Duckhorn Portfolio Inc (NAPA) 2021 Q4 法說會逐字稿

Greetings, and welcome to The Duckhorn Portfolio's Fourth Quarter 2021 Earnings Conference Call. (Operator Instructions)

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Sean Sullivan, Executive Vice President, Chief Administrative Officer and General Counsel.

Good afternoon, and welcome to The Duckhorn Portfolio's Fourth Quarter 2021 Earnings Conference Call. Joining me on today's call are Alex Ryan, Duckhorn's President, CEO and Chairman; and Lori Beaudoin, our Chief Financial Officer. In a moment, we'll hear brief remarks followed by Q&A. By now, everyone should have access to the earnings release for the fiscal year ended July 31, 2021, that went out this afternoon at approximately 4:15 p.m. Eastern Time.

The press release is accessible on the company's website at ir.duckhorn.com. And shortly after the conclusion of today's call, a webcast will be archived for the next 30 days. Before we begin, let me remind everyone that today's discussion contains forward-looking statements based on the environment as we currently see it, and as such, does include risks and uncertainties.

If you refer to Duckhorn's earnings release, as well as the company's most recent SEC filings, you will see a discussion of factors that could cause the company's actual results to differ materially as a result of these forward-looking statements. Please remember the company undertakes no obligation to update or revise these forward-looking statements in the future.

We will make a number of references to non-GAAP financial measures. We believe that these measures provide investors with useful perspective on the underlying growth trends of the business and have included in our earnings release and our earnings presentation, a full reconciliation of non-GAAP financial measures to the most comparable GAAP measures.

Now I will turn it over to Alex.

Thank you, Sean, and good afternoon. We really appreciate you joining us today to review what was a record-setting fourth quarter and fiscal year. Following my opening remarks, I'll ask Sean to provide a few updates on our long-standing commitment to sustainability that is exemplified by our continuing ESG initiatives.

He will then turn things over to Lori, who will take us through our Q4 financial results and fiscal year '22 outlook before we open the call for questions. To kick things off, let's begin with a few fourth quarter performance highlights as well as reflect on some of the notable achievements over the past year.

We ended the year on a high point with our Q4 net sales growth coming in at a robust 36% growth rate, helping to profitably deliver over 24% full year net sales growth, the highest level of organic growth we realized since 2014. Adjusted EBITDA grew a healthy 12% for fiscal year 2021. Fiscal year 2021 includes public company costs, which did not exist in the prior year period.

When proportionally burdening fiscal year 2020 by these public company costs, our fiscal year adjusted EBITDA increased 14% year-over-year. Q4 net sales strength was broad-based with all channels and end markets on and off-premise, contributing double-digit growth. The continuation of the recovery of the on-premise first observed in Q3 was a primary driver of growth in Q4, leading to another quarter of nearly 40% growth in our wholesale to distributor channel.

Q4 volumes remained a source of strength, coming in at roughly 40% growth for the third time this year. Depletions track consistently with shipments for the period, underscoring our strong brand equity and the consumers' affinity for our high-quality luxury lines.

In fact, in a more recent development, the momentum we've observed over the course of the past year has taken us to new heights. According to IRI, in over the 12-week period ending on September 5, our gateway duck, Decoy became the #1 luxury brand in the wine industry by dollar sales, a major accomplishment for our growing sales and marketing team, a testament to the brand's broad appeal for those consumers seeking out an exceptional luxury wine at an attainable price.

Over the same 12-week period, the Duckhorn Portfolio is getting more growth dollars in the luxury wine segment than any other wine supplier, demonstrating the momentum we have across our business and the effectiveness of our highly differentiated go-to-market strategy, which provides our retailer and distributor partners a one-stop shop for all their luxury wine needs. Finally, on a 12-week basis, the Duckhorn Portfolio was the fastest growing in terms of percent of revenue growth and absolute revenue growth among the top 20 suppliers in all price points in the U.S.

Let's take a moment to discuss our channel performance. Looking at our wholesale channel, which includes both distributors and California direct to retail and has historically accounted for approximately 80% of our annual net sales, we continue to see great strength behind our portfolio of high-quality brands, one-stop luxury wine shop go-to-market strategy and additional investments in our sales force.

During the quarter, we realized over 100% growth in on-premise as it lapped a COVID-impacted prior year period, while off-premise also showed solid double-digit growth across all key metrics, including cases, accounts sold and points of distribution. This underscores our acute ability to drive distribution by onboarding new and further penetrating existing accounts, Drilling down to trade channels, independent both for on and off-premise were primary drivers of growth, indicating diversity of our account base and speaking to the broad appeal of our luxury portfolio of wines among the trade.

In a period, where recently reopened on-premise businesses are carrying slim down wine list and off-premise customers are seeking out strong brands to drive traffic and range, the Duckhorn Portfolio's broad range and strong brand equity were a clear choice for our trade partners and consumers.

Given the highly attractive financial and experiential luxury nature of our brands for both our trade partners and end consumers, we believe our distribution growth is sustainable. In addition, we believe the breadth and depth of our high-quality luxury wine portfolio, its continued refresh through thoughtful innovation and disciplined M&A, along with our unique go-to-market strategy distinguishes us from the crowd and will allow us to continue to take share in both the premium subsegment, the fastest-growing subsegment in wine and the broader market. Outside of our wholesale channel, our high-margin DTC business continues to see nice progress.

The third consecutive quarter of sequential improvement led by strong year-on-year recovery in visitation at our various tasting rooms and strength in our wine club sales. During the quarter, Kosta Browne also completed a successful estate offer, where our most tenured members acquire our most expensive lines. As in years past, we elected to take modest price increases on certain wines this year. However, we have seen no observable impact to demand.

We experienced similar outcomes in the wholesale channel. The ability to take price may vary by channel, requiring us to remain thoughtful and mindful of both our trade partners and consumers' needs. That said, because of our brands rate, high-quality wines, and the broader premiumization of the wine category, we are confident that we can continue to justify future price increases given the consumers' increasing demand for exceptional luxury experiences. Looking into the second half of this coming fiscal year, in our DTC business, we will be launching a special and highly innovative new Kosta Browne release sure to captivate members in the media and wine media alike.

Our wine club continues to have consecutive quarters of strong new member conversion and provides a meaningful contribution to our DTC business. Well, evident that our portfolio of high-quality luxury brands is resonating with trade partners and consumers alike, I would be remiss if I did not acknowledge a recent slowdown in industry sales trends over the past few weeks.

With the rise in cases from the Delta variant, the pace of on-premise recovery was tempered as the summer progressed. We are not immune to these broader dynamics. However, we view ourselves to be in an advantaged position relative to the entry, given our strict focus on premium wines, brand strength and scaled luxury platform In spite of the Delta variant headwind and importantly, very tough year ago comparisons in off-premise. We've continued to soundly outperform both the broader and premium wine segments with solid positive growth in cases, accounts sold and total points of distribution.

In addition, we are considerably above pre-COVID levels for both on and off-premise. We are focused on continuing to seek out ways to drive distribution gains with both new and existing customers into the future. In summary, I am pleased with our fourth quarter and full year results, and I remain confident that we are still in the early innings of growing our share of the highly fragmented U.S. wine market profitably over the long term.

Our successful track record and proven playbook are indisputable and that is rooted in the 5 strategic growth pillars that have gotten us to where we are today. One, operating our scaled omnichannel platform in addition to our diversified sourcing and production capabilities; two, leveraging our marketing and brand strength, especially our one-stop luxury wine shop sales approach; three, driving innovation and bringing new experiences and high quality luxury wines to our growing consumer base; four, investing behind DTC, as the marketing engine of the company that provides an important opportunity for us to engage with consumers, create Duckhorn evangelists and drive adoption across all channels and brands; and five, thoughtfully pursuing strategic assets and winery brands to M&A, we view this last pillar as a supplement to both our long-term organic growth and industry-leading margin profile.

Before I turn things over to Sean, I'd like to address our upcoming leadership transition we recently announced. Carol Reber, our Chief Marketing and DTC Officer will be stepping down from her current role to focus more time on personal commitments. Carol will remain CMO until a new CMO is named, which we anticipate will be sometime in early 2022. Carol's departure is not one that comes as a surprise for us. Over the last several months, we've worked together to thoughtfully coordinate and strategize a seamless transition. Our search process led by a prominent executive search firm experienced in filling public companies CMO roles is well underway.

Once the position is filled, Carol will remain on staff as a senior adviser into 2022. Carol has been instrumental to what successes we have realized over the course of her 11-year tenure at Duckhorn, because of her tireless efforts and invaluable expertise she has put us in an enviable position of strength.

Among her many accomplishments, she has not only assisted in transforming Decoy into the attainable luxury power brand that it is today, but she has also established a best in class DTC business, one that has vastly expanded its footprint from 3 to 7 tasting rooms. On behalf of all of our employees, the rest of executive leadership and the Board, I'd like to give a heartfelt thank you to our friend, Carol and wishing her nothing but the best.

Now I'd like to turn it over to Sean for an update to our ESG initiatives which are grounded in our history, central element to our strategic focus and a competitive advantage for us in the market.

Thank you, Alex. The tenets of environmental sustainability, social engagement and good governance have been at the core of Duckhorn's approach to winemaking business for 45 years. We view ESG as a mission-critical part of our business. Our culture and our approach to how we go about growing the business in a sustainable manner for years to come. In short, we view the work we do on our ESG initiatives, initiatives that touch every part of the business as a critical part of our future success.

During our 45 years of winemaking, we have kept the interest of our people, our communities and the land we farm front of mind. And this amendment has only been reinforced as a result of being a public company. This past year, we took the opportunity to systematically review and organize the many initiatives that promote sound and sustainable business in our vineyards, wineries, tasting rooms, offices and in the communities in which we work and live.

During this process, we have looked to ESG frameworks such as SASB and the UNSDG to provide us guidance on how to structure our disclosures. So that they are understandable and clear to all of our stakeholders, including our investors.

Today, I would like to highlight just a couple of ESG initiatives in the environmental and social pillars. Our story starts in the vineyards. In our estate vineyards and the vineyards of our long-term great growing partners, we employ a number of sustainable farming practices from the use of cover crops to naturally enhance the soil and prevent erosion to the integration of straw wattles throughout the vineyards to reduce water runoff and the use of under vine cultivation, hand shoveling and sheep grazing to reduce weeds and our reliance on herbicides and insecticides.

We are also mindful of the environmental impacts that result from the distribution of our wines. Here at Duckhorn, one of the ways we're currently seeking to lessen our carbon footprint is through sustainable packaging.

Recently, we have implemented the use of triple recycled cardboard, environmentally friendly ice packs and biofoam liner when shipping our luxury wines. Biofoam is an eco-friendly alternative to Styrofoam. Testing has shown that biofoam biodegrades up to 92% over 4 years as compared to just 6% for standard Styrofoam. After several years of study and testing of liners to ensure their suitability and ability to deliver our wine in a manner that continues to delight our customers, we are proud to have transitioned our sixth and 12-bottle shipments to this new, more environmentally friendly material earlier this year.

We also set a goal of sourcing 100% our glass from North American plants. We believe that attainment of this goal will reduce our carbon footprint associated with the shipment of bottles from overseas. Shifting from the environmental pillar to the social pillar, our culture is oriented towards support and care for our colleagues who make it possible for us to accomplish our goals as a company.

In this challenging past year, we took significant action to support our fellow employees through the pandemic, provide them with the tools to do their best work, whether in the wineries, the tasting rooms or working remotely and to enhance our culture of mutual respect and inclusivity.

On that front we are proud of our multifaceted diversity and inclusion initiatives that we launched in 2020. One element of that work is the 3-part diversity and inclusion training curriculum that we built in-house to address the specific issues at the forefront of our consciousness as a multiracial employee population. We focused on 3 themes, inclusion literacy, unconscious bias and understanding microaggressions. This effort centers on building foundation of respect and a willingness to learn something about ourselves and our colleagues.

We take pride in the fact that nearly every employee in the company participated in these modules, which were held in English and Spanish. These trainings have offered an opportunity for employees to learn from one another and perhaps most importantly, to get to know colleagues that they do not have is encountered.

These are just a small sampling, the exciting work we are doing every day at Duckhorn on this front. We will have the opportunity to share a fuller picture of our ESG commitment in our inaugural ESG report to stakeholders, which will be published online this November. With that, I'll turn it over to Lori to discuss our fourth quarter performance and the fiscal year 2022 outlook.

Thanks, Sean, and good afternoon, everyone. Let's next turn to our strong performance in the fourth quarter. Beginning with our top line, net sales for the quarter were $70.9 million, a 36% increase from the prior year. The increase in net sales reflects 40% volume growth, our second consecutive quarter of 40% plus growth, partially offset by a negative 4.6% mixed impact related to our leading Decoy and Duckhorn brands, once again outpacing the rest of our portfolio as well as wholesale to distributor sales growth exceeding the growth of our unique California direct to retail and DTC channel.

On a like-for-like basis, pricing changes were immaterial to our results. From a depletion standpoint, results were fairly similar to Q3, performing in line with shipments. All channels contributed positively to our Q4 top line, just like in last quarter. Our wholesale to distributors channel once again led the way with a nearly 50% growth rate. This was primarily a result of continued signs of recovery and on-premise.

However, our off-premise business contributed positively as well. Overall, our growth in both on and off-premise were supported by strong increases in cases, accounts sold and points of distribution. Our other channels, California direct-to-retail and DTC posted solid growth as well, up 14% and 11%, respectively.

Gross profit was $34.4 million, an increase of $8.5 million or 32.7% versus the prior year period. Adjusted gross profit for the quarter, which accounts for purchase accounting adjustments related to prior acquisitions was $34.7 million, an increase of $8.2 million or 30.9% versus the prior year period.

Gross profit margin was 48.5%, down 110 basis points versus the prior year period. As was the case in Q3, almost the entirety of the realized margin compression was a result of continued shifts in channel and brand mix.

As noted by our outsized wholesale to distributor growth as well as Decoy and Duckhorn continuing to grow at a faster rate than our other winery brand. Total selling, general and administrative expenses were elevated versus the prior year period, up $8.2 million or nearly 51% to $24.4 million. The increase was primarily attributable to a $2.1 million increase in incentive costs, resulting from the company's strong performance, $1.7 million in transaction expenses primarily related to the company's IPO, $1.7 million in public company costs, largely attributable to professional fees and D&O insurance, which were not present in the comparable prior year quarter and $0.8 million in higher equity-based compensation.

Net income was $7.4 million, and diluted EPS was $0.06, which compares to a loss of $2.7 million and negative $0.03 per share in the prior year period. Adjusted net income came in at $9.2 million and adjusted EPS was $0.08 per share, respectively, compared to $7.4 million and $0.07 per share in the prior year period.

These results reflect our previously mentioned higher sales volume, which was partially offset by channel and brand mix as well as increasing SG&A. Adjusted EBITDA for the quarter increased 3% to $18.4 million or 26% of net sales versus $17.8 million or 34.1% in the prior year period. However, results for this quarter include approximately $1.7 million in public company costs, which did not exist in the prior year period.

If you were to burden the fourth quarter of fiscal 2020 with public company costs, our adjusted EBITDA growth rate would have been 14.3% that quarter. Similarly, if we burdened the fourth quarter of fiscal 2020 with public company costs, the adjusted EBITDA margin would have been 30.8% versus 26% in the fiscal year 2021 Q4.

Now the margin decrease was primarily attributable to a $2.1 million increase in incentive costs resulting from the company's strong financial performance, $1.7 million in transaction expense related to the company's IPO in the third quarter and $0.8 million in higher equity-based compensation. At the end of the quarter, we had cash of $4 million and net debt of $243 million with a leverage ratio of 2.1x net debt.

Turning to our outlook. We are introducing full year fiscal 2022 guidance, which calls for net sales of $353 million to $360 million reflecting 5% to 7% organic growth; adjusted EBITDA of $118 million to $122 million or 1% to 4% growth, adjusted EPS of $0.54 to $0.57 per share, which assumes a 25% effective tax rate and 114.5 million to 116.5 million diluted shares outstanding.

And capital expenditures of $16 million, including barrel spend and the beginning of construction for our Paraduxx redevelopment project. Please note that this does not include any potential purchase of production assets or vineyards. That said, we are strategic about evaluating our future needs to support our industry-leading sales growth. In light of a robust pipeline of assets that are becoming available, it is highly likely that we will execute upon a deal for production assets and/or vineyards in the coming year.

One additional note addressing comparability of our fiscal years. In fiscal 2021, public company costs negatively affected our adjusted EBITDA and EPS. On a comparative basis and fully burdening fiscal 2021 results with an equivalent proportion of public company costs, our adjusted EBITDA growth would be 3% to 6%. If you also held share count constant in the range we have included in our fiscal 2022 guidance, our adjusted EPS growth would be 3% to 9%.

Underpinning our guidance, we continue to anticipate that our flagship Duckhorn and Decoy brands will outpace our overall portfolio growth, and we expect further recovery in on-premise. While we believe this improvement will be neither linear nor at the same rate that we've observed in the past months, the resulting trade channel mix should benefit our gross margin as our higher-margin other winery brands are more concentrated in on-premise.

Speaking of gross margin, while the broader staples community is seeing heightened challenges from input cost inflation, we'd remind you that we operate a differentiated business model. One that affords us a strong line of sight into our cost of goods. And setting aside sales mix dynamics, we are confident in our ability to manage our gross margins going forward, and we expect modest expansion in the coming fiscal year.

In addition, we'd remind and inform investors of certain timing consideration throughout the year, such as our fiscal 2021 Q2 results were negatively impacted by both a severe polar vortex that was disruptive to distribution across much of the U.S. as well as certain delays in shipments related to wholesale partners holding out for the Decoy Seltzer in addition to port congestion.

And then in our DTC business, we have a few notes. Continued tightness in our 2020 vintage for Kosta Browne will result in a more modest spring release versus the prior year. As Alex had mentioned, there will be a special and highly innovative Kosta Browne release scheduled for Q4 that we are confident will be well received also in Q4 due to increased shipping efficiencies from new fulfillment partners.

We expect a few million dollars in DTC sales that historically were recognized in Q1 to shift forward into Q4 of the prior year. Looking at the health of our balance sheet and based on what we've outlined today for both our growth outlook and CapEx needs for the year, we expect to utilize the majority of our excess cash flow to continue to work down our leverage, and we would anticipate leverage well below 2x net debt by fiscal year-end. Of course, this considers neither any future prices of production assets nor does it consider potential winery brand M&A, which is a lever we've shown ourselves to be more than capable of pulling historically and will consider moving forward if we identify the right asset to acquire to supplement and accelerate our long-term organic growth.

In conclusion, we ended our fiscal 2021 in a very strong position. We look forward to building upon our past successes in fiscal 2022. And we are well positioned to deliver upon our value creation strategy for the benefit of long-term shareholder value. And with that, I will turn the call back over to Alex for closing comments.

Fiscal 2021 was one of prolific growth and a milestone year for the company. Heading into fiscal year 2022, we have presented you with an outlook, we view as prudent for the current environment and one we are confident we can execute on, given a growing consumer affinity for our high-quality portfolio brands, our differentiated one-stop luxury wine shop go-to-market approach, an embedded ability to evolve and innovate our scaled, highly diversified omnichannel platform and a remarkable leadership team.

These very same elements, coupled with our commitment to sustainability and our ESG initiatives will continue to prove as foundational to our long-term success. And additionally, executing on accretive M&A opportunities adds an additional element of growth for us. Up and down our organization, we will work tirelessly to secure sustainable profitable growth. We will be judicious with respect to our capital allocation. We are confident that we will continue to produce for all our stakeholders over the long term. With that, Lori, Sean and I are available for your questions.

(Operator Instructions) Your first question is from Peter Galbo with Bank of America.

Lori, maybe just to start, and Alex made some comments on this on taking pricing across a lot of the different parts of the portfolio. Just to give us a sense of kind of where within the portfolio. You saw the opportunity to take price. And then just knowing that a lot of your costs are -- you have good visibility into that for next year, at least on the juice side, just help us understand kind of what you're assuming on some of the other parts like glass and freight in your model.

Yes. Pert question. So just breaking it apart a little bit here. You asked about price. And so as we've indicated in the past, we're very cautious in taking our price up. We've noticed that, as in the past, we do have some wines, our higher-end wines that we can take price on, and we've done that throughout the past year, and we have plans in the current year to go ahead and continue that process. But we're very careful how we think about price.

We have to communicate it properly and we have to roll it out well with our distributor partners. So we don't have a significant amount of price layered into our guidance for the next fiscal year. Then looking at cost. So as you know, our wine is bottled and ready to go for the next fiscal year for the most part. So we have the longer runway in looking at our cost of goods.

Our grape and our wine component of our cost of goods is something that's layered in several years ago, and we have great visibility into that. If you remember, that doesn't fluctuate with ordinary inflation the way a normal consumer goods company with, if you will, it's not as quick to market for us. Our grape and wine fluctuates with the industry, more on farming and trends within the industry. So we have very good visibility into our cost of goods for the next year. Freight should not be impacting it. Freight, as we've mentioned before, is prenegotiated with the majority of our packaging materials.

Got it. No, that's helpful. And maybe just to switch gears, Alex, it's sounds like you have something lined up and either vineyard assets or a brand asset that's coming in the very near future. Just remind us of the big white space opportunities in the portfolio where you think you can make the most headway, whether that's from a product standpoint or price point? What are you kind of missing?

I don't think we're really missing much right now. We're really just -- we're consistent. As we've grown, we have to look at -- well, let's step back to say, looking at M&A, we are always looking at accretive branded M&A opportunities. That has been in our DNA, we'll continue into the future. On to the other side, production assets, again, historically we have leveraged up on production assets as markets and cost control and risks and quality afford us. So we're equally as opportunistic there. And we're just seeing more good opportunities come up on top of the fact that we've grown significantly over the last several years. So we just have to be ready and mindful of when the appropriate asset is in front of us.

(Operator Instructions) Your next question is from Wendy Nicholson with Citi.

My first question has to do with the comments you made, Alex, about a little bit of a slowdown in the on-premise channel relative to your expectations. And I know you said that you attributed that to sort of incremental outbreaks maybe of Delta. But I'm wondering if you have any sense of whether that is really the case? Or is there something else going on? I'm wondering do you have -- is there a correlation necessarily between the states or the locations where there was an incremental breakout and a slowdown?

I'm wondering if there's a change in preference, maybe consumers going back to beer or spirits or something else? Or just maybe a little bit more color on that comment you made.

Wendy, yes, I do recognize the comment and I think -- I don't think there's much more that we can add to it at this time. We are all, I think, collectively opportunistic rolling into the spring, into the summer. We saw a lot of good openings and a lot of activity in on-premise. -- about late summer, we start. Obviously, we read the papers, the Delta virus, I think, nationwide was real, and I think it just took a little impact on the pace of openings. Beyond that, no, we're not able to correlate any additional factors that might be affecting the pace of those reopenings. And we believe that they will get back on track over the next several months. But again, Delta is very, very -- I mean, it's very, very fluid. So we're going to have to be really mindful of kind of the pace at which the world gets back in a normal cycle.

Fair enough. Okay. That's fair. And then, Lori, I had one for you. I totally appreciate everything you said on the cost side, but I didn't hear much commentary on labor. And I'm wondering, I guess, less labor in terms of the harvesting of the grapes because I know that's not your business necessarily, but even labor in terms of staffing, the tasting rooms, people in the warehouse and the distribution centers, all that kind of stuff. Are you seeing any pressures from a labor perspective?

Wendy, thank you. So I'm going to throw that over to Sean, being Head of our ESG. He is a little more closer to this.

The -- no, we're not seeing a tremendous amount. We're not seeing much of any pressure on labor. Obviously, it is a tight labor market. And so filling positions in our hospitality roles and some of our other roles is subject to more competition, but we haven't seen any material uptick in the overall wages that we need to pay to attract really good talent. So we feel that, that's in place and in hand and not a particular concern to us at this point.

Your next question is from Lauren Lieberman with Barclays.

I was curious if you talk a little bit about tasting rooms. Just as you've had some progressive reopening and still with restrictions, but more traffic there. What you've been seeing in terms of conversion to club. I know that's meant to be a forward indicator to the business. I was curious how that has trended and how that is looking versus what the kind of conversion rate was pre-COVID?

Lauren, well, we're not going to probably talk about specific rates. The reality is we have had loosening restrictions into our -- but not full -- not fully back to normal, but loosening restrictions through the summer months into our taste rooms. We've seen more people. We've been able to connect with more people. So kind of our ability to bring them into the evangelists of our overall company has been well enhanced and we continue -- we believe that's going to continue. You have something to add to that, Lori?

Yes. Just -- so it's an interesting thing to see how our reduced capacity has resulted in our hospitality folks being able to spend more time with our visitors. And as a result, we have seen increase in our conversion rate, which has been well received, and we're very excited to see it.

That's great. And then just as a follow-up, can you just remind us when that starts to flow through to sales. And I think -- I don't know if it's immediate. I think you've talked about there being a little bit of a lag effect to when that starts to benefit you and for how long that better conversion?

Yes, sure. So the club shipments go throughout the year, and they're different depending on which club the guest signs up for and some guests sign up for multiple. So they go off throughout the year, and the timing varies. But very quickly after the sign-up happens, I would expect they receive a shipment within the first maybe 3 months of signing up.

Your next question is from Kevin Grundy with Jefferies.

Congratulations on the strong results this year. I wanted to pick up on the earlier question, I think it was from Wendy on the recent slowdown, but Alex and Lori, I'm looking to tie this into the sales guidance for the year. So specifically, it looks like you're guiding to 5% to 7% growth. The longer-term guidance is high single digits. And I'm just sort of curious as to how much of the recent slowdown is informing your view on the guidance for the year as we sort of look to connect that high single-digit growth outlook versus the 5% to 7% that you're guiding to. And then relatedly, perhaps you can just comment on what you're sort of underpinning for growth here for the wine category over the next 12 months and luxury wine as well? I think that would be helpful. And then I have a follow-up.

Kevin, thanks for the question. So as you know, we really -- we manage our business for the long term. And really, overall, we see our ability to continually grow our revenue, as you mentioned in the high-single digits to low double digits on an organic basis is really fundamental to our long-term algorithm and creating value. So just thinking through '22, our '21 was a great year, and it was under unique circumstances.

We took share. We leveraged our brand, and we saw growth in both off and on-premise. But we're coming up against some tough comparisons. And we are noticing, as you pointed out, that the wine industry is -- the growth has slowed, albeit in the $15 price-plus luxury seg -- segment that we're in, it's not slowing nearly as much as the industry as a whole.

But we've consistently taken share and we -- that is how our increased points of distribution and to a lesser degree, increased velocity. But we've looked at it very -- in a very balanced and prudent manner based on inputs that we're receiving.

Thanks, Lori. Alex, do you have anything to add?

Yes. Just so your final question was an interesting one. And relative to the market, I don't know if we're going to follow that exactly. But we have in the past, consistently and plan to exceed the growth rates of the market, whether it be down a tick from recent past or not. So we expect of ourselves to outpace the market.

Just to put a finer point on this, and then I'll pass it on. So is that to suggest then that we went from a period where premium wine was growing high single, low double digit. We see this in the Nielsen data when you take a closer look at it. But your guidance would imply then, given that your gain share, the Nielsen suggests that you are continuing to gain share for all the reasons that we know, but the view would be that you think premium wine is going to grow something closer to mid-single digits, and you're going to outpace and grow 5 to 7. Is that just the kind of play that back, is that the takeaway for investors?

Yes. Kevin, so we don't really comment on the industry, what's going to happen. We can just kind of comment on what our plan is and how we plan to grow. So that would follow.

(Operator Instructions) Your next question is from Andrea Teixeira with JPMorgan.

So congrats on your results and a toast to Carol, wishing her the best in the next chapter of her life. Alex, I wanted to go back to this deceleration question. And I know you have an impressive ability of balancing both DTC, at-home against on-premise. So you still grew a lot, I think, in the last quarter from what Lori had said, 11% in DTC, 14% in direct to retail in California.

We saw this acceleration in Nielsen. So I was wondering if -- how do you -- are you embedding for fiscal '22, what is going to be the potential balance for DTC against, obviously, on-premise recovering? And how much within that, you'd say, volume against pricing. I understand that pricing is probably going to be a little bit higher because of the on-premise execution, but that you took -- you didn't take so an apples-to-basis, pricing will be mostly flat embedded in your 6% growth for fiscal '22?

Yes. Thank you. I think I'll take that for and then can pass back to him if he has anything to add. So just to break down your question a little bit. So we expect that our case growth will be at a faster rate in -- as we've seen in the past. And so our brand mix for our -- we have expectations for Duckhorn and Decoy to grow at a relatively faster rate than our other winery brands as we've seen in the past. And we also anticipate that on-premise sales will pick up.

So on the other side of that coin, as we do expect to see improved growth in our other winery brands, and that will help bring our higher -- a little higher price per case back in line to our business as we've enjoyed in the past.

So we expect volume, though, to continue to exceed our net sales growth. So we'll have a little bit of continued pressure there on the price mix, but not as significant as we've seen in the past couple of years.

That's helpful. I think just as we saw this delta and you mentioned on-premise decelerating, are you seeing the on-premise decelerating more than at home? Or did you see picking up a bit of that deceleration as we saw in the past?

Yes. We've seen on-premise accelerate much more than the off-premise in the past quarter. We expect that on-premise will continue to really rebuild and that the off and on will be sorting out the growth rates between the 2 in the next maybe 6 to 9 months.

Right. But then I was just coming back, and that's helpful, Lori, but it was just coming back to that commentary about the deceleration in the last few months, as we saw also in the Nielsen data. So I was wondering if what we see in the Nielsen data is not really representative to what's happening, let's say, in the club and also in the non-tracked channels? So in other words, people are more afraid to go to the restaurants and bars, but then they came back to building the inventory at home.

Yes. Well, keep in mind. So the Nielsen data is only about 1/3 of the wine industry, and that sort of flows for our business as well. So it's about 1/3 of our business. It doesn't pick up the independents, the smaller off-premise, if you will, independent. And so we're seeing overall that on-premise is growing explosively.

We don't feel that, that explosive growth will continue throughout the entire -- rest of the -- this next fiscal year, but we do expect to continue to gain really nice wine lists placements in restaurants, as we discussed briefly last quarter, we've seen the -- as on-premise comes back. People are a little bit slower to really expand their wine lists and they're building their wine lists very cautiously. And that's really helpful for our brands and that we are being chosen to be on wine list because people are familiar with the wines and that there's confidence they'll sell through.

I think you guys should remember the rebalancing of the wine market is going to be variable. It's not going to be linear. So we're going to be talking about these trends quarterly together, and we're going to analyze them and try to make sure we are prepared to capture any trend that's beneficial to us as we look forward.

And your last question is from Kaumil Gajrawala with Crédit Suisse.

Can we talk a little -- can you maybe add a little bit more on the incremental points of distribution and such, obviously, kind of outside of California and the wholesale channel has been big area of focus. And we went through this off-premise boom, where, of course, we would expect -- we would expect the boom that we had expected. But what happened in terms of your distribution, incremental placements, off-premise, that sort of thing? And what should we expect for '22 as we lap last year's trends -- last year's results?

Yes. So we've -- thank you, Kaumil. We've been able to really steadily build our off-premise penetration in the last year. We have more points of distribution as well as increased velocity in those points. But now we've also seen, in addition to the off-premise building. We've seen really nice growth in new distribution on on-premise. We've seen new accounts that we had never been in before as well as we're reestablishing with the accounts that we had nice relationships with before COVID.

So we're seeing really, really improved growth in our on-premise.

Kaumil, this is Alex. I think another way to think about it a little bit is we introduced a lot of products last year. So we're able to expand the points of distribution, and then we're going to -- it will take a couple of years now to get that fully saturated within the markets. We have some kind of blocked in tackling to take care of on those new products and expanded distribution over the near term, which we have, as you would expect, built into our plans.

Okay. Got it. And then another question on on-premise, at least, I guess, the condition of on-premise. I don't know if you're looking at it the way, but do you have a sense of what the business -- how the business compares to 2019? Are we maybe halfway back to where we were 3 quarters of the way? Do you have a rough idea?

To answer your question there, we got back to those levels kind of halfway through last year, and we're moving ahead of where we were in '19 this year, as you would expect. Again, due to a lot of factors, a fairly significant investment in salespeople during the pandemic and prepared to capture opportunities at whatever you want to call it at the end of the pandemic or the next phase of it.

So I think we are really well positioned with our positioning above '19 levels on-premise and we'll continue to grow that throughout this year.

And that concludes the question-and-answer session for the call. I will now turn the conference back over to Alex Ryan.

All right, guys. Thank you for joining us. I appreciate that very much. As you've heard over the course of the last hour, we remain highly confident in our ability to sustain industry-leading organic, profitable growth at scale over the long term.

As you heard from Sean, we've continued to do this in a fashion that affords us the opportunity to grow in a sustainable manner and enhance stockholder value.

Once again, I want to thank you for joining us today. We look forward to reconnecting with you all in the coming months to update you on our progress against our 2022 outlook and long-term goal of being the premier one-stop shop for both wine enthusiasts and our trade partners, seeking out a high-quality luxury wine experience. Until then, take care guys, we'll be in touch soon.

That concludes today's conference. Thank you for your participation. You may now disconnect.