Q4 2022 Duckhorn Portfolio Inc Earnings Call

[music].

Good afternoon, and thank you for it to need today Stockhorn portfolio incorporated two four and full year 20 twenty-two earnings conference call. My name is Jason and I'll be the moderator for today's call all lines will be needed during the presentation portion of a call with an opportunity for questions and answers that the.

And if you'd like to ask a question. Please fresh star one on your telephone keypad.

Like the past conference over to our house, Sean solving with dark horn.

Good afternoon, and welcome to the dark horn portfolios fourth quarter and fiscal year 20 twenty-two earnings conference call.

Drawing me on today's call or Alex Ryan R. President C E O and chairman and Lori Bitcoin, our Chief Financial Officer.

In a moment, we will give brief remarks, followed by Q&A.

By now everyone should have access to the earnings release for the year ended July 31st 2022.

Went out at approximately 415 P M Eastern time <unk>.

The press release as well as supplemental slides are accessible on the company's website at I R Dot <unk> dot com.

And shortly after the conclusion of today's call a 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.

If you refer to death Corns earnings release as well as the company's most recent S. E. C filings you will see a discussion of factors that could cause the company's actual results to differ materially from 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, a full reconciliation of non-GAAP financial measures to the most comparable GAAP measures. In addition, please note that all I R. I U S food <unk>.

<unk> data cited on today's call will refer to dollar consumption for the 52 week period ended July 31st 2022 and growth versus the same period in the prior year unless otherwise noted with that I will turn the call over to Alex.

Thank you Sean and good afternoon, everyone. We really appreciate you joining us today to discuss our strong fourth quarter financial results and guidance for continued growth in our next fiscal year. Following my opening remarks, I'll ask the Lord to walk us through our fourth quarter financial results as well as discuss our fiscal year twenty-three outlaw.

Look then we will open the call for questions.

Before I address a few fourth quarter performance highlights allow me to frame the current wine industry dynamics and our advantage positioning to set the stage the luxury price point segment, which we defined as $15 per bottle and above has been and continues to be the fastest growing segment within one.

For the 52 week period as of July 31st the luxury segment grew a healthy 3.5% compared with with a negative 4.5% for total one according to I R. I data now within the luxury segment the darker and portfolio has continued to be a driving force behind the segments grew.

Both.

We were the fastest growing supplier of the top 15 luxury wine suppliers on both the dollar in volume growth basis with growth in the low teens for both metrics.

And when comparing ourselves to our scaled peers, who participate within the growing luxury one segment. Our dollar growth was approximately six times greater.

This contacts is key to understanding our fiscal fourth quarter performance and guidance for fiscal year twenty-three.

Turning to some of our queue for highlights first we ended the year great momentum on both the top and bottom line second we posted 10% organic net sales growth, reflecting solid volume growth. Once again led by our Doctor and vineyards and decoy winery brands as well as sound.

<unk> across all channels when looking at three year compound annual growth rates are net sales were up 18% a strong acceleration versus Q3 results well volume remain consistent for the quarter and in line with the policeman's.

We continued to look at three year <unk>, because we believe this perspective is the most indicative.

Of the underlying health of the business in the long term and Minimises short term noise associated with pandemic dynamics.

Third on and off premise as well as all major sales metrics cases account salt and points of distribution continued to drive our outperformance of the industry average.

Total company three year trends remain strong up double digits.

And fourth looking at profitability, we grew fiscal queue for adjusted EBITDA by over 21% versus the prior year period highlighted by meaningful gross margin expansion.

Let's look at the strong on and off the premise channel dynamics on premise remains a primary driver of our year over year growth rate and we continue to take share on slim down wireless as restaurant tours seek out a consistent supply of luxury wines with strong brand equity they have confidence these wines will sell through.

And at a healthy margin, while our three year on premise <unk>.

Trends did moderate a bit when compared against third quarter results the growth in the fourth quarter remain very healthy even even lapping strong prior year comparisons all three key sales metrics cases account sold and points of distribution were up high single digits.

And constructively much like the broader restaurant industry, where July June through July trends realized some growth moderation before reaccelerating in August .

We've also seen a solid sequential pick up and consumption patterns to start to fiscal year, suggesting underlying consumer appetite for dining out and enjoying a luxury one experience continues at a healthy rate.

As our higher margin luxury wines are predominantly sold on premise in the wholesale channel. We expect this to serve as a continued tailwind for gross margins, partially offsetting certain headwinds, we foresee heading into fiscal year twenty-three.

Turning to the off premise channel, which I will remind you represents the majority of our wholesale business. We also showed solid growth against the double digit prior year comparison on a three year keg or basis, we delivered accelerating growth in cases points of distribution and velocities and <unk>.

<unk> sold saw consistent double digit growth.

With respect to account type or performance was well balanced between national and independent accounts, a testament to our strategic and continuing investment in our sales team, which is a central pillar of our success and our ability to take share. In addition, we see the effectiveness of our one stop luxury one shot.

Model and consumer affinity for our high quality luxury ones, playing an important part of the off premise channel growth.

I'd now like to spend a few minute minute revisiting and expanding upon the drivers that underpin our considerable distribution whitespace opportunity and how this gives us confidence in our ability to generate high single digit organic net sales growth over the longer term.

Starting with a broad lens there are approximately 500000 licensed account in the United States.

Which we believe approximately half are appropriate for a high quality luxury ones.

Of the roughly 250000 addressable on and off premise accounts are wines appeared in approximately 53000 or 21% of our addressable market last year, which was up from approximately 47000 or 19% in fiscal year 21.

Today I am proud to announce that we now stand at approximately 59000 accounts that feature our wines raising our penetration rate to 24% as of the end of our fiscal year 2022. This is notable for two reasons first it shows that we have been able to successfully grow our accounts by double digits.

Over the past two years and second it clearly highlights the considerable runway we still have ahead of us.

For many years to come.

Looking to the future we have thoroughly mapped out our future wholesale distribution growth opportunity by label Channel Angiography and believe we have a viable path to achieve an additional five percentage points of penetration by the end of fiscal year 2025.

Importantly, the implied distribution growth over this time period should fully underwrite are high single digit organic net sales growth outlook.

And still leaves significant white space to support additional growth in our future years.

Underpinning our penetration outlook, our assumptions are as follows one our wholesale count University will grow at a low to mid single digit <unk> through fiscal year 25.

Do we continue to expect our growth and new accounts to serve as the primary driver for future penetration increases three.

Three the opportunity for account growth growth is broad based in varies by label channel and geography.

But the majority of our expected account growth will stem from our Duckworth vineyards in decoy labels as well as the off premise channel much like we have experienced historically.

Four as it relates to velocity per outlet, what's considered both placements for account and velocity per individual offering within each account for the purposes of this analysis, we are assuming minimal games going forward, even though this metric has grown at a high single digit rate over the past three years and five for <unk>.

Purposes of this Tam analysis only.

We have assumed no additional new products and fiscal year twenty-three and beyond however, as you know innovation is a key part.

Of our longterm growth strategy.

Based on these assumptions, which we believe to be very reasonable given ongoing premiumization tailwinds and our long track record of well outperforming the fastest growing segment of wine luxury we're confident in our ability to execute against the considerable wholesale distribution white space opportunity, we have in front of us and.

How it should fully support our high single digit organic net sales outlook over the long term.

As an incremental lever for growth, we will continue to thoughtfully introduced new innovation into the market. We have a strong lineup of new products in fiscal year twenty-three, including our previously discussed Costa Brown Burgundy release with sold out within a 48 hour period, one of the fastest sell out.

Of a costa Brown release in our history and will be delivered to members in the second fiscal quarter.

This serves as a perfect example of how we are.

The lighting, our customers in new ways and diversifying our supply of grapes for this luxury brand stepping back more broadly we're proud of our innovation every price point in luxury from strong you reductions of decoy limited to the overwhelming response, we've had with Costa Brown.

Speaking of our prestigious decoy limited blue label, which stands upon the broad shoulders of our decoy brand we plan to introduce decoy limited Merlot decoy limited route rose sparkling wine and decoy sparkling wine in a festive magnum size. This will nearly double the number of decoy limit.

Wines, increasing and already considerable distribution runway, allowing us to better address new drinking occasions, and encourage greater trade up to higher price 0.1.

In summary, I'm very pleased with our fourth quarter and full year results I'm confident in our continued ability to grow market share and I am as excited as ever for what the future has in store for us given our significantly scaled luxury platform highly diversified supply chain and production capabilities unpack.

<unk> brand strength uncanny ability to innovate and delight our customers experienced leadership team gross mindset, which is purely focused on the fastest growing one segment luxury and our ongoing commitment to invest in our people and their ability to aggressively pursue the considerable.

Distribution white space, we have in front of us I remain highly covenant that the best is yet to come.

That said, while our core consumer what's I'll remind you has demographics, even more favorable than the average luxury wine buyer has proven resilient today much uncertainty remains on the near term macro.

We are prudently taken measured approaches to how we view the world over the next 12 months and will remain nimble much like we have in the past and the event actions are required to address any material changes to the environment.

With that I'll now turn it over to Laurie to discuss our fourth quarter performance and fiscal year 20 twenty-three outlook.

Thank you Alex and good afternoon, everyone let.

Let me begin by discussing our strong performance in the fourth quarter.

They get them with our top line net sales for the quarter were $78 million.

A 10% organic increase from the prior year, reflecting 7.1% volume growth and 2.9% price next contribution.

These results were supported by growth and on and off premise as well as positive contributions from all channels, particularly T T T.

When looking at results on a <unk> basis, our net sales growth was that very strong 18% <unk>.

Driven entirely by volume and a notable acceleration versus Q3 trends.

On a like for like basis pricing changes were immaterial to our results.

Largely on the back of continued healthy demand an on premise or depletion.

Depletion garage remain strong.

Keeping pace with our queue for shipments and accelerating modestly compared with our queue three performance on a three year kanger basis.

This once again showcases our ability to further take sure as we continue to convert consumers to duck, one of Angelus and drive distribution in both new and existing accounts.

Let's take a moment to discuss our net sales performance by channel.

Wholesale distributor increased by 7.3% versus the prior year quarter.

Prior year quarter was very challenging to lap as we posted nearly 50% growth in the fourth quarter of fiscal 2021 during a strong return to on premise.

We were still able to grow the channel nicely.

On a three year basis trends remain quite healthy up high teams for the quarter.

For California, directed trade the channel grew by 12.5% on a one year basis and 17% on a three year basis.

Both results showed a strong acceleration when compared to our third quarter performance.

Beginning with his earnings call. We are now referring to our sales to on and off premise retail accounts in California <unk>.

A unique point of distinction among large California wine producers.

As the direct to trade channel.

N R. D T C channel, we realized 21.2% growth compared to the prior year quarter and on a three year basis results were up approximately 25%.

Are strong D. T C growth was fueled by the Tosser Brown winery successful estate release, which is comprised of the branch in most exclusive wines and it's shipped only to our longest tenured members.

While supply constrained will continue to limit growth in the first half of fiscal 2023 today's D. T. C results are further evidence that these impediments to growth are moderating and we feel good about a full recovery by the fourth quarter of.

Fiscal 2023.

Gross profit was 39.3 million, an increase of 4.9 million or 14.4%.

Versus the prior year period.

On an adjusted basis gross profit grew 5.7 million or 16.4% compared to the prior year period.

This represented approximately 61.8% adjusted gross margin.

Approximately 280 basis points year over year.

Favorable brand and channel mix shift led by our higher margin D. T C channel.

Selling general and administrative expenses were in line with our expectations.

Up 3.3 million or 13.5% versus the prior year period.

Total operating expenses increased 3.2 million or 13.1% compared to the prior year period.

The increase was primarily attributed to investments in our workforce to support our longterm growth strategy.

Transaction expenses, including an equity follow on offering and cost incurred in conjunction with other transactions.

And hire professional service fees.

On an adjusted basis, which excludes transaction related expenses and non-cash equity based compensation total operating expenses increased by 2.5 million or 12.6%.

Net income with 5.4 million and diluted EPS with five cents per share, which compares to net income of $7.4 million.06 per share in the prior year period.

Adjusted net income came in at 9 million and adjusted ETS was eight cents per share respectively compared to $9.2 million.08 per share in the prior year period.

Adjusted EBITDA for the quarter increased 21.3% to $22.3 million.

This represented 28.6% of net sales compared to 26% of net sales in the prior year period.

These results reflect our strong top line growth and sound gross margin expansion.

At the end of the quarter, we had cash a $3.2 million and total debt of $223.6 million with a leverage ratio of 1.8 times net dead.

Turning to our outlook, we're pleased to introduce the guidance for fiscal year, 2023, which we view as consistent with how we project our continued business performance and prudently reflective of current macro uncertainties.

Our guidance calls for.

Net sales of $393 million to $401 million, reflecting approximately 5.5% to 7.5% organic growth. Once again led by continued volume growth.

I, just did EBITDA of $132 million to $137 million.

Justin EPS of 62 to 64 cents per share, which assumes at 26% effective tax rate and 115 to 116 million diluted shares outstanding.

And capital expenditures of $30 million to $35 million, which is approximately 7.5% to 9% of net sales.

This capex will be funded by short term financing and as such will result in an incremental $4 million to $5 million in interest expense versus fiscal year 2022.

As a reminder, this total does not include any potential purchases of production assets or vineyards, which we approach and a disciplined and strategic way when opportunities arise.

Reflected in our full year guidance are the assumptions that adjusted gross margin will be down approximately 50 to 100 basis points compared to fiscal year 2022.

Well, we expect plan pricing efforts to cover costs of goods inflation and assume a greater year on year contribution from Costa Brown. These items will be offset by continued outperformance in growth from the Dexcom vineyards and decoy winery brands versus our other winery Brad.

Fans as well as great.

<unk> net sales dollar contribution from the off premise channel.

Given its relative size two what should continue to be a faster growing on premise business.

In fiscal 2000 twenty-three, we will be pro actively making continued strategic investment in our people systems and processes to optimally position decor for sustainable and profitable high single digit organic top line growth over the long term.

We believe the strong results, we have seen through challenging times in the past few years are a testament to the importance of smart targeted growth investment.

And that's exactly why we are investing now to help ensure favorable positioning and momentum as these uncertainties play out.

Well these investment costs will modestly impact our industry, leading margin profile in the immediate term.

We believe these investments are important to help us achieve our longterm growth plans and strengthen our position with the luxury wine industry for years to come.

In addition fiscal year 2023 will see a new cadence and the timing of certain shipments and the D. T C channel.

In order to provide our cost of Brown evangelists are consistent experience with wines, arriving to our consumers at optimal time as well as drive modest shipping efficiencies.

Positive for our P&L and E. S. C efforts, we are introducing a new delivery cadence for our Costa Brown lines.

Costa Brown wines will be delivered under this new schedule and fiscal year 2023 and in future years.

Specifically, we will know ship to release it in the second quarter of the year and one release in each of the third and fourth fiscal quarters.

As a result of this updated cadence, we will see meaningful movements from quarter to quarter <unk>.

In terms of total net sales growth and profitability.

And because of this.

We would like to offer some additional color to ensure a consistent understanding.

The beginning with total net sales we anticipate the following grove by corridor.

Down mid single digits in the first quarter.

Up mid to high single digits in the second quarter.

Down low single digits in the third quarter.

And up meaningfully in the fourth quarter.

Given this superior margin profile of Costa Brown relative to the rest of our portfolio.

<unk> materially lower sales dollar contribution versus fiscal 2022, four Q1, and two three will create sizeable margin mix headwind.

On an adjusted gross profit and adjusted EBITDA.

These headwinds will prove to be significant and to provide some perspective on the very near term. We expect fiscal Q1, adjusted gross margins to be down approximately 100 basis points, while adjusted EBITDA margin.

Will decline by over 500 basis points as unfavorable mix modest net sales deleverage and a four mention growth investments way on profitability.

Conversely, and quarters with greater exposure to Costa Brown shipments, namely the second and fourth quarters.

We expect to realize slight adjusted gross margin expansion.

And adjusted EBITDA margin improvement will be notable.

Fourth quarter, adjusted EBITDA margin expansion will actually be quite pronounced due to costa Browns outsized year on year influence and will serve as the primary driver to earnings and fiscal 20 twenty-three as we realize considerable leverage from.

Robust double digit top line growth.

Stepping back we're very proud of the strong profitable growth, we achieved in fiscal year 2022, and look forward to building on the success and fiscal year 2023.

With that I will turn the call back over to Alex Foreclosing comment.

Before we turn it over to the operator for questions I'd like to conclude with a few remarks <unk>.

First fiscal year 2022 was another tremendous year for us Mark by continued double digit net sales growth that well, let's see that our initial outlook as well as solid margin expansion on and adjusted gross profit basis and also on an adjusted EBITDA basis, when burdening the prior year with a full year of <unk>.

Public company cause <unk>.

Second.

As we head into fiscal year twenty-three, we are confident in the prudent guidance, we have outlined today, which reflects continued outperformance versus the fastest growing some some segment of one luxury.

And third we were energized by the prospects of and the challenge is to execute against the robust multi year wholesale distribution opportunity. We've outlined for you today at the same time, while remained remaining nimble and continued to support our strategy with targeted growth investments, we will remain vigilant intake.

Kicking steps to uphold our industry, leading profit margins over the longterm with that Laurie Shawn and I are available to take your questions.

If you would like to ask a question. Please press star followed by one on your telephone keypad if for any reason you'd like to remove that question. Please press star followed by two.

Again to ask a question at Star one.

Please remember to limit yourself to asking one question and one follow up.

We will pause you briefly is more questions are registered.

Our first question is from <unk> Guard Chihuahua.

You're lying is now open.

Hey, everybody can afternoon, and a couple of questions on the investment I guess first on.

On the SG&A step up I guess, a deliberate SG&A step up the.

The category continues to do well that's always been part of your underlying assumption now we have this macro moment, which my.

Present, some pressure to the category, but it looks like you're stepping up SG&A kind of just at that at that same time does that to offset any any pressure from a macro perspective or is there something that you see.

Perhaps us different from what you were looking at before and I suggest now's a good time to pick.

Pick up some of that investment.

Hey combo to Alex Good question, we want to be offensive in this particular case.

You know getting a really qualified salesperson and targeted regions throughout the country. You know takes a little investment in some time to.

Where they are really starting to perform with our distributor partner. So I don't want to try to come from behind and and if I have to come up from behind there'll be well positioned if not we're gonna just continued to accelerate our growth. So I think it's strategically consistent time to go out there and continue to force for.

No take continued to take sure from the market with with those investments. So we're looking forward not backward.

So then come or I, just might add that in terms of looking at our adjusted S. G N a.

We're really proactively taking this opportunity to strategically invest in our people our systems and processes.

And really best position duck corn for sustainable profitable high single digit organic top line growth over the long term.

So as Alex mentioned were really mindful of investing in our self team as we believe that that talent really helps drive our new distribution.

Also as you know we've grown faster than we anticipated and so we do plan on in this investing in our systems and processes.

This year and taking some incremental increases.

Allowing us really to grow our top line in the future without having to add significant future head count.

So for that being said Additionally.

And in fiscal year twenty-three you know we lost our E. G C status and we have some incremental costs to become sucks compliant and it's really a one time realisation and then we don't really see it being similar increases in the future.

So just really as we sit here today the growth rate for fiscal year 23 is really a one time step up and we don't anticipate similar increases in the future.

Okay. Great then that was gonna be part of my follow up is that this is just a one time setup SG&A did kind of reset yourself to this new base and then we should kind of go.

Go back to algorithm.

That's right.

Correct, that's right okay, great. Thank you.

Thank you <unk>.

Our next question comes from Kevin Grundy with Jeffries.

Hey, good afternoon, everyone.

My question, Hey, Kevin how are Ya.

I'm doing great yourself Alex.

[laughter] I'm doing great today Gavin Thank you.

Excellent glad to hear that let me let me start questions was do you just go on the on the initial sales guidance for physical twenty-three. So six to eight per cent sales growth, which is which is very good and your current environment, but yet you know down off of you know close to a 1% growth. This past year, an even stronger growth in 21 as you guys know.

<unk> I think you guys use the word prudent at least two times it might've been more than that but maybe just talk a little bit about the building blocks behind that you know is there an expectation of a slow down with the scanner data looks pretty pretty muted for the for the wind category in general I'm, just trying to gauge you know the level of conservativism.

And your guidance versus anything that might be more concerning and in terms of what you're seeing in the industry that I have a follow up thanks.

Kevin I think we're seeing some of the same things, you're saying right luxury continues to grow, albeit at a slightly slower rate than the than the previous periods. So we don't have to recognize that on top of that you know we're going to go out there and continue to take sure from our competition. So that's gonna take you know it was gonna take some building blocks gonna take some <unk>.

<unk> and some getting getting so set up in new geographies to do that so I think we're being prudent and I don't think that's overly conservative statement I think it just a smart statement given given what we're seeing in the data and in the macro so that is by no means a change my confidence and going out and being able to <unk>.

Continue to significantly outpaced the the luxury market we compete in.

Okay. I'll just go ahead and you know yeah. We're <unk>, we're not seen any worrisome I'm changes with regard to our core consumer behavior. So I'll remind you that our core consumer behaviors, a little a little more educated little more affluent than your average.

Free wine consumer and Uhm, we feel that they're a little more resilient to the current professors that you'll see out there.

From from a wholesale perspective.

We we do think that are month to month activity it will be a bit more variable due to some of the pressures from the current macro uncertainties.

And and those are some of the reasons why we've been prudent and our approach to our fiscal year, 20th twenty-three guidance that really we have a lot of confidence in our brand strength.

In our new product innovation and and are the white space that we have to continue to grow. So that's that's the other side of our guidance the confidence we have there.

Scott <unk>, but quick quick follow up if I, if I may just on pricing, Alex and Laurie maybe spend a moment on that and specifically I think you know it was close to three per cent and a quarter I I think that was largely mixture than not really right.

Like I think when I spoke with you over the summer I think the recent commentary was do not mistake you were taken pricing cross much your portfolio when I look at the Nielsen data at least at least in those channels that I I don't see I thought it was kind of down a bit for both decoy in and dark orange and those channels you gross margin guidance contemplate some compression there.

Down 50 to 100 basis points. So it's all kind of a wind up maybe to spend a moment on the pricing strategies is it possible maybe to lean in a bit more there and understanding you know there there's a.

View here to offset input cost pressure, but can you potentially do more I guess, particularly in the current inflationary environment on the pricing front to drive if at all said somebody's somebody's gross margin pressures and that'll pass it on thank you.

Gotta, Kevin you know, we don't set prices you know in the various markets and and I know you know that we you know we took the price at the end of last year were taken surprised this year in a form of line pricing and trade spin management, we feel good with where we are right now we are able to offset our our cogs.

Inflationary increases so we think we're in a really good place and still very competitive within the luxury segment.

You know it will continue to rely on our teams are strategies and see how we're executing throughout the year and and decide if further adjustments are are are warranted and unnecessary you know given what we learn as we continue to kind of roll through the year, you know that opportunity is always available.

<unk>, but you know it it it's not a it's not an easy question I'll kind of look at the broad spectrum and where we're going over the long term. So the answer is yes, it's available and we'll keep it an available as we analyze the market based on what we've already done and then kept Kevin I just remind you that we have really good good visibility into our cost inputs right.

So with our diversified sourcing model, we're able to have a good line of sight into our cost of goods is Alex said, we've implemented pricing changes to offset any cost of goods increases so what you're saying really there is maybe some variability in mix and in Brandon channels.

Okay very good that's helpful. Thank you both good luck.

Our next question comes from Peter Galbo with Bank of America. Your line is now open.

Hey, guys. Thank you for taking the question.

Laurie can we can we just got a bit more sorry end of the revenue cadence like I, just I want to make sure that it won't work Super clear on it.

If I just plug in the numbers and and not to make new map on the call, but just if I plug in the numbers you gave on revenue kaden.

It implies that the fourth quarter has to be up something like 30 per cent your ear and and I understand that and appreciate the shipment timing on caused the brown, but just.

He wanted to confirm that that is.

Kind of a <unk> and I guess the revenue split just as I think about the first half second half of the year.

Again, using those numbers you provided would give you like a 52% first half revenue you know for the year, 48% for the second half and comes with a splint. So so maybe we can just clarify on those two points.

Yeah. So the greater growth is in the back back half of the year for sure. So uhm.

You know in in queue for we're going to have a 30 per cent plus top line growth.

And that's a result of moving the Costco Brown Appalachian series, which is the largest said the offering them into Q4, we will have a greater realization in the year I'm in the back half of the year for my new product launches.

As well as realizing some of the gains from the strategic investments, we're making is with regard to our sales team. So and then then the other thing I'll point out is it in the back have we do have easy comparisons easier comparisons in the back half then first have the.

Really the volatility is due to customer brown shipments.

Our hotel shipments will you know be consistent and growing throughout the year.

Hey, Peter that was a good question I don't want you to be concerned about that strategic change in the the cost of Brown cadence that was a good management decision that benefits our customers. Your our highest stakeholders. So we made it their benefit and and I think as I noted in our in the in the script.

Earlier, you know, we just had the the customer on Burgundy release, and it sold out in record time, So I think that should soften any concern that while we have made some changes it put some of the pressure in the back half their strategic changes based on the right decision and we're seeing no degradation in the in the brand affinity on that big mover and in the cadence.

For this year. So we're we're still quite positive on the your end results.

Got it no. Thanks. Thanks, Alex that's that's very helpful. Just wanted to make sure that kind of weird, we cleared that up.

And then just just to follow up Lori <unk> I guess, if we you know could talk a little bit about about the EBITDA split as well I mean, I would imagine would fall kind of revenue caden, but just.

Wasn't sure kind of from a waiting standpoint, how we can think about first half versus second half in terms of you know take into account. What you said about first quarter, but just just the EBITDA squint, thanks very much.

[noise], Yeah, EBITDA well, we'll follow sales for the most part so you know our our Opex R. S. Adjusted SG&A is fairly consistent throughout the year on a quarter over quarter basis. So as our net sales trends change I would expect that EBIT <unk>.

<unk>.

Our next question comes from Rob Einstein with Evercore your lines now open.

Great. Thank you very much cause I was wondering if you could kind of just kind of step back and you know give your take on the overall.

Wine industry in the U S. Realizing that you you know only operate at the high end, but you know you are part of a bigger ecosystem.

You talk just a little bit about you know why you know wines under $15.

You know are so weak you know what what some of those dynamics are and then maybe you know being reinforce your conviction that the the high end market will continue to grow well. Thank you.

Yeah. How are you got it obviously, we're looking at that you know we don't compete in the in the in the more challenge sections. You you know that and bought my choice, we have complete and absolute focus in the luxury sector segment. It hasn't continues to be the fastest growing line segment and we.

Keep more prop in that category up right now so people are still buying luxury right. There are premiumization tailwinds and luxury one's been a fabric of human existence for a long long time and I think we're just giving the consumers the luxury feel the luxury style with the right luxury price points are really key were right luxury price ones.

That they want to participate in on top of that you know we have extremely strong brand strength, we've Albert innovation, continuing again struggling.

Focusing solely on the luxury piece and so I <unk> I really believe that while it houses shown a little slowing you've seen that that we continue to outpace that for a number of reasons and in particular.

You know when you're growing when you're grown at that level, you're stealing it from you're stealing it from your competition, we have great competitors out there and were able with our investments and our timing and all the things that just mentioned to continue to.

To take it from those other people who are in that particular space. You know we put out a deck. This time. It's the first time, we did but you can take a look at page seven and it kind of outlines the sixers haven't really kind of outline. It's it's an affirmation of the successes, we're having the luxury market looks at it two different ways, one by price 0.1 by competitive level both of them.

Speak extremely powerfully on the performance of dark Orange, So I'd I'd turn you onto there I I can't comment on on the struggles of the under 15, <unk> price point area pretty well, it's a slightly different business. It's just really not fair to me to get them to go down that road. So what I am comfortable in is the area that we're competing and and.

And I don't see any changes aren't in our ability to continue to take cheer and perform above market in that section I hope that gave you a little better perspective.

Okay got it and then it just just curious.

When when you look at.

The you know we've had some pretty dramatic changes in currency right.

Does that have any potential impact on wines imports you know coming into the U S. Such that you know potentially you know we could be be flooded by high quality, but cheaper wines coming in from from say Europe or.

Around the World is that is that something that's on your radar screen at all.

No, yes, I mean theoretically that that could happen, obviously, but we were not see any evidence of that unfortunately, it onto the great luxury wine world markets worldwide markets have had producing areas of add some challenges with the climate I don't think there's a lot of excess ones were not really good we're not seeing that and we've.

Never really found a flood of imports to be a massive competitive impediment for us in the in the past <unk> over the past 40 years. So we're not anticipating that to happen to a significant degree well obviously watch it closely but really we don't think that that's gonna be a real impediment to our continued.

Growth trajectory and a lot of those floods. If you will the term you used I don't think they're gonna compete in the same outlets that we're gonna be targeting over the next several years.

Got it great well, thank you very much I appreciate it.

Thank you.

As a reminder to ask a question. It is star one on your telephone keypad.

Our next question comes from Andrea takes Sierra with J P. Morgan.

[noise]. Thank you. Good afternoon. So my question is related to the <unk> can I know you you explained it but the comment regarding the on premise decelerating visa.

Visa visa off premise and you did come out Alex style of the Tran said you sign July I was just.

Of parsing out with the it's five nine and I do appreciate the back that you kind of reiterated the high single digit algorithm beyond physical 23. So it's just hoping to get some sense of what underlies your underlines you on your assumptions for physical 23 is that the <unk>.

<unk> that you sign July .

Uhm, despite the recovery novice and that's to me that's the basically sent out and then I have a follow up on <unk> front.

And I'll, let you answer that one.

Yeah, we on the on the trends that I suppose that we spoke of earlier, we we do see the Midsummer kind of trajectory change is is somewhat more limited to the summer period, we're seeing some some acceleration pulling out into the fall and moving into our App.

Give one season, if you will October November December .

So so again I think that I think that is more of a it was more of a temporary kind of approach I think that I think the important piece is that the get continues to reward us for your focus on the luxury the strength of our brands on a national level, both an independent and national <unk>.

Counts and the innovation Wow strong and growing again, it's a little more weighted toward the back of the Euro continues to be accepted readily. So again, we're not we're not we're not anticipating any of that slowdown continuing through the year for for our sales cadence and an associate guidance.

So is it more because you penetrated the the restaurants more than you gain a lot I'm sure and you are just like making sure that you are not going ahead of your skis and thinking that will continue into physical 23 is that the way we should be thinking on a mix space.

[laughter].

That would be that would be that would be reason would that'd be prudent I think we started this conversation was prudent I think that would be so imprudent in there what we continue to see his people people Restauranteurs Wanna use brands that provide them was good reliable sales sales flow and we absolutely fit right into.

<unk> into the into the into the kittens for for the on premise.

Andre just to remind you that so our growth rates are on premise shelves.

Will be faster, but that are off premise <unk> business is much bigger and so we will continue to grow off that large space. So we had planned to grown both on and off premise next year. It just at different rates.

I understood. Okay. Thank you and then a follow up for you Laurie on the on the <unk> of course, the reinvestment needs and and the regulatory requirements. But you also is that an indication for the cost of growth rising and specific investments that he encouraging.

Physical <unk>, you're hoping to encouraging physical twenty-three.

Would you say that most of this expenses are recurring and therefore, the EBITDA margin recovery ahead of like the algorithm that you had before would be for the long term would it be dependent on the volume of growth I have I'm 24 and 2025.

Yeah. So we don't anticipate that the growth rate and adjusted S. D N a to the same into the future as fiscal year twenty-three and we also anticipate that the percentage of net net cells will come down somewhat but will not of course reset too.

To the levels that we had prior to becoming public.

Mhm, Okay, that's fine no pets at all and thank you.

There are no further questions waiting at this time slot past call back over to the management team for closing remarks.

Thank you I Wanna, Thank everyone for joining US again today to review, our fourth quarter performance and to discuss the 20th twenty-three physical your outlook I look forward to speaking with you again in early December when we report our first quarter twenty-two twenty-three results take care and thank you.

That concludes the conference call. Thank you for your participation you may now disconnect your lines.