Duckhorn Portfolio Inc. (NYSE: NAPA) posted its third quarter earnings today for the three months ending April 30, 2022. Since its successful IPO on March 18, 2021, with an initial stock price $15 per share, the portfolio of 10 luxury wine brands ranging from $25 to $200 per bottle, has performed admirably. Today’s financial results support this trend with net sales of $91.6 million, an increase of 1.3% versus the prior year period, and adjusted EBITDA was $32.9 million, an increase of 2.9% from the prior year. The share price closed today at $20.07.
Given the fact that Duckhorn Portfolio is now celebrating just over a full year of being a public company, Alex Ryan, President, Chief Executive Officer and Chairman for The Duckhorn Portfolio, and members of his executive team met for an interview last week in Napa Valley to discuss how the IPO journey has impacted them. As the only ‘pure luxury wine play’ on Wall Street, the Duckhorn Portfolio currently includes the winery brands of Duckhorn Vineyards, Decoy, Paraduxx, Goldeneye, Migration, Canvasback, Calera, Kosta Browne, Greenwing and Postmark.
“I am one of those unusual people that spent my whole life working at the same company,” states Ryan. “I took a part-time job in high school working for Dan Duckhorn in the early 1980’s. He paid me $4 an hour to clear football size boulders out of a vineyard he was creating on Howell Mountain. Then when I graduated from my degree in viticulture from California State University at Fresno in 1988, Dan hired me to work full-time. I was the fifth employee, and he gave me the title of Administrative Assistant. That basically meant that I did whatever he asked me to do.”
Ryan then worked his way up through a variety of positions in the company, beginning as vineyard manager, and then moving into winery operations. Over the years he helped Duckhorn winery to expand with the development of other wineries, such as Migration, Decoy and Canvasback. In 2005, he was named President, and in 2011, he became CEO of Duckhorn Portfolio.
“From the beginning,” reminisces Ryan, “Dan encouraged a spirit of entrepreneurship within the company. He used to say, ‘act like an owner’, and that means ‘picking up cigarette butts in the parking lot in the evening.’ So when the tasting room closed, the two of us used to do that. We also had coffee together and read the newspaper every morning. Dan used to joke about taking the company public someday.”
Benefits and Lessons Learned from the Duckhorn Portfolio IPO
Though Dan Duckhorn and other investors sold a controlling interest in The Duckhorn Portfolio to GI Partners in 2007, (which in 2016, sold its interest to TSG Consumer Partners) he and Ryan were very excited to participate in the IPO of the company in March of 2021. “It was one of the best days of our lives,” states Ryan. “We were there for the market opening and we rang the closing bell at the New York Stock Exchange.”
When discussing benefits and lessons learned from the IPO, Ryan quips that he had a crash course MBA in IPOs. “We spent about 5 years analyzing the pros and cons of an IPO, and in the end it made a lot of sense. The main benefit of going public is the ability to make long-term decisions so we can plan further out into the future. We can have the capital to replant vineyards, or make acquisitions and other investments if needed, which we believe builds long-term value for shareholders. For luxury wine you need a long-term viewpoint, and it’s important to remember that the wine industry is in a long-term business.”
Members of Ryan’s executive team agree with the benefits of the IPO, and also discuss changes in operations as a publicly traded company. “We now can make investments that we needed to,” reports Zach Rasmuson, Executive Vice President, Chief Operations Officer for The Duckhorn Portfolio, “and have since re-planted some vineyards and purchased more land in Paso Robles.”
At the same time, the company still focuses on achieving efficiencies across all ten brands. “Since the cost of the grapes is the most expensive component in a bottle of wine,” explains Rasmuson, “each winemaker has a budget to purchase grapes. We also share equipment and facilities when needed. For example, our Goldeneye Winery in Anderson Valley usually finishes harvest before our Napa wineries, so we may borrow some of their tanks for fermentation.”
Renee Ary, Vice President of Winemaking, Napa Valley Duckhorn Vineyards, states, “As one of eight winemakers, I still have the freedom to make decisions for the Duckhorn Vineyards brand from a winemaking perspective. What is different with the IPO is from the financial side I must provide the month-end reports faster and sooner. I used to have 12 days and now it’s gone down to 3 to 4 days. However, this is fine, and we are all getting used to it now.”
Gayle Bartscherer, Executive Vice President, Chief Marketing and DTC Officer for The Duckhorn Portfolio, has recently joined the company, and describes her role as “overseeing the integrity of the suite of luxury wine brands, and helping Alex ‘protect the soul of the brands.’” According to today’s earnings report, Duckhorn Portfolio has increased the percentage of wholesale distributors to 62% from 59% year to date. Also, last year, during the height of the Covid pandemic in 2021, Direct to Consumer (DTC) sales were up to 24.8%, but have fallen to 21.4% in 2022, as consumers return to purchasing more wine in restaurants – thus the need for more wholesale distribution. However, according to Ryan, “we did well during Covid.”
“In the end,” states Ryan, “for the IPO, I had to take off my winemaking hat and put on my marketing and finance hat – then switch back to winemaking again. If I’m not a winemaker first then I will fail the stockholders.”
The Ten Major Luxury Wine Brands in the Duckhorn Portfolio
Duckhorn Portfolio Culture Focuses on Employees, Sustainability and Entrepreneurial Spirit
Along with a focus on producing high quality luxury wines and meeting the needs of shareholders, Alex Ryan also firmly believes in the rights of employees and maintaining the entrepreneurial spirit started by Dan Duckhorn. “The social equity part of sustainability has always been very important to me,” states Ryan. “Of course, our wineries and production facilities have earned a number of certifications, including Goldeneye being recognized for Certified California Sustainable Winegrowing, and our Calera Estate is organic – but we focus on employees, paying them enough to live well, and trying to keep them motivated.”
Perhaps it is because Ryan spent so much time working in the vineyards that he is very concerned about vineyard workers. “Do you know that 25 vineyard workers are put out of work for every mechanical harvester, which only requires 4 people to operate? Though we do use mechanical harvesters for some of our vineyards, it is important to pay attention to employees and their needs. I believe employees are the soul of the wine.”
Another positive aspect of the IPO, according to Ryan, is the ability to allow employees to purchase company stock at a 15% discount, as part of their new ESOP program.
The strong value of entrepreneurship within the company is evident in the new brand development and acquisitions the company has undertaken over the past decade. After spearheading the two successful acquisitions of luxury wine brands, Kosta-Browne and Calera, Ryan has very strong beliefs about how to integrate new wineries into the portfolio.
“With luxury wine acquisitions, we need to be patient,” says Ryan. “The magic of a luxury wine brand can’t be drawn on paper – the soul of a company are the employees. When we purchase a company we try to keep the founders involved and engaged with the brand. This is important because when we’re out in the market and talking with our distribution partners, they want to know that the original owner is still involved to some extent. When we purchase a new brand we focus on respect and patience.”
Ryan concludes with, “My main job is to protect our employees, their brands, and our shareholders.”
Sunset Over Duckhorn Vineyards in Napa Valley, CA