With Inventory Rightsized Heading Into the Summer Season, Boston Beer Positioned for Improvement

We don’t plan any material change to our $750 fair value estimate for narrow-moat Boston Beer after digesting first-quarter results that included an EPS loss of $0.16 and continue to view shares as attractive. Shipment volumes fell 25% to 1.7 million barrels, lapping more than 60% growth in the same period last year. We note, however, that volumes are still nearly 20% higher than first-quarter 2020 levels, despite inventory rationalization at retail. More importantly, we believe distributor inventories are clean heading into the summer season, at five weeks on hand (versus seven weeks last year), as the network cautiously rebuilds carry into the period. With net revenue declining 21% (but still up 30% over first-quarter 2020) and rampant supply chain and input cost inflation, Boston Beer’s gross margin was crushed, down 560 basis points to 40.2%. We don’t expect either of these issues to ameliorate imminently, which places our 2022 gross margin projection (47%) at risk.