Q2 2023 Boston Beer Company Inc Earnings Call
Okay.
Greetings and welcome to the Boston Beer Company second quarter 2023 earnings call. At this time, all participants are in a listen only mode.
A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded it is now.
My pleasure to introduce your host Mike Andrew Associate General Counsel and corporate Secretary.
Mike you may begin.
Thank you good afternoon and welcome. This is Mike Andrews Associate General Counsel and corporate Secretary of the Boston Beer Company.
Pleased to kick off our 2023 second quarter earnings call.
Joining the call from Boston Beer are Jim Cook, founder and chairman.
Burwick, our CEO and Matt Murphy, our Chief Accounting officer, and interim CFO .
Before we discuss our business I'll start with our disclaimer as we state in our earnings release some of the information, we discuss and that May come up on this call reflects the companys or managements expectations or predictions of the future.
Such predictions are forward looking statements. It's 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.
The company does not undertake to publicly update forward looking statements, whether as a result of new information future events or otherwise.
I'll now pass it over to Jim for some introductory comments.
Thanks, Mike.
I'll begin my remarks. This afternoon with a few introductory comments and then hand it over to Dave who will provide an overview of our business. Dave will then turn the call over to Matt who will focus on the financial details of our second quarter results as well as our outlook for the remainder of 2023.
Following matts comments, we'll open the line for questions.
Our second quarter Depletions decrease of 3% on a fiscal calendar basis and 7% on a comparable week basis was in line with our expectations. We saw strong performance in our largest brand twisted tea and we expect its continued success to have an even larger impact.
Our overall growth rates in the second half.
In measured off premise channels twisted tea continued its strong dollar growth up 38%, which was offset primarily by continued declines in truly hard seltzer.
We are making progress on operational plans to enhance our margins and began to see some benefits this quarter, our multi year initiatives to simplify our operations by mastering the complexity of our business and to align our cost structure more closely to volume.
Expectations are progressing well.
We are focused on keeping the strong momentum behind twisted tea and improving our truly trends, while continuing to invest broadly across our entire portfolio and a new innovation with the goal of returning our company to long term sustainable growth.
Based on our second quarter financial results, we've established plans to invest incrementally in media behind our twisted tea and truly brands starting immediately.
We are thankful to our outstanding coworkers distributors and retailers, who continue to support our business. We are proud to have just been named the number one beer industry supplier and the Tamron survey the annual poll of beer distributors conducted by Tamara on consulting a consult.
<unk> firm specializing in the alcoholic beverage distribution industry it.
It is our six number one ranking in a row and 13th in the last 15 years. This is a result of the efforts of all Boston beer co workers to service and support our distributors' businesses and to the strong relationships, we've built with them over many years.
We continue to believe that we have the best group of distributors in the beer business.
We believe that the beyond beer category, where we have an advantaged portfolio will grow faster than the traditional beer market over the next several years, we expect the operational changes we are making this year combined with our history of innovation strong brands and our top ranked Salesforce will help.
Lead us to long term success, our strong balance sheet enables us to continue to invest in our brands and has allowed us to repurchase over $50 million in stock thus far in 2023 I.
I will now pass it over to Dave for a more detailed overview of our business.
Thanks, Chad and good afternoon everybody.
As Jim mentioned, our second quarter volumes were in line with our expectations, our fiscal calendar quarter Depletions decreased 3%, while our comparable weeks depletions decreased 7%.
The timing of the July 4th holiday relative to our 2023 and 2022 fiscal calendars.
We improved our overall financial performance during the quarter and achieved gross margins of over 45%, while generating approximately $120 million in operating cash flow.
Now I will discuss the financial results in his remarks I'll focus my commentary on our operating performance.
Our strategic priorities remain unchanged, we are focusing our resources on sustaining tourist cities industry, leading growth and turning true as volume trends.
Our supply chain performance to enhance our gross margin.
More funds to invest in our brands and our top ranked industry sales force.
As Jim also mentioned, we're encouraged by our second quarter financial performance and we are investing in incremental media to further fuel <unk> growth and moderate truly has to clients. We're doing sell immediately to create an impact over the next several months.
I'll now provide some color on our brands.
Twisted tea accelerated its growth trajectory in the second quarter with 38% dollar sales growth, while adding 3.3 dollars share points and expanding its overall share leadership to 27% of total F. N B dollar sales in measured off premise channels.
The robust demand as a result of balanced efforts are growing both physical availability.
Improved geographic channel and package distribution and mental availability.
Highly effective brand building campaign increased media investment and optimize packaging design that highlights the brands distinctive assets.
While we struggled to keep up with demand for the twisted Tea Party pack that is now the second largest in the fastest growing SKU among all F. N B's, we've improved our overall service levels versus the first half of last year and can support further growth acceleration.
We remain confident that twisted tea will sustain the strong double digit growth for the remainder of 2023 for many reasons.
First theres upside in growing brand awareness and household penetration and we know our AD campaigns working.
Second brand is underdeveloped with black and Hispanic and Latino consumers, but we're now seeing large household penetration increases as a result of our marketing efforts.
Third there is still ample room to expand distribution across channels and packages.
Our other F&B competitors have far more presence.
This includes on premise, where twisted tea as close to a 60 share of F. N B's and has driven the fifth most incremental cases year to date of any brand family across total beer.
Additionally, twisted tea finished the spring space reset season, with a 49% increase in shelf space and those benefits will continue to fuel the business during the balance of the year and into 2024.
Fourth theres opportunity to widen the brand's presence in underdeveloped markets from Florida to Texas to California.
Fifth we're still in the early stages of twisted tea lights for national launch and the sales per point of accelerating and exceeding our expectations and it's proven to be about 85% incremental to the twisted tea portfolio.
We've also expanded our life portfolio offerings with a new variety pack available in select highly developed markets and we're seeing some early success.
Lastly, we recently announced we're testing a higher ABV version of twisted tea in select markets. This summer called twisted tea extreme it is 8% ABV as part of our efforts to find future pathways to growth for all our brands by increasing occasions, and adding new drinkers.
Now on to truly <unk>.
We launched a major truly refresh late in the second quarter, including brighter easier shop packaging that calls out our product improvement with real fruit juice.
Our new more emotive and high scoring AD campaign called lightly fantastic increased media spend with a focus on digital and social and new wholesaler execution priorities that focus on are likely flavor lineup.
We now have full distribution of the new truly hard seltzer packaging interact campaign, that's been running for six weeks.
Our two new chewy Barker soda Skus and package design hit the markets starting in late June and we will continue its rollout into early August .
Additionally, during the second quarter, we launched the Red White and true lightly flavor variety pack limited time offering in support of our partnership is the first ever official hard seltzer, but U S soccer and received a strong in store wholesaler and retailer support.
While the brand remains down about $3 three volume share points year to date, we're seeing green shoots that we expect will happen accumulated impact and the balance of summer and into the fourth quarter for.
For example, our lightweight flavor lineup of variety packs has gained both volume and dollar share of hard seltzer in the past four and 13 week Timeframes, while 24 ounce single serve gained <unk> six share points in the second quarter, driven by our lead style WILDBERRY, which grew 16% in the last four weeks.
Eliminated fruit punch share losses stabilized during the second quarter, while the Margarita overlap and the ice tea discontinuation from 2022 are still weighing on total brand share and accounted for about 75% of the brand share losses year to date.
These overlaps will continue to moderate through the summer and drop off in the fourth quarter.
While we're disappointed that we've not yet stemmed truly share losses. We believe we've made the necessary changes to set the brand up for success and now need to keep our focus on the execution. We know our wholesalers are capable of achieving.
As evidence of our confidence in our direction, we're increasing our media spend for the balance of the year and will ensure that truly is on air every single week.
Only eight weeks since the refresh so we need to keep pushing hard with initiatives we've put in place.
Encourage that truly maintains the second highest sales per point in hard seltzer, 52% more productive than the number three brand in.
And the third highest sales per point in all of beyond beer.
There remains a strong consumer base to build upon.
Of note truly share position has improved by one point from March to June So we're trending in the right direction.
We recently announced we're testing a new truly tequila product in several markets. This summer as part of our efforts to grow the brand and all the occasions, where refreshment session ability and variety intersect.
While maintaining twisted tea is double digit growth and improving truest trajectory of our top priorities for the year, we have a broad portfolio and we will continue to support and build out our smaller brands.
Sam Adams is holding its own in a difficult craft beer category and will continue to invest behind our new remastered Boston Lager campaign, and our seasonal <unk>. In addition to our non Alco portfolio, including just the Hayes and the newly released <unk> Pilsner, which grew 94% in dollars in the second quarter and measured off premise channels.
Our Sam Adams, Boston Lager remastered program has improved Boston lager volume trends by six points and the total brand gained <unk> three share points of craft in the second quarter based on beer Institute numbers.
While truly makes a play in vodka and to Cuba, Selzer's Dogfish head is gaining a foothold in the traditional canned cocktails segment grew volume approximately 81% in the second quarter across all channels.
Yeah.
Turning to our supply chain.
We continue to modernize our supply chain through investments in equipment capacity and improved systems and processes I would like to probably discuss the status of the three categories. We focused on to drive improved margins.
The first category is procurement savings.
The targeted savings initiatives across multiple areas, including raw materials and packaging and achieve some benefit during the second quarter. We continue to review our contracts with our <unk> suppliers with the aim of adjustment needs to be more reactive to changing demand.
The next category is proving performance.
While we expect to always have a mix of internal and external production. We're focused on moving volume back to our internal breweries, where possible given our production cost advantage over <unk>.
<unk>, our mix in a disciplined manner and focusing on improving our internal lives stability and efficiencies as well as adjusting contracts with our co manufacturers as we adapt to changes in our volumes and product mix.
The final category is waste and network optimization.
We have initiatives to optimize our logistics, which reduce freight and warehousing costs over time.
Also as we discussed on our last call. We're currently implementing systems to improve our forecasting and inventory management, which we expect to reduce inventory obsolescence over the balance of the year.
We have multi year savings plans across each of these categories, which we expect to generate significant long term gross margin expansion.
Bob will take time to realize the full benefit we began to see some benefit in the second quarter, primarily related to procurement savings and expect to see further benefits in the remainder of the year.
We're also closely managing our operating expenses, we expect to use the cost savings that these efforts will generate to support increased brand spend and within brand spend both converting non working to working dollars and shifting our mix from traditional to digital and social media.
Now turning to guidance our fiscal week depletion trends for the first 29 weeks of 2023 have declined 6% from 2022.
We're reiterating our shipments and depletions expectation of down 2% to down 8% for the full year 2023.
Where we land within that range is dependent on a variety of factors, including the overall economic environment and consumer demand balance of the year.
Now I'll hand, it over to Matt to discuss second quarter financials, and our full year guidance.
Thank you, Dave and good afternoon, everyone.
As Jim and Dave mentioned second quarter volumes were in line with our expectations and we are in the process of implementing our strategies to invest behind twisted tea, while enhancing the truly brand proposition and improving our supply chain.
Fiscal calendar Depletions for the quarter decreased 3% from the prior year.
Reflecting decreases in our truly angry Orchard hard mountain Dew and Samuel Adams brands.
Actually offset by increases in our twisted tea and dogfish head brands.
Shipment volume for the quarter was approximately $2 3 million barrels.
A four 5% decrease from the prior year.
We believe distributor inventory as of July one 2023 averaged approximately three weeks on hand and was at an appropriate level for each of our brands.
Except for certain twisted tea brand packages that were below targeted levels due to higher than forecasted consumer demand.
Our second quarter gross margin of 45, 4%.
Increased 230 basis points from the 43, 1% margin realized in the second quarter of 2022.
This was primarily due to price increases and procurement savings, which more than offset inflationary costs.
<unk> promotional and selling expenses for the second quarter decreased $5 5 million or three 6% from the second quarter of 2022.
Primarily due to decreased freight to distributors, partially offset by an increase in brand and selling costs.
General and administrative expenses increased by $6 1 million or 15, 6% from the second quarter of 2022.
Primarily due to increased consulting and legal costs and higher salary and benefits costs.
For the second quarter, we reported a net income of $58 million.
Or $4 72 per diluted share.
<unk> to prior year net income of $53 3 million.
Or $4 31 per diluted share.
This increase between periods was primarily driven by higher gross margins and lower operating expenses.
Offset by lower net revenue and a higher tax rate.
Turning to guidance.
Based on information of which we're currently aware we are reiterating our full year 2023 guidance range of shipments and Depletions down 2% to 8% and earnings per diluted share of $6 to $10.
This projection is highly sensitive to changes in volume, particularly related to the hard seltzer category.
Supply chain performance and inflationary and recessionary impacts on consumer spending.
We project increases in revenue per barrel of between 1% and 3%.
Full year 2023, gross margins are expected to be between 41% and 43%.
Our full year investments in brand spend within advertising promotional and selling expenses are expected to increase between $20 million and $40 million.
Which is an increase from our previous guidance range of a decrease of $5 million to an increase of $15 million.
This guidance does not include any changes in freight costs for the shipment of products to our distributors.
We've experienced lower than expected freight costs year to date.
Which in addition to gross margin performance allows us to further support brand.
We continue to estimate our full year effective tax rate to be approximately 28%.
As you model out the remainder of the year. Please keep in mind these factors.
First our guidance on Depletions and shipments includes the estimated negative impact of approximately one percentage point due to the fact that fiscal 2022 had 53 weeks in fiscal 2023 will have 52 weeks.
On a 52 week comparable basis, we expect depletions and shipments to decrease between 1% and 7%.
Second the 50 <unk> week overlap is expected to negatively impact fourth quarter volume trends by approximately six percentage points.
Also as we had anticipated we finished the first half at the lower end of our shipment guidance range on a comparable weeks basis, we estimate that second half shipments will benefit from the expected continued growth of twisted tea, which is our largest brand the lapping of last year's truly Margarita launch in additional <unk>.
<unk> and advertising spend in the second half of the year.
And finally, our guidance incorporates an expectation of shortfall fees, which primarily impact the fourth quarter. Therefore, we expect year over year gross margin improvement to be lower in the fourth quarter relative to earlier quarters.
Turning to capital allocation.
We ended the quarter with a cash balance of $208 million and an unused credit line of $150 million, which allows us to invest in our base business fund future growth initiatives and return cash to shareholders through our share buyback.
For the full year, we expect capital expenditures of between $100 million and $140 million.
These investments will be primarily related to our owned breweries to build capabilities and improve efficiencies.
During the period from January <unk> 2023 through July 21, 2023, the company repurchased 161000 shares at a cost of $52 $5 million.
As of July 21, 2023, we had approximately $307 million remaining on the $1 $2 billion share repurchase authorization.
I will now pass the call back to Dave for some closing remarks.
Thanks, Matt.
As you may have seen from our announcement a few days ago. We're very excited that CAGR over now so will be joining us as our new Chief Financial Officer effective September 5th Pag.
Diego has significant financial and operational experience in the consumer industry, particularly the alcoholic beverage category.
And it will bring valuable perspective to Boston beer and look forward to introducing him to you on our third quarter call.
I'd like to take this opportunity to thank Matt for his leadership of the finance team and a strong partnership with me during the transition period, we're very fortunate to have Matt as a senior finance leader and we look forward to playing a significant role in our future success.
And now we will open the line up for questions.
Thank you we will now be conducting a question and answer session.
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One moment, please while we poll for questions.
Yeah.
Thank you. Our first question is from Nik Modi with RBC. Please proceed with your question.
Yes, thanks, good afternoon, everyone.
<unk>.
I was hoping you can just comment on obviously.
In the process of reset discussions with retailers in and Theres, just seems to be a lot of volatility in the industry with what's going on with Bud light and potential opportunities for perhaps some shelf space gains and so just wanted to kind of get your state of the union on how those discussions are going with with retailers, particularly as it relates to <unk>.
Julie and kind of what's going to go on with the hard Seltzer category. You can just provide any updates there. Thanks.
Sure. Thanks, Nick This is Dave Hey, Nick are you referring to this fall or next door next spring.
Yes.
Fall and spring because I know, sometimes these discussions tend to overlap so.
Yep, Okay that means spring, it's a little early for spring. So we're not there yet and I think it won't be until really like after labor day that retailers have the data that they need to determine what they want to do for spring, but as it relates to fall.
Of this year, there will be some changes, but we don't right now we're not and we know there's a lot of noise out there about what could happen. We're not hearing back from retailers is anything significant with different thats going to happen.
Fall, we do know I mean as it relates to us we.
We mentioned that we finished with plus 49% on twisted tea space.
That that will benefit us as the year goes on and that we have to.
Forest that and make sure we get compliance and make that work.
We don't necessarily see anything changing really with truly hard seltzer in the fall, but based on what we again based on our conversation we've had with retailers up to this point.
Great and then just as it relates to the consumer and Seltzer obviously.
It tends to be higher priced relative to beer or some of the work we've done would suggest that.
There was some shifting of consumption.
Especially with older consumers out of Seltzer and into beer I'm just.
Promotions seem to be ramping at least from what I'm hearing in the industry I just wanted to get your state of the Union on.
Kind of how you think about the promotional environment right now.
Yes, I think I mean, if you look at the business or kind of data you don't see a lot of promotional activity built in there is I mean, there is digital couponing and other things going on to create value.
That's out there, but I wouldn't say, it's extraordinarily different than what it's been in prior years and I think you're right. Nick I think when you look at the pricing on.
In hard Seltzer, the gap to imports into premium beer light beer has has increased pretty continually over the last two or three years and the gap actually on the other end to RTG cocktails has actually shrunk. So it isn't a sort of a place where you probably don't want to see it to go much higher but in terms of like.
Mass promotional stuff happening, we don't see it I mean, occasionally things will happen in certain markets, but it's fairly limited at this point.
Great. Thanks, I'll pass it on.
Thank you. Our next question is pretty good in Asia with CD Cowen. Please proceed with your question.
Hi, Good evening. Thank you for the question.
I'm just trying to reconcile the unchanged guidance on the top and bottom line relative to the $20 million in incremental A&P at the midpoint of the range, but recognizing the topline, but expect it to improve in that 'twenty three and that was always part of the plan and then just want to better understand your confidence in holding EPS range given that if my math is correct.
$40 million incremental A&P low point of $1 50 had run to EPS and certainly would be more than that if you took the extremes of all the new guy so any incremental color that would be helpful. Thank you.
Sure Hi, Vivian it's Matt.
We feel good about our overall guidance certainly on the on the top line.
The range is between the 2% to 8% and and.
It's not there's no magic in it as far as achieving the middle of the range. If you just keep.
Looking looking at the trends.
<unk>, which is a little less than 30% growth and then truly which is probably a little worse than 30% decline if you extrapolate extrapolate those out.
To get to be a bigger bigger part of the mix.
You get overall company.
Decline of minus two for the back half of the year. So that that probably gets you to the middle of the range. So I feel good about about that.
We could have tightened it a little bit but it just felt like.
These two brands that are that are moving in different directions and that we still have a couple couple months left at the peak.
Season, we felt that that range is still appropriate.
As it relates to.
To margins.
We were at the $40 42.
Better than 42.
For the <unk>.
First half of the year.
So we're seeing the same type of.
Achievement during during the second half and then.
On the on the operating expenses.
Important.
Adam is we're seeing a lot of freight savings.
So to keep it real simple the freight savings that we're seeing both in the first half of the year, which we realized which is which is off the prior year about $28 million.
We're looking.
Looking at that along with.
Other operating expenses for the second half of the year and where we're investing in the brand. So that's that's the reason when we give you guidance on.
On Atms, we exclude the freight components. So I think I think the freight component will get Ya.
Two.
To.
Reconcile that difference.
Does that help.
That helps a lot. Thank you very much for that clarification and just quickly as a follow up with you.
Numerator.
Three strategic priorities in terms of driving medium to long term margin improvement.
Those come in quicker than expected. Thanks.
Okay.
Okay.
Which part I'm not sure I got caught that question of which priorities you're referring to.
Sorry, yes, no you've laid out kind of three key initiatives to drive gross margin improvement over the medium to long term and I'm just wondering whether any of those are hitting a little bit odd.
With an expected relative to your initial guidance sure.
Sure sure Vivien I'll take it.
It's Matt again, the the three key items.
Savings of brewery performance, the waste and network optimization.
You talked about those as sort of equal opportunities that get us from around with.
Low <unk> to upper upper Forty's.
Over over the next.
Three to five years.
We've seen some benefit in procurement savings.
You can see from the Q2 results that we were.
Yes.
Realizing some of that benefit in that as we sort of signaled that was going to be our first.
Area, where we thought we'd be.
You'd see it hit.
And then.
<unk> performance has stabilized.
Stabilized.
And we're not having the same one off items that we've had in the prior quarters.
The margin in the high <unk> in achieving the 45 just gives us.
That.
Things are more stable.
So.
Good good progress on the procurement savings.
And both brewery performance in waste and network optimization of our little longer term, but but.
We're happy to see that there.
Not negatively impacting the margins at this point.
Absolutely that's very helpful. Thank you.
Thank you. Our next question is from Rob <unk> with Evercore. Please proceed with your question.
Great.
Thank you very much and congratulations to you and your team on another great result in the Tamron survey.
So first.
Yes, just.
Kind of looking at looking at the hard Seltzer category as a whole.
Are you surprised.
The category.
Seem to benefit at all from the Bud light controversy.
So that would be question number two and question I am sorry question number one one day and question number two is on the second half margins.
If you excluded the shortfall fees would they be how would they compare to first half margins. Thank you.
I could take one I want to answer the first one and then I'll take the second method and Jim and Jim can maybe Jim May have a point of view on the Bud light what I think I think we're not we're not that surprised because when you look at the fee.
The demographics to geographies and such.
Although it might be struggling those are those are really hardcore white beer drinker. So we're not we're not shocked that it's good that it's going.
Basically more back into what into white beer.
I mean, there is another factor that plays on the whole hard seltzer piece as well, which is obviously our Tvs, if you throw our Tvs and rob into that into that number so I think.
It <unk>.
According to <unk> I'd like to call it 23% volume decline year to date on hard Seltzer Rtd's would add.
Probably six points of volume on top of that to the benefit. So you have a lot of dynamics at play, but but we're not we're not really surprised.
About the volume not coming back.
Straight to hard Seltzer.
And Jim why don't you I Wonder if you if it doesn't thoughts on that if not we can back and take number two.
Just secondly, when you said it seems like the beneficiaries of the Bud light.
Yes.
The issue of I'll call it.
Our near in Coors Light Miller Lite, even past yingling.
The near in substitutes, and we never had that much interaction with.
Yes.
The hardcore light beer drinkers with truly in a nice cadence the rest of light seltzer.
Okay.
Great.
On the second question Rob.
You can see through our through our 10-Q filing for the shortfall fees were estimating for the second half of the year about $9 million.
So I guess, that's about a point of margin we feel like.
Our progress was demonstrated in procurement savings and the.
General inflation and commodity environment.
<unk> will offset that so that that allows us to.
Offset that impact.
And then just one other on the margins did the fourth of July timing.
<unk> impact the margins in the second quarter at all.
No.
Bit of a benefit on volume and shipments, but no impact on margins.
Terrific. Thank you very much.
Thank you. Our next question is from Nadine Sarwar with Bernstein. Please proceed with your question.
Okay.
Hi, Good afternoon, everybody two questions from me one could you comment on where your capacity utilization is today are you still under utilizing both internal and external capacity.
And then curious I know you called out a number of changes you've made to the Trulia brand family.
Thanks to drive improved performance, although it does look like the brand is still struggling when we look at track channels and she'll be happy to provide some color behind your conviction that truly can see improved performance over the remainder of the year. Thank you.
Hi, <unk>, it's Matt I'll take the first one and then Dave David will take the second.
So on internal and external.
Our model is to is to fill our internal breweries.
Yes.
I wouldn't say, we were at 100% capacity, 100% capacity, but we try to.
Keep them, Paul and well over 90% so.
That's the model.
And then what.
The excess.
Goes to external and that external.
Given where.
Where we were.
From from a volume perspective, a few years ago and the expectations. We have we have some significant capacity.
Externally assured.
We returned to growth, which is what we intend to do.
So.
It's hard to put a number on how much external capacity, we have available, but we have quite a bit and we feel like it's.
It's a good insurance policy for when the company gets back to growth, we'll have that capacity, we won't we don't need to enter new contracts or.
Or.
Go out and try to.
Contracts for additional capacity.
Okay, Dave here I'll try to I'll answer your second one I think I mean, the intent of the truly refresh program was really too.
The slowdown on the hyper innovation behind the brand and make the brand is easier and easier to understand quite honestly and so theres a number of things I won't go through the whole litany, but the package redesign to really make it easier to shop and easier to find and deliver those does refreshment queues new AD campaign.
We are stepping up the ads, we have stepped up the advertising investment and now we're as we've mentioned on the call we're going to step up further for the for the balance of the year.
And really the focus has been bringing attention back to the core so the bolder flavors have been important they're more than half the brand.
We spent a lot of time and a lot of effort in the last couple of years trying to wrap that innovation and to focus on those flavors. The effort thus far over the last call. It eight to 10 weeks really in market has been to focus on those three core 12 packs at the very the tropical citrus and also our single serve and and if you look.
The results I mean, you don't and again in a declining.
Category like this with a lot of change to be done it doesn't happen overnight, so but what we do like is when we look at where we've been over the last eight weeks or so and I guess I'll try not to repeat what I said in the script, but the.
Those core $3 12 packs are actually growing share for the last four weeks. The last the last 13 weeks, they're growing share which is important it's very important also if you look at our single serve and convenience.
Fiscal 'twenty four ounce, it's actually gained share.
The gain in share really since April and so part of that was really actually fixing the mix. So if we had three skus.
And a convenience store two of them would be bolder flavor, one would be wider now it's <unk>, we're getting the mix right.
We are still down 3333 share points year to date, but sequentially. We are starting to gain share against since April we gained about a share point.
We still have a significant delta between us and number three so we're 18 share points away from the number three player which is about exactly where it was a year ago. At this time, so and the last thing I will say when you look at the Margarita overlap.
And the discontinuation of T year to date, that's about 75% of our share loss, okay. So and that that will definitely moderate as I mentioned also earlier in the call as the year goes on particularly as you get into the fall it will moderate.
So for all of them for those reasons and others.
We believe that we will continue to make progress and we will get this brand back and ideally and we're not going to grow share when the year is over but ideally, we're we're close to growing share.
But as we get into the fourth quarter based on all of these initiatives.
Understood. Thank you very much.
Thank you. Our next question is from Bonnie Herzog with Goldman Sachs. Please proceed with your question.
Alright, Thank you hi, everyone.
Had a quick clarification question on your guidance I just wanted to clarify if you're reinvesting 100% of the lower than expected freight costs and improved gross margin performance.
Luncheon backing to your business in the form of incremental media spend or do you plan to let silos.
Those backlog flooded the bottom line.
Yeah.
Hi, Bonnie it's Matt.
I would say the majority of the freight savings are going to be invested in.
In media.
But those are decisions that.
We will make over the second half of the year certainly.
We want to make sure that we're confident in the.
And the investments and the plans that we have so.
We currently have that those dollars allocated for that but we'll see what what we spend and what we what we bring to the bottom line should did that come about.
Bonnie This is Dave if I could just build just before you ask what I'm going to ask another question I can tell before you do I mean, I think it's we feel really good about this investment because first of all twisted tea Theres about 100 reasons why we should be investing even further and this brand has got the momentum it's got a great message.
And there's still a long way to go in terms of household penetration and brand awareness et cetera. So we feel terrific about that and for truly we feel like we've got everything lined up now the way it needs to be and so now we just need to bring the message to people and we need to create.
Better better better awareness of our changes and we have a campaign that we test pretty rigorously also tested very well. So we're being very thoughtful about how we were making this investment and we're thinking about it.
We're breaking it down by geography by consumer etcetera to make sure we get the most.
And the best return we can on this investment, but we really believe now is literally like right now not in September but now is the right time to do it and that's why we're moving forward pretty quickly with this investment.
No that's helpful and definitely I understand the confidence on the context that yes, I did have another question if I may.
Just trying to get a sense of.
Started chili's declined in the quarter and.
Those declines moderated versus Q1, so I know you've talked about some of the green shoots.
But just maybe in total and then yeah.
Jeff I wanted to clarify something as we've talked about this before about your guidance and what it implies for Chile. This year could you maybe update us on that and if that's changed at all.
In your press release, you called out that your guidance is pretty sensitive to any potential changes for the hard seltzer category and maybe help frame that for us as well in terms of your latest expectations for the category.
Okay. So I think.
The first part of that question was just more about how truly change from I think from a share perspective, we're seeing as I said before we're seeing that core the core business of the lighter flavors improving their share position and were seeing single serve improving its position as well.
We're seeing the bolder flavors share loss moderate and then we're sort of right in that curve.
Marguerite.
Our Margarita, which will which will diminish over time. So in terms of total volume change. If you could look at if you could look at <unk> and Nielsen It probably hasnt changed much.
Between Q2, and Q1, I think it's for balance of year or not.
Based on that guidance, we're not expecting it to change much either necessarily we're not so.
We don't have some some high hurdles are unrealistic expectation for what's going to happen in the second half versus what's happened in the first half.
We hope to beat that and again I think the category is probably going to be volume wise, let's say minus 20 to minus 25, right. So right now it's minus 23, so thats, probably a fair midpoint for where we'll end up.
And it's something that we would be we would be between minus.
But the category growth rate I'm going to be straight with you because there's.
There's too much ground to be gained here, but.
We wanted to be as closely as we can we think in the second half the ideas to basically by the fourth quarter as I mentioned, we should be at least holding share across the board and ideally in the fourth quarter, but again, that's a little bit aspirational it depends on where the numbers come in but we're not expecting like a big a big.
Huge change in the second half in terms of truly depletions.
So that's what's baked in but then like you mentioned as you step up spending maybe right behind <unk> language and ensure it is it's kind of an insurance policy and a way to help maybe to not to nudge. It to nudge that forward. It just gives us more confidence that we're going to get to the finish line, we want to get too.
Okay sounds good thank you for that.
Okay.
Thank you. Our next question is from Eric <unk> with Morgan Stanley . Please proceed with your question.
Hey, good afternoon, everyone.
Couple of questions.
<unk> with.
A follow on to Bonnie's on your initial expectations, if I remember correctly, the expectation was that twisted.
Growth will moderate somewhat in the second half as you lap some of last year's distribution gains.
Given the robust growth that you've had so far year to date.
And the additional media how a heavier second half plans for twisted changed are you still looking for a material slowdown there.
Or do you think it could maintain this kind of momentum into the second half.
Okay, I think I mean.
So the first half of the year I would say that twisted tea has exceeded our expectations of growth. So we don't foresee and don't want we're not planning that was kind of sustaining the same growth rate balance of year, we don't see a material slow down depends how you define material, we don't see as material, but we do see a bit of a slowdown if you will.
Look at last year.
The fourth quarter last year the brand decelerated so.
It's not a huge sound like we have a big overlap we have a reasonable overlap to hit but we are just going to keep doing what we're doing and we'll see where it ends up but.
We're not we're not going to be surprised if it slows down a little bit because we can't sustain it.
It's unlikely to sustain this 30% growth rate on a larger and larger base like this.
Does that makes sense.
Yes, that's helpful. And then wanted to come back to the gross margin question.
On your first half was a little over 42 your guidance for the full year is 41% to 43.
<unk>, which is a pretty large range considering the years have done.
You're above there.
Above the mid point to the first half.
I guess, maybe can you talk about.
Areas, where you have visibility and where you may be don't as it pertains to the short term margin picture and then somebody asked about the confidence in the in.
In the longer term.
Getting back to the high <unk> low <unk> and gross margins, though.
Figure, it's my turn to ask that.
Does your progress to date with respect to.
The supply chain savings and procurement savings increase your confidence in getting there.
Or I guess.
What do you see as the key the key swing factors.
Yeah, Hi, Eric it's Matt.
Just.
Overall, we've been through this is the best margin we've had in two years. So we're at 45 and that was that was that was a.
A lot of work took a lot of work to get there we've had probably more quarters with high <unk> over the last eight quarters. So it's.
It's a great sign that our.
Our plans are working.
When we talk to them.
But for Q1 it was.
We got a lot of great plans, but we've got it we've got to demonstrate that they can be successful so.
We feel like this is a good step forward.
And certainly the procurement savings are probably our best.
Your line of sight.
In Q2, they offset any.
Many of the inflationary.
<unk>.
Impacts, which was which was good but pricing sort of flow through.
<unk>.
So we're building our confidence.
But it is one quarter so.
We feel like.
We.
The 42.
That we demonstrated for the first half as Dennis.
I can tell you that for the for the second half of the year.
But we've.
We've had a lot of surprises.
In the past eight months and we're just just trying to be as prudent.
And.
Continue to demonstrate some some slow progress in this area.
Great. Thanks, I'll pass it on.
Thank you. Our next question is from Brett Cooper with consumer edge. Please proceed with your question.
Good evening, just a question on truly.
How do you guys think about or frame how extendable the brand is whether that be.
In flavors are alcohol levels, and then I guess do you take lessons or learnings from what you did on truly in your phasing or your pace of that extension. Thanks.
Okay. Thanks, Brett.
<unk>.
We do think I mean, I think truly can play where <unk>.
Session ability refreshment variety all intersect.
And so that's why we're that's why we're in vodka, that's why we're testing to cure.
And we think that we think the brand.
Can play in those in those spaces pretty well.
I think within the category the category is everybody knows exploded so quickly and.
It just became a gold rush to get as many skus as many flavors out there as possible and I think in the end it probably wasn't good for a lot of brands and I think we're pairing may be overextending truly I think we would take that learning sugar with us twisted tea and interest in <unk>.
We have we have a lot of room to extend we are in we're testing.
The high Alch version of that we're doing that very carefully and we're not we don't know which way it's going to go and we're not necessarily in our minds thinking we have to do a b or C. As it relates to <unk> because one of the strengths of twisted tea is that it's a very simple idea.
And there's always a risk to overextend. So I think yes, we've learned a lot from the from the hard seltzer.
Story, and I think we're actually applying that everyday as weak as we prepare and get truly back on track as well as how we think about <unk> I think actually maybe Jim Jim probably has some good perspective on this because he's seen you've seen as you've seen this rodeo paradigm. This rodeo before Jimmy.
Jim you want to do you want to add to that.
Yes.
One of the unique features of hard seltzer.
We've never seen before and it's fairly rare even in consumer products as the core Skus were all variety packs.
Quite unusual, especially.
Especially in beer so.
With truly are.
Our belief was it can go into more varieties.
A part of the appeal of the category is a fair amount of variety. So I think thats always going to be there.
With truly.
It's not exploding anymore. So we don't feel like we need to bring out a new flavor.
Or two every year, but we do think.
That the seasonal variety packs will probably be.
A permanent part of the brand.
With twisted tea, it's been kind of the opposite.
Always been led by twisted tea original.
We're 23 years now into the brand.
And we're just beginning to test a different.
Alcohol level.
We have introduced other flavors, but.
Fewer of them in 23 years that we did in the first three years with truly.
There are some lessons and each of them that apply I believe differently does it too.
<unk>.
They're both in F&B type brands, but.
The consumer basis.
Much tighter than what they are looking for with twisted tea.
Okay. Thank you.
Yeah.
Thank you. Our next question is can Peter Grom with UBS. Please proceed with your question.
Hey, guys. This is Brian Adams.
Thanks for taking the question. So first apologies if I missed this in your response.
One of the other.
On the matter, but are you able to give us the rough.
Numeric sense of how much of a benefit you thought into margin from those procurement savings just trying to think about how we should think about those savings in the downhill and looking further out.
Yes, Hi, Brian it's Matt.
You, probably havent had chance to look at the Q, but I think we call. It out it's about an $8 million benefit.
In the.
First half of the year so.
That's what we've seen it offset.
As we've said on prior inflationary impact so that's.
That's the details okay.
And then one more just just longer term thinking about the March back to 50% gross margin.
Obviously looking at just the complexity of the business.
In terms of the size of Trulia.
Adam.
I have changed pretty meaningfully here over the last couple of years, so it's a bit of.
Boston Beer 101 question, but is there a demonstrably different gross margin you see in those products or are they pretty pretty comparable.
Yes. Thanks.
They are different.
Factors for truly there is theres more variety packs.
Four.
For twisted tea, there's more 24 ounce.
So generally they are there they are the same.
Some of it just depends on the mix.
Between the various different packages.
But we operate our business.
All our products generally in the same same margin.
Zone so.
Just think of them as having similar margins.
Awesome. Thanks, guys.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is in the question queue.
Our next question is from Philip <unk> with Citi. Please proceed with your question.
Hey, good afternoon guys.
Question on twisted tea clearly this year, you've made significant gains from a distribution standpoint.
As you think about the full shelf space reset what kind of visibility you have that you can get further shelf space next year, particularly as competition heats up in a hearty.
Category with new entrants and new launches have been a mouse.
And so we're.
As I mentioned, we're picking up a lot. This year I think even with that whenever that 49% increase our space to sales are still under represented so we still arguably could could could advocate for more so.
And I think.
I don't think we compete more with.
More than just the other tea brands is really within FNB plant. So.
We will see how we I mean, if we continue on the same pace of growth. We have a good we have a good story to take two or to our retailers next year to get to get more.
Okay.
Got it okay. Thank you and then on the.
The extensional truly can you talk about like how truly vodka saw how to launch it.
That's gone relative to your initial expectations and.
Maybe give us some more color on the tequila experimentation with truly like one expected to launch in your initial expectations for that as well.
It was the first question about the show was about the margin as if it was that.
The question now.
No sorry, I was asking about truly vodka soda.
Relative to your expectations and I'm sure a little more color on the tequila.
Yeah, I think we're I think if you look at the on the buckets about.
Isn't it about three share of.
A blocker based spirits.
The number four brand it's a different it's a different channel it's independents as liquor stores. It's a new it's really a new frontier for us and I think we're making progress, but we're not we haven't knocked it out of the park yet, but we are getting a great response to the new products.
Two new variety packs, we put in the marketplace. Just recently, so we feel great about the product we feel great about the rebrand and now we've now it's just the hard work of driving distribution.
But so far we're getting good response from consumers, but but it's not an or it's not going to be an overnight thing, it's going to take awhile to get there, but we're committed to it because the reality is this is it sources from traditional hard seltzer occasions, and we need to we need to be in there.
<unk> just started maybe a few weeks ago in a handful of markets.
And now if you are in.
Rhode Island, or Delaware or.
Minnesota or la or San Diego, you can find it.
And again, it's just this belief that this brand and I think Brendan was asking the question before this brand can play in certain spaces, where it's about refreshment insertion ability and variety.
And we like we love the product, we absolutely love this product and we're seeing but we're we've learned a lot in the last couple of years, one of which is not too to launch too many things too quickly and also to do maybe test a little bit more.
Finally to get something to its optimum state before we go national and that's what we're doing right now so we'll see how it goes and depending on you know depending on the results in these lead markets will determine what we do with it next year. So we're hopeful and again this is the whole spirits pieces of different play for us.
We're committed to it.
Course, with dogfish head out theyre doing quite well and but it's going to be like a street fight is what it is but we're prepared.
The amount of if you have any other thoughts about this space.
No.
Obviously, a crowded and confuse space with a lot going on.
I think it's probably getting more attention.
Because it's new and and nobody is really sure where it's going to go.
Then the actual volume will merit for it.
<unk> certainly done extremely well, but after high noon the volumes are quite small.
And I.
Just all of these new brands being thrown at it and even from big named spirits brands, but their volumes.
At the end of the day are not going to be.
Would be large enough for them to sustain.
And the cold box, so there will be a warm shelf.
With a lot of these brands in the warm shelf is kind of.
Yeah.
It's not where you're going to get any volume.
In some ways the kiss Kiss of death, so there will be a big shake out I think.
And next year.
Thanks, guys.
Thank you there are no further questions at this time I would like to handle over to Jim Koch for closing comments.
Thank you.
We look forward to.
Yeah.
With.
Hopefully some.
<unk>.
Bunch of different things I hope, we can continue and we will see in three months.
Okay.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Okay.