SAM Q1 2025: Best gross margin since 2019 up 460bps; $1.90 tariff drag
- Robust Gross Margin Improvement: Management highlighted that Q1 achieved the best gross margin since 2019, driven by operational efficiencies and disciplined supply chain initiatives, suggesting sustainable margin expansion going forward.
- High-Growth Innovation with Sun Cruiser: The executives emphasized the positive early traction of Sun Cruiser, with plans to triple its distribution in modern channels by mid-summer, indicating strong volume growth potential.
- Expectations for Positive Depletion Turnaround: Despite a modest 1% decline in depletions in Q1, management expects pricing investments and marketing spend to reverse this trend in Q2, signaling a recovery in consumer consumption.
- Tariff-driven cost pressures: Management noted unfavorable tariff impacts from aluminum and other inputs, with estimated costs of $20–$30 million or $1.25–$1.90 per diluted share, potentially pressure margins and earnings.
- Weak depletion trends: Q&A comments referenced depletions down 1% in Q1 with negative signals in April despite increased marketing spend, suggesting consumer softness that could persist and negatively impact revenue growth.
- Underperformance of core products: The core Twisted Tea product faced significant drop-offs, with management citing distribution challenges, cannibalization from new innovations, and intense competition, which may hinder market share recovery.
| Metric | YoY Change | Reason |
|---|---|---|
Total Revenue | +6.4% | Q1 2025 total revenue reached 481,357 USD thousands compared to 452,208 USD thousands in Q1 2024, driven by increased sales volume (contributing approximately $22.7 million) and improved pricing (contributing around $5.9 million), which built on prior period trends of modest revenue growth. |
Operating Income | +120% | Operating income surged to 33,776 USD thousands from 15,354 USD thousands in Q1 2024, reflecting stronger gross profit performance and controlled expense growth, in contrast to the previous period’s lower margins that were constrained by higher operating expenses. |
Net Income | +94% | Q1 2025 net income increased to 24,412 USD thousands versus 12,597 USD thousands in Q1 2024, largely due to improved operational efficiency and enhanced gross profit, although the rise in income tax provision also indicates a higher pre-tax income relative to the prior period. |
Gross Profit | +17.7% | Gross profit grew to 219,263 USD thousands from 186,348 USD thousands in Q1 2024 as a result of lower cost of goods sold per barrel—driven by contract renegotiations, recipe optimization savings, and pricing improvements—which helped overcome previous challenges from inflationary pressures and lower volumes. |
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Tariff Impact
Q: What’s the cost impact of tariffs?
A: Management detailed that tariffs, driven primarily by aluminum costs and point-of-sale materials from high-tariff countries, are expected to cost approximately $20–30 million or $1.25–1.90 per share—a pure cost factor, not reflecting any demand shift. -
Gross Margin Mix
Q: What drove Q1 gross margins?
A: Strong margin performance—with a 460 basis point increase—was primarily due to underlying gross margin initiatives and efficiency gains, with stronger shipments providing a modest uplift. -
Marketing Spend & Depletions
Q: How will spending boost depletions?
A: Although depletions were down 1% in Q1, increased brand investments were intended to mitigate deeper declines, and management expects depletions to turn positive by Q2 and improve in the second half. -
Twisted Tea Performance
Q: Why did Twisted Tea slow?
A: The slowdown was attributed to challenging macro trends and intensified competition from smaller entrants; management is addressing this with renewed innovation and heavier advertising to regain market share. -
Sun Cruiser Outlook
Q: How is Sun Cruiser performing?
A: Sun Cruiser is meeting expectations, with plans to triple points-of-distribution by mid-summer, enhancing measured channel contributions and proving margin accretive. -
Long-Term Brand Outlook
Q: What’s the future for Twisted and Truly?
A: For Twisted Tea, innovation in high-ABV and light variants is key to a modest recovery, while Truly is undergoing a flavor rationalization and renewed marketing push to recapture lost distribution. -
Aluminum Hedging
Q: Are aluminum costs hedged?
A: No, management confirmed that they do not hedge aluminum, instead relying on pass-through pricing from can suppliers.
Research analysts covering BOSTON BEER CO.