Boston Beer Company’s big first quarter in 2021 as it built hard seltzer inventories is coming to roost a year later. The company reported declines in depletions and shipments of -7% and -25.1%, respectively in the first quarter of 2022.
Boston Beer — whose brands include Samuel Adams, Truly Hard Seltzer, Dogfish Head Craft Brewery, Twisted Tea and Angry Orchard — has shipped about 1.7 million barrels of product year-to-date through March 26, with each of those brands’ shipments declining, with the exception of Samuel Adams.
Boston Beer attributed its depletions declines to Truly, Angry Orchard and Dogfish Head, which were only partially offset by Twisted Tea increases. Samuel Adams’ depletions were flat.
For the quarter, Boston Beer reported a -21.1% decline in net revenue, to $430.1 million. The company’s Q1 2022 gross margin of 40.2% was 5.6% points below Q1 2021’s gross margin of 45.8%, which was attributed to “higher supply chain costs and higher materials costs, partially offset by price increases.”
Boston Beer reported a net loss of $2 million, or $0.16 per diluted share, through the first 13 weeks of 2022. Compare that to net income of $65.6 million, or $5.26 per diluted share, in Q1 2021.
Boston Beer president and CEO Dave Burwick said the company’s Q1 2022 “suffers by comparison” to the company’s “exceptional performance” in Q1 2021. Nevertheless, Burwick said the company met its “internal targets for depletions, shipments and financials.”
In Q1 2021, Boston Beer reported a +48% increase in depletions and a +60.1% increase in shipments, as the company shipped about 2.3 million barrels of product in an effort to build wholesaler inventories of hard seltzers ahead of the summer selling period. The increased shipments drove net revenue growth of +64.9%, to $545.1 million, an increase of $214.5 million compared to Q1 2020.
Boston Beer later hit with an investor lawsuit for allegedly failing to disclose that hard seltzer sales were decelerating, and the company revised its shipment guidance downward in 2021. The company destroyed millions of cases of Truly and wrote off more than $100 million in direct costs.
Despite the negative shipment and depletion numbers to start the year, Boston Beer said its full-year depletion and shipment numbers are estimated to be between +4% and +10%.
“We fully expect depletion and shipment volumes to improve, both in absolute terms and against less difficult prior year volume comparisons,” Burwick said in the release. “We also expect margins to increase from the lower first quarter levels as our supply chain performance slowly improves during the remainder of the year. We continue to believe we have strategies in place to get back to company-wide mid single-digit to double-digit depletions growth driven by broad-based growth across our entire portfolio of brands – especially as consumers drink more ‘Beyond Beer’ products – and via our strong innovation pipeline.”
“Despite our depletions decline, we gained dollar share in measured off-premise channels in the first quarter – the second-largest share gain among brewers,” Boston Beer founder and chairman Jim Koch added in a press release. “The out-of-stock issues that affected our first quarter performance have improved during the quarter, setting us up for additional growth over the rest of the year.”
Boston Beer’s slate of new products set to hit the market this summer should also help, Koch said, including the launch of Truly Vodka Seltzer, which he described as a “ready-to-drink hard seltzer with 110 calories and 5% ABV.”
“We believe it will help us compete effectively in the high-end of the hard seltzer category and continue to broaden the reach of the Truly brand,” Koch said in the release.
Rest of Year Projections
Boston Beer noted that year-to-date depletions through April 16 are estimated to have decreased about -6% compared to the same 16-week period in 2021. Shipments in that same timeframe are down -23%.
“In the first quarter of 2022 total depletions declined 7% compared to the first quarter of 2021 and increased 38% compared to the first quarter of 2020,” Boston Beer reported in its full-year 2022 projections. “In order for the company to achieve the mid-point of its full-year depletions range, its depletions for the remainder of the year must increase 10% compared to the last nine months of 2021 and increase 29% compared to the last nine months of 2020.”
Boston Beer also said it expects to take national price increases for the full year in the +3% to +5% range.
Other Notes From the Quarter
For the quarter, the company reported general and administrative expenses increased by $7.8 million (+24.3%) due to “increased salaries and benefits costs and increases in services provided by third parties.”
Boston Beer also recorded a $4.8 million in contract termination costs “resulting from further negotiations with suppliers that eliminated future shortfall fees.”
Advertising, promotional and selling expenses also decreased $10.2 million (-7.3%) compared to Q1 2021, due to decreased brand investments of $9.4 million.