Craft Brew Alliance Reports Strong Second Quarter Results Led by Robust Acceleration for Kona and Record Beer Gross Margin
National media investment fuels 8% depletions growth for Kona, driving overall depletions growth for CBA portfolio
- Kona depletions grew 8%, driving a total CBA depletions increase of more than 1% over the second quarter in 2018.
- An 11% increase in Kona shipments contributed to an overall 4.4% increase in owned beer shipments.
- Core beer sales increased 2.7% over the second quarter in 2018.
- Beer gross margin expanded 220 basis points to a record 41.6% in the second quarter.
- Brewpub gross margin expanded 710 basis points over the second quarter last year.
-
Net income was
$2.6 million , or$0.13 per share.
CBA Chief Executive Officer
Performance highlights for the second quarter and year-to-date
Fueling Kona’s momentum in an unprecedented market
Kona’s momentum accelerated in the second quarter, with 8% depletions growth far outpacing the beer category and the craft segment, which were both down compared to second quarter a year ago. Fueled by the national marketing investment that kicked off in the first quarter and continued into the second quarter, Kona’s year-to-date depletions were 6% higher than the same period in 2018, with especially strong performance in the on-premise channel. Kona flagship Big Wave Golden Ale, which featured prominently in the media campaign, delivered a 25% increase in domestic depletions in the quarter and a 22% increase year to date. During the quarter, we continued to work closely with our international distribution partners, driving a 21% increase in international Kona shipments over the second quarter last year. We also continued to make progress ramping up local production of Kona in
Achieving record gross margin
Second quarter gross margin expanded 270 basis points to 38.5%, which reflects a 220-basis point improvement in beer gross margin to 41.6% and pub gross margin expansion of 710 basis points to 10.1%. Our beer gross margin improvement reflects the positive impact of transitioning
Broadening our portfolio for the future
CBA’s investments in future growth — including comprehensive research initiatives with the
Summary of financial results for the second quarter and year-to-date 2019
-
Core beer sales increased 2.7% in the second quarter and 2.9% year to date.
-
Total net sales were
$60.6 million for the quarter, a decrease of 2.0% from the second quarter in 2018, and$107.6 million year to date, a decrease of 1.6% from the same period a year ago. Our net sales decrease compared to 2018 is attributed to the change in ownership structure ofAppalachian Mountain Brewery ,Cisco , and Wynwood. Excluding the impact of the alternating proprietorship fees, our second quarter and year-to-date total net sales would have been up 1.7% and 2.2%, respectively.
-
Total net sales were
- Kona shipments increased 11% in the second quarter and 10% year to date, contributing to a 2.6% increase in total CBA shipments for the second quarter and a 2.1% increase in total CBA shipments year to date, compared to the same periods last year.
-
Kona depletions increased by 8% in the second quarter and 5% year-to-date, driven by strong consumer response to the national media campaign. Kona’s strong performance contributed to a 1.1% increase in total CBA depletions for the quarter, which improved CBA’s year-to-date depletion trend to a decrease of 1.4% from the same period a year ago.
- Post-campaign analysis indicates that demand actually outpaced in-store inventory leading to significant retail out-of-stock issues across key media markets. Estimates suggest that these issues may have suppressed Kona’s depletion growth by approximately 200 basis points in the second quarter.
-
Total company gross margin expanded by 270 basis points to 38.5%, compared to 35.8% in the second quarter of 2018, and year-to-date gross margin expanded 270 basis points to 36.7% compared to the same period last year.
- Beer gross margin expanded by 220 basis points to 41.6% in the second quarter, and year-to-date beer gross margin expanded 240 basis points to 40.1%. Our beer gross margin expansion reflects the impact of transitioning our partner brands to owned brands, as well as continued leverage of our evolving brewery footprint, strong revenue management, and a reduction in beer loss.
- Brewpub gross margin expanded 710 basis points to 10.1% in the second quarter, primarily reflecting improvements with our reshaped and expanded pub footprint. Our year-to-date brewpub gross margin expanded 600 basis points over the same period last year, to 10.5%.
-
Selling, general and administrative expense (“SG&A”) increased by
$3.5 million to $19.4 million over the second quarter last year, which reflects additional investments to amplify our national Kona marketing campaign, as well as employee-related costs.-
Year-to-date SG&A increased by
$14.3 million , to$44.9 million . The increases in year-to-date SG&A over the same period in 2018 primarily reflect our national marketing investment to fuel Kona’s growth and a$4.7 million pre-tax expense related to the Kona class action lawsuit settlement, which was accrued as a one-time expense in the first quarter. Based on initial claims being in line with our expectations, we anticipate our accrual will cover our total costs for the settlement.
-
Year-to-date SG&A increased by
-
Net income was
$2.6 million in the second quarter.-
Year to date, we recorded a net loss of
$4.8 million primarily due to the Kona class action accrual. On an adjusted non-GAAP basis excluding the$3.6 million after-tax impact of the accrual, our year-to-date net loss was$1.2 million .
-
Year to date, we recorded a net loss of
-
Earnings per share were
$0.13 in the second quarter, a decrease of$0.10 from the second quarter of 2018, which reflects the planned increase in SG&A to amplify the Kona marketing investment.-
Year to date, we recorded a net loss per share of
$0.24 . On an adjusted non-GAAP basis excluding the$3.6 million after-tax expense accrual, our net loss per share was$0.06 .
-
Year to date, we recorded a net loss per share of
2019 Outlook
Acknowledging our year-to-date results and given the broad implications related to the
Forward-Looking Statements
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 and shipments, gross margin rate improvement, the level and effect of SG&A expense and business development, the effect of the class action settlement, effective tax rate, and the benefits or improvements to be realized from marketing campaigns, portfolio expansion and other strategic initiatives, and capital projects, are forward-looking statements. It is important to note that the Company’s actual results may 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
About
Our distinctive portfolio combines the power of
Formed in 2008, CBA is headquartered in
Craft Brew Alliance, Inc. | |||||||||||||||
Condensed Consolidated Statements of Operations | |||||||||||||||
(Dollars and shares in thousands, except per share amounts) | |||||||||||||||
(Unaudited) | |||||||||||||||
Three Months Ended
|
|
Six Months Ended
|
|||||||||||||
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
|
Sales |
$ |
63,815 |
|
$ |
65,253 |
|
$ |
113,583 |
|
$ |
115,338 |
|
|||
Less excise taxes |
|
3,256 |
|
|
3,430 |
|
|
6,032 |
|
|
6,028 |
|
|||
Net sales |
|
60,559 |
|
|
61,823 |
|
|
107,551 |
|
|
109,310 |
|
|||
Cost of sales |
|
37,272 |
|
|
39,696 |
|
|
68,081 |
|
|
72,112 |
|
|||
Gross profit |
|
23,287 |
|
|
22,127 |
|
|
39,470 |
|
|
37,198 |
|
|||
As percentage of net sales |
|
38.5 |
% |
|
35.8 |
% |
|
36.7 |
% |
|
34.0 |
% |
|||
Selling, general and administrative expenses |
|
19,381 |
|
|
15,857 |
|
|
44,946 |
|
|
30,605 |
|
|||
Operating income (loss) |
|
3,906 |
|
|
6,270 |
|
|
(5,476 |
) |
|
6,593 |
|
|||
Interest expense |
|
(504 |
) |
|
(107 |
) |
|
(812 |
) |
|
(241 |
) |
|||
Other income, net |
|
33 |
|
|
21 |
|
|
33 |
|
|
55 |
|
|||
Income (loss) before income taxes |
|
3,435 |
|
|
6,184 |
|
|
(6,255 |
) |
|
6,407 |
|
|||
Income tax provision (benefit) |
|
825 |
|
|
1,732 |
|
|
(1,501 |
) |
|
1,794 |
|
|||
Net income (loss) |
$ |
2,610 |
|
$ |
4,452 |
|
$ |
(4,754 |
) |
$ |
4,613 |
|
|||
Basic and diluted net income (loss) per share: |
$ |
0.13 |
|
$ |
0.23 |
|
$ |
(0.24 |
) |
$ |
0.24 |
|
|||
Weighted average shares outstanding: | |||||||||||||||
Basic |
|
19,443 |
|
|
19,334 |
|
|
19,416 |
|
|
19,322 |
|
|||
Diluted |
|
19,593 |
|
|
19,517 |
|
|
19,416 |
|
|
19,502 |
|
|||
Total shipments (in barrels): | |||||||||||||||
Core Brands |
|
228,300 |
|
|
218,700 |
|
|
392,700 |
|
|
379,300 |
|
|||
Contract Brewing |
|
2,200 |
|
|
5,900 |
|
|
7,300 |
|
|
12,300 |
|
|||
Total shipments |
|
230,500 |
|
|
224,600 |
|
|
400,000 |
|
|
391,600 |
|
|||
Change in depletions (1) |
|
1 |
% |
|
-2 |
% |
|
-1 |
% |
|
-3 |
% |
(1) Change in depletions reflects the period-over-period change in barrel volume sales of beer by wholesalers to retailers. |
Craft Brew Alliance, Inc. | |||||
Condensed Consolidated Balance Sheets | |||||
(In thousands) | |||||
(Unaudited) | |||||
June 30, |
|||||
|
2019 |
|
|
2018 |
|
Current assets: | |||||
Cash, cash equivalents and restricted cash |
$ |
970 |
$ |
5,778 |
|
Accounts receivable, net |
|
30,223 |
|
36,999 |
|
Inventory, net |
|
20,579 |
|
14,522 |
|
Other current assets |
|
3,591 |
|
1,874 |
|
Total current assets |
|
55,363 |
|
59,173 |
|
Property, equipment and leasehold improvements, net |
|
111,634 |
|
104,982 |
|
Operating lease right-of-use assets |
|
19,002 |
|
- |
|
Goodwill |
|
21,935 |
|
12,917 |
|
Trademarks |
|
44,245 |
|
14,415 |
|
Intangible and other assets, net |
|
5,710 |
|
6,054 |
|
Total assets |
$ |
257,889 |
$ |
197,541 |
|
Current liabilities: | |||||
Accounts payable |
$ |
19,489 |
$ |
20,042 |
|
Accrued salaries, wages and payroll taxes |
|
4,920 |
|
4,673 |
|
Refundable deposits |
|
3,685 |
|
4,282 |
|
Deferred revenue |
|
4,364 |
|
4,685 |
|
Other accrued expenses |
|
8,101 |
|
3,163 |
|
Current portion of long-term debt and finance lease obligations |
|
1,483 |
|
807 |
|
Total current liabilities |
|
42,042 |
|
37,652 |
|
Long-term debt and finance lease obligations, net of current portion |
|
51,675 |
|
9,946 |
|
Other long-term liabilities |
|
31,699 |
|
13,995 |
|
Total common shareholders' equity |
|
132,473 |
|
135,948 |
|
Total liabilities and common shareholders' equity |
$ |
257,889 |
$ |
197,541 |
Craft Brew Alliance, Inc. | |||||||
Condensed Consolidated Statements of Cash Flows | |||||||
(In thousands) | |||||||
(Unaudited) | |||||||
Six Months Ended
|
|||||||
|
2019 |
|
|
|
2018 |
|
|
|
|||||||
Cash Flows From operating activities: | |||||||
Net income (loss) |
$ |
(4,754 |
) |
$ |
4,613 |
|
|
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | |||||||
Depreciation and amortization |
|
5,386 |
|
|
5,387 |
|
|
(Gain) loss on sale or disposal of Property, equipment and leasehold improvements |
|
22 |
|
|
(494 |
) |
|
Deferred income taxes |
|
(1,536 |
) |
|
(629 |
) |
|
Other, including stock-based compensation |
|
1,506 |
|
|
875 |
|
|
Changes in operating assets and liabilities: | |||||||
Accounts receivable, net |
|
75 |
|
|
(9,215 |
) |
|
Inventories |
|
(3,349 |
) |
|
(285 |
) |
|
Other current assets |
|
(687 |
) |
|
1,761 |
|
|
Accounts payable, deferred revenue and other accrued expenses |
|
8,068 |
|
|
7,889 |
|
|
Accrued salaries, wages and payroll taxes |
|
(715 |
) |
|
(1,204 |
) |
|
Refundable deposits |
|
104 |
|
|
(241 |
) |
|
Net cash provided by operating activities |
|
4,120 |
|
|
8,457 |
|
|
Cash Flows from investing activities: | |||||||
Expenditures for Property, equipment and leasehold improvements |
|
(9,440 |
) |
|
(4,284 |
) |
|
Proceeds from sale of Property, equipment and leasehold improvements |
|
22 |
|
|
22,936 |
|
|
Restricted cash from sale of Property, equipment and leasehold improvements |
|
- |
|
|
515 |
|
|
Business combinations and asset acquisitions |
|
(274 |
) |
|
- |
|
|
Net cash provided by (used in) investing activities |
|
(9,692 |
) |
|
19,167 |
|
|
Cash Flows from financing activities: | |||||||
Proceeds from issuance of long-term debt |
|
5,192 |
|
|
- |
|
|
Principal payments on debt and capital lease obligations |
|
(455 |
) |
|
(348 |
) |
|
Net borrowings (repayments) under revolving line of credit |
|
930 |
|
|
(22,199 |
) |
|
Proceeds from issuances of common stock |
|
- |
|
|
206 |
|
|
Tax payments related to stock-based awards |
|
(325 |
) |
|
(84 |
) |
|
Net cash provided by (used in) financing activities |
|
5,342 |
|
|
(22,425 |
) |
|
Increase (decrease) in Cash, cash equivalents and restricted cash |
|
(230 |
) |
|
5,199 |
|
|
Cash, cash equivalents and restricted cash, beginning of period |
|
1,200 |
|
|
579 |
|
|
Cash, cash equivalents and restricted cash, end of period |
$ |
970 |
|
$ |
5,778 |
|
Craft Brew Alliance, Inc. | ||||||||||||||
Select Financial Information on a Trailing Twelve Month Basis | ||||||||||||||
(Dollars in thousands, except per share amounts) | ||||||||||||||
(Unaudited) | ||||||||||||||
Twelve Months Ended June 30, |
||||||||||||||
|
2019 |
|
|
|
2018 |
|
|
Change |
|
% Change |
||||
Net sales |
$ |
204,427 |
|
$ |
211,914 |
|
$ |
(7,487 |
) |
(3.5 |
)% |
|||
Gross profit |
$ |
70,595 |
|
$ |
71,458 |
|
$ |
(863 |
) |
(1.2 |
)% |
|||
As percentage of net sales |
|
34.5 |
% |
|
33.7 |
% |
80 bps |
|||||||
Selling, general and administrative expenses |
|
76,913 |
|
|
60,039 |
|
|
16,874 |
|
28.1 |
% |
|||
Operating income (loss) |
$ |
(6,318 |
) |
$ |
11,419 |
|
$ |
(17,737 |
) |
(155.3 |
)% |
|||
Net income (loss) |
$ |
(5,225 |
) |
$ |
14,199 |
|
$ |
(19,424 |
) |
(136.8 |
)% |
|||
Income (loss) per share: | ||||||||||||||
Basic |
$ |
(0.27 |
) |
$ |
0.74 |
|
$ |
(1.01 |
) |
(136.5 |
)% |
|||
Diluted |
$ |
(0.27 |
) |
$ |
0.73 |
|
$ |
(1.00 |
) |
(137.0 |
)% |
|||
Total shipments (in barrels): | ||||||||||||||
Core Brands |
|
732,800 |
|
|
742,500 |
|
|
(9,700 |
) |
(1.3 |
)% |
|||
Contract Brewing |
|
23,200 |
|
|
19,000 |
|
|
4,200 |
|
22.1 |
% |
|||
Total shipments |
|
756,000 |
|
|
761,500 |
|
|
(5,500 |
) |
(0.7 |
)% |
|||
Change in depletions (1) |
|
-1 |
% |
|
-2 |
% |
(1) Change in depletions reflects the period-over-period change in barrel volume sales of beer by wholesalers to retailers. |
Supplemental Disclosures Regarding Non-GAAP Financial Information | ||||||||||||||
Craft Brew Alliance, Inc. | ||||||||||||||
Reconciliation of Adjusted EBITDA to Net Income (loss) | ||||||||||||||
(In thousands) | ||||||||||||||
(Unaudited) | ||||||||||||||
Three Months Ended
|
|
Six Months Ended
|
||||||||||||
|
2019 |
|
|
2018 |
|
|
2019 |
|
|
|
2018 |
|
||
Net income (loss) |
$ |
2,610 |
$ |
4,452 |
$ |
(4,754 |
) |
$ |
4,613 |
|
||||
Interest expense |
|
504 |
|
107 |
|
812 |
|
|
241 |
|
||||
Income tax provision (benefit) |
|
825 |
|
1,732 |
|
(1,501 |
) |
|
1,794 |
|
||||
Depreciation expense |
|
2,540 |
|
2,608 |
|
5,141 |
|
|
5,301 |
|
||||
Amortization expense |
|
120 |
|
43 |
|
245 |
|
|
86 |
|
||||
Stock-based compensation |
|
835 |
|
202 |
|
1,253 |
|
|
687 |
|
||||
(Gain) loss on disposal of assets |
|
14 |
|
22 |
|
22 |
|
|
(494 |
) |
||||
Kona class action expenses |
|
62 |
|
- |
|
4,902 |
|
|
- |
|
||||
Adjusted EBITDA |
$ |
7,510 |
$ |
9,166 |
$ |
6,120 |
|
$ |
12,228 |
|
CBA has presented Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”) in these tables to provide investors with additional information to evaluate our operating performance on an ongoing basis using criteria that are used by management. We define Adjusted EBITDA as net income (loss) before interest, income taxes, depreciation and amortization, stock-based compensation and other non-cash charges, including loss on impairment of assets and net gain or loss on disposal of property, equipment and leasehold improvements. We use Adjusted EBITDA, among other measures, to evaluate operating performance, to plan and forecast future periods’ operating performance, and as an incentive compensation target for certain management personnel.
As Adjusted EBITDA is not a measure of operating performance or liquidity calculated in accordance with generally accepted accounting principles in
View source version on businesswire.com: https://www.businesswire.com/news/home/20190807005785/en/
Source:
Jenny McLean, Director of Communications, (503) 331-7248
Investor.Relations@craftbrew.com