Duckhorn Narrows Outlook Amid “Challenging Market Environment”

Napa Valley-based winemaker Duckhorn has been among the top-performing players in the industry the past few years, led by its 1.4-million-case Decoy brand, but even it hasn’t been immune to the tough business conditions in recent months. Duckhorn interim CEO Deirdre Mahlan said yesterday that a “softening in consumer sentiment and luxury wine sales,” combined with a difficult comparison against the prior year, led Duckhorn’s net sales down 5% to $103 million in its fiscal first quarter ended in October. Adjusted EBITDA came in down 2.7% to $35 million.

Duckhorn was lapping some strong numbers from the previous year in its first quarter, as the year-ago period saw strong buy-in at wholesale, specifically for higher-priced wines. Consequently, volume was down 3.4% in the most recent three months against those comps. The company’s portfolio continues to outperform the broader market in the national wholesale segment, Mahlan noted. At the retail level, Circana shows wine’s $15 and over segment flat and the category overall down 1.6%.

Specifically, higher-priced offering Decoy Ltd is seeing double-digit retail sales growth, boosted by its expansion into Merlot. That helped counter a more challenging landscape for the core Decoy label, which absorbed price increases and saw its red varietals hit by increased competition in the $15-$25 segment. The Duckhorn Vineyards label is up 7% at retail over the past 52 weeks, while pending acquisition Sonoma-Cutrer is up 6%.

Duckhorn agreed last month to acquire 543,000-case Sonoma-Cutrer from Brown-Forman for $400 million in a combination of cash and stock, with Brown-Forman taking a 21.5% stake in Duckhorn and gaining two seats on its board. Duckhorn said the Chardonnay brand will be central to its growth strategy moving forward, complementing its prowess in red wines, especially Merlot.

Mahlan said Duckhorn saw its direct-to-consumer (DTC) sales slip 11% in the first quarter, partially owing to renovations at some of its tasting rooms. “There is opportunity for improvement for our DTC business,” she noted. “We’re actively adjusting our DTC approach to respond to changing consumer behavior and tap into the strength at the ultra high end, and we’re seeing some positive results. For example, although the number of visitors and spend per visitor were soft in the quarter, we’ve seen a strong response to our elevated tasting experiences, where spend per person can be considerably higher.”

Amid the tougher climate, Duckhorn narrowed its guidance for its full fiscal year ending next July to sales up 4% to 6% to $420 to $427 million, with adjusted EBITDA targeted at $150 to $153 million.—Daniel Marsteller

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