Duckhorn Gaining Share Amid Tougher Market Conditions

The Duckhorn Portfolio flagged broad industry headwinds over the past few months as it reported sales down 0.4% to $103 million for its fiscal second quarter ended in January. Profitability remained impressive, however, with the company seeing adjusted EBITDA climb 10% to $43 million year-on-year, boosted by expanding margins and tighter cost control.

The slight decline in sales was due to lower volumes in the most recent three months, partially offset by a 2.3% gain in price/mix. “While we continue to take share, distributor and retailer inventory adjustments did impact our top line results, as we saw evidence of both tiers taking a cautious view of market growth and more assertively managing inventory,” interim president and CEO Deirdre Mahlan told analysts.

According to Impact Databank, top-seller Decoy by Duckhorn grew an estimated 2% to 1.45 million cases in the U.S. last year, up from 1.1 million cases three years earlier. Decoy recently expanded with Featherweight, a new better-for-you entry with 80 calories per five-ounce serving and an alcohol content of 9%. It’s line-priced with Decoy’s existing California Sauvignon Blanc at an SRP of $20. Flagship label Duckhorn Vineyards, meanwhile, was up an estimated 3.5% to 305,000 cases in 2023.

Sonoma-Cutrer, which Duckhorn agreed to acquire from Brown-Forman for $400 million last fall, was up an estimated 7% to 580,000 cases last year. Known especially for Chardonnay, the brand boasts an average retail price of $30 a bottle. Duckhorn says Sonoma-Cutrer will be central to its growth strategy moving forward.

“With the largest segment of the Duckhorn Portfolio volume in the $15 to $25 price tier that continues to outperform the broader market, plus the strength of our brand equity and incremental initiatives in the second half, we believe we are well positioned to exceed industry growth,” said Mahlan. “Our outlook assumes the luxury wine market continues to perform as it has in the recent 12-week period, which has been in the flat to 1% range.”

Mahlan said Duckhorn’s growth initiatives moving forward include the launch of Featherweight, as well as a new Decoy Limited Paso Robles Cabernet, ongoing strong growth for the higher-priced Decoy Limited line in general, and better availability of popular wines like Duckhorn Chardonnay and Decoy Limited Merlot. The by-the-glass segment on-premise also presents opportunities, she noted, as does DTC, where “visitation at our tasting rooms is showing positive signs, but our club membership remains below pandemic highs.”

Still, Duckhorn lowered its guidance for its full fiscal year to sales between $395 million and $411 million, with its second-half growth rate expected to fall in the low-to-mid single digit range. Adjusted EBITDA is targeted to reach $145 million to $150 million.—Daniel Marsteller

Tagged : Decoy, duckhorn, Sonoma-Cutrer

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