Q4 2022 Boston Beer Company Inc Earnings Call
Important to note that the company's actual results could differ materially from those projected in these forward looking statements.
Additional information concerning factors that could cause actual results to differ materially from those in the forward looking statements is contained in the company's most recent 10-Q and 10-K.
Company does not undertake to publicly update forward looking statements, whether as a result of new information future events or otherwise.
I will now pass over to Jim for some introductory comments.
Thanks, Mike I'll begin my remarks, with a few introductory comments and then hand over to Dave who will provide an overview of our business and our 2023 plans. Dave will then turn the call over to Craig who will focus on the financial details of our fourth quarter results as well as our outlook for 2023 immediately.
Following Frank's comments, we'll open the line for questions.
The last few years, our company has experienced rapid growth ending 2022 with a revenue base of $2 $1 billion, which is almost double the $1 $2 billion in revenue generated in 2019, a large portion of this increase is attributable to the outsized growth of the <unk>.
Hard Seltzer category as we've mentioned on previous calls the hard Seltzer category dynamics have been challenging as the economy reopens and it's been difficult to predict where consumer demand will ultimately fall we'd expected currently.
Really trends to improve in the second half of 'twenty two against easier prior year comparisons truly performance has not yet turned around and David will take you through additional plans we have for truly recurring.
To help improve the brand performance in the second half of this year.
Looking back on 2022, our projections for truly and some of our new brands were too high and we produced and sourced materials at the upper end of our projections to avoid out of stocks.
We've also had an expansion of product offerings that has introduced more complexity into our supply chain and we planned our cost structure at higher levels of volume. This has resulted in financial performance that is below our expectations in 2023, we're working to simplify our business.
To reduce complexity and improve margins as well as adjusting our cost structure in line with our current volume expectations were.
We believe the actions we are taking will benefit the company over the long term and at the beyond beer category, where we have an advantage position will grow over the next several years, we expect the operational and supply chain changes, we are making this year combined with our history of innovation.
<unk> brands and our top ranked Salesforce will lead us to long term success, a strong balance sheet enables us to continue to invest in our brands and today, we announced that we repurchased $8 9 million and stock thus far in 2023.
We released our first ever environmental social and governance report, which established a baseline of data that we will work to improve over the long term. We now have a more standardized approach for understanding our energy use and our water use the ESG report also allowed us to highlight.
Our focus and continued progress against our efforts to cultivate a culture of inclusion through awareness engagement and accountability across the company as shared industry report, our coworkers gave Boston beer high scores on questions related to pride in working for the company.
Belief and our values are concerned for their safety and wellbeing and their confidence in the future of Boston beer.
Closeout.
Close up my remarks, I would like to thank our outstanding coworkers distributors and retailers, who continue to support our business.
And now I'll pass the call today for a more detailed overview of our business.
Thanks, Jim and Hello, everyone.
Our 2022 full year volumes and revenue came in at the higher end of our financial guidance. However, the mix of volume came in differently than planned and we also produced a source to ensure we would not have out of stocks of retail. This resulted in the supply chain inefficiencies, particularly outsized scrap on truly which impacted our margins and earnings for the 2000 <unk>.
22 full year, we generated very strong operating cash flow of about $200 million.
Which gives us financial flexibility to invest in our brands for the long term.
Importantly, we have learned much in the past year understand where opportunities exist and have new plans in place to improve overall performance with an emphasis on getting truly back to share growth.
We operate in attractive categories as it beyond beer category grew 4% in dollars over the last 52 weeks and had a CAGR of over 25% over the last five years. Our plans include reducing the complexity in our supply chain, while allowing us to better focus our resources on our top two priorities sustaining twisted tea is industry leading.
<unk> and gaining share.
Also evaluated all of our operating expenses to ensure we spend at a more disciplined manner, while continuing to invest in advertising and other initiatives to support our brands.
In 2023, we expect overall volumes to decline with strong growth and twisted tea offset by our expectation for continued negative truly volume growth as the hard seltzer category likely will decline between 10% and 15%.
We also believe we have opportunities to be more focused on our product offering.
This will strengthen the underlying health of our business and continue and contribute to future margin improvement.
Additionally, we are lapping against the 53 week fiscal year in 2022, which will lead to a headwind of approximately 100 basis points on our volume and topline growth performance in 2023.
I'll provide some color on our brands.
Twisted tea was the number one growth brand and all appear in 2022 and increase its lead as the number one F&B by more than eight volume share points, gaining three four share points in 2022 and off premise measured channels.
As evidence of its durability, the brand's fourth quarter dollar sales growth in off premise measured channels accelerated to 33% versus the full year is 31% and twisted tea as 2023 year to date growth rate is further accelerated to 36%.
This is a result of an effective brand building campaign are growing annual college football Tailgate program to extend the season improved distribution of 12 packs and improved service levels. In 2023 will continue to increase our brand spend to advanced <unk> position within beyond beer.
We remain confident that twisted tea will sustain a strong double digit growth in 2023 for a number of reasons.
First we see a significant upside to introducing twisted tea to a much wider audience and growing the base of twisted tea drinkers.
Household penetration and brand awareness is lower than its competitors its brand consideration and purchase intent remain the highest in the category.
<unk> penetration grew by 20% in 2022, and the <unk> rate was up 7%. We will continue to invest in our top quintile AD campaign to drive awareness and expect to increase trial and adoption to fall off.
Second there is still room to grow through increased distribution.
We've achieved 50% ACB distribution on our original 12 pack, we have two other <unk> half and half and party pack with much distribution upside.
24 ounce single serve offerings that are sold primarily in convenience stores that may twisted tea. The number three selling single serve branded all appear.
But we also see the opportunity for increased distribution across all of our single serve flavors.
Third twisted tea light is proving to bring in new drinkers and prior brand Rejecters. We've received an encouraging early response to our new twisted tea light 110, calorie product that we launched and high developed markets last year. It only has 9% ACB distribution as we start 2023.
Twisted tea light is bringing new drinkers into the brand family, who are looking for lower calories, but big flavor.
Fourth there is much opportunity to increase brand awareness and availability and twisted tea is underdeveloped markets. We still have many historically underdeveloped geographies, such as Texas, and California with the brand's awareness is 10 points lower than the National average and is just now starting to catch fire for.
For example in 2022, we increased investment in Texas and in one year. It became our largest volume state accounted for 10% of total twisted tea volume while growing 50%.
Lastly, we also have underdeveloped consumer demographics, such as Latinos and African Americans, who represent an opportunity to grow the brand only 24% of twisted tea households, multicultural, but theyre growing 18%. We have plans to continue to grow twisted tea with a diverse audience through investment and awareness driving media and increased product availability.
As Jim mentioned in his remarks, we're disappointed that the reformulation of truly has yet to improve trends and are planning a major refresh of the truly brand in the second quarter of 2023 that includes new easier to navigate packaging.
More emotive versus product centric brand communication elevated media spend across all channels, especially digital and social media and aggressive marketplace execution to improve product availability and visibility, especially with our lightly flavored variety packs.
Learned a lot and are putting that learning into action. This year. For example, we realized in last year's second quarter. After launch improve Margarita that adding further bold flavor variety pack innovation was not going to be as successful as we've experienced with prior innovation since consumers were clearly overwhelm category news.
Further despite QE Marguerite has very good performance. It was the number one new brand launch in beer in 2022, it was not as incremental to the truly trademark as prior launches. It also became clear that consumers in their confusion for going back to the category basics and seeking more likely flavored hard seltzer and we have put too much execution of attention towards our boulder.
In our lineup to the detriment of our lightweight flavor variety packs.
The reformulated <unk> products that we launched in the fourth quarter been well received by those consumers to know about the change, but we did not do a good enough job communicating those improvements on our packaging and in our advertising. So that more people will learn about change our upcoming packaging redesign will present, a cleaner easier to shop look and forcefully communicate that we havent now more.
Refreshing taste that includes real fruit juice.
Our internal consumer testing work validated that we've made big product improvements now we need to better communicate to consumers to trigger trial and win back lapsed drinkers.
We sharpened our advertising communication in January to reinforce that point and the new packaging and a more motive AD campaign will hit the market at the start of the second quarter based on this new work and stepped up brand investment we're expecting to gain share. This year, although the first quarter will be more challenging as we lapped last year's truly Margarita launch, we deliberately did not add new <unk>.
<unk> flavor renovation in the first quarter of 2023, so we can focus on the reformulated likely flavored core lineup and build the brand more sustainably without adding new permanent product offerings.
Lastly, we launched truly Barker seltzer in the fall ahead of 2023 to gain consumer learning and our experience with that launch has informed our approach with two new variety packs and updated packaging design and branding that will also hit the market in the second quarter.
Without question sustaining twisted tea is double digit growth.
Jewish trajectory of our top priorities for the year, and we will have our full attention and significant investment.
Having said that we have an excellent portfolio of brands and we'll continue to broaden the shoulders and build them out.
Sam Adams started the year with another Buzzworthy Super Bowl spot announcing our remastered Boston lager that utilizes the same cook family recipe, but through enhanced brewing techniques provides a smooth finish.
We also are investing more behind our seasonal portfolio, which is the only national seasonal craft beer and showcases summer ale in October Fest.
Lastly, we've added a new non out beer called gold Rush to go with Sam Adams, just the Hayes recently named the number one on our beer in the country at the Great American Beer Festival.
We will continue to support other innovations, including the expansion of dogfish head canned cocktails, the launch of Jim beam, Kentucky cores F&B and the continued rollout of hard mountain Dew, but expect these to be smaller volume contributors in 2023, as a ramp distribution fae their audience.
Turning to our supply chain as we previously discussed we're in the process of modernizing our supply chain to investments and equipment capacity and improved systems and processes. Our product portfolio has expanded over the last several years. This expansion and the volatility of the hard Seltzer category is increased complexity, we're working hard on our supply chain transformation.
Initiatives to improve efficiencies in our internal breweries and better manage our inventory the disciplined portfolio management I mentioned earlier as well as our new supply chain systems and processes should lead to better operational performance over time. It will take time for these initiatives to take hold and as we previously disclosed we expect to pay some shortfall.
Fees to contract manufacturers in 2023 because of the lower volumes.
Our expectation for lower volumes were closely reviewing and adjusting our operating expenses, while continuing to invest in our brands.
We expect to use these cost savings to support increased brand spend and within brand spend where both converting non working to working dollars in increasing the effectiveness of our spend to greater investment in digital and social versus traditional media.
Despite near term headwinds, we continue to believe that our business has significant margin improvement potential.
In summary, we believe the investments, we're making this year and enhancing our marketing plans in packaging for truly continuing to fuel <unk> momentum, reducing supply chain complexity and lowering our cost base should drive operational effectiveness and improved top line growth market share and margin performance over the next few years.
Now I'll hand, it over to Frank to discuss fourth quarter financials as well as our detailed outlook for 2023, alright. Thank you Dave good afternoon, everyone.
The fourth quarter continued to show sequential shipment and revenue improvements. However, as mentioned earlier, our gross margin was lower than expected, primarily due to higher than expected inventory obsolescence and lower internal brewery volume.
Shipment volume for the quarter was approximately $1 seven 1 million barrels a 16, 7% increase from the prior year, partly due to an additional week in 2022 compared to 2021, reflecting increases in our truly hard seltzer twisted tea at mountain view angry Orchard and dark for sure Brian .
Partially offset by decreases in December you'll Adams fraud.
We believe distributor inventory as of December 31, 2022 efforts to approximately five weeks on hand and was at an appropriate level for each of our brands.
Our fourth quarter 2022, gross margin of 37% increase from the 28, 7% margin realized in the fourth quarter of 2021, primarily due to lapping prior year costs related to the 2021 hospital, it's a slowdown partially offset by higher brewery processing and inventory obsolescence costs.
The IHOP so lessons cause.
Merrily related to our adjusted volume protections for truly shipments of the <unk> brand transition to real fruit.
Inflationary cost increases primarily due to increased packaging ingredient and energy costs were offset by increased pricing with a net neutral impact on gross margin.
Our fourth quarter advertising promotional and selling expenses increased $12 $5 million or one 1% from the fourth quarter of 2021, primarily due to higher media spend and higher salaries and benefits costs, partially offset by lower local marketing investments.
Freight to distributors was flat as higher volumes were offset by lower rates.
<unk> and administrative expenses increased by $5 million.
13, 5% from the fourth quarter of 2021.
Primarily due to increased salaries and benefits costs.
For the fourth quarter, we reported a net loss of $11 $4 million 93 per diluted share.
Compared to a net loss of $51 8 million or $4 20 per diluted share in the fourth quarter of 2021.
This decrease in the net loss of $40 4 million or $3 29 per diluted share was due to lapping the 2021 combined direct and indirect costs related to the 2021 slowdown in hard seltzer category growth as well as high end net revenue in the current quarter, which were partially offset by increased supply chain costs and slightly IR accordingly.
Spencer.
Turning to guidance our key our depletions for the first six weeks of 2023 have declined 4% from the comparable periods in 2022.
Our 2023 fiscal year includes 52 weeks compared to the 2022 fiscal year, which included 53 weeks. We are currently planning 2023, depletions and shipments to decline, 2% to 8% inclusive of an approximately one percentage point negative impact from the comparison against the 50 <unk> week in 2020.
Two.
We expect price increases of between 1% and 3%.
Full year 2023, gross margins are expected to be between 41% at 43% we.
We continue to expect to cover inflationary cost increases with pricing.
Our full year 2023 investments in advertising promotional and selling expenses I expect it to change between a decrease of $5 million and an increase of $15 million.
This does not include any increases in freight cost of the shipment of products to our distributors.
In 2023, we expect among brands savings to be largely offset by an increased incentive compensation, which did not fully pay out in 2022.
We estimate our full year 2023 effective tax rate to be approximately 28% up approximately 160 basis points versus 2022.
We're currently targeting full year 2000, 2040 earnings per diluted share of between $6 $10. This projection is highly sensitive to changes in volume projections, particularly related to the hard seltzer category supply chain performance and inflationary impact on consumer spending.
Finally, as a model out the year. Please keep in mind a couple of factors.
Currently expect first quarter shipments to be at the low end of our full year guidance range as we lap the launch of truly Margarita that mostly impacted the first quarter of last year.
And we also expect hard seltzer trends to remain challenging.
Margin improvement will be weighted to the second half of the year based on volume trends, we expect the timing of our cost reduction efforts and the phasing of obsolescence expense in the prior year.
As a result, we are expecting a net loss in the first quarter.
Turning to capital allocation, we ended the year with a cash balance of $182 million in unused credit line of $150 million, which allows us to invest in our base business.
<unk> future growth initiatives and return cash to shareholders. In 2023, we expect capital expenditures of $100 million to $140 million. These investments will be primarily related to our booth to.
Both capabilities and improve efficiencies.
During the 2022 fiscal year, we did not repurchase any shares of our class a common stock.
During the period from January <unk> 2023 through February 10, 2023, the company purchased 25000 shares at a cost of $8 9 million.
As of February 10th 2023, we had approximately $81 $5 million remaining on the $931 million share repurchase authorization authorization.
We will now open up the call for questions.
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One moment, please while we poll for questions.
Okay.
And our first question comes from the line of Nik Modi with RBC. Please proceed with your question.
Great. Thanks, Paul Good evening, everyone.
So maybe you could just kind of a pod I'm cynical a concern skepticism around forecast.
Putting pop velocity.
What gives you the confidence.
What you are predicting right now in terms of the budgets and also on the market share gains.
Well why do you have the confidence that you think you can gain show off the <unk> pretty much.
So youll have some office portfolio and in terms of the market share gains where do you think it's going to come from.
Okay, Hey, thanks.
I think we've learned a lot over the last three months to six months I'd say with the category I think remember last last year, we had significant innovation overlaps with with our team and through punch and now we're facing the same thing with Margarita in fact, Margaret in the first quarter is about 60% of our losses as Margarita. So we're kind of work through this.
Growth through innovation and go to a more balanced approach to growing our brands. So it will be innovation.
B, we're replacing T with sort of a rotator oxy of three trimester seasonal that come in in the nickel out, but we're really focusing as we announced today a lot of it is on a lightweight flavored skus so really.
We learned that look we built the business through building this full flavor portfolio and it did very well put us in a very strong number two position, but we did that to some extent the collecting reinforcing the refreshment characteristics of the right flavor portfolio and when we didn't make the change last year I think you noted that accurately.
One of your notes.
Consumers, who notice a change actually reacted very favorably we didn't do a very good job explaining that to consumers. So again, we're going to be communicating that much more vigorously and aggressively on our new packaging.
And our advertising.
In addition, I think we're seeing.
Some of the volume moves to the convenience channel where honestly.
Sure.
Much less advantage than we are in other channels.
We're making a lot more activity and a lot more moves to grow our share and had single serve and convenience was also is another way to.
To get there. So it's I'd say, it's kind of a long answer, but I would say, we provide a lot of innovation.
Permanent skus, where kind of weaning off of that where.
We're going to spend more on our on our base business.
We're going to we're going to look much better in store, we're going to deliver that message very strongly and the last thing I'll say is if you look at the again I know you are a numerator fan if you look at the numerator were still within the 20% to 34 year old age group, which is a group that's really stuck behind hard Seltzer, we sold the highest household penetration there among all beer brands. So we still have a big audience there.
Awaiting award.
Awaiting us too to deliver some news and excitement to them. So we feel through all of those we can get there and again, it's not going to happen in the first quarter is going to build over the second and third quarter.
See hopefully see.
Sure.
And by the way, it's not in the guidance that Frank mentioned, we're not expecting to grow share as part of that guidance. So this is <unk>.
Maybe a little bit more aspirational, but we exist to grow share. That's our intent that's our goal and we think all the things that we've put up that we announced today that we're putting in place the market kept there.
Look I'll just quickly follow up on Apple or a multichannel stamp on them.
Pumps and all the <unk> getting quality from retailers Buffalo cutting off the tail of the hard Seltzer category. So maybe you'll benefit from up there or are you expecting to close the gap with White club can you just give any pop up sell them on why you think those share gains would be so small.
Yes, sure I think the share gains will come first of all there's a long tail.
For perspective, a truly is the number two brand in the next 46 brands equal to share that truly has including Bud light seltzer, So theres a lot of brands.
Steal share from and a number of them will be going away and of course, you are going to want to see you're going to you're going to steal share from the number one player as well so we expect to source.
From anybody from all consumers, who are interested in and the seltzer category in or buy in any other brand within within that space.
Great. Thanks, a lot I'll pass along.
Sure.
And our next question comes from the line of Nadine <unk> with Bernstein. Please proceed with your question.
Hi, everybody two questions from me the first one on your 2023 shipment and depletion guidance decline of two 8% can you run us through your volume growth assumptions are baked into that for each of your major brand families.
Then my second question your announcement earlier today demonstrate how youre leaning into the spirits RTD space continues to grow strongly as a segment, although it's already dominated by a few brands.
What makes you confident that truly vodka soda.
To win in that space.
Okay.
My name is Frank let me take the first one of the guidance.
And maybe to preface the assumptions we've taken I'd.
I'd say, a somewhat conservative approach because of the uncertainty that.
That we see around the consumer and the entire consumer environment.
The hard Seltzer category in particular, we believe it will stabilize at a point in time, but we.
We have seen significant declines that we've taken that into consideration.
And the guidance of two to eight.
Decline is really on a reported basis.
As we've mentioned.
We have.
One fewer week in 23 compared to 22 instead of a comparable range is actually minus seven to minus one at.
At the low end.
Truly we have.
Not.
Who.
And the trends that we've seen in 2022. So this is to us.
Okay, if we don't see anything business, where it lands and for twisted tea.
We had.
Which had a stellar year in 2022.
Moderate at last year's growth rates.
Well.
These are going to have strong growth rates in 2023.
We think they will moderate probably during the middle of the year wont be at really high growth rates last year.
So that's kind of what we have at the low end.
On the high end at the minus two.
We keep.
Twisted tea moderate it.
Don didn't model really significant improvement in their.
So growth rates below last year and truly we still are on model share gains, but we have modeled that.
We launched that that we announced at the end that Dave mentioned.
A successful and those two brands are really the main drivers they will make or break.
The volume number that we're going to we're going to see in 2023.
Okay I'll take up the second question about how controlling succeed in that space I would say first of all first of all our consumers have asked us for a long time to get into into the bucket of Seltzer abacus soda space and when you look at the category. If you look at our <unk>, it's about $1 six dollar share of total beer half of it is the <unk> space of that.
High noon and neutral would be the top to top two brands as quickly as clear overlap and the high end of hard seltzer in the other brands, we have a large consumer base. They want us ago, we developed a great product.
And actually it is but it's a different approach because if you look at that.
The channels of distribution, it's really driven by the liquor class of trade, that's about 45% or so of the total or seltzer goes through liquor class of trade, which is a little bit different a lot of it is mostly independent 90% of our independents. It's very cluttered sales per point is lower prices or higher it's a different approach. So.
We're going there we didnt, we don't expect it to be an overnight.
Success, but its something that.
Other brands have five or six years head start on us and we're going and if you look at the numbers, it's way early but clearly high noon as number one neutral is just a smidge above us as number two and we are number three in the box is seltzer space. So in just a few months and we really haven't even brought but we're going to bring to the table. Yet. So we think we can compete again.
We're not expecting it to be something that's going to be hugely material right away, but it's an area, where our consumers want us to go where consumers are sourcing their occasions from hard seltzer anyway, and we need to and we need to be there in the last the last thing I would say about this is that.
We're in with one variety pack right now there are 1100 skus in it.
Rgd's right now thats more than hard Seltzer has I'm, sorry, Tds or one fifth the size of hard seltzer, they have more skus they have more brands.
You cannot stand out with one variety pack, which is why we announced today that we're going to have two more variety packs and because you have to create presence on the shelf in order to compete in this space. So we've learned over the last several months, but we need to do to compete well and we're going to start to implement that more aggressively.
In the second quarter.
That's very helpful. Thank you.
And the next question comes from the line of Vivien <unk> with Cowen. Please proceed with your question.
Hi, Thank you so much.
Paul.
Thank you.
That's up on the.
Operating in terms of what consumers are telling you.
How far it's really cutting rates and if you can just touch on truly bobcat birthday truly.
So that yes, how much confidence do you have that the truly brand can straddle sell many different categories heartfelt.
Hard seltzer can cocktails and Garrett.
Thank you.
Yeah, Hey, there are in fact, I think it can because when you look at it again, we split these put that category to two.
The cutwater version of that category, the artesian dogfish I can't cocktails higher ABV.
Fewer occasions, lower buy rate, just less lower frequency of consumption.
When you look at the if you look at the other side. There is obviously it looks it looks and acts like a hard seltzer. It's all about really it's about refreshment, it's about <unk> ability, it's about variety and we think we're building a brand that could stand for those three things refreshment session ability and variety and whether you take that and Attritional like sucrose base hard seltzer.
Mark It is truly hard seltzer or within the <unk> space or we've already talked about getting into tequila, as well, which to US are all kind of the same occasions. It's largely the same consumer some of the consumer the spirits consumers tend to be a little more a little bit a little more.
A little more wealthy than the hard seltzer consumers, but it's essentially it's the same it's the same pool that we're playing in and we think the way. The brand has been built a can play it can play in those spaces and consumers. We've done a lot of consumer work. So we're not just kind of making it up as we go consumers.
<unk> given us permission to go there now we're going there what's we'll see we'll see how it goes and we'll we'll evolve accordingly.
That's super helpful. Thank you and then just my follow up for Frank.
You guys before it's like toward growth in hard Seltzer had pretty clear formula for offering guidance. If I recall correctly, you were really extrapolating off.
12 week trends, if I look at what we're seeing in the hard Seltzer category today in particular on a tier stack.
Like you've reverted back to that methodology can you just comment on whether that's accurate or not thank you.
Yes, yes, certainly for Trulia I'd.
Like of the low and the minus eight or minus 7%.
Like for like basis.
Just looked at the trends that we've achieved in 2023 and 2022.
What was that.
There is no change to that so we've referred to back a little bit to that we've looked at trends that we have achieved.
What did we really realize and then use that as a basis and build it out now.
Believe we have really strong plans in place for 2023, one component of it is what we announced today is the relaunch of truly.
But we wanted to see how much traction we in actuality, we going to get.
So we have been carefully modeling that.
That's helpful. Thank you so much.
Alright.
And the next question comes from the line of Kevin Grundy with Jefferies. Please proceed with your question.
Hey, great good evening guys.
A few for me, let me pass through these quickly Dave just the.
Down 10% to 15% for the Seltzer category that you are expecting just in the interest of clarity thats, the multi seltzer category Youre not talking sensors broadly is that fair.
Yes, that's right I think.
The rule of thumb that we're using Kevin is add if you throw in the spirit space shelters, you're probably going to add about.
Three three points of growth to that okay. Alright, that's helpful. So mindset <unk> minus seven to 12, yes got it okay. Thank you for that I wanted to step back maybe ask you a little bit differently to Nick's question, just around the systems and the processes around <unk> and then a sensible your guidance.
We can appreciate the volatility of the environment.
It has not been easy cost and then in your case of course sympathetic to the fact that we're still trying to find a bottom here with sell through but that said I mean forecasting even in the near term, particularly around gross margins.
It's been it's been.
Really difficult where are we with the investments around your systems to improve clarity around kpis and processes. How would you characterize where we are how would you characterize your visibility how would you characterize your conservatism around your outlook.
Yes, Kevin.
Let me, let me take that I think.
There are multiple reasons will react with the gross margins that we are part of it is the visibility.
Part of it is also.
The relatively low volume level that we have reached the declines and given the limited activity that we are in the supply chain, but.
I'll get there in a second let me first cover the system's implementation. So the systems implementation, which is really a process change.
It is implementing an <unk>.
End to end process supported by the systems.
We are well underway.
Underway.
The three main components I would say.
<unk> management system, which is SAP then we have a planning system, which is a complete planting.
Sweet that not only covers demand planning, but it's demand planning supply planning production planning inventory planning.
And then the third major component is order management within SAP. So we have started the implementations we are implementing a warehouse management system and one facility in Ohio.
Two other ones.
In Delaware and Pennsylvania.
Follow later this year.
The.
Planning system, we have started with the demand planning module.
That hasnt gotten life in the Volvo during the middle of the year, we will implement the supply planning margin thats above and beyond.
In parallel we will also do the audit management and then there is some slight modules that we also are working on like.
Like MRP. So this is going and we should be and when it comes to systems and visibility and much better.
And a much better place by by the end of the year I, just I want to caution that one is implementing the systems and.
The second thing is it.
Huge change management effort.
It comes with it because you need to be able to run those systems.
When we did the warehouse management system in Ohio, we actually pretty happy with it because that's a massive change.
Might've heard that with other companies the main focus.
Being able to keep on receiving materials to ship so that theres no disruption of the supply chain, we have accomplished that and now we start leveraging all the benefits.
Okay. Thanks, Greg go ahead.
Yes. This is this is underway and I think.
The other thing is and that's partly why we have the.
The gross margin side I'd say.
Because of the scrap is.
We we have our supply chain at the moment isn't with the volumes that we.
Have declining volumes.
The reactivity is not relatively high to be honest, because we can react on short term is only with the internal breweries externally you have to give lead time. It's a 60 day notice period, you have to commit to certain volumes. If you have a volume change or a mix change it's really hard to.
To change that with our external.
<unk> and what can only do is adjust the volume if the volume doesn't come through adjusted internally and what that.
Results in this that you have lower fixed cost absorption and resulted in higher.
Cost per case, and Thats really impacting directly the margin and then the other piece is of course the.
The scrap, but a combination of better systems better processes better integrating our supply chain should address those issues, but I will tell you that relatively declining volume environment.
Is it makes it a little bit more challenging to navigate that.
As opposed to a growth environment, where you quote so things quicker of course. So you can appreciate that challenge one last one just because it's important in sort of the <unk>.
So I'd say sort of largely pegged to it to some degree.
The elusive low to mid <unk> gross margin target.
I know, it's sort of difficult to call and Youre kind of dragging out of a fire hose at the moment, but where would you reasonably peg the market.
Terms of when you think you can achieve that.
Yes, I think.
But.
The way I would answer that is the target has not changed because the building blocks are exactly the same building blocks we are behind.
From a timeline perspective and yes.
There are a couple of factors what we have behind one is the volume has impacted us clearly so we have the the network of anchor breweries is in place, but with the current volume that we have in the declining volume we can allocate it in an optimal.
So we would have liked to have a little bit more volume in the west coast. We don't have that so that's not.
We're not getting to optimal we need a little bit more volume to get there on the brewery efficiencies and we've talked about that.
In the last two earnings calls we have the variety packing line that takes a little longer to get to the target efficiencies. We are seeing progress and we are putting.
We believe the right measures in place.
But it will take a little longer to get to the target efficiencies and that will have.
Significant impact on the cost structure.
One is that you get.
Much, but our fixed cost absorption and part of that we both see this year, because Ohio was only online last year for part of the year. So there is going to be a carry over impact.
But we get additional 30% to 40% more volume out of out of that.
That facility. So we'll get that benefit and then we are increasing the line benefits of the efficiency of the line benefit. So all of these items of the waste reduction, especially the scrap that we would consider one time, especially in the fourth quarter. We are working to of course, not repeat that and not to have that result in a string of one timers.
So they are very clear defined action plans that will get us to the target margin.
But but the timelines and extend it and we will take a couple of years to get there.
Last thing that I would mention too that there is also we have invested in our co manufacturers and that those investments amortized, but the amortizing over a <unk>.
Small amount of volume that's driving the cost per case up as well.
Those costs will go largely go away in 2025% that will also be a significant improvement in the gross margin. So.
That's all.
We believe the target has not changed but the timeline has extended that okay.
Okay. Thanks, guys. Thank you appreciate it good luck.
Thank you.
And the next question comes from the line of Rob <unk> with Evercore ISI. Please proceed with your question.
Great.
I think most of my questions actually were.
Ticked off so far but.
It will have a couple left.
So I guess the question is.
Around shelf space.
And obviously twisted tea deserves more shelf space, it's doing phenomenally, well and obviously has a long run rate.
But I guess my concern is weather.
You can maintain or gain shelf space on truly given the outlook that you have for for a hard seltzer category being down 10 to 15, and then given the fact that.
No.
Based on what some well known consultants have told us.
That theres just going to be this tsunami of spirit space, our Tds hitting the shelves this year and.
And gaining something like 20% shelf space in total beverage alcohol granted so not just here, but in total beverage alcohol. So those sorts of drivers going on.
Now.
Do you think you will be able to gain or at least maintain shelf space for truly and the new shelf set changes that are going to be coming in the next couple of months.
Yeah, Hey, Rob, it's Dave I'll, So I'll talk to both on first of all the easy one twisted tea.
We think we'll get 25% to 30% more shelf space on twisted tea this year and remember the shelf reset start they start March one generally they end around mid may, but obviously before memorial day weekend, so twisted tea locked and loaded.
They'll be under under space by the way relative to its share of Fnb's, but we'll take it we'll take that space.
On hard Seltzer, what's happening as a category is being cut back and this is a.
Based on what our sales team is seen at the end of last year called like 11% of total space went too hard seltzer is going to cut back to like maybe 9% to 10%. So it's going to lose some of this space.
But then within that space.
The top five brands deliver on like 98, 5% of all the needs that consumers have there'll be a lot of brands that are that are they go away. So while the hard seltzer category will have more space will shrink.
Truly space within hard Seltzer based on our what we know now would increase slightly and it truly is therefore chiles total space of beer was going to be about the same.
To be really precise like two 7%. So we think the category lose its truly wins a little bit because it's a number it's a strong number two and again.
As I said before the number three is whenever it's like 2015 share points behind so we think we'll be able to do that we honestly do.
We think not adding permanent skus is probably a good thing as well and we just have to we've innovated.
Arguably a little bit too much and not built the core business enough and so that's really the focus this year and lastly, just wanted to think about people up the whole thing on Cds and what's interesting is that.
The number of brands have.
There's like 70, or so more brands and there are hard seltzer brands Theres 150, more skus into our hard Seltzer Skus right now.
And when you look at the consumer overlap there is some consumer overlap so about 8% of hard seltzer numerator by 8% of hard Seltzer volume drifted to Rtd's last year.
So its not its maybe about 15 points of lost maybe two of those points went to rtd's. It over index with our TTS because theyre. So small it is having a bit of an effect on the hard seltzer category, but.
See the RTD wave I think personally I think it's three quarters driven by retailers jumping on it and pushing it in one quarter by consumers, saying. This is what it should be so we will see where it nets out. This year. Obviously it is going there we will see where it nets out to be I think.
And we're going to compete very aggressively there with dogfish head can't cocktails with truly Barker soda, we talked about that but.
It's this is this wave could come crashing down a lot faster than hard seltzer in my opinion, because I think it's been propped up by wishful thinking.
To a large extent some consumer trends no question that would require RTD is to get more but what theyre getting.
It seems extremely theyre going to have to they're going to have to pay the rent we will see what happens.
No no that makes a tremendous amount of sense and then.
Just a question for.
Maybe for Jim are you.
There appears to be.
Little bit of a trend, perhaps for the wine and spirits.
Particularly spirits and Theres, one big one certainly going over to beer distributors.
If that trend continues.
Does that have any effect on you at all in your sense, what does that trend mean to you what does that say about the industry may be convergence between spirits and beer just.
There's more maybe.
More philosophical question or long term question, but wanted to get Jim's thoughts on that.
Yes.
Sting phenomenon, obviously that movement of SaaS <unk> was.
Unprecedented.
I think what Youre seeing is a recognition that beer distributors.
Or better.
Building brands in this beyond beer slash fourth category.
Because those products.
And that includes the tsunami of.
Our TD canned cocktails.
Those products.
Kind of look more like beer and spirits.
And can as you want them in the cold box.
The dollar margins per case are relatively low relative to spirits.
They're kind of match produced in.
That level is that youre not bottling liquor in fact, most of them are made and breweries like city in similar places. So they they have a lot of the characteristics of beer and the beer system is just better at.
Building brands, they are gaining distribution and merchandising.
All of those activities. So you've got some of the experienced people.
One of the advantages of beer distributors and.
Because of that I think most of the.
Liquor brands are going to end up in liquor distributors or not.
SaaS <unk> thing is not going to be opening of floodgates.
All of these liqueur brands.
Moving over to beer distributors their primary volumes are still outside of the cold box.
And.
Mir 19.
And I think to us, we're always going to be at a much higher level of priorities at our beer distributors. So I think it's just a recognition that the.
The liquor system.
The route to market is disadvantaged in this fourth category.
That's great. Thank you very much.
And the next question comes from the line Stephen Powers with Deutsche Bank proceed with your question.
Good evening everybody. Thank you.
<unk>.
I guess, maybe Frank.
Scrap and obsolescence a couple of times.
Is there a way you can quantify what what that was in the fourth quarter, maybe also quantify what you've you've embedded if any incremental obsolescence in 'twenty three.
I'm trying to I'm trying to get it sort of underlying gross margin ex that obsolescence and then related to that obviously youre going to start off the year with a lighter gross margin presumably finished a lot stronger.
Relative to the relative to the full year average like how far is there way you can frame how far below we are when we started the year and how far above we expect to be when we end.
Okay. So let me start with the first question and just.
I'm not intending to give you quarterly guidance, but I try to address your question. So on the first one so scrap and obsolescence.
The easiest way to answer that.
We would have come in without the scrap and obsolescence in Q4 would have come in.
Yeah.
The high end of our margin guidance.
So that's kind of the impact there was a sizable impact and the two drivers that we have.
Really where as I said before we resource against higher volumes internally and for different mix you have to make a call early on basically in the third quarter is for volume that you want to sell in the fourth quarter.
That has changed and we need to adjust the book we took it out of the internal brewery. So theres a fixed cost absorption impact that was one thing and the second thing, which was actually the bigger one was the scrap.
That we ran out of shelf life.
Two things because it was it was a little bit amplified by the fact that we also transitioned to the new <unk>.
<unk>.
Formula.
Truly that we had cans and other.
<unk> that we have to write off so that's why this was a relatively big number.
What you will see in the K is that total obsolescence.
It was getting close to $240 million and we are planning a substantial reduction.
In 2023, so no incremental obsolescence because.
Almost half of that number was really incurred in 2014 was related to.
<unk> to something that I would classify as onetime in nature.
Okay, Yes.
Got it.
Any help on 'twenty three.
'twenty three I mean, it will follow our normal margin guide because we have like we have the majority of our volume sits just in Q3 and in Q3, that's where you should see the highest.
Volume.
Aye.
There's a range I would say that is over the year is like four points roughly and the lowest quarter will be Q1.
So the phasing of the savings initiatives.
And then the middle of the year as the higher ones have been in line with historical Q4 will be lower yes, okay. Okay.
That's helpful.
And then on <unk>.
Yes, twisted I guess two questions you may have said this and if so I missed it in the transcript as an update in front of me. So I don't know if you. If you if you gave.
Dave a growth rate for 'twenty, two on twisted or if there was if you were if you did size the expected growth in 'twenty three but.
Good humour me and go back to that that'd be great My real question.
As on repeat rates.
I'm just curious on newly acquired customers.
Are you seeing similar repeat rates.
Historical.
Any differences or is it too early to tell.
Yeah, maybe let me take the first one quickly because.
However, partly earlier so what we did on the guidance, we went back to 2022 and use that as a base like the trends that we've seen.
We have we have.
With the team we have moderated the rate. So we didn't take what we the growth rate that we achieved in 2022.
We've moderated that and we're more than <unk>.
Mid teens, there so mitch.
Mid to high teens, that's broadly what we are.
The range.
Actually I do have a repeat rate and idea for you on that I think last year, our repeat rate was in the low thirties, which was about the same as it was the prior year, but thats pretty significant given that we added 20% more household. So we think that the repeat is holding up very strongly for this brand.
Yes, that's all okay, that's what I'm getting at Okay. Thank you very much.
Yep.
And the next question comes from the line of Eric Cerrado with Morgan Stanley . Please proceed with your question.
Great. Thanks.
One for Frank and one for Dave.
For sure.
Should the truly.
Not re formulations, but repackaging for 2023, all the initiatives that Dave spoke about earlier result of 96.
<unk> or obsolescence charges I know there was a.
Pretty substantial.
Third quarter related to the changeover and you mentioned that continued stoppage in the fourth quarter.
Yes, so what we have there.
Not to say there won't be any scrap whenever you have a change of that nature in that magnitude that will be scrap and obsolescence.
We are broadly models that and borrowing any really change in plans in terms of timing and the type of transition, but we will do but.
So there's scrap it.
That's somewhat within the client.
Okay, Great and then.
Thank you.
You could talk a little bit about twisted.
Possibly yes.
It looks like overall velocity held up remarkably well last year.
Even when you added district, so much distribution.
What do you see sort of about the individual account level as you start to add second and third 12 packs.
Are you seeing kind of diminishing returns are diminishing velocities or once you establish a certain level of scale and visibility within the account is actually.
Halo on the overall brand.
Actually it is the more the more the fact that more 12 pack Skus, we have in an account that the higher the velocity is I would say generally last year, we grew points distribution pretty pretty significantly our sales per point was up slightly so the sales per point actually the sales per point is the highest in F&B.
It's the second highest at all beyond beer.
And there's only one other brand that has a higher that has a higher one so it's it's holding up well, but you would expect that I mean, if it declined slightly.
We were actually we would expect it to decline slightly this year, just because were sporadic and wider distribution as you know those new points of distribution are as efficient as the as the ones where from where it started.
We're seeing points to very healthy brand.
With high repeat high sales per point and.
We have done the account level work.
<unk> 112 pack versus two versus three you see sales per point actually increase when you have a lot has to just purely with visibility and the account. So we think this brand I know there's a lot of question how long can it go we don't know, but I mean, it's gotten double digit from the beginning of time.
But it's growing off a bigger bigger base.
Importantly, it's been built the right way.
It's been built.
Focusing on both elements of driving physical availability and the mental availability all the brand building piece, but not hasnt been overheated. It is growing at a real good pace and we think we really understand who the consumers where they shop I think been.
Brand that when you think about the number three single serve.
SKU, where single serve brand and convenience after like <unk>.
And Budweiser.
To me Thats a source of strength of this brand we have a consumer that goes into a channel that is not being swayed by price or visibility necessarily but just purely they go in with any very know what theyre going to buy and they are buying this brand. So we're just trying to be very careful to make sure we understand what's making it successful and we're just we're enhancing it but we're not changing it.
<unk>.
Great.
That's very helpful. And then just a follow up.
Frank sorry to switch back and forth, but just to clarify the $40 million in scrap and obsolete.
$30 million that you quoted earlier.
Was that scrap and obsolescence together was that for the full year I seem to remember like an $8 million number for the third quarter.
Yes any.
That was helpful.
That's fully online.
Okay, Great. That's helpful. Thank you so much I'll pass along thanks, Eric Thanks.
And the next question comes from the line of Camille Gosh <unk> with Credit Suisse. Please proceed with your question.
Hey, guys.
Good evening, Thanks for squeezing me in.
Frank just to clarify I think you said depletions were down 4% for the first six weeks of the year.
They'll be down close to that.
I guess, the lowest end of your guidance, which is.
The down eight are down seven.
So it's something meant to happen I guess in the second half of the quarter or just can you. Maybe you can just help square that for me.
Yes. So so two factors. The main factor is last year, we launched the micro reader pack and truly and there was significant.
Load in and demand for that in Q1, and a big chunk of that both in February . So after the period that we after we have some margarita we're lapping some of arena and the year to date number.
But there's more to come in.
In the quarter to go.
So that is one thing and then it's a little bit of comparability.
Of events, where you have the Super Bowl phasing.
That's all we have just like we wanted to give you that you don't over read the.
Minus four.
Okay got it and then.
You provided a pretty detailed answer on some of the work you're doing to be able to better forecast and predict the mix of other things.
Is that complete or are the expenses that.
Flow through for building all of that infrastructure.
Still still pending as we as we go through 'twenty three.
No I mean.
Sure.
Two elements to it.
There's a bit of a capital portion, which is the largest portion.
And as yet.
Systems go live that's when the depreciation starts and you would see that.
And we've started that so and then there's an expense portion of those expenses as we go along.
And that's happening I think we are.
We're in the middle of it.
Okay got it thank you.
Alright. Thanks.
And the next question is from the line of Bonnie Herzog with Goldman Sachs. Please proceed with your question.
Alright, Thanks, Hi, everyone.
I guess I had a question on your guidance so.
If their shipment volume comes in at the low end of your guidance or I guess down 8% I guess I'm still trying to understand how youre going to be able to hit your gross margin guidance guidance. This year.
Not only we have the data library, but I assume there's an increase cost of adding the <unk> strike truly and then I guess I wanted to understand the volume target sick care contract manufacturers were you able to lower those targets. This year or are you still locked in at higher levels. So there could be risk there.
I guess I'm, just hoping that you can better understand all the puts and takes.
Yeah.
Yes, so we feel yes.
On the gross margin I mean with the fruit juice that.
That is that it's all reflect that we have.
So with the 8% we have reflected that in the lower margin as I said that that's going to come in below the average.
<unk>.
And we have.
So when you look at the gross margin the underlying.
Projects that we have to improve the gross margin. They are ongoing and we have we've made progress also last year.
A big chunky on sea because of the significant amount of scrap that we had was number one and then also with the sub optimal volume of locations that we had between internal and external breweries. So if we couldnt run. So first of all we had less volume available in our internal approach because we didn't get to the efficiencies and then.
We had we didn't fully you was because we needed to use that as the adjustment for lower volume. So yes. There was some progress made it's just not shown in the or you don't see it in the numbers because it is masked by other impacts.
And we have very clear programs of building blocks that I spoke about earlier. They are in place people are working against that and we are expecting.
We are progress in 2023 again the guidance that we have of minus two to minus eight.
The lower the volume the higher the cost basically.
The incremental declines that you have so.
I'm asking the.
Yeah.
The underlying positive impact that we have on gross margin.
So that was your first question on margin.
Okay.
The co pack is yes, so we are discussing.
Discussing connected with our co Packers because I mean, it's pretty obvious we have we have two main co packer as we have significant volume commitments with them.
Which are much higher than what we need at the moment, okay. It'll cover over years over the years to come but the flip side I'll say is that the co pack is have to make sure that they have the capacity available to us. So we are discussing with them ways to better balance like their needs and our needs in terms of favorable like probably to use that capacity.
So we are discussing with them to finding a better balance in the short term.
And with hopefully a positive outcome for everybody.
Thank you and just to clarify on that point.
You've considered.
An outcome, where you can essentially renegotiate in terms of your gross margin guidance.
It's factored in.
Not everybody not everything is factored in.
We are discussing but then no benefits.
And that we haven't achieved.
Okay, and then maybe.
Let's take a final second question quickly.
If I can switch gears I might have missed your comments.
Great.
Hard mountain Dew and how the brand is performing and maybe just remind us like your distribution plans for that brand this year.
In terms of numbers.
And I don't know if you still have plans to have the brands the available nationwide. Thank you.
And right now it finished the year in 11 states.
We expect it to be maybe 25% to 30 this year.
That's being driven by Blue cloud just based on the approvals they get and how quickly they can get into those states, but thats sort of the plan in terms of how we're performing in those 11 states it's essentially.
And 12 pack, there's some there's a 24 ounce single serve if you look at 12 pack. The sales per point is in those states for the 12 pack is number one in F&B ahead of twisted tea ahead of Mike's head of everything so it's turning.
The repeat rates are as high as about as high as anything we've seen.
And beyond beer launches in the last couple of years, So we feel like the consumers there.
<unk> is an everywhere, we know that so there's generally a large format stores right and it's not up and down the street.
The distribution is still being built out so on kind of a.
A below average distribution footprint that the brand is performing well and honestly. We're just it's going to go where it goes this year, we're not there could be upside there, but we're not planning for any of it we're going to it has to get distribution.
<unk> cloud and as it does.
We do our thing and we do the marketing and we get good response on that so.
As you know theres been a lot of resistance to that.
And.
As it works through we will see where it ends up at the end of the year, but again there will be.
Where to go from 11% to 15 states.
And the next couple of months, so we know what we see in <unk>.
Pretty soon and hope to be 25% to 30 before the end of the year.
Okay. Thank you.
And the next question comes from the line of Brett Cooper with consumer edge. Please proceed with your question.
Thanks, Good evening, just a question Chris truly in the bottled spirits and good luck.
Talk about that.
Just if you step back and think about long term is that a model that you think is applicable for other parts of the beyond beer the fourth category to grow household penetration.
Acceptance.
Hey, Brett. So you mean, you mean, taking other brands into into spirits place like maybe non non hard seltzer brands into spirits.
Yes.
Yes.
I think it's TBD I mean, <unk> and Theyre now I'm not sure how that's doing I think people will try because clearly there is there is interest in this space.
You can put you can fix vodka and pretty much anything.
So there very well could be I think.
At the end I mean at least at this moment what seems to have the most promise is.
It's really market based not even to Q I mean, Buck is like 80%, 90% of that space. So any kind of very clean simple backer base.
Beverage that delivers.
Chris taste and variety of flavor is could be successful. So I would I'm just given the way things are converging now nothing would surprise me. The question is ultimately what what.
What's going to be successful I think and to go back on the truly thing I think for truly we really think truly can as a brand and we're building the brand that way with that thought in mind, not just trying to bolt it on to a new idea, but we think it can play in the intersection.
Freshman session ability and variety.
And that works for us.
For Super Spacer worst for Bakken works for to cure.
<unk>.
So we feel good we feel that's a good fit others there might be other good fits too but.
So I guess it will be seen part I'm sure we'll be seeing everything this year.
Get a sense of what what might work.
Great. Thank you.
Okay.
And the next question comes from the line of Peter Grom with UBS. Please proceed with your question.
Thanks, operator, and good evening everyone.
I guess I just wanted to ask about what's included in the outlook from a truly <unk>.
Share perspective, and I know you are trying to embed some degree of concern regenerative medicine, which is certainly fair, but I guess I'm just kind of confused as to why the high end of the guidance would really only embedded kind.
Performance in line with category growth just given the relaunched the marketing push I would imagine it's not a reflection of your confidence, but just maybe I would love to get some views on the reasoning and I guess.
Building on that if the relaunch goes as you plan internally what would that really look like from a growth perspective for truly and then maybe on the flip side of it.
If it doesn't go as well as you think and share losses tend to continue how do you think about the future.
Of the brand or what can you really do differently down the road. Thanks.
Okay. Thanks, Peter I think I mean, I think again, we shall we learned a lot we learned.
We paid a lot of attention, we internalized and reacted and I think the changes that we talked about today. We think are the right exact rate changes to get the brand back on track and again remember this brand groups share every year until last year when we can.
This whole idea of innovate and innovate and having to lap the innovation finally kind of collapsed on us. If you will so right now we're taking a step back we're not innovating now behind Margarita Margarita was a five share at this point exactly a year ago. It was a five share. So that's a lot of lots of overlap and.
So we don't expect to be gaining share in the first quarter and we think hopefully by the end of the second quarter is going to be looking better then that will carry on I think it will meet our expectations, we will grow and it's not in the high end, because we're being cautious I think.
We've also learned in the last couple of years to be a little more cautious in how we predict the category and the brand. So if but if it's successful we think we can grow share gain we've been growing that up until last year. We think we're putting the brand on the right pathway to grow share again, so if we do great and where we are.
It might be beyond the high end of the range. If we if we grow share if we and if we don't.
We hold share and if we if we do worse, we'll lose a little share, but remember it's still for perspective, and we won't be believe me, we're not going to be happy if we lose share.
For perspective, it's still <unk>.
$23 25, a share of the cabinet category and the number the number three is a six so it's still we're we'll keep we'll keep at it if we don't grow share. This year will still find another way to do it next year, but we do feel like.
We don't want to create too much change either with this brand we don't want to confuse consumers. That's a risk if we do too much change, but we feel like we're doing the right things and the right amount of change at the right time to ticket to put the brand in the <unk>.
In the right place.
To grow and that's so that's our intent, but again, we're being we're not letting any exuberance about our plans affect how we how we guide this year honestly we're not.
Okay. That's really helpful. And then maybe just one last one following up on Bonnie's question just.
Any thoughts on kind of monsters.
New product.
Im used to be and it seems like it would compete directly with kind of our mountain dew.
Any thoughts on the competitive side of that.
Category Andrew Thanks.
Yes.
They're a great company.
We've built a great brand and I think the big question, that's looming out there is what what.
What non out brands can playing out successfully and right now the answer is zero at this point.
But a year from now we might there might be one or two that emerge I think it's too it's totally to be determined.
I think we will see what the how the consumer feels about it its very.
I think honestly I think if I think <unk> is a really good chance to be successful knowing the brand in the in the cult following and how it plays.
So let me monstrous Champs too, but I think it's we haven't even really probably hasnt appeared on the shelf yet we haven't tried it yet so we're not quite sure where it's going to go up is going to be interesting to see I'll say that.
Thank you so much.
And the next question comes from the line of Bill Kirk with Roth. Please proceed with your question.
Hey, everybody I'll be quick.
It builds on some of the third party conversations.
Longer term how much of your needs do you want to do in house I think that was the reason for getting to 50% over time is basically not not paying someone else for some some of the things they do today and related how much excess capacity do you have now that you would be using if not for extra fees on the volume <unk>.
<unk>.
So.
I can answer the first question. The idea is that we have but we use our own internal breweries to full capacity and will use than our external.
Our <unk> for everything else that goes beyond that now the internal capacity. If you recall will increase over time, that's part of the gross margin improvement.
Yes.
And the new lines that they are running at lower efficiencies.
If he could get them up there.
The size of the capacity increase that will happen in currently in our breweries.
But with that even with that we intend to run them at full capacity and everything else goes external within external.
We're also lowering the costs we have.
And while we have a partner on the west coast that has very competitive prices.
Yes improved variety packing capability.
We will have in city that will lower the cost as well if the volume growth we put more volume.
The facility itself.
Again, the strategy is to use our own breweries and then use the external breweries, but lower the cost and the external brewery, that's the high level the high level strategy.
The second question item.
Fully understand to be honest because.
So Dave.
It was related to the open capacity that we had in our internal growth, but didn't use because of volume planning.
I don't want to specify that I think.
On the Q4 would've been.
Middle of the high end of the gross margin range without those issues.
But just to clarify the idea is would you be doing more in house, if not for the third party commitment, meaning would you would you bring some volume from those.
No.
But the fees. If you did that are just too high and not worth it.
Well Im sorry, thanks for clarification no.
The internally.
The best incremental costs that we can get in our internal facilities.
Okay. Thank you.
And as a reminder, if you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the queue.
The next question comes from the line of Gerald Pascarelli with Wedbush Securities. Please proceed with your question.
Hi, Thanks, very much for the question.
Mine is on the pricing outlook of plus 1% to three points just maybe if you could provide some more color on your decision to not take more pricing in particular, given the continued margin headwinds.
And the increases that you were.
To successfully pass through in 2022, I guess like I know this is initial guidance, but as we look at it. It's just trying to understand if there's upside.
Two the pricing as we look out over the course of the year. Thank you.
Yes so.
On the pricing guidance.
We have had pricing in 2022 and as we said in previous calls.
We tried to cover the commodities to increased commodity inflation.
We did successfully.
We're happy with the pricing.
There's the additional pricing that you see to the largest extent is really carryover pricing that we implemented in 2022.
At this point.
We want to be careful.
We're planning to cover in 2023, any additional commodity increases, but we see.
If you look at the total cost that.
That we are exposed to.
See that environment moderating a little bit.
Products that are going up but the other parts that are moderating and at this point we believe.
With the guidance that we have will be able to cover the incremental commodity costs if that changes we'll revisit.
But given also the competitive nature and like the consumer environment, we don't want to over extended that.
Got it thanks very much appreciate it.
Alright.
And at this time there are no further questions I would like to turn the floor back over to Jim Cook for closing comments.
Thank you everybody and we'll speak in a few months.
This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.
Okay.
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