Maybe all is well in Sam land. The Boston Beer Co. had its best first quarter in a while, buoyed by the success of its new initiatives, to the tune of $190.5 million net revenue, an increase of $28.8 million or 17.8 percent from the same period last year. Samuel Adams performance improved in the first quarter due to the national launch of Sam ’76 and increases in Seasonal volumes, but these positives were more than offset by declines in other Samuel Adams styles.
“Our total company depletions increased in the first quarter,” said Jim Koch, chairman and founder of the company. “We saw significant improvement in Samuel Adams and Angry Orchard trends, led by our key innovations that include Sam ’76, Samuel Adams New England IPA and Angry Orchard Rosé, all of which are generating excitement during the early stages of their introductions.”
But Koch did caution that it’s too early to fully understand repeat rates on these new products and therefore to draw conclusions on the long-term impact.
“New craft brewers continue to enter the market, and existing craft brewers are expanding their distribution and tap rooms, with the result that drinkers are seeing more choices. We believe that we are well positioned to meet our longer-term challenges because of the quality of our employees, our beers, our innovation capability and our sales execution strength, coupled with our strong financial position that enables us to invest in growing our brands and creating new growth opportunities.”
Some stats from Q1
- Depletions increased 8 percent from the comparable 13-week period in 2017.
- Shipments increased 15 percent.
- Full-year depletion and shipment change continues to be estimated at between zero and plus 6 percent.
- First quarter gross margin of 50.5 percent was 3.3 percentage points above the 2017 first quarter margin; the company’s full year gross margin target remains unchanged at between 52 and 54 percent.
- Advertising, promotional and selling expenses in the first quarter increased $13.8 million or 25.6 percent, compared to the first quarter of 2017, primarily due to increased investments in local marketing, point-of-sale and media and increased freight to distributors due to higher rates and higher volumes.
What’s next? More ciders, marketing
“As we go forward, we remain committed to our three priorities,” said Dave Burwick, the company’s new president and CEO. “Our number one priority is returning Samuel Adams to growth through continued packaging, innovation, promotion and brand communication initiatives, while maintaining Angry Orchard and Twisted Tea’s momentum and ensuring Truly Spiked & Sparkling’s position as a leader in the hard sparkling water category.”
Plans to improve Samuel Adams trends include its current Fill Your Glass integrated marketing campaign along with focused sales execution on Sam ’76. The second quarter will also see continued investments in Angry Orchard media.
“We are pleased by the early reaction to our new campaign and are excited by the national launch of Angry Orchard Rosé cider, which we believe can attract new drinkers to the category from wine and beer,” Burwick said. “Our second priority is a continuing focus on cost savings and efficiency projects to fund the investments needed to grow our brands and to build our organization’s ability to deliver against our goals. Based on our visibility to opportunities in 2018, we are maintaining our previously stated goal of increasing our gross margins by an average of about one percentage point per-year over the three-year period ending in 2019, before any mix or volume impacts, while preserving our quality and improving our service levels.”
Priority three is long-term product innovation, “where we continue to explore beverage areas compatible with our business model for delivering long term shareholder value with an aim to generating a consistent cadence of interesting brand innovations,” Burwick said.
Fiscal 2018 outlook
- Depletions and shipments percentage change of between zero and plus 6 percent.
- National price increases of between zero and 2 percent.
- Gross margin of between 52 and 54 percent, increasing during the year due to progress on cost saving initiatives.
- Increased investment in advertising, promotional and selling expenses of between $15 million and $25 million. This does not include any changes in freight costs for the shipment of products to the company’s distributors.
- Increased general and administrative expenses of between $10 million and $20 million due to organizational investments and stock compensation costs.
- Non-GAAP effective tax rate of approximately 28 percent, excluding the impact of ASU 2016-09.
- Estimated capital spending of between $55 million and $65 million, which mostly consist of investments in the company’s breweries and tap rooms and could be significantly higher, if deemed necessary to meet future growth.