Weak Q4 Profit and Depressing 2023 Outlook Disappoint Boston Beer Investors

We plan to lower narrow-moat Boston Beer’s $670 fair value estimate by a high-single-digit rate after digesting fourth-quarter results and a 2023 outlook that implies little near-term improvement. While the top line was solid, with shipments up 17% (extra week helped by nearly 600 basis points) and depletions up 3%, leading to total sales growth of 29%, profitability remains depressed. The gross margin of 37% was up from 29% in the year-ago period, but remains well below prepandemic marks near 50%, hindered by mix and supply chain inefficiencies. With respect to mix in depletions, Twisted Tea and Hard Mountain Dew fared well in the period, but key brands like Truly, Angry Orchard, Sam Adams and Dogfish Head declined, implying shortfalls in takeaway have yet to bottom. With depletions through Feb. 11 down 4%, poor retail demand persists.