Crimson Wine Group, Ltd. CWGL faced challenges in second-quarter 2024, as reflected in its latest earnings results. The company reported a year-over-year dip in earnings per share largely due to a combination of declining sales and rising operating expenses. Both of CWGL's primary segments experienced sales declines, underscoring the difficulties in maintaining growth in a competitive environment. Despite some improvements in the gross margin, higher costs weighed on the bottom line, signaling headwinds for the remainder of the year.
Q2 Results
Crimson Wine Group reported second-quarter 2024 earnings per share of 1 cent, down from 3 cents in the prior-year quarter.
Total quarterly sales were $17.2 million in the reported quarter, a 3% decrease from $17.7 million in the prior-year quarter.
A combination of lower sales and higher operating expenses drove weak quarterly earnings. Reduced sales in the company’s reportable segments also affected the quarterly performance.
Performances by Segments
Crimson Wine Group operates through two reportable segments — Wholesale and Direct to Consumer (DTC) segments.
Wholesale segment: The segment’s results were mixed, with net sales declining 5% year over year to $9.4 million from $9.9 million in the prior-year quarter due to lower domestic sales. Gross profit increased 7% year over year to $4 million. The improvement in the gross margin from 38% to 42% was attributed to a favorable sales mix of higher-priced wines and lower-cost vintages.
DTC segment: DTC sales fell 4% year over year to $6.7 million from $6.9 million in the prior-year quarter, primarily because of a reduction in wine club memberships. This segment saw a 10% year-over-year decline in gross profit to $4.2 million, driven by lower sales volumes and a shift toward lower-margin sales channels. The DTC gross margin decreased from 68% to 63% in the reported quarter.
Key Business Metrics
The company’s gross profit rose 2% to $8.8 million from $8.6 million in the prior-year quarter, supported by improved margins in the Wholesale segment and fewer inventory write-downs. The overall gross margin improved to 51% from 49% in the previous year, reflecting a better sales mix and cost management.
For the three months ended Jun 30, 2024, the company reported an operating loss of $46,000 against an income of $0.53 million in second-quarter 2023. This represents a decrease of approximately 91%. The decline in operating income was primarily led by higher operating expenses, which rose 7% year over year.
The net income for second-quarter 2024 was $0.13 million, a significant drop from $0.55 million in the prior year, reflecting the impacts of higher operating costs despite the modest increase in gross profit.
Expenses
For the three months ended Jun 30, 2024, the cost of sales was $8.5 million, down from $9.1 million in second-quarter 2023, a decrease of approximately 7%. This reduction contributed to the slight improvement in the company's gross margin for the quarter.
Operating expenses increased 7% year over year to $8.7 million, with sales and marketing expenses rising 9% due to higher compensation and sales incentives. General and administrative expenses grew 5% due to higher depreciation expenses related to ongoing capital investments.
Interest expenses were stable, while other income decreased slightly, reflecting lower returns from non-operating activities.
Cash & Debt
As of Jun 30, 2024, Crimson Wine Group held cash and cash equivalents totaling $16.9 million, down from $22.8 million at the end of December 2023. This decrease in cash was primarily due to the company's share repurchase program and capital expenditure in the quarter.
The company reported a long-term debt of $16 million, slightly down from $16.5 million at the end of 2023. The debt reduction was due to scheduled principal payments on its term loans. Crimson Wine Group's debt comprises two senior secured term loans with fixed interest rates of 5.24% and 5.39%, maturing in 2040 and 2037, respectively. Despite the decrease in cash, the company continues to maintain a solid financial position with a manageable debt load.
Other Developments
The company continued its share repurchase program, buying back 241,533 shares in the first half of 2024 for $1.4 million, reflecting management’s commitment to returning capital to shareholders. Additionally, the company received a supplemental payment of $0.2 million from the Fire Victim Trust related to the 2017 wildfires, with further payouts anticipated, though the timing and amounts are uncertain.
Crimson Wine Group's second-quarter 2024 results show resilience in certain areas but also highlight ongoing challenges, particularly in the DTC segment. Overall, while the company maintained a stable gross margin and cash flow, the challenges in growing sales and managing operating expenses led to a cautious outlook for the remainder of 2024.
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