Boston beer (NYSE: SAM) still struggling with a tough hangover. Franchise owner Truly said in a recent earnings report that a sharp slowdown in sales triggered more than $ 100 million in write-offs related to excess inventory and canceled production plans. Distributors still have too much inventory on hand before the fourth fiscal quarter as well.
But the good news is that Boston Beer still expects overall sales growth through 2021 and through 2022. And profits are expected to be boosted by significant price increases across its entire beer portfolio. .
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The hard blow
Investors braced for bad news regarding the Truly brand, which has been behind most of Boston Beer’s growth over the past year. The hard-seltzer category was also responsible for most of the growth of the industry at large.
The actual results were about as bad as expected. Sales gains slowed to 11% from 24% last quarter and over 50% in previous quarters. “The rapid and unexpected slowdown in the growth of the hard salts category this summer,” CEO Dave Burwick said in a press release, “has had a significant impact on our business.”
As a result, Boston Beer declared a loss after taking more than $ 100 million in write-downs associated with destroying excess inventory and terminating a few contracts it had made with outside brewers to help with production of Truly. .
On the other hand, management has been optimistic about the potential of the hard salt product category following an industry upheaval through 2021. Truly still holds a privileged position in the field of hard salt. the fastest growing alcoholic beverage industry, and it will be a strong platform to use to launch other products. “We are well positioned to be successful in 2022 and beyond,” said founder Jim Koch, “as consumers look to drink more ‘Beyond Beer’ products.”
Part of this success will come from increasing the prices of its entire portfolio from 3% to 6% in 2022. These increases reflect the rising costs of raw materials like aluminum and glass, but they are also designed to strengthen profitability as the industry matures. . Management had prioritized growth and market share, but now the focus is on achieving a stronger earnings profile.
To that end, Boston Beer expects its gross profit margin to increase in 2022 to between 45% and 48% of sales, compared to around 41% that management expects this year. This boost should allow profits to stabilize after the drop in 2021.
The company is also planning sales growth in 2022, which implies that the Truly brand will establish itself at a solid rate of expansion once the company depletes its current excess inventory. This prospect involves major risks since consumer demand for seltzer hard is always on the move.
But for now, Boston Beer appears to be looking to stabilize growth and earnings trends at the end of 2021 and then improve results until next year.
The broader growth profile depends on how its next introductions are received by beer drinkers. But Boston Beer has a long track record of making the right calls on this score, despite the relentless niche’s recent collapse.
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