CBA Records a Tough Net Loss and 5% Depletion Drop in Q1

Dear Client:

Craft Brew Alliance’s first quarter results for 2019 are in.

The brewer was lapping a somewhat easy depletion comp (down 4% in Q1 2018), but failed to capitalize on that with depletions falling 5% over the quarter.

The decline in depletions was “primarily attributed” to the lagging Redhook and Widmer Brothers brands, “as well as a timing-related decrease in international depletions,” according to the company.

We’d also note that Kona’s depletion growth was not where we’re used to seeing it, up only 1.4% in Q1.

Shipments, on the other hand, fared better during the quarter. CBA was cycling a tough shipment comp (up 9% in Q1 of last year), but managed to pull out shipment growth in the quarter, up 2%. Here, Kona was in the double-digits, with shipments up 10%. The same was the case for CBA’s newly acquired brands: Appalachian Mountain Brewery, Cisco Brewers, and Wynwood Brewing, with the trio’s shipments up 13%.

TOUGH $7.4 MILLION NET LOSS. Elsewhere, the company recorded a net loss of $7.4 million in Q1 as a result of increased SG&A expense, which rose $10.8 million in the quarter to $25.6 million. What gives? Two biggies: 1) Kona’s “largest-ever marketing investment,” which CBA dropped $4.6 million on; and 2) “the accrual of an unanticipated $4.7 million pre-tax expense” related to CBA’s class action settlement surrounding Kona’s “false and deceptive advertising” suit [see CBD 03-01-2017].

“While we are updating our SG&A to reflect the unanticipated settlement expense, we believe the investments behind Kona and understanding today’s changing consumer landscape will drive meaningful topline growth and remain focused on sustaining CBA’s strong underlying financials,” said CBA chief financial and strategy officer Christine Perich.

CBA racked up $47 million in net sales in Q1, which represents a 1% decrease from Q1 of last year. And CBA’s “first quarter gross margin expanded 270 basis points to 34.4%, which reflects a 250-basis point improvement in beer gross margin to 38.0% and pub gross margin of 10.9%.”

APRIL SHOWS KONA MEDIA INVESTMENT PAYOFF. In addition to the Q1 results, the company filled the release with a lot of highlights from April as well, which we’d note wasn’t part of the brewer’s first quarter. Why’d they do that?

Well, because Kona’s big media investment didn’t kick off till the back half of March, the company decided it was important to share the impact from that.

Indeed, CBA’s depletions grew 8% during the month, off the back of Kona, which grew depletions by double digits in April, up 16%.

All that said, CBA is holding on to its depletions and shipments guidance for the year, with each ranging between an increase of 5% to an increase of 8%.

WILD SUN WINERY TAPS BREW HUB FOR ITS ENTRANCE INTO BEER

Missouri’s Wild Sun Winery is dipping its toe into beer, according to a company announcement.

Wild Sun Winery, located in the little city of Hillsboro, was founded a few years back by 35-year wine veteran Mark Baehmann and Ed Wagner who racked up nearly two decades at Anheuser-Busch.  

Apparently, the duo has spent the past “several years fine tuning their beer recipes” and are now ready to share them with Missourians.

Wild Sun has tapped nearby contract brewer Brew Hub to handle production. The St. Louis-based brewer will initially use its 4-barrel pilot brewing system to produce two beers: Wild Sun American Blonde Ale, which weighs in at 4.3 % ABV, and Wild Sun Sunset Red Ale, which clocks in at 5.2% ABV. Both beers are available on draft at Wild Sun and Brew Hub’s taproom in St. Louis. “Expanded distribution and packaging are expected later this summer,” according to the release.

ROB TOD TAKES HOME JAMES BEARD AWARD

One of the pioneers of the Northeast craft beer scene, Allagash’s Rob Tod, has taken home the prestigious James Beard Award.

The founder of the longstanding Portland, Maine brewery was named the winner of the James Beard Foundation’s award for Outstanding Wine, Beer or Spirits producer on Monday night beating out the likes of Cathy Corison of Corison Winery, Steve Matthiasson of Matthiasson Wines, Lance Winters of St. George Spirits, and Ann Marshall and Scott Blackwell from High Wire Distilling.

Rob, naturally, credited his “crew” at the brewery in receiving the honor.   

“The crew at the brewery has come to work every day with such passion over the few decades that we’ve been in business. And I definitely wouldn’t have received this award it weren’t for them,” Rob said in a statement to Bangor Daily News. “I’m very honored to be added to the list of past James Beard Beer, Wine, and Spirits winners.”

Rob is only the fourth brewer to win the award since 1990, joining the likes of Dogfish Head’s Sam Calagione; Brooklyn Brewery’s Garrett Oliver; and Anchor Brewing’s Fritz Maytag.

Pretty good company if you ask us.

EDITOR’S NOTE:  UPDATE ON OUR READER APP

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Now we have three ways to read our publications:

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If you have any questions, contact our expert trouble-shooter  jessica@beernet.com.

Until tomorrow,

Jenn, Jordan, and Harry

“There are no secrets better kept than the secrets that everybody guesses.”

– George Bernard Shaw

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