Q1 2024 The Duckhorn Portfolio Inc Earnings Call
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Speaker 1: Good evening, ladies and gentlemen. Thank you for joining today's Doug Horn Portfolio Q1 2024 earnings conference call. My name is Tia and I will be your moderator.
Good evening, ladies and gentlemen, thank you for joining today's Doug Horne portfolio Q1, 'twenty 'twenty four earnings conference call.
My name is Tia and I'll be your moderator for today's call.
Speaker 1: All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad.
All lines will be muted during the presentation pushing up the call with an opportunity for questions and answers at the end. If you would like to ask a question. Please press star one on your telephone keypad.
Speaker 1: I would now like to pass the call over to Ben-Avina Tapper, please proceed.
I would now like to pass the call over to Ben Avina temper. Please proceed.
Speaker 2: Good afternoon and welcome to the Duck Horn Portfolios first quarter 2024 earnings conference call. Joining me on today's call are Deirdre Mullin, our interim president, chief executive officer and chairperson, Jennifer Fall Young, our chief financial officer, and Sean Sullivan, our chief strategy and chief legal officer. In a moment, we will give brief remarks, followed by Q&A.
Good afternoon, and welcome you to the Duck corn portfolio's first quarter 2024 earnings Conference call. Joining me on today's call are Deirdre Mullen, our interim President and Chief Executive Officer, and Chairperson, Jennifer fall Young our Chief Financial Officer, and Sean Sullivan, Chief strategy, and Chief Legal officer in a moment, we will give brief remarks followed by.
Q&A.
Speaker 2: By now, everyone should have access to the earnings release for the 1st quarter ended October 31st, 2023 that went out at approximately 4 or 5 PM Eastern time.
I know everyone should have access to the earnings release for the first quarter ended October 31, 2023 that went out at approximately 405 P M Eastern time.
Speaker 2: The press release is accessible on the company's website at ir.corn.com, and shortly after the conclusion of today's call, a webcast will be archived for the next 30 days.
The press release is accessible on the company's website at IR that corn dotcom and shortly after the conclusion of today's call and webcast will be archived for the next 30 days.
Speaker 2: Before I begin, I would like to remind you that today's discussion contains forward-looking statements based on the environment as we currently see it, and as such, includes risks and uncertainty.
Before I begin I would like to remind you that today's discussion contains forward looking statements based on the environment as we currently see it and as such includes risks and uncertainties.
Speaker 2: If you refer to Duckhorn's earnings release, as well as the company's most recent SEC filings, you will see a discussion of factors that could cause the company's actual results to differ materially from these forward-looking statements.
If you refer to Dow Corning earnings release, as well as the Companys. Most recent SEC filings you will see a discussion of factors that could cause the company's actual results to differ materially from these forward looking statements.
Speaker 2: Please remember the company undertakes no obligation to update or revise these forward-looking statements in the future. We will make a number of references to non-GAAP financial measures. We believe that these measures provide investors with useful perspective on the underlying growth trends of the business and have included in our earnings release a full reconciliation of non-GAAP financial measures to the most comparable GAAP measures.
Please remember the company undertakes no obligation to update or revise these forward looking statements in the future. We will make a number of references to non-GAAP financial measures. We believe that these measures provide investors with useful perspective on the underlying growth trends of the business and have included in our earnings release, a full reconciliation of non-GAAP financial measures to the most car.
Verbal GAAP measures.
Speaker 2: In addition, please note that all retail scanner data cited on today's call is according to Cercana, which was formerly known as IRI, and will refer to dollar or unit consumption for the 12-week period ended October 29, 2023, and growth versus the same period in the prior year in U.S. track channels, unless otherwise noted. With that, I will turn the call over to Deirdre. Thank you, Ben.
In addition, please note that all retail scanner data set it on today's call is according to sarcoma.
Which was formerly known as IRI and will refer to dollar or unit consumption for the 12 week period ended October 29, 2023 and growth versus the same period in the prior year in U S track channels, unless otherwise noted with that I will turn the call over to Deirdre.
Thank you Ben and good afternoon, everyone.
Thank you for joining us today to discuss our first quarter 2024 financial performance.
Following my opening remarks, Jenifer will walk us through our quarterly results and our fiscal year 2024 financial guidance.
Speaker 3: Following my opening remarks, Jennifer will walk us through our quarterly results and our fiscal year 2024 financial guide.
Speaker 3: We are pleased with our execution on the quarter as we delivered top and bottom line results at the higher end of our expected range.
We are pleased with our execution on the quarter.
As we delivered top and bottom line results at the higher end of our expected range.
Speaker 3: Net sales were $102.5 million in the quarter and adjusted EBITDA was $34.7 million.
Net sales were $102 $5 million in the quarter and adjusted EBITDA was $34 $7 million for an adjusted EBITDA margin of 33, 9%.
Speaker 3: for an adjusted EBITDA margin of 33.9 percent, a 90 basis point improvement over the prior year, driven by gross margin improvement and active management of operating costs.
A 90 basis point improvement over the prior year.
Driven by gross margin improvement and active management of operating costs.
Due to some signs of softening in consumer sentiment and luxury wine trends. We now expect net sales to come in at the lower end of our previously announced guidance range.
Speaker 3: due to some signs of softening in consumer sentiment and luxury wine.
Speaker 3: We now expect net sales to come in at the lower end of our previously announced guidance range.
Speaker 3: Accordingly, we are narrowing the net sales guidance to $420 to $427 million.
Accordingly, we are narrowing the net sales guidance to 422 $427 million, which reflects an annual growth rate of 4% to 6%.
Speaker 3: which reflects an annual growth rate of 4 to 6 percent.
Speaker 3: This reflects our expectations for continued share gains, albeit adjusted for a near-term lower industry growth rate.
This reflects our expectations for continued share gains.
Adjusted for a near term lower industry growth rate.
Speaker 3: Despite this reduction in our top-line outlook, we expect to maintain our previously communicated adjusted EBITDA margin as we manage our spending to account for this revised sales outlook.
Despite this reduction in our top line outlook, we expect to maintain our previously communicated adjusted EBITA margin as we manage our spending to account for this revised sales outlook.
Speaker 3: This translates into a range of $150 to $153 million in adjusted EBITDA for the fiscal year.
This translates into a range of $150 million to $153 million and adjusted EBITDA for the fiscal year.
It's important to note the climate within which we're delivering this full year growth.
Speaker 3: According to Circana, growth in total wine softened, as did the luxury wine segment, defined as $15 and above.
According to certain kind of growth in total wine softened as did the luxury wine segment.
Find at $15 and above.
In the last 12 weeks the luxury wine segment was flat and total wine overall declined one 6%.
While we cannot control the macro environment, which has been mixed the duck one portfolio of brands have continued to demonstrate relative strength in their respective tiers.
Speaker 3: We're confident in our comprehensive strategy and have a track record of profitable sales growth through a variety of industry clients.
We're confident in our comprehensive strategy and have a track record of profitable sales growth through a variety of industry climate.
Speaker 3: Our initiatives to support our strategy remain leveraging our brand strength, evolving our portfolio, expanding our wholesale network, and growing our DTC chat.
Our initiatives.
To support our strategy remain leveraging our brand strength evolving our portfolio expanding our wholesale network and growing our DTC channel.
Speaker 3: I'll now share some of the highlights from the quarter driven by strong execution on our initiative.
I'll now share some of the highlights from the quarter driven by strong execution on our initiatives.
Net sales were down five 2% at the higher end of our expectations for our first quarter decline of mid to high single digits.
This outperformance was partially driven by timing of some shipments anticipated for November came in earlier than expected and shifted into Q1.
As we shared on our last earnings call in Q1, we lapped a unique first quarter of fiscal 2023.
Last year's first quarter was marked by strong buys in wholesale as distributors and retailers alike placed unseasonably large orders specifically for higher price stuck on wine.
The result was an all time high for quarterly net sales driven entirely by volume.
Accounting for this challenging comp we continue to see our wholesale performance ahead of the broader market demonstrating our brand strength.
It is worth noting here that we have always managed this business for the long term.
And quarterly variability is normal in this sector.
Volume trends are affected by a number of factors in the supply chain as distributors and retailers adjusted demand signals and manage inventory levels accordingly.
The full year guidance Jennifer's discussing today is consistent with our objective to deliver profitable growth over the long term.
On the direct to consumer side net sales declined 10, 8% in the quarter par.
Partially driven by a reduction in event revenue due to planned renovations at some of our tasting rooms.
There is opportunity for improvement for our DTC business, which is one of our five key growth drivers.
Our Q1 results are emblematic of broader post COVID-19 trends in consumer behavior.
Across Napa Valley hotel occupancy rates have depth, but room revenue has continued to grow as strong demand at the highest end has buoyed average room rate.
We're actively adjusting our DTC approach to respond to changing consumer behavior and tap into the strength of the ultra high end and we're seeing some positive results.
For example, although the number of visitors and spend per visitor were soft in the quarter. We've seen a strong response to our elevated tasting experiences where spend per person can be considerably higher than our traditional tasting program.
From a total volume perspective, Q1 declined three 4% inline with expectations.
Shipments to wholesale declined 3% in the quarter, while depletions declined at a slower rate.
Wholesaler inventories remained at a healthy level and in line with our expectations.
While days on hand ticked higher year over year. This was primarily driven by lower than ideal levels. During the peak selling season last year.
Drilling down within our portfolio, we see performance slightly ahead of the industry overall with some areas of particular strength, including decoy limited, which had great success expanding into law.
The evolution of our portfolio is another important growth driver as we leverage our carefully curated collection of luxury wines across a range of price points and taste profile.
While retail sales for the total wine category decelerated in the last 12 weeks. The 15 to 25 dollar segment outperformed.
Decoy was soft at this price point during the period as the brand absorbed recent price increases and lap an unusually strong quarter in the prior year.
The impact was mainly in the Red varietals as decoy whites grew ahead of the sub segment in this period.
We remain confident in the brand's ability to distinguish itself from direct competition within its tier.
Our higher priced D quite limited as I mentioned demonstrated continued strength in the quarter with double digit retail sales growth and we view this as another proof point that consumers remain willing to pay for luxury wine.
Overall, our market share remain consistent.
From a channel perspective, despite a challenging environment. We were pleased to report that our account bases increased in both the on premise and off premise channels of the business.
We believe this to be testament to the strength of our brand and the confidence of the retailers to take stock in our lives.
As well as the distributor and sales team efforts in achieving our goal of addressing the distribution opportunities in the marketplace.
To conclude.
Our portfolio of brands performed well in what has proven to be a challenging market environment.
While our execution and the strength of our brands, partially insulates us from the broader consumer sentiment we are not immune.
Reflecting this climate, we now expect net sales to come in toward the lower end of our guided range, which we are tightening to $420 million to $427 million or 4% to 6% year over year growth.
We expect to maintain an adjusted EBITDA margin consistent with our prior communications as we carefully manage our expenses.
With that I'll turn it over to Jennifer to provide more details on the financial results for the quarter and our outlook for the year.
Thank you Deidre and good afternoon, everyone. As you just described we're off to a good start to the year and believe we will continue to outperform the market as we leverage our strong portfolio of luxury wine brands bigger.
Beginning with our topline net sales were $102 5 million a decrease of five 2% compared to the prior year period at the high end of the expectations previously communicated as some shipments expected in November came in earlier than expected shifting some net sales from Q2 to Q1.
We managed through a modest mix headwind due to shipment timing from higher priced and greater than expected non decoy wind shipments in the year ago period.
By channel the wholesale to distributor channel declined five 4% in Q1.
Absent last year's shipment timing impact we estimate wholesale net sales growth was flat to slightly down year over year.
We remain committed to our wholesale strategy to expand accounts and points of distribution to ensure strong programming is in place to support our brands.
Distributor days of inventory on hand remain healthy and in line with our expectations at 65 days.
California wholesale direct to trade declined seven 3% compared to the prior year period, driven by the same factors that impacted wholesale to distributor.
The tough comp due to a surge in buying in Q1 of last year was a nationwide trend and California was no exception.
The direct to consumer channel was down 10, 8%.
We do see signs that our strategy to drive our direct to consumer business through customer engagement in our tasting rooms is working as our per person spend remains high.
As D. G mentioned, we're navigating a changing landscape in multiple facets of the D to C business, but we're confident in the initiatives we have in place, particularly in the elevated tasting experiences.
Moving down the income statement first quarter gross profit was $53 9 million or a gross margin of 52.5% up approximately 190 basis points year over year, driven by improvements in the wholesale channel related to our efforts to optimize trade spend as well as easing input cost.
Inflation as it relates to cost of goods.
The D to C channel some margin contraction of 60 basis points, primarily driven by mix and timing.
Operating expenses were $30 5 million, an increase of $4 7 million or 18, 4% year over year.
On an adjusted basis total operating expenses decreased <unk> 2 million or 1% driven primarily by careful cost management. This excludes $2 7 million of transaction costs related to our pending acquisition of Sonoma Cutrer vineyards.
Net income was $15 5 million or 13 cents per diluted share.
Adjusted net income was $17 2 million or 15 cents per diluted share.
Adjusted EBITDA was $34 7 million, a decrease of $1 million or two 7% year over year.
Adjusted EBITDA margin improved 90 basis points versus the prior year period.
The improved margin was driven primarily by lower trade spend partially offset by lower net sales in the quarter.
At the end of the quarter, we had cash of $21 2 million and total debt of $241 3 million, resulting in our leverage ratio of one seven times net debt.
I'll now share our updated full year fiscal 'twenty 'twenty four outlook, which does not include our recently announced plans to acquire Sonoma Cutrer.
Net sales in the range of 420 million to $427 million, which represents growth of 4% to 6%.
Adjusted EBITDA in the range of $150 million to $153 million also a 4% to 6% growth and a margin at the midpoint of approximately 35, 5% consistent with our previously communicated guidance.
For adjusted EPS, We expect a range of 67 to 69 cents per diluted share.
I also want to provide some color on what we expect to see in the second quarter.
As previously mentioned.
Portion of shipments expected for November occurred earlier than anticipated.
This in addition to a softer consumer environment contributed to our revised expectations.
Of low single digit net sales growth in the second quarter.
Overall, we are pleased with our first quarter results, we remain in an advantageous position within our industry and while there is some uncertainty in consumer sentiment broadly we remain confident in our ability to take share as we continue to outperform the broader wine industry.
I will now turn it over to Sean for some notes on the M&A front.
Thank you Jennifer and good afternoon.
Earlier this quarter, we announced a landmark acceleration and our long term strategic plan we.
We believe the acquisition of Sonoma could trail, which is expected to close in spring 2024 subject to customary closing conditions will deliver significant shareholder value and provide a keystone and a strong foundation of future growth.
As we have previously shared disciplined acquisitions of complementary winery brands are an important element of our growth strategy and part of our history.
I'm a contrarian outstanding addition to our portfolio of wine and central to this strategy for growth as a premier luxury wine portfolio in a mill.
I would like to take a moment to reinforce a few of the key elements of the agreement to acquire Sonoma Cutrer vineyards from Brown Forman from approximately $400 million.
<unk> is one of the largest and most celebrated luxury chardonnay brands in the United States and we are delighted to welcome the claimed winery brand into our portfolio.
Preparations for clothing are on track and we expect to close in spring 2024, as we discussed last month.
We see meaningful wholesale distribution opportunities for Sonoma could trails, we were excited about the prospect of offering Sonoma Cutrer air to dark corner counts that don't currently carry and also about introducing Sonoma cutrer on premise and off premise accounts to complementary winds in the dark corner portfolio.
Putting wine such as a decoy Cabernet Sauvignon, and Doug Horne vineyards, mobile, which will be exciting new offerings for legacy Sonoma Cutrer accounts in which Dr. Corn is not correct.
We will be in touch over the next few months with a more detailed review of the account penetration and distribution white space.
I'll make a trail.
One of the benefits of using our stock as the primary element of consideration for this acquisition is that it affords us flexibility and optionality for future growth, which is specifically important to us and the current high interest rate environment.
The structure also allows us to bring the experience and strategic guidance well inform them to our company as a long term focus shareholder and through the two members of our board who will be affiliated with Brown Forman.
View Brown Forman as a partner invested with us and the successful integration of Sonoma could trail and committed to our shared mission to set the standard for American find one.
Delivering an accretive deal for our first public company brand acquisition was Paramount in our evaluation of Sonoma Trail.
We estimate Sonoma courtrooms pre synergy adjusted EBITDA margin profile to be similar to the margin profile of the DUC, one portfolio, which was approximately 35, 9% in fiscal year 2023.
The low single digit adjusted EPS accretion that we project to be realized starting in fiscal year 2025, which is just a few months. After the anticipated closing of the deal will be driven by $5 million of already identified S. G&A synergy.
During our work preparing for integration, we are keenly focused on identifying additional sources of efficiencies and synergies.
Separately, we believe there are a number of opportunities for incremental revenue growth beyond the current growth of the brand, including cross selling opportunities and existing DUC loan portfolio accounts, and vice versa, as well as expanding Sonoma cutrer footprint in the DTC channel through a heightened.
Focus on the wine club and an enhanced experience for guests at the tasting room.
Areas, where we can draw on our extensive expertise to augment growth.
Additionally, we see significant opportunities to promote Sonoma Cutrer air brand awareness with consumers, which we believe will be a key driver of velocity and sale of these one and.
And we also believe there are several incremental medium term opportunities to manage genomic of trailers fruit sourcing and production models and optimize our company's mix of estate grown and grown shapes and pursue value enhancing land optimization opportunity.
We look forward to keeping in touch with you about the preparations for clothing and our plans for the future of Sonoma for trail over the next few months.
With that I'll turn the call over to Deirdre for her concluding remarks.
Thank you Sean.
Ive been closely involved in the evaluation of the Sonoma could travel opportunity first as a member of the board and now as CEO and I continue to be excited as I learn more about the brand and the opportunities it brings to the Doc loan portfolio.
Two things couldn't have been clearer.
First we are acquiring an incredible asset that is a great fit with our brand architecture and.
And second the DUC count portfolio has an amazing team in place to make this integration a success.
We have a proven track record through the acquisitions of both Calera and Costa Brown and have significantly expanded our in house production capability with the recent acquisition of the guys are bill production winery.
As a company we're focused on continuing to identify thoughtful synergies and the successful integration of Sonoma cutrer out into our portfolio and look forward to the strategic commercial and financial benefits. It will provide over the coming years.
Yeah.
With that I'll close by saying I see ample evidence to give me confidence in the strength and resiliency of our brand. We will continue to leverage our advantage position within the luxury wine space to drive growth and take share through the remainder of fiscal 2024 and beyond.
We remain committed to delivering sustainable profitable growth and we will always strive to create value over the long term for our shareholders.
In keeping with that goal we are excited to welcome Sonoma cutrer into our portfolio and we look forward to making the acquisition official in spring 2024.
Before I move to questions I'll provide a brief update on our ongoing CEO search.
I'm happy to say that the board is pleased with the candidates it's been seeing and the process is going as planned.
And I look forward to keeping you updated as the process progresses.
With that Jennifer Sean and I are available to take your questions.
We will now begin the Q&A session. If you would like to ask a question. Please press star followed by one or you touch turnkey pad.
If for any reason you would like to remove that question.
Please press star followed by two against who ask a question press Star one.
As a reminder, if you are using a speaker phone. Please remember to pick up your handset before asking your question.
Policy briefly to allow questions to generate in Q.
First question comes from the line of Lauren Lieberman with Barclays. Please proceed.
Great. Thanks, Hi, everybody.
So just kind of my my numbers could be wrong, but I think with the updated guidance and particularly the two comments.
It still implies very strong growth in the back half of the year something like a double digit rate. So I know there was a bit of pull forward. This quarter from November but I don't it just strikes me that it wasn't large enough to account for what seems to be implied much healthier growth in the back half. So we're just hoping for.
Some perspective on that anticipated acceleration thanks.
Great. Thanks.
Thanks for the question I appreciate the Gen I, yeah, so and in fact have it's differentiated from the first half so what we have going on in the back half of the year is twofold really there's some innovation, we we launched decoy Merlot limited in fiscal 'twenty three in the back half, but due to the strong success, we quickly got low on inventory and so the first half of this.
This year, we've been really limited on our no pun intended on our decoy or low limited inventory, but we will be back in stock towards the back half of the year. In addition from an innovation perspective, we are launching our or low al decoy suddenly on block, which.
Your first launch of that in the back half and then finally, we will be back in stock in our DUC corn, Chardonnay, which has been performing very well for us.
Okay alright. Thanks.
Just sometimes I know the no I'll have you test marketed that I'm, just kind of curious because it's a really interesting category of course, but you know the the range frankly of like hits and misses. Its you know my sense is a lot of the wines aren't quite getting there yet in terms of taste profiles. So how do you have the opportunity.
Test market. This 'cause it I'm curious how much of that is a driver of that that second half acceleration.
Hey, Laura it's Sean.
We're excited about D quite feather weight, which will be is as Jennifer mentioned, our offering in the second half of the year.
I can assure you our winemaking team as you know it always is very excited to stand behind everything that bears a DUC corn portfolio name and so are.
All of our wines, including the Saturday go through a rigorous committee tasting process and we're very excited about what we think consumers will view this wine in the second half when it's released.
Lauren Let me just add this is Joe So let me just add one more thing to that.
And I think over time people learn about our innovation and how best to balance our anticipated consumer demand with supply.
And I think while you know Sean is absolutely right that we are excited about it and we think it's the winter from a taste profile point of view. However, we are also and prudent in terms of what we're planning for it in the back half so I would not call it out as the driver of why.
It is going to get us to that growth in the back half because we understand that it'll take time to build some distribution and we'll have to wait and see if the consumer loves it as much as we think they will so I wouldn't say that that is the driver.
It's a contributor it's a contributor but it is not the only thing that is delivering I think this year.
Okay, Great and then so therefore, having the inventory on the dock corn Chardonnay in the.
So it was a deep quintanilla right a D code limit yet.
Right Yeah yeah.
No they're all good visibility.
Yeah, they're all contributors and also a I think we have a balanced view with respect to the overall performance of the industry in the back half I mean, I understand that and we understand there is a lot of cautiousness right now about the consumer and we share that which is why we've tightened.
Our guidance.
But that said you know we do expect there to be growth in the back half.
Okay. So does the second half assume an acceleration in category growth or no. This is much more availability of these key two key product I don't know if I'd say it assumes a range of outcomes in terms of what's happening in the category. So for example, if you even look at your kind of data in November it's better.
Than it has been and in fact, our brands in the four weeks in November we're in growth during that period, but every month of course is an individual month and not something that we would take as you know an indicator of the future, but what we're doing is so if the consumer comes back stronger we would expect to be at the higher end of that.
And if we kind of continue to see the trends, we see now will be at the lower end.
Okay, all right awesome. Thank you so much.
Yeah.
Thank you. The next question comes from the line of Camille Gorilla with Jefferies. Please proceed.
Yeah.
Hey, everybody thanks for.
Let me ask a question.
Can we talk a bit more about the category and category softness you know in the past we heard a lot about resilience, particularly in the high end.
Piece of the wine business.
And then it looks like in this instance, any incremental distribution gains weren't.
It will to offset anything happening to the category.
Yeah.
Yeah.
So basically what we saw in them are candidate for 12 weeks it's been.
Flat within the wind industry as a whole and then on a 52 week basis. It was actually up so we did see some slowing in the $15 and above category.
Within the past 52 weeks it we did outperform the industry, where you saw a little bit in Q1 is because we were lapping such a strong quarter a.
Last year, we didn't outperform the industry so much but as we now have that behind US we anticipate we will continue to outperform.
Outperform where the industry has been.
I've seen the industry itself as it is a trading down or maybe just buying less.
The industry, we see no signs that the industry trading down and in fact in November the 15 plots performed well fill it declined slightly less than 1% of the industry as a total declined 2% and our brand's growth. So you know I think across the our portfolio in the industry.
There really isn't an indication of trading down in fact, the success of our D point limited Ah I think is a demonstration of that which grows is growing strong double digits.
On distribution gain and Andre to sales I think we're getting both on D play limited its a very strong performer in at a higher price point than our other deep white label.
So we are not seeing a sign of trade down.
Got it great. Thank you.
Okay.
Thank you.
The next question comes from the line of Peter Galbo with Bank of America. Please proceed.
Hey, good afternoon, thanks for the questions.
John if I could just follow up on back on Lauren's question, you know, obviously understanding there's some some nuance and the product availability, but.
Any more you can do to help us in the back half of the year just to understand again that how.
Will that ramp might look you know your comparisons are kind of a bit wacky just given I think some of that debt dynamics from Q2 of 'twenty three as well. So just any more color just as we kind of try to parse the quarters here on what we might see.
Yeah, Hey, Peter Great question, So as we talked about on our last earnings call in.
'twenty two.
Ah sorry, I'm getting a year and a computer so and for fiscal 'twenty three when we put the kosta brown offering in Q4, it drew a bigger comp in Q4 now for this year, we're moving it back primarily into Q3, some will slip into Q4. So you will see more of an outweigh in Q3 versus <unk>.
Q4, just because of that shift in that offering and so keep that in mind that we've you know we had it in one way and in in 'twenty, three and that as we move forward. We're switching it back to where we had it previously.
Got it okay.
Helpful. And then just in terms of.
Didn't know if you updated this just like gross margin cadence as well for the rest of the year, maybe particularly with <unk> and then if it follows that kind of same idea in the back half if youre shipping more close to brown and <unk> and then the gross margins are probably better but just anything you can do to help us there.
Yeah, and as I said at our margin profile remains the same for Q1 and Q2, we thought we would see a slight improvement year over year, but Q3 and Q4, we would see more margin pressure as we anticipated more trade spend because we were extremely clean on trade skits trade spend in Q3 and Q4 of last year, So first half slight improvement.
And second half margin pressure due to trade spend.
Got it great. Thanks, so much.
Thank you.
The next question comes from the line of Andrea do you were exiting with J P. Morgan. Please proceed.
Thank you good afternoon, everyone I wanted to drill back.
You mentioned the decoy Red fire also in your prepared remarks being a bit softer within the 15 to 25.
So it wasn't one of them and of course Youre limited the euro sign in as much as you produce but just curious if that is specific and you pointed out the pricing right. So.
If we think we look back do you think you ofer did a bit on the pricing or that's what you were expecting.
And in that range of course decoy the regular requires a bit more on the lower end of that range is that any any potential.
Implication there in terms of like increased marketing or increased I would say promotional activity on promotional activity.
Typically they're in.
In that specific price point and then if you can also parse out the on premise got you did call out number of accounts both from off premise and on premise.
If you can talk about also how much is different between the performance was different for on premise and off premise. If you have that visibility. Thank you.
Yeah, Hi, Andrea in terms of trade down mhm, yeah. Thanks for the question Yeah. The decoy White label, so not being Coy limited excluding decoy limited the Red wines, we did take price on them last year and I think it is.
Ah you it's normal for there to be a period after a price increase as that price starts to come through on the shelf and the consumer digest that price and the retailer digest. It in terms of what's happening in terms of feature and display for there to be a period, where it's suggesting there's some softness in the consumer take off a bit.
Havent learned anything that would suggest that there is any kind of issue or that we've you know I think to use your words gone too far on the pricing of course, we continue to evaluate how the consumers responding to our brands and we will support our brands at the trade level and with the consumer digitally.
<unk> overtime to of course reinforced yesterday at that price point.
But we're not seeing anything that would suggest that there was an issue with the positioning of the brand.
We expect it to continue and as I said I haven't seen all of the detail yet on November because it's fresh cut our total.
<unk> portfolio in Spokane. It did return to growth in November we haven't had time yet since those came out to really dig into the detail, but again you know the industry is still soft so I'm not declaring victory overall, but we're encouraged by what's happened in the in the November through kind of data and as we get through that will.
Be able to tell you more about it at the end of the after this quarter.
In terms of the on and off premise.
Well, you're going to say something else sorry, I interrupted.
No sorry, I was about to remember you remind you for the on premise and on premise.
Within the quarter.
Speaker 3: And any trade down, as you might see in terms of where the in terms of the distribution in the on and off premise, they're both up.
And then they trade down as you might see in terms of where the b in terms of the distribution in the on and the off premise, they're both up.
So but in terms of the consumer.
Speaker 3: From a consumer point of view, the on-premise, I think, has been slightly stronger in the most recent months.
From a consumer point of view the on premise I think has been slightly stronger in the most recent months than the off premise and again I think we're not the only ones in the industry talking about this as the consumer has has fully returned and gone to their post pandemic behavior.
Speaker 3: than the off-premise. And again, I think we're not the only ones in the industry talking about this, as the consumer has...
Speaker 3: Kind of fully returned and gone to their post pandemic behavior. We are seeing more people out and that has improved in particular at the more luxury higher price points. It has improved the performance in the on premise.
We are seeing more people out and that has improved in particular at the more luxury higher price points. It has improved the performance in the on premise, but I wouldn't say that the on premise is driving the performance.
Speaker 3: But I I wouldn't say that the on-premises driving
Speaker 4: I just think there was some slightly better performance in the on-premise over the course of the period. And I might just add that we, I think, take a lot of – we think that's a real positive thing, right? That balance between growth in both on-premise and off-premise – that's the confidence of retailers. And that's that diversification of where folks find our wines that we think is important in supporting our omni-channel strategy. So we like those results a lot. Absolutely. Thank you so much.
I just think there was some slightly better performance in the on premise over the course of the period and I might just add that we I think take a lot of we think that's a real positive thing right that balance between growth in both on premise and off premise. That's the confidence of retailers and that's that diversification of where folks find our wines that we think's important.
And supporting our omni channel strategy. So we like those results along absolutely.
Thank you so much hope carcinoma.
Okay. Thank you.
Thank you.
Speaker 1: Thank you. Again, to ask a question, please press star 1.
Again to ask a question please press star one.
Speaker 1: There are no additional questions left at this time. I will hand it back to the management team for closing remarks.
There are no additional questions at this time I will hand, it back to the management team for closing remarks.
Okay.
Okay.
Okay.
Speaker 3: Sorry. Thanks again everyone for joining us today for our first quarter performance and our guidance for the fiscal year. I look forward to speaking to you again in March when we report our second quarter results. And we wish you all happy holidays and a prosperous, healthy new year. Cheers.
Sorry.
Thanks again, everyone for joining us today for our first quarter performance and our guidance for the fiscal year I look forward to speaking to you again in March when we report our second quarter results and we wish you all happy holidays, and a prosperous healthy new year cheers.
Yeah.
Speaker 1: That concludes today's conference call. Thank you. You may now disconnect your line.
That concludes today's conference call. Thank you you may now disconnect your line.