Napa Valley wine group Duckhorn warns of market ‘softness’ as it closes Sonoma-Cutrer purchase, hires CEO

The Duckhorn Portfolio, maker of wine brands that also include Decoy and Kosta Browne, on Wednesday warned that its latest quarterly sales could miss expectations because of “consumer demand softness” for wine purchases.

That assessment of its fiscal third quarter, ended Tuesday, came the publicly traded Napa Valley wine group also said it closed the previously announced $300 million acquisition of Sonoma-Cutrer Vineyards and hired as president and CEO Deirdre Mahlan, who has been in that role on an interim basis for the past six months.

The price of Duckhorn’s stock (NYSE: NAPA) was taking a beating on the news Wednesday. With two hours left in the session, the price hit a low of $7.50 a share, down over 11% and nearly $1 from Tuesday. The closing price was $7.70, down 9% or 77 cents.

Duckhorn’s preliminary estimate for third-quarter net sales was $91 million–$93 million.

“These results reflect continuing softness in the wine market and a lower-than-expected response rate to the Company’s Kosta Browne appellation series offering,” the news release said.

That quarterly estimate would be barely changed from the $91.3 million in net sales reported for the same quarter a year ago.

Duckhorn has lowered its forecast for net sales twice this fiscal year, which ends in July, from $420 million–$427 million in the first quarter to $395 million–$411 million in the second quarter. The company plans to release third-quarter results June 6 and provide updated full-year guidance at that time.

But in noting the closing of the $400 million transaction to buy Sonoma-Cutrer from Brown Forman Corp., first announced last October, Duckhorn said the chardonnay-focused brand would contribute more than the $5 million-a-year boost in the company’s run rate than previously estimated and could drive overall net sales growth.

In the deal, Brown Forman gets $50 million in cash, a 21.5% stake in Duckhorn stock, originally valued at $350 million, and two seats on its board.

“My key priorities in the immediate term will be ensuring the successful integration of Sonoma-Cutrer and advancing our route-to-consumer action plan, among other priorities,” Mahlan said in the news release. “As I work with The Duckhorn Portfolio team to lead the Company’s next chapter, we will be focused on driving consistent, profitable growth and creating meaningful value for all our stakeholders.”

Duckhorn described that route-to-consumer action plan as dynamically changing the distribution channels it uses bring each brand to market based on results.

Jeff Quackenbush covers wine, construction and real estate. Reach him at jquackenbush@busjrnl.com or 707-521-4256.