The Duckhorn Portfolio, Inc.

Good afternoon. Thank you for attending the Duckhorn Portfolio first quarter 2023 earnings conference call. My name is Matt and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call for an opportunity for questions and answers at the end. If you'd like to ask a question, please press star followed by one on your telephone keypad. I would now like to pass the conference over to our host, Sean Sullivan. Sean, please go ahead.

Good afternoon, and welcome to the Duckhorn Portfolio's first quarter 2023 earnings conference call. Joining me on today's call are Alex Ryan, our president, CEO, and chairman, and Lori Bedoin, our chief financial officer. In a moment, we will give brief remarks, followed by Q&A. By now, everyone should have access to the earnings release for the fiscal quarter ended October 31st, 2022, that went out at approximately 4.15 Eastern time. The press release is accessible on the company's website at ir.duckhorn.com, and shortly after the conclusion of today's call, a webcast will be archived for the next 30 days. Before we 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. 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. 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. In addition, please note that all total U.S. food scanner data cited on today's call will refer to dollar or unit consumption for the 12-week period ended October 30, 2022. and growth versus the same period in the prior year, unless otherwise noted. With that, I'll turn the call over to Alex.

Thank you, Sean, and good afternoon, everyone. We really appreciate you joining us today to discuss our continued strong first quarter financial performance. Following my opening remarks, Lori will walk us through our quarterly results and also provide an update to our fiscal 2023 outlook. Then we will open the call for questions. In this period of uncertainty, with significant inflationary pressure and mixed economic indicators, we have continued to show strong growth, well in excess of the luxury wine subsegment. Irrespective of the backdrop, the sound and consistent execution of our sales strategy, as well as our powerful brand equity, are further strengthening deep connections with customers. And we are well positioned to sustain our outperformance of the fastest growing subsegment in our industry. With a focus on our execution and the momentum we seek to accelerate every day, I would like to begin today's call by offering a few highlights from the quarter. First, Q1 marked another all-time high in quarterly net sales, with particular strength observed in October. Organic net sales growth was up nearly 4%, which adds to a strong 14% growth rate comparison from the prior year period. This performance is even more remarkable when you consider the fact that Costa Brown's single vineyard release was included in Q1 of the prior year, but will shift into Q2 beginning this year and remain in Q2 in all future fiscal years. Second, net sales were almost entirely driven by a 9% volume growth and continued to be led by our duck run vineyards and decoy winery brands. Moreover, our wholesale depletions growth was even stronger into the high teens, another example of the robust demand of our high-quality luxury wines. Third, the interconnectivity of our brands and our one-stop luxury wine shop go-to-market strategy continued to win as top line growth remained broad-based, excluding the impact of Costa Brown's new shipping schedule, which removed all Costa Brown single vineyard series release shipments from Q1 we realized strong performance that was balanced across the entire portfolio in all channels and across all key distribution metrics, cases, accounts sold, and points of distribution. Fourth, in further reinforcing the strength of our portfolio and how well it resonates with our core luxury consumer consumption trends remain very healthy. Within the fastest growing subsegment of wine, $15 per bottle and above, The Duckhorn portfolio was once again the fastest growing amongst the top 15 suppliers up mid-teens in both dollars and units, and reflecting consistent rate of market share gains that is nearly 2x greater than any other supplier in luxury wine. And fifth, in spite of shipment cadence headwinds from Costa Brown, a winery that carries a higher gross margin than the company average, we delivered a consolidated adjusted gross margin that was up versus the prior year period, a testament to our ability to keenly manage cost of goods and take price where appropriate. Our calculated pricing actions, which primarily took place in early September through a combination of optimizing trade spend and thoughtfully increasing frontline prices, are increasingly flowing through the system. Thus far, we have not seen any dampening effect on demand and no sign of trade down within our portfolio. a likely reflection of our more affluent luxury consumers' ability to absorb modest and thoughtful price increases for our fine wines. Our performance this quarter showcases our continued ability to successfully execute on a multifaceted growth strategy. Beginning at wholesale, we recognize double-digit depletion growth in both on- and off-premise channels, reflecting positive contribution from all key sales metrics, with particular strength in total accounts sold, which was up double digits in the quarter. As we discussed on our last earnings call, increasing new accounts is our primary focus for further penetrating the considerable wholesale distribution-wise-based opportunity we have in front of us. And within this focus on new accounts, we believe our greatest growth opportunity is in the off-premise channel, which represents the majority of our current wholesale business. In addition to double-digit account growth, off-premise depletions were also bolstered by solid gains in both points of distribution and velocities per account. While off-premise sales were the greater driver of Q1 growth by channel, I am particularly proud of our team's on-premise execution. Against a significant year-over-year comparison, the on-premise channel still grew depletions by double digits, highlighting continued strong sell-through for our high-quality luxury wines, particularly as fine dining remains resilient. We believe we are well-positioned for ongoing share gains in the channel given our scale and distribution leverage, reputation as a reliable supplier within luxury wine, and our trade partners' confidence that our brands will sell. In addition, much like we have in the past, we will continue to make the strategic investments that we believe are needed to advance our growth agenda and fortify our competitive position. I'll now turn to our high-margin direct-to-consumer business, which is also performing well. In spite of shipment cadence headwinds for Costa Brown, we see healthy trends in our wine club sales as we continue to impress our most loyal customers with new, innovative offerings by providing each visitor an exceptional luxury wine experience. As we move into the second quarter, we feel good about how the direct-to-consumer channel is shaping up. Costa Brown's impeccable track record of demand outpacing supply continues into the present, with our single vineyard series released providing the latest example of this dynamic. Now, for a moment, let me touch on one of my favorite areas, product innovation. I'm really excited about several of our new releases, including Decoy Brut Cuvée, and CanvasVac Red Mountain Merlot, as well as the solid pipeline of new product innovation coming to the market in the next few months. We have a rich history of successfully innovating within the luxury subsegment. It is a strategic pillar that allows us to continue to outpace the industry, and we are confident that these new product introductions will be an important aspect of our continued growth. Before I turn things over to Lori, I want to comment on another important development today. As discussed in a press release this afternoon, Lori has announced her intention to retire as our chief financial officer next spring. Lori's professionalism, intelligence, warmth, and moral character have been an inspiration to me and all of us at Duckhorn over the past 13 years. She's a strong leader with a clear vision, and she will leave this company strong and eager to take on the next set of opportunities. We would not be where we are today as a leading platform for high quality luxury wines if not for Lori's sound leadership and dedication over her career with the company. She has truly been instrumental to the success of Duckhorn Portfolio and we are tremendously grateful. We are conducting a national search for our company's next CFO and we expect Lori to continue as CFO until our new CFO joins us to ensure a seamless transition over the next few months. Lori also plans to serve as a senior advisor to the company after the transition, which will afford her thoughtful counsel into the future. With that, I'll now turn it over to Lori to discuss our first quarter performance and updated fiscal year 23 outlook.