Boston Beer Company Inc (SAM) 2011 Q2 法說會逐字稿

Good afternoon. My name is Bonnie, and I will be your conference Operator today. At this time I would like to welcome everyone to the second quarter 2011 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session.

(Operator Instructions)

I would now like turn the call over to Mr. Jim Koch, Founder and Brewer of Boston Beer.

Thank you, and good afternoon and welcome. This is Jim Koch, Founder and Chairman and I'm pleased to be here to kick off the 2011 second-quarter earnings call for the Boston Beer Company. Joining the call from Boston Beer will be Martin Roper, our CEO, and Bill Urich, our CFO.

I'll begin my remarks this afternoon with a few introductory comments including some highlights of our results, and then hand over the microphone to Martin, who will provide an overview of our business. Martin will then turn the call over to Bill, who will focus on the financial details for the second quarter, as well as review our outlook for the remainder of 2011. Immediately following Bill's comments, we'll open the line for questions.

We achieved record depletions in the second quarter, even against a very strong second quarter of 2010. We believe that our depletions growth is attributable to our strong sales execution and support from our wholesalers and retailers. We are still seeing expanded distribution of domestic specialty brands and craft brands. Despite this, we grew our flagship, Samuel Adams Boston Lager, Samuel Adams Seasonals, and the Samuel Adams Brewmaster's Collection. We also introduced several new beer styles, which were well received by drinkers. We are happy with the health of our brand portfolio and remain positive about the future of craft beer.

Our Freshest Beer Program is continuing to build on many of our past investments to help every Samuel Adams reach our drinker with the same fresh flavor and taste that I enjoy when I have a Sam Adams at our brewery. We're pleased with the results so far and currently have 15 wholesalers signed up and at various stages of inventory reduction. We believe that in the long term, this program will deliver better, fresher Samuel Adams to our drinkers and should reduce costs and improve efficiency throughout the supply chain. We are still targeting that 50% of our volume will be on our Freshest Beer Program by the end of 2011. I will now pass over to Martin for a more detailed overview of our business.

Good afternoon, everyone. As we state in our earnings release, some of the information we discuss in the release and that may come up on this call reflect the Company's or management's expectations or predictions of the future. Such predictions and the like are forward-looking statements. It is important to note that the Company's actual results can 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 in the company's most recent 10-K. You should also be advised that the company does not undertake to publicly update forward-looking statements, whether as a result of new information, future events, or otherwise.

While we performed well in the first half of the year, depletions continue to be below our target full-year 2011 growth rate of 9% and as a result, we are reducing our full-year expectations for depletions growth to between 7% and 8%. We are seeing an increasing number of competitive beers being introduced, particularly in the seasonal category.

Compared to the first half of 2010, we increased our sales force and our point-of-sale, advertising and local marketing expenditures, as we invested to drive increased availability and visibility of our major style priorities, given this competitive activity. These planned investments, coupled with increased freight costs, significantly increased advertising, promotional and selling expenses for the first half of the year. While we expect higher energy costs and freight costs to remain a challenge throughout the year, the increases in advertising, promotional and selling expenses are not expected to be as big in the second half due to the timing of these planned investments to support our brands. As we review our opportunities, we may forsake some earnings in the short term in order to support our brands appropriately.

During the quarter, we received a cash payment of $20.5 million, or $0.92 per diluted share, in settlement of potential claims arising out of the 2008 product recall, which we recorded as an offset to operating expenses.

Excluding the impact of the recall settlement, and as a result of the reduction in expectations for full year depletions and increased energy costs, we are reducing our full-year 2011 earnings per diluted share projection to between $3.20 and $3.60. This projection includes the estimated effect of the Freshest Beer Program.

We continue to be excited by the results of the Freshest Beer Program and our participating distributors have seen real benefits including lower inventories, fresher beer, and easier logistics and planning. Participants seemed very pleased with the program and we have several distributors already committed for our next wave of implementation. We estimate that inventory levels at participating wholesalers at the end of the second quarter were approximately 190 thousand cases lower than would have otherwise been anticipated. We believe that these inventory reductions are reflected in year-to-date shipments and we estimate that the Freshest Beer Program has negatively impacted net income per diluted share for the quarter by approximately $0.05 per share. During the quarter, we started implementing an information technology system for vendor managed inventory to help support the anticipated increased participation in the program in the second half of 2011.

Based on the information in hand, we're estimating year-to-date depletions through July 2011 are up approximately 6% for the same period in 2010. Year-to-date shipments through July 2011 are up approximately 6%, compared to the same period in 2010. We are no longer able to provide information on orders in hand due to the changes in the ordering process for Freshest Beer Program wholesalers. Now Bill will provide the financial details.

Thank you, Jim and Martin. Good afternoon everyone. We reported net income of $28 million, or $2.01 per diluted share, for the 3 months ended June 25, 2011, representing an increase of $11.7 million, or $0.88 per diluted share, from the same period last year. This increase was primarily due to the recall settlement and an increase in core shipments, partially offset by increased investments in advertising, promotional, and selling expenses, which includes freight costs to wholesalers, and the negative impact of the Freshest Beer Program on shipment volume. Excluding the $0.92 per diluted share impact of the product recall settlement, net income for the quarter decreased $1 million, or $0.04 per diluted share. We estimated the negative earnings impact of the Freshest Beer Program for the second quarter was $0.05 per diluted share.

Second-quarter depletions increased 7% due to increases in Twisted Tea, Samuel Adams Boston Lager, the Samuel Adams Brewmaster's Collection, and Samuel Adams Seasonals, partially offset by declines in Sam Adams Light. Core shipment volume for the 3 months ended June 25, 2011 increased approximately 3% over the same period in 2010. The increase in shipments for the quarter is due primarily to increases in Twisted Tea, Samuel Adams Seasonals, and Samuel Adams Brewmaster's Collection, partially offset by decline in Samuel Adams Boston Lager and Sam Adams Light. Year-to-date depletions increased 7%, while shipments on a year-to-date basis increased 6%. We believe that inventory levels at wholesalers at the end of the second quarter are similar to previous years, except for those wholesalers participating in the Freshest Beer Program, whose inventories were significantly lower.

Our second-quarter 2011 gross margin of 57% represented a 1 percentage point increase from our second-quarter 2010 gross margin of 56%. Minor pricing increases and lower ingredients costs were partially offset by a slight change in our core product mix. We have continued our focus on cost-savings initiatives at our breweries and are pleased with the improvements we have made to date.

Second quarter advertising, promotional, and selling expenses were $5.4 million higher than those incurred in the prior year, primarily as a result of increased investments in local marketing and advertising activities and higher costs for additional sales personnel, as well as increased costs of freight to wholesalers. General and Administrative expenses increased $600 thousand, compared to the second quarter of 2010, due to increases in stock compensation expense and salary and benefit costs.

Our effective tax rate for the second quarter of 2011 was 38%. We believe that our full-year 2011 effective tax rate will be approximately 39%.

Excluding the $0.92 per diluted share impact of the recall settlement, and as a result of the reduction in expectations for full-year depletions and increased energy costs, we are reducing our full-year 2011 earnings per diluted share projection to between $3.20 and $3.60 from the previous range of $3.45 and $3.95. This projection includes the estimated negative earnings per share impact of between $0.10 and $0.20 due to reduced shipments related to the implementation of the Freshest Beer Program. Our actual 2011 earnings per diluted share could vary significantly from the current projections.

We expect the competitive pricing environment will continue to be challenging. We are exploring opportunities for price increases in the second half of 2011 or early 2012, as we expect significant barley cost pressures from the 2011 crop. Revenue per barrel for the full year is currently expected to increase approximately 1%, excluding any benefits from further 2011 price movements.

If we successfully execute our Freshest Beer Program for 50% of our volume in 2011, we would expect shipment growth of between 6% and 7%. We will continue to focus on efficiencies at our breweries and are not currently anticipating any increased -- significant increases in costs of packaging and ingredients for 2011 beyond the anticipated increases in energy and freight costs. Further increases in energy costs will have a material impact on 2011 costs. Full-year 2011 gross margins are currently expected to be between 54% and 56%, after taking into consideration the current known impact of implementing the Freshest Beer Program.

We intend to increase brand support investments by between $12 million and $18 million for the full year 2011, which amount does not include any increase in freight costs for the shipment of beer products to our wholesalers. Approximately $10 million of this increase has been incurred in the 6 months ending June 25, 2011. We will increase our investments in brand support commensurate with the opportunities for growth that we see, but there is no guarantee such increased investments will result in increased volumes.

Based on the information currently available, we estimate full-year capital expenditures of between $15 million and $25 million, most of which relate to the continuing investments in our breweries and additional keg purchases. The actual amounts spent may nonetheless differ significantly from these estimates. We believe that our capacity requirements for 2011 can be met by our company-owned breweries and existing contract capacity at third party brewers.

We continue to maintain a strong cash position with $66.3 million in cash as of June 25, 2011.

During the 6 months ended June 25, 2011, we repurchased approximately 266 thousand shares of our class A common stock for a total cost of $22.6 million. From June 26, 2011 through July 30, 2011, we repurchased an additional 92 thousand shares of our class A common stock for a total cost of $8.2 million. On July 26, 2011, the Board of Directors approved an increase of $25 million to the previously approved $225 million share buyback expenditure limit, for a new limit of $250 million. Through July 30, 2011, we have repurchased a cumulative total of approximately 10.1 million shares of class A common stock for an aggregate purchase price of $219.9 million. We have approximately $30 million remaining on the $250 million share buyback limit set by the Board of Directors. We'll now open up the call for questions.

(Operator Instructions)

Our first question comes from Caroline Levy of CLSA

Good afternoon. Can you hear me?

Yes, we can, Caroline.

Hi, thank you very much. I was wondering if you could characterize the environment in the supermarket channel and on-premise and your other major distribution channels, just describe where you're seeing increased competition have the most impact? Where you're seeing the most price competition, and just how you think the small players are going to survive these increased costs? Just a general state of the craft industry would be really helpful.

Sure, Caroline. It's Martin. I think the general competitive pressures are coming from a couple of areas. One is the increasing number of brands and breweries that are in the craft market space or in that category. That's both existing breweries expanding their geographic distribution away from their whole markets, it's the very large number of new entrants, many of them very small, very local, very regionalized, and it's also -- and another dimension, new SKUs from the larger craft breweries and greater product complexity from them. Plus, also from a mass domestic specialty point of view, increased activity both pricing, promotional distribution, wholesalers support, against brands like Blue Moon, Leinenkugel, Shock Top. So, you know, really it's probably the most competitive environment I think we've seen for probably 15 years, if not ever. And it's across all classes of trade.

Obviously it varies geographically based on the geographic presence of those startups or the regionals, and the ability to, you know, address the competitive activities, varies by class of trade based on the retailers receptivity to all those SKUs and all that new product, and we've obviously saw that coming up to our investment level over the last 12 months, really starting this time last year, and feel pretty good about how we're doing. I think a lot of the larger craft brewers are growing at a slower rate than the craft category which suggests there's a lot of activity in the tail of the category where there's easy distribution gains both geographic and getting the product on shelf and I think we expect that to continue for a little bit. It's just unclear how long that would continue.

With regards to the cost pressures, obviously, the freight cost pressures hit any brewer who's shipping product -- beer any distance. We also see some pretty significant barley cost pressures coming on the 2011 crop, at least for us. Quite how those play out for other players sort of depends on whether they are locked in or whether they've been floating and whether they're already experiencing those but I think we've seen reports of the big brewers that's facing similar things so we see pretty significant cost pressure from the barley side.

Very helpful. Just 1 follow on from a volume growth perspective, sales to retail, was there a big difference in the trends? I'm trying to understand how the economic environment is impacting your consumer.

I think, you know, we struggled to see any direct linkage with at least the drinkers who are purchasing our beer. I think we'd be naive to think there wasn't but obviously over the last 3 years, we've shown healthy growth and therefore it's pretty hard to interpret economic impacts into slight variations in that growth rate.

Because the last economic data to date is just suggesting things are much worse than people expected and when you talked about July, it sounds like July was slower than the second quarter. I didn't know if that was driven by the economy at all or that was weather.

You know, I don't think I have a handle on that. I would say that July lost a sale day, that was certainly an impact on it. And that's probably a bigger driver then, you know, something through the economy that we could actually put a finger on.

And then just lastly on Twisted Tea, does it have a lower cost of goods and also a lower net profit? I mean, what does this do to your income statement when you see that grow faster than the portfolio?

I'm not sure we fully disclosed it. I think flavored malt beverages historically have been slightly higher cost to produce and certainly Tea is priced a little lower than Sam Adams and in line or slightly below it's competitive set so I think from that, you could conclude that the gross margins are likely lower.

Okay. Thank you so much. Thanks.

Thank you. Our next question comes from Judy Hong of Goldman Sachs.

Thanks. Hi, everyone.

Hi, Judy.

Hi, Judy.

Hi, Judy.

I guess just following up on Caroline's question about competition and the state of the industry. You know, Martin, you've talked about the proliferation of brands from some of the smaller breweries as well as some of the larger companies. I guess if you look back, the last time we saw this trend in terms of really the number of brands growing at a pretty rapid pace, I guess it's sort of ended badly with the category kind of going through a shakeout. So can you maybe help us understand, you know, what you think will happen with this time around just with the number of SKUs going up and is there a risk that you go through another, you know, kind of a shakeout with respect to the craft industry?

I think there are some differences from the last time. The quality of the beers is better, and the quality of the companies making them is better. So I think that's a positive for the future for craft beer going forward.

I, guess, would also observe the obvious, which is that at some point, there is no more room on the shelves, so right now we're seeing ongoing expansion of space available for craft brands and craft SKUs, craft beers. But at some point, that will stop. I just -- I don't have a clear enough crystal ball to know when it's going to stop, but at some point it will.

Do you have a sense of is it just getting more challenging now to get additional shelf space is, are we thinking maybe we're kind of in the latter part of the distribution expansion or do you think that there is still some runway there? I know it's hard to really predict but your sense of what you're seeing and hearing from your customers?

Right now it seems like there's still some runway. It's one of -- to me, it's one of those things that -- the 2 things I know is, eventually, the growth and available space will stop, number 1. And number 2, when it does, it won't have been predicted.

Okay. And then maybe Martin or Bill, just in terms of your guidance reduction, so if I think about your midpoint of the prior guidance and then the current guidance that you've given today, it looks like it's about a $0.30 reduction kind of at the midpoint. So can you just help us bridge how much of that is lower depletions, how much of that is energy? Isn't there some positive offset from the impact from your Freshest Beer Program now? It looks like it's coming a little bit lower because your shipment versus depletion gap's actually a little bit lower than what you've talked about before.

Judy, it's Bill. I think we've said in the last press release we were estimating somewhere between a $0.10 and $0.20 impact from the increased cost of freight -- I'm sorry, of fuel. And I think that we're seeing most of that, and then we have lowered, as you saw from our year end estimate, the impact of Freshest Beer in terms of putting 50% on to 300 thousand to 500 thousand cases from a previously higher number. So we have -- it is slightly a different offset, and then we have the lower depletions, so those 3 working together make up the approximate $0.30 that you cite.

The depletion change though, my math tells me it's roughly $0.16 or $0.17, so I guess the fuel costs, it doesn't seem like it's changed from the prior guidance, and the Freshest Beer Program impact is actually a little bit lower so I guess I'm still trying to reconcile how we get to that kind of $0.30 reduction.

Judy, it's -- I think when we estimated the freight impact, I would look at the high end of that freight impact. And kind of where we are coming out from a Freshest Beer -- kind of the midpoint of the Freshest Beer and that'll get you there in terms of the differential.

Okay. And then just in terms of pricing, so what are some of the things that you're watching that would give you more comfort to take pricing in the back half as you think about inflation being more challenging in 2012?

Well, we don't see any current sort of downward pressure on pricing, other than from big brewers perhaps with some of their domestic specialty brands. We've instituted a project to try and execute some pricing towards the end of this year. It certainly has been publicly announced that some of the big brewers are moving 3 to 5 percentage points in the next few months, and we're watching that closely. It certainly looks like that has been reasonably well received as far as we can tell, so we're checking to make sure that our price graphs are consistent and that we take advantage of whatever activity there is on the pricing front to try and get our prices up to cover some of the cost pressure that we see coming out that is due to the agricultural issues we face.

Is there a way to quantify how much barley could be up next year?

You know, we haven't locked in all of our barley increases yet, and we certainly haven't publicly said what that coverage is. I did read something publicly stated that barley was up 30% to 40% year-over-year, so that's not a bad number, I think. You know, it's in the public domain to think about.

Okay. Thank you.

Thank you. Our next question comes from James Watson of HSBC.

Good afternoon, everyone.

Hi, James.

You just mentioned talking about the competitive environment the downward pressure from the big brewers, and I was just wondering if you could elaborate a little more on, you know, as the bigger brewers start moving into, you know, the craft beer domestic specialty space, what sort of effect they are having on the overall market?

Hi, James, it's Martin. I think not all of the big Brewers offerings in this space are priced in line with where most of craft is, so I think you're sort of seeing them create a lower price point, maybe even siphoning off some of the trade up that was going on. And I think on the plus side, and this goes again to the question that was asked about, you know, do we think there's a runway.

Their activity in the category with more flavorful beers is definitely helping the category maintain its growth rate and interest rate and opening up retailers and wholesalers minds to what's possible, so that's all good. To the extent that those beers aren't line priced with craft, that does provide some downward pressure on craft beers with similar styles to those folks, and, you know, that can then move or put some pressure on where the appropriate craft price point is. I think to date, most have resisted, I think, given the barley prices that are coming -- the barley costs that are coming and maybe any further energy cost increases, I think a number of us, you know, won't be able to move in that direction.

On the barley prices increasing -- you know, you talked about the very competitive price environment, you know, 1% this year, I mean, are we going to see a qualitatively different environment next year where everybody knows that prices just have to go up?

You know, that's hard to tell. We're just one player in the marketplace. I think we know what we need to do, but how everyone else reacts, I have no clue.

Fair enough. Can you -- have you guys ever disclosed how much you are hedged on your barley costs for next year?

We haven't. In our Q that we just released we indeed indicate that we have a portion hedged, and that is what our disclosure is. There is a dollar amount in it, you can probably back into it.

Okay. And what percent of the your COGS are your hops and barley costs?

That's not something we have disclosed, James. I'm sorry.

Okay. That's fine. That's all I have, guys.

Thanks.

Thank you. Our next question comes from Andrew Kieley of Deutsche Bank.

Hi, everybody. I was wondering just quickly, could you say how much of the volume came from the growth of Twisted Tea this quarter or just order of magnitude?

You know, that again is not something that we have publicly disclosed. I think if you look in the IRI or Nielsen data you'll see one picture which has Twisted Tea growing double-digits and Sam Adams growing mid single-digits. I'm not sure the Twisted Tea number in IRI is actually a good representation of Twisted Tea. But certainly it's indicative of a difference in growth rates.

Okay. And then I just wanted to ask the difference this quarter between the shipments and the depletions, how much of that was, you know, just being weighed down by the Freshest Program and how much of that was a correction I guess from last quarter or draw down from last quarter? Because, I think, last quarter you shipped ahead of depletions, if I'm not wrong.

Yes. I think it's mainly a correction from the first quarter. I think on a full-year basis, we expect these things to come into line and on a month-to-month basis, there's always discrepancies based on wholesaler ordering patterns expectations but on a full-year basis, these things should all come back into line.

And I think our point this year is we would expect them not to come back into line to the extent that December ending inventories for the wholesalers on Freshest Beer are lower than they would otherwise be. December is historically a low inventory point, anyway so any decrease that we have to a December wholesaler inventory for arguments sake if we reduce those inventories by 25%, that's a smaller inventory decrease than the mid year decrease. Whether inventories are typically higher, because the business flow rate is so much higher, so we've seen a decrease in inventory, our Freshest Beer wholesalers year-to-date that we've reported.

If this was end of year that are would likely be a little smaller because their inventories naturally are smaller that time of year. We're obviously adding additional -- or plan to add additional wholesalers facilitated in some fashion by the IT systems that we're putting in, and, you know, our hope is that we can duplicate what we've done on the existing wholesalers and even maybe more aggressive in achieving inventory levels that would make our wholesalers really, really happy. And so that's what we're going to try and do.

I was going to ask, could you talk about maybe a little bit about some of the benefits you feel you're getting from that program? You know, if it's at the consumer level, if it's at the level of your partnership with the distributors, just, what you feel the benefits have been so far?

Sure. The primary one is just fresher beer in the consumer's glass. You know, we -- I've been out in markets where, you know, I am in a bar or in a store getting Sam Adams that was in the brewery's tanks 10 days ago. That's a pretty cool thing, and I just fundamentally believe that if we improve the quality of the Sam Adams drinkers' experience, we will get more loyalty and we'll be a stronger brand. I can't quantify it, but I just believe that if we give the consumer a better product, they will ultimately reward us. There are some other benefits long-term for Boston Beer Company by reducing the days of inventory at our wholesalers.

We make it a little bit easier to manage freshness. There's less stale beer in the market that, you know, we have to find and pick up. And by going to a more replenishment-based system, there's less management time ultimately in managing wholesaler inventory and ordering patterns, so we can focus more on supporting our brand in the marketplace, and then there is the other intangible of goodwill at the wholesaler, because we're taking costs out of the supply chain. Probably more of those costs are taken out at the wholesaler level rather than at the brewery level, but again, we believe that, if we do the right thing for our wholesalers, we will be a better supplier to them and ultimately we will get more of their time and attention by making it easier for them to manage the Samuel Adams part of their business.

Thanks. That's helpful. And then just a final one, maybe for Bill or Martin, just on the cost side, I was wondering if you could quantify how much of that higher ad and selling line was from, you know, the higher shipping costs, and do you think that shipping cost is actually going to get worse in the third and fourth quarter, or was this sort of like the worst quarter there?

Andrew, it's Bill. The first to -- let me take the second part of your question first. I don't know what's going to happen with, you know, fuel rates from here to the rest of the year so we're just looking at it based on what it is today. And that's the information that we've projected based on. In terms of the advertising, promotion and selling expenses for the year-to-date, I think we've indicated that the investment that we're going to have for a full year is between $12 million and $18 million, and we've spent 10 of that year-to-date, I believe we had roughly 12 in total. So you can do the math.

Okay. I appreciate that. Thank you.

Thank you. Our next question comes from Gary Albanese of CapStone Investment.

Hi, guys. Thanks for taking the call.

Hi, Gary.

Hi, Gary.

I know you said that you're seeing more competitive labels, more competitive pressures from them. Is the category itself, the growth category slowdown at all, or still -- (technical difficulties)

It appears that at this point not to be slowing down, Gary. We're reading tea leaves a little bit, what I think most observers are expecting another year of double-digit or close to double-digit volume growth for the craft and domestic specialty category.

In terms of trying to retain your shelf space, with a limited availability, is that going to be a hindrance to you to try to -- (technical difficulties) aren't -- with fewer shelf spaces and price a big component at the retail level?

Gary, you're breaking up a little bit. I think your question was is any price activity increase in from our side going to be an impediment to volume growth or to our ability to get more shelf space? You know, I think our ability to get more shelf space is largely determined by, you know, do we have attractive new beers in new packages that we can persuade the retailer more attractive to take from Sam Adams then from another brewer and provided that we are generating the margins and the interest in the category from the beer, they think that any pricing activity that we take would be fine.

Okay. Okay. And regarding the barley again (technical difficulties) going into 2012, but (technical difficulties) so positioned is it more towards its fourth quarter you're expecting it to really start to kick in or in terms of the timing, can you clarify that and what kind of increased cost are we looking at?

Yes. The barley is a 2011 crop issue, and we are covered for 2010 -- 2011, based on 2010 crop commitments made, so we're expecting 2011 crops to likely hit the breweries in December for beer brewed in December shipping in January. And then as it relates to the impact at this point in time, we haven't fully formulated it. I think we see -- we've seen -- we've covered some of our volume needs and we're sitting on the sidelines on others, published barley reports are up 30 to 40, and that's all I think we're in a position to disclose at this point.

Okay. And last question, what's your -- with your cash, is there any plans to do anything with it? How do you think -- dividend or I know you boosted the share repurchase program, but --

Right now, Gary, we are -- we're looking at share repurchase, we just authorized another tranche of that, and that's right now all we have in front of us.

Okay. Okay. All right. Thanks, guys.

Thanks, Gary.

(Operator Instructions)

Our next question comes from Marc Riddick of Williams

Hi, good afternoon, folks. I wanted to just go over a couple of things. First of all if we're looking at the Freshest Beer Program and the target has been to get half the volume by the end of the year, I think that's consistently been the case, have you had any ideas as far as feedback from the other half of your volume, if you will, as to their willingness to take on the program, and do you have a sense of what type of target there may be as far as how much of your volume would ultimately be on the program?

Yes, Marc, it's Martin. We started off the program, we focused on our top sort of 80 wholesalers, these are wholesalers who received at least a truck load a week from us, and obviously in some cases much more. And we've put in place the systems to manage their inventories down to sort of a week, week and a half on average, if they're receiving a truck, 2 trucks a week. And we're basically rolling that out to wholesalers who have that sort of volume, and are ready information system wise and facility wise to work with us on all the data integration and facility issues.

And as we indicated, we have 15 up and running and our hope is covering 20% of our business and our hope is to be at 50% of our business by the end of the year. When we start to go beyond the top wholesalers, there is a much more significant issues around inventory reduction if you're getting a truck every other week or even 2 half trucks a month, as to really what we can do with the inventory. We are committed to, I think, covering the 60%, 70%, 80% of our business that takes a truck a week and trying to get there sometime next year.

How fast? I don't know. Right now, we're doing it very manually. We're implementing computer systems to help with the vendor managed inventory that we hope will allow us to manage way more wholesalers than we're currently doing, and our goal is to get to the end of the year, get over half of our business up, and then review what's working, what isn't working, and how deep into our wholesale or group we can go. And indeed, the same approaches work for different size wholesalers.

Okay. Great. That's very helpful. On another front, we had experienced, in the first-quarter a significant amount of additional salespeople that were hired on to help as far as getting word of the brand out there, and there was a good amount of that in the first quarter. Could you give a sense of where you are as far as relative to at least where you want to be on headcount, or should we expect more hiring from the sales front to come in the back half of the year?

Yes. Marc, I think in the last 12 months, we've added significantly, it started in the summer of last year and really added very significantly through the end of the first quarter, and that was to deal with competitive issues and also the opportunities we saw. As we look at the remainder of the year, our plans are much more -- much less aggressive. Now, we are continually evaluating how best to take advantage of the opportunities that are presented to us in the marketplace.

At this point in time, I think we're in maintenance mode from a total sales force side, that's not to say we're not hiring. We are. We have openings, but it's more of a maintenance mode. Would I expect to grow the sales force over the next 6 months? Yes. Currently no plans to be significant or unusual but also that could change.

Okay. I appreciate that, thank you. One last topic, to go on as far as Sam, Sam Light for a moment, I'm curious as to what your thoughts are as far as how light beers are growing relative to the rest of the category within craft and premium beers. Because it seems as though -- and I could be completely wrong about this and if so please correct me, but it seems as though the focus would be away from light beers as opposed to toward it, so do you have a sense of maybe if I'm looking at the category growing at X., is the light beer part of the category growing at a lower rate? And does it sort of make you look at what the opportunity ultimately is for Sam Light?

I think the growth rate for light beer -- and I'm going to expand it to not just craft but imports, because there is really not that much light beer in the craft category. If you look at that said, it's probably growing a little less than all of better beer is growing, and our view with Samuel Adams Light is that the beer itself is unique. There's just nothing else like it, so we're comfortable that it has a place in the market.

We are, I think, committed to Sam Adams Light for the long-term, because again we believe that long-term, there will be a place for craft beer that has a lower calorie but still has a lot of flavor and taste. How big that ultimately will be, we just don't know. But I think we are committed to finding out what is the long-term volume.

Okay. Great. Thank you very much.

(Operator Instructions)

At this time, there are no further questions. I'll now turn the call back to the presenters for closing

Well, thank you, everyone for joining the call. And we'll speak you next quarter.

Cheers.

Cheers.

This concludes today's conference call. You may now disconnect.