Seth Kaufman's first year as President/CEO of Vintage Wine Estates will see revenue decline, but margins to measurable improve, will be a year of transition for Vintage Wine Estates, Interim CEO Jon Moramarco said, adding: "We believe our strategy will enable the Company to better scale and grow beyond fiscal 2024, which Moramarco called "a year of transition."
“In the latter half of fiscal 2023, we shifted our strategy to benefit from our solid foundation built over 20 years, capitalize on our valuable asset base, focus on our key powerful brands, and leverage our strong and experienced team," Moramarco explained.
"We initiated our Five-Point Plan that we believe will enable us to drive stronger earnings power, reinforce a sustainable foundation for future growth and continue our position as a leading vintner with a strong portfolio of affordable luxury brands. We have made excellent progress with this plan by simplifying the business and taking out costs. We are driving better productivity in our bottling and canning facilities to improve gross margin. Through our identified actions, we expect to reduce annualized SG&A by more than 15%. The savings are from a combination of personnel savings, improvement of freight lanes, elimination of certain professional fees and more focused advertising spend.”
Five-Point Plan to Drive Improvements
VWE’s Five-Point Plan is centered around five priorities which include margin expansion through simplification and better execution, measurable cost reduction, disciplined cash management, monetizing assets and reducing debt and growing revenue in its key brands.
In the last six months, VWE has eliminated over 50% of SKUs to 2,000 and has begun to streamline internal shipping lanes and warehouse operations to reduce costs and improve productivity and safety. In addition, the Company has expanded bottling output by over 40% year-over-year. Of note, VWE has raised prices on several brands, improved pricing in tasting rooms and increased shipping costs.
As part of its restructuring plan, the Company has reduced its personnel headcount by approximately 4% in addition to the reductions made in March 2023, for expected total annualized savings of approximately $6 million. Restructuring costs are expected to be approximately $6 million to $7 million, with the majority of the expense to occur in the first quarter of fiscal 2024.
In conjunction with the restructuring, President Terry Wheatley tendered her resignation, effective July 19, 2023. Ms. Wheatley commented, “VWE has a very bright future and I believe the actions being taken now will help to deliver greater value. I am confident our people, brands, distributors and customers are in very good hands. I will enjoy watching the progress unfold.”
Other efforts by the Company to simplify the business were the sale of Sommelier Co. and sale of the Tamarack building. Additional actions driving margin improvement included the discontinuation of a less profitable customer program, realignment of brand management and improved warehouse footprint for greater efficiencies.
Cash management is focused on supply chain efficiencies and improved inventory management. Kristina Johnston, Chief Financial Officer, noted, “Ongoing conversations with our lenders continue to advance, and we expect a revised agreement with our lenders prior to reporting our fiscal year end results in September. The amended agreement should provide us the opportunity to execute on our Five-Point Plan, improve margins and cash generation and successfully progress through this transition year.”
Preliminary Unaudited Fiscal 2023 Results and Fiscal 2024 Preliminary Expectations
VWE said preliminary unaudited financial results for fiscal 2023 are estimated to be as follows:
Preliminary unaudited revenue:
Approximately $290 million
30% to 32%
$118 million to $122 million
Non-cash amortization expense
$7 million to $7.5 million
VWE preliminary expectations for fiscal 2024 based on execution of the restructuring and Five-Point Plan are as follows:
Approximately $250 million to $270 million
37% to 39%, or an estimated 700 basis point improvement on lower volume
$95 million to $105 million, an estimated 16.5% improvement at mid-point of range
Non-cash amortization expense:
Approximately $6 million to $7 million
Estimated restructuring charges:
$6 million to 7 million
Lower expected revenue in fiscal 2024 primarily reflects about $33 million related to the depletion of aged bulk whiskey inventory, $6 million related to the discontinued bottled spirits program and an estimated $9 million SKU rationalization. These declines are being somewhat offset by improved pricing and higher volume in select brands. For fiscal 2024, SG&A excludes executive stock-based compensation awards expected with new leadership.