our off-premise penetration in the last year. We have more points of distribution as well as increased velocity in those points, but now we've also seen in addition to the off-premise building we've seen really nice growth in new distribution on on-premise we've seen new accounts that we had never been in before as well as we're reestablishing with the accounts that we had nice relationships with before COVID. So we're seeing really improved growth in our on-premise. Alex Ryan: 52:16 Yes, Kaumil, this is Alex. I think another way to think about a little bit as we introduced a lot of products last year. So we were able to expand the points of distribution and then we're going to, it will take a couple of years now to get that fully saturated within the markets. We have some kind of blocked and tackling to take care on those new products and the expanded distribution over the near term, which we have as you would expect built into our plan. Kaumil Gajrawala: 52:43 Okay, got it. And then another question on, on-premise at least I guess the condition of on-premise. I don't know if you're looking at it this way. But do you have a sense of what the business, how the business compares twenty nineteen or we maybe halfway back to where we were three quarters of the way, do you have any rough idea? Alex Ryan: 53:09 To answer your question there we got back to those levels kind of halfway through last year and we're moving ahead of where we were twenty nineteen this year as you would expect again due to a lot of factors fairly significant investment in salespeople during the pandemic and prepared to capture opportunities whatever you want to call at the end of the pandemic or the next phase of it. So I think we are really well positioned with our positioning above twenty nineteen levels on-premise and we'll continue to grow that throughout this year. Kaumil Gajrawala: 53:49 Got it. Thank you. Operator: 53:54 And that concludes the question-and-answer session for the call. I will now turn the conference back over to Alex Ryan. Alex Ryan: 54:03 All right guys. Thank you for joining us. I appreciate that very much. As you've heard over the course of the last hour we remain highly confident in our ability to sustain industry leading organic profitable growth at scale over the long-term. As you heard from Sean we will continue to do this in a fashion that affords us the opportunity to grow in a sustainable manner and enhance stockholder value. Once again I want to thank you for joining us today. We look forward to reconnecting with you all in the coming months to update you on our progress against our twenty twenty two outlook and long-term goal of being the premier one-stop shop for both wine enthusiast and our trade partners seeking out high quality luxury wine experience. Until then take care guys, we'll talk to you soon. Operator: 54:51 That concludes today's conference. Thank you for your participation. You may now disconnect.
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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.