Boston Beer Explains The Impact Of COVID 19 On Its Operations, Sales In First Quarter Report

The direct impact of the pandemic has primarily shown in significantly reduced keg demand from the on-premise channel and higher labor and safety,,,

Date: May 29, 2020

While the country’s craft beer industry is in disarray because of shutdowns, I was curious how a behemoth like Boston Beer would be weathering the storm, given the growth in off-premise and delivery beer sales. According to its first quarter earnings call, Boston Beer began seeing the impact of the COVID-19 pandemic on its business in early March, as you’d expect. Prior to then, the company was on track to maintain its financial guidance for full-year fiscal 2020 — depletions through Feb. 29, 2020 increased approximately 32 percent year over year, in fact (26 percent if you exclude Dogfish Head’s impact).

The direct impact of the pandemic has primarily shown in significantly reduced keg demand from the on-premise channel and higher labor and safety related costs at the company’s breweries.

In the first quarter of 2020, the company has recorded COVID-19 pre-tax related reductions in net revenue and increases in other costs that total $10.0 million. This amount consists of a $5.8 million reduction in net revenue for estimated keg returns from distributors and retailers and $4.2 million of other COVID-19 related direct costs, of which $3.6 million are recorded in cost of goods sold and $0.6 million are recorded in operating expenses.

Samuel Adams and Angry Orchard’s volumes continue to decline, as they are more deeply impacted by the on-premise shutdown.

Net revenue hit $330.6 million, an increase of $78.9 million or 31.4% from the same period last year, mainly due to an increase in shipments of 32.2%. First quarter gross margin of 44.8% was 4.7 percentage points below the 2019 first quarter margin of 49.5%. Excluding the Company’s current assessment of the impact of estimated COVID-19 returns and other related direct costs, first quarter gross margin was 46.8%.

In addition to these direct financial impacts, COVID-19 related safety measures resulted in a reduction of internal capacity. This has shifted more volume to third-party breweries, which increased production costs and negatively impacted gross margins. The Company will continue to assess and manage this situation and will provide further updates in its second quarter earnings release, to the extent that the effects of the COVID-19 pandemic are then known more clearly.

Given the many rapidly changing variables related to the pandemic, the company is currently not in a position to accurately forecast the future impacts of the pandemic and is withdrawing its full-year fiscal 2020 financial guidance.

“As the world is grappling with the COVID-19 pandemic, our primary focus is on operating our breweries and our business safely and supporting our partners in the beer industry,” stated Jim Koch, chairman and founder of the company. “We have a strong cash position and balance sheet and feel very fortunate to be in a position where we can help. Supporting the communities in which we work and live is one of our core values. Our business got its start in bars and restaurants and we recognize the role we can play right now in giving back. We’re proud to share some of the initiatives we’ve gotten off the ground in a short period of time that we hope will help make a difference.”

Those initiatives include the Samuel Adams Restaurant Strong Fund and donating over $2.1 million to support bar and restaurant workers that have been impacted by pandemic-related closures in 20 states. In addition, Boston Beer is a founding partner of Restaurant Relief America, which is committed to helping restaurant industry workers experiencing hardship in the wake of COVID-19. Both funds will distribute 100% of the proceeds through grants to bar and restaurant workers. They have also begun production of hand sanitizer at the Dogfish Head distillery in Milton, Delaware.

“We are thankful to our outstanding coworkers, distributors and retailers for their focus during COVID-19 and diligence to continue to operate and help grow our business,” Koch continued. “Our business in the first quarter was strong but there remains significant uncertainty due to COVID-19. These uncertainties include our continued ability to operate our breweries at a level of safety that meets our standards, the continued ability to distribute to the off-premise retail locations, the duration of the current on-premise shutdown, and how long consumer pantry loading will continue in the weeks ahead. We will continue to work hard throughout the COVID-19 pandemic and prioritize safety above all else. I am very proud of the passion, creativity and commitment to community that our company has demonstrated during this pandemic.”

Changes to operations?

Protocols they have implemented at their breweries include entrance screening and temperature checks, face mask requirements, reorganizing work to increase social distancing between and among shifts, and adding cleaning time to each shift.“Additionally, we closed all of our hospitality locations beginning on March 13, 2020,” noted Dave Burwick, president and CEO. “We are working hard to rebalance our supply chain to address additional demand in can and bottle packages at off-premise retailers against very low demand for kegs given the shutdown of on-premise venues. This shift in volume mix is likely to come at a higher incremental cost due to the increased usage of third-party breweries, which negatively impacts our gross margin.”

In the time prior to the world changing, depletions growth in the first quarter was due to Truly Hard Seltzer and Twisted Tea brands in addition to the Dogfish Head brands. The company says the Truly brand continues to grow beyond its expectations. There is a new Truly advertising campaign on the way that is now postponed due to the uncertainties surrounding COVID-19.

Information Source & Credits: CHRIS CROWELL -

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