A Member of Pat McKeough’s Inner Circle recently asked for his advice on a Napa Valley wine-making firm, which sells its brands worldwide.
Pat likes the company’s track record of rising sales and earnings. At the same time, its high-end focus is key to its strong profit margins.
Duckhorn Portfolio Inc. (Symbol NAPA; www.duckhornportfolio.com), is a Napa Valley winery founded in 1976 by Dan and Margaret Duckhorn. The winery pioneered Merlot wines in the Napa Valley. Since then, it has added multiple brands, grape varieties, and price points. It now includes over 843 acres of vineyards and ten wineries.
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The company sells its wines in the U.S. and 50 other countries, including Canada. Its brands include Duckhorn Vineyards, Migration, Decoy, Goldeneye and Canvasback. In 2018, it added American Pinot Noir wines through its acquisition of winery Kosta Browne.
Duckhorn is focused exclusively on the luxury segment, which it sees as the U.S. industry’s fastest-growing market. The company’s wines sell at prices ranging from $20 to $200 a bottle. (Luxury wines are defined as those sold for $15 or higher.)
On March 17, 2021, Duckhorn went public, using an IPO to sell 20 million shares at $15 per share.
The company was in the hands of private equity owners for almost two decades before GI Partners acquired a controlling stake in 2007. In October 2016, GI Partners then sold the company to TSG Consumer Partners after building Duckhorn into a top winery. Following the IPO, TSG still owns 75.1% of the company.
Duckhorn has increased its annual sales for 11 consecutive years. That includes the 12.2% rise in fiscal 2020 (years-end July 31), to $270.6 million from $241.2 million in fiscal 2019. Profits rose 46.5%, to $32.4 million from $22.1 million.
Last year, in the three months ended April 30, 2021, revenue rose 31.6%, to $90.4 million from $68.7 million a year earlier. Sales were stronger as a result of higher volumes. Excluding one-time items, the company earned $17.9 million, or $0.17 a share, in the quarter. That was up 15.5% from $15.5 million, or $0.15.
Despite their luxury status, many of Duckhorn’s wines can be found in grocery stores, especially in California. That’s been key for the company during the pandemic. In fact, it reported record sales last year while many other wineries struggled due to restaurant closures and capacity limits on winery tasting rooms.
However, Americans kept drinking wine throughout the crisis, giving an edge to larger-scale wineries with strong sales of off-site consumption—like Duckhorn Portfolio. The company also benefits from strong consumer familiarity with its brands.
Recommendation in Pat’s Inner Circle: Duckhorn Portfolio Inc. is a hold.
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