The Duckhorn Portfolio, Inc.

Good evening, ladies and gentlemen. Thank you for joining today's Doug Horne Portfolio Q1 2024 earnings conference call. My name is Tia and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star one on your telephone keypad. I would now like to pass the call over to Ben Avena Tapper. Please proceed.

Good afternoon and welcome to the Duckhorn Portfolio's first quarter 2024 earnings conference call. Joining me on today's call are Deirdre Mullen, our interim president, chief executive officer, and chairperson, Jennifer Fall Young, our chief financial officer, and Sean Sullivan, our chief strategy and chief legal officer. In a moment, we will give brief remarks followed by Q&A. By now, everyone should have access to the earnings release for the first quarter ended October 31st, 2023, that went out at approximately 4.05 p.m. 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 I begin, I would like to remind you that today's discussion contains forward-looking statements based on the environment as we currently see it, and as such, includes risks and uncertainties. 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 retail scanner data cited on today's call is according to CERCANA, which was formerly known as IRI, and will refer to dollar or unit consumption for the 12-week period ended October 29, 2023, and growth versus the same period in the prior year in U.S. tract channels, unless otherwise noted. With that, I will turn the call over to Deirdre.

Thank you, Ben, and good afternoon, everyone. Thank you for joining us today to discuss our first quarter 2024 financial performance. Following my opening remarks, Jennifer will walk us through our quarterly results and our fiscal year 2024 financial guidance. We are pleased with our execution on the quarter as we delivered top and bottom line results at the higher end of our expected range. Net sales were $102.5 million in the quarter, and adjusted EBITDA was $34.7 million for an adjusted EBITDA margin of 33.9%, a 90 basis point improvement over the prior year, driven by gross margin improvement and active management of operating costs. Due to some signs of softening in consumer sentiment, and luxury wine trends, we now expect net sales to come in at the lower end of our previously announced guidance range. Accordingly, we are narrowing the net sales guidance to $420 to $427 million, which reflects an annual growth rate of 4 to 6 percent. This reflects our expectations for continued share gains, albeit adjusted for a near-term lower industry growth rate. Despite this reduction in our top-line outlook, we expect to maintain our previously communicated adjusted EBITDA margin as we manage our spending to account for this revised sales outlook. This translates into a range of $150 to $153 million in adjusted EBITDA for the fiscal year. It's important to note the climate within which we're delivering this full year growth. According to Cercana, growth in total wine softened, as did the luxury wine segment, defined as $15 and above. In the last 12 weeks, the luxury wine segment was flat, and total wine overall declined 1.6%. While we cannot control the macro environment, which has been mixed, The Duckhorn portfolio brands have continued to demonstrate relative strength in their respective tiers. We are confident in our comprehensive strategy and have a track record of profitable sales growth through a variety of industry climates. Our initiatives to support our strategy remain leveraging our brand strength, evolving our portfolio, expanding our wholesale network, and growing our DTC channel. I'll now share some of the highlights from the quarter, driven by strong execution on our initiatives. Net sales were down 5.2% at the higher end of our expectation for a first quarter decline of mid to high single digits. This outperformance was partially driven by timing, as some shipments anticipated for November came in earlier than expected and shifted into Q1. As we shared, On our last earnings call, in Q1, we lapped a unique first quarter of fiscal 2023. Last year's first quarter was marked by strong buys in wholesale, as distributors and retailers alike placed unseasonably large orders, specifically for our higher-priced Duckhorn wines. The result was an all-time high for quarterly net sales, driven entirely by volume. Accounting for this challenging comp, we continue to see our wholesale performance ahead of the broader market, demonstrating our brand strength. It is worth noting here that we have always managed this business for the long term, and quarterly variability is normal in this sector. Volume trends are affected by a number of factors in the supply chain as distributors and retailers adjust to demand signals and manage inventory levels accordingly. The full-year guidance Jennifer is discussing today is consistent with our objective to deliver profitable growth over the long term. On the direct-to-consumer side, net sales declined 10.8% in the quarter, partially driven by a reduction in event revenue due to planned renovations at some of our tasting rooms. There is opportunity for improvement for our DTC business. which is one of our five key growth drivers. Our Q1 results are emblematic of broader post-COVID trends in consumer behavior. Across Napa Valley, hotel occupancy rates have dipped, but room revenue has continued to grow, as strong demand at the highest end has buoyed average room rates. We're actively adjusting our DTC approach to respond to changing consumer behavior and tap into the strength at the ultra high end, and we're seeing some positive results. For example, although the number of visitors and spend per visitor were soft in the quarter, we've seen a strong response to our elevated tasting experiences, where spend per person can be considerably higher than our traditional tasting programs. From a total volume perspective, Q1 declined 3.4% in line with expectations. Shipments to wholesale declined 3% in the quarter, while depletions declined at a slower rate. Wholesaler inventories remained at a healthy level and in line with our expectations. While days on hand ticked higher year over year, this was primarily driven by lower than ideal levels during the peak selling season last year. Drilling down within our portfolio, we see performance slightly ahead of the industry overall, with some areas of particular strength, including Decoy Limited, which had great success expanding into Merlot. The evolution of our portfolio is another important growth driver as we leverage our carefully curated collection of luxury wines across a range of price points and taste profiles. While retail sales for the total wine category decelerated in the last 12 weeks, the $15 to $25 segment outperformed. Decoy was soft at this price point during the period as the brand absorbed recent price increases and lapped an unusually strong quarter in the prior year. The impact was mainly in the red varietals as decoy whites grew ahead of the sub-segment in this period. We remain confident in the brand's ability to distinguish itself from direct competition within its tier. Our higher price decoy limited, as I mentioned, demonstrated continued strength in the quarter with double-digit retail sales growth, and we view this as another proof point that consumers remain willing to pay for luxury wine. Overall, our market share remained consistent. From a channel perspective, despite a challenging environment, we were pleased to report that our account bases increased in both the on-premise and off-premise channels of the business. We believe this to be testament to the strength of our brand and the confidence of the retailers to take stock in our wine, as well as the distributor and sales team efforts in achieving our goals of addressing the distribution opportunities in the marketplace. To conclude, our portfolio of brands performed well in what has proven to be a challenging market environment. While our execution and the strength of our brands partially insulates us from the broader consumer sentiment, we are not immune. Reflecting this climate, we now expect net sales to come in toward the lower end of our guided range, which we are tightening to $420 to $427 million or 4% to 6% year-over-year growth. We expect to maintain an adjusted EBITDA margin consistent with our prior communication as we carefully manage our expenses. With that, I'll turn it over to Jennifer to provide more details on the financial results for the quarter and our outlook for the year.