First Quarter Net Sales of $102.5
million
First Quarter Net Income of $15.5 million;
Adjusted Net Income of $17.2 million
First Quarter Adjusted EBITDA of $34.7
million
The Duckhorn Portfolio, Inc. (NYSE: NAPA) (the “Company”) today
reported its financial results for the three months ended October
31, 2023.
First Quarter 2024 Highlights
- Net sales were $102.5 million, a decrease of $5.7 million, or
5.2%, versus the prior year period.
- Gross profit was $53.9 million, a decrease of $0.9 million, or
1.6%, versus the prior year period. Gross profit margin was 52.5%,
up 190 basis points versus the prior year period.
- Net income was $15.5 million, or $0.13 per diluted share,
versus $19.8 million, or $0.17 per diluted share, in the prior year
period. Adjusted net income was $17.2 million, or $0.15 per diluted
share, versus $20.5 million, or $0.18 per diluted share, in the
prior year period.
- Adjusted EBITDA was $34.7 million, a decrease of $1.0 million,
or 2.7%, and Adjusted EBITDA margin improved 90 basis points versus
the prior year period.
- Cash was $21.2 million as of October 31, 2023. The Company’s
leverage ratio was 1.7x net debt (net of debt issuance costs), to
trailing twelve months adjusted EBITDA.
Deirdre Mahlan, Interim President, Chief Executive Officer and
Chairperson, commented, “We delivered a quarter at the high end of
our expectations as we lapped an unseasonably strong first quarter
in the prior year. In addition, we generated 90 bps of adjusted
EBITDA margin expansion on less discounting and a focus on cost
management.”
“We saw growth across multiple brands, as our carefully curated
portfolio of luxury wines continues to outperform a mixed industry
climate.”
Ms. Mahlan continued, “As we announced last month, we are
excited about our pending acquisition of Sonoma-Cutrer Vineyards,
which we believe will add depth to our brand architecture with one
of the most recognized and celebrated luxury Chardonnay brands on
the market.”
First Quarter 2024 Results
Three months ended October
31,
2023
2022
Net sales growth
(5.2)%
3.8%
Volume contribution
(3.4)%
9.2%
Price / mix contribution
(1.8)%
(5.4)%
Three months ended October
31,
2023
2022
Wholesale – Distributors
77.0%
76.4%
Wholesale – California direct to trade
15.6
15.8
DTC
7.4
7.8
Net sales
100.0%
100.0%
Net sales were $102.5 million, a decrease of $5.7 million, or
5.2%, versus $108.2 million in the prior year period. The decline
in net sales was driven by lower shipment volumes due to strong
prior year period comparisons. Price / mix was a headwind of 1.8%
driven by unfavorable brand mix.
Gross profit was $53.9 million, a decrease of $0.9 million, or
1.6%, versus the prior year period. Gross profit margin was 52.5%,
improving 190 basis points versus the prior year period as a result
of cost of sales improvement and lower discounting.
Total selling, general and administrative expenses were $30.5
million, an increase of $4.7 million, or 18.4%, versus $25.7
million in the prior year period. The increase was primarily
attributed to higher transaction costs related to our pending
acquisition of Sonoma-Cutrer Vineyards and higher depreciation
expense related to the asset acquisition of the Geyserville winery
in Fiscal 2023.
Net income was $15.5 million, or $0.13 per diluted share, versus
$19.8 million, or $0.17 per diluted share, in the prior year
period. Adjusted net income was $17.2 million, or $0.15 per diluted
share, versus $20.5 million, or $0.18 per diluted share, in the
prior year period. The decrease in adjusted net income was
primarily driven by lower net sales performance.
Adjusted EBITDA was $34.7 million, a decrease of $1.0 million,
or 2.7%, versus $35.7 million in the prior year period. This
decrease was driven primarily by lower net sales, partially offset
by an improvement in gross margin. Adjusted EBITDA margin improved
90 basis points versus the prior year period.
Fiscal Year 2024 Guidance
The Company is updating guidance to the following ranges below
for Fiscal Year 2024 (excluding any impact from the pending
acquisition of Sonoma-Cutrer Vineyards):
(amounts in millions, except per share
data and percentages)
Fiscal year ended July 31,
2024
Net sales
$420
-
$427
Adjusted EBITDA
$150
-
$153
Adjusted EPS
$0.67
-
$0.69
Diluted share count
115
-
116
Effective tax rate
25%
-
27%
Conference Call and Webcast
The Company will host a conference call to discuss these results
at 1:30 p.m. Pacific Time (4:30 p.m. Eastern Time.) Investors
interested in participating in the live call can dial 833-470-1428
from the U.S. and 404-975-4839 internationally, and enter
confirmation code 889702. A telephone replay will be available
approximately two hours after the call concludes through Wednesday,
December 20, 2023, by dialing 929-458-6194 or 866-813-9403, and
entering confirmation code 167251.
There will also be a simultaneous, live webcast available on the
Company’s investor relations website at
https://ir.duckhorn.com/events-and-presentations. The webcast will
be archived for 30 days.
About The Duckhorn Portfolio, Inc.
The Duckhorn Portfolio is North America’s premier luxury wine
company, with ten winery brands, nine state-of-the-art winemaking
facilities, seven tasting rooms and over 1,100 coveted acres of
vineyards spanning 32 Estate properties. Established in 1976, when
vintners Dan and Margaret Duckhorn founded Napa Valley’s Duckhorn
Vineyards, today, our portfolio features some of North America’s
most revered wineries, including Duckhorn Vineyards, Decoy,
Paraduxx, Goldeneye, Migration, Canvasback, Calera, Kosta Browne,
Greenwing and Postmark. Sourcing grapes from our own Estate
properties and fine growers in Napa Valley, Sonoma County, Anderson
Valley, California’s North and Central Coasts, Oregon, Washington
State and Burgundy, we offer a curated and comprehensive portfolio
of acclaimed luxury wines with price points ranging from $20 to
$230 across more than 15 varieties and 39 appellations. Our wines
are available throughout the United States, on five continents, and
in more than 50 countries around the world. To learn more, visit us
at: https://www.duckhornportfolio.com/. Investors can access
information on our investor relations website at:
https://ir.duckhorn.com.
Use of Non-GAAP Financial Information
In addition to the Company’s results, which are determined in
accordance with generally accepted accounting principles in the
United States (“GAAP”), the Company believes the following non-GAAP
measures presented in this press release and discussed on the
related teleconference call are useful in evaluating its operating
performance: adjusted gross profit, adjusted EBITDA, adjusted net
income and adjusted EPS. Certain of these non-GAAP measures exclude
depreciation and amortization, non-cash equity-based compensation
expense, purchase accounting adjustments, casualty losses or gains,
impairment losses, inventory write-downs, changes in the fair value
of derivatives, and certain other items, net of the tax effects of
all such adjustments, which are not related to the Company’s core
operating performance. The Company believes that these non-GAAP
financial measures are provided to enhance the reader’s
understanding of our past financial performance and our prospects
for the future. The Company’s management team uses these non-GAAP
financial measures to evaluate business performance in comparison
to budgets, forecasts and prior period financial results. The
non-GAAP financial information is presented for supplemental
informational purposes only and should not be considered a
substitute for financial information presented in accordance with
GAAP, and may be different from similarly titled non-GAAP measures
used by other companies. A reconciliation is provided herein for
each non-GAAP financial measure to the most directly comparable
financial measure stated in accordance with GAAP. Readers are
encouraged to review the related GAAP financial measures and the
reconciliation of these non-GAAP financial measures to their most
directly comparable GAAP financial measures.
Forward-Looking Statements
This press release includes forward-looking statements. These
forward-looking statements generally can be identified by the use
of words such as “anticipate,” “expect,” “plan,” “could,” “may,”
“will,” “believe,” “estimate,” “forecast,” “goal,” “project,” and
other words of similar meaning. These forward-looking statements
address various matters including statements regarding the timing
or nature of future operating or financial performance or other
events. For example, all statements The Duckhorn Portfolio makes
relating to its estimated and projected financial results or its
plans and objectives for future operations, growth initiatives or
strategies are forward-looking statements. Each forward-looking
statement contained in this press release is subject to risks and
uncertainties that could cause actual results to differ materially
from those expressed or implied by such statement. Applicable risks
and uncertainties include, among others, the Company’s ability to
manage the growth of its business; the Company’s reliance on its
brand name, reputation and product quality; the effectiveness of
the Company’s marketing and advertising programs, including the
consumer reception of the launch and expansion of our product
offerings; general competitive conditions, including actions the
Company’s competitors may take to grow their businesses; overall
decline in the health of the economy and the impact of inflation on
consumer discretionary spending and consumer demand for wine; the
occurrence of severe weather events (including fires, floods and
earthquakes), catastrophic health events, natural or man-made
disasters, social and political conditions, war or civil unrest;
risks associated with disruptions in the Company’s supply chain for
grapes and raw and processed materials, including corks, glass
bottles, barrels, winemaking additives and agents, water and other
supplies; risks associated with the disruption of the delivery of
the Company’s wine to customers; the impact of COVID-19 and its
variants on the Company’s customers, suppliers, business operations
and financial results; disrupted or delayed service by the
distributors and government agencies the Company relies on for the
distribution of its wines outside of California; the Company’s
ability to successfully execute its growth strategy; risks
associated with our acquisition of Sonoma-Cutrer Vineyards, Inc.;
decreases in the Company’s wine score ratings by wine rating
organizations; quarterly and seasonal fluctuations in the Company’s
operating results; the Company’s success in retaining or
recruiting, or changes required in, its officers, key employees or
directors; the Company’s ability to protect its trademarks and
other intellectual property rights, including its brand and
reputation; the Company’s ability to comply with laws and
regulations affecting its business, including those relating to the
manufacture, sale and distribution of wine; the risks associated
with the legislative, judicial, accounting, regulatory, political
and economic risks and conditions specific to both domestic and to
international markets; claims, demands and lawsuits to which the
Company is, and may in the future, be subject and the risk that its
insurance or indemnities coverage may not be sufficient; the
Company’s ability to operate, update or implement its IT systems;
the Company’s ability to successfully pursue strategic acquisitions
and integrate acquired businesses; the Company’s potential ability
to obtain additional financing when and if needed; the Company’s
substantial indebtedness and its ability to maintain compliance
with restrictive covenants in the documents governing such
indebtedness; the Company’s sponsor’s significant influence over
the Company, and the Company’s status as a “controlled company”
under the rules of the New York Stock Exchange; the potential
liquidity and trading of the Company’s securities; the future
trading prices of the Company’s common stock and the impact of
securities analysts’ reports on these prices; and the risks
identified in the Company’s other filings with the SEC. The Company
cautions investors not to place considerable reliance on the
forward-looking statements contained in this press release. You are
encouraged to read the Company’s filings with the SEC, available at
www.sec.gov, for a discussion of these and other risks and
uncertainties. The forward-looking statements in this press release
speak only as of the date of this document, and the Company
undertakes no obligation to update or revise any of these
statements. The Company’s business is subject to substantial risks
and uncertainties, including those referenced above. Investors,
potential investors, and others should give careful consideration
to these risks and uncertainties.
THE DUCKHORN PORTFOLIO,
INC. CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited, amounts in thousands, except shares and per share
data)
October 31, 2023
July 31, 2023
ASSETS
Current assets:
Cash
$
21,182
$
6,353
Accounts receivable trade, net
71,254
48,706
Inventories
389,199
322,227
Prepaid expenses and other current
assets
8,393
10,244
Total current assets
490,028
387,530
Property and equipment, net
328,468
323,530
Operating lease right-of-use assets
18,834
20,376
Intangible assets, net
182,337
184,227
Goodwill
425,209
425,209
Other assets
8,327
6,810
Total assets
$
1,453,203
$
1,347,682
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Accounts payable
$
33,023
$
4,829
Accrued expenses
90,022
38,246
Accrued compensation
8,651
16,460
Deferred revenue
11,199
66
Current maturities of long-term debt
9,721
9,721
Other current liabilities
4,870
5,138
Total current liabilities
157,486
74,460
Long-term debt, net of current maturities
and debt issuance costs
231,148
223,619
Operating lease liabilities
15,141
16,534
Deferred income taxes
90,216
90,216
Other liabilities
445
445
Total liabilities
494,436
405,274
Stockholders’ equity:
Common stock, $0.01 par value; 500,000,000
shares authorized; 115,367,710 and 115,316,308 issued and
outstanding at October 31, 2023 and July 31, 2023, respectively
1,154
1,153
Additional paid-in capital
738,365
737,557
Retained earnings
218,659
203,122
Total The Duckhorn Portfolio, Inc.
stockholders’ equity
958,178
941,832
Non-controlling interest
589
576
Total stockholders’ equity
958,767
942,408
Total liabilities and stockholders’
equity
$
1,453,203
$
1,347,682
THE DUCKHORN PORTFOLIO,
INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited, amounts in thousands, except shares and per share
data)
Three months ended October
31,
2023
2022
Net sales (net of excise taxes of $1,394
and $1,584, respectively)
$
102,509
$
108,171
Cost of sales
48,656
53,461
Gross profit
53,853
54,710
Selling, general and administrative
expenses
30,483
25,739
Income from operations
23,370
28,971
Interest expense
4,004
2,162
Other income, net
(1,813
)
(87
)
Total other expenses, net
2,191
2,075
Income before income taxes
21,179
26,896
Income tax expense
5,629
7,087
Net income
15,550
19,809
Less: Net (income) loss attributable to
non-controlling interest
(13
)
6
Net income attributable to The Duckhorn
Portfolio, Inc.
$
15,537
$
19,815
Earnings per share of common
stock:
Basic
$
0.13
$
0.17
Diluted
$
0.13
$
0.17
Weighted average shares of common stock
outstanding:
Basic
115,339,774
115,184,161
Diluted
115,451,719
115,275,692
THE DUCKHORN PORTFOLIO,
INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited, amounts in thousands)
Three months ended October
31,
2023
2022
Cash flows from operating
activities
Net income
$
15,550
$
19,809
Adjustments to reconcile net income to net
cash from operating activities:
Depreciation and amortization
7,329
5,757
Gain on disposal of assets
(42
)
(32
)
Change in fair value of derivatives
(1,889
)
(368
)
Amortization of debt issuance costs
194
402
Equity-based compensation
1,150
1,180
Change in operating assets and
liabilities:
Accounts receivable trade, net
(22,547
)
(32,619
)
Inventories
(66,115
)
(55,626
)
Prepaid expenses and other current
assets
1,781
442
Other assets
283
122
Accounts payable
28,045
42,670
Accrued expenses
51,985
37,262
Accrued compensation
(7,808
)
(3,733
)
Deferred revenue
11,132
11,797
Other current and non-current
liabilities
(982
)
(679
)
Net cash provided by operating
activities
18,066
26,384
Cash flows from investing
activities
Purchases of property and equipment, net
of sales proceeds
(10,395
)
(6,418
)
Net cash used in investing
activities
(10,395
)
(6,418
)
Cash flows from financing
activities
Payments under line of credit
(13,000
)
(20,000
)
Borrowings under line of credit
23,000
5,000
Payments of long-term debt
(2,500
)
(2,808
)
Taxes paid related to net share settlement
of equity awards
(342
)
—
Net cash provided by (used in)
financing activities
7,158
(17,808
)
Net increase in cash
14,829
2,158
Cash - Beginning of period
6,353
3,167
Cash - End of period
$
21,182
$
5,325
Supplemental cash flow
information
Interest paid, net of amount
capitalized
$
4,009
$
1,777
Income taxes paid
$
11,607
$
—
Non-cash investing activities
Property and equipment additions in
accounts payable and accrued expenses
$
3,300
$
3,776
THE DUCKHORN PORTFOLIO, INC.
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Adjusted gross profit, adjusted net income, adjusted EBITDA and
adjusted EPS, collectively referred to as “Non-GAAP Financial
Measures,” are commonly used in the Company’s industry and should
not be construed as an alternative to net income or earnings per
share as indicators of operating performance (as determined in
accordance with GAAP). These Non-GAAP Financial Measures may not be
comparable to similarly titled measures reported by other
companies. The Company has included these Non-GAAP Financial
Measures because it believes the measures provide management and
investors with additional information to evaluate business
performance in comparison to budgets, forecasts and prior year
financial results.
Non-GAAP Financial Measures are adjusted to exclude certain
items that affect comparability. The adjustments are itemized in
the tables below. You are encouraged to evaluate these adjustments
and the reason the Company considers them appropriate for
supplemental analysis. In evaluating adjustments, you should be
aware that in the future the Company may incur expenses that are
the same as or similar to some of the adjustments set forth below.
The presentation of Non-GAAP Financial Measures should not be
construed as an inference that future results will be unaffected by
unusual or recurring items.
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure that the Company
calculates as net income before interest, taxes, depreciation and
amortization, non-cash equity-based compensation expense, purchase
accounting adjustments, casualty losses or gains, changes in the
fair value of derivatives and certain other items which are not
related to our core operating performance. Adjusted EBITDA is a key
performance measure the Company uses in evaluating its operational
results. The Company believes adjusted EBITDA is a helpful measure
to provide investors an understanding of how management regularly
monitors the Company’s core operating performance, as well as how
management makes operational and strategic decisions in allocating
resources. The Company believes adjusted EBITDA also provides
management and investors consistency and comparability with the
Company’s past financial performance and facilitates period to
period comparisons of operations, as it eliminates the effects of
certain variations unrelated to its overall performance.
Adjusted EBITDA has certain limitations as an analytical tool,
and you should not consider it in isolation or as a substitute for
analysis of the Company’s results as reported under GAAP. Some of
these limitations include:
- although depreciation and amortization are non-cash charges,
the assets being depreciated and amortized may have to be replaced
in the future, and adjusted EBITDA does not reflect cash capital
expenditure requirements for such replacements or for new capital
expenditure requirements;
- adjusted EBITDA does not reflect changes in, or cash
requirements for, the Company’s working capital needs;
- adjusted EBITDA does not reflect the significant interest
expense, or the cash requirements necessary to service interest or
principal payments, on the Company’s debt;
- adjusted EBITDA does not reflect income tax payments that may
represent a reduction in cash available to the Company; and
- other companies, including companies in the Company’s industry,
may calculate adjusted EBITDA differently, which reduce their
usefulness as comparative measures.
Because of these limitations, you should consider adjusted
EBITDA alongside other financial performance measures, including
net income and the Company’s other GAAP results. In evaluating
adjusted EBITDA, you should be aware that in the future the Company
may incur expenses that are the same as or similar to some of the
adjustments in this presentation. The Company’s presentation of
adjusted EBITDA should not be construed as an inference that the
Company’s future results will be unaffected by the types of items
excluded from the calculation of adjusted EBITDA.
Adjusted Gross Profit
Adjusted gross profit is a non-GAAP financial measure that the
Company calculates as gross profit excluding the impact of purchase
accounting adjustments (including depreciation and amortization
related to purchase accounting), non-cash equity-based compensation
expense, and certain inventory charges. We believe adjusted gross
profit is a useful measure to us and our investors to assist in
evaluating our operating performance because it provides
consistency and direct comparability with our past financial
performance between fiscal periods, as the metric eliminates the
effects of non-cash or other expenses unrelated to our core
operating performance that would result in fluctuations in a given
metric for reasons unrelated to overall continuing operating
performance. Adjusted gross profit should not be considered a
substitute for gross profit or any other measure of financial
performance reported in accordance with GAAP.
Adjusted Net Income
Adjusted net income is a non-GAAP financial measure that the
Company calculates as net income excluding the impact of non-cash
equity-based compensation expense, purchase accounting adjustments,
casualty losses or gains, impairment losses (including certain
inventory charges), changes in the fair value of derivatives and
certain other items unrelated to core operating performance, as
well as the estimated income tax impacts of all such adjustments
included in this non-GAAP performance measure. We believe adjusted
net income assists us and our investors in evaluating our
performance period-over-period. In calculating adjusted net income,
we also calculate the following non-GAAP financial measures which
adjust each GAAP-based financial measure for the relevant portion
of each adjustment to reach adjusted net income:
- Adjusted SG&A – calculated as selling, general, and
administrative expenses excluding the impacts of purchase
accounting, transaction expenses, equity-based compensation;
and
- Adjusted income tax – calculated as the tax effect of all
adjustments to reach adjusted net income based on the applicable
blended statutory tax rate for the period.
Adjusted net income should not be considered a substitute for
net income or any other measure of financial performance reported
in accordance with GAAP.
Adjusted EPS
Adjusted EPS is a non-GAAP financial measure that the Company
calculates as adjusted net income divided by diluted share count
for the applicable period. We believe adjusted EPS is useful to us
and our investors because it improves the comparability of results
of operations from period to period. Adjusted EPS should not be
considered a substitute for net income per share or any other
measure of financial performance reported in accordance with
GAAP.
THE DUCKHORN PORTFOLIO,
INC. RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Three months ended October 31, 2023 and 2022 (Unaudited,
amounts in thousands, except per share data)
Three months ended October 31,
2023
Net sales
Gross profit
SG&A
Adjusted EBITDA
Income tax
Net income
Diluted EPS
GAAP results
$
102,509
$
53,853
$
30,483
$
15,537
$
5,629
$
15,537
$
0.13
Percentage of net sales
52.5
%
29.7
%
15.2
%
Interest expense
4,004
Income tax expense
5,629
Depreciation and amortization expense
124
(3,108
)
7,329
EBITDA
$
32,499
Purchase accounting adjustments
25
25
7
18
—
Transaction expenses
(3,236
)
3,236
861
2,375
0.02
Change in fair value of derivatives
(1,889
)
(502
)
(1,387
)
(0.01
)
Equity-based compensation
206
(846
)
1,052
272
780
0.01
Lease income, net
(926
)
(926
)
(716
)
(210
)
(56
)
(154
)
—
Non-GAAP results
$
101,583
$
53,282
$
22,577
$
34,713
$
6,211
$
17,169
$
0.15
Percentage of net sales
52.0
%
22.0
%
33.9
%
Three months ended October 31,
2022
Net sales
Gross profit
SG&A
Adjusted EBITDA
Income tax
Net income
Diluted EPS
GAAP results
$
108,171
$
54,710
$
25,739
$
19,815
$
7,087
$
19,815
$
0.17
Percentage of net sales
50.6
%
23.8
%
18.3
%
Interest expense
2,162
Income tax expense
7,087
Depreciation and amortization expense
138
(1,903
)
5,757
EBITDA
$
34,821
Purchase accounting adjustments
42
42
10
32
—
Transaction expenses
(162
)
162
21
141
—
Change in fair value of derivatives
(368
)
(97
)
(271
)
—
Equity-based compensation
73
(935
)
1,008
260
748
0.01
Non-GAAP results
$
108,171
$
54,963
$
22,739
$
35,665
$
7,281
$
20,465
$
0.18
Percentage of net sales
50.8
%
21.0
%
33.0
%
Note: Sum of individual amounts may not recalculate due to
rounding.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231206680022/en/
Investors Ben Avenia-Tapper ir@duckhorn.com (707) 339-9232 Media
Contact Jessica Liddell, ICR DuckhornPR@icrinc.com 203-682-8200
Duckhorn Portfolio (NYSE:NAPA)
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