The Duckhorn Portfolio, Inc.

Good afternoon, and thank you for attending today's Duckhorn Portfolio Q4 and Full Year 2023 Earnings Conference Call. My name is Sierra, and I'll be your moderator for today. All lines will be muted during the presentation portion of the call, with 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. Please proceed.

Good afternoon, and welcome to the Duckhorn Portfolio's fourth quarter and fiscal year 2023 earnings conference call. Joining me on today's call is Jennifer Fall Young, our Chief Financial Officer. Following my opening remarks, Jennifer will walk us through our quarterly results and the details of our fiscal year 2024 financial guidance that we are issuing today. I will then conclude with some closing remarks before we take questions. By now, everyone should have access to the earnings release for the fiscal quarter and fiscal year ended July 31st, 2023, that was distributed at approximately 4.05 p.m. Eastern time. The press release and an accompanying presentation are 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 gap measures. In addition, please note that all retail scanner data cited on today's call is sourced from Sercana, which was formerly known as IRI, and will refer to dollar consumption for the 12-week period ended July 30, 2023, and growth versus the same period in the prior year in U.S. tract channels, unless otherwise noted. Before we discuss our financial performance and outlook, I would like to share an update about our company's leadership team. As you may have seen in a press release issued a few moments ago, we have announced that Alex Ryan retired as our president, chief executive officer, and chairman to focus on family and personal matters. We wish Alex well and thank him for his 35 years of leadership and service at the Duckhorn portfolio. In light of Alex's retirement, I'm also pleased to announce that our board of directors voted to appoint Deirdre Mullen to act as our interim president, chief executive officer, and chairwoman. Deirdre is an excellent choice to lead our company through this transition, given her close work with the company and management over the past nearly three years, and her extensive expertise in the alcohol beverage industry. Deirdre spent nearly 20 years in leadership positions at Diageo. From 2010 to 2015, she served as Chief Financial Officer of Diageo PLC. She also served as Chief Executive Officer of Diageo North America between 2015 and 2020. Since early 2021, she has been a key collaborator with the company's veteran leadership team that continues to boast more than 60 years of collective experience at Duckhorn. My colleagues join me in excitement about Deirdre accepting this most important leadership role in our company. Stepping back, the success of the Duckhorn portfolio has always been the result of our philosophy, the collaborative efforts of our amazing team, and our unwavering commitment to producing the highest quality wines. At its core, The Duckhorn portfolio is made up of more than 500 passionate employees. Our team, our values, and our commitment to excellence have always been and always will be the foundations of our success. We look forward to you getting to know Deirdre very soon as she settles into her new role at the company. Moving now to our financial results, I'd like to start by saying how pleased we are with our fourth quarter and full year performance. Net sales grew 28% in the fourth quarter, resulting in full year sales growth of 8%, complemented by full year adjusted EBITDA growth of 13%. Our strategies to drive profitable sales growth through leveraging our brand strength, evolving our portfolio, expanding our wholesale network, and growing our DTC panel continues to pay off. Before Jennifer discusses additional details about our performance, I will share some observations on the industry, including recent trends in retail wine sales. Stepping back with a broad view, we are pleased to see signs that the total U.S. wine industry seems to be turning the corner. the $25 and up sub-segment turned positive in the 12-week period ended July 30, 2023, and the luxury wine segment, wines at $15 and above, grew at 5.4% in the same 12-week period. We continue to outpace the broader luxury segment on a full-year basis. The Duckhorn portfolio grew 9.1% versus just 1.6% for the luxury segments during the same period, as measured by Cercana. We are encouraged by wine trends showing signs of a rebound and remain confident in our ability to continue to outperform the luxury wine segment and take care in this coming fiscal year. Now, I would like to note a few highlights from the fourth quarter. First, on the top line, we performed in line with our expectations with net sales increasing 28% over the prior year. We planned fourth quarter growth to be the most robust of the year, given the cadence shift in our cost-to-ground Appalachian offering and expected strong wholesale growth, and we achieved it. Wholesale net sales increased 20%, with performance strongest earlier in the quarter. Direct-to-consumer net sales increased 75%, driven by the shift of the Costa Brown Appalachian offering from the third quarter last year to the fourth quarter this year. Second, our volume grew by 10.6%, which reflects an acceleration over the third quarter. Consistent with typical seasonality patterns, shipment growth in the quarter modestly outpaced depletion growth, but depletion growth and shipment growth were in line with our expectations for the full fiscal year. And importantly, at the end of the fourth quarter, wholesale channel inventories were consistent with our expectations. Third, our portfolio remained a category growth leader within the $15 and up luxury segment, where we continue to take care. And finally, we posted an improved adjusted EBITDA margin of 34.2% versus 28.6% in the prior year. The fourth quarter benefited from the shift of the Costa Brown, Appalachian offering and robust growth margin expansion resulting from opportunistically lean trade spend. Let me take a moment to update you on another aspect of our growth strategy, growing the number of accounts in which our luxury wines are sold. As part of our annual assessment of our total addressable market for the wholesale channel, We calculate the number of accounts in which our luxury wines are sold and set a target for its future growth. We are pleased to see the number of accounts sold grow from 59,000 as of June 30, 2022, to 65,000 as of June 30, 2023, reflecting greater than 10% growth in the number of accounts. There remains significant white space We are targeting that the number of accounts at which our wines are sold to grow at a CAGR of 7% to 8% over the next four years. I would like to share a brief update on the production winery we acquired in June in Sonoma County. As we have noted before, our strategy with respect to the acquisition of production assets is to optimize the balance between in-house production and the use of custom crush partners in a manner that enhances the quality of our wines, increases diversification and optionality, and reflects an efficient use of capital. Production wineries of this scale are rarely available in California, and this acquisition reduces our reliance on third-party custom processing, storage, and bottling, and takes a longer-term view with respect to future capacity requirements to meet our long-term growth plans. By optimizing our production processes and affording us greater visibility into our cost of goods in future years, we view this acquisition as an investment in our future growth, our winery brand, and our financial performance. With that, I'll now hand over the call to Jennifer to take us through our Q4 performance and preliminary fiscal 2024 guidance.

Thank you, Sean, and good afternoon, everyone. Beginning with our top line, net sales were $100.1 million, an increase of 28.3% compared to prior year, and consistent with our expectations. The growth was driven by both strong price mix and volume growth, supported meaningfully by the shift in the Costa Brown Appalachian Series offering into the fourth quarter of this year. We have a long-term pricing strategy for our luxury wines, and our planned price increases during the past fiscal year were well-received by both retailers and consumers alike. We continue to take care at all price points within the portfolio. Our D2C channel was a major driver of our consolidated net sales growth, benefiting from the previously discussed shift in cadence of the Costa Brown Appalachian Series offering. As a reminder, this movement is simply a cadence shift that was a headwind in the third quarter and a tailwind in the fourth quarter. Wholesale shipment growth outpaced depletion growth in the fourth quarter, but the shipment growth and depletion growth were imbalanced for the full fiscal year. On a net sales basis, the wholesale channel hosted strong double-digit growth driven by off-premise demand from national accounts. From a sub-channel perspective, off-premise was a key growth driver in the quarter, outperforming the growth of our on-premise sub-channel and showing strength in depletions, account sold, and number of labels per account. Despite lapping a tough prior year comparison that had benefited from the continued on-premise reopening, we still grew our on-premise account base this quarter. As we have noted on prior earnings calls, our exclusive focus as a producer of luxury wines means that we emphasize placement of our wines on wine lists in fine dining restaurants and other on-premise locations. To expand briefly, On the net sales performance by sub-channel in the fourth quarter, the wholesale to distributor sub-channel continues its growth trajectory this quarter, increasing an impressive 23.9% over the prior year, driven by a combination of case volume growth and favorable brand mix led by our Duckhorn Vineyard and Decoy Winery brands, with continued expansion of Decoy Limited in the channel. The California direct-to-trade sub-channel was up 7.3% compared to the prior year on healthy volumes and pricing. We are pleased to see this growth in California, which is already our strongest state. The direct-to-consumer channel increased 75% when compared to the prior year. This increase was largely anticipated given the cadence shift of our custom round offering. Excluding the impact of the timing shift, B2C net sales would have increased solidly in the quarter. Our strategy to drive our direct-to-consumer business through customer engagement in our tasting room is proven out as our per-person spend is higher than pre-pandemic levels. Fourth quarter gross profit was $55.3 million, an increase of $16 million, or 40.6% compared to prior year. This represents a 55.2% gross margin. up approximately 480 basis points year-over-year, improving due to the shift in the timing of the Custom Brown Appalachian Series offering and in our wholesale panel as a result of successful planned price increases and lower discounting. Total selling, general, and administrative expenses were $30.4 million, an increase of $2.7 million, or 9.8%. The increase was primarily attributed to higher compensation costs as we continue to invest in our workforce and deliver on our long-term growth strategy. Net income was $17.8 million or $0.15 for diluted share. Adjusted net income was $16.7 million or $0.15 for diluted share, which nearly doubled from our fourth quarter of last year. The increase in adjusted net income was driven by higher net sales and higher gross margin percent compared to the prior year, partially offset by higher operating expenses, interest, and income taxes. Adjusted EBITDA was $34.2 million, an increase of $11.9 million, or 53.5% year-over-year growth. Adjusted EBITDA margin improved 560 basis points versus the prior year. The increase was driven by higher net sales and improved growth margin, primarily as a result of pricing optimization, partially offset by higher operating expenses. Overall, our fourth quarter was a solid end to a strong year at the Dec Horn portfolio. At the end of the quarter, we had cash of $6.4 million and total debt of $233.8 million. As a result, our leverage ratio declined to 1.6 times net debt. Let's turn now to our initial outlook for full-year fiscal While we are mindful that ongoing macro uncertainty can impact customer discretionary spending, we believe we are well-positioned to continue outperforming the overall wine industry and taking care in luxury wine due to our superior brand strength and scaled, highly diversified business model. We expect to realize volume-driven top-line growth up mid-to-high single digits. Net sales contribution will be balanced across our sub-panels and brands, with a profitability growth consistent with the top line. Adjusted SG&A will increase in total dollars, but decrease as a percentage of net sales, as we continue to make disciplined investments to execute against our considerable distribution of white space opportunity, which underpins our long-term strategies. For fiscal year 2024, we expect net sales in the range of 420 million to 430 million, which represents growth of 4 to 7 percent. Adjusted EBITDA in the range of 150 million to 155 million, which represents growth of 4 to 7 percent. Adjusted EPS in the range of 67 to 69 cents per diluted share. This includes approximately $0.02 per diluted share of pressure due to the Geyserville facility acquisition in late fiscal year 2023. Capital expenditures of approximately 8 to 10% of net sales. Interest expense in the range of $14 to $16 million. And an effective tax rate of 25 to 27% of pre-tax income on a U.S. GAAP basis. Due to the seasonality of our business and the variance in prior year comparatives, we thought we would provide some additional color on Q1 and the first half dynamics. While the first half of the year is expected to be proportionally in line with last year, rows will be specifically within Q2, with Q1 to show some downward pressure as we lap some shipment timing in the first half of the prior year. For Q1, we are looking for a high to mid single-digit decline given last year's steep wholesale increase. As a reminder, the prior year Q1 benefited from shipment timing favorability, part of which was pulled forward from Q2 into Q1 as distributors stocked up to avoid logistical challenges or to secure inventory before price increases. I want to reiterate, as we have discussed in the past, that quarter-to-quarter volatility in shipment volume is common given the relative size of our wholesale channel business, and the timing movements across quarters are not meaningful indicators of the underlying health of the business. In terms of seasonality, we expect first half and second half proportionality that is generally in line with our historic trends. We also note that the second half includes some refinements to shipment cadence between Q3 and Q4 for our Costa Brown offering as we continue to strive for the optimal customer experience in bringing these exceptional wines directly to our customers. These movements in shipment timing will bring net sales out of Q4 and into Q3 relative to prior year. For fiscal year 2024, we anticipate downward pressure on gross margin of up to 50 basis points as we restore pricing to more normalized levels. On a full year basis, our growth outlook is in line with our long-term growth algorithm, and we remain prudently optimistic despite some potential industry and macroeconomic pressure. In conclusion, we are pleased with our fourth quarter and full year 2023 results. We continue to outperform and take care within the luxury wine segment, and I believe we remain in an advantageous position within our industry as we look forward to a strong fiscal year ahead. I will now hand it back over to John for closing remarks.

Thank you, Jennifer. We're very pleased with our strong financial results and our consistent outperformance of the luxury wine segment. While the impacts of the short-term macroeconomic environment are challenging to predict, we are confident that the Duckhorn portfolio will continue to deliver in the long term against our growth strategy with results that demonstrate the strength of our brands and the resiliency of our customers. We remain committed, individually and as a team, to delivering sustainable, profitable growth and will always strive to create value over the long term for our stockholders. With that, Jennifer and I are available to take your questions. And we would appreciate a focus on questions about our business strategy, financial performance, and guidance for the new fiscal year. My statements earlier in the call and also the press release issued earlier this afternoon include all of the information we have to share today with respect to the CEO transition.

We will now begin the question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. To remove your question, press star followed by two. And if you're using a speakerphone, please pick up your handset before asking your question. Our first question today comes from Christian Jonquir with Bank of America. Please proceed.

Hey everyone, you have Christian on for Pete. Before we ask her question, I just want to say it was a pleasure working with Alex and we wish him the best. First, what needs to... Sorry, sorry, go ahead. I said we do too. So first question and then I have a quick follow-up. What needs to transpire for you guys to hit the high end of your sales and EBITDA outlook?

Hi Christian, this is Jen. Nice to meet you. You know, As we talked about a little bit in our performance in FY 2023, part of our longer-term goal in terms of gaining market share really comes from really our account growth that we see in both on and off-premise, as well as continuing to attract new customers into our portfolio. So we will continue with that strategy. It has been working, and we definitely see a path for that for our upper end of our guidance. We are just keeping in mind that there are macroeconomic and industry headwinds out there, but we feel really good about our top-line guidance that we put forth.

Okay, perfect. Thank you, Jennifer. And then one follow-up. I believe you touched on this towards the end of your remarks, but just the cadence of seasonal revenue for this – the cadence for the seasonal revenue for fiscal 23 changed because of the timing of cost of brown shipments. Is it fair to assume that sales seasonality for fiscal 24 for the first and second half should look closer to what it was in fiscal 23, right? Are we thinking about that correctly? And thank you.

Yes, directionally. You know, we say proportionately we feel on a half basis, which I think is where you were starting, you should see the same cadence on a half basis there. just keeping in mind that we feel really great about the Costa Brown offering and how it performed in Q4, obviously driving a lot of growth. But we do think moving it back into Q3 will be more optimal for our customers. So you just have to think about that as you're looking at the quarters.

And Christian, we have an investor deck that was just filed a few minutes ago as well. If you take a look at that, it's got a really helpful schematic that will put a finer point on that for you. with respect to the cost to Brown office.

Perfect. I'll pass it along. Thanks, guys. Thank you.

Thank you. Our next question comes from Lauren Lieberman with Barclays. Please proceed.

Great. Thanks. Good afternoon, everyone. First, I'm going to touch on the off-premise versus on-premise trends. I know you've mentioned that off-premise was outperforming, but what sort of assumptions underpin the 24 guidance in that regard? And then also within the on-premise, just curious what you're seeing in terms of consumer trade down, how you feel about your availability on wine lists of having some of your lower or more moderately priced offerings available, NP accounts at this point, or if that's something that is building as an opportunity to have more installation.

Yeah. Hi, Lauren. This is Jen. Great to meet you. How we saw performance, as we mentioned in our speech this year, was a lot of the growth did come from off-premise, which we felt really good about. Solid growth, both on-premise and off-premise, had account growth in the quarter and on the year. So we are seeing favorable results in each channel. What you saw in on-premise is that based on FY22, there's just a bigger hurdle, so the comps were a little bit tougher. So although it did grow and we feel great with the performance, we were just comping a reopening in 2022 of on-premise. As we look forward, part of our growth trajectory is to expect that both on- and off-premise will continue to grow from an account perspective, and that's where our new sales team is focused as well as the rest of the leadership team. And we will continue to get more of our wines into both the on-premise and off-premise category, knowing that there are some puts and takes with label mixes as we move through a year.

And with respect to trade down, I would note relative stability, frankly, across the price points in the portfolio. The luxury wine category experienced a softening of demand and then some increases in its overall performance. but we're focused on our performance relative to that, which has continued to be quite strong as we take share. I would point out also our account growth, which I think is the first of the three key vectors to wholesale growth, going from 59,000 to 64,000 as of June 30th, 2023, and a projection that we take out at a CAGR of 7% to 8% over the next four years for growth. That comprised both primarily more so of off-premise than on, but that is, I think, the underlying element of wholesale that also should be kept in mind.

Okay, great. And then also I just wanted to ask about promotions. I know, you know, Goal has been to keep making progress on, you know, kind of tempering promotions. Just any kind of color you could frame, you know, to frame kind of the work that, you know, has been done over fiscal 23 and kind of how much room is left going forward on that promotional depth and frequency conversation.

Yeah. We saw a significant improvement, as you saw, within our gross margin as we had very limited promotions in the back half of the year. We do expect, and it's made substantial improvements over FY22. For 2024, as we noted in our call, we do expect to go more to a normalized basis of promotional cadence, and really that is just thinking about what other consumer pressures or industry pressures we're seeing. But we do not think it will get back to the higher levels of the 2022, and we will continue to monitor that and be very strategic about our allocation strategy to make sure that we are bringing all the margin dollars possible to the bottom line.

Okay, great. Thanks so much.

Thank you. Thanks, Lauren.

Our next question comes from Andrew Sterlik with BMO. Please proceed.

Hey, good afternoon. Thanks for taking the questions. The first one from me is on your comments about the wine industry turning a corner. You know, I completely understand, obviously, that your goal and objective is to gain share relevant to the category. But, I mean, why do you think that that is the case, the turning the corner comment? Is it sustainable or is there something that's changed? I'm just curious kind of how to frame that.

Sure. Good afternoon to you, by the way. I think as we look at luxury, so I think the first thing, as you probably have heard us talk about on many occasions, I think a look at the total wine industry is less impactful than looking specifically at the luxury category, which we define as $15 and above. The data that we see, which is a mix of the Zircona data, which focuses on about a third of our business, the scanner data, and other data points that we have and look at for the broader industry and for us specifically, show that luxury itself is turning that corner and starting to see a re-acceleration. I think our viewpoint is probably a function of a number of factors. Some of it is related to the macroeconomic environment. Some of it is related to the choice of younger consumers, some of whom may say, I'll drink a little less, but I want to drink a little better. And some of it might just be the sort of time of year we're going into with the upcoming fall season and holidays. But I think if we look at it all together, I think what we feel buoyed by is an overall deceleration of the decline, and now we're seeing some acceleration. We're cognizant that the industry as a whole won't be a straight line. There'll be some wobbles, faster growth or slower growth. But we like the overall trends. But we also particularly like our ability to take share and outperform our peers. And that has been the hallmark of something we've talked about on this call and on other calls is a very consistent long-term pattern that we have established through the work of our sales force and the organizational prowess that I think we bring to the table. So our outperformance, I believe, will continue. in addition to what we hope is an industry that really has turned the corner.

Okay, very clear. And then my second question is just on the gross margin outlook that you provide in understanding that, you know, kind of normalizing pricing is playing a role. But can you just talk about some of the key puts and takes across the cost buckets, the levels of inflation, those types of things, any texture would be very helpful. Thank you.

Yeah. Nice to meet you, Andrew. So as we kind of look forward to our gross margin, we did note that we did anticipate some pressure coming into 2024. And really, a lot of what underneath the covers, what you're seeing in that is we did note the trade spin because we did see significant favorability in trade spin in 2023, particularly in the back half. So as we look forward, that'll be more normalized. And then also, there will be some puts and takes from a channel perspective. And although this all nets out at the bottom at our adjusted EBITDA, you know, once you kind of layer in SG&A, the channel is kind of neutralized. But, you know, as we continue to grow our out-of-state wholesale distribution network, which has slightly lower margins than our in-state California wholesale network. So as those growth rates go a little higher, then you'll see a little bit of pressure on the margin. But it does support that growth rate in out-of-state supports our long-term growth strategy. It's just more opportunity and white space and out of state than our highly penetrated California market.

Got it. Okay. Thank you. I'll pass it on. Thank you.

I apologize, I was having a technical difficulty. Thank you again for your questions. As a reminder, it is star one to ask a question and star two to remove. Our next question comes from Andrea Texera with JP Morgan. Please proceed.

Thank you. Thank you, operator. I just wanted to first thank you, Alex Bryan, for his impressive contribution to this company and also to the California wine industry as a whole and also so accessible to investors and welcome you, Jennifer. Looking forward to working with you. And my question is, what was the underlying depletion rate from wholesale to retail? I know that puts and takes, of course, and Jennifer, you just discussed how you're growing into that and gaining more distribution. But by the same token, of course, you had a very strong fourth quarter, but your guide implies at midpoint, I think it's a 6% upline growth. And assuming that you had approximately 2% to 3% pricing benefit in the year that just closed, I'm assuming that is still a carryover effect or, in other words, it would take you to about 3% to 4% volume growth only. I'm just trying to piece it together. I understand that, obviously, you tend to be more conservative, but it's slightly below the algorithm. So just wondering if you can elaborate more on that.

Yeah, thank you, and nice to meet you as well. So the pricing that the organization took last year in fiscal 2023, the prices were effective, I think, September 1st, but, you know, it takes a while for sometimes for those to take effect, and we did have a lot of buy-in early prior to the price increases in the quarter. So sorry about that. So as we look forward, we do see our growth in 2024 to be primarily driven out of volume because those price increases have really kind of – we're lapping those already within this quarter.

And if you – that's helpful. If you can talk about like how much more distribution gain or TDPs you're looking to gain outside California to kind of illustrate that, because I know you're gaining a lot with Kruger and a lot of different retailers, so if you can give us a little bit of a cadence, and then obviously, understandably, the first quarter has that bump, not bump, I would say the opposite, tough comparison, so if you can kind of help us think about shelf resets and how to think in a more kind of cadence into the year.

Sure. Hey, André, it's Shawn. I will take the first part of that question and then pass to Jennifer for the second part. I would focus first, if you recall, in the wholesale channel are three vectors, right? We have the number of accounts sold, the number of SKUs per account, and then the velocity of those SKUs turning. So focusing on the first of those three vectors, we saw over the last year an increase from 59,000 to 65,000 accounts sold. We are looking, as we project forward over the next four years, our goals show a CAGR of around 7% to 8% of growth, which puts you at about 86,000 accounts. So I think the upside of that, as you think about the story on a year-to-year level, is there is a clear path to support elements of growth that is foundationally laid in the number of accounts. And then with our large white space, the fact that even in 2027, with these projections, we would project a penetration of about 27% of the accounts that would be appropriate for our luxury wines. We have a very nice runway there. The other elements of growth then support that. Once we're in an account, it's easier for the sales team to offer them one of our other wines in the portfolio because of its brand strength. And of course, we like to believe, and I think we have a good indicia of the consumer demand for our wines, which then leads to faster velocity of those wines. And that's obviously something that's pleasing to the retailer and the distributor. So as we look at that on the whole, from just sort of as you're building out the model in the longer term, that's kind of how we're looking at the wholesale growth and the components of it. Within fiscal year 24, Jennifer, maybe you can...

Yeah, as I noted earlier, within Fiscal 24, it really is volume-driven. Our volume growth is supported by the account growth, and obviously, which is fueled by the depletion growth. So really focused on account growth outside of out-of-state, as well as just from a volume perspective.

And then just a fine point. This is super helpful, but just a fine point on the volume aspect. issue in the first quarter is just like inventory buildup or just really tough comparisons as you go into the first quarter?

It's absolutely really tough comparisons as we go into the first quarter. We had a very strong Q1 FY23 in our wholesale channel, which was driven by the price increases and our distributors buying in earlier to get their inventory prior to the increases, as well as A few logistical challenges, we believe, happened within our suppliers. They were making sure they could actually get our product. So as we look forward to FY24 Q1, we're just comping those. So you'll see the growth in the first half, but you'll see it in the second quarter. And hopefully, we kind of talked about that on the call. Overall, we feel the inventory levels are super healthy out there, and our Q1 guide has nothing to do with our inventory levels out in the marketplace.

Okay, that's fair. Thank you. Thanks.

Thanks, Andrea.

Thank you guys for your questions. There are no questions waiting at this time, so I'll pass the conference back over to Sam or Shawn, I'm sorry, for any closing remarks.

Thank you. We want to thank you again for joining us today to review our fourth quarter performance and to present our guidance for fiscal year 2024. We look forward to speaking with you again in December when we report our first quarter results. Until then, take care.

That will conclude today's conference call. Thank you all for your participation. You may now disconnect your line.

And thank you for the... And thank you for the... Have a good one.