Napa wine group Duckhorn Portfolio reports 31% jump in Q3 sales
In its first report of financial results as a public company, the Napa-based producer of wine brands such as Duckhorn and Decoy provided a look inside the financial impacts on one of the North Coast’s largest industries from oversupply, wildfire, flood and the ongoing coronavirus pandemic.
The Duckhorn Portfolio Inc. on Monday reported earnings of $9.02 million on net sales of $90.43 million for its fiscal quarter ending April 30. That bottom line was down 22.3% from a year before, but net revenue was up 31.6%. Quarterly net sales of $11.6 million a year ago were up 9.2% from the same fiscal third quarter in 2019.
“Remember that Q3 is popping against a very unique quarter (in 2020), with the onset of the U.S. impact of the pandemic and related business and consumer concern,” said Lori Beaudoin, chief financial officer, during a conference call on the results.
Performance over nine months, which Duckhorn said captures results from the key August–October pre-holidays period for shipments to trade accounts, was net income of $48.5 million, up 38.3% from a year before, on net sales of $265.7 million, up 21.7%.
“Nearly as impressive as our sales growth, our depletions grew generally at a similar rate, highlighting what strong consumer demand we're seeing for our high quality luxury wines,” CEO Alex Ryan said during the call.
Though Duckhorn saw markedly higher dollar sales growth, much of it came from bigger growth in sales volume, where the cases were sold and at what prices, and the pandemic had a significant impact on that, the company wrote in its quarterly report.
While the company shipped 23.0% and 21.4% more bottled wine to market in the third quarter and first three quarters, respectively, than a year before, volume jumped by 41.0% and 30.2% in those same time frames.
But that jump in volume largely came from a shift in the portfolio’s higher-end wines to stores from restaurants, where they sell at higher average prices, the company said. The company expects that trend to reverse post-COVID-19.
Public health orders during the pandemic shuttered dining rooms in the early months and then limited indoor capacity to half or a quarter of normal occupancy for months in key fine-wine consumption markets like California and New York, where rules have relaxed significantly only in recent months.
“Despite continued challenges on capacity restrictions that depressed consumer travel and visitation and challenging social-distancing protocols, the DTC business has performed consistently well delivering, 8% in net revenue growth in Q3,” Ryan said on the call. “This is especially impressive growth, given that a considerable amount of Kosta Browne wines, normally destined for wholesale, were sold to the DTC channel last year at the peak of COVID impact on U.S. restaurant wine sales.”
With Duckhorn’s tasting rooms closed for extended periods in the pandemic, sales channels for the company shifted wholesale distributors, the company reported. In the third quarter last year, which included a month an a half of the shelter-at-home orders in California and elsewhere, direct-to-consumer sales at tasting rooms, club shipments and online orders were 30.2% of total net sales, while wholesale sales to distributors was 52.7% and directly to California retailers 17.1%. Direct sales to consumers and the trade slipped to 24.8% and 15.7% by the fiscal third quarter of this year, while sales to distributors rose to 59.5%.
Ryan told investment analysts on the call that company tasting room visitor levels aren’t back to 2019 levels, as occupancy with outdoor seating is only up to about two-thirds.
“We think there’s a chance they’ll be back by the middle of the summer,” he said.
Grapes not harvested from the company’s vines, which make up 15% of supply for Duckhorn brands, resulted in $1.2 million in crop insurance payments in December, the company reported. And the company received in January the remaining $8.1 million from a $32.5 million insurance claim settlement for a winery that flooded in February 2019, the company reported.
Duckhorn didn’t name the winery. It acquired Kosta Browne in 2018, and the brand’s winery in Sebastopol was among properties there that flooded in February 2019.
Before the 2020 fires, the North Coast wine business was trending toward oversupply, as the rate of growth of wine sales were slowing. Duckhorn reported a $2.32 million net loss on sales of bulk wine in the nine months ending April 30, 2020.
Shares of Duckhorn started trading March 18 on the New York Stock Exchange under the ticker “NAPA,” bringing in net proceeds to the company of $180.8 million. Santa Rosa-based Vintage Wine Estates went public on Monday via a nontraditional method, a merger with a special purpose acquisition company, or SPAC.
From the IPO price of $15 a share on March 18, the stock closing price has ranged from a low of $16.41 May 13 to $22.05 on Tuesday, the day after the first public quarterly report.
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.