CRAFT BREW ALLIANCE REPORTS STRONG FIRST QUARTER RESULTS, FUELED BY 14% DEPLETION GROWTH FOR KONA
May 5, 2017
Continued double-digit growth for Kona drives total CBA net sales increase of 13% and gross margin expansion of 640 basis points, underscoring CBA’s progress in strengthening the topline while improving its cost structure
Portland, Ore. (May 3, 2017) – Craft Brew Alliance, Inc. (“CBA”) (Nasdaq: BREW), a leading craft brewing company, today announced financial results for the first quarter ended March 31, 2017 and reconfirmed guidance for the full year. CBA reported 14% depletion growth for Kona, a 13% increase in total company net sales, and a robust 640-basis point improvement in total company gross margin, attributing its strong first quarter results to the ongoing advancement of several strategic initiatives, including:
Tapping the Power of Kona’s Liquid Aloha
Kona delivered 14% depletion growth in the first quarter despite increasing market competition that continued to put pressure on overall craft beer sales. This depletion growth includes 60% growth in international depletions. As the cornerstone of CBA’s portfolio strategy, Kona’s first quarter growth reflects the national success of Big Wave Golden Ale, which posted a 33% boost in depletions in the quarter, and strong results for its newest national brand Hanalei Island IPA. Hanalei IPA was the top 11th new craft beer launched in the first quarter, as measured in grocery sales by Nielsen.
Leveraging our Strengthened AB Relationship
In the first quarter, we continued to focus on unlocking the value from our enhanced agreements with Anheuser-Busch (“AB”) announced last year. We successfully completed the qualification process to begin brewing in AB’s Fort Collins, Colo. Brewery and are on track to begin shipments this month, in time to support execution of our commercial programs heading into the peak summer selling season.
Evolving our Brewing Footprint
In the first quarter, we continued to make strong progress evolving CBA’s brewing footprint to improve production efficiency, reduce overhead costs, and increase gross margins. In line with our plans, we have been successfully winding down production at City Brewing in Memphis and at our Woodinville brewery, while preparing for production in Fort Collins as described above.
With respect to our Woodinville brewery, CBA and Pabst Brewing Company, LLC have reached an agreement to terminate our contract brewing agreement, as well as Pabst’s option to purchase CBA’s Woodinville facility. As a result, Pabst will pay negotiated fees to CBA, and CBA will close its Woodinville brewery as of July 1, 2017. The Woodinville pub is not impacted by this change and will remain open.
Achieving our Wholesaler Inventory Objectives
CBA achieved a significant milestone in the first quarter, delivering a 2.1% increase in shipments despite cutting 10 days from our wholesaler inventory levels. This accomplishment validates our efforts to address the inventory pressures facing our distributors in today’s competitive craft market, while still delivering a significant improvement over first quarter 2016 shipments, which were lower due to the temporary closure of our Portland brewery.
Select financial highlights for the first quarter 2017:
- Depletions for Kona were 14% in the first quarter, while overall CBA depletions were flat for the first quarter of 2017, compared to the first quarter in 2016.
- CBA’s shipments increased 2.1% over the same period last year, amidst the successful completion of our wholesaler inventory objectives as described above.
- Net sales increased 13.0% to $44.3 million in the first quarter, compared to the first quarter in 2016.
- The increase is primarily attributed to shipment growth for Kona and our partner brands, $1.7 million in Pabst contract brewing shortfall fees, $0.9 million in AB international distribution fees, our alternating proprietorship business, and an increase in average unit pricing. Our net sales increase also reflects the improvement over the first quarter in 2016, during which shipments were impacted by the temporary closure of our Portland brewery.
- Partially offsetting the first quarter increases were decreases in Widmer Brothers and Redhook shipment volume, as well as shipment volume decreases associated with our ongoing efforts to reduce inventory levels at our wholesaler partners.
- Gross profit increased by 45.3%, to $12.7 million, and gross margin increased by 640 basis points to 28.6% compared to the first quarter in 2016.
- Selling, general and administrative expense (“SG&A”) for the first quarter was $15.5 million, an 11% increase over the first quarter of 2016.
- The increase primarily reflects continued investment in our brands and emerging business.
- Diluted net loss per share was $0.09 for the first quarter, an improvement of $0.08 over the first quarter diluted net loss per share of $0.17 in 2016.
“Our first quarter results are strong in and of themselves. And they’re especially remarkable given the dynamics in today’s increasingly challenging market,” said Andy Thomas, chief executive officer, CBA. “The substantial progress we made across many areas of our business – from continuing Kona’s double-digit growth and strengthening our local brands, to expanding our gross margins while evolving our brewery footprint and reducing our wholesaler inventory days by a third – provides tangible evidence that our strategy is working and beginning to bear fruit.”
Anticipated financial highlights for 2017:
As a result of our first quarter performance being in line with expectations, we are reaffirming our 2017 guidance and will be exploring the opportunity to update the ranges later in the year as the need arises.
- Total CBA depletion change of flat to growth of 6%.
- Shipments ranging between a decrease of 1% and increase of 4%, which reflects our success in achieving our 2017 wholesaler inventory reduction goals in the first quarter.
- Average price increases of 1% to 2%.
- Total gross margin rate of 30.5% to 32.5%.
- Gross margin on our owned business, which includes beer related and pubs, is expected to be higher on a rate basis despite the dilutive influence of alternating proprietorship volume.
- Over the course of 2017, CBA management will assess the 2017 gross margin range against the previously disclosed target of 35%, which was projected without the AB agreements and with the completed sale of our Woodinville brewery.
- SG&A ranging from $61 million to $63 million including increase in marketing spend and SG&A cost optimization, as we leverage investments made in prior years and seek to improve efficiencies.
- Capital expenditures of approximately $16 million to $20 million, reflecting continued work on previously disclosed projects including the new Kona brewery and Redhook brewpub in Seattle.
“We saw a 45% increase in gross profitability versus last year which was supported by strong topline growth, healthy revenues per barrel sold, and improved brewery efficiencies,” said Joe Vanderstelt, chief financial officer, CBA. “The upcoming closure of our Woodinville brewery in July will allow us to take another step forward in reducing fixed overhead costs, increasing gross margins, and improving capacity utilization.”
Statements made in this press release that state the Company’s or management’s intentions, hopes, beliefs, expectations or predictions of the future, including depletions, shipments and sales growth, price increases, and gross margin rate improvement, the level and effect of SG&A expense and business development, anticipated capital spending, and the benefits or improvements to be realized from strategic initiatives and capital projects, are forward-looking statements. It is important to note that the Company’s actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the Company’s SEC filings, including, but not limited to, the Company’s report on Form 10-K for the year ended December 31, 2016. Copies of these documents may be found on the Company’s website, www.craftbrew.com, or obtained by contacting the Company or the SEC.
About Craft Brew Alliance
Craft Brew Alliance (CBA) is an independent craft brewing company that brews, brands, and brings to market world-class American craft beers.
Our distinctive portfolio combines the power of Kona Brewing Company, a dynamic, fast-growing national craft beer brand, with an expanding stable of strong regional breweries and innovative lifestyle brands, including Appalachian Mountain Brewery, Cisco Brewers, Omission Brewing Co., Redhook Brewery, Square Mile Cider Co. and Widmer Brothers Brewing. CBA nurtures the growth and development of its brands in today’s increasingly competitive beer market through our state-of-the-art brewing and distribution capability, integrated sales and marketing infrastructure, and strong focus on partnerships, local community and sustainability.
Formed in 2008, CBA is headquartered in Portland, Oregon and operates breweries and brewpubs across the U.S. CBA beers are available in all 50 U.S. states and 30 different countries around the world. For more information about CBA and our brands, please visit www.craftbrew.com.
Director of Communications
Craft Brew Alliance, Inc.