Earnings call transcript Q3 2023

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Operator

Good morning, and thank you for attending today's Duckhorn Portfolio Q3 2023 Earnings Conference Call. My name is Jason. I'll be the moderator for today's call. All lines will be muted during the presentation portion of the call, an opportunity for questions-and-answers at the end. [Operator Instructions]

to conference like host, to now Sullivan. Sean would pass over the your I

Sean Sullivan

welcome Duckhorn to XXXX and afternoon, Good the call. earnings Portfolio's conference quarter third

Eastern out quarter Joining ir.duckhorn.com. by press Officer. the the In Time. for our ended conclusion moment, we access days. P.M. Alex and call XX, to brief a approximately earnings Beaudoin, now, April a archived the me fiscal remarks And at everyone give will and have followed Lori Financial for CEO next call, By webcast Chairman; the The went is website at on that Ryan, Chief after accessible of our release will today's XX the be on today's X:XX XXXX, Q&A. release President, company's are shortly should

remind as I Before contains see statements based we begin, we includes the like such, it, risks forward-looking would currently that discussion as uncertainties. environment on and today's you to and

earnings well statements company's statements. actual the a the differ Duckhorn's that no future. remember the discussion cause to see update undertakes refer from revise to these could or materially release obligation of will company company's you as most results forward-looking SEC you as Please If factors filings, recent these forward-looking the to in

included the references the growth earnings most underlying our We financial believe will business of trends investors to non-GAAP reconciliation on in perspective make full measures. of a measures. to have comparable We financial and provide non-GAAP measures useful number release that these of with the GAAP a measures

XX-week ended prior period the refer call growth and consumption data that April cited In unit XX, year, noted. food same today's period U.S. XXXX the or dollar note scanner otherwise the addition, please for to unless in will all total versus on

over call Alex. With the to will turn that, I

Alex Ryan

our third and Sean, everyone. today financial afternoon, us solid performance. quarter you, to joining you good Thank for discuss Thank

XXXX fiscal financial and At M&A remarks, turn then development. outlook. quarterly who will for the us the Following through Sean She questions. call exciting year prepared Lori revised of my opening an upwardly the our to will open end results walk remarks, discuss call will will we our

I call today's a the would begin by few highlights quarter. from like to offering

performed expectations drove have top in net declined with between a due our line as growth, line been to shifts timing timing, in and wholesale while these our sales cost up changes high-single in offerings perspective, of from we Absent QX. DTC entirely around digit previously discussed would fiscal QX the First, offering modestly. DTC

consistent depletion generally our shipment growth Second, growth. performance trailed our X.X%, grew first half volume moderately with by

make of as However, good per considerable distribution we and continue to white progress labels the sold accounts number in positively the opportunity contributed on account our quarter. both space

remained of a a and macroeconomic near-term continued growth $XX weighing despite Vineyard market and share category Decoy. on discretionary consumer leader per environment growth luxury wine portfolio were our bottle within led by Third, subsegment and once Mid-single again above Duckhorn the spending. challenging consumption gains digit

higher price of and overall into and new ability Decoy growth points experienced note, over the dollar Of the to XX% opportunities. Decoy showcasing address consumption brand its strength extend Limited

our Merlot Limited Merlot recent our release. could prided response the always lines, have with We to we on happier be Decoy ourselves not and

supported to expansion Browne timing control. the and gross in once generate in by the managed expense fourth, And adjusted margin spite gross sound headwinds, again, adjusted margin quarter, robust strong of Kosta we the shift growth posed EBITDA

dynamics. to performance and let's look second relative Now our at quarter. on Off-premise off-premise moderated

wines. appeal shop our portfolio quality as sales key strength luxury force, accounts luxury several investments to solid brand the contributions well our However, including model per ongoing our to and one-stop our of realize metrics, number of of sold which wine we we labels and the account, from continued of attribute as fine in

challenged was continued dining prior on-premise growth activity, especially reopening. year from benefited on-premise by the lapping quarter when comparisons somewhat slower that tough Third

wholesale discussed labels per as calls, considerable prior we consistent our we to further base we Furthermore, account as and seek previous in continue white luxury that within penetrate priority account earnings us we for consider a with have opportunity growth space our getting identified. generally us still partner distribution trusted to is into restauranteurs grew the view However, reinforcing have was a new quarters, top wine. accounts

for direct-to-consumer the to business, in turn our with now which our performed high-margin quarter. I'll solidly line expectations

into around As shifted Appalachian highest fourth offering into previously estate Merlot shifted third series higher series while tier offering, cost volume the quarter. cost Limited our communicated, quarter, the our offering around the

the impacted the we realize from timing quarter negatively shift DTC shift our when this series. our fourth performance, channel third Appalachian the the of benefits to While quarter will look forward performance

the channel see down offerings quarter, these consistently third was overall pleased sales trends the our Although, our we for wine in continually exclusive healthy as bespoke and enthusiasts. club dedicated

well as the Additionally, unfavorable sales spend rooms quite despite weather conditions, reflected the dollar the tasting which our of and as resulted encouraging, in quarter, net inclement customer. performance per growth in was average generally closures higher during

summer on looking and positive to we these the good excited are trends. for bookings Our are also continue capitalizing

will winemaking announced signed an and provide agreement with luxury in bolster company our a for and modern that appropriate we to vineyards equipment wines. planted we operational acquire Valley, state-of-the-art County. Alexander with winery Sonoma and month, the production facility The a Last production fully acquisition capacity

In planted the call. detail the and production more be property this in discussing also to will acres the Lori X Cabernet addition later in Sean to facility, Sauvignon. includes

call end Chief we Fall to have the as deep hired consumer developing Vice the like I'd next our we Gap. proven strategic like Portfolio, to cannot more efforts to Jennifer Jennifer at and her financial Duckhorn of excited successful and At companies I pleased be iconic Officer. Before welcome and President Lori, to leading Financial I turn experience that announce acumen, Funko update CFO track record products given strong Jung May, you Executive our the operational and to are the on process. over of search

if not I be We would entire for dedication while not the would On a leadership, accountability thank tenure Lori Duckhorn behalf of like company. IPO the where Portfolio to XX-year her for a the immeasurable again challenges family, once over global instilling discipline with and other the to contributions way. are the through recession, we along steady hand, a pandemic, and company guiding also culture and Lori's countless today, of Duckhorn

as industry Duckhorn an continued leaves Portfolio Lori luxury but also well wine. leader positioned success, only not as for public a established company, in

she that deeply done grateful best everything her the and are retirement. We for in her wish has

updated to I'll greater XXXX outlook now over year detail. in Lori to hand our it and performance third fiscal quarter discuss

Lori Beaudoin

utmost of be and what is to-date, and to career, earnings here the officially the the team you I a truly on Alex, immensely have My extensive our my long the this you, years fill proudest in call role XX speaking with as incredible and CFO Jennifer's her Thank and talented final have I dedicated It's been afternoon, on ability to interactions we of good my everyone. Portfolio. my period organization. have experience value confidence at pleasure Based Duckhorn effectively.

remain years period believe continue Portfolio a a within of come. the Over my the transition be force will course and I role. and remain will to I pleased grow retiring of for to to a at Duckhorn I strength the am retirement, luxury her advisory next several upon ensure in driving the an and available will to with work official many weeks, seamless company for firmly diligently wine

reflected in to Results will Beginning with $XX.X quarter in consistent I top million, increases. growth the results. negative and planned turn mix mainly now partially to net a line, the expected period decrease our decline expectations. compared our sales X.X% contribution offset our third attributable channel, growth year and to with the in X.X% price volumes by were organic DTC prior price

quarter. mentioned in Appalachian high third cadence series, Kosta fourth the from of offering our into the Merlot Limited channel the largest the time, higher At estate third same previously Browne quarter. quarter our offering, shifted in shift our from Browne, the decrease DTC the tier The into from the quarter series ever resulted margin Kosta fourth

our overall seen sales business. would speaks these timing double-digit to shifts, we of the low quarter, net Absent the which have growth health for

shipment a third the extent, Depletions of account per continued tempered. the velocity labels outpaced quarter in despite growth noted while depletion account, modestly per As Alex be to growth lesser accounts earlier, sold our number challenging to wholesale and driven by growth growth. backdrop

to channel. net as Winery to year distributor XX.X% the over improvement Vineyards representing sales mix returned across realized increasing brand favorable our price Duckhorn quarter, The as the brands. by wholesale Decoy well strongest performance increases prior in Turning growth most and led channel benefits our channel to select period, and saw growth from by brands The contributor.

to quarter. Duckhorn on-premise which earlier, the our Decoy pleased Vineyards contributed California continue X.X% noted to the to we reopening trade with the California year of Decoy especially was the we margin nicely of strong Brands. improvement as As was up by period driven expansion compared and lap and Limited, to we our Winery direct prior gross were for

The throughout direct-to-consumer compared in modestly shift, shift cadence line basis a period. unfavorable our XX.X% offerings. spot, net growing year of with This the channel decrease on prior rooms brown period. DTC outperformed and down sales the nicely was the to aforementioned was weather entirely our the in Without due timing year to Tasting were expectations when despite the bright prior quarter. cost a

This the Improving an of period. On approximately basis, margin, $XX.X prior quarter mix million, basis subchannels XX.X% grew gross gross points million successful adjusted of profit favorable and XXX driven a or $XX $X.X brand million, compared year-over-year. the in year price compared all increases. profit the increase execution of an to X% prior to was represented planned by to adjusted Third increase gross period. XX.X% up year an and

due quarter million increase to to expenses or basis, offset is On due and operating by phasing Total increased expenses quarter. by costs fourth timing period. to an expenses general administrative of favorable in the compared partially selling, compensation expectations $X.X adjusted the X.X%. into X.X% $X.X million certain prior year relative or operating primarily higher to up the The the expenses were total

diluted share million income diluted to Adjusted of net share per and EPS and income was year share period. was compared per the million adjusted $X.XX net EPS was in prior diluted the prior and and $X.XX diluted Net was $XX.X million $XX.X year $XX.X $X.XX share compared in period. $X.XX million $XX income per diluted to per

XX.X% successful year of by for increased the gross sales EBITDA sales mix, benefit XX.X% to the total to X% Adjusted profit This favorable debt. million net leverage our in increases debt the cash declining price of fourth $XX.X shift of had net times quarter, ratio certain At a the we and planned from the into planned robust resulting and in compared quarter. represented increase higher point million of prior operating expenses timing brand reflects sales to $XX.X end XXX of generation $XXX.X period. the of of quarter volumes, execution basis This net million. driven the X.X

Let's turn the our of to for fiscal rest the outlook now year.

in performance our are fiscal we adjusted Given guidance EPS. and EBITDA and XXXX the raising narrowing third adjusted net our quarter, sales, year for

for net X.X% Our share. million $XXX guidance of reflecting sales to of and $XXX now organic Adjusted diluted EPS $X.XX to $XXX to to calls growth. volume $X.XX led adjusted X.X% of per $XXX million million EBITDA approximately million,

our points XXX basis expansion reflect by to versus different profitability on subchannel but differ operating minimal To margin we continued experience expect guide XXXX depending prior gross across can for overall manage subchannel margins expense impact now margin adjusted as gross also approach we in modest mind, our with levels outperformance, an expansion. variability fiscal and our subchannels. gross we Keep improvement of line margin our bottom mix, to

softening the important our That said, ability within performance in year It we including note, embedded year any fiscal our based guidance. in the finish growth also month-to-month that performance the our broader given the luxury variability deliver remain in in especially in the confident quarter, space influence demand broad can year. those late strong considering and is to fiscal to channel

to products we are advantageous We we macro in to that third forward remain fourth has the with broader a in industry quarter. position close strong a out look pleased and seen year. an luxury environment our the quarter despite challenges within Overall, some

details to Sean announced it of over turn to I acquisition. go will now our the recently

Sean Sullivan

Thank Lori. you,

we under the winery be mentioned, to in Alexander Alex pleased for are Sonoma of Valley, County. a As acquisition production contract

an assets, crush of the as enhances our in noted Our the the wines, strategy of with before and custom that capital. quality and production efficient have respect optionality is to between production acquisition to increases reflects of balance we a partners diversification use use in-house manner of optimize and the

the respect Production rarely future. additions in acquisition storage to wineries a California. this And on third-party capacity into bottling necessary of facilities view our with available reduces this scale longer-term custom reliance and are takes and processing,

our to view production plans investment and acquisition future. nicely winery our financial the acquisition visibility as of could optimizing the of growth, we in our positioned and well organic brands By our our goods a processes future this support affording in our into future an with cost in The dovetail greater winery us is and performance. acquisition growth brand years,

The price support more times at acquisition winemaking more our quantify we believe value remain tools wine the to will space, than With be that as to entitlements, specifically. teams to difficult broadly, they the Decoy utilize with to the winery will the need of And acquisition land it of currently forefront making. Winery plan But buildings provide winery. significantly and collectively in X.X This Brand. that hold luxury predominantly value. used our and alone technology the building are the they greater fully mind, than value we ensure for we

From of winemaking power by producing environmental enough Processes and to and a friendly homes environmentally over the during capable of water standpoint, XXX of cooling panel designed facility reduce impact includes the used array environmental the an reuse refrigerant. XXX% process energy is winemaking annually. on-site solar the significantly of to for

employees. of our And time new staffing a provide and ensure production our will an is the will this size appropriate And that to added natural facilities. path be growth at career that note finally, at transaction of we expect for winery XXXX, be all couple quickly, in we plan the employees we capacity should to of The acquisition ideal remaining also transaction half use year type subject harvest. calendar the transition first the and of capacity the the for XX% to closing into while conditions the will customary achieving We weeks. expect next within for XXXX close ready

turn to back Lori I'll the that, With financial the to discuss acquisition. of it aspects

Lori Beaudoin

Sean. you, Thank

the X.X facility. announced, As credit ratio with go the closing acquisition and be continue to was over we the this to After financed $XX price time. purchase X to the acquisition, debt we company's times net from million, of leverage through previously will approximately our existing expect path a times deleveraging

and medium-term EBITDA Duckhorn's cost This to follow planning result both pressure allocating will will control as efficiently through for gross pleased as and financial accretion. on adjusted results I capital. to of consistent by is This it am the of the acquisition accretion incremental EPS adjusted profit our and excellent growth greater goods we benefits well future margin provide believe our and modest a making expense acquisition some as depreciation. wines, of with near-term interest commitment luxury consistent

prepared will pass our to wrap back With that, it I Alex to up remarks.

Alex Ryan

you, I'm pleased our industry. wine financial Thank outperformance strong with and results consistent luxury the Lori. very of

near-term continue I'm dynamic, over Duckhorn the resiliency customers our recent premiumization brands. benefit the remains and of will our Portfolio confident macro as that demonstrate from results term environment to While the the long

have opportunity leverage We luxury space position this year growth year in and on of luxury ahead consumer white in softening considerable force, our impact not we strength recent finish the shifts brands across space wine the committed advantaged and long-term term profitable any our sales on we the to distribution our continue strategy XXXX fiscal our Additionally, remain delivering of strive with space any the have Building to and shareholders. behavior the value our always broader and demand growth do us. within and will create for to long the strong over momentum. sustainable, to

are Sean With take that, and Lori, available your I to questions.

Operator

from is Lieberman Lauren question first Our Instructions] [Operator Barclays. with

now Your line open. is

Lauren Lieberman

some be. still there's trying for to But the white you've to as as triangulate but just through expansion. how the that there's back I forward on-premise. I Thanks. you the white account guess consumer Thanks. be to could to expected, growth consumer Alex, space questions. obviously, mean environment, think range comparisons And some in development 'XX, continued your made first, But about opportunities Is story the to closing space and it this recession it's just to reasonable a in of trends. couple look enough kind just slower you all, Great. go even of talk But next a to given a is mentioned got comments, a I've with of of ongoing that earlier I year. slowdown about comments, wanted recession. support

Alex Ryan

question. yeah, accounts white within opportunity. grasp. We is might our out brand space Yeah, there, still and Lauren. do in new little as on work And to good the still a you but the we I can existing penetration It's believe harder that a have propositions to imagine, still additional think accounts

a big really in long-term growth is significant kind off-premise be majority changed, part hasn't that the our as but of opportunity strategy going to the the remember, a as existing channel still of in just lot that so one of bear that's our regard. mind, whole -- And has though shown. business, And it

that out we're hard stick and with So the are I there opportunities I think get. in think to still going combination, go strategy, to and

Lauren Lieberman

Great. Okay.

– also slowing, signs So in at given your and sounds real like and premiumization the equally about some this but strong your just it see comments of limited it you point, on-premise trends ever. off-premise, to really talked starting are the as commentary, consumer (ph) in was the as still changing no

Alex Ryan

bit, outpaced growth good we that, but And remain that's strong. still positive a We're little going still staying -- to it's good think there. on-premise

Lori Beaudoin

our Hi. when growth Lori. us for This we think Thanks joining today. especially is is Lauren. about Yeah, But impressive. on-premise,

We take continue share. to

of were. We the because in have competitors we where competitors than of stock past steeper some our weren't comps some out our of

some seeing add like great look would. with we take grow our expanded have just team, our But -- where biggest some to team, again and Remember, the opportunity regard results sales off-premise. sales steep and we it we is. we're that. of from just did That's to steep comps share to said So we continuing we're

in slowness seeing So off-premise. yeah, we aren't any

Lauren Lieberman

it I'll then thing, last pass on. and Fantastic. And Okay.

it fun exciting acquisition, in how But more really see the of we to 'XX. of from then be apparent. clear, that about what as thinking this kind that them But become benefits the to flips accretive evolves. that -- For some 'XX pretty dilutive sounds when to reasonable? production in guessing that in-housing be should I'm Is

Lori Beaudoin

Yeah. In take our than start goods remember, XX-month flowing of on a to months through. period of my bit little because the our products takes a about the longer XX first majority cost

through, So those near goods most we of cost some the of we interest start see more of but we flow through is build our wines will and term. this as will as the benefits, selling

Sean Sullivan

you that, just And Speakers] think about I'll if add [Multiple

Lauren - Q Lieberman

That time horizon.

Sean Sullivan

just Yeah. this And is I'd remind Lauren, Sean. --

were one you to visibility we the range in present of balance cost. between custom we -- optimal had decreased about we moving and take to and market our acquisition, we in production crush. on crush situation of would If have think portion the do key as of not we look would larger is, would that not and did of over the this a not at the of kind COGS what would custom elements things a where control those the forward potentially, of and be cost the make That larger began B in-house if we

So it's hedge also both visibility. investment an a but towards

Lauren Lieberman

you agreed with been I’ve Great. so I’ll on. question. pass Okay. it much. Thank this

Operator

with question from Instructions] BofA. Our Peter [Operator next comes Galbo

Your line is now open.

Peter Galbo

shops, guess I and taking guys, Thanks tell for me. changed they question. I the didn't Hey,

Alex Ryan

Peter. Congratulations,

Peter Galbo

Yeah.

were same would positive, taking Alex, it consumer. maybe like you pretty more But had So through strong. feels around points maybe on a and the what luxury conservatism you're hear like time, the mentioned sign-ups couple that the I seems of summer be some you at the saying --

what helpful there's the out unpack like and bucket can the I it to currents be lot you the with seeing feel cross -- some consumer? actually of of that. a ground just pluses of of So luxury there kind you're and would minuses on like just

Alex Ryan

price luxury lot all to a the them brands to speak to continue our but in ability We're grid. some as other of we're businesses, to down resiliency -- our capturing show support can't I continue the consumers our and up it resiliency. wines customers the Well, relates the -- price to seeing of

those to consumers And be the wine made investments want that continue the we're to right very approaches our that strategies confident confident behind we've we're future. capture way so captured to going we're luxury right and in the into they the

trade with but us as to -- offering, into plans partners soft know, receiving. don't that a remain the that in our how little as products partners which I quality if well continue well. we're equally offering important. was the That in the same you, confident they're to on communicating we're for support and we our with think continuing translates trust customers, results, They're prices our I philosophy, our the we're expands is as trade into

Lori Beaudoin

and And was resiliency. visitation visitor average then Peter, to people and up, per to mentioned willingness speaks we did or premiumization you the in see QX which spend and

Sean Sullivan

and course, sustainable. on of the are And wholesale side, gains the balanced

as Lori, you but not sold average number of I account. labels number the also per of only the think noted, accounts was

data showing accessing So of which resiliency a the consumer. we're that the ways in that diversification is seeing information -- that seeing we're and a

Peter Galbo

it. Got

revenue don't helpful. math the And quarter I'm just obviously, No, about with and wouldn't but you're stepped the the have a higher to the seem KB meaningfully quantity out greater fourth base implied but that in the Lori, put Okay. running just the shipping you're gross to quarter. the and implied with product we fourth in that gross thinking that's going and higher margin margin sequentially, align then, shipment margin down fourth quarter, just is pretty I'm the the -- insight, that a spreadsheet

as then XQ that about forward maybe Thanks. think we help understand So go on us just they GMs. and

Lori Beaudoin

Sure. Yeah.

the But the that yes, So in the margin. that are series, thinking driving isn’t margin. is in KB quarter, mix we QX. highest series impact Appalachian don’t product through be that QX, different, overall our pulling the in necessarily which but them will offer we – Appalachian we have we The benefits margin exactly of the same that do fourth also the we see And recognized and the offerings. pricing of gross have will margin the

really of more to in is line the for our guiding way where think about we margin trends year. materialize are will good for year-to-date improved to about we a bps that to kind it, fiscal margin XXX So anticipate be QX with total

I And per straight to want channel. caution doesn’t margin, have down Because earnings different it other don’t by channel. varies our then thing margin, is forget, we necessarily right? to expense flow it the you operating And

margin gross maybe the necessarily about way thinking business So think margin. isn’t best to terms earning more our profit in about of

Peter Galbo

Thanks, guys. it. Got

Operator

Our from next Teixeira JPMorgan. is with question Andrea

Your now line is open.

Andrea Teixeira

congrats, teaching -- I things. great Hi, everybody. such afternoon us One, for and the and Good and guess, you Thank follow-up. leader with real Lori. Alex, along two then being a you a welcome, Jennifer. I question, Can mean,

If the But I think gaining of what terms price on just the understand you gain in been in and wholesale shelf core we've understanding receptive been? successful. per Decoy, of can comment is wholesale, Decoy the Limited particular has distribution, the course, against inventory, seen has for you how sorry, and productivity for landed how how extremely Decoy you're points

gains -- acceleration some seeing channel, you're of California at is we I going Kroger then getting related in should And higher and public all had question the -- obviously, just some on think the these now understand we I that margins. land of you we're of going a with be the direct-to-consumer if of that? in again, but How terms would in believe KB, in forward to some of you that And margin. distribution thinking and all to point. in when And thinking the should lapped channels outside be

thinking should be guidance the carries because point is discrete you the your because even it know relate. fourth there after and in be more quarter. much in if doesn't see that margin difference would a SG&A EBITDA SG&A implies item any for thinking you margin quarter? which I'm really you. if you that were around really heavy EBITDA want makes a that at really changed you Or lower Thank fourth in I higher terms look really the given don't you out if the your gets if SG&A it, we it did XX%-ish thinking that of that getting to to -- margin quarter, a So

Alex Ryan

Okay.

are I think the answer you? How is true.

Andrea Teixeira

How are you doing? [indiscernible]? Good

Alex Ryan

We still some on in great, notes still trying lot Doing a got to your make questions. there.

me our products issues me your yeah, start and to really going not correctly, our to just let out think don't our we're business. saying days as seeing with any just about areas, -- if original I by we're I'm it on start back relates competitors. saying, destocking out hand. comment remember We happy Let to by

have balanced Our sustainable. sold labels gained account. very been wholesale And sales and and we've on per accounts average

planned. again, again, on to hit off we glad investments think, force. our the directly to some continues in So continue it pay that of and we sales We've made I'm did, strategy. as competitors. And I supports outcompeting

couple We about little bit in comps of a some the a talked growth. luxury tough year's had prior of

speak hit prior would the results our think of the still kind it I out of cost growth year to park. plus swapping of the of brown was

the could macro on trajectory happen some is We ourselves up probably all take we we with and talk calls about the there. one-on-one think quite I'm on. environment pleased set going to So what

that our that believe we're continue environment brand still with aware that strategy I macro But pressures even of. to share take we're go-to-market strengths, the going to around all our

give question. a margin Lori, of to maybe you context. might you little So that address bit be over able

Lori Beaudoin

Yeah. Sure.

Andrea, about mentioned about -- So you the a thinking bit little SG&A.

in So into really going is we're favorability, EBITDA and to QX, our enjoy did from And SG&A our adjusted upside timing. that see function of QX. some a margin which flow

Consensus due a to adjusted a give of little consensus. the about versus QX in half So timing is million more context than beat you roughly -- EBITDA $X more to And timing expenses. some said, shift. a of really, in that, more into then context that's, QX SG&A I little selling it's around on a from outside QX. like shifting services And if like you'd little and

Andrea Teixeira

I was I think, -- what you I mean two level. all reminding from higher struggling for I a Appalachian there us not it's the do remember if No, KB profitable Appalachian -- maybe that margin. thank I because think carries Peter's understand time I is DTC is still in as like do as least series to and question, was not Yeah. gross a But believe that also recall, right, is margin shift. particular, the But even on I gross though of Lori that at profitable, GM the

sequential So your gross that what I you by I'm of margin to lower. do Because now visibility puzzled realize going lot be basis know a you're a that would just sell. have on to being Is conservative?

So want the part promos portfolio? find that I helping or on you out you're just the just or of to other

Lori Beaudoin

No.

But is brands our that the through KB some of offset our brand when correct. series of of you're series our upside of that and our and a healthy other look flow and products other have part bit a demand expectation. Appalachian normal does of So nice our The largest offering, offset. winery margin. just of it plan will margins There's we at

how XX% look we we it as we'll for in of how think rolled we up. think flow about really the full land higher around terms year that's little to that will So through, at a bit

Andrea Teixeira

comment depletions Okay. And fine and then, shipments. on your on Alex, just a point

I shorter I said shorter shorter. little of think is think your -- mean, prepared the remarks a depletions, on I little but a

seems about a it's California, regional actually, -- like or be cost which thing puts out thinking a to and about, home of we it is still that call understanding was I'm there is to normal I like think that right? basis? your this of business. call There good is should to is nothing Is So a in major because regional strong, stronghold takes? on how any be terms distribution no news

Alex Ryan

Yeah.

distributors, out always there's depletions bit with what call-outs but is and as hand your going market, our a in -- nothing just really we're nothing variability know this There's and behind to with in no the a Again, comment having call one. cycle, I and position days that that, of there's on no concern good a about in a solid is There's there. shipments. I correct. our be tad with point Your little to balance

Andrea Teixeira

Thank you, it everybody. I’ll pass on.

Operator

Our Kevin is Grundy next question with Jefferies. from

Your line is now open.

Kevin Grundy

exclusively Great. not the everyone. of for the Alex, Question afternoon, seeing we're on that and end. just in probably category sort at slowdown wine Thanks. the more Good value theoretical,

retail inventory curious levels. slowed. There's kind seeing you thoughts the the I'm the about Alex, as So just category. premiumization has It's we're concerning. because this get of And distributor of sort unpack rate concerns in slowdown your of the to

time, been look arrested. the So of the place long market that's has we been well. gained share being certainly as slowed at amount it in premium it when for hasn't level. Certainly, a but This at

that digit are of kind an little as the that looking weakness? bit to unpack you, to factors, as a consumer here I how secular much in you're longer-term crediting this available high-single guys guidance. of sort question, data then are how you have cyclical sort against you driving that of deliver on are factors much you is So to to think you how at to this, concerning some earlier tie And your of crediting

at And in context, over two three have I asked that next the visibility seems you the like distribution, on least the very good it years. to

informing velocity would obviously, and both then a So of secular of at then cyclical, term then longer risk least more that become the it are term. factors seemingly and near

that. you. a Thank So sorry very love thoughts to on your I get for but robust question, would

Alex Ryan

Yeah. They doing? you Kevin. How are are good questions. Hey,

annually had a a (ph), I think ebb not XX longer flow We've cyclical and basis, right, basis, premiumization. of secular wonderful a maybe secular that on of little bit. a years tailwinds of series basis, things but secular

is position that's occupy continue. now a we there a rewarding lot is they're which the and some going have-nots industry unique think -- of and I in we have and scale scale There's think the in very be and I intend to to definitely I the square middle and and to be luxury, right rewarded producers think halves. there's going going being to be of out

Again, some I've have a ups if see to bit continue going since It's Roman downs category couple going wine not and and and purchase so within know excel I is we away. be certainly younger consumers is will to believe we're been strongly The not rise starting said some It's don't top, fine everyone wine increase around little going we a And there. this to this I to it. of believe but new to their levels. the is will to continue before and fine category. I the

of think that's of a beginning new the group new consumers. of I a cycle

continue. I and share the not and changing at to we're going changing continue algorithm, to invest not guess, luxury the long-term support looking our level. business net-net, we taking at how to We're are and going we're we're

going look go we're and it, New working account what to poised that them intend the that. there and opportunities over can the out right? in are and strategically and There's lot we at to we at we to remain forefront after of of going we at do are a get them accounts get not several and out next years

for guess get any. me, I not you're to some you're if So pessimism going at looking

Kevin Grundy

Alex. the refreshing No, appreciate I that's thought. That's great.

a least provided you already that Is for well, you with guys the year, you velocity So but you just good that I'm not next that I it imply have in a guide would seem guidance and this per digit slide that fair at on basis, visibility would as the helpful your in customer provided at on -- very least you distribution on assessment? past, provided asking the a have fiscal line and high-single very in have holds chatted past that guidance alone. in to growth Sean,

Sean Sullivan

would does. That's Yes. a be Yeah, That fair. it right.

to velocities referring September last did term flat had penetration. in to new You're that out analyzing the -- long assume materials over account that the we

So think Alex I And the spoke. that supports correct. which to be positivity would

Kevin Grundy

Lori, you of Okay. Thank much helpful, you best. course, all Thank That's very much. guys. and really very the

Lori Beaudoin

Thanks, Kevin.

Operator

from with Our Wedbush Gerald next is question Pascarelli Securities.

open. Your now line is

Gerald Pascarelli

business your measured a have in wholesale. very channels pricing, XX-year Great. category. -- question Thanks been channels it's taking understanding I you've that have measured I rates, one only much. on price relative the think fairly just know I related guess, consistently I are to narrowed to gaps and

opportunity, in relative your year? would think about longer-term how you Thank incremental rate you. could be managing we gaps as given there color you price take any about your Just any think in margin so, decision helpful. terms provide do of And to the

Lori Beaudoin

Yeah.

So I to price on how long-term think very and a very you've change. heard price we we us use view talk and guarded we're and cautious introducing a approach take about before, Gerald methodical how

mantra, we units, So accounts right? taking by off if one and you by will growth is number our price. So substantially don't plan grow to

and plan increasing, cases our wine moving. growth of keeping Our is selling those

to the take will we we our that to extent interrupt well. So can, plan we don't as want growth but price

Gerald Pascarelli

you it. Appreciate Thank it. very Got much.

Operator

from question Our Ottenstein next Rob with Evercore. is

is open. line now Your

Robert Ottenstein

is of I very that and drinkers much. Thank of the to just take younger want talk much term you prior on off to questions. kind of more And Great. recruitment the the from one longer wine category.

to of about You feel that consumers? are wine, the Do be, industry higher it to worried those recruit terms responsibility all progress in more has wine younger time? and trends and about there. bigger Duckhorn ways, mentioned many some that. play love a in really hear certainly you at younger in you sort in But drinkers of leader to end as here or role bring I'd over

may in media, strategy you younger And that know it business. get longer-term to today just toying kind about of terms just too term, appeal probably you different are does in packaging you're love bigger is -- the build your And as I drinkers, social to of with nothing concerned but the all thoughts. this near again, and picture.

Alex Ryan

mind. are in of talks right? to the we're concerned our consumers always ink the to out is would they're survey wine a this about everything, everything of stuff. all was expensive of value which referring We're that concerned right? Robert. there question. buying I lot. get catch Our buying starting of up is consumers long-term -- good are kind top older that saw to Hey, We've consumers of sign, we ones survey some a XX the younger is growth, the wines indicate be with with a in We Good in the seen job

a but they better we're think I think it think speaks People this when to the What to I little cyclical, desires want I'm can. consumers. all -- seeing and I is not secular, sure more is, premiumization of something try

chain, feeling believe up of you $X, that an wine, So -- moving try a believe enjoy the wine, if try then try you that I $XX. you you $X and of we that

think I and exist. continue that will exists feeling to still

Now I be don't think easy. that's going to

yes, message markets or or out We of at experiential possible support have traditional media, restaurant continue print retail the to to continue work media. invest. the we're get Duckhorn social you're marketing and we to and can in there. And activities we right, type every in obviously throughout the continue to to with winery We're we're an we

So with. our extent approach it's they customers. a that wine, medium communicating making And older with the we we're to are to luxury of make taking to sure long-term and how care we and consumers communicated current multipronged can, of want the where be sure younger

is, invested to people them. do are want how luxury whatever we're some luxury it start wants in in I the things what drinking? younger products. we're want they market it's to what stuff. it, certain a in if consumers, tasting, making way, where What weird We'll traditional we're receive will. doing comments. their see wine packaging -- the market we with focused that the still sure and to is norms. it packaging they making don't that traditional I There's But there's understand out extremely But and the we and on believe couple we think think and the some addressing younger sure are adjustments along and of out You made are going providing go they new, the it we

do any I I We're long we're making plans. a term. yes, believe with with not concerned working luxury we mentioned, in again, I do going disappear. it. it. like the massive -- not ever category Kevin, believe contingency So it's don't wine it's to We're believe over

they it it. the sure just make the to we that, we're we leader get So consumers it. that's they need to their We're on And be to wine, then going whatever and need scaled executing luxury. do address want younger of luxury to of -- however will continue

Robert Ottenstein

much. Great. very Thank you

Operator

call questions, I'll more over no back are There to pass the Alex. so

Alex Ryan

year. thank thank look the want I September for for remainder fiscal quarter when to 'XX outlook again raised late results. All fiscal today speaking us year and performance our we to fourth I our right. quarter to our joining in the you. third report forward again Well, review you and of to you

and care look talking to forward So to everyone, Bye-bye. you take again.

Operator

That concludes call. for participation. conference Thank your you the

You lines. your disconnect may now

The Duckhorn Portfolio, Inc. (NAPA) 8 Jun 232023 Q3 Earnings call transcript