Constellation Brands Inc (STZ) 2003 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Robert Mondavi First Quarter Fiscal 2003 Earnings Conference Call.

At this time all participants are in a "Listen Only" mode.

Following today's presentation, instructions will be given for the question and answer session.

If anyone needs assistance at any time during the conference, please press the "star" followed by the "0."

As a reminder, this conference is being recorded on Thursday, October 24, 2002.

I would now like to turn the conference over to Mr. Mondavi, Chairman.

Please go ahead, sir.

Thank you.

Good morning.

It's Michael Mondavi speaking and I want to welcome you to today's conference call discussing Robert Mondavi's First Quarter Fiscal 2003 results.

Joining me today are Greg Evans, our President and CEO, Hank Salvo, our CFO, and Bob Phillips, our VP of Investor Relations.

Before we get started let me remind you that we will make a number of forward-looking statements today and these statements should be taken as estimates only.

Actual results may differ from our expectations, so please refer to the MG&A in our annual report for a discussion of the risks in the wine business.

All of the numbers and comparisons reviewed today will be on an adjusted basis, excluding the inventory step-up charges associated with our Ornellaia joint venture and the Arrowood acquisition, and the other one-time gains or losses such as the charges last fiscal year for the Disney restructuring.

In the current quarter, the step-up charges were $1.4 million for Ornellaia, which show up in equity income, and $710,000.00 for Arrowood, which show up in the cost of goods sold.

During last year's quarter, we recorded step-up charges of $1.3 million for Ornellaia and $839,000.00 for Arrowood, and $11.2 million in Disney restructuring charges, and the $3.75 million in inventory in vineyard writedowns.

We plan to cover three topics in our 30 minutes of prepared remarks: review of the performance for the quarter, review of our outlook for fiscal 2003, and to update you on the status of several initiatives, which we've outlined in the past to help strengthen the company from a long-term perspective.

After that, we'll move to your questions.

Hopefully, we can limit the call to no more than one hour.

Let's start with the market trends as captured in the AC Nielsen food, drug, and liquor store data for the 13 weeks ended September 28, 2002.

Please keep in mind that the AC Nielsen numbers tend to overstate industry growth during times like these when the on-premise channels are weak.

Premium domestic varietal wines priced over $6.00 per bottle grew 5.4 percent in volume and 5.1 percent in revenue.

Premium imported wines priced over $6.00 a bottle, led by imports from Italy and Australia, grew over twice that fast, up 13.4 percent in volume and 12.2 percent in revenue.

The blended growth rate was 7.5 percent in volume, 7 percent in revenue.

The pricing environment in the food, drug, and liquor channels showed signs of continuing softening.

Premium domestic varietal wines posted a .3 percent decrease in average price for the last 13 weeks compared to a 1.1 percent increase during the last 52 weeks.

Premium imported wines posted a 1.1 percent decrease in average price for the last 13 weeks compared to a .1 percent increase during the last 52 weeks, as wines from Australia declined in price over 8 percent.

Northern California continued to be a difficult market with table wine volumes down 5 percent in AC Nielsen food stores.

Now looking at Robert Mondavi's results across all channels, we had a solid quarter, particularly in light of difficult operating environments.

Revenues came in above the high teens growth we forecasted in July.

EPS was 58 cents per share.

But when you back out a favorable 7 cents in equity income timing over last year's number, the EPS was 51 cents per share versus 50 cents last year, which means we came in at the high end of the 48 to 52 range of our guidance.

We also took a good first step towards achieving aggressive operating expense targets which we established for the year by reporting an expense margin that was more 500 basis points below last year's first quarter.

I'm also very pleased to report that wholesale inventories continued to be within the range we targeted a year ago, coming in at 45 days.

And finally, we continue to make progress in controlling the growth of the balance sheet.

At the end of September, the balance sheet was only 3 percent above last year.

Now, Greg will walk through the top line performance of each of our brands.

Thank you, Michael, and good morning.

Total company wholesale depletions for the quarter ended September 30, 2002 grew 3.5 percent over last year, excluding Vichon Mediterranean, which was divested in last year's first quarter.

Total company shipments grew .5 percent to 2.089 million cases which left wholesale inventories at 45 days compared to 50 days last year and 46 days at the end of June.

The large difference between the depletion and shipment growth rates is due to depletions overlapping a flat growth comp from last year and shipments overlapping a 15 percent negative comp from last year.

Remember that last year our shipments were dramatically curtailed in the wake of September 11.

The absolute number of cases shipped was about the same as the number of cases depleted by our wholesalers.

The average price per case declined 3 percent to $47.20 as a result of higher promotional spending on Private Selection and Woodbridge.

Total company net revenue was $98.6 million, 22 percent above last year's $80.9 million.

In the food, drug, and liquor scanning channels, as reported by AC Nielsen, our volumes grew 6 percent and revenues grew 4 percent.

Turning to the Robert Mondavi Winery brand, wholesale depletions fell 5 percent as the Napa Valley tier stabilized, but the reserve and district tiers remained weaker.

Shipments grew 21 percent to 57,000 cases.

The average price per case was about $184.00, 1 percent above last year due to a mix shift from mid-tier district wines to the high-tier reserve and low-tier Napa Valley wines.

Reserve shipments were particularly strong as wholesalers began to stock up on several recently released wines in anticipation of building excitement at the retail and consumer level due to very favorable ratings in the wine press.

Net revenues grew 21 percent to $10.5 million.

In the scanning channels, Robert Mondavi Winery volumes declined 3 percent and revenues declined 10 percent as a result of a mix shift towards lower-priced wine.

The average retail bottle price was $22.62, down 7 percent.

Sales of wine and merchandise sold at the Winery's retail and tasting rooms were $2 million, 8 percent below last year due to 2 percent fewer tour participants and 6 percent lower spending per capita.

Robert Mondavi Private Selection had an excellent quarter.

Wholesale depletions grew 9 percent within the 8 to 10 percent growth rates we communicated last June for the full year.

Chardonnay, Merlot, Serre, and the [inaudible] all contributed nicely to the growth.

Depletions in the on-premise channel began to grow again as well, up 12 percent.

Shipments grew 50 percent to 310,000 cases as we overlapped a period last year when we were shipping less to deplete trade inventories of the old Robert Mondavi Coastal package.

Net revenues grew 46 percent to $19.2 million.

Average price per case declined 3 percent compared to last year as a result of heavier promotional spending.

Private Selection's U.S. scanning store volumes grew 8 percent on flat pricing.

Now let's move to Woodbridge.

Woodbridge Depletions grew 3 percent, about the same pace as the June quarter.

More than 60 percent of the growth came from Pinot Grezio [phonetic], which is now one of the top 10 most popular Pinot Grezios in AC Nielsen scanning stores, although it only has 20 AC Nielsen ACV distribution, and therefore, has plenty of distribution upside.

Serre, Cabernet Sauvignon, Merlot, and Chardonnay all posted growth.

Depletions declined 17 percent in New York as we transitioned to a new distributor, which took off about 100 basis points for the brand's total growth rate during the quarter.

Woodbridge shipments grew 24 percent to 1.6 million cases, and net revenues grew 19 percent to $56 million.

Average price per case declined 3 percent to $35.40 due to heavier promotional spending in selected markets.

From a channel perspective, trends and U.S. scanning stores improved with volumes up 7 percent and revenues up 4 percent during the quarter.

In the clubs, volumes grew about 15 percent, but the restaurant sector of the on-premise channel remained weak.

There was no TV advertising this year compared to about a week of national network TV advertising during last year's first quarter.

This year's TV and print ads begin next week, October 30, and extend through the holidays.

Wholesale depletions of our other California brands grew 12 percent over last year, led by Arrowood's Grand Archer and Le Vonte.

Shipments grew 39 percent above last year to 25,000 cases and net revenues grew 12 percent to $3.6 million due primarily to strong growth of Grand Archer, which at $103.00 per case is one of the lower-priced brands in this group.

This brought the average price per case down 19 percent to $145.00.

Import depletions grew 1 percent, excluding Vichon Mediterranean, although sales of Calaterra slowed considerably.

The Italian category has weakened over the last year in volume and pricing though Calaterra has taken steps to promote more aggressively during the second quarter.

Shipments excluding Vichon Mediterranean grew 34 percent and net revenues, excluding Vichon Mediterranean, grew 26 percent.

U.S. scanning stores, our imports declined 23 percent in volume as we focused sales efforts on more non-scanning, independent, and general market channels.

Prices in AC Nielsen grew 3 percent as the mix shifted from Chellan to Italian wines.

In summary, our top line results came at about what we expected although depletions were slightly weaker, which can be partly explained by the distributor transition in New York which costs us about 100 basis points of growth.

Now Hank will cover the rest of the financials.

Thanks, Greg, and good morning.

The $98.6 million in net revenues during the quarter was a new record for the company in the first quarter even when backing out a small amount of bulk wine revenue just over $1 million as we took additional steps to balance inventories and free up capacity prior to harvest.

Lots of goods sold per case grew 6 percent to $27.08 compared to last year's level of $25.65 and would have grown only 2 percent without the bulk wine sales.

Gross profit per case declined 12 percent to $20.13 from $22.81 last year.

The gross margin was 42.6 percent, a decrease of 450 basis points from last year.

Bulk wine sales trimmed 140 basis points from the gross margin at about $800,000.00 while the rest of the decline was due to higher promotional costs.

Operating expenses grew 4 percent to $29.9 million or 30.3 percent of net revenue, a decrease of 525 basis points from last year as a result of aggressive cost cutting efforts and buying leverage.

Included in last year's numbers are about $1.8 million in Disney-related costs that weren't in this year's numbers.

Operating income grew 30 percent, $12.1 million compared to $9.3 million last year.

Operating margin was 12.3 percent, 70 basis points above last year's level of 11.6 percent.

Other income and expense netted $8 million of income, which included $1.8 million or $7.10 per share in favorable timing of planned profit from our joint ventures.

EBIT grew 10 percent to $20.2 million, which was $18.3 million last year.

And EBIT margin was 20.5 percent of revenue versus 22.6 percent last year.

Without the favorable equity income timing, EBIT would have been $18.4 million, slightly better than last year, and EBIT margin would have been 18.6 percent.

Net interest expenses were $5.1 million, level with last year, on about the same amount of debt as last year.

However, favorable borrowing rates this year were offset by lower levels of capitalized interest.

Capitalized interest expense for the quarter was $608,000.00 compared to $1.2 million last year.

The effective tax rate for the quarter was 37 percent.

Net income increased 15 percent, $9.5 million, and EPS grew 16 percent to 58 cents from 50 cents last year.

Excluding the favorable equity income timing, net income increased 2 percent to $8.3 million and EPS was 51 cents.

The September 30, 2002 balance sheet was $911 million, 3 percent larger than last year.

Better shipments in September this year caused receivables to rise faster than sales, but an earlier yet smaller intake from the 2002 grape harvest kept inventory growth at only 2 percent.

Capital spending for the quarter was $9.7 million with most of the money being spent on vineyard development past the extension.

The operating cash flow for the quarter was a positive $5.9 million compared to a positive $4.1 million last year.

Now, Greg will talk about the status of--I'm sorry, now Michael will talk about the status of some of the progress we have been making on strengthening the company.

Michael?

Thanks, Hank.

I'll cover five items.

First, on September 23, we announced the appointment of Adrian Bellamy to our Board of Directors.

Adrian brings to us more than three decades of experience in executive management in specialty and luxury goods retailing as well as international market.

He has strong skills in corporate governance so he has been appointed to the Board's Nominating and Corporate Governance Committee.

Along with the addition of John Thompson, Vice Chairman of IBM, to the Board in June, we now have a majority of outsiders on our Board, and the key committees are all headed by strong individuals.

Phil Greer heads up our Audit Committee, Tony Greener, the Nominating and Corporate Governance Committee, and Bart Rhoades, the Compensation Committee.

Second, the sales force reorganization that we announced on June 23 went in to effect September 1, and I am pleased to say that things are progressing according to plan.

We expect stronger results, particularly from our smaller brands, over the next several quarters as we continue to work through some of the transitional issues in timing.

Third, the performance of our brands in New York, the third largest state that we sell in, during the quarter wasn't good.

Depletions declined 17 percent against a negative 15 percent comp a year ago.

But as we discussed during our fourth quarter fiscal 2002 earnings conference call this past July 25, we changed wholesalers in New York on September 1 and the transition since then has been smooth and we expect positive gains over the next several months.

Fourth, I want to cover the 2002 wine grape harvest, which was about two-thirds complete on September 30 and by now is essentially nearly finished.

The harvest has not been an easy one, but the grapes look to be of excellent quality.

While many of the world's wine-growing regions have been dealing with devastating onslaughts of rain or hail, California has had sunny dry weather and, in some cases, a little too much of that dry sunny weather.

Statewide, we think that the 3.3 million ton wine grape crush estimate published by the state is too high since it does not reflect the effects of the yield reduction programs, hot weather in September, or low grape prices, which have resulted in some of the grapes not being picked.

We expect that when the crop reports are published next spring, the number will be more like 3 million tons or less.

There is an old saying in our business, which is, "A small crop gets smaller the farther you go into the season."

As of this week, we are 96 percent complete on a statewide basis, which is slightly ahead of last year at this time.

The largest amount of fruit still left to harvest is in the central coast and is predominately all later-ripening red varietals.

We anticipate finishing in early November, which is about the usual time.

In the Napa Valley, we are looking at a smaller crop, particularly of the Merlot and Cabernet Sauvignon, due to the very dry weather.

However, the remaining grapes should produce wines with incredible concentration of flavor.

In fact, the 2002 vintage represents the fourth vintage in a row of excellent quality following an average quality vintage of 1998 and it's leading to a renewed enthusiasm by the wine trade and the consumers alike.

Finally, I want to cover where we stand on divesting some of our $70 million in non-strategic assets that we've identified on our balance sheet.

While we've not seen much interest in the vineyard properties in the oversupply environment, we have had interest in our two winery properties, both the LaFamilia wine-making facility and the original Byron wine-making facility.

And we expect to complete a sale of one of those assets within 180 days.

We are now producing all of the LaFamilia and Byron wines in state of the art, gravity-flow wine-making facilities.

Now Greg will cover our outlook for the remainder of the year.

Thanks, Michael.

We expect stronger depletion growth during the second quarter as a result of the following.

For Robert Mondavi Winery, we expect stronger sales from higher-priced wines during the holiday period.

Particularly, as the on-premise environment begins to strengthen and the highly acclaimed 1999 vintage red gained distribution in the marketplace.

We've also taken several executional steps to make sure that appropriate focus is placed on these wines in Q2.

For Robert Mondavi Private Selection, the $8.00 to $12.00 per bottle segment remains extremely competitive and it is enjoying good growth in retail outlets.

We've seen very aggressive pricing from some of the competition during October and expect some of it at least to continue through the holidays.

On a positive note, Private Selection posted strong on-premise growth as the hotel business has begun to turn around.

In off-premise, the brand will run a gift box program and repeat last year's very successful gift bag program in key markets.

Financially, the brand should benefit from full distribution of the new package graphics versus about 50 percent distribution last year.

In October, the words "Private Selection" were given more prominence on the label, and the word "Coastal" was removed.

For Woodbridge, a new and more targeted television ad campaign was developed that begins airing October 30 and extends through the end of December.

These ads are also planned to run again in the Spring.

Print ads and new radio spots will be coordinated with a strong appointed purchase program, which includes an innovative 750-milliliter 3-bottle pack that began shipping this month.

In addition, new distribution is being tested in Target, and distribution has been expanded in Walmart in the U.S.

In Europe, Cherokee Station, a Woodbridge red blend wine extension, has been growing since its launch last April.

For our other California brands, we expect growth to remain strong, particularly as the new Signature Estates wine sales division is fully operational during Q2.

And finally, for our imports, steps have been taken to stabilize the Callaterra brand and we expect the Italian wines to continue to do well.

Overall, we expect the number of cases shipped to approximate the number of cases depleted, but similar to Q1, the rate of shipment growth would exceed the rate of depletion growth since we were still balancing inventories last year.

This would translate to low teens revenue growth and earnings in the range of 70 to 74 cents per share compared to 70 cents last year.

Note that this guidance takes into account the go-forward of 7 cents in equity income from Q2 to Q1 that was mentioned earlier.

For the full year, we continue to track the plan and expect revenues of around $500 million supported by 6 to 8 percent depletion growth and balanced wholesale inventories, and earnings of between $2.55 and $2.60 per share.

A previous balance sheet forecast of $900 million is probably on the high side since our production group has done a great job in managing the size of the 2002 grape harvest.

And, as Michael said earlier, there appears to be a good likelihood that we'll complete at least one of the non-strategic asset divestitures by the end of the fiscal year.

Now, Bob has some housekeeping items.

Thanks, Greg.

Today's call is copyrighted material of Robert Mondavi and cannot be rebroadcast without our express written consent.

Beginning at about 9:30 AM Pacific Time today, until about 5:00 PM, you can listen to a tape of this call in the U.S. by dialing 1/800-405-2236.

International callers can listen to the tape by dialing 1/303-590-3000.

In both cases, the access code for the replay is 502408#.

Today's prepared remarks can also be viewed, downloaded, or listened to on our website at www.robertmondavi.com in about one hour.

Look under "About the Company," "Investor Relations," followed by "News and Events," and then, finally, "Conference Calls."

In terms of upcoming events, I am pleased to announce that we will be attending the NAIC Puget Sound Chapter event in November and the J. P. Morgan Small Cap Conference in Boston in late November.

Also, for those shareholders who may wish to attend our Annual Meeting, it is scheduled for Friday, November 8 in the Napa Valley.

For more information on any of these events visit our website.

Finally, our next conference covering our second quarter fiscal 2003 results is scheduled for January 23, 2002 at 7:30 AM Pacific Time.

I want to thank you for your participation in today's call.

We'll now open up the line for your questions.

Stephanie, we'll turn the floor back to you.

Thank you, sir.

Ladies and gentlemen, at this time will begin the question and answer session.

If you have a question, please press the "star" followed by the "1" on your push-button phone.

If you would like to decline from the polling process, press the "star" followed by the "2."

You will hear a three-tone prompt acknowledging your selection.

If you are using speaker equipment you will need to lift the handset before pressing the numbers.

One moment, please, for the first question.

Again, ladies and gentlemen, if you have a question please press the "star" followed by the "1" on your push-button phone.

If you are using speaker equipment you will need to lift the handset before pressing the numbers.

Our first question comes from Kelly McNimanon from Chilton Investments.

Please go ahead with your question.

Pardon me.

Kelly McNimanon?

I'm sorry, I had it on "Mute."

Sorry.

I was expecting--wondering about bulk sales, whether it was something you were expecting to continue going forward into Q4--sorry, into the January quarter?

Kelly, on the bulk wine sales front, we typically would see bulk wine sales occur in our fourth quarter or the first quarter of the fiscal year because the tendency is to clear your cooperage and capacity out before the harvest.

So the bulk wine sale that we saw this quarter is not likely to be repeated through the balance of the fiscal year until perhaps the fourth quarter.

So just regular seasonal?

That's right.

Okay.

Thank you.

Ladies and gentlemen, if there are any additional questions please press the "star" followed by the "1" on your push-button phone.

Again, if you are using speaker equipment you will need to lift the handset before pressing the numbers.

Our next question comes from John Foucher with J. P. Morgan.

Please go ahead with your question.

Good morning, everyone.

Good morning, John.

You talk a little bit about the distributor impact on volume, and I apologize if I didn't quite get this.

Can you maybe say over time how long you think you'll be able to work that off?

And was there an associated shipment shortfall involved with that or any sort of shipment impact in terms of the change of distributors, as well as any sort of pricing impact with the change of--did that affect your pricing at all?

Is your pricing pretty similar in terms of the New York market versus everywhere else?

Yeah, John.

Let me comment on the volume impact and turn it over to Mike for the balance.

There was a very clear and distinct depletion volume impact of about 20,000 cases in New York that we incurred.

We are pleased to say the new distributor is up and running in--I believe, in momentum and October is very satisfactory at this point.

So we see that transition as really being worked through.

From the standpoint of pricing, I don't believe we have really reflected any change in pricing in New York yet, but I'll defer to Mike on that--.

--Because there is no--there is no mix difference between New York, let's say, and other markets that might have impacted the pricing one way or the other in terms of lower volume--having the lower volumes in New York.

But within New York, the distributor change we made did not imply or entail any pricing change whatsoever.

Bob, do you have any comments on that?

To give you a little more insight on the distributor change, needless to say, you announce to an existing distributor that you are going to be terminated him and then it's usually 30 to 60 days later you make the actual physical move.

Needless to say, during that interim you are highly vulnerable.

One of the reasons we chose September 1 is that we wanted to stay away from the holidays because we knew from previous experience anytime you make a distributor transition you're gonna have [inaudible] for 30 to 60 days in your sale as you move thorugh.

From a pricing standpoint, there was no price discounting or dumping of our wines by the previous distributor.

So it was an orderly and well-executed transition.

As Greg said, the enthusiasm of Charmer and of their distribution team is terrific and we've seen wonderful momentum growing in September and October.

Great.

Thanks.

Our next question comes from Robert Van Horn with Deutsche Bank.

Please go ahead with your question.

Hi.

It's Mark Greenberg.

Thank you.

Good morning.

Good morning, gentlemen, and thanks for waking up early out west.

Just a couple of questions with regards to the recent retail takeaway trends for both the Woodbridge and the Private Selection brands.

Your numbers as reported in the release for period ending September 30 are very strong in terms of volume and at least early days through October as measured by NRI this morning, the retail takeaways really haven't started to accelerate.

You know, constructively, the pricing looks better.

Just wondering, Greg and Michael, with regards to your expectations for the current holiday season at the retail level for both pricing, which constructively looks a little better, and, you know, how depletions are going.

Yeah.

The depletion forecast, as I mentioned in my outlook comment for Q2, we see as being stronger in Q1.

So we expect that number, you know, to move up probably in the range of 6 to 8 percent, and we expect that number to be driven more significantly off retail than from the restaurant sector.

We do believe pricing is gonna continue to be very competitive in the marketplace, and that's the balance that we're dealing with to really manage the price position and yet remain competitive in the marketplace.

But we will continue to be promoting the wines.

But I think the key difference here for us in the second quarter reflects our strategy of beginning to invest significantly in our advertising campaign for Woodbridge, which is going to be more intensive and deliver more GRP's during that period as well.

And I think Mike can probably comment on how that will help us execute in the marketplace in addition to simply promoting wine.

Yeah.

Thanks, Greg.

One of the things that's very encouraging to me is the numbers that we've seen for September and October for Woodbridge.

When realistically, the advertising had been running for a period of time last year and our ads on national television, and through cable, etc., will not begin until October 30 this year, so a week from today or tomorrow.

Once that hits, and with the--to me, the key for advertising is execution, execution, execution.

If the wines are wines are properly displayed, if you have them on the floor, then when the consumer sees the ad and goes in and can find them, he or she will buy them at a much more accelerated rate.

We are very happy with the execution as of the present time and our new go-to-market strategy, which we implemented September 1, is really helping us focus in that area.

Right.

Thanks.

I guess just as a general--I don't know if you want to address it head on, but with regards to the data release today.

It's the first--it's really the first sequential four-week period in the last four or five where you are seeing some positive price realization year-on-year for both Woodbridge and the Private Selection.

Is that nothing to really take to the bank at this point or is there something going on in the trade that might be favorable in your eyes?

I have not yet seen those numbers.

You are ahead of me today.

But once I've had a chance to look them and then evaluate that, and talk with a couple of our key wholesalers, I could, you know, give you some better insights.

Thank you.

Our next question comes from Mark Cohen with Goldman Sachs.

Please go ahead with your question.

Mark just really basically asked--I was gonna just get some color on, you know, how it is you see this acceleration to 6 to 8 percent depletion growth.

I think you just answered that.

Let me ask a different question though.

The operating expense management, can you just sort of go into more depth about what you are doing because this 4 percent growth level in the SG&A line is quite impressive management of that line.

I wonder if you would carry us forward on sort of some of the things that are influencing that in the September quarter as well as looking, you know, forward in the next few.

And then, secondly, am I right that this $800,000.00 of bulk wine sales just basically adds a penny or two to the earnings?

No, it's subtraction, Mark.

That's a loss at the margin.

Oh, I'm sorry.

It's a loss.

Okay.

Thank you.

A loss of about $800,000.00 at the margin.

Okay.

From an operating expense standpoint, first of all, we're still sticking with our guidance for the year, Mark, of a 150 to 200 basis point improvement in that area.

So some of this first quarter was definitely some volume leverage.

However, this is a continuation of what we talked about last year with regard to just taking a harder look at our spending levels.

Specifically, in G&A, because we are shifting money into the sales promotion area and more advertising areas.

But we are definitely being much more frugal in our G&A spending around TV, around headcount, around a variety of areas to ensure that, you know, in this increased promotional period we have the money to spend in that area.

So I'm sticking to 150 to 200 for the year, and so we got a little bit of the timing benefit and volume leverage benefit in the first quarter.

Okay.

Thanks.

Our next question comes from Robert Titlebaum with Merrill Lynch.

Please go ahead with your question.

It's Lauren Titlebaum.

Good morning.

Good morning.

One of the--you know, Michael, we've been waiting for the go-to-market strategy to start to kick in and it looks like you've launched it.

But concomitant with that has got to be the price points have to be right.

And I'm trying to square--I think maybe Mark Cohen and previous had the--maybe the same question.

We talk in the beginning about having to--in essence, he was resetting the price points.

Some of the other consumer goods companies we see out there say the most popular brand today is on sale.

So brand loyalty is kind of taking a back seat.

Could you square if that is--if you are seeing it in your part of the industry?

How do you square the price points with the go-to-market with the margins that you are looking at?

And I guess I'm having a little disconnect here.

Okay.

If you don't have the price points where the supermarket buyers or the club buyers are willing to put you on the floor, your advertising doesn't matter--.

--I agree--.

--Because the consumer can't find the wine.

Right.

And so, we are making sure that we do two things.

Number one, protect the image of the brand through proper price promotion when needed to pulse.

And also, not just going so down and dirty that over the next three to five years you are not going to be able to pull the pricing back up to where it should be.

So we are looking at it on a market-by-market basis, and we are trying to manage it very, very regionally.

Okay.

Now, that part makes sense.

But I guess what I'm trying to do is as I'm projecting it forward the one way we have to protect our revenue then, obviously, is to get the volume really growing.

And I'm having a little trouble putting--if I'm gonna have a sales growth and my price points--promoted price points are down, then I'm gonna have to really get my volume growing in order to protect my revenue line.

That's just the math as I see it.

You're absolutely right, and we've taken all of that into consideration.

Okay.

Thank you very much.

Gentlemen, we have no further questions at this time.

Please continue.

Thank you very much.

If there are no further questions we will terminate the conference call.