The Duckhorn Portfolio(NAPA) - 2021 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Net sales for Q3 2021 were $90.4 million, an increase of 31.6% from the prior year, primarily driven by a 41% growth in volume compared to 23% in the previous year [28] - Gross profit increased to $46.9 million, a rise of 29.1% year-over-year, while adjusted gross profit was $47.2 million, up 22.6% [30] - Net income was reported at $9 million, with diluted earnings per share at $0.08, while adjusted net income was $17.9 million, reflecting a 15% increase [33] Business Line Data and Key Metrics Changes - The wholesale to distributor channel saw over 48% growth, significantly contributing to the overall sales increase, while the direct-to-consumer (DTC) channel also performed well despite capacity restrictions [29][19] - Depletions were generally in line with net sales growth, with on-premise depletions growing at a rate three times that of off-premise [45] Market Data and Key Metrics Changes - The company operates in the luxury wine segment, which represents 10% to 15% of the total $53 billion U.S. wine market, providing substantial growth opportunities [10] - The California direct-to-retail model achieved over 20% net sales growth, indicating strong consumer demand and resilience in sales [9] Company Strategy and Development Direction - The company aims to leverage its diversified, scalable omni-channel platform and strong brand portfolio to sustain industry-leading growth [10][25] - Strategic M&A is viewed as a potential growth lever, with the company positioned as a buyer of choice for winery brands and production assets [20][22] - The company emphasizes its commitment to ESG practices, viewing them as core to its mission and a competitive advantage [23][24] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in sustaining profitable growth, citing strong depletions and low distributor inventory levels as indicators of healthy consumer demand [35] - The company anticipates that growth rates may not remain as high as in Q3 but remains optimistic about future performance [35] Other Important Information - The company has successfully integrated two winery brands, Kosta Browne and Calera, enhancing its luxury offerings [22] - The DTC channel has shown resilience, achieving 8% net revenue growth in Q3 despite ongoing challenges [19] Q&A Session Summary Question: Strength of the wholesale business outside California - Management noted that Decoy and Duckhorn brands drove exceptional growth in the wholesale to distributor channel, with on-premise recovery stronger than anticipated [43] Question: Impact of volume growth on supply chain - Management expressed confidence in supply capabilities, indicating that distributor inventory levels are below target but manageable [48][49] Question: Input cost environment and inflation - Management stated that the business is not significantly impacted by traditional inflationary risks, with visibility into costs for the next couple of years [54] Question: DTC business and Kosta Browne constraints - Management indicated that while there may be temporary production challenges, they expect to meet customer demands effectively once tasting rooms reopen fully [80] Question: Consumer dynamics and trading up behavior - Management observed that consumers are maintaining interest in high-level wines and are not showing signs of trading down as mobility increases [74]