Winc, Inc. (NYSE American: WBEV) was already in hyper-growth mode after reporting more than $18 million in Q3 revenues. But, now, they may have shifted into an even higher gear after announcing the growth and expansion of its organic wines into major national retailers, including Walmart, Whole Foods, Albertsons, HEB, Central Market, and HyVee.
The increases, by the way, aren't coincidental. They come in response to unprecedented demand from consumers for WBEV's growing arsenal of wine brands, and as noted, shift the company into another gear of growth- warp speed. Keep in mind, too, that shift adds to WBEV already recognized as one of the fastest-growing at-scale wineries in the United States, particularly targeting the North American organic wine market expected to reach $3.9 billion in size by 2027.
Thus, while WBEV was already attractive from a valuation perspective, news of massive wholesale expansion made the disconnect between share price and performance too big to ignore.
DTC Growth With A Tailwind
The better news is that the WBEV value proposition extends to the long-term, with industry reports suggesting that the organics market is growing at a CAGR of 11.6%, directly reflecting consumers' preferences shifting toward healthier, naturally-produced chemical-free products.
And WBEV is on point, doing more than meeting that demand; it's targeting the market wanting it the most- millennials. In fact, a Wine Intelligence Report published in March indicated that organic wine was the highest opportunity type of wine among younger consumers. And with WBEV's direct-to-consumer ("DTC") customer base comprised 76% millennials, they are indeed doing business in the right markets at the right time.
That focus is expected to drive growth in the current and coming quarters. Brian Smith, President and Co-Founder of WBEV, set that point, saying, "We are committed to our customers' feedback and adapting our products to meet their evolving needs...and Throughout 2021 we have prioritized building out our organic offerings through several new initiatives and partnerships making Winc a market leader within the organic wine industry in the United States. As younger consumers seek more sustainable options in all categories, Winc is positioned as a key supplier in this rapidly growing market."
They are proving that to be the case. Winc's organic offerings grew from 18 to 48 during 2021, bolstered by its acquisition of assets from Natural Merchants, one of North America's leading importers of natural, organic, and biodynamic wines. The deal helped generate an increase of organic wines in its DTC channel by 19.8% year-over-year through December 8, 2021. That spike far outpaced non-organic SKUs, with WBEV saying nearly two-thirds of its SKUs sold in Q3 2021 were organic.
Leveraging its omnichannel business model could accelerate that growth.
Video Link: https://www.youtube.com/embed/orp34xBH19g
Omnichannel Strategy Develops Wholesale Channels
In fact, that's already happening. Winc recently posted significant growth in organic wine sales in its wholesale channel, exampled by organic wines banking 81% of all Winc unit sales at Whole Foods in November 2021, up from 58% in Q3 2021. Leaders in that drive include its top organic portfolio brands, including Cherries & Rainbows, Pizzolato, Biokult, and Les Hauts de Lagarde. Still, while the 23% increase is impressive, WBEV has no intention of slowing down.
Guidance heading into 2022 has WBEV accelerating its mission to drive growth in its organic portfolio across DTC and wholesale channels. Further, by scaling supplier relationships and enhancing its brand portfolio with its organic Prosecco, an orange wine, and non-alcoholic wine, increases across its sales channel may come faster than expected.
Keep in mind, what's expected in 2022 adds to an impressive and recently reported Q3. From that filing, investors have plenty of justification to take advantage of prices that appear to appreciably undervalue their assets, sales, and guidance.
Revenues Jump To $18.5 Million
First, total net revenues in the quarter jumped $18.5 million, an increase of about 3.4%. The results were at the high end of its pre-IPO guidance and came during one of the most challenging periods in recent U.S. Commerce. Moreover, WBEV was faced with matching an unprecedented quarter where most retailers were forced to turn to DTC channels due to COVID-related restrictions. Thus, that 3.4% comparative increase is compared to a quarter impacted positively by the surge in DTC sales. So, indeed, topping those results is impressive.
Also impressive is that WBEV's wholesale revenues soared by 106.9% to $5.5 million, a continuation of strength started in 2020. In fact, since the start of 2021, Winc's wholesale channel has experienced a surge in interest, with comparative Q3 revenues higher by 96.4% in the first nine months of 2021 compared to last year's same period. On a two-year stack basis, the results are even better, posting an increase in sales of 200%.
Although those numbers are now a historical reference, the excellent news is that guidance calls for more of the same.
Retail Channel Relationships Eclipse 11,476; Summer Water Rocks
That bullish sentiment is in response to a surge in new retailer relationships resulting in an accelerating expansion of the number of locations where customers can find its products. Those new relationships, by the way, combine with improving performance at their existing retail partnerships. Thus, that sales channel is doing more than performing at a high level; it's getting stronger. And, as noted, recent placements in several of the highest volume retailers in the country, including Walmart, Albertsons, HyVee, Target, and Trader Joe's, could lead to exponential revenue increases from its wholesale channel.
Keep in mind, too, those five retailers are just several of many. Winc noted having an active retail account base of 11,476. While impressive, Winc calls it a starting point, with investment in those relationships expected to become a conduit to reaching its goal of 50,000 active retail accounts within the next few years. Notably, scoring that 11,476 level was a 53% spike compared to Q2 2020. Of course, having the right products meeting demand matters. Winc does.
Proof of that is evident. Winc's five core brands grew to a total of 44,797 cases, a 34% increase over the comparative period. Better still, sales performance by new brands Pizzalto, Les Hauts De Lagarde, and Cherries and Rainbows could expand Winc's core brand representation from five to eight as early as the end of this year. The presumption there, increased brands, increased sales.
Adding three is a big deal. And because Winc can add brands at scale, they can be accretive to the bottom line sooner than later. They can also add to the revenue-generating strength of its top performers, including its flagship Summer Water brand, which continues to score strong overall sales and retail placement growth.
In addition to that placement growth, Winc noted that of all rosé wines reported in the Nielsen Wine Report, its Summer Water brand has the 4th highest sales growth rate and second smallest all-commodity volume. That suggests that the brand is under-penetrated and could accelerate growth through door expansion, especially considering its highly competitive growth rate at existing placements.
The takeaway from the above- WBEV is doing the right things in the right markets at the right time.
2021 Was Great, 2022 Set To Be Better
And WBEV guidance suggests things will get even better. In addition to Winc's average order volume being higher by about 15% compared to 2020, Winc is heading into 2022 with a revenue-generating tailwind. Not only that, after completing its $22 million IPO last month, its balance sheet is strong, with more than $18 million in cash and less than $7 million in total debt. Attractive, too, Winc's capital structure is investor-friendly, with only 13,159,170 shares of common stock outstanding and 14,125,942 shares outstanding on a fully diluted basis. Thus, on good news, WBEV stock may have little resistance to the upside.
The best part of the guidance- Winc is positioned for growth despite logistical headwinds. They said they have secured the glass for bottling, had a great harvest, and have adequate labor to meet rising demand. Hence, while 2021 was a great year, 2022 is set up to be an even better one. Seizing value at current prices may simply be an opportunity too good to ignore.
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