Jack Daniel’s whiskey maker Brown-Forman reported $1 billion in net sales growth for the fourth quarter due to strong consumer demand, a steady uptick in prices and relief from inventory-management pressures. The company, however, faces some margin pressure as it navigates inflation, rising materials costs and ongoing supply chain constraints, CFO Leanne Cunningham said Wednesday during a call with analysts.
“Favorable price mix driven by our pricing strategy and the removal of the European Union and United Kingdom tariffs on American whiskey were more than offset by higher inflation on input costs and supply chain disruption costs largely related to global logistics constraints, along with the negative effect of foreign exchange,” she said.
The Louisville, Kentucky-based company reported $207 million in net income for the fourth quarter, which ended April 30, up 36% year over year, although gross margin fell to 60.8% from 62.8% a year ago.
The company expects organic net sales for fiscal 2024 to grow between 5% and 7%, owing to the easing of economic and political pressures, Cunningham said.
“We are optimistic as we look ahead. We have now cycled through the largest impacts of the pandemic and after the global macroeconomic and geopolitical volatility experienced in fiscal 2023 [which ended on April 30], we believe trends are beginning to normalize around the world,” she said.
Brown-Forman’s portfolio of brands include Jack Daniel’s whiskey, Old Forester bourbon, el Jimador tequila, Fords Gin and Korbel sparkling wine. Its products are sold in more than 170 countries.
Amid a positive outlook — in line with J.P. Morgan’s assessment that the spirits category dynamics are normalizing, according to an analyst note — the company continues to tread cautiously due to shifting economic conditions and the potential impact of inflation on consumer spending, Cunningham said.
The return of pre-pandemic consumer habits — including the return of international air travel and cruises — drove 43% growth in organic net sales in the travel retail channel for fiscal year 2023, said Cunningham. Brown-Forman also benefited from consumers’ shift toward premiumization, or consumers’ willingness to spend more on products they value.
“The consumer premiumization trend drove demand for our super premium products such as Gentleman Jack, which also benefited from improved product availability as supply chain disruption eased,” said company CEO and President Lawson Whiting.
In an inflationary period, companies want to make upscale versions of their products to reach wealthy and middle-class consumers, according to Z. John Zhang, a marketing professor at the University of Pennsylvania’s Wharton School of Business.
Linked to premiumization is the company’s strategy to offset growing operating costs by gradually increasing product prices over time, an approach currently being employed across a range of consumer brands. The company, for the past couple of years, increased prices 2% to 3% annually, said Whiting.
“We feel comfortable that the best long-term plan is to keep [raising prices in the] low-single digit range, but trying to do it every single year without shocking consumers,” he said.
Looking to the upcoming year, the rising costs of commodities — including agave and grain — and materials — such as glass for bottling and wood used in whiskey barrels — will continue to be risks.
“We all continue to watch the change in the external agave price… as we see the additional number of plantings that are coming in the out years, we believe that supply and demand will come back closer into line than what they have been,” Cunningham said.
