In December, L3T suggested that Winc, Inc. (NYSE American: WBEV) could be a stock that will keep on giving in 2022. So far, that's the case. Shares since the beginning of 2022 are higher by more than 55%, trading on Thursday at $8.15. The better news is that the trend higher is well intact. In fact, at current levels, WBEV stock is trading above levels not seen since the first week in December of last year. And with Canaccord Genuity initiating coverage on Thursday with a BUY rating and $14 price target, the tailwind pushing shares higher has just reached gale force.
The jump in price and bullish opinion is easily justified. Frankly, based on WBEV revenue growth, the stock should have stayed closer to its $13 IPO price reached last November. However, through no fault of its own, the combination of the pressures sometimes associated with a newly listed stock and a perfect storm of economic and logistical chain weakness drove most small-caps lower, also keeping WBEV shares under pressure into year-end. But, new year, new money is put to work. And the trend indicates that investors are again embracing the WBEV story.
That's a wise decision. Remember that WBEV delivered an impressive across-the-board Q3, announced a significant expansion in its wholesale markets, and provided guidance suggesting they are better positioned than ever to score record-setting revenues in Q4 and 2022. Those numbers, or perhaps just an interim glimpse, could come any day.
That's not all. Investors may get a status update on the potential for WBEV to add at least three new labels to its core wine brands, a move that could strengthen a revenue-generating tailwind that delivered more than 106% growth in its wholesale segment. If brands get added sooner than later, they will contribute to the $18 million in revenues generated last quarter. And after expanding its organic wines SKUs into major national retailers, including Walmart, Whole Foods, Albertsons, HEB, Central Market, and HyVee, in Q4, with or without them, expect its Q3 numbers to look conservative in the new year.
Frankly, after completing a $22 million IPO in November, WBEV indeed has the cash, resources, product, and business model to inspire potentially exponential growth. Analysts agree.
Meet The Millennials
It's important to keep in mind that WBEV's triple-digit-percentage growth in its wholesale business wasn't by happenstance; they earned it. Moreover, WBEV continues to meet unprecedented consumer demand for its growing arsenal of wine brands, and with a capital war chest to maximize production capacity, the impressive growth may become habitual. In addition, as one of the fastest-growing at-scale wineries in the United States, particularly targeting a North American organic wine market expected to reach $3.9 billion in the next five years, they won't be short of opportunities.
Better yet, the opportunities in play are both near and long-term, making the WBEV value proposition more than attractive; it's compelling. It's also timely, with WBEV accelerating its penetration into an organics market growing at an estimated 11.6% per year. And as consumers' preferences shift toward healthier, naturally-produced chemical-free products at a faster pace than ever, WBEV is indeed in the right markets at the right time. Not only that, they are focused on the right customer.
There, WBEV is doing more than meeting a surge in demand; it's targeting the consumers wanting it the most- millennials. That's based on a Wine Intelligence Report published in March indicating that organic wine was the highest opportunity type of wine among younger consumers. And with WBEV's direct-to-consumer ("DTC") customer base comprised of 76% millennials, its omnichannel sales model provides an enormous conduit to reach that group on the retail side as well. That's an important distinction between WBEV and its competitors, and it's also an advantage.
Omnichannel Sales Model Expands Reach
Moreover, that advantage is strengthened by WBEV acquiring assets from Natural Merchants, which took Winc's organic offerings from 18 to 48 during 2021. And from an ROI perspective, it's paying off well, helping to increase organic wine sales in its DTC channel by 19.8% year-over-year through December 8, 2021. That increase far outpaced non-organic SKUs, with WBEV saying that organics accounted for nearly two-thirds of its SKUs sold in Q3 2021. The best part of the acquisition is that it positions WBEV to leverage its omnichannel business model to continue that acceleration in sales.
Actually, 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 for Q4 and 2022 is bullish, with WBEV intent to drive growth in its organic portfolio across DTC and wholesale channels. And by scaling supplier relationships and enhancing its brand portfolio with its organic Prosecco, an orange wine, and non-alcoholic wine, increases across multiple sales channels may come faster than expected.
Remember, too, that the robust guidance for 2022 added to an impressive Q3, which gives investors plenty of reasons to take advantage of share prices that, despite its 55% gains, appear to undervalue WBEV's assets, sales, and guidance appreciably. Indeed, there's a lot to like.
Revenues Spike To $18.5 Million
Foremost, total net revenues in the quarter jumped to $18.5 million, an increase of about 3.4% that met the high end of its pre-IPO guidance and came during one of the most challenging business periods in U.S. history. Also, while the percentage increase may not dazzle, it's important to note that its comparative period benefited from an unprecedented quarter where most retailers, and consumers, were forced to turn to DTC channels due to COVID-related restrictions. Thus, that 3.4% comparative increase is paired to a quarter impacted positively by the surge in DTC sales. Hence, it's more than fair to put that comp in perspective and say it was indeed impressive.
Also impressive is that WBEV's wholesale revenues soared by 106.9% to $5.5 million, a continuation of strength started in 2020. Even better, growth isn't slowing. 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%.
The excellent news is that guidance calls for more of the same.
Retail Relationships Pass 11,476
That bullish sentiment is justified, especially with WBEV inking new retailer deals that expand the number of locations where customers can find its products. Those new relationships, by the way, combined 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, positions WBEV to post potentially exponential revenue increases from its wholesale channel.
Keep in mind, too; those five retailers are a tiny representation of its client base. Winc's active retail account list was noted to stand at 11,476. While impressive, Winc says it's a starting point, with the company setting a goal to reach at least 50,000 active retail accounts within the next few years. Notably, don't under-appreciate that jump to the 11,476 level; it represented a 53% spike compared to Q2 2020. Of course, WBEV wouldn't earn that attention without offering the right products. Winc does.
Sales growth is proof. Winc's five core brands grew to a total of 44,797 cases, a 34% increase over the comparative period. And 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.
Adding three is a big deal, especially when targeting millions of new and existing clients. But more importantly, 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.
Winc noted, in fact, 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, and considering its highly competitive growth rate at existing placements, that's likely.
Toasting In 2022
Perhaps the best part of the WBEV investment proposition is that while 2021 has been excellent, 2022 could be transformative. WBEV guidance certainly indicates that could be the case. In addition, the metrics support the bullish proposition, with Winc's average order volume being higher by about 15% compared to 2020. That provides a revenue-generating tailwind heading into 2022.
Then, factor in WBEV's completing its $22 million IPO last month, having a solid balance sheet, and more than $18 million in cash and less than $7 million in total debt, WBEV is ideally positioned to steepen its growth trajectory. Notable, 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, as has been the case, when WBEV posts good news, there is often little resistance to the upside.
One more thing, which investors should embrace. Winc is positioned to accelerate growth despite global logistical headwinds. Unlike some in its sector, WBEV said it secured the glass for bottling, enjoyed a great harvest, and has adequate labor to meet rising demand. Those operating assets coupled with surging consumer demand are a recipe for immediate and long-term success.
Hence, while 2021 was an excellent year, 2022 is set to be an even better one. And coverage from leading analysts is indeed developing a bullish tone right out of the gate. In all likelihood, they see what others should- WBEV is a company in motion executing its strategy to penetrate multiple markets with its highly-rated products. Thus, toasting in advance of meeting those expectations and its results may be a wise consideration.
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