Corby Spirit and Wine Limited (CSWA) Earnings Call Transcript & Summary

Good morning, everyone, and thanks for being with us as we go through Corby Spirit and Wine's First Quarter Fiscal 2027 Results. If this is your first time on the call, I'm Florence Tresarrieu, President and CEO of Corby. Our Chief Financial Officer, Juan Alonso, is here with me today. Fiscal 2027 got off to a solid start for Corby, with RTDs continuing to grow and earnings improving even though the market environment has been challenging. Organic revenue rose +1%, helped by our RTD portfolio and higher commission income, which offset a soft domestic spirits market, while reported revenue fell -4%, a reflection of the Lamb's Rum brand sale. Adjusted net earnings climbed 18%, outpacing revenue by a wide margin. The gain came from improved gross margins on RTD brands and from investing in our brands with discipline, while cost remains a major priority. Thanks to robust cash generation, our balance sheet is in good shape, with net debt to adjusted EBITDA at 0.6 x — or 0.8 x once you include the CAD 18.7 million upfront fee tied to the Pernod Ricard representation agreement signed on October 1st, 2026. The board approved a quarterly dividend of CAD 0.25 per share, a 9% increase over Q1 last year; these results speak to how resilient our portfolio is, the caliber of our execution across many categories, and our ongoing commitment to building sustainable long-term value for shareholders. Even though that's a strong opening to the fiscal year, we're staying cautious because the spirits sector is still under pressure, the consumer landscape keeps shifting, and there are macro and geopolitical unknowns. Let's move to the market backdrop now. At the time we're reporting, full first quarter data for the Ontario market wasn't accessible. Ontario matters a great deal in Canada's spirits and RTD market, so showing results that leave Ontario out wouldn't give a fair picture of national trends. That's why the slides that follow use the most recent market data we have, covering the period through August 31st, 2026. Also, according to the LCBO’s November 6, 2026 update, Ontario figures for weeks one through 20 — covering April 1 to August 15 — are being reissued to correct known discrepancies, and that process should wrap up by the end of December 2026. Because of this, retail sales numbers could shift as those restatements come through. During the latest three-month stretch, which ended in August, the market has stayed difficult, and several of the FY 2026 tailwinds are returning to normal levels. Spirits overall fell 3.7%, and our spirits portfolio was down 6%. Ready-to-drink held up well, and Corby beat the category, while wine came in softer. We see this as normalization, since we were up against a very strong result a year ago, and our attention stays firmly on the long-term strength of the portfolio and the opportunities in front of us. On a rolling 12-month basis, Corby kept outpacing the market in all three categories; in spirits, we beat the market by 2.5% in spend. Our RTD portfolio grew 7.7 points — sorry, 5 points ahead of the category — while wine grew 6.3%. That demonstrates the benefit of a diversified portfolio and strong positions across categories, particularly in RTDs. If we look more closely at spirits, that category was still under pressure, yet Corby keeps performing ahead of the market. Across the rolling 12 months, we outperformed in the major spirits categories, with particularly strong relative performance in Canadian whisky, tequila, vodka, and rum. That reflects the strength of our brands and disciplined commercial execution, and we stay focused on continuing to gain share in a challenging market. In recent months, promotional activity in vodka has risen sharply. In Canadian whisky, we are also seeing a decline, since we lapped the strong growth from last year that followed the removal of U.S. products from shelves. Together, these factors account for some of the recent softness in our spirits portfolio. During the past year, share gains continued across our RTD brands, driven by innovation, solid commercial execution, and a wider route-to-market. Near term, Corby RTD brands continue to outperform while category growth has normalized. Across the country, Corby RTD volume rose +3.8% over the last six months, with market share reaching 10%. Cottage Springs remained the top RTD brand in Ontario, and Ace Beverage Group maintained strong momentum in Western Canada. The Canada Dry Mott's CDMI partnership also brought additional brands and comparable scale to our RTD portfolio. Innovation stays a priority. Cottage Springs and J.P. In Ontario, Wiser's and Canada Dry ranked among the top ready-to-drink innovations, demonstrating how we keep a close read on consumers and move fast when their tastes shift. Our strategic course is essentially the same. We'll continue putting investment behind our powerful brands and the chances to pick up share in spirits, speed up our standing in RTD, and pursue other appealing growth segments. We'll remain rigorous about price, promo spending, and expenses, even as we actively oversee the portfolio and steer resources toward where the upside is largest. Conditions in the market keep shifting, yet we have faith in our business's fundamentals and in our capacity to adjust, act with rigor, and generate lasting value over the long run. Having said that, I'll now pass things along to Juan, who will walk us through the financial results.

Thanks, Florence, and good morning to all of you. I'm Juan Alonso, the CFO of Corby, and I'll take you through the financial results. Before diving into the numbers, you'll see adjusted metrics and organic revenue growth referenced throughout this section. Our view is that these non-IFRS financial measures help support a clearer understanding of how the underlying business is performing and the trends behind it. Detailed explanations of each element appear in our Q1 FY 2027 MD&A, and I'd invite you to consult that document with any related questions. Corby posted a solid first quarter, with revenue of CAD 72.5 million, which is down -4% year-over-year, reflecting the sale of the Lamb's Rum brand on August 5th. Once you exclude the impact of that disposed brand, organic revenue was up 1%, lapping a very strong prior-year Q1 revenue increase of 16%; the result came from growth in the RTD portfolio, achieved despite a soft spirit market and a high prior-year base caused by the removal of U.S. products from shelves. Thanks to strategic investments behind key brands and diligent expense control, adjusted earnings from operation came to CAD 18.9 million, an increase of 15% year-over-year. Adjusted earnings per share reached CAD 0.46, up 18% year-over-year, and reported earnings per share came in at CAD 0.97, up 171% year-over-year, reflecting the inclusion of the gain on the sale of Lamb's; during Q1, Corby generated cash from operating activities of CAD 7.4 million, which is CAD 1.8 million above the same quarter a year earlier. Finally, the board approved a quarterly dividend of CAD 0.25 per share, representing an increase of CAD 0.02, or 9%, compared with the dividend declared in Q1 FY 2026. That reflects our confidence in the outlook and our ongoing commitment to shareholder returns. Now to the drivers behind our CAD 72.5 million of Q1 revenue, down 4% on a reported basis while up 1% organically. First, domestic case goods, which made up 82% of Corby's Q1 net sales performance, came in at CAD 59.4 million, a reported contraction of -3% but organic growth of +3% versus Q1 FY 2026. That was driven by continued growth in RTD brands, helped by price gains from markup changes in Ontario and Alberta, and partly offset by soft domestic spirits performance against a strong prior-year period. Total commissions represented 12% of Q1 net sales and amounted to CAD 9 million, up 10% versus the prior year, affected by the addition of KDP commissions and higher agency commissions under the Vinarchy representation agreement. That more than offset softer performance from Pernod Ricard brands. Finally, export revenue, which contributed 4% of total net sales, came in at CAD 3.2 million, a decrease of 35% on a reported basis versus Q1 FY 2026 and 44% on an organic basis. That reflected the transition to a new distributor in the U.S. market and unfavorable order phasing in Sweden and Turkey. Turning to the following slide, Corby posted solid Q1 adjusted earnings per share growth of 18%, which mirrors ongoing RTD revenue gains along with cost rationalization efforts. Total operating expenses fell 7%, largely a result of gross margin optimization across RTD brands and reduced overhead costs stemming from efficiency gains, even though one-time restructuring costs in Q1 had an impact; on that basis, Corby's Q1 adjusted earnings from operation came in at CAD 18.9 million, up 15% year-over-year, while reported earnings from operation reached CAD 35.9 million, up 118% year-over-year, a figure affected by recognition of a one-time gain on the sale of Lamb's. During Q1, Corby brought in cash from operating activities of CAD 7.4 million, which is CAD 1.8 million above the same quarter a year ago. That steady cash flow generation reflects higher earnings and anticipated seasonal movements in working capital balances, particularly accounts receivable and inventory, partly offset by somewhat larger tax payments. Free cash flows take in proceeds of CAD 37.4 million from sales of the Lamb's Rum brand during the quarter, net of costs tied to the transaction. Our net debt position stood at CAD 51.6 million, helped by the proceeds from the Lamb's Rum brand sale in the period. Consequently, net debt to adjusted EBITDA came down to 0.6 x from 1.3 x at the close of Q4 FY 2026, which shows a solid solvency position and strengthens our financial health. As noted earlier, on October 1st, 2026, after the period ended September 30, 2026, Corby paid the upfront fee of CAD 18.7 million tied to the representation agreement with Pernod Ricard. Once that cash outlay is taken into account, Corby's net debt to EBITDA ratio sits at 0.8 x. Our Q1 results show what a diversified portfolio, disciplined execution, and a clear strategy can achieve. Before handing things back to Florence, here's a quick look at what lies ahead for Corby. Corby is well-positioned to keep driving earnings growth and delivering shareholder returns, even with a tougher comparison base after its strong FY 2026 performance. We also think we could narrow the gap between earnings growth and revenue growth over the quarters ahead. Our RTD portfolio continues to be a major growth engine, and we see considerable potential to expand throughout Canada, led by strong traction from ABG. In our own spirits, we aim to keep fighting for market share even as the category declines. Our diversified portfolio, leading brands, and strong local footholds keep supporting our resilience in a dynamic market. In Ontario, we will keep capitalizing on route-to-market modernization, meeting shifting consumer preferences with agility and breadth, taking a nimble approach to navigate softer spirits retail store traffic and pricing pressure resulting from the removal of the minimum pricing. On the financial side, we remain focused on protecting margins and disciplining investments to drive profitable growth. Now, back to Florence for closing remarks.

Thank you very much, Juan. As we look ahead, our confidence in the fundamentals of the business remains intact, even while we maintain a cautious stance on the market. Corby's portfolio is diversified, with leading brands spanning spirits, RTDs, and wine, supported by our partnership with Pernod Ricard and strong positions throughout Canada; we have demonstrated an ability to adapt to changing market conditions, to invest behind the areas offering the greatest potential, and to execute with discipline; with a solid balance sheet and ongoing momentum in RTDs, we are well-positioned to invest for future growth while delivering attractive returns to shareholders. In the end, our focus stays the same: building a stronger, more resilient business and creating sustainable long-term value. Thank you again for being with us today. Juan and I are glad to field some questions from you now. I notice a few have already come in on the chat, so we're ready to address them. What I'll do is read each one aloud and pass it along to Juan as well. First up is Nick Corcoran from Acumen: Polar Ice lagged the market this quarter — will you put money into pricing to chase volume, or defend margin and hold the share you have? I'll take a first pass at that, and then Juan can add more. On the Polar Ice results, I'd say we're not pleased, and Corby's leadership is treating it as a top priority — we need to get volume growing again, or at minimum turn the trend around, without giving up profit.

Right, so we look at this as a strategy across the whole portfolio. If certain brands need a response in order to protect volume, then we'll take that action, and we have other brands that can make up for it and offset the impact; what we're seeing today is the margin improvement in the ready-to-drink segment, and that ties to the second question. I'll go ahead and read the second question.

Yeah.

Nick also noted solid margin results during the quarter. What trajectory should we anticipate for margins over the rest of the year? We certainly saw a really robust gain in margin compared with Q1. The key point to emphasize first is that Q1 of last year, specifically for RTD, represented a weak starting point regarding margin performance because of certain technical events in that Q1. We are seeing a substantial margin gain, and in the first quarter our earnings are rising well above revenue. Looking at the quarters ahead, we plan to hold the margin we achieved this quarter, though the difference between earnings growth and revenue growth will likely shrink; we won't be able to push earnings so far ahead of revenue the way we did in Q1, since we will already be lapping some strong quarters when it comes to margin improvement.

Thank you. I’m not sure whether any further questions have come in, either in the chat or over the phone. If you do have any, we’d be very glad to take them.

Hi.

Hello?

Hello, is this coming through for you?

Yeah, we're able to hear you now.