First Quarter of Fiscal 2023 Highlights
Reported net sales grew 11% (+17% organic) and were positively impacted by an estimated net increase in distributor inventories.
The
Woodford Reserve grew reported net sales 38% (+39% organic).
Ready-to-Drink3 (RTD) was fueled by Jack Daniel's RTDs and New Mix with reported net sales growth of 17% (+21% organic).
All geographic clusters and the Travel Retail3 channel benefited from strong growth.
Reported gross margin expanded 80 basis points.
Marketing investment increased 23% (+28% organic).
First Quarter of Fiscal 2023 Brand Results
The
Premium bourbons3, propelled by Woodford Reserve and Old Forester, delivered 35% reported net sales growth (+36% organic) driven by higher volumes in
Ready-to-Drink beverages delivered double-digit reported net sales growth. Consumer preference for convenience spurred Jack Daniel's RTDs/Ready-to-Pours (RTPs) as reported net sales grew 12% (+17% organic) driven by
Herradura's reported net sales declined 4% (-5% organic) due to cycling significant growth during the same prior-year period in
First Quarter of Fiscal 2023 Market Results
All geographic clusters and the Travel Retail channel benefited from strong reported net sales growth driven by higher volumes. This growth was partially offset by foreign exchange headwinds. An estimated net increase in distributor inventories positively impacted reported net sales.
Reported net sales in
Developed International3 markets experienced recovery of the on-trade channel and the return of travel and tourism as reported net sales increased 9% (+19% organic) due to volumetric growth from Jack Daniel's Tennessee Whiskey and Jack Daniel's RTDs. Reported net sales growth in developed international markets was led by
Emerging3 marketsreported net sales increased 17% (+34% organic) reflecting the growth of Jack Daniel's Tennessee Whiskey in Sub-Saharan Africa,
The Travel Retailchannelsurged with reported net sales growth of 77% (+85% organic) driven primarily by higher volumes across much of the portfolio as travel continued to rebound.
First Quarter of Fiscal 2023 Other P&L Items
Reported gross profit increased 13% (+21% organic). Gross margin expanded 80 basis points to 61.8%, driven primarily by favorable price/mix and the removal of the EU and
Reported advertising expense grew 23% (+28% organic) driven by increased marketing investment in
The company's reported operating income increased by 19% (+32% organic).
Earnings per share increased 30.0% to
First Quarter of Fiscal 2023 Financial Stewardship
On
Fiscal Year 2023 Outlook
The company anticipates continued growth in fiscal 2023 despite global macroeconomic and geopolitical uncertainties. Accordingly, we reiterate our guidance and continue to expect the following in fiscal 2023:
With the strength of our portfolio of brands and strong consumer demand, we expect organic net sales growth in the mid-single digit range.
Considering the net effect of inflation and the removal of the EU and
Based on the above expectations, we anticipate mid-single digit organic operating income growth.
We expect our fiscal 2023 effective tax rate to be in the range of approximately 22% to 23%.
Capital expenditures are planned to be in the range of
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Important Information on Forward-Looking Statements:
This press release contains statements, estimates, and projections that are 'forward-looking statements' as defined under
Our substantial dependence upon the continued growth of the
Substantial competition from new entrants, consolidations by competitors and retailers, and other competitive activities, such as pricing actions (including price reductions, promotions, discounting, couponing, or free goods), marketing, category expansion, product introductions, or entry or expansion in our geographic markets or distribution networks
Route-to-consumer changes that affect the timing of our sales, temporarily disrupt the marketing or sale of our products, or result in higher fixed costs
Disruption of our distribution network or inventory fluctuations in our products by distributors, wholesalers, or retailers
Changes in consumer preferences, consumption, or purchase patterns - particularly away from larger producers in favor of small distilleries or local producers, or away from brown spirits, our premium products, or spirits generally, and our ability to anticipate or react to them; further legalization of marijuana; shifts in consumer purchase practices; bar, restaurant, travel, or other on-premise declines; shifts in demographic or health and wellness trends; or unfavorable consumer reaction to new products, line extensions, package changes, product reformulations, or other product innovation
Production facility, aging warehouse, or supply chain disruption
Imprecision in supply/demand forecasting
Higher costs, lower quality, or unavailability of energy, water, raw materials, product ingredients, or labor
Impact of health epidemics and pandemics, including the COVID-19 pandemic, and the risk of the resulting negative economic impacts and related governmental actions
Unfavorable global or regional economic conditions, particularly related to the COVID-19 pandemic, and related economic slowdowns or recessions, low consumer confidence, high unemployment, weak credit or capital markets, budget deficits, burdensome government debt, austerity measures, higher interest rates, higher taxes, political instability, higher inflation, deflation, lower returns on pension assets, or lower discount rates for pension obligations
Product recalls or other product liability claims, product tampering, contamination, or quality issues
Negative publicity related to our company, products, brands, marketing, executive leadership, employees, Board of Directors, family stockholders, operations, business performance, or prospects
Failure to attract or retain key executive or employee talent
Risks associated with acquisitions, dispositions, business partnerships, or investments - such as acquisition integration, termination difficulties or costs, or impairment in recorded value
Risks associated with being a
Failure to comply with anti-corruption laws, trade sanctions and restrictions, or similar laws or regulations
Fluctuations in foreign currency exchange rates, particularly a stronger
Changes in laws, regulatory measures, or governmental policies - especially those that affect the production, importation, marketing, labeling, pricing, distribution, sale, or consumption of our beverage alcohol products
Tax rate changes (including excise, corporate, sales or value-added taxes, property taxes, payroll taxes, import and export duties, and tariffs) or changes in related reserves, changes in tax rules or accounting standards, and the unpredictability and suddenness with which they can occur
Decline in the social acceptability of beverage alcohol in significant markets
Significant additional labeling or warning requirements or limitations on availability of our beverage alcohol products
Counterfeiting and inadequate protection of our intellectual property rights
Significant legal disputes and proceedings, or government investigations
Cyber breach or failure or corruption of our key information technology systems or those of our suppliers, customers, or direct and indirect business partners, or failure to comply with personal data protection laws
Our status as a family 'controlled company' under
For further information on these and other risks, please refer to our public filings, including the 'Risk Factors' section of our annual report on Form 10-K and quarterly reports on Form 10-Q filed with the
Note 1 - Percentage growth rates are compared to the same prior-year periods, unless otherwise noted.
Note 2 - Non-GAAP Financial Measures
Use of Non-GAAP Financial Information. We use some financial measures in this report that are not measures of financial performance under
'Organic change' in measures of statements of operations.We present changes in certain measures, or line items, of the statements of operations that are adjusted to an 'organic' basis. We use 'organic change' for the following measures of the statements of operations: (a) organic net sales; (b) organic cost of sales; (c) organic gross profit; (d) organic advertising expenses; (e) organic selling, general, and administrative (SG&A) expenses; (f) organic other expense (income) net; (g) organic operating expenses*; and (h) organic operating income. To calculate these measures, we adjust, as applicable, for (1) acquisitions and divestitures, (2) foreign exchange, and (3) impairment charges. We explain these adjustments below.
'Acquisitions and divestitures.' This adjustment removes (a) the gain or loss recognized on sale of divested brands, (b) any non-recurring effects related to our acquisitions and divestitures (e.g., transaction, transition, and integration costs), and (c) the effects of operating activity related to acquired and divested brands for periods not comparable year over year (non-comparable periods). Excluding non-comparable periods allows us to include the effects of acquired and divested brands only to the extent that results are comparable year over year.
During fiscal 2021, we sold our Early Times, Canadian Mist, and Collingwood brands and related assets, and entered into a related transition services agreement (TSA) for these brands. This adjustment removes the net sales and operating expenses recognized pursuant to the
'Foreign exchange.' We calculate the percentage change in certain line items of the statements of operations in accordance with GAAP and adjust to exclude the cost or benefit of currency fluctuations. Adjusting for foreign exchange allows us to understand our business on a constant-dollar basis, as fluctuations in exchange rates can distort the organic trend both positively and negatively. (In this press release,'dollar' always means the
'Impairment charges.' This adjustment removes the impact of impairment charges from our results of operations. During the first quarter of fiscal 2022, we recognized a non-cash impairment charge of
We use the non-GAAP measure 'organic change', along with other metrics, to: (a) understand our performance from period to period on a consistent basis; (b) compare our performance to that of our competitors; (c) calculate components of management incentive compensation; (d) plan and forecast; and (e) communicate our financial performance to the Board of Directors, stockholders, and investment community. We have consistently applied the adjustments within our reconciliations in arriving at each non-GAAP measure. We believe these non-GAAP measures are useful to readers and investors because they enhance the understanding of our historical financial performance and comparability between periods. When we provide guidance for organic change in certain measures of the statements of operations we do not provide guidance for the corresponding GAAP change because the GAAP measure will include items that are difficult to quantify or predict with reasonable certainty, such as foreign exchange, which could have a significant impact to our GAAP income statement measures.
As of the third quarter ended
Although we no longer provide non-GAAP financial measures that adjust for 'estimated net change in distributor inventories,' we still believe that our results are affected by changes in distributor inventories, particularly in our largest market,
Note 3 - Definitions
From time to time, to explain our results of operations or to highlight trends and uncertainties affecting our business, we aggregate markets according to stage of economic development as defined by the
In Schedule C and Schedule D, we provide supplemental information for our largest markets ranked by percentage of total fiscal 2022 reported net sales. Due to our decision to suspend commercial operations in
'Developed International' markets are 'advanced economies' as defined by the
'Emerging' markets are 'emerging and developing economies' as defined by the
'Travel Retail' represents our net sales of branded products to global duty-free customers, other travel retail customers, and the
'Non-branded and bulk' includes our net sales of used barrels, contract bottling, and bulk whiskey and wine, regardless of customer location.
Brand Aggregations.
In Schedule B and schedule D, we provide supplemental information for our largest brands ranked by percentage of total fiscal 2022 reported net sales. In addition to brands that are listed by name, we include the following aggregations outlined below.
Beginning in fiscal 2023, we added 'Ready-to-Drink' as a brand aggregation due to its contribution to our growth in recent years and industry-wide category growth trends. 'Whiskey' no longer contains
'Whiskey' includes all whiskey spirits and whiskey-based flavored liqueurs. The brands included in this category are the
'American whiskey' includes the
'Premium bourbons' includes Woodford Reserve, Old Forester, and Coopers' Craft.
'Super-premium American whiskey' includes Woodford Reserve, Gentleman Jack, and other super-premium
'Ready-to-Drink' includes all ready-to-drink (RTD) and ready-to-pour (RTP) products. The brands included in this category are Jack Daniel's RTD and RTP products (JD RTD/RTP), New Mix, and other RTD/RTP products.
'Jack Daniel's RTD and RTP' products include all RTD line extensions of
'Tequila' includes the Herradura family of brands (Herradura), el Jimador, and other tequilas.
'Wine' includes
'Vodka' includes
'Non-branded and bulk' includes our net sales of used barrels, contract bottling, and bulk whiskey and wine.
'
Other Metrics.
'Shipments.' We generally record revenues when we ship or deliver our products to our customers. In this document, unless otherwise specified, we refer to shipments when discussing volume.
'Depletions.' This is a term commonly used in the beverage alcohol industry to describe volume. Depending on the context, depletions usually means either (a) our shipments directly to retail or wholesale customers for owned distribution markets or (b) shipments from our distributor customers to retailers and wholesalers in other markets. We believe that depletions measure volume in a way that more closely reflects consumer demand than our shipments to distributor customers do.
'Consumer takeaway.' When discussing trends in the market, we refer to consumer takeaway, a term commonly used in the beverage alcohol industry that refers to the purchase of product by consumers from retail outlets, including products purchased through e-premise channels, as measured by volume or retail sales value. This information is provided by third parties, such as Nielsen and the
'Estimated net change in distributor inventories.' We generally recognize revenue when our products are shipped or delivered to customers. In
We perform the following calculation to determine the 'estimated net change in distributor inventories':
For both the current-year period and the comparable prior-year period, we calculate a 'depletion-based' amount by (a) dividing the organic dollar amount (e.g. organic net sales) by the corresponding shipment volumes to arrive at a shipment per case amount, and (b) multiplying the resulting shipment per case amount by the corresponding depletion volumes. We subtract the year-over-year percentage change of the 'depletion-based' amount from the year-over-year percentage change of the organic amount to calculate the 'estimated net change in distributor inventories.'
A positive difference is interpreted as a net increase in distributors' inventories, which implies that organic trends could decrease as distributors' reduce inventories; whereas, a negative difference is interpreted as a net decrease in distributors' inventories, which implies that organic trends could increase as distributors rebuild inventories.
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