Wine sales are driven by price, but most wineries saw declines (STZ)
Wine volumes were outpacing dollar sales in the off-premise channel before the pandemic began. After the on-premise restrictions began, dollar sales began to outpace volumes, as seen in the chart below. Premium wine consumers shifted more of their purchases to the off-premise channel, and higher-priced wine grew faster than low priced bottles. According to Silicon Valley Bank’s financial statement database of premium wineries, the average winery saw a 7.1% sales decline in the first half of 2020. Two-thirds of wineries saw a sales decrease, while one-third saw a sales increase. Gross margins contracted 180bps to 56.8%. Due to cost-cutting, the average pretax profit margins only contracted 10bps.
Constellation Brands just finalized the sale of its low-priced wine brands to focus on its premium brands to more effectively use its marketing.
On-premise beer trends improve (BUD)
BeerBoard manages over $1 billion in retail draft beer sales for the on-premise channel. BeerBoard saw the open rate of its client restaurants and bars climb to 85%, the highest since the weekend before Thanksgiving. The open rate improved 5% points from the prior report period between Dec. 31-Jan. 3. 60% of the taps were pouring, up from 56% from the last report. The volume poured per location is down 41% YOY, but up 19.1% since Dec. 31 and Jan. 3. There were significant differences between states. Texas and Tennessee were down 31% YOY, with Florida down 32%. New York was down 49%, while Illinois and Minnesota were down 70%. Craft’s share improved to 31.4% of draft volume, up from 28.6% from Dec. 31-Jan. 3 period and 29.8% for the Dec. 18-Dec. 20 period. Domestic and import share decreased from the prior period, as seen in the table below.
Purpose Built Brands files for IPO (PBLT)
Purpose Built Brands filed on Friday with the SEC to raise to $100M in an IPO. The company sells specialty cleaning and disinfecting products from a portfolio of household cleaning brands. The brands include Urnex, Five Star, Opti-Cide, Weiman, Goo Gone, and Wright’s. The sales mix can be seen in the chart below. Consumers and businesses will continue to spend more on cleaning and disinfecting well beyond the SARS COV2 virus's anniversary. The company’s brands sell cleaning products that specialize in the type of surface and appliance. Purpose Built also has brands that target the medical area as well as brewery equipment.
In the year ended September, the company had revenue growth of 36% to $265M. The company expanded capacity by 40% since the pandemic began. Purpose Built also has a track record of making an acquisition each year for the past four years. The company’s multiple sales growth drivers, acquisition history, and low to mid 20% EBITDA margins are attractive. It would be a mistake not to pay attention to the IPO because of difficult COVID-19 comparisons. There is a path to low double-digit revenue growth, mid 20% EBITDA margins, and deleveraging the balance sheet.
