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spk04: Greetings and welcome to the Boston Beer Company third quarter 2022 earnings conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. And as a reminder, this conference is being recorded. It is now my pleasure to introduce to you Mike Andrews, Associate General Counsel and Corporate Secretary. Thank you, Mike. You may begin.
spk00: Thank you. Good afternoon and welcome. This is Mike Andrews, Associate General Counsel and Corporate Secretary of the Boston Beer Company. I'm pleased to kick off our 2022 third quarter earnings call. Joining the call from Boston Beer are Jim Cook, Founder and Chairman, Dave Berwick, our CEO, and Frank Smalley, our CFO. Before we discuss our business, I'll start with our disclaimer. As we state in our earnings release, Some of the information we discuss and that may come up on this call reflects the company's or management's expectations or predictions of the future. Such predictions are forward-looking statements. It's important to note that the company's actual results could differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's most recent 10Q and 10K. The company does not undertake to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise. I will now pass it over to Jim for some introductory comments.
spk09: Thanks, Mike. I'll begin my remarks with a few introductory comments and then hand over to Dave, who will provide an overview of our business. Dave will then turn the call over to Frank, who will focus on the financial details of our third quarter results, as well as our updated outlook for the remainder of 2022. Immediately following Frank's comments, we'll open up the line for questions. This quarter, our depletions declined 6%, which is slightly better than our year-to-date trend of down seven. We grew revenue for the second quarter in a row, driven by the continuing growth of Twisted Tea, while improving our wholesaler service levels and reducing out of stocks. Towards the end of the third quarter, we reached our current target wholesaler levels and currently have the best wholesaler service levels since 2000. Declines in the hard seltzer category and truly continue to negatively impact our business. The hard seltzer category in measured off-premise channels is down 15% on a volume basis through the first nine months of 2002, with Truly down 21%. We are working to improve Truly trends through a major product reformulation, including the addition of real fruit juice and sharpening our brand communication and increasing our media investment. Early in the fourth quarter, we launched Truly Vodka Seltzer. An early response from wholesalers, retailers, and drinkers has been positive. With the launch of Truly Vodka Seltzer, along with our award-winning Dogfish Head Canned Cocktails, we believe we are positioned well in the emerging ready-to-drink spirits category, which has been growing 79% in measured off-premise channels through the first nine months of 2022. For the remainder of the year and into next year, our strategy is to gain market share in the beyond beer category. where we are currently a strong number two. Beyond Beer is growing faster than the traditional beer market, and we believe that this trend will continue for the next several years. Our multi-brand strategy plus our long history of innovation have supported our growth over the long term, and we will work hard to capitalize on these strengths going forward. We're thankful to our outstanding coworkers, distributors, and retailers who continue to support our business. I will now pass it over to Dave for a more detailed overview of our business.
spk11: Hey, thanks, Jim. Hello, everyone. Our long-term goal is to become the number one player in the fast-growing Beyond Beer segment by creating a broad, relevant brand portfolio that enables many pathways to growth. We have the number 1 FMB in Twisted Tea, the number 2 hard seltzer in Truly, and the number 1 hard cider in Angry Orchard. In the near term, our priorities are continuing focus on fueling Twisted Tea, supporting the launch of Dogfish Head canned cocktails, and working to stabilize Truly trends. We're also experimenting and planting new seeds in our search to cultivate new contributors to our future growth. Our third quarter depletion trends reflected continuing growth in Twisted Tea and positive contributions from Hard Mountain Dew, offset by declines in other brands, primarily Truly Hard Seltzer. Excluding the declines in Truly, our depletion volumes increased 14% in the third quarter and 12% for the first nine months. I'll say more about Twisted Tea in a moment, but first let's talk about Truly. Hard Seltzer volume declined by 17% in the third quarter and measured off-premise channels. We believe there are four primary drivers of the continued decline. First, hard seltzer has lost its novelty as consumers have been distracted by many new beyond beer products entering a hyper crowded marketplace. Second, the large amount of hard seltzer skews has caused consumer confusion and makes the segment hard to shop. Third, no one is communicating the core category benefits of refreshment, easy to drink, and variety. Lastly, and partially tied to the macroeconomic environment, We're seeing a volume shift from hard seltzers back to premium light beers with their lower pricing, particularly among 45-plus-year-olds. Whether this continues into the future or reverts back is still to be determined. The Truly brand has not yet overcome these headwinds. Truly volume and measured off-premise channels declined in the third quarter by 25% and lost 2.8 share points compared to the third quarter of 2021. Our Truly innovation has been well-received by consumers as Margarita, remains the number one innovation year to date in olive beer with a 4.1 volume share of hard seltzer. However, our existing flavors have not yet stabilized as consumers eagerly adopt what's new and interesting. Despite the current headwinds, Trulie's household penetration remains strong across all age groups and is number one in olive beer among 21 to 34 year olds for the latest 52 weeks. As I mentioned on our last call, We're reformulating all of Chuli's flavors by adding real fruit juice for an even smoother, easy to drink, and refreshing taste profile. Reformulated Chuli variety packs are in the market now and supported by a new ad campaign focused on the flavor improvement, a significant investment in shopper marketing activity, and other promotional programs to drive volume. We've received favorable response from consumers, retailers, and wholesalers to these changes, but the product's only been in market for a short time and the full business impact will be felt over the longer term. With respect to innovation, there's significant wholesaler and retailer excitement around Chuli Vodka Seltzer, which we launched earlier this month. Our Chuli flavored bottle vodka, which has been sold by Beam Centauri since late in the first quarter, has been well received by consumers. It's the number one new innovation in full bottle spirits in 2022, and we believe its success bodes well for the Chuli Vodka Seltzer launch. We continue to believe hard seltzers will remain an important beer industry category in the future, but the trajectory of the category in the near term remains unclear. While the hard seltzer segment was 9.8% of total beer dollars in the third quarter of 2022, it's down from 11.4% in the third quarter of 2021. Consequently, as we look at our forecast for hard seltzer category growth for the year, we continue to believe the category volume will decline between 15 and 20%. Regardless of where the category growth settles in 2022 and future years, our longer-term goal is to outgrow the category and improve our truly brand trends, driven by a reformulation of all flavors, along with brand investments, smart brand innovation, and strong distributor support in retail execution. Let me turn now to our other brands, beginning with Twisted Tea, our growth leader. Twisted Tea is a unique product with brand positioning that resonates with more and more consumers. In the third quarter and measured off-premise channels, Twista T expanded its position as the number one FMB by gaining 4.3 share points over its position at the end of the third quarter of 2021 and had a 7.2 share point lead over the number two FMB brand. It again grew double digits driven by improved distribution of 12-packs. Twista T has been growing double digits for 20 years now off a larger and larger base, and there's clear evidence we can sustain a healthy growth rate. We improved our service levels and reduced out of stocks during the third quarter compared to the first half, which helps support this growth. In measured off-premise channels, Twisted Tea has been the fastest-growing brand among the top 20 in all of beer for the past 12 months, and its volume growth has accelerated from 24% year-to-date to 33% in the latest 13 weeks. Twisted Tea's 24-ounce can is the fourth-largest volume single-serve beer brand nationally. underscoring its resonance with convenience store shoppers. This is despite many competitive offerings entering the market and is a testament to the brand's growing following and the potential upside that remains as we close brand awareness and distribution gaps across the country. Because of its growing 12-pack distribution, the brand is receiving strong retailer support, including expanded promotional and display activity. In addition to support pull, we're advertising the brand year-round to increase brand awareness, and have received strong response from consumers to our current teedrop advertising campaign and our large college football themed initiative, building significantly on our activities for 2021. In the nine states where it's been launched, Hard Mountain Dew is showing good promise with a 12 share of FMBs in the measured off-premise channels where it's distributed in those markets. We will continue to roll the brand out and expect it to launch in up to two additional states later in 2022. In the first nine months, our Samuel Adams brand depletions were down low single digits. But the brand did produce growth in seasonals and draft and held share flat in a difficult craft beer market. The Your Cousin from Boston campaign is continuing to attract younger drinkers. In addition, we're seeing growing trends in our emerging non-alc business where Samuel Adams Just the Haze won the gold medal in the non-alc category at the Great American Beer Festival. Meanwhile, Angry Orchard remains the number one brand in hard cider with a 46 share of the segment and measured off-premise channels. Angry Orchard brand depletions are down consistent with the low double-digit declines in cider category trends. Total Dogfish Head brand depletions in the third quarter also declined against a difficult craft beer market. However, our expanded lineup of award-winning Dogfish Head canned cocktails, including the 8-pack Bar Card Variety Pack, grew depletion significantly in the third quarter off a relatively small base. Dogfish head canned cocktails are gaining share and are now the sixth largest canned cocktail brand in measured off-premise channels. Turning to our supply chain performance, we're continuing our efforts to improve our supply chain performance and inventory management. We believe our investments in equipment, capacity, improved systems and processes will help improve our gross margins and continue to improve our service levels over the coming years. In the third quarter, while we saw a margin expansion year over year, it was lower than planned due to higher inventory obsolescence, primarily driven by the truly product transition and the continued slow ramp up of line efficiencies in our internal breweries. As a result, we've updated our guidance for gross margins for the full year 2022. As I mentioned earlier, we're working hard in our supply chain transformation initiatives and are committed to improving gross margins over time. In summary, despite near-term headwinds, we're optimistic about the long-term outlook for our diversified beverage portfolio. We continue to recover from the slowdown of the hard seltzer segment that experienced unprecedented growth up to the second half of 2021 and are now experiencing changing consumer demand as the environment becomes more normalized. Our company has proven innovation in brand building capabilities, the top sales organization in beer, and a cash-generative business model with an excellent balance sheet to support long-term growth even as we navigate some challenges in the near term. Now I'll hand it over to Frank to discuss third quarter financials, as well as our outlook for the remainder of 2022. Thank you, Dave.
spk12: Good afternoon, everyone. For the third quarter, we reported net income of $27.3 million, or $2.21 per diluted share, compared to a net loss of $58.4 million, or $4.76 per diluted share in the third quarter of 2021. This increase of $85.7 million, or $6.97 per diluted share, was due to lapping the 2021 combined direct and indirect costs related to the 2021 slowdown in hard sell category growth, as well as increased net revenue and lower advertising, promotional and selling expenses, partially offset by increased income taxes, a non-cash impairment charge in the current quarter, and increased supply chain costs. In the third quarter, we recorded a $27.1 million non-cash impairment charge for the Darkfish Head brand as a result of the company's annual impairment analysis. The impairment determination was primarily based on the latest forecast of brand performance, which has been below our initial projections made at the time of the transaction. We believe there's strong potential for future brand growth, particularly in the canned cocktails category, which is in its early stages of development and will remain committed to growing the Dark Fichet brand overall. The third quarter continued to show sequential shipment and revenue improvements and generated over $100 million in operating cash flow following the strong second quarter cash flow performance. However, the volume performance primarily related to Trulie and the corresponding inventory obsolescence continued to negatively impact gross margins. Shipment volume for the quarter was approximately 2.3 million barrels, a 1.4% increase from the prior year, reflecting increases in the company's Twisted Tea, Hot Mountain Dew, and Sam Yams brands, partially offset by decreases in our Truly Hot Salsa, Angry Orchard, and Dogfish Head brands. We believe distributor inventory as of September 24, 2022, averaged approximately five weeks on hand and was at an appropriate level for each of our brands. We expect distributors will keep inventory levels for the remainder of the year between four and five weeks on hand. Our third quarter 2022 gross margin of 43.2% increased from 30.7% margin realized in the third quarter of 2021, primarily due to lapping prior year costs related to the 2021 hard sales slowdown, partially offset by higher inventory obsolescence costs and returns. The high obsolescence costs were primarily related to the recent truly product reformulation and lower than expected shipments. Inflationary cost increases primarily due to increased packaging, ingredient, and energy costs were offset by increased pricing with a net neutral impact on gross margin. Our third quarter advertising, promotion, and selling expenses decreased $13.1 million or 7.9% from the third quarter of 2021. primarily due to a net decrease in brand investments of $9.5 million, mainly driven by lower media costs and decreased freight to distributors of $3.6 million, primarily due to lower freight rates. General and administrative expenses increased by $5.3 million, or 16.6% from the third quarter of 2021, primarily due to increased salaries and benefits costs. Our depletions and shipments for the 1st, 42 weeks of 2022 have each declined 6% from the comparable periods in 2021. Based on our year to day performance and current projections for the 4th quarter, we are narrowing our full year 2022 earnings guidance, but alluded share to between 7 dollars and 10 dollars from between 6 dollars and 11 dollars. This projection excludes the impact of the non-cash impairment charge of $27.1 million, or $1.61 per diluted share, and is highly sensitive to changes in volume projections, particularly related to the hard sales category, supply chain performance, and inflationary impacts on consumer spending. The 2022 fiscal year includes 53 weeks compared to the 2021 fiscal year, which included only 52 weeks. Full year 2022 changes in depletions and shipments are now estimated to be between a decrease of 7% and a decrease of 4%, a change from our previous estimate of between a decrease of 8% and a decrease of 2%. We estimate the 53rd week will have a positive impact of between 1% and 1.5% on our full year depletions. and shipments growth rates in between 4 and 6 percentage points on our fourth quarter depletions and shipments growth rates. We expect increases in revenue per barrel of between 4% and 5%, a change from our previous estimate of between 3% and 5%. Full year 2022 gross margins are expected to be between 42% and 43.5%, a decrease from our previous estimate of 43% and 45%. primarily due to the impact of higher inventory obsolescence as well as lower brewery efficiencies as we slowly ramp up our new integrated variety pack lines. We continue to expect to cover inflationary cost increases through pricing. Our full year 2022 investments in advertising, promotion, and selling expenses are expected to decrease between 35 and 45 million, a change from our previous estimate of a decrease of between 30 and 50 million. This does not include any increases in freight costs for the shipment of products or distributors. We estimate our full year 2022 effective tax rate to be between 26 and 27%. We expect capital expenditures of between $105 million and $125 million, a change from our previous estimate of between $110 million and $140 million. The capital will be spent mostly on continued investments in our breweries to further build our capabilities and improve our efficiencies. We expected our cash balance of 222.1M dollars as of September 24th, 2022, along with our future operating cash flow and unused line of credit of 150M dollars will be sufficient to fund our base business and future growth initiatives. Lastly, we're planning to give full year 2023 financial guidance on our fourth quarter earnings call in February 2023. This timing better aligns with our detailed internal budgeting process and will be based on more current information about the state of the consumer and the supply chain environment. We will now open up the call for questions.
spk04: Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for any questions. Our first question comes from the line of Nick Mody with RBC. Please proceed with your question.
spk07: Yeah, thank you. Good evening, everyone. Hey, how are you? I have two questions. One is on Twisted Tea and I appreciate some of the details you gave about 12-pack expansion and advertising more during the year, all across the year. But there's still a lot of questions, obviously, from investors in terms of sustainability of this brand, especially given some of the situation that happened with Truly over the last couple of years. So maybe you could provide a little bit more details on why you guys are so comfortable that you can grow this brand going forward? And more importantly, what lessons can you learn from Trulie to really apply to Twisted Tea to make sure that you can mitigate risk of category fatigue, especially as more competitors enter the fray? And I have one more question.
spk11: Great. Okay, thanks, Nick. This is Dave. I'll take a shot at that. So I think when we think about building any brand, and particularly Twisted Tea, There's really two key levers that we think about. One is about driving physical availability, which is really about making the brand easy to find. And the second is really about mental availability, which is making it easy to think about as a brand. I think what's happened over the last 12 months with the brand is that we kind of hit a tipping point on both of those. From a physical availability perspective, we talked a little bit about this, I think, in the last call, but 12-pack distribution kind of got to that point. It's about 64% ACV right now. So a lot of our larger customers could then promote and support the brand much more aggressively than they had in the past. We also increased space by about 35% this year. So that increase in physical availability kind of helped vault the brand forward. From a mental availability perspective, we've essentially doubled that down on media last year. And then we increased it again this year on a campaign that we know works based on our testing. And we also were on air almost 52 weeks of the year. driving for incremental reach. So the two of those together have really helped generate this sort of accelerated growth off of a growing base. Now, having said that, when you look deeper into where we are today from a physical availability perspective, if you look at convenience stores as an example, which is the biggest channel for FMVs, The Twisted Tea original 24-ounce, which I referenced in the script, is about 69% of the ACVs, and that's really well distributed. But our other single-serve flavors, like half-and-half, peach, raspberry, have much less distribution. There's also very little 12-pack distribution within that channel. So we still see a lot of upside. In fact, if you look at our higher-developed markets, they will have, like, maybe three or four single-serve SKUs in a C-store, and our low-developed is, like, only one or two. So... We see upside in that channel. Also, if you look at large format, you know, we're really a 12-pack game. And, again, our Twicity original 12-pack is in 64% of the ACV. If you look at our other – we have three other 12-packs, the Party Pack, half and half, and now Lite, which we just launched kind of softly this year, much less distribution. So we still think there's a lot of upside there. And, again, high-developed market will have probably three 12-packs, low-developed market one or two. We see that also, we haven't talked about it, but on-premises is a fertile ground. We're in draft. Our primary package is original, an original 12 ounce can. I think Twisted Tea is almost half of the share of FMBs and on-premise, and we barely got going there. So we see something there. So that's sort of the last thing I'll say on the physical availability side is as we get, as we talk more about the brand, our wholesalers, particularly in the low developed markets are getting more and more excited about what they see happening in the rest of the country. From a mental availability perspective, The household penetration is about 4.7%. We use Mike's or Lemonade's sort of as a proxy or comp. It's 7.5. So, still, the comparison, there's upside there and also brand awareness. We're 7 or 10 points less than Mike's. I think Twista T's brand awareness is around, you know, low 80s and Mike's is low 90s. So, the last thing I'll say on that, then I'll get to your second question. is around multicultural consumers. So this brand began sort of a rural, maybe non-multicultural consumer in certain geographies. It's growing tremendously in that space. So in the last five years, we've almost quadrupled the number of multicultural households who buy the brand. But it's still off a very low base, so there's still a lot of opportunity. So again, so we feel like the formula of physical and mental availability is working. And I'd say to jump into your second question about what do we learn? I think building a brand slowly the right way, making sure you're really clear about the consumer and staying really focused on message and combining both physical and mental availability has really worked with Twisted Tea. And again, you know, a lot of brands have tried to come into the category and they haven't succeeded because Thus far, Twisted Tea's been able to do those things really well. And I think Twisted Tea's a whole lot, and I'll let, you know, Jim and Frank jump up on this one, but the hard seltzer category was such an unusual, unprecedented moment. It was basically a land grab, a gold rush, whatever you want to say. And I think I would suggest that we innovated successfully, but maybe too much. And I think we were part of creating that consumer confusion that I referenced in my script. So I think it was just one of those things where that was the moment was there and we had to grab it. But I think with Twisted Tea, fortunately it's been built the right way. And so the last thing I'll say about it, I know, I'm sorry, it's a long answer. I know, but it's an important subject for us. We haven't overextended this brand. Like you don't need to over line extend this brand to get growth. We can get growth a very healthy, appropriate way. And that's sort of where we are at the moment.
spk07: Very helpful. And the second question is just on, on truly, I mean, looking at numerator data, it's pretty clear that the top four brands in the category top four or five are basically responsive for all the category penetration and all the rest are, you know, not really helping the overall category increase penetration. It's just more share shifting. So as one of the category leaders, I'm just curious, like as you engage with retailers on this topic, I mean, what's the feedback or how do you get this category moving in the right direction again, in terms of household penetration?
spk11: Yeah, that's a good one. Obviously, we've been talking to retailers for the last few months about next year. I think retailers finally understand that. Now, what's interesting is that the RTD space has now more brands than the Hart-Seltzer space, so they're pivoting in that direction. We would expect that next year that the bottom five or so brands would probably disappear in any given market, and likely Hart-Seltzer's share of space right now is 11%, which is probably appropriate. It might shrink, but the brands that are left, the top three or four brands or so will have a larger piece of that space. And I think the clutter will be removed next year. It is the time when that's going to happen. And I think our customers recognize that and they're planning to do that. The question then becomes, does RTD Cocktails become what Hard Seltzer became and a big mess? And we think it is really hard to shop, but we likely will see that. I think the other thing I would say is that we – you know, we're part of it. There are reasons why people came to hard seltzer in the first place. Like it's the most refreshing, easy to drink, you know, fun, variety filled category or segment or replacement for beer or for traditional beer and other alcoholic beverages. And those characteristics of refreshing, easy to drink variety have been somehow lost and diluted through all the noise and all the you know, all the things that have happened over the last year or two. I think getting back to that, and we're trying to do that with our ad campaign now that's out there, and there'll be more evolutions of that, but we're trying to remind consumers of why they came in the first place to hopefully help with the category. And I think the last thing I'd say is that, you know, proliferation, proliferating SKUs is not the way to go, probably, because that will add to more confusion. So I think smarter innovation, you know, What we're trying to do is focus back on the lighter flavors. We spent a lot of time focusing our bold flavors this year with Margarita, which, as I mentioned, has been very successful, but it hasn't been nearly enough to to impact the total business because we've probably taken our eye off the ball and light flavored seltzer. Um, and that's where a lot of consumers have been gravitating toward lately and we have great flavors. That's what we reformulated them again. And we need to remind people of what they are. So, um. I think those are sort of the things that you look to see as we enter 2023.
spk07: Helpful. Thank you.
spk04: Thank you. And the next question comes from the line of Camille Gojrawala from Credit Suisse. Please proceed with your question.
spk05: Hi. Can you talk about gross margins a little bit? And then maybe even if, Frank, you're able to give a read on how much of the launching of the automated, the new variety pack line impacted this particular quarter? And are you up and running now where, you know, we're no longer feeling the drag from that?
spk12: Yeah, no, happy to do that. So, gross margin clearly for the quarter came in below our own expectations. And I think the main reason, as I, you know, mentioned it in the prepared remarks, was high obsolescence. That was mainly due to the changeover to the new truly formulation. That was, you know, one of the largest projects that we have done. If you look at the complexity of the portfolio, the number of variety packs that we have and the different flavors that are in there. So that was a big project. And I think you have to see that in conjunction with like the current supply chain situation that we're in. we've opted, as we've mentioned before, to run slightly higher inventories for two reasons. One is we want to make sure that we increase our service levels and we have enough inventory to service our wholesalers. The other one is, you know, you look at the global supply chain situation and the disruptions that we're seeing, we wanted to make sure that we're not running out of packaging materials. So this is nothing new. What happened is that the volumes were truly and, you know, with an unfavorable mix came down and we were left with more stranded product than what we had originally expected. So, this was impacting, that was the main reason why the gross margins were impacted and lower than our expectations. That's clearly not something that will happen all the time. That's more one time in nature. We've seen some progress in in in the rest of the drivers i mean if you remember when i lay out the drivers to get back to to 50 where we're making progress the uh variety pack lines uh we've given a range and we said well it's going to take some uh some time to uh to improve the uh efficiencies we have seen slight improvements but it's there's still a lot of room left uh to get to the target efficiencies that uh that we're seeing and that we're looking for to get back to 50%. So I'd say overall, the overall building blocks have not changed. The target hasn't changed. But this quarter was clearly impacted by the additional obsolescence.
spk05: It sounds like it's complete. Any additional obsolescence, it's all done. Now you're operating under the new
spk12: Well, we're now pretty much fully transitioned to the new formulation on all the products, so that should have been it.
spk05: Okay, great. And then can you maybe just add a little more detail on the dogfish head impairment? You know, unlike seltzer, you know, which came and turned so fast, dogfish head's been around for a while. So just maybe just some color on what happened there.
spk12: Yeah, so this is a relatively straightforward accounting assessment. If you recall, the transaction happened in the middle of 2019, which was literally half a year before COVID. And we had our own business proposition, which was the basis for defining the brand value that we put onto the balance sheet. So we had certain assumptions in there. you have to compare your revenue assumptions to what you're really achieving. And that's the annual impairment test that everybody is doing typically. The revenues are below what we had defined in the business proposition. And the main reasons I would say is like COVID came in the middle, the integration took a little longer. Clearly the craft beer market, if you look at the total beer category, the traditional beer side, the craft beer side has been suffering a little bit. So that contributed basically to the lower revenues versus what we had in the business position. From a business perspective, I want to be clear, you know, we like the asset. You know, we think, you know, Dogfish Head is a terrific brand. And I think what has changed since 2019 is that we have no Dogfish Head canned cocktails. which were not really part of our consideration in 2019. And the canned cocktails, as you know, they are playing in the growing segment of the beer category, in the beyond beer segment. They're getting tremendous tractions. We have extremely high growth rates. So if I look at the profile of the Dogfish Head brand portfolio, I'm really happy with that, and I think it will provide a lot of growth. and of a different quality, quite frankly, going forward than just having purely the private beer, which we're, you know, kind of considering in 2019. So I think the structure is a healthier structure, but, you know, given the size of canned cocktails, it'll take a little bit longer, and that's where we took the impairment.
spk05: I got it. Thank you.
spk12: All right.
spk04: Thank you. And our next question comes from the line of Eric Serrata with Morgan Stanley. Please proceed with your question.
spk03: Great. Thanks for taking the question. I'm wondering if you could give us some more color around truly performance since the reformulation. I realize it's still early, but it has been in the market for a couple of months now. Any green shoots, any more specific data that you could point to? Because when we look at the overall data for the truly lightly flavored packs, it looks like it's going in the wrong direction. It hasn't really improved. So any help there would be appreciated.
spk11: Okay, Eric. This is Dave. This is Dave. So we started, it was a number, a lot of like six variety packs that we switched over. The first was citrus that started in early August. And we finished up probably at the end of September. So there's not a lot of impact. In terms of our Q3 results, you're not going to really see anything there. But of course, I know you're looking at IRI or Nielsen or wherever you're looking at, which is up to the like second. And I think it's still, I would say it's still, first of all, anecdotally, What we're seeing on social media, what we're hearing from consumers, from customers, and from wholesalers is positive about the change in the product. So we feel very good about the reformulation and the quality of product that we delivered. And it's going to take a while. I mean, this is a very competitive market, as you know, and it's not something that would show up like immediately overnight. In terms of green shoots, I mean, I can tell you, we look at numerator data, for example, and I'm seeing Again, this is, but I wouldn't draw any big conclusions, but over the last 4 plus weeks, we've seen buy rates increase and actually our binary had been going the other way on truly this year. We've seen an increase. We're not seeing that actually, as you're suggesting, like, in the share numbers of volume numbers, but that's a, that's a good sign. There are other customers that we're, we've seen actually, the brand is growing. I can't really name those customers. Because we wouldn't be selling there tomorrow if I did. But we are seeing some green shoots. But, again, in a couple of large customers. But it's still early. And I think we're in this moment, like with this category, literally people are living week to week and trying to make big conclusions on that kind of pace. And it's just not something that we expect to see. I think as a quarter plays out. then we'll look to see something that's more visible that I don't have to explain to you on an earnest call, something you should see if it's working. Again, the other thing I would say is we like the advertising. It's scored very highly, and we have a pretty elaborate way to test ad copy. But, again, it's not like when we increased it, I think we said it. I can't remember if we said how much, but we definitely increased it. But it still takes a while for that to – it doesn't have instant results, and it takes a while for that to settle in. And the last thing I'll say – is the Truly Vodka Seltzer launch. What we like about that is it's putting, it's casting a light back onto Truly, right? It's on the brand itself. And as I mentioned, we do have a very large base of consumers still. We have a high penetration, it's actually the highest penetration corn enumerator in hard seltzer and 21 to 34 in beer. And so we know they want to try our product. I think Um, so they'll get to it and I think as we, as we go into next year, you'll see the advertising continue and you also see other things that we'll do in the market to clearly signal that what's in the package has changed and it's improved. So, again, I would say that this is really a look at this 3 to 6 months. To really know for sure what the impact is going to be.
spk03: Okay, and then, you know, as you look at the broader truly portfolio, you kind of alluded to. you guys being part of the problem in terms of the category confusion or consumer confusion. Are there plans to further rationalize the portfolio? I picked up that you were discontinuing the Truly Iced Tea, but even with that, do you have too many variety packs out there given where you see the shelf space going, and are there plans to rationalize that?
spk11: I think that's probably our decision and probably our customers' decisions, but yes, you know, truity is going away. I think what you're going to see is more of a focus, a communication focus on the core brands, the core lighter flavor brands, you know, citrus, tropical, wild berry. Margaritas perform really well. And lemonade and fruit punch will stay. And they're part of the reformulation as well. So we think we're probably not going to be adding permanent SKUs next year. It's unlikely. And I think what we're going to do is really double back down on the core lighter flavors. And we'll see where that goes. But I think we've been increasing at a pretty good pace. You're not going to see that kind of pace continue.
spk03: Okay, thanks. I'll pass it on.
spk11: Thanks.
spk04: Thank you. And our next question comes from the line of Kevin Grundy with Jefferies. Please proceed with your question.
spk06: Hey, great. Good evening, guys. Two for me if I could. Just look, understanding that the 23 and beyond is a lot more important, the guidance for this year implies a really wide range, I guess, given where we are and the fact that we're much of the way through October. Frank, maybe just comment on that. Why such a wide range? Where are you within the range now, I think would be helpful to folks. Then a broader question for Jim and Dave, I'll just ask them both now if that's okay. Given the impairment charge to dogfish, for the reasons that Frank talked about, I don't think it's lost on folks in terms of what's happened within the craft beer industry. You know, Jim, it'd be great to kind of get your updated thoughts on sort of the state of the union here in terms of the outlook for beer category volumes within sort of the fourth category that's emerging here with Ready to Drink. And I think, sorry for being verbose, but, you know, kind of the elephant in the room here is, you know, love to get your thoughts on why should investors be confident that malt-based seltzers don't go the way of mainstream beer? And we're potentially looking at low single-digit declines. I know it's a lot worse than that, at least at the moment. But as we level off here, what gives you confidence that that's going to return to growth? So a lot in that. Appreciate your thoughts. Thank you all.
spk12: All right, Kevin, let me start with the guidance. So, I mean, first off, we have narrowed the guidance based on what we've seen. It's still relatively volatile, to be honest. And I think maybe for the shipments guidance that we have, like we narrowed it from minus 2 to minus 8 to minus 4 to minus 7, narrowed the pricing range a little bit. So broadly, at the midpoint, we left net revenue largely unchanged. I think where we have a bit of volatility, and we'll be seeing that, I guess, in the fourth quarter, if you look at last year, Last year we had significant shipment declines. The fourth quarter shipments were declining versus the prior year versus 2020 by roughly 25%, whereas depletions were going up 15%. And that is versus a quarter in Q3 that was growing 11%. So there will be some volatility, and we just wanted to make sure that we capture that in the guidance range. And then, you know, clearly, as you know, and we've mentioned that a number of times, you have the 53rd week that will add a little bit of growth. So, year-to-date, we are roughly, as you know, between 6 and 7 percent. Well, we have, at the end of the quarter, 6 to 7 percent that has improved, trends have improved, which is a good sign that that's going to continue. But then you add the 53rd week, and then, you know, the innovation that we have is a little bit back and loaded, primarily with truly what's, so that's coming mainly in the fourth quarter. That's kind of where we're on the top line. On the margin side, I think we have narrowed it down a little bit. And as you know, there's volatility in the supply chain. That's internal supply chain and external supply chain. Yeah, I talked about the obsolescence, which was higher than what we had expected. But, you know, we've narrowed it down. We feel we have, you know, we have a good handle on it on the year to go. But it clearly depends also on the volumes. And then as we said before, you know, how much progress we're also making on our efficiencies. And then, you know, on the EPS, I think that, you know, the midpoint hasn't really changed. We just have narrowed it down to three bucks. So we feel fairly confident that we're going to come in within the range. But it's really the volatility on the top line that provides the or that drives the width of the range, if you will.
spk09: Okay. Undoubted. Kevin, I'll try to pick up the 2nd, part of your question, which had a bunch of different moving parts to it. If you will, as I interpreted it, your 1st question was kind of what's the state of the union in craft? And I would say craft is a mature category at this point. It has become a mainstay in. American beer with a substantial drinker base. And, you know, it's hard to go into a bar today that doesn't have the least one and often multiple craft beers. So it's a, you know, it's a relatively stable and mature category. Also, you know, quite competitive. There's still innovation, you know, driving it. You know, as you can see from Boston Beer Company with the addition of just to haze a non-alcoholic craft beer that just got picked as the best non-alcoholic beer in America at the Great American Beer Festival. So we do still see opportunities, you know, to innovate at an extremely high, you know, industry-leading quality level in craft. But overall, the category is pretty stable. and mature, you know, and that's what we see with Dogfish Head. We believe that is a, you know, a strong, in some ways, unique brand, and we believe that it brings some special attributes to the RTD category, which, as I mentioned, was growing 79%. so far this year, and Dogfish Head is now the number five or six RTD. It's got a reputation for great quality and for innovation and for culinary ingredients, and it has a unique positioning in some ways in this very crowded RTD space. It's a craft producer bringing craft values of innovation, great ingredients, great taste, and overall quality and kind of off-centered thinking and off-centered consumers to this crowded RTD space. So, we feel very good about the strength of the Dogfish Head brand, both in the mature craft category, but also as a unique vehicle for us to bring something special to RTD canned cocktails. You also asked about, you know, what's the future for malt-based seltzers? Is it going to just, you know, start to decline like traditional beer? You know, I don't have a crystal ball on it, but I would say that malt-based seltzers, as opposed to traditional beer, they obviously skew much younger. They're not, you know, they're very appealing to the 21 to 35-year-olds, as opposed to traditional beer, which is struggling a little more with that demographic, and they're very relevant to, you know, new, younger drinkers. They're built on variety and innovation. They're built on unique flavors that are, you know, easy to consume. They're not an acquired taste. And they also carry with them, you know, a little bit of a health halo. given the lack of bad stuff, mainly sugar and carbohydrates in them. So they are more in tune with the characteristics that younger drinkers want and bring something new to drinkers all across the age range. So I think there is the opportunity with malt-based seltzers to continue growth there, whether that's mid-single digits, low single digits, double digits, I don't know. But they do have attributes that a significant part of the drinker base finds really attractive. Okay, very good.
spk06: Thanks for all the time, guys.
spk04: I appreciate it. Good luck.
spk13: Thank you.
spk04: Thank you. And as a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. You may press star 2 if you'd like to remove your question from the queue. Our next question comes from the line of Bonnie Herzog with Goldman Sachs. Please proceed with your question.
spk08: All right. Thank you. Hi, everyone. I wanted to circle back on guidance with the follow-up. I guess, you know, just thinking about your updated guidance ranges, you narrowed the ranges, but you took the midpoint of your depletions and shipment guidance down by 50 bps and the midpoint of your gross margin guidance down by 120 bps. But I guess, you know, you left the midpoint of your GAAP EPS guidance the same. So I guess I'm just trying to reconcile this. I mean, should we – assume your full year, you know, EPS realistically, I guess, comes in toward the low end of your new range, or are you just maybe being conservative on some of the other ranges?
spk12: No, I think it's more the latter. Bonnie, I don't – I wouldn't – we're not putting ranges out where we believe we're going to come in at the low end. I mean, we're adjusting the ranges accordingly. I wouldn't read too much into The shipments, the half percentage point, we narrowed it on pricing. So the way we're looking at it is really revenue is going to stay about the same. I mean, it's the volatility that we're seeing in the market. And I refer to also especially growth rates versus prior year, especially when you look at shipments. I don't think we have the precision of half a point, quite frankly. So that's it on the growth. And on the growth margin, we had a few surprises, so I think it would be the latter. But I wouldn't interpret that we would target the lower end of the EPS range. That's not the case.
spk04: Thank you. And our next question comes from the line of Steve Powers with Deutsche Bank. Please proceed with your question.
spk14: Great. Thanks. I actually wanted to go back to Twisted if I could. And two questions. The first one I think is pretty short. It's just I don't know if you've got any updated thoughts as to how much, if at all, Twisted in the current environment is itself benefiting from consumers moving away from seltzer and experimenting and finding Twisted?
spk11: Yeah, I think on that, I think if we went back a year ago and looked at this where hard seltzer was sourcing volume, it really didn't impact Twisted Tea very much at all. I mean, it does to an extent. I mean, every brand, everybody drinks everything, but it didn't over index by any means with hard seltzer. So, I don't think it's getting like a tailwind now. as the hard sell goes down, but I'm sure there's some consumers that are switching, but it's not, I would say it's not material to twist his current growth. Okay. And actually, if you look at it, actually, if you look at it, you really, if it goes back to literally like this thing started to really kind of tip, I would say last summer, like last, maybe last year, maybe the first quarter of last year. So when this thing started to accelerate from sort of low, you know, 10, 12% to plus 20, It was really when, when hard shelter was still going strong.
spk14: Yeah. Okay. Okay. And that kind of leads to my second question and maybe part of the answer isn't what you just said, but I, I just, I kind of going back to, um, how Nick started on, on the topic, you know, you talked a lot about growing the brand double digits for 20 years. Um, you know, very patient, deliberate, you know, robust, but, but relatively deliberate growth. And it, so it feels like the brand has been sort of pulling pulling demand, you know, kind of, you know, ahead of availability. And now I just, I guess I'm a little concerned, and I think this is the root of kind of what Nick was asking about too, that all of a sudden, as the brand accelerated, that there's a really big distribution push and a big advertising push, kind of almost getting ahead of the natural pull. And that, you know, maybe, you know, as consumers are out there exploring for the next kind of novel thing, that they're kind of finding Twisted as part of that search. And that the experimentation is part of what's driving the growth right now. But then as we fast forward, you know, a year, 18 months from now, after a big distribution push, that just like you were talking about with Seltzer, that the novelty had kind of worn off, that we look back and say the novelty on Twisted Tee is worn off. So I guess any additional thoughts you might have on what I'm saying and how you're comfortable that that's not happening.
spk11: Yeah. And I would say I'll go back sort of to where I was before, which is there's, you know, the depth of distribution still has a lot of runway. So it's not like we're not even close to the end in terms of whether you look at it by channel, whether it be small format, convenience store, large format, single serve, you know, SKUs. you know, multi-pack SKUs, there's still significant runway to get to drive distribution. Then from a, you know, mental availability perspective, our, I mean, we've increased our media, we've increased our awareness, household penetration, but it's still very, very low. I mean, it's still low, so it's not, we don't think that we're coming close to sort of peaking. I mean, we're, are we going to grow 30% every year? Probably not. It's very unlikely. but we still see a lot of growth here. And I think some of the other things to look at, I mean, what I look at when I look at this brand is I just look at convenience store. And I almost could stop right there because that is like, that is, think of that, that's your freedom of choice channel. That's where the consumer walks in. They're not tripping over displays. They're not seeing big price promotions. They're going in and they're making a choice. And this brand is by far and away the number one player in F&B. And in fact, like I said before, it's one of the top three or four brands in all of beer and convenience stores. And it's always been that way. But again, then you have the geographic disparity where you go, we walk into Montana or Maine or Vermont and you see you'll see you'll see a full shelf of Twisted Tea. Walk into New York City or L.A. or or Houston, you'll see maybe one or two one or two cans. So this is a this is a brand that that clearly has a following. It's been quite narrow and now it's starting to grow, but it's growing. We're not I don't think we're forcing it on people or pushing it too hard. We do a lot of work on social media. We're not trying to feel like a big brand, and people are finding it. So I guess obviously time will tell. But we feel like, again, when you can balance the physical availability, the mental availability, and you still have upside in both of those, then that's a very rare place to be. And I would argue there's probably two or three brands in this entire category that are sitting in that position.
spk14: Yeah. Okay. That's fair and very helpful. I appreciate it. Thank you very much.
spk11: Sure thing.
spk04: Thank you. And our next question comes from the line of Rob Ottenstein with Evercore. Please proceed with your question.
spk10: Great. Thank you very much. So, Jim, I'd love to get your thoughts kind of standing back now on, you know, what you're learning about consumer behavior in beverage alcohol. and then how that informs your strategy and tactics, particularly on Truly. And so, at least what we're seeing with spirits, Pernod today was kind of like growing mid-single digit, led by premiumization, so the spirits seem to be doing really well. Mainstream beer, It's falling, you know, a couple points or so, which is what it has been doing. And then, you know, in the middle there, you know, there's seltzers, and obviously, you know, we're in an adjustment period there. But, you know, my question kind of is, you know, are seltzers priced right, particularly kind of going into a recession, you know, where, you know, seltzers are, I guess, you know, $30 or so a case, Bud Light's $20 a case. You did mention that you were seeing some people trade down, particularly older demographics. But given that seltzers skew younger going into recession, do you think the pricing is right for seltzers in general relative to spirits and mainstream beer? And is the pricing right for Truly? And do you need more promos or some sort of – you know, clever marketing to provide more perceived value? That would be my first question.
spk09: This is my opinion on it. We are not really seeing a lot of trade down in alcoholic beverages as a whole. You know, a little bit of bump for some sub-premiums, but, you know, the the growing categories like a Twisted Tea or Mexican Imports, they are premium priced at about that kind of premium, not quite 50%, but that order of magnitude. And, you know, that's where the growth is in beer and in alcoholic beverages in general is more towards the premium and than the cheap products, and we've seen this in recessions in the past, you know, a craft beer or a Truly or Twisted Tea, things that are different, unique. They have sailed right through recessions. So I'm guessing that, and it's partly because you're talking about a very affordable indulgence. You know, you might not be able to go out for a steak dinner, but you can come home with, you know, a 12-pack of a premium product and feel good about yourself. So that would be my experience from the past. And I think, you know, in general, my view of the world is that traditional beer is probably not going to grow. Maybe not in our lifetime. You know, though I can't see that far out because I intend to live for a while. I believe the same thing is probably true about traditional wine as their demographics age out. And, you know, and in Hard liquor, I think the growth is going to be in this fourth category that is not traditional beer, not traditional wine, not traditional spirits. And my belief is that, you know, the beer industry is pretty well positioned there because it generally looks like beer. You know, it's in the cold box. It's the kind of ABVs of beer. It's in beer type packaging. And it's heavy and, you know, you need high-speed can lines to make it and distributors that can move tonnage. So, I see, you know, Boston Beer is well positioned in the growing segment of alcoholic beverages. We are the number two in this beyond beer category. It's the vast majority of our business and we're organized. around making that kind of products, both in the capital that we'd put in with high-speed can lines and automated variety packing, and then other capabilities like sensory and flavor, people, and a wholesaling network that can get this stuff on the shelves very well in advantageous positions.
spk10: That's terrific and certainly fair enough. Just one follow-up on Frank maybe. Can you update us on your latest thoughts in terms of capital allocation? The cash is building nicely. You've got a fabulous balance sheet, which is great. Is it time to look at dividends, share buybacks? Are there strategic acquisitions that may make sense? Just trying to get, you know, just updated thoughts on those sorts of questions. Thank you.
spk12: Yeah, sure. So, as you know, I think we haven't really, you know, changed our approach to like how we think about capital allocation. Clearly, the business comes first. We're a growth company. We have our ups and downs, but, you know, long-term we're a growth company. That's where the investments go in terms of capital and other investments. And then, you know, we had, like, the last few years were highly volatile and bumpy globally for the world in which we're operating. So typically, whatever is left over that is not needed for the business, we return to shareholders. And we have a preference for share repurchases, at least in the past. And, you know, I don't see that changing in the near term over dividends. When the time is right and, you know, to your point, you look at the balance sheet, that looks, you know, nicely. I think we feel more comfortable than a year ago. But when the time is right, we'll announce that.
spk10: Terrific. Thank you very much.
spk12: All right.
spk04: Thank you. And the next question comes from the line of Nadine Sarwat with Bernstein. Please proceed with your question.
spk01: Thank you. All right, so two questions for me. First, providing guidance over the last 12 months, I mean, has been challenging for Boston Beer given what's been happening with the hard seltzer category, the uncertainty. So what's behind your decision to commit to providing fiscal 23 guidance at your next results? And then secondly, coming back to Twisted Tea, there are many new entrants coming into the hard tea space, most notably
spk12: lipton with its alcoholic brand how do you anticipate twisted tea performing in this increasingly competitive environment yeah nadine so clearly on the 2023 guidance i mean yeah we've talked about it there's quite a bit of volatility and i think uh we want to provide guidance uh when when when we you know feel more comfortable with the data and uh Yeah, I think it's typically it's industry practice. You, you, uh, you announced with your Q4 results, which is what the majority is doing. Um, and that makes sense in an environment like this. So we are, uh. The way we are planning, we have significantly better handle on where the categories are going, where the consumer is going, how we see the progress of our supply chain. So that's the reason why we said, okay, there's no point in giving preliminary guidance now with a Q3 earnings call. We'd rather do that once with a Q4 earnings call. That's the reason why we decided to do that. And I think it's easier for you guys as well. It's going to be better guidance than what we'll be able to provide at this point.
spk09: I'll pick up the twisted tea question. And, you know, it's a good question. There's a tidal wave of competitors coming into tea because, you know, it's a large, sizable category that's, you know, growing extremely fast. And we live in a very competitive environment. I would say historically, you know, this isn't the first time we've had a bunch of competitors coming at it. Twisted Tea has been around over 20 years, and there have literally been dozens of, you know, Twisted Tea competitors launched from, you know, small startup entrepreneurs to, you know, great breweries like Anheuser-Busch Molson Coors and, you know, the dust has settled over 20 years and Twisted Tea is 90 plus percent of the category. There really is no significant number two in the category. Now, that being said, I don't want to dismiss both the quantity and the quality of you know, the next wave of competition coming from, again, you know, everybody from small entrepreneurs to, you know, a big, you know, multi-hundred billion dollar market cap company with a great track record of beverages like Pepsi. So, you know, this is a another level of competition, but we withstood it in the past because we have a very loyal, very strong drinker base. People have been drinking Twisted Tea for a decade or two. It's the only brand that really comes to mind when you think about hard tea. It kind of owns that category as Dave was talking about both in physical distribution where you walk into a store and there's, you know, a block of yellow and blue and then there's other unknown things that are next to it that say T on it, but they don't have the credibility or the longevity or the reputation. and has the mental availability. If you think about hard tea, you think about twisted tea. There's really not much else that comes to mind. So it's a very competitive business and whenever you're successful, you're gonna get a whole bunch of competitors and we're gonna amp up our investment. We have tremendous support from our wholesalers because this has now become a meaningful part of their business and they're gonna expand our shelf space. But that's all we can do. We can't keep people out and we can't keep them from trying to be successful. But certainly it is a category where, you know, we dominated and have for 20 years. And the dust is kind of settled. I guess the nearest analogy would be Mike's Hard Lemonade. And they've had a couple dozen competitors and they're 90% of the hard lemonade market and have been for over 20 years. So it would not be an exception to what goes on in this business for Twisted Tea to maintain its 90% share.
spk01: Got it. That's very helpful. And maybe just a clarifying point. I didn't mean why wouldn't you provide fiscal 23 guidance today? I simply meant that some companies might elect to postpone providing guidance at the next result simply because of the lack of, simply because of the uncertainty around heart cancers or the macro environment. But you guys have committed to providing guidance. So I guess that's what I was asking.
spk13: Okay. Yeah. No, at this point, we haven't made any decision to not provide guidance. We just provided in with our Q4 results. Yes.
spk01: Understood. All right. Thank you very much. I'll pass it over.
spk13: Okay. Thanks.
spk04: Thank you. And as a final reminder, if you'd like to ask a question, please press star 1 on the telephone keypad. A confirmation tone will indicate that your line is in the queue. And our next question comes to the line of Peter Grom with UBS. Please proceed with your question.
spk02: Hey, good evening, everyone. Hope you're doing well. So, maybe going back to that last point on guidance and recognizing that you're choosing not to provide it today, I was just hoping to get your view on whether you have visibility on kind of the gross margin trajectory. And I guess specifically, you know, how should we really think about the pace and magnitude of marginal recovery as you look out to 23, you know, kind of lapping some one-time issues that hopefully shouldn't repeat here. And I guess kind of the root of the question is, I'm really just trying to understand based on what you know today, how quickly can you return to that long-term gross margin goal of kind of north of 50%. Thanks.
spk12: Yeah, no, no, fair question. I, you know, probably an idea. I try to answer it as best as I can without giving guidance to the back door. But clearly, as I think I've indicated before, we feel, you know, good about the building blocks to our gross margin. So, you know, what we had this quarter, nothing has really changed that. We know exactly what it takes to get back to 50%. We've, I think, indicated also at the last earnings call, it'll take some time and we want to see kind of, you know, more proof to see it come through. We have seen, we've started on that journey. For next year, you know, we expect on those different streams, we expect progress, clearly. The one-timers that we've talked about, the obsolescence charges, you know, a lot of things that happened in the first half of the year, you know, in the aftermath of what happened in 2021, we will take this all into consideration when providing guidance. And I think, you know, what I can tell you, you know, fundamentally, when it comes to the gross margin, nothing has changed versus what we really said in the July earnings call.
spk02: Thanks so much. I appreciate it. Best of luck.
spk04: Thank you. At this time, there are no further questions, and I would like to turn the floor back over to Jim for any closing remarks.
spk09: Thank you, everybody, and we look forward to speaking again in February.
spk04: Thank you, everyone. This does conclude today's conference call. You may disconnect your lines at this time. Thank you for your participation, and have a great day.
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