Boston Beer's (SAM 1.72%) business is slowly recovering from the hit it has taken from the demand shift away from hard seltzer drinks. Management said this week that they achieved their growth targets for the selling period that ended in late March, and that sales are still likely to stabilize in the second half of 2022.
Yet investors didn't see much concrete evidence of that rebound in the fiscal first quarter results. Boston Beer reported declining depletions (a measure of consumer sales), falling profitability, and a big slump in shipment volumes. Uncertainty around these trends convinced management to issue a wide outlook for the full 2022 year.
Declining sales trends
Boston Beer reported a 7% drop in depletions and a 25% decline in beer shipments. These figures might seem jarring considering the company grew depletions by 15% in 2021. Remember that sales a year ago were soaring due to high demand for its Truly hard seltzer.
Depletions are still up 38% compared to two years ago, before the pandemic injected more volatility into the business. And shipments are down mainly because distributors have shifted to a more inventory-light approach.
Overall, the results were in line with investors' expectations. "We met our internal targets for depletions, shipments, and financials," CEO Dave Burwick said in a press release, "[but] our first quarter performance suffers by comparison to our exceptional performance" a year ago.
Investors also had to look beyond the headline results to find the good news on Boston Beer's financials. Gross profit margin dove by six percentage points to 40% of sales, which helped push the company into an operating loss of $2 million, compared to a $77 million gain a year ago.
However, profitability improved significantly compared to the previous quarter, when gross margin was below 30% of sales. Boston Beer is also no longer taking huge write-down charges associated with excess Truly inventory. These trends imply rebounding earnings results over the next few quarters.
A wide outlook
Management said they expect margins to improve through the second half of 2022. And growth should return over the next three quarters, so that depletions are up roughly 10% in that period compared to last year (and 29% compared to pre-pandemic).
This outlook still translates into a wide potential performance for the business, with depletions in 2022 landing somewhere between 4% and 10% growth. That entire forecast range is below the 15% boost the company logged last year and far below the 40% spike it enjoyed during 2020, when the Truly hard seltzer brand was growing at a triple-digit rate.
Meanwhile, investors have to take management at its word that Boston Beer is about to enjoy rebounding sales and margin trends, given that these core metrics have been moving in the wrong direction for several quarters.
There should be more clarity about that recovery path when the company posts its next earnings report, which covers much of the key summer selling season. Investors hoping for a sharp growth rebound for the stock will likely have to wait until then for concrete evidence that Boston Beer is back on a positive track.