The Duckhorn Portfolio(US:NAPA)2023-12-07 00:58Financial Data and Key Metrics - Q1 gross profit was $53 9 million with a gross margin of 52 5% up 190 basis points YoY driven by wholesale channel optimization and easing input cost inflation [4] - Operating expenses increased to $30 5 million up $4 7 million or 18 4% YoY but adjusted operating expenses decreased $0 2 million or 1% due to cost management [4] - Net income was $15 5 million or $0 13 per diluted share while adjusted net income was $17 2 million or $0 15 per diluted share [5] - Adjusted EBITDA was $34 7 million a decrease of $1 million or 2 7% YoY with an improved margin of 90 basis points [5] - Cash at the end of Q1 was $21 2 million with total debt of $241 3 million resulting in a leverage ratio of 1 7 times net debt [5] Business Line Data and Key Metrics - Wholesale distributor channel declined 5 4% in Q1 but net sales growth was estimated to be flat to slightly down YoY excluding last year's shipment timing impact [1] - California wholesale direct-to-trade declined 7 3% YoY driven by similar factors affecting the wholesale distributor channel [2] - Direct-to-consumer channel declined 10 8% but per-person spend remains high indicating success in customer engagement strategies [2] Market Data and Key Metrics - Distributor days of inventory on hand remained healthy at 65 days [2] - The direct-to-consumer business is navigating a changing landscape with confidence in initiatives like elevated tasting experiences [3] Company Strategy and Industry Competition - The company remains committed to its wholesale strategy to expand accounts and points of distribution [1] - The acquisition of Sonoma-Cutrer Vineyards is expected to close in spring 2024 and is seen as a keystone for future growth [9][10] - The acquisition is expected to deliver significant shareholder value and enhance the company's luxury wine portfolio [9][10] Management Commentary on Operating Environment and Future Outlook - The company is pleased with Q1 results and remains confident in its ability to outperform the broader wine industry despite some uncertainty in consumer sentiment [7] - Full-year fiscal 2024 outlook includes net sales growth of 4% to 6% and adjusted EBITDA growth of 4% to 6% with a margin of approximately 35 5% [6] - The company expects low single-digit net sales growth in Q2 due to earlier-than-anticipated shipments and a softer consumer environment [6] Other Important Information - The company is focused on identifying additional sources of efficiency and synergy in preparation for the integration of Sonoma-Cutrer [15] - There are opportunities for incremental revenue growth through cross-selling and expanding Sonoma-Cutrer's footprint in the DTC channel [15] Q&A Session Summary Question: Implied strong growth in the back half of the year - The back half growth is driven by innovation and inventory restocking including the launch of low Alk Decoy Sauvignon Blanc and restocking of Duckhorn Chardonnay [24][25] - The company expects growth in the back half but remains cautious about consumer sentiment [33] Question: Category softness and distribution gains - The wine industry was flat in the last 12 weeks but the company outperformed the industry on a 52-week basis [38] - There is no indication of trading down in the industry with the $15 plus category performing slightly better than the overall industry [39] Question: Gross margin cadence for the rest of the year - Q1 and Q2 are expected to see slight margin improvement while Q3 and Q4 will face margin pressure due to increased trade spend [43] Question: Decoy red varietals and pricing strategy - The company took price increases on Decoy red wines last year and expects a period of digestion but sees no issues with brand positioning [48] - The company will support the brand with trade and digital consumer engagement [49] Question: On-premise vs off-premise performance - On-premise performance has been slightly stronger than off-premise in recent months particularly at higher price points [52] - The company views the balance between on-premise and off-premise growth as positive for its omnichannel strategy [53]