Napa Valley wine group Duckhorn Q1 earnings rise 21% as restaurant, tasting room traffic returns
While still cautious about the direction of the coronavirus pandemic, top leadership at The Duckhorn Portfolio (NYSE: NAPA) on Wednesday was more upbeat about the recovery of restaurant and tasting room sales, on which many North Coast vintners depend.
In early October when reporting Duckhorn’s fiscal year-end results, CEO Alex Ryan cautioned analysts that consumer wariness over the delta variant could reverse improving sales in on-premises-consumption venues. But when asked about that assessment on a conference call Wednesday on results for the period ending Oct. 31, Ryan said the situation had changed.
“Although COVID influence on society remains present, we were encouraged to see travel and the on-premise trade show further signs of recovery during the first quarter,” the chief executive of the St. Helena-based said on an investor call about results for the period ended Oct. 31. “It is far too early to conclude how the latest omicron variant of COVID may influence dining out. However, whatever the impact, we see ourselves as well-positioned to continue to drive on-premise distribution at new and existing accounts over the long term.”
Duckhorn’s mix of sales channels has shifted during the pandemic. Some on-premises venues faced restrictions on how they could operate and decreased foot traffic from a wary public. How that proportion of wine sales to on- and off-premises works out amid the pandemic and beyond still is unclear, Ryan said.
“I don't think it's going back to (2018-2019) levels, but it will create a new opportunity, and I think it's going to continue to improve,” Ryan said.
The producer of Duckhorn Vineyards, Decoy, Kosta Browne and several other mainly waterfowl-themed ultrapremium- and luxury-tier brands, after the market close on Wednesday reported fiscal first-quarter net sales of $104.2 million. That was up 13.7% from a year before but down from 26% growth from 2019 to 2020. Net income was $21.3 million, up 21.7% over 12 months, with earnings per share of 18 cents.
Yet first-quarter net sales growth was even faster for California direct-to-retail wholesale and direct-to-consumer sales via clubs and tasting rooms. Direct-to-retail sales grew just over 30% year over year to $17.1 million, while direct-to-consumer sales grew 36% to $15.7 million.
This shift is seen in movement over 12 months of the company’s sales from based on the number of cases shipped to higher-margin channels such as direct-to-retail, restaurants and tasting rooms. Last quarter, shipments were up 7.5% from a year before, when volume had jumped nearly 40%. Meanwhile, annual growth in the price/mix contribution of sales, a metric for valuable the sales are to the winery, jumped last quarter to 6.2%, up from a drag of negative 14% a year before.
The Duckhorn Vineyards and Decoy brands, which drive the bulk of company growth, have benefited from the boom in store sales, but the portfolio’s other brands are heavily restaurant-dependent, the company said.
Ryan told analysts Wednesday that the company’s decision to keep on and expand its sales force during the pandemic, doing whatever it took to meet with restaurant accounts within virus safety protocols has paid off in company brands going onto or remaining on pared-down restaurant wine lists.
Duckhorn expects more asset-acquisition opportunities to develop in the next 12 months, but it is acting now to secure more North Coast grapes.
The company expects to close purchase deals for three Napa Valley vineyard parcels this fiscal quarter, spending $14.3 million total, Lori Beaudoin, chief financial officer, told analysts Wednesday. The properties are planted to varieties such as sauvignon blanc and chardonnay and would be targeted to brands such as Duckhorn and Migration.
Duckhorn, which became a public company in March, expects net sales this fiscal year of $353 million to $360 million, which would be about 5% to 7% growth from $336.6 million in fiscal 2021. Growth last fiscal year was 24%
The price of Duckhorn stock was nearly $21 Thursday morning, up 2.6% from the closing price Wednesday.
Jeff Quackenbush covers wine, construction and real estate. Before the Business Journal, he wrote for Bay City News Service in San Francisco. He has a degree from Walla Walla University. Reach him at firstname.lastname@example.org or 707-521-4256.