管理層發言
Greetings, and welcome to the Boston Beer Company's Second Quarter 2026 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance, please press 0 on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Mike Andrews, Associate General Counsel and Corporate Secretary. Please go ahead.
Thank you. Good afternoon, and welcome. This is Mike Andrews, Associate General Counsel and Corporate Secretary of the Boston Beer Company. I am pleased to kick off our 2026 second quarter earnings call. During the call from Boston Beer are C. James Koch, Founder, CEO and Chairman; and Diego Reynoso, our CFO. Before we discuss our business, I will start with our disclaimer. As we state in our earnings release, some of the information we discuss and that may come up on this call reflects the company's or management's expectations or predictions of the future. Such predictions are forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in these forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained in the company's most recent 10-Q and 10-Ks. The company does not undertake to publicly update forward-looking statements whether as a result of new information, future events or otherwise. I will now pass over to Jim for introductory comments.
Thanks, Mike. I will begin my remarks this afternoon with an overview of our strategy and operating results before turning the call over to Diego to discuss our second quarter financial results and financial outlook for the remainder of 2026. Immediately following Diego's comments, we will open the line for questions. In the first half, the overall beer market improved modestly, although demand was uneven throughout the period. The category was nearly flat in the first quarter before softening in the second quarter with May proving particularly challenging. Trends improved in June as consumer demand benefited from increased drinking occasions around the World Cup and America's 250th anniversary celebrations. We estimate the combined total beer and beyond beer market was down 2% in volume in the first half compared to a decline of 4% for the full year of 2025. Beyond Beer continues to outperform traditional beer in volume in measured off-premise channels, decreasing 1% for the first half compared to traditional beer, which declined 4%. We anticipate industry volume headwinds for the remainder of 2026 as consumers remain under pressure from the cumulative effects of inflation and a significant increase in gas prices. With respect to Boston Beer portfolio volume trends, our performance continues to lag the pace of improvement in the broader category. In the second quarter, we delivered triple-digit depletion growth in SunCruiser, continued growth in Angry Orchard, and strong on-premise results across the portfolio as major events helped drive incremental drinking occasions. However, Twisted Tea and Truly continue to face declines and market share challenges. Our second quarter depletions were down 6% and shipments were down 4.5%. First half shipments, down 5.6%, modestly trailed depletions, down 5%. For the full year, we expect shipments and depletion trends to be broadly aligned. Improvements in our supply chain that we activated in the second half of last year have enabled us to reduce wholesaler inventory levels consistently to approximately 4 to 4.5 weeks while reducing quarter-to-quarter variability. These improvements will affect the timing of shipments compared to the prior year across the third and fourth quarters. Diego will provide additional detail on the shipment timing dynamics in his remarks. We continue to make strong progress on our margin enhancement initiatives, delivering 50.4% second quarter gross margin despite higher aluminum, energy, and tariff costs. And we are on track to achieve our planned full year 2026 savings. The business is generating strong cash flow and we have repurchased over $55 million in shares year to date. Our priorities for 2026 remain focused on strengthening our category-leading brands to improve market share trends, launching strong innovation, and driving continued gross margin expansion. With a significant number of key summer selling season weeks still ahead, we are focused on executing our plans with urgency to improve our share performance. We have maintained our earnings guidance while navigating a dynamic demand environment and cost inflation headwinds. Based on our evaluation of the category environment, and the return on our brand investments year to date, we have decided to reduce our planned incremental advertising investment range by $20 million by eliminating some lower-performing advertising. Even with this adjustment, we continue to invest in our brands at levels well above historical averages, reflecting the meaningful step up in support we made last year while continuing to take a disciplined approach to additional investment. We remain focused on delivering our marketing plans through strong partnerships, compelling programming, and effective local market activation in partnership with our wholesalers. At retail, we have slightly gained shelf space this year, but lost display space. I will now provide an overview of our brand performance and plans. As I mentioned on our last call, a key priority for 2026 is to improve share trends and grow volume in the hard tea category through progress in Twisted Tea and the continued expansion of SunCruiser. On a combined basis, Twisted Tea and SunCruiser volume is very slightly positive, and revenue is growing. Year to date through 29 weeks SunCruiser is revenue- and margin-accretive for us. The brand continues to expand distribution and recruit new drinkers. Twisted Tea continues to dominate the malt-based hard tea market with an over 85% share and no single competitor having more than a 5% share. However, Twisted Tea is facing volume and share pressures with lower velocities reflecting broader FMB category headwinds, reduced feature and display activity, primarily due to the expansion of ready-to-drink spirits and interaction with spirits-based hard teas. The largest volume headwind continues to be concentrated in 12-packs, which have been impacted by reduced displays in the FMB category, together with consumer purchase behavior away from larger pack sizes. Across the Twisted Tea portfolio, Twisted Tea singles, Twisted Tea Light, and Twisted Tea Extreme all grew share in the FMB category. So far this year, we have increased advertising investment, added new partnerships, launched new pack sizes, and expanded Twisted Tea Extreme offerings and distribution. We are also taking a disciplined test-and-learn approach to revenue management on the brand, including targeting pricing adjustments and smaller pack size offerings. These initiatives are still in the early stages, and we will continue to assess their impact as we gather additional data. Recent promotional activity included sponsorships of "Pardon My Take," Tahoe Week—"Pardon My Take" is Barstool's number one sports podcast—and Twisted Tea was front and center across all content during Tahoe Week, including customer merchandise and advertising. Late in the second quarter, we launched a Hispanic summer retail program across key markets that includes Spanish language sweepstakes and point-of-sale, complementing our summer media campaign and focused on growing household penetration, awareness, and relevance with Hispanic drinkers. Later this quarter, we will be running our high-performing, college football-themed ads complemented by our game day variety packs, college football team-specific packaging, in-store display programs, and always-on media for Twisted Tea Extreme and Twisted Tea Lite. Also beginning this fall, we are expanding our partnership with Realtree Camo, and we will be launching Twisted Tea Realtree camo-themed national packaging and promotion. SunCruiser has quickly grown to a top 5 spirits RTD and is among the fastest-growing brands by volume in the category across combined measured on- and off-premise channels. Built in bars and restaurants, SunCruiser is the leading RTD spirits tea and lemonade brand in the measured on-premise channel where we are continuing to invest. The brand is also seeing strong growth as it further expands in off-premise with the highest growth in velocity in comparison to leading RTD spirits, tea, and lemonade brands. We expect strong distribution gains for SunCruiser in 2026, but continue to expect measured channel off-premise data coverage to be lower versus our other brands, due to SunCruiser's strong presence in on-premise and off-premise independents. Advertising support for SunCruiser includes content around the "Let the Good Times Cruise" media campaign, which includes TV, paid social, and digital advertising, and key influencers and creators. Our key influencer content includes our summer-long partnership with creator, TV personality, and outdoor enthusiast Dylan Efren, with events and promotions built around the simple idea of getting outside with friends and drinking SunCruiser. SunCruiser continues to have a growing media presence in sports this summer, including the PGA, the MLB, the world champion New York Knicks, and sponsorship of numerous music concert series. Our multiyear partnership with the USGA made SunCruiser the official ready-to-drink cocktail of two of golf's most notable championships, the U.S. Open and the U.S. Women's Open. We continue to see strong velocity and distribution opportunities for SunCruiser, and we are committed to keeping a disciplined level of tea and lemonade styles as we continue to grow our volume. We expect the brand will continue to grow for the remainder of 2026 with further runway for long-term expansion. Turning to hard seltzer: Truly has maintained its number two share position in the hard seltzer category. However, volume and share trends remain challenged. Within the Truly portfolio, high ABV Truly Unruly and the Wildberry flavor continue to significantly outperform our other styles. The investments we made in new brand creative and soccer-related promotions have improved our marketplace presence, particularly in display activity. However, the impact on consumer demand has not yet met our expectations. We are adjusting the level and timing of our investments in Truly as we reassess the most effective approach to accelerating brand performance. We maintain our focus on strengthening the brand and we will continue to refine our marketplace approach while taking a disciplined approach to investment. Angry Orchard grew for the fifth consecutive quarter behind our lead styles Angry Orchard Crisp and Crisp Imperial. Crisp Imperial volume has increased more than 60% in the second quarter in measured off-premise channels. Angry Orchard growth is supported by its brand positioning around "Don't get angry, get orchard," our refreshed creative, and strong retail programming. Angry Orchard will continue to focus on building momentum behind its successful Halloween programming and its recently announced partnership with the iconic Scream horror movie series. For our Samuel Adams brand, to support and help celebrate America's 250th anniversary, we launched limited edition retro packaging and "Drink Like It Is 1778" retail programming and promotions. In our home market of Boston, we had record sales at our tap rooms this summer as soccer fans from Scotland and all over the world celebrated and discovered Samuel Adams Boston Lager and our Samuel Adams Summer Ale. For our Dogfish Head brand, in the second quarter, we slightly lost share and had our first quarter of decline after four consecutive quarters of growth. We continue to expand Dogfish Head's Grateful Dead Beer collaboration and invest behind the Minute Series IPAs, while bolstering our connection to music by introducing a new partnership with Rolling Stone magazine that was activated earlier this quarter and includes event activation and co-branded packaging for 2027. Turning to innovation, we continue to prioritize high-growth, margin-accretive opportunities that complement our core brand portfolio. Sinless Vodka Cocktails have launched in over 30 states and is a full-flavored liquor-based cocktail with zero sugar, zero carbs, and 100 calories per can. Also, we have launched a new RTD cocktail brand named Lit Electric Coolers in over 5 states. Lit is 15% ABV, malt-based, and offered in six flavors in a distinctive resealable 6.8-ounce single-serve package. Both Sinless Vodka Cocktails and Lit are in the early stages of launch. Thus far, we are encouraged by the positive response from wholesalers, retailers, and drinkers, but Sinless and Lit are not expected to contribute meaningfully to our 2026 volumes. In closing, while the operating environment remains challenging, we are seeing some signs of improvement in the category, and remain focused on building momentum through the balance of the year. We are managing the business with discipline, investing behind our category-leading brands, advancing our innovation agenda, and working closely with our distributor partners to drive long-term value creation. I would like to thank our Boston Beer Company team and our distributors and retailers for their continued support. I will now pass the call to Diego for a detailed review of the second quarter and our 2026 guidance.
Thank you, Jim. Good afternoon, everyone. Depletions in the second quarter decreased 6% and shipments decreased 4.5% compared to the second quarter of last year, primarily driven by decreases in our Twisted Tea, Truly, Samuel Adams, Hard Mountain Dew, and Dogfish Head brands that were only partially offset by increases in our SunCruiser and Angry Orchard brands. As Jim noted earlier, at down 5.6%, shipments declined at a slightly higher rate than depletions in the first half. Distributor inventories at the end of the quarter were 4.5 weeks on hand and were consistent with the weeks on hand at the end of the second quarter of last year. Revenue for the quarter decreased 3.3% due to lower volume, partially offset by price increases and favorable product mix. Pricing was below our full year guidance range in the second quarter as list price realization was moderated by the timing of distributor incentives related to the World Cup programming. Positive product mix was driven by strong growth in SunCruiser. Our second quarter gross margin of 50.4% increased 60 basis points year over year. Gross margin performance primarily benefited from our brewery efficiencies, favorable product mix, procurement savings, and price increases, partially offset by inflationary commodity and tariff costs. Advertising, promotional, and selling expenses increased $26.2 million, or 16.4% year on year, resulting from increased local brand marketing and point-of-sale investments of $17.5 million, and a slightly higher-than-planned freight cost increase of $8.6 million with higher rates partially offset by lower volumes. General and administrative expenses were up $3.1 million primarily due to increased legal fees and salaries and benefit costs. These increases include $1.4 million of legal fees related to the previously discussed supplier dispute litigation. Operating profit reflected strong gross margin performance, offset by significant advertising investment and freight rate inflation, which increased more than 35% year over year. The supplier dispute litigation expense adjustment of $19.3 million consists of a favorable adjustment to prejudgment interest of $21 million and a post-judgment interest expense of $1.7 million. Year to date, pretax litigation expenses plus related fees total $198.1 million. As previously announced, we continue to intend to pursue all post-trial motions and appellate remedies that are available to us in the supplier dispute litigation. We cannot estimate when or if damages or interest will ultimately be paid, but do not expect this issue to have a material impact on our operating plans. The impact of these litigation expenses and related legal fees represent a $1.31 favorable impact to our second quarter GAAP EPS and a $14.27 unfavorable impact to our year-to-date GAAP EPS. Excluding the litigation-related expenses, second quarter non-GAAP EPS was $3.65. Now I would like to provide an update on our ongoing productivity initiative. We continue to make progress and are on track to deliver our 2026 savings target across the four buckets that I have discussed previously. I will now provide some highlights on our initiatives in each bucket. In brewery performance, we continue to see improvements in OEEs driven by process improvement, which helped to increase our internal production capacity. In the second quarter, we produced 84% of our domestic volume internally compared to 76% in the second quarter of last year. For the full year 2026, we continue to estimate domestic internal production will be over 90% compared to 86% last year. In procurement savings, our second quarter result benefited from lower negotiated pricing on certain packaging and ingredients. As discussed previously, procurement savings have been a significant contributor to our gross margin improvement over the last two years. While we expect some continuous benefit in 2026, the impact is expected to be more moderate versus 2025. In waste and network optimization, we are continuing to enhance our customer ordering and inventory management system. These efforts helped us to achieve high customer service levels, lower inventories, and improve our cash flow. In addition, we have reduced obsolete inventories 42% in the first half of this year. Revenue management capabilities were added this year as part of our margin agenda. These efforts are in early stages in 2026, with a more meaningful contribution expected in 2027. Turning to our 2026 guidance. We are maintaining our full year volume guidance range of down low single digits to down mid single digits. Fiscal week depletion trends for the first 29 weeks of 2026 have declined 5% year over year. Our volume range reflects varying assumptions for the pace of improvement in the second half. Based on our current total company trends, we would expect full year performance toward the lower end of the range. We believe our operating plans can drive improvement from current trend levels. However, the high end of the full year range would require stronger category and market share trends. In the second half, we expect continued strong growth from SunCruiser. Additionally, adjustments to the timing of our Samuel Adams seasonal transition as well as slightly more contribution from our innovation and international brands are expected to be volume tailwinds in the second half. We continue to expect price increases of between 1% to 2% and some additional benefits from mix. While managing through a dynamic volume and commodity environment, we are raising the low end of our full year gross margin guidance and maintaining our non-GAAP EPS guidance, driven by strong cost savings delivery and disciplined adjustments to our planned advertising investment. We do not hedge commodities and have updated our cost assumptions for freight and aluminum to reflect the current pricing environment. We are closely watching market cost changes and will update EPS outlook as we move through the year if commodity inflations continue to increase. Our updated gross margin guidance of 48.5% to 50% reflects tailwinds from positive pricing, favorable product mix, productivity savings, and lower shortfall fees, with headwinds from tariffs and commodity inflation. As a reminder, the majority of our freight expense is booked in advertising, promotional, and selling expenses. Our 2026 guidance continues to reflect the full year tariff cost estimate of $20 million to $30 million versus a partial year in 2025 of $11 million. These tariff cost estimates are based upon the tariffs that we are currently being charged by our suppliers and that we expect to continue going forward. As Jim noted, we have updated our outlook for advertising, promotional, and selling expenses and now expect them to be flat to up $20 million versus the prior year, compared to our previous expectation of an increase of $20 million to $40 million. This amount does not include any changes in freight costs for the shipment of products to our distributors. We may choose to spend at the lower end of our range depending on the commodities and energy cost environment and the returns we are seeing on our investments. We estimate our full year 2026 non-GAAP effective tax rate to be approximately 29% to 30% with non-GAAP EPS of $8.50 to $10.50. As you model out the year, please keep in mind the following factors. In 2025, we implemented supply chain improvements that enable more consistent distributor inventory levels. The impact of this change on prior year quarterly shipment flows combined with our expected timing of shipments to meet our customer demands in 2026 will affect the quarterly phasing of shipments in the second half of the year. We currently expect shipments in the third quarter to decline low to mid single digits followed by modest shipment growth in the fourth quarter. Due to the typical seasonality of our business, we expect the fourth quarter to have the lowest absolute gross margin of the year. However, year-over-year gross margin rate improvement is expected to be the most meaningful in the fourth quarter, driven by lower shortfall fees and volume performance. We typically expense the majority of our shortfall fees in the fourth quarter. The timing of this benefit together with the fact that the fourth quarter is a smaller dollar quarter has an outsized favorable impact on the gross margin rate. Advertising investment levels are expected to decline year over year in the fourth quarter as we have reduced investment levels in Truly, and we are lapping high investment levels in the fourth quarter of 2025, which included meaningful production costs associated with preparation for 2026 programming. Turning to capital allocation, we ended the quarter with a cash balance of $266 million and $150 million availability in our credit line. These balances together with our projected future operating cash flows enable us to maintain operating investments in our business and cash returns to shareholders as well as the potential litigation-related payments. We expect capital expenditures of between $60 million and $80 million in 2026, a reduction from our previous estimate of between $70 million and $90 million. These investments will be primarily related to our own breweries to build capabilities, improve efficiencies, and support innovations. We will continue to be disciplined in our capital spending as we monitor the dynamic industry environment over the long term. During the 26-week period ended 06/27/2026, and the period from 06/29/2026 through 07/17/2026, we repurchased shares in the amount of $48.5 million and $5.6 million. As of 07/18/2026, we had approximately $174 million remaining on the $1.6 billion share repurchase authorization. This concludes our prepared remarks, and now we will open the line for questions.
分析師問答
Thank you. On your telephone keypad, a confirmation tone will indicate your line is in the question queue. And due to the interest of time, we ask that each analyst limit themselves to one question and one follow-up. Thank you. And our first question comes from the line of Filippo Falorni with Citi. Please proceed.
Hi. Good afternoon, everyone. So, Jim, maybe to start: I would love to get your perspective on the volatility that we have seen in the industry. Obviously, gas prices had an impact in May. You have seen a bit of an improvement in June, and you mentioned also some of the events. At a big picture level, what are your expectations as you think about the balance of the summer and the balance of the year? Any signs of underlying improvement in July that give you some more optimism at the industry level? I'd love to hear your thoughts on the broader environment.
Sure. To me, all alcoholic beverages are under some pressure. Beer is certainly in that category. We are seeing, so far this year, basically beer being down maybe 3% depending on which data you are looking at. Beyond beer is doing better, again depending on the data, maybe down 1% or maybe flat, with a bright spot that is especially relevant to us of RTD spirits like SunCruiser. I think the big picture is we have seen some improvement in things that drove the category down 4% last year, so I do not think that will be repeated this year. We have seen less pressure in the Hispanic community. The sort of drumbeat of health issues saying beer causes cancer has been a little lessened with the new dietary guidelines. Hemp is still there and will be depending on what happens legislatively. It may go away, and I think most people are betting that is going to happen in the middle of November, though there are some rescue efforts and it is a very volatile environment. So the fundamental pressures are less, but they are still there. What we have seen starting maybe late in the first quarter, early in the second quarter this year, is economic pressure resulting from events in the Middle East and the loss of discretionary income. People's wages this year have not kept up with inflation, which means it has an amplified impact on discretionary income, and that has offset some of the macro trends. How long those economic pressures will be around, we do not know. I think a lot of people are assuming they will lessen before election day, but that is just anybody's guess. Bottom line: there may be 1% or 2% chronic long-term downward pressure on per capita consumption, somewhat offset by continuing premiumization. Does that help?
And then maybe one follow-up for Diego. You mentioned that on shipments and depletions, you are tracking towards the lower end of the range closer to the mid single for the year. Does that imply also towards the lower end on EPS, or should we think margins could offset some of the pressure on the top line? Just to clarify, if current trends continue, yes, the top line will be at the lower end. Not necessarily the same thing on EPS, and that is why we raised our guidance slightly on gross margin. I think we continue to deliver our savings, and we have the ability to flex some things like our investments in the back end of the year. So those are related, but a little independent. They are connected, but not one-to-one.
Our next question comes from the line of Peter Grom with UBS. Please proceed.
Great. Thank you. Good afternoon, everybody. Maybe just some perspective on the World Cup and the 250th anniversary. Heading into the year, there was a lot of optimism from the industry around the uptick in beer volume these events could provide. How did it play out relative to your expectations? It doesn't seem like there was a big uptick in the track data; maybe you saw more on-premise strength. Also, a housekeeping question on the cadence of shipments and depletions versus the back half of the year: what are you assuming from a category perspective? Is the fourth quarter improvement simply cadence of shipments and what you are lapping?
Sure. I will take the first half of that, Peter, and then hand it off to Diego. In terms of the big events of the summer—World Cup and America 250—I think there was a fair bit of optimism and that was justified in the piece of the business that was affected by those events. Take the World Cup: in Boston on-premise we saw tremendous numbers, like a 30% increase, which is very exciting. But when you step back, you have to remember for us on-premise is about 12% of our business. So that is exciting, but it does not really affect the other 88% of our business. For the World Cup, it materially affected roughly 11 major metros in the U.S., representing an order of magnitude maybe 30% of U.S. volume. So it was a significant event for on-premise in those host cities, but that piece is small in the overall company math. If you do the arithmetic, you are looking at less than half a percent of the annual business having been lifted materially. And if that was up 30%, it is nice for a while but not global across the whole beer business. In fact, the off-premise numbers for those weeks were not particularly exciting; they were down. So I think it had a big impact in a small part of the year and a small part of the total business. I think that was roughly true for America 250 as well; it was a big weekend. For us, it fell more in Q3 than Q2, so it is not in the Q2 numbers. Our Sam Adams trends were better during the last four weeks, so it did have a significant impact on a small part of the business.
And on the cadence question: within our assumptions, if current trends continue we will be toward the lower end of our guidance. We want to improve, so we are expecting our relative performance to improve and some improvement in the category. But the key drivers for the shipment component between Q3 and Q4 are more about lapping prior-year shipment flows related to installing our automated replenishment system, easier Twisted Tea comps in the second half, innovation launches this year such as Sinless and Lit, and a little more international volume in H2. So while better depletions would obviously help shipments, the Q4 uptick in shipments is driven more by those timing and comp factors.
The next question comes from the line of Eric Serotta with Morgan Stanley. Please proceed.
Great. Thanks for taking the questions. Jim, can you talk a bit about how you are thinking about SunCruiser growth in the second half as you cycle national distribution expansion which largely went in place before the summer of last year? And can you talk a bit about initiatives you are thinking about for next year for SunCruiser to keep the growth going into year three?
Yeah, good question. So far this year SunCruiser is up triple-digits, with that rate deteriorating slowly over the course of the year. It is still up at very high rates for the last 13 weeks. SunCruiser is not fully represented in the syndicated data because it is much bigger than the syndicated data indicates; it is very strong on-premise, which we think indicates fundamental brand strength, and the majority is sold in independents, many of whom are not tracked. So we see continued upside. We will continue to invest behind SunCruiser. It has linear TV behind it, digital and social, and we will keep investing at a high level. The reductions we have made to our overall advertising plan are not particularly affecting SunCruiser. We are continuing to feed the growth. For 2027, there will likely be some downshifting because this year we got into a lot of chains after distribution efforts in 2024 and 2025, so 2027 might not show the same step-up from new chain placements. I would anticipate well into the double-digits growth next year, and one way to think about it is combined Twisted Tea and SunCruiser volume: essentially the volume we have lost with Twisted Tea this year has been slightly more than offset by SunCruiser. SunCruiser is roughly 25% to 30% higher revenue per case than Twisted Tea, so it is revenue-accretive and margin-accretive.
And then just in terms of a follow-up, you have tried a lot of different things on Twisted Tea over the past 18 months—from marketing to extensions like light and extreme, to pricing and pack architecture. It does not seem to be moving the needle given the broader pressures. What is the playbook from here? Pricing does not seem to be stimulating significant volume; what are the things on tap for the second half?
One big element is we believe a lot of the loss of volume out of Twisted Tea went into spirits-based hard teas like SunCruiser and Surfside. As those spirits-based RTDs slow, we anticipate that will slow the loss of Twisted Tea drinkers into spirits-based tea and relieve some pressure. We have had success fixing pricing in markets where pricing got way too high relative to comparable beers—where a 12-pack of Twisted Tea was more expensive than a 12-pack of Stella, for example. In those markets we have seen trends turn from negative to positive, particularly on 12-packs. Our singles business, the second biggest package, is pretty strong and close to flat. We are growing with Twisted Tea Extreme and Twisted Tea Light, so there are significant pockets of growth within Twisted Tea which indicates brand health is reasonably good. Next year we will likely be modest in price increases on the 12-pack, trying to stabilize and reduce situations where pricing got ahead of the brand. Our advertising remains in place and we continue to advertise at the higher levels put in place in 2025.
The next question comes from the line of Bonnie Herzog with Goldman Sachs. Please proceed.
Alright. Thanks and hi everyone. I had a quick question on your guidance. You talked about pointing to the low end of your depletion and shipment guidance for the full year, and your depletions were down 5% year to date through last week. How big of a risk do you see for your depletions to possibly decrease further in the next several months, especially considering the incremental $18 million in advertising spend during Q3 that I am not sure drove the improvements you were looking for? Now you are planning on pulling back on spend—so trying to reconcile that.
We cannot control what the market will do. We have seen some improvements in the last couple of weeks that we think will help the market and the company. SunCruiser continues to drive very strong performance. We have seen some improvement in reaction to our Twisted Tea promotions and price adjustments. We have strong partnerships coming up in the back end of the year. So all of those pieces tell us there is an opportunity for improvement. That said, if current trends continue, we are on the low end, and that is why we have laid out the range. We also have two innovations—Lit and Sinless—that we are really happy with coming in the back end of the year, and a couple of other things we have not announced yet. Put all those pieces together and we feel comfortable where we are today. If the market were to improve significantly or deteriorate significantly, we would adjust. But at this point, we are comfortable with our guidance and do not believe there is a big risk of deterioration beyond our guidance.
We now have better metrics on the return on our advertising investment by brand and by media channel. The cuts we made were to the low-performing media where we were not seeing significant sales response, and those cuts were primarily in Truly. So while we reduced almost $20 million, it was almost all from basically nonperforming advertising.
Finally, to add, in the back end of the year our A&P spending is still planned to be up year on year. We might not take all the investment we previously expected, but the back half of the year will still be an increase versus the previous year in marketing and sales spend.
Okay. Thanks. And Jim, thanks for that callout. That is helpful. I will pass it on.
The next question will come from the line of Bill Kirk with Roth Partners. Please proceed.
Hey. Good evening, everyone. Jim, you mentioned innovation pipeline and talked about Sinless and Lit. First, what do you need to see in those products to decide to take them into more markets? Second, in the vacay/beach or cocktail segment, I believe you have some plans and labels out there—anything you are willing to share on the innovation pipeline in that subsegment?
Sure. I will start with Sinless. We are in about 30 states. It is in many of those states a whole new category—Carbliss had been in parts of the Midwest for years, and we are not focusing Sinless on those established Carbliss states. We think there is more volume from opening new territory; it is a new category in almost all of those 30 states and will take some development. So far, we have seen enough traction to be happy opening 30 states, but we are not going to expand it further until we see more; that expansion would be next year and might not be until the first half. With Lit, it is way too early to tell. Launching something in June or July is challenging because distributors have already set their programs and are busy with summer volume. August, September, and October we will begin to see more attention from wholesalers. We view Lit as a hand-sell product; it is not a chain product and needs special merchandising. It needs to be in the cooler and to have shock displays or inserts so consumers can notice and buy it. Retailers are supportive because the profit is high and we are getting wholesaler support. Margins are two to three times what you would get from higher-end beer, so it is a slow burn. We will know more early next year before we can get a reliable read on Sinless or Lit.
Excellent. If I follow up on one other thing you said, you mentioned the intoxicating hemp ban or looming ban. You have experience in Canada with cannabis—how do you think about the opportunity in the U.S. for similar products? Would you want intoxicating hemp beverages to see a carve-out from the looming ban?
I will give you the first part. We have had a THC business in Canada for five or six years; it is small because beverages are a small portion of THC delivery in Canada. We have a strong position in that niche with Teapot, so we have a product, a brand, and experience in Canada and have been reasonably successful within that small niche. We are ready and waiting for the federal government to tell us whether this is legal or not in the U.S. If it is legal and wholesalers and retailers want a product from us and are willing to support it, I think we can check those boxes. In terms of support or opposition, we are a beverage company; we make beer and ready-to-drink products and will wait for federal policy to be clear before we act.
Got it. Thank you.
This concludes the question-and-answer session. I would like to turn the call back over to C. James Koch for closing remarks.
Well, thanks, everybody, for joining us on what I hope is a beautiful summer day wherever you are. One thing we learned from the World Cup is that there is a lot of joy in going out and drinking some alcohol and having the social lubricant effect. So I will remind you in this America 250 year, to paraphrase Samuel Adams' drinking buddy Benjamin Franklin: beer is the best proof we have that God loves us and wants us to be happy. Cheers.
Thank you. This concludes today's conference. You may disconnect your lines at this time, and we thank you for your participation.