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Duckhorn Portfolio, Inc. (NAPA)·Q2 2024 Earnings Summary

Executive Summary

  • Net sales were $103.0M, down 0.4% year over year, with diluted EPS of $0.14; adjusted EBITDA increased 10% to $42.7M and margin expanded 400 bps to 41.5% on strong gross margins and cost discipline .
  • Guidance was lowered: FY24 net sales cut to $395–$411M, adjusted EBITDA to $145–$150M, and adjusted EPS to $0.63–$0.65, reflecting industry softness and cautious second-half outlook .
  • Management highlighted ongoing share gains versus luxury wine peers and profitability “well above expectations” despite softer demand; second-half growth to be driven by innovation, improved product availability, and programming (by‑the‑glass), albeit with margin pressure as trade spend normalizes .
  • Near-term stock reaction catalysts: execution on by‑the‑glass and distributor realignment, depletions normalization, and clarity on Sonoma‑Cutrer synergies and cross‑sell opportunities (post-close expected to be accretive in FY25) .

What Went Well and What Went Wrong

  • What Went Well

    • Gross profit rose 5.7% YoY to $58.3M; gross margin expanded 330 bps to 56.6% on cost of sales improvement and lower trade spend .
    • Adjusted EBITDA grew 10.1% YoY to $42.7M; adjusted EBITDA margin improved 400 bps to 41.5% on strong operating cost management .
    • Management: “We delivered strong profitability... grew adjusted EBITDA by approximately 10%... driven by robust gross margins and strong operating cost management.” — Deirdre Mahlan, Interim CEO .

  • What Went Wrong

    • Net sales declined 0.4% YoY to $103.0M due to lower shipment volumes as distributors and retailers managed inventory down amid softer market conditions .
    • Interest expense increased to $4.5M vs. $2.7M prior year, pressuring adjusted net income (flat per share YoY at $0.18 on adjusted basis) .
    • DTC channel mix in Q2 was little changed YoY, but broader comments flagged softer demand and club membership below pandemic highs; by‑the‑glass relaunch expected to be lower margin and slower uptake near term .

Financial Results

MetricQ2 2023Q1 2024Q2 2024
Net Sales ($USD Millions)$103.488 $102.509 $103.045
Diluted EPS ($)$0.13 $0.13 $0.14
Gross Profit Margin (%)53.3% 52.5% 56.6%
Adjusted EBITDA ($USD Millions)$38.813 $34.713 $42.735
Adjusted EBITDA Margin (%)37.5% 33.9% 41.5%

Segment/Channel Mix (% of Net Sales)

SegmentQ2 2023Q1 2024Q2 2024
Wholesale – Distributors61.3% 77.0% 62.1%
Wholesale – CA Direct-to-Trade19.1% 15.6% 18.9%
Direct-to-Consumer (DTC)19.6% 7.4% 19.0%

KPIs and Balance Sheet Snapshot

KPIQ2 2023Q1 2024Q2 2024
Cash ($USD Millions)$7.292 $21.182 $13.139
Total Debt ($USD Millions)$220.34 long-term + $9.72 current (approx) $231.15 long-term + $9.72 current $205.68 long-term + $9.72 current; revolver $68.0
Leverage Ratio (Net Debt / TTM Adj. EBITDA)n/a1.7x 1.9x
Distributor Inventory DOH (target/actual)n/atarget ~65 days broadly in line target 65 days in Q2 commentary

Notes: Debt figures reflect line items; leverage ratio per management disclosures .

Guidance Changes

MetricPeriodPrevious Guidance (Dec 6)Current Guidance (Mar 7)Change
Net Sales ($USD Millions)FY 2024$420–$427 $395–$411 Lowered
Adjusted EBITDA ($USD Millions)FY 2024$150–$153 $145–$150 Lowered
Adjusted EPS ($)FY 2024$0.67–$0.69 $0.63–$0.65 Lowered
Diluted Share Count (Millions)FY 2024115–116 115–116 Maintained
Effective Tax Rate (%)FY 202425%–27% 25%–28% Slightly raised upper bound

Management commentary implies second-half net sales growth of low‑to‑mid single digits and margin moderation due to normalized trade spend and by‑the‑glass program mix .

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2023, Q1 2024)Current Period (Q2 2024)Trend
Industry demand/consumerLuxury wine showed signs of rebound; outperformance vs segment; caution on macro Market softness persists; Duckhorn outperforms; industry growth flat to +1% assumed; cautious near-term outlook Softer vs prior; continued outperformance
Inventory/depletionsQ1 lapped prior year buy-ins; inventories “super-healthy” Deeper reversal: depletions exceeded shipments more than expected; distributors/retailers reduced inventories; normalization expected H2 Destocking intensified in Q2; expected normalization
Innovation/product launchesDecoy Limited growth; portfolio evolution strategy Decoy Featherweight lower‑alc SB launched; reorder rates strong; Decoy Limited Paso Robles Cab coming; mixed availability impact Early traction; building
DTC/club/tasting roomsDTC strategy via elevated experiences; Kosta Browne cadence shift Visitation down industry‑wide; spend per visitor strong; Kosta Browne underperformed expectations; action plan under development Mixed: spend strong; volumes pressured
By‑the‑glass programn/aRestarting; lower margin; slower uptake given on‑premise softness Reinvesting; margin headwind
Distributor network realignmentn/aComprehensive realignment underway; short-term phasing volatility; long-term focus/investment from distributors Structural positive; near-term noise
Sonoma‑Cutrer acquisitionAnnounced; strategic fit; ~$400M consideration On track; cost synergies at least $5M, potentially higher; cross‑sell opportunity; accretive to adjusted EPS in FY25 Upside higher synergies

Management Commentary

  • “We delivered strong profitability in the second quarter... grew adjusted EBITDA by approximately 10% to $42.7 million... driven by robust gross margins and strong operating cost management.” — Deirdre Mahlan (Interim CEO) .
  • “We delivered second quarter profitability well above expectations... Our new guidance implies a second half growth rate of low‑to‑mid single digit net sales growth.” — Jennifer Fall Jung (CFO) .
  • “We outperformed total wine by more than 300 bps and the luxury wine market by nearly 200 bps... distributor and retail inventory adjustments did impact our top line.” — Deirdre Mahlan .
  • “Innovation... Decoy Featherweight... and Decoy‑limited Paso Robles Cabernet Sauvignon... increased programming... reintroducing by‑the‑glass programs.” — Deirdre Mahlan .
  • “Distributor inventory days on hand was broadly in line with our expectations of 65 days.” — Jennifer Fall Jung .

Q&A Highlights

  • Inventory normalization and guidance: Distributors/retailers remain cautious; destocking deeper than expected; management expects normalization and inventories where they want them as they enter next year .
  • Distributor alignment: Realignment underway; short-term shipment/depletion phasing variability; expected to drive greater focus and investment; ~20% of business volume impacted by distributor changes .
  • Kosta Browne performance: Underperformed expectations; not a brand equity issue; consumer purchasing cadence shifting post‑pandemic; action plan in development .
  • By‑the‑glass relaunch: Slower uptake in on‑premise; margin headwind but strategic for awareness; restarting as product availability improves (Duckhorn Chardonnay, Decoy Limited Merlot) .
  • Free cash flow seasonality: Q2 use of cash driven by grower payments; seasonality expected; funding of Sonoma‑Cutrer via cash and credit facility .

Estimates Context

  • Wall Street consensus (S&P Global): Consensus data was unavailable for NAPA due to a mapping issue; therefore, we cannot provide an actual vs consensus beat/miss comparison for Q2 2024 or FY24. Management indicated profitability “well above expectations,” but this reference relates to internal expectations rather than Wall Street consensus .
  • Action: Once consensus becomes available, update model and assess whether margin outperformance offsets top‑line softness; focus on implied second‑half low‑to‑mid single‑digit growth and margin normalization .

Key Takeaways for Investors

  • Margin strength offsets softer top line: Gross margin +330 bps YoY and adjusted EBITDA margin +400 bps demonstrate pricing/trade spend discipline and cost control; expect margin moderation in H2 as trade spend normalizes and by‑the‑glass ramps .
  • Guidance reset reflects cautious demand: FY24 net sales and EPS lowered; implied H2 growth low‑to‑mid single digits with drivers from innovation, availability, and programming; monitor depletions vs shipments .
  • Structural levers: Distributor realignment and Sonoma‑Cutrer integration should enhance execution and cross‑sell; synergy outlook improving (minimum $5M cost savings, potentially higher) with accretive EPS in FY25 .
  • DTC/brand narrative: Tasting room spend per visitor strong; club volumes below pandemic highs; Kosta Browne underperformance appears cyclical in purchasing cadence rather than brand equity erosion .
  • Near-term trading setup: Watch on‑premise demand, by‑the‑glass uptake, and distributor inventory days on hand; any signs of depletions normalization and improved orders could be positive catalysts .
  • Risk factors: Elevated interest expense vs prior year, potential on‑premise softness, and timing noise from network realignment; margin headwinds from increased trade spend .
  • Portfolio advantage: Continued share gains vs luxury wine market provide resilience; innovation (Decoy Featherweight; new Paso Cab) shows early traction, supporting H2 growth narrative .