Q4 2021 Duckhorn Portfolio Inc Earnings Call
Ladies and gentlemen. This is your operator your conference is about to begin. Please continue to standby. Once again. This is the operator conference. He is about to begin please continue to standby.
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Greetings and welcome to the Duck corn portfolios fourth quarter 2021 earnings conference call at this time.
Greetings and welcome to the Duck corn portfolios fourth quarter 2021 earnings conference call at this time.
Greetings and welcome to the Duck corn portfolios fourth quarter 2021 earnings conference call at this time.
I'm all participants are in any student only mode. After the speaker's presentation. There will be a question and answer session and to ask a question. During the session you will need to press star one on your telephone if you require any further assistance. Please press star Zero as a reminder, this conference is being recorded I would now like to turn the conference over to you.
Your host Sean Sullivan Executive Vice President Chief administrative officer, and General Counsel.
Good afternoon, and welcome to the <unk> portfolios fourth quarter 2021 earnings Conference call.
Joining me on today's call are Alex Ryan <unk>, President CEO, and chairman and Lori the join 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 31, 2021 that went out this afternoon at approximately 415 P M Eastern time.
The press release is accessible on the company's website.
ir.duckhorn.com and shortly after the conclusion of today's call and webcast will be archived for the next 30 days.
ir.duckhorn.com and shortly after the conclusion of today's call and webcast will be archived for the next 30 days.
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.
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.
You refer to <unk> 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. These forward looking statements. 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.
Now I will turn it over to Alex Thank you, Sean and good afternoon.
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 long standing commitment to sustainability and then exemplified by our continuing ESG initiatives. He will then turn things over to Lori who will take us through our Q4 financial results and fiscal year 'twenty two outlook before we open the call for questions.
To kick things off let's begin with a few fourth quarter performance highlights as well as reflect on some of the notable achievements over the past year. We ended the year on a high point with our Q4 net sales growth coming in at a robust 36% growth rate, helping to profitably deliver over 24% full.
Year net sales growth the highest level of organic growth, we realized since 2014.
Adjusted EBITDA grew a healthy 12% for fiscal year 2021.
This can be a 2021 include public company costs, which did not exist in.
In the prior year period, when proportionately Bertling fiscal year 'twenty 'twenty by these public company costs are fiscal year, adjusted EBITDA increased 14% year over year.
Q4, net sales strength was broad based with all channels and end markets on and off premise contributing double digit growth.
Continuation of the recovery of the on premise person absorbed in Q3 was the primary driver of growth in Q4, leading to another quarter of nearly 40% growth in our wholesale to distributor channel.
Q4 volumes remain a source of strength coming in at roughly 40% growth for the third time this year.
<unk> tracked consistently with shipments for the period underscoring our strong brand equity and the consumers' affinity for our high quality luxury wines.
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 12 week period, ending on September 5th our Gateway Duck decoy became the number one luxury brands in the wine industry by dollar sales a major accomplishment for our growing sales in March.
And Kim a testament to the brand's broader Gulf with those consumers eating out an exceptional luxury wine and then the attainable price over the same 12 week period, the duckling portfolios converting more gross dollars and 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 of their luxury wine needs. Finally.
On a 12 week basis, the duck one portfolio was the fastest growing in terms of the percent of revenue growth in absolute revenue growth among the top 20 suppliers in all price points in the U S.
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 has historically accounted for approximately 80% of our annual net sales. We continued to see great strength behind our portfolio of high quality brands.
One stop luxury watch up go to market strategy and.
Additional investments in our sales force.
During the quarter, we realized over 100% growth in on premise as it lapped the COVID-19 impacted prior year period, while off premise also showed solid double digit growth across all key metrics, including cases accounts sold and points of distribution. This underscores our acute building to drive distribution, but onboarding.
New and further penetrating existing accounts.
Drilling down to trade channels independent both for on and off premise were primary drivers of growth, indicating the 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 wind lists and off premise customers are seeking out strong brands to drive traffic.
And ring, the duckling portfolio's broad range and strong brand equity were a clear choice for our trade partners and consumers.
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. It's 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 premium sub segment, the fastest growing seltzer wine and the broader market.
Outside of our wholesale channel our high margin D. T Z business continues to see nice progress the third consecutive quarter of sequential improvement led by strong year on year recovery and visitation at our various tasting rooms and strength in our wine club sales during the quarter Costa Brown also completed a successful.
They offer where our most tenured members acquire our most expensive wines.
<unk> past, we elected to take modest price increases on certain wines. This year. However, we have seen no observable impact to demand.
We experienced similar outcomes in the wholesale channel 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 brand strength high quality ones.
And the broader premium amortization 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.
Looking into the second half of this coming fiscal year and our DTC business, we will be launching is special and highly innovative new cost of brown release shirt captivate members and the media Y media alike.
Our wine club continues to have consecutive quarters of strong new member conversion and provides a meaningful contribution to our DTC business.
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 a rise in cases, when the Delta variant the pace of on premise recovery was tempered as the summer progressed, we're not.
Immune to these broader dynamics.
However, we view ourselves to be in an advantaged position.
Relative to the answer you've given our strict focus on premium wines brand strength and scaled luxury platform.
Spite of the Delta Bernie headwind and importantly, very tough year ago comparisons and off premise. We've continued to sell only outperformed both the broader and premium wine segments was solid positive growth in cases accounts sold and total points of distribution. In addition, we are considerably above pre.
Covid levels for both on and off premise, we're focused on continuing to seek out ways to drive distribution gains with both new and existing customers into the future.
In summary, I am 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 U S 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.
One <unk>.
Operating our scaled Omnichannel platform. In addition to our diversified sourcing and production capabilities to leveraging our marketing and brand strength, especially our one stop luxury wine shop sales approach.
Driving innovation, and bringing new experiences and high quality luxury wants to a growing consumer base.
Four investing behind DTC is the marketing engine of the company that provides an important opportunity for us to engage with consumers create duckworth evangelists and drive adoption across all channels and brands.
And five thoughtfully pursuing strategic assets in winery brands through M&A, We view this last pillar as well.
In supplement to both our long term organic growth and industry leading margin profile.
Before I turn things over to Shaun I'd like to address our upcoming leadership transition, we recently announced Joe Rieber, our chief marketing and DTC officer, who will be stepping down from our current role to focus more time on personal commitments.
Carol remains CMO until our new CMO has named which we anticipate will be sometime in early 2020 to carol's departure is not one that comes as a surprise for us over the last several months, we've worked together to thoughtfully coordinate and strategize, our seamless transition our search process led by a prominent executive.
Search firm experienced in filling public companies CMO roles is well underway and 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 11 year tenure at Buckhorn because of her tireless efforts and in value.
Oh expertise she has put us in an enviable position of strength.
Among her many accomplishments she is not only assisted and transforming <unk> into the attainable luxury power brands that it is today, but she has also established a best in class DTC business. One that has vastly expanded that footprint from three to seven tasting rooms.
On behalf of all of our employees the rest of the 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.
Hey, Thank you Alex.
Tenants are environmental sustainability, social engagement and good governance have been at the core of <unk> approach to winemaking in business for 45 years, we view ESG as a mission critical part of our business, our culture and our approach to how we go without growing the business in a sustainable manner.
<unk> for years to come in short we view the work we do on our ESG initiatives initiatives that touch every part of the business is a critical part of our future success.
During our 45 years of winemaking, we capped the interests of our people our community 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 organized the many initiatives that promote.
Sound and sustainable business, and our vineyards wineries tasting rooms offices and in the communities in which we work and live during this process. We have looked to ESG frameworks, such a SaaS b and D. U N S. D G to provide us guidance on how to structure our disclosures so that they are understood.
Mandible unclear 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.
Our story starts in the vineyards in our estate vineyards and the vineyards of our long term great growing partners, we employ a number of sustainable farming practices from the use of covered crops to naturally enhanced the soil and prevent erosion to the integration of straw wattles throughout the vineyards to reduce water run off and the <unk>.
Underlying cultivation, and shoveling and sheep grazing to reduce weeks and our reliance on herbicides and insecticides.
We are also mindful of the environmental impacts that results from the distribution of our wines tiered got corn one of the ways. We are currently seeking to lessen our carbon footprint is through sustainable packaging recently.
Recently, we have implemented the use of triple recycled cardboard environmentally friendly ice pack and biofilm liner when shipping our luxury lines.
Biofilm is an eco friendly or alternative to styrofoam.
Testing has shown that biofilm buyer degrades up to 92% over four years as compared to just 6% for standard styrofoam. After several years of steady and testing of miners to ensure their suitability and ability to look at whether our wind in a manner that continues to delight our customers we are proud.
Good to have transitioned our six and 12 bottle shipments to this new more environmentally friendly material earlier this year.
We also set a goal of sourcing 100% 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.
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 the 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.
On that front, we are proud of our multifaceted diversity and inclusion initiative that we launched in 2020.
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 is a multi racial employee population.
We focused on three themes inclusion literacy unconscious bias and understanding microaggression.
This effort centers on building a foundation of respect and a willingness to learn something about ourselves and her 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.
<unk> 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 everyday at that corn on this front.
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.
With that I'll turn it over to Laurie to discuss our fourth quarter performance and our fiscal year 2022 outlook.
Thanks, Sean and good afternoon, everyone let's.
Let's next turn to our strong performance in the fourth quarter.
Beginning with our top line net sales for the quarter were $79.0 million a 36% increase from the prior year. The increase in net sales reflects 40% volume growth, our second consecutive quarter at 40% plus growth partially offset by.
A negative four 6% mix impact related to our leading decoy in Doug Horne brands once again outpacing the rest of our portfolio as well as wholesale to distributor sales growth.
Feeding the growth of our unique, California direct to retail and DTC channel.
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 shipments all.
All channels contributed positively to our Q4 top line just like in last quarter.
Our wholesale to distributors channel once again led the way with a nearly 50% 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 14% and 11% respectively.
Gross profit was $38.0 million, an increase of $13.0 million or 32, 7% versus the prior year period.
Adjusted gross profit for the quarter, which accounts for purchase accounting adjustments related to prior acquisitions was $41.0 million, an increase of $10.0 million or 39% versus the prior year period.
Gross profit margin was 48, 5%.
Down 110 basis points versus the prior year period.
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 outsized co sell to distributor growth as well as be quite in depth corn continuing to grow at a faster rate than our other winery brand.
Total selling general and administrative expenses were elevated versus the prior year period of $10.0 million or nearly 51% to $24.4 million.
The increase was primarily attributable to a $3.0 million increase in incentive cost, resulting from the company's strong performance.
One 7 million in transaction expenses, primarily related to the company's IPO.
One 7 million in public company costs, largely attributable to professional fees and D&O insurance.
Which were not present in the comparable prior year quarter.
And Euro point 8 million in higher equity based compensation.
Net income was $11.0 million and diluted EPS was six which compares to a loss of $9.0 million and negative <unk> <unk> per share in the prior year period.
Adjusted net income came in at $11.0 million and adjusted EPS was eight cents per share respectively, compared to $11.0 million and seven cents 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.
Adjusted EBITDA for the quarter increased 3% to $22.0 million or 26% of net sales versus $25.0 million or 34, 1% in the prior year period.
However results for this quarter include approximately $8.0 million in public company costs.
Which did not exist in the prior year period.
If you were to burn in the fourth quarter of fiscal 2020 with public company costs.
Our adjusted EBITDA growth rate would have been 14, 3% that quarter.
Similarly, if we burden the fourth quarter of fiscal 'twenty 'twenty with public company costs. The adjusted EBITDA margin would have been 38% versus 26% in the fiscal year 2021 Q4.
Now the margin decrease was primarily attributable to.
2.1 million increase in incentive cost, resulting from the company's strong financial performance.
One 7 million in transaction expense related to the company's IPO in the third quarter.
And Euro point 8 million in higher equity based compensation.
At the end of the quarter, we had cash of $4 million and net debt of 243 million with a leverage ratio of 2.1 times net debt.
Turning to our outlook.
We are introducing full year fiscal 2022 guidance, which calls for net sales of 353 to 360 million, reflecting 5% to 7% organic growth.
Adjusted EBITDA of $118 million to $122 million or 1% to 4% growth.
Adjusted EPS of <unk> 54 to 57 cents per share, which assumes a 25% effective tax rate.
And 114.5 to $121.0 million diluted shares outstanding.
And capital expenditures of 16 million earmarked for certain maintenance and growth plans, including barreled spend and the beginning of construction for our paradox redevelopment project.
Please note that this does not include any potential purchase production assets or even years.
That said, we are strategic about evaluating our future needs to support our industry, leading sales growth and.
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 our vineyards in the coming year.
One additional note addressing comparability of our fiscal years.
In fiscal 2021 public company costs negatively affected our adjusted EBITDA and EPS.
On a comparative basis and fully burden in fiscal 2021 results with an equivalent proportion of public company cost, our adjusted EBITDA growth would be 3% to 6%.
If you also held share count constant in the range. We have included in our fiscal 2022 guidance.
Our adjusted EPS growth would be 3% to 9%.
Underpinning our guidance, we continue to anticipate that our flagship that corn and decoy brands will outpace our overall portfolio growth and we expect further recovery in on premise.
We believe this improvement will be neither linear nor at the same rate that we observed in the past months, the resulting trade channel mix should benefit our gross margin as our higher margin. Other winery brands are more concentrated in on premise.
Speaking of gross margins, 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 it 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.
In addition.
We'd remind and inform investors of certain timing considerations throughout the year such as.
Our fiscal 2021 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 and Ids.
Asian to port congestion.
And then in our DTC business, we have a few nuts.
Continued tightness in our 'twenty 'twenty vintage for Costa Brown will result in a more modest spring release versus the prior year.
As Alex had mentioned that there will be a special and highly innovative cluster brown release scheduled for Q4 that we are confident.
We will be well received also in Q4 due to increased shipping efficiencies from new fulfillment partners.
We expect a few million dollars in D. T cells that historically were recognized in Q1 to shift forward into Q4 of the prior year 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.
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 will consider moving forward. If we identify the right asset to acquire to supplement and accelerate our long term organic growth.
In conclusion.
We ended our fiscal 2021, and a very strong position, we look forward to building upon our past successes in fiscal 2022.
And we are well positioned to deliver upon our value creation strategy for the benefit of long term shareholder value.
And with that I will turn the call back over to Alex for closing comments.
Fiscal 2021 was one of the prolific growth and a milestone year for the company.
Heading into fiscal year 2022 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 our growing consumer affinity for our high quality portfolio of brands, our differentiated one stop luxury wine shop go to market approach.
And embedded ability to evolve and innovate.
Skilled highly diversified omnichannel platform and a remarkable leadership team.
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 adds 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.
With that Laurie, Sean and I are available for your questions.
We will now begin the question and answer session. As a reminder to ask a question you will need to press star one on your phone again Thats star one on your phone.
Your first question is from Pierre Fabre with Bank of America. Your line is open.
Hey, guys. Good afternoon, thanks for taking the question.
Hi, Peter how are you.
Good good thanks al.
Lori maybe just to start.
And Alex made some comments 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 you know within the portfolio.
You saw the opportunity to take price and then just you know knowing that a lot of your costs are you you have good visibility into that for next year at least on the juice side.
Help us understand kind of what you're assuming on some of the other parts like glass and freight in your model.
Thanks.
Yes.
Great. Thank you for your question so I'm just.
Tickets breaking it apart a little bit here, you asked about price and so you know as we've indicated in the past, where we're very cautious in taking our price up we have noticed that.
As in the past, we do have some lines are higher in lines 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 how we think about price we have to communicate it properly and we have to roll it out well with our distributor.
Partners. So leave we don't have a significant amount of price layered.
Layered into our guidance for the next fiscal year than looking at cost.
So as you know our wine is 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 of goods are great for NR wine.
A component of our cost of goods is something that's layered in several years ago, and we have great visibility into that and if you'll remember that that doesn't fluctuate with the ordinary inflation the way.
Normal.
<unk> goods company would if you will it's not as quick to market for us our grape and wine fluctuate with with industry.
More on 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 impacted at.
Freight as as we've mentioned before is is is pre negotiated with the majority of our packaging materials.
Got it no. That's helpful. And then maybe just to switch gears you know Alex It sounds like you have something lined up in terms of you know either either vineyard assets or brand asset thats coming in the very near future.
Could you remind us of the big White space opportunities in the portfolio, where you think you can make the most headway whether that's from a product standpoint, our price point, what are you kind of missing.
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 well, let's step back for a second what kind of M&A. We are always looking at accretive branded M&A opportunities that has been in our DNA will continue into the future.
Onto the <unk> on the other side production assets again, historically, we have leveraged up on production assets as market and cost control and risks and quality afford us. So we're equally as 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 years. So we've.
Just have to be ready and mindful of when the appropriate asset is in front of us.
Got it thanks very much guys.
Thanks Peter.
Sure.
Once again, if you have a question. Please press star one on your telephone keypad.
In addition, please limit yourself to a question and a follow up.
Your next question is from Wendy Nicholson with Citi. Your line is open.
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 and I know you said that you attributed that to sort of incremental outbreaks, maybe if delta, but I'm wondering.
If you have any sense for 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 states and the locations, where there was an incremental breakout and a slowdown I'm wondering if there's a change in preference maybe consumers going back to beer or spirits or something else.
Maybe a little bit more color on that comment you made.
Hello, There Wendy Yeah, I do recognize the comment and I think I don't think there's much more that we can add to it 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 a lot of activity in an on premise.
Late summer we start obviously, we read the papers the adult survivors I think nationwide was real and I think it just took a little impact on the pace of openings.
No.
We're not able to correlate any additional factors that might be affecting that the pace of those reopening and we believe that they will get back on track over the next several months, but again you know Delta has 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.
Fair enough, Okay. That's fair.
And then Laurie I had one for you you get 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, you know people in the warehouse.
So the distribution centers, all that kind of stuff are you seeing any pressures from a labor perspective.
Oh, Yeah, Hi, Wendy Thank you, so I'm going to throw that over to Sean.
<unk> head of IR.
That's a little more closer to the this the no we're not seeing a tremendous amount and we're not seeing much of any pressure on labor. Obviously, it is a tight labor market.
And so.
Filling positions at our hospitality roles and.
Some of our other roles is subject to more competition, but.
But we haven't seen any material up.
Kick in in the overall wages that we need to pay to attract really good talent. So we feel that that.
That's that's in place and in hand, and not a particular concern to us at this point.
Great. It sounds terrific. Thank you so much.
Your next question is from Lauren Lieberman with Barclays.
Great. Thanks, and I was curious if you can talk a little bit about tasting rooms, just you know 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 center, that's meant to be a forward indicator.
So the business I was curious how that has trended and how that is looking versus what the kind of conversion rate was pre COVID-19.
Okay.
Lauren well, we're not going to probably be talking about specific rates. The reality is we have had loosening restrictions into are not fully not fully back to normal, but loosening restrictions through the summer months into our tasting rooms, we've seen more people.
We've been able to connect with more people so.
Cover our ability to bring them into the event lists of our of our overall company has been well enhanced and we continue we believe that's going to continue.
Just to add to that Laura Yeah, I'm, just so it's an interesting thing to see how or reduce capacity has resulted in our.
Our 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 are very excited to see it.
That's great and then just as a follow up can you just remind us when that starts to flow through to sales and I think at the end of it.
Is it immediate I think you've talked about there being a little bit of a lag effect to when that starts to benefit you.
And and for how long.
That that better conversion.
Yeah sure. So the the club shipments go throughout the year and there are different depending on which club the guest signs up for in some 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 they reached.
We've a shipment within the first so maybe three months since signing up.
Okay, great. Thanks, so much.
Your next question is from Kevin Grundy with Jefferies.
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 but Alex and Larry I'm looking to tie this into the sales guidance for the year. So specifically it looks like you're guiding to 5% to 7% growth.
The longer term guidance is high single digits.
I'm just sort of curious as 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 to seven that you're guiding to and then relatedly. Perhaps you can just comment on what your sort of underpinning for growth here for the wind cat.
Over the next 12 months and luxury wine as well I think that would be helpful. And then I have a follow up thank you.
Yes, hi, Kevin Thanks for the question.
So and 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 a organic basis is really.
Fundamental to our long term algorithm and creating value.
Yeah.
Just thinking through 'twenty, two or 'twenty one.
<unk> was a great year and it was under unique circumstances, we took share.
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 is is the growth has slowed.
Be it in the $15 press.
Yes.
Luxury said Segues segment that we're in it's not slowing nearly as much as the industry as a whole, but we've consistently taken share and we that is how our growth is.
Most of the plan for the next year, continuing 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.
Thanks, Lori Alex do you have anything to add.
Yes.
Final question was an interesting one.
Relative to the market you know I don't know if we're going to follow that exactly but we have in the past consistently and plan to.
Exceed the expert there the growth rates of the market, whether it would be down a tick from.
Our recent past or not so we expect of ourselves to outpace.
The market.
Yeah, 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 and we see this in the Nielsen data.
When when you take a closer look at it but your guidance would imply then given that you have gained share. The Nielsen data suggest you continue to gain share for all the reasons that we know what the view would be that you'd think premium wine is going to grow something closer to mid single digits and youre going to outpace and grow five to seven is that just to kind of play that back is that the takeaway for investors.
Yeah, Kevin So we don't really comment on the industry, what's going to happen. We can just kind of comment on what what our plan is and how we plan to grow so so that would follow.
Okay Fair enough I'll pass it on thank you both.
Thank you.
Once again, if you have a question. Please press star one now again the star one on your phone. Please note to limit yourself to a question a follow up.
Your next question is from Andrea Teixeira with Jpmorgan. Your line is open.
Thank you. So congrats on your results and took care of wishing you. The best in the next chapter of your one of her life.
Alex I wanted to go back.
Is deceleration question and I know you have an impressive ability of balancing both D to C. Let's see at home I guess on premise so.
Sugar a lot I think in the last quarter from what already had said 11 percentages to see 14% 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 to what is going to be the potential balance for.
Did you see I guess, obviously on premise recovering and how much. We think that you would say volume I guess pricing I understand that pricing is probably going to be a little bit higher because of the on premise execution.
But that you took on you know you shouldn't take so on apples to apples basis.
Pricing will be mostly flat embedded in your 6% go for for fiscal 'twenty two.
Yeah. Thank you I think I'll I'll take that for for Alex and then compare it back to him as he has has anything to add but so just to break down your question a little bit.
So we expect that our case growth will be at a faster rate.
And as we've seen in the past until our brand mix.
Or are we have expectations for <unk>, corn and <unk> to grow at a relatively faster rate than our other wondering 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 excel.
Exceed our.
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.
That's helpful. I think just as we saw this downtime you mention on premise decelerating are you seeing the on premise decelerating more than at home more or did you see picking up a bit of that deceleration as we find the past.
Yeah, we've seen on premise.
Accelerate much more than than the off premise.
In the past quarter, we expect that on premise will continue to to really rebuild and that the off and on will be sorting out the growth rates between the two in the next maybe six six to nine months.
Right, but then I was just coming back and that's helpful. Laurie, but it was just coming back to that commentary about the deceleration. The last few months as we saw all of a sudden the Nielsen data. So I was wondering if what.
What we've seen the Nielsen data is not really representative to to what's happening let's say in.
And the club and also in the non tracked channels.
So in other words people are more afraid to go to the restaurants and bars, but then they.
They came back to building the inventory at home.
Yeah, well keep in mind.
The Nielsen data is only about a third of the wine industry and that sort of flows for our business as well. So it's about a third of our business it doesn't pick up the independence.
The smaller.
Off premise.
If you will independent and so we're seeing.
Overall that the on premise is growing explosively.
We don't feel that that explosive growth will continue throughout the entire rest of the this next fiscal year, but we do expect to continue to gain real really nice.
Our wireless placements and restaurant as we discussed briefly last quarter, we've seen the as on premise comes back people are little bit slower to really expand their wine list and they're building their wireless very cautiously and that's really helpful for our brands and that we.
We are being chosen to be on the wine list. Because you know people are familiar with the lines and the debt there's confidence they'll sell through I think you guys should remember the rebalancing of the wind market is going to be 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 try to make sure. We are prepared to capture any trend that that's beneficial to us.
As we look forward.
And that's fair. Thank you so much I'll pass it on.
Okay.
And your last question is from <unk> Ghosh from Waller with Credit Suisse. Your line is open.
Hi, everybody. Thanks for taking the question.
Could you talk a little can you maybe add a little bit more on the incremental points of distribution and such obviously I'm kind of outside of California in the wholesale channel has been a big area of focus in.
We went through this off premise boom.
Of course, you would expect.
We would expect.
The boom that we had expected.
What happened in terms of your distribution incremental placements off premise that sort of thing and what should we expect for 'twenty two as we lap.
Lap last years.
Last year's trends last year's results.
Yeah. So we've done I don't think you come out 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.
And 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 really improved growth in our on premise.
Karma was Alex I think another way to think about a little bit as we introduce a lot of product last year. So we were able to expand the points of distribution and then we're going to you know it will take a couple of years now to get that fully saturated within the markets. We have some kind of blocking and tackling to take care of on those new products.
The distribution over the near term, which we have as you would expect built into our plan.
Okay got it and then another question on on premise or 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 to 2019 or we maybe halfway back to where we were three quarters of the way even rough idea.
Yeah.
To answer your question there.
But we got back to those levels kind of halfway through last year and we're moving ahead of where we were in 19th this year as you would expect.
Again due to a lot of a lot of factors.
A fairly significant investment in salespeople during the pandemic and prepared to capture.
Opportunities.
Whatever you want to call. It the end of the pandemic over the next phase of it.
So I think we're really well positioned.
With our positioning above 19 levels on premise and will continue to grow that throughout this year.
Got it thank you.
And that concludes our question and answer session for the call I will now turn the conference back over to electronic.
Yes.
Alright, 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've continued to do this in a fashion that affords us the opportunity to grow in a sustainable manner and enhanced 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 2022 outlook and long term goal of being the premier.
<unk>, one stop shop for both wine enthusiasts and our trade Parker partners seeking out a high quality luxury wine experience until then take care guys will be in touch soon.
That concludes today's conference. Thank you for your participation you may now disconnect.
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