Business context and reporting period
Willamette Valley Vineyards, Inc. filed this Form 10-K for the fiscal year ended December 31, 2023. The Oregon-based company produces and sells premium wines through direct-to-consumer channels and third-party distributors. Its brands include Willamette Valley Vineyards, Domaine Willamette, Tualatin Estate, Griffin Creek, Pambrun, Maison Bleue and Elton.
Financial performance and liquidity
| Metric | 2023 | 2022 |
|---|---|---|
| Net sales | $39.14 million | $33.93 million |
| Gross profit / margin | $22.56 million / 57.6% | $18.81 million / 55.4% |
| Operating loss | $1.21 million | $0.55 million |
| Net loss | $1.20 million | $0.65 million |
| Loss per common share, after preferred dividends | $0.65 | $0.51 |
| EBITDA, non-GAAP | $2.33 million | $1.91 million |
| Cash and cash equivalents at year-end | $238,482 | $338,676 |
Net sales rose 15.3%; gross profit increased 19.9%. Direct sales accounted for 52.4% of net sales, up from 46.4%, and distributor sales accounted for 47.6%, down from 53.6%. Retail sales increased 31.0%; in-state distributor sales fell 5.0%, while out-of-state sales rose 6.1%. Wine case sales increased 2.3% to 191,619.
Operating expenses increased 22.7% to $23.76 million, outpacing gross profit growth. Management cited higher tasting-room costs and newer locations operating for more of the year; depreciation also rose, primarily with investments in new locations. Interest expense increased 61.6% to $594,106 as average loan balances increased. Preferred stock dividends were $2.05 million, contributing to the $3.25 million loss applicable to common shareholders.
Cash used in operating activities was $1.99 million, investing activities used $4.73 million, and financing activities provided $6.62 million. The company reported working capital of $18.4 million and a current ratio of 2.33 at year-end. Inventory rose to $28.31 million from $22.20 million.
At December 31, 2023, borrowings included a $2.68 million line of credit, $7.59 million of gross long-term debt and a $1.10 million installment note. The company also reported a $393,416 bank overdraft and $11.85 million of operating lease liabilities. The line of credit carried an 8.0% rate. The company was out of compliance with a credit-agreement covenant at year-end; the bank waived the violation through the next measurement date, December 31, 2024.
Material changes, outlook and risks
- Revenue growth was led by direct retail sales, while the company continued to incur operating and net losses. Management attributed the higher net loss to operating expenses exceeding the benefit of increased gross profit.
- Management said cash from operations, existing credit facilities and the preferred-stock program should meet foreseeable operating needs. The filing provides no quantified earnings or revenue guidance. Management expressed a view that the wine industry would stabilize around current levels in 2024.
- Grape supply remains a key exposure: 2023 yields on producing acres were roughly 14% below the 10-year average, and the company purchased 2,421 tons of grapes. Weather, wildfire smoke, disease and phylloxera could affect grape quality and availability.
- Other material risks include weaker premium-wine demand, competition and distributor performance, customer concentration, higher operating and financing costs, and the company’s reliance on external funding. One distributor represented 14.5% of 2023 revenue; one customer represented 27% of year-end receivables.
- Series A preferred stock has a cumulative 5.3% dividend and liquidation preference ahead of common stock. The company reported that it was current on preferred dividends; common-stock dividends are not anticipated in the foreseeable future.
- The company reported no material legal proceedings or material subsequent events. Management assessed disclosure controls and internal control over financial reporting as effective. The filing says the company has no formal cybersecurity risk-management program; no material cybersecurity threats were identified in 2023.
Most important facts for investors to verify
- Reconcile operating cash flow: the cash-flow statement reports $1,988,850 used, while MD&A states $1,998,850.
- Review the covenant waiver, the December 31, 2024 measurement, available borrowing capacity and refinancing or repayment needs, especially the $3.57 million of long-term principal scheduled for 2025.
- Assess whether direct-sales growth can improve profitability after tasting-room costs, depreciation and interest expense.
- Evaluate inventory growth, grape commitments and the effects of harvest conditions, disease and smoke on future supply and wine quality.
- Consider the preferred stock’s cumulative dividends and liquidation preference in assessing cash demands and common-stockholder returns.